NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
As of June 30, 2020, the Company was the owner of 50% of outstanding shares of the following companies.
|
SPC
|
Date of
Incorporation
|
Country of
Incorporation
|
Vessel
|
Built Date
|
1
|
City of Athens Pte. Ltd.
|
November 2016
|
Singapore
|
M/T Eco Holmby Hills*
|
March 2018
|
2
|
Eco Nine Pte. Ltd.
|
March 2015
|
Singapore
|
M/T Eco Palm Springs*
|
May 2018
|
3
|
California 19 Inc.
|
May 2019
|
Marshall Islands
|
M/T Eco Yosemite Park
|
March 2020
|
4
|
California 20 Inc.
|
May 2019
|
Marshall Islands
|
M/T Eco Joshua Park
|
March 2020
|
*The M/T Holmby Hills and the M/T Palm Springs were sold on March 26 and 17 April, 2020 respectively (see Note 13)
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial
information. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements. These statements and the accompanying notes should be read in conjunction with the Company's Annual Report on Form
20-F for the fiscal year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission (the "SEC") on April 10, 2020.
These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments,
which include only normal recurring adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the periods presented. Operating results for the six months ended June 30,
2020 are not necessarily indicative of the results that might be expected for the fiscal year ending December 31, 2020.
On March 11, 2020, the World Health Organization declared the recent novel coronavirus ("COVID-19") outbreak a pandemic. In response to the pandemic, many countries, ports and organizations,
including those where the Company conducts a large part of its operations, have implemented measures to combat the pandemic, such as quarantines and travel restrictions. Such measures have caused and will likely continue to cause severe trade
disruptions. The extent to which COVID-19 will impact the Company's results of operations and financial condition, including possible vessel impairments, will depend on future developments, which are highly uncertain and cannot be predicted,
including new information which may emerge concerning the severity of the virus and the actions to contain or treat its impact, among others. Accordingly, an estimate of the impact cannot be made at this time.
On May 6, 2020, the Company acquired for $18,000 from a company affiliated with the Company's CEO and President, Mr. Evangelos J. Pistiolis, a 100% ownership interest in three Marshall Island companies that each had
a newbuilding contract for the construction of one scrubber-fitted 50,000 dwt eco MR product/chemical tanker, all currently under construction in Hyundai Mipo shipyard in South Korea, with attached time charters. The vessels, M/T Eco Van Nuys (Hull
No 2789), M/T Eco Santa Monica (Hull No 2790) and M/T Eco Venice Beach (Hull No 2791) are scheduled to be delivered in the first quarter of 2021. Each of the three product tankers have time charters with Central Tankers Chartering Inc, a company
affiliated with Mr. Evangelos J. Pistiolis, for a firm term of five years plus two additional optional years (Note 5). Of the consideration payable, $16,850 was paid in the six months ended June 30, 2020 and the remaining $1,150 is included in Due
to related parties in the accompanying unaudited interim condensed consolidated balance sheets.
On May 28, 2020, the Company acquired for $22,000 from a company affiliated with Mr. Evangelos J. Pistiolis, or the Suezmax Seller, a 50% ownership interest in two Marshall Island companies (the "SPVs") that each had
a newbuilding contract for the construction of one scrubber-fitted 157,000 dwt eco Suezmax tanker, M/T Eco West Coast (Hull No 865) and M/T Eco Malibu (Hull No 866), both currently under construction in Hyundai Heavy Industries shipyard in South
Korea, with attached time charters. The two tankers are scheduled to be delivered in February and May 2021 respectively. The Company had the option to acquire the other 50% ownership interest in both vessels from the Seller at the same price until
July 15, 2020. On June 18, 2020, the Company exercised both purchase options for a consideration of $22,000. Upon their delivery, both vessels will enter into time charters with a major oil trader, for a firm term of three years plus two additional
optional years. The full amount of the consideration was paid in the six months ended June 30, 2020.
Each of the abovementioned acquisitions was approved by a special committee of the Company's board of directors (the "Special Committee"), of which all of the directors were independent and for each acquisition the
Special Committee obtained a fairness opinion relating to the consideration of each transaction from an independent financial advisor. The Company accounted for the abovementioned acquisitions as a transfer of assets between entities under common
control and has recognized the vessels at their historical carrying amounts at the date of transfer.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
The amount of the consideration given in excess of the historical carrying value of the net assets acquired in the six months ended June 30, 2020 amounted to $62,000 and is recognized as a reduction to the Company's
additional paid in capital and presented as Excess of consideration over the carrying value of acquired assets in the Company's accompanying unaudited interim condensed consolidated statement of stockholders' equity
On August 7, 2020, the Company announced it would effect a 1-for-25 reverse stock split of its common stock in order to regain compliance with the Nasdaq minimum bid price requirement. There will be no change in the
number of authorized common shares of the Company, or the floor price of the Company's Series E Shares, or the number of votes of the Company's Series D Shares. All numbers of common share and earnings per share amounts, as well as warrant shares
eligible for purchase under the Company's warrants, exercise price of said warrants and conversion prices of the Company's Series E Shares, in these unaudited interim condensed consolidated financial statements have been retroactively adjusted to
reflect the 1-for-25 reverse stock split. The reverse stock split is expected to be effective on August 10, 2020.
|
2.
|
Significant Accounting Policies:
|
A discussion of the Company's significant accounting policies can be found in the Company's annual financial statements for the fiscal year ended December 31, 2019 which have been filed with the US Securities and
Exchange Commission on Form 20-F on April 10, 2020. There have been no changes apart from the below to these policies in the six months ended June 30, 2020.
At June 30, 2020, the Company had a working capital deficit of $20,584 and cash and cash equivalents of $11,611 (inclusive of restricted cash) and for the six months ended June 30, 2020 incurred a net loss of $2,868
and had a negative cash flow from operations of $278. In addition as of June 30, 2020, the Company via the wholly owned subsidiaries had remaining contractual commitments to the shipyard for the vessels under construction, totaling $209,777, of
which $15,516 is payable in the third quarter of 2020, $23,517 in the fourth quarter of 2020, $85,030 in the first quarter of 2021 and $85,714 in the second quarter of 2021. All of the amount payable in the third quarter of 2020 has been settled as
of the date of issuance of these unaudited interim condensed consolidated financial statements. The Company had no committed undrawn loan facilities as of June 30, 2020.
The Company expects to finance its working capital deficit with cash on hand, and operational cash flow to be generated based on the contracted chartered agreements. The Company intends to finance its capital
commitments with equity issuances and with debt financing. Based on ongoing discussions with different financing institutions, the Company believes that it will be able to obtain a portion of the necessary financing and the Company has a track
record of successfully financing its vessel purchases. If the Company is unable to arrange any debt or equity financing, it is probable that the Company may also consider selling operating vessels or shipbuilding contracts. In addition the capital
commitments noted above are non-recourse to the Company as the commitments are made by wholly owned subsidiaries whose performance is guaranteed by Central Mare Inc, a related party affiliated with the family of Mr. Evangelos J. Pistiolis.
Therefore, the Company believes it has the ability to continue as a going concern and finance its obligations as they come due over the next twelve months following the date of the issuance of these unaudited interim
condensed consolidated financial statements. Consequently, these unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business.
4.a Advances
for vessels under construction:
Advances for vessels under construction comprise: (also see Note 1):
|
|
Advances for vessels under construction
|
|
Balance, December 31, 2019
|
|
|
12,241
|
|
— Advances paid
|
|
|
89,442
|
|
— Capitalized expenses
|
|
|
972
|
|
— Transferred to Vessels, net
|
|
|
(76,959
|
)
|
Balance, June 30, 2020
|
|
|
25,696
|
|
On February 10 and February 17, 2020 the Company took delivery of M/T Eco Los Angeles and M/T Eco City of Angels respectively from Hyundai Mipo Dockyard and hence advances paid and capitalized expenses relating to
these vessels were transferred from Advances for vessels under construction to Vessels, net.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
4.b Vessels,
net:
The balances in the accompanying unaudited interim condensed consolidated balance sheets are analyzed as follows:
|
|
Vessel Cost
|
|
|
Accumulated Depreciation
|
|
|
Net Book Value
|
|
Balance, December 31, 2019
|
|
|
372,543
|
|
|
|
(18,597
|
)
|
|
|
353,946
|
|
— Transferred from advances for vessels under construction
|
|
|
76,959
|
|
|
|
-
|
|
|
|
76,959
|
|
— Disposals
|
|
|
(66,599
|
)
|
|
|
5,538
|
|
|
|
(61,061
|
)
|
— Depreciation
|
|
|
-
|
|
|
|
(7,172
|
)
|
|
|
(7,172
|
)
|
Balance, June 30, 2020
|
|
|
382,903
|
|
|
|
(20,231
|
)
|
|
|
362,672
|
|
The Company's vessel's titles have been transferred to their respective financing banks under the vessel's sale and leaseback agreements as a security.
On January 14, January 21, February 21 and March 19, 2020 the Company sold the M/T Eco Revolution, M/T Eco Fleet, M/T Stenaweco Elegance and M/T Eco Palm Desert respectively to unaffiliated third parties (see Note
14).
|
5.
|
Transactions with Related Parties:
|
(a) Central Mare– Executive Officers and Other Personnel Agreements: On
September 1, 2010, the Company entered into separate agreements with Central Mare, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, pursuant to which Central Mare provides the Company with its executive officers and other
administrative employees (Chief Executive Officer, Chief Financial Officer, Chief Technical Officer and Chief Operating Officer).
The fees charged by Central Mare for the six months ended June 30, 2019 and 2020 are as follows:
|
Six Months Ended June 30,
|
|
|
2019
|
2020
|
Presented in:
|
Executive officers and other personnel expenses
|
180
|
180
|
General and administrative expenses - Statements of comprehensive loss
|
Amortization of awarded shares
|
(17)
|
(17)
|
Management fees - related parties - Statements of comprehensive loss
|
Total
|
163
|
163
|
|
(b) Central Shipping Inc ("CSI") – Letter Agreement and Management Agreements: On
January 1, 2019, the Company entered into a letter agreement with CSI, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, which detailed the services and fees for the management of the Company's fleet.
The fees charged by and expenses relating to CSI for the six months ended June 30, 2020 are as follows:
|
Six Months Ended June 30,
|
|
|
2019
|
2020
|
Presented in:
|
Management fees
|
108
|
31
|
Capitalized in Vessels, net / Advances for vessels under construction –Balance sheet
|
1,013
|
1,063
|
Management fees - related parties -Statements of comprehensive loss
|
Supervision services fees
|
44
|
22
|
Capitalized in Vessels, net / Advances for vessels under construction –Balance sheet
|
Superintendent fees
|
97
|
49
|
Vessel operating expenses -Statements of comprehensive loss
|
164
|
73
|
Capitalized in Vessels, net / Advances for vessels under construction –Balance sheet
|
Accounting and reporting cost
|
120
|
150
|
Management fees - related parties -Statements of comprehensive loss
|
Commission for sale and purchase of vessels
|
-
|
3,377
|
Management fees - related parties -Statements of comprehensive loss
|
-
|
1,123
|
Gain from vessel sales -Statements of comprehensive loss
|
-
|
453
|
Capitalized in Investments in unconsolidated joint ventures –Balance sheet
|
Commission on charter hire agreements
|
370
|
413
|
Voyage expenses - Statements of comprehensive loss
|
Total
|
1,916
|
6,754
|
|
For the six months ended June 30, 2019 and 2020, CSI charged the Company newbuilding supervision related pass-through costs amounting to $463 and $350 respectively, which are not included in the
table above and are presented in Vessels, net / Advances for vessels under construction in the Company's accompanying unaudited interim condensed consolidated balance sheets.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
(c) Charter Party with Central Tankers Chartering Inc ("Central Tankers Chartering"): On May 4, 2020 the Company
entered into a time charter party with Central Tankers Chartering, a related party affiliated with the family of Mr. Evangelos J. Pistiolis, for the vessels M/T Eco Van Nuys, M/T Eco Santa Monica and M/T Eco Venice Beach. The time charters are for
a firm period of five years at a daily rate of $16,200 with two optional years at daily rates of $17,200 and $18,200 respectively, at Central Tankers Chartering's option and will commence upon each vessel's delivery from the shipyard in the first
quarter of 2021.
(d) Issuances of Series E Shares to Family Trading Inc ("Family Trading") and redemptions of Series E Shares: Please
see Note 12.
(e) Vessel Acquisitions from affiliated entities: Please see Notes 1 and 13.
Lease arrangements, under which the Company acts as the lessor
Charter agreements:
As of June 30, 2020, the Company operated three vessels (M/T Stenaweco Energy, M/T Stenaweco Evolution and M/T Stenaweco Excellence) under time charters with Stena Bulk A/S, two vessels (M/T Eco Bel Air and M/T Eco
Beverly Hills) under time charters with BP Shipping Limited, one vessel (M/T Eco California) under a time charter with Shell Tankers Singapore Private Limited, one vessel (M/T Nord Valiant) under a time charter with Dampskibsselskabet Norden A/S,
one vessel (M/T Marina Del Ray) under a time charter with Cargill International SA and two vessels (M/T Eco Los Angeles and M/T Eco City of Angels) under time charters with Trafigura Maritime Logistics Pte Ltd.
Furthermore the Company has entered into time charter parties for its newbuilding vessels M/T Eco Van Nuys, M/T Eco Santa Monica and M/T Eco Venice Beach with Central Tankers Chartering Inc, a company affiliated with
Mr. Evangelos J. Pistiolis and M/T Eco West Coast and M/T Eco Malibu with Clearlake Shipping Pte Ltd.
Future minimum time-charter receipts of the Company's vessels in operation as of June 30, 2020, based on commitments relating to non-cancellable time charter contracts as of June 30, 2020, are as follows:
Year ending December 31,
|
Time Charter receipts
|
2020
|
31,900
|
2021
|
45,641
|
2022
|
24,046
|
2023
|
7,245
|
2024
|
1,178
|
Total
|
110,010
|
Future minimum time-charter receipts of the Company's vessels under construction as of June 30, 2020, are as follows (based on estimated delivery dates):
Year ending December 31,
|
Time Charter receipts
|
2021
|
34,381
|
2022
|
42,523
|
2023
|
42,523
|
2024
|
23,661
|
2025
|
17,739
|
2026
|
2,268
|
Total
|
163,095
|
In arriving at the minimum future charter revenues, an estimated 20 days off-hire time to perform scheduled dry-docking in the year the drydocking is expected on each vessel has been deducted, and it has been assumed
that no additional off-hire time is incurred, although there is no assurance that such estimate will be reflective of the actual off-hire in the future.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
Details of the Company's credit facilities are discussed in Note 8 of the Company's annual financial statements for the year ended December 31, 2019 and changes in the six months ended June 30, 2020 are discussed
below.
Bank / Vessel(s)
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2020
|
|
Total long term debt:
|
|
|
|
|
|
|
Alpha Bank Facility (M/T Stenaweco Elegance), including Alpha Bank Top-Up Facility
|
|
|
20,075
|
|
|
|
-
|
|
AT Bank Facility (M/T Eco Palm Desert)
|
|
|
21,875
|
|
|
|
-
|
|
AT Bank Bridge Note (Top Ships)
|
|
|
10,500
|
|
|
|
-
|
|
OFI Facility (M/T Stenaweco Energy, M/T Stenaweco Evolution and M/T Stenaweco Excellence)
|
|
|
69,849
|
|
|
|
67,191
|
|
CMBFL Facility (M/T Eco Bel Air and M/T Eco Beverly Hills)
|
|
|
88,560
|
|
|
|
85,620
|
|
BoComm Leasing Facility (M/T Nord Valiant and M/T Eco California)
|
|
|
44,466
|
|
|
|
43,455
|
|
Cargill Facility (M/T Eco Marina Del Ray)
|
|
|
30,962
|
|
|
|
30,054
|
|
AVIC Facility (M/T Eco Los Angeles and M/T Eco City of Angels)
|
|
|
-
|
|
|
|
59,088
|
|
Total long term debt
|
|
|
286,287
|
|
|
|
285,408
|
|
Less: Deferred finance fees
|
|
|
(7,257
|
)
|
|
|
(6,755
|
)
|
Total long term debt net of deferred finance fees
|
|
|
279,030
|
|
|
|
278,653
|
|
|
|
|
|
|
|
|
|
|
Presented:
|
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
|
16,908
|
|
|
|
16,843
|
|
Long term debt
|
|
|
262,122
|
|
|
|
261,810
|
|
|
|
|
|
|
|
|
|
|
Debt related to Vessels held for sale:
|
|
|
|
|
|
|
|
|
ABN Facility (M/T Eco Fleet and M/T Eco Revolution)
|
|
|
30,300
|
|
|
|
-
|
|
Less: Deferred finance fees
|
|
|
(323
|
)
|
|
|
-
|
|
Debt related to Vessels held for sale net of deferred finance fees
|
|
|
29,977
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Debt net of deferred finance fees and debt discounts
|
|
|
309,007
|
|
|
|
278,653
|
|
As of June 30, 2020 the applicable one-month LIBOR was 0.30%.
As of June 30, 2020, the Company was in compliance with all debt covenants with respect to its credit facilities. The fair value of debt outstanding on June 30, 2020 amounted to $296,517 when valuing the Cargill,
BoComm, AVIC and CMBFL Sale and Leasebacks on the basis of the Commercial Interest Reference Rates ("CIRR"s) as applicable on June 30, 2020, which is considered to be a Level 2 item in accordance with the fair value hierarchy.
ABN Facility
The ABN Facility was fully prepaid on January 21, 2020 using $29,475 of proceeds from the sale of the M/T Eco Revolution and M/T Eco Fleet.
Alpha Bank Facility and Alpha Bank Top-Up Facility
The Alpha Bank Facility together with the Alpha Bank Top-Up Facility were fully prepaid on February 21, 2020 using $19,888 of proceeds from the sale of the M/T Stenaweco Elegance representing the outstanding balance
on February 21, 2020.
AT Bank Senior Facility and AT Bank Bridge Note
The AT Bank Senior Facility together with the and AT Bank Bridge Note were fully prepaid on March 19, 2020 using $32,375 of proceeds from the sale of the M/T Eco Palm Desert.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
|
8.
|
Commitments and Contingencies:
|
Legal proceedings:
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. As part of the normal course of operations, the
Company's customers may disagree on amounts due to the Company under the provision of the contracts which are normally settled through negotiations with the customer. Disputed amounts are normally reflected in revenues at such time as the Company
reaches agreement with the customer on the amounts due.
On August 1, 2017, the Company received a subpoena from the U.S. Securities and Exchange Commission ("SEC") requesting certain documents and information in connection with offerings made by the Company between
February 2017 and August 2017. The Company provided the requested information to the SEC in response to that subpoena. On September 26, 2018 and on October 5, 2018 the Company received two additional subpoenas from the SEC requesting certain
documents and information in connection with the previous subpoena the Company received on August 1, 2017. The Company provided the requested information to the SEC in response to these subpoenas. The SEC investigation is ongoing and the Company
continues to cooperate with the SEC in its investigation. The Company is unable to predict what action, if any, might be taken by the SEC or its staff as a result of this investigation or what impact, if any, the cost of responding to the SEC's
investigation or its ultimate outcome might have on the Company's financial position, results of operations or liquidity. Hence the Company has not established any provision for losses relating to this matter.
On August 23, 2017, a purported securities class action complaint was filed in the United States District Court for the Eastern District of New York (No. 2:17-cv-04987(JFB)(SIL)) by Christopher Brady on behalf of
himself and all others similarly situated against (among other defendants) the Company and two of its executive officers. The complaint is brought on behalf of an alleged class of those who purchased common stock of the Company between January 17,
2017 and August 22, 2017, and alleges that the Company and two of its executive officers violated Sections 9, 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On August 24, 2017, a second purported
securities class action complaint was filed in the same court against the same defendants (No. 2:17-cv-05016 (JFB)(SIL)) which makes similar allegations and purports to allege violations of Sections 10(b) and 20(a) of the Exchange Act and Rule
10b-5 promulgated thereunder. By order dated July 20, 2018, the court consolidated the two actions under docket no. 2:17-cv-04987 and appointed lead plaintiffs for the consolidated action. On September 18, 2018, the plaintiffs filed a consolidated
amended complaint. The amended complaint purports to be brought on behalf of shareholders who purchased the common stock of the Company between November 23, 2016 and April 3, 2018, makes allegations similar to those made in the original complaints,
seeks similar relief as the original actions, and alleges that some or all the defendants violated sections 9, 10(b), 20(a), and/or 20A of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. All defendants filed motions to
dismiss the amended complaint on March 25, 2019. Plaintiffs filed a consolidated opposition to defendants' motions to dismiss on May 24, 2019. Defendants filed replies in further support of the motions to dismiss on June 28, 2019. In a Memorandum
Decision and Order dated August 3, 2019, the Court granted defendants' motions to dismiss under Rule 12(b)(6) and denied Plaintiffs' request for leave to amend. On August 7, 2019, the Court entered judgment dismissing the case. Plaintiffs filed a
notice of appeal on August 26, 2019. Plaintiffs/appellants filed their opening brief on the appeal on October 25, 2019. Defendants/appellees filed their response briefs on November 26 and November 27, 2019, and plaintiffs/appellants filed their
reply brief on December 11, 2019. The Second Circuit Court of Appeals (the "Court of Appeals") held oral argument on March 10, 2020 and took the matter under advisement. On April 2, 2020, the Court of Appeals issued a summary order affirming the
District Court's decision dismissing Plaintiffs' claims and denying leave to amend. The Court of Appeals was scheduled to issue a mandate making the decision effective on April 23, 2020 if Plaintiffs didn't file a motion for reargument. Due to
COVID-19, this deadline was extended to May 7, 2020. The Plaintiffs did not file a motion for reargument and the Second Circuit issued its mandate on May 14, 2020 upholding the decision of the United States District Court for the Eastern District
of New York. The Supreme Court has extended the deadline for parties to file cert petitions asking the Court to hear an appeal to 150 days from the date of the lower court judgment. As a result, the deadline for Plaintiffs to file a cert petition
with the Supreme Court is now August 30, 2020. The Company and its management believe that the allegations in the complaints are without merit and plan to vigorously defend themselves against the allegations.
Other than the cases mentioned above, the Company is not a party to any material litigation where claims or counterclaims have been filed against the Company other than routine legal proceedings incidental to its
business.
Capital Expenditures under the Company's Newbuilding program:
From April to June 2020 the Company entered into a series of transactions with a number of entities affiliated with Mr. Evangelos J. Pistiolis that led to the purchase of a number of vessels and newbuilding contracts
(please see Note 1 and 13). As a result of these transactions, the Company has remaining contractual commitments for the acquisition of its fleet that are non-recourse to the Company as they are guaranteed by Central Mare Inc, a related party
affiliated with the family of Mr. Evangelos J. Pistiolis, totaling $209,777, including $31,937, $33,818, $33,818, $55,102 and $55,102 pursuant to newbuilding agreements for Eco Van Nuys (Hull No 2789), Eco Santa Monica (Hull No 2790), Eco Venice
Beach (Hull No 2791), Eco West Coast (Hull No 865) and Eco Malibu (Hull No 866) respectively. Of these contractual commitments, $39,033 is payable in 2020 and $170,744 in 2021.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
Environmental Liabilities:
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of
any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying unaudited interim condensed consolidated financial statements.
|
9.
|
Common Stock, Additional Paid-In Capital and Dividends:
|
A discussion of the Company's common stock, additional paid-in capital and dividends can be found in the Company's annual financial statements for the fiscal year ended December 31, 2019 which have been filed with
the Securities and Exchange Commission on Form 20-F on April 10, 2020.
Issuance of warrants as part of the November 2019 Registered Direct Offering: During the six months ended June 30, 2020, all outstanding Class A warrants
(4,200,000 warrants) were exercised on a cashless basis into 67,200 of the Company's common shares and no Class B Warrants were exercised. As of June 30, 2020 there are 4,200,000 Class B Warrants exercisable into 168,000 of the Company's common
shares with an exercise price of $2.11.
Equity distribution agreements: On February 12 and March 11 2020, the Company, entered into two equity distribution agreements, or as is commonly known, at-the-market offerings
("ATM"s), with Maxim Group LLC ("Maxim"). Under each ATM the Company could sell up to $5,000 of its common stock with Maxim acting as a sales agent. Since Maxim was acting solely as a sales agent, it had no right to require any common stock sales.
No warrants, derivatives, or other share classes were associated with these ATMs. The Company completed all sales under both ATMs during February and March 2020 out of which the Company received proceeds (net of 2% fees), amounting to $9,800 and
issued 2,693,191 common shares.
Registered Direct Offerings: On March 30, April 15, April 27, April 28, May 14, May 19, June 7, June 10, June 14 and June 23 2020, the Company closed registered direct offerings for the
sale of an aggregate of 30,378,165 of its common shares for proceeds of $97,273 (net of placement agent fees ranging from 6.25% to 6.50%) with unaffiliated investors. Maxim acted as a placement agent in all of the registered direct offerings. No
warrants, derivatives, or other share classes were associated with these Registered Direct Offerings.
Dividends: No dividends were paid to common stock holders in the six months ended June 30, 2019 and 2020.
|
10.
|
Loss Per Common Share:
|
All shares issued are included in the Company's common stock and have equal rights to vote and participate in dividends and in undistributed earnings.
The components of the calculation of basic and diluted earnings per share for the six months ended June 30, 2019 and 2020 are as follows:
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2020
|
|
Net loss
|
|
|
(628
|
)
|
|
|
(2,868
|
)
|
Less: Deemed dividend for beneficial conversion feature of Series E Shares
|
|
|
(9,339
|
)
|
|
|
(1,067
|
)
|
Less: Deemed dividend equivalents on Series E Shares related to redemption value
|
|
|
(4,223
|
)
|
|
|
(3,099
|
)
|
Less: Dividend of Series E Shares
|
|
|
(1,029
|
)
|
|
|
(932
|
)
|
Loss attributable to common shareholders
|
|
|
(15,219
|
)
|
|
|
(7,966
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
52,524
|
|
|
|
7,302,633
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic and diluted
|
|
|
(289.75
|
)
|
|
|
(1.09
|
)
|
For the periods ended June 30, 2019 and 2020 no dilutive shares were included in the computation of diluted earnings per share because to do so would have been antidilutive for the period presented.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise or conversion
price could be less than the average market price of the common shares.
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2020
|
|
2014 Warrants
|
|
|
2,861
|
|
|
|
-
|
|
Class B Warrants
|
|
|
-
|
|
|
|
480,000
|
|
Series E Shares
|
|
|
45,419
|
|
|
|
811,855
|
|
Potentially dilutive securities
|
|
|
48,280
|
|
|
|
1,291,855
|
|
The Company is using the treasury stock method to calculate the dilutive shares relating to a potential exercise of the 2014 Warrants and Class B Warrants and the if-converted method to calculate the dilutive shares
relating to a potential conversion of Series E Shares weighted for the period the Series E Shares were outstanding.
|
11.
|
Derivative Financial Instruments:
|
The principal financial assets of the Company consist of cash on hand and at banks, restricted cash, prepaid expenses and other receivables. The principal financial liabilities of the Company consist of long term
loans, accounts payable due to suppliers, amounts due to related parties, accrued liabilities and warrants granted to third parties.
|
a)
|
Interest rate risk: The Company is subject to market risks relating to changes in interest rates of debt outstanding under the OFI facility on which it pays interest based on one-month LIBOR plus a
margin. In order to manage part or whole of its exposure to changes in interest rates due to this floating rate indebtedness, the Company might enter into interest rate swap agreements in the future.
|
|
b)
|
Credit risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash. The Company places its temporary cash
investments, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions with which it places its temporary cash
investments.
|
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short term maturities. The Company considers its creditworthiness when determining the fair value of its
liquid assets.
The fair value of warrants is determined using the Cox, Ross and Rubinstein Binomial methodology and hence are considered Level 3 items in accordance with the fair value hierarchy.
The Company follows the accounting guidance for Fair Value Measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a
hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.
Interest rate swap agreements
On January 16 and January 21, 2020, as part of the prepayment of the ABN Facility, the Company unwound its two remaining interest rate swaps with ABN Amro bank and realized a loss of $405. On February 21, 2020, as
part of the prepayment of the Alpha Bank Facility, the Company unwound its interest rate swap with Alpha bank and realized a loss of $927. In both cases the resulting losses include losses resulting from the discontinuation of hedge accounting
applied that have now been transferred from Other comprehensive income to Gain / (Loss) on Derivative financial instruments in the accompanying unaudited interim condensed consolidated statements of
comprehensive loss.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
Derivative Financial Instruments not designated as hedging instruments – Class B Warrants:
The major unobservable input in connection with the valuation of the Company's Class B Warrants is the volatility used in the valuation model, which is approximated by using twelve-month daily
historical observations of the Company's share price. The annualized twelve-month daily historical volatility that has been applied in the warrant valuation as of June 30, 2020 was 236%. A 5% increase in the volatility applied would lead to an
increase of 23.7% in the fair value of the Class B Warrants. The fair value of the Company's Class B Warrants is considered by the Company to be classified as Level 3 in the fair value hierarchy since it is derived by unobservable inputs.
Quantitative information about Level 3 Fair Value Measurements
|
Derivative type
|
Fair Value at December 31, 2019
|
Balance Sheet Location
|
Valuation Technique
|
Significant Unobservable Input
|
Input Value December
31, 2019
|
Class B Warrants
|
609
|
Non-Current liabilities –Derivative financial instruments
|
Cox, Ross and Rubinstein Binomial
|
Volatility
|
132%
|
Quantitative information about Level 3 Fair Value Measurements
|
Derivative type
|
Fair Value at June 30, 2020
|
Balance Sheet Location
|
Valuation Technique
|
Significant Unobservable Input
|
Input Value June
30, 2020
|
Class B Warrants
|
101
|
Non-Current liabilities –Derivative financial instruments
|
Cox, Ross and Rubinstein Binomial
|
Volatility
|
236%
|
Recurring fair value measurements
The following table presents the fair value of those financial assets and liabilities measured at fair value on a recurring basis and their locations on the accompanying unaudited interim condensed consolidated
balance sheets, analyzed by fair value measurement hierarchy level:
|
|
Fair Value Measurement at Reporting Date
|
As of December 31, 2019
|
Total
|
Using Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
Current asset (Interest Rate Swaps)
|
|
82
|
-
|
|
82
|
|
-
|
Current liability (Interest Rate Swaps)
|
|
113
|
-
|
|
113
|
|
|
Non-current liability (Interest Rate Swaps)
|
|
985
|
-
|
|
985
|
|
|
Non-current liability (Class B Warrants)
|
|
609
|
|
|
|
|
609
|
As of June 30, 2020
|
|
|
Current liability (Class B Warrants)
|
|
101
|
|
|
|
|
101
|
The following table sets forth a summary of changes in fair value of the Company's level 3 fair value measurements for the six months ended June 30, 2020:
Closing balance – December 31, 2019
|
609
|
Change in fair value of warrants, included in the unaudited interim condensed consolidated statements of comprehensive loss
|
(508)
|
Closing balance – June 30, 2020
|
101
|
The effect of derivative instruments on the unaudited interim condensed consolidated statements of comprehensive loss for the six months ended June 30, 2019 and 2020 is as follows:
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
Location and amounts of derivative financial instruments fair values:
|
|
Amount of gain/(loss) recognized in Statements of comprehensive loss located in gain/(loss) on Derivate Financial Instruments
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
Six Months Ended June 30, 2020
|
|
Interest rate swaps- change in fair value
|
|
|
-
|
|
|
|
(1,332
|
)
|
Interest rate swaps– realized loss
|
|
|
(147
|
)
|
|
|
(25
|
)
|
2014 Warrants- change in fair value
|
|
|
1,634
|
|
|
|
-
|
|
Class B Warrants- change in fair value
|
|
|
-
|
|
|
|
508
|
|
Total
|
|
|
1,487
|
|
|
|
(849
|
)
|
Derivative Financial Instruments designated as hedging instruments:
The components of accumulated other comprehensive loss included in the accompanying unaudited interim condensed consolidated balance sheets are analyzed as follows:
|
Termination of cash
flow hedges
|
Balance, December 31, 2019
|
(1,361)
|
Termination of interest rate swap contracts and transfer to Gain/(loss) on derivative financial instruments
|
1,361
|
Balance, June 30, 2020
|
-
|
On February 17, 2020 the Company issued 16,004 Series E convertible perpetual preferred stock ("Series E Shares") to Family Trading Inc, as settlement of $14,350 of consideration then outstanding for the purchase of
the M/T Eco City of Angels and M/T Eco Los Angeles from Mr. Evangelos J. Pistiolis, $1,621 of Series E Share dividends of the second half of 2019 and $32 of accrued interest on unpaid dividends from 2019. Furthermore the Company issued on June 30,
2020, 900 Series E Shares to Family Trading Inc as settlement of $900 of Series E Share dividends for the first half of 2020.
Pursuant to issuances of Series E Shares, the Company recognized the beneficial conversion feature by allocating the intrinsic value of the conversion option, which is the number of shares of common stock available
upon conversion multiplied by the difference between the effective conversion price per share and the fair value of the Company's common stock per share on the commitment date, to additional paid-in capital, resulting in a discount of $1,067 on the
Series E Shares. The Company has amortized the beneficial conversion in full in the six months ended June 30, 2020 as the beneficial conversion was immediately exercisable and has been recognized as a deemed dividend. As the Company is in an
accumulated deficit position, the offsetting amount was amortized as a deemed dividend recorded against additional paid-in-capital.
During the six months ended June 30, 2020, but before March 29, 2020, the Company redeemed 21,364 Series E Shares and paid a total of $24,569 to Family Trading Inc, $3,204 of which refers to the 15% redemption
premium embedded in each redemption that the Company classified as deemed dividend.
As of June 30, 2020, upon conversion at the Series E Shares Conversion Price ($2.11) of 11,264 Series E Shares outstanding, Family Trading Inc. would receive 5,338,389 common shares. After March 29, 2020 as per the
original Series E Shares Statement of Designations all redemptions of Series E Shares will incur a redemption premium equal to twenty percent (20%) of the Liquidation Amount being redeemed instead of fifteen percent (15%). Finally the Company has
adjusted the carrying value of the Series E Shares to the maximum redemption amount, resulting in an increase of $2,253, which has been accounted for as deemed dividend.
|
13.
|
Investments in unconsolidated joint ventures
|
New 2020 Joint Venture
On April 24, 2020 the Company acquired from a company affiliated with Mr. Evangelos J. Pistiolis, or the MR Seller, a 50% interest in two vessel owning companies (California 19 Inc. and
California 20 Inc.) that owned two scrubber-fitted 50,000 dwt eco MR product tankers, M/T Eco Yosemite Park and M/T Eco Joshua Park respectively for $27,000, representing the Company's share of interest in the fair value of the net assets acquired.
Both vessels were delivered in March 2020 to the MR Seller from Hyundai Mipo shipyard of South Korea. The MR Seller had already entered into two joint venture agreements, for the two vessels, each with an equal ownership interest of 50%, with
Just-C Limited, a wholly owned subsidiary of Gunvor Group Ltd (the other 50% owner). The abovementioned acquisition was approved by a special committee of the Company's board of directors (the "JV Special Committee"), of which all of the directors
were independent and for which the JV Special Committee obtained a fairness opinion relating to the consideration of the transaction from an independent financial advisor. Sale and purchase commissions due to CSI related to these investments
amounting to $453 were accounted for as part of the investment.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States Dollars – except share and per share data, unless otherwise stated)
Out of the purchase price of $27,000, $1,646 and $1,654 were recognized as excess of the purchase price over the underlying net book value ("Basis Differences") for California 19 Inc. and
California 20 Inc. respectively, attributed to the value assigned to the attached time charter. These Basis Differences are amortized over the duration of the firm period of the charter (5 years) and their amortization is included as a reduction in
Gains in unconsolidated joint ventures. Furthermore $1,963 and $1,963 were also recognized as Basis Differences for California 19 Inc. and California 20 Inc. respectively, attributed to the fair market value over the carrying value of the vessels.
These Basis Differences are amortized over the useful life of the vessels (25 years) and their amortization is also included as a reduction in Gains in unconsolidated joint ventures.
On March 12, 2020, California 19 Inc. together with California 20 Inc. entered into a loan agreement with Alpha Bank for a senior debt facility of $37,660 ($18,830 for each vessel). The loan has
a term of five years and is payable on maturity via a balloon payment of $18,830 per vessel. The credit facility bears interest at LIBOR plus a margin of 3.00%. The facility carries customary covenants and restrictions, including the covenant that
during the life of the facility, the market value of the vessels should be at least 200% of the facility outstanding and any shortfall should be covered by partial prepayments. Vessels are to be valued three times per year, every March, July and
December. Provided that there is no breach of the above-mentioned covenant and no event of default has occurred and is continuing or would occur if such dividend distribution would take place, California 19 Inc. and California 20 Inc. may
distribute dividends, without any consent from Alpha Bank.
Each of the two product tankers have time charters that commenced in March 2020 with Clearlake Shipping Pte Ltd, a subsidiary of Gunvor Group Ltd for a firm term of five years plus two additional
optional years.
The Company's exposure is limited to its share of the net assets of California 19 Inc. and California 20 Inc., proportionate to its 50% equity interest in these companies. Generally, the Company
will share the profits and losses, cash flows and other matters relating to its investments in California 19 Inc. and California 20 Inc. in accordance with its ownership percentage. The vessels are managed by CSI, pursuant to management agreements.
The Company accounts for investments in joint ventures using the equity method since it has joint control over the investment.
In the six months ended June 30, 2020 California 19 Inc. and California 20 Inc. didn't declare nor pay any dividends.
Recognition of Gains in unconsolidated joint ventures for the 2020 Joint Venture for the six months ended June 30, 2020, is summarized below:
|
June 30, 2020
|
|
California 19 Inc.
|
California 20 Inc.
|
Net profit attributable to the Company
|
178
|
161
|
Amortization of Basis Differences
|
(68)
|
(68)
|
Equity gains in unconsolidated joint ventures (attributed to the 2020 Joint Venture)
|
110
|
93
|
Sale of 2017 Joint Venture
In December 2019, the Company wrote down its Investments in unconsolidated joint ventures (the "2017 Joint Venture") to their fair value less costs to sell pursuant to the Joint Ventures' plan to sell the vessels.
The Joint Venture's vessels, the M/T Holmby Hills and the M/T Palm Springs were sold on March 26 and 17 April, 2020 respectively. In the six months ended June 30, 2020, the Company recognized a loss on the sale of its Investments in unconsolidated
joint ventures amounting to $35, which is included in Equity gains in unconsolidated joint ventures (attributed to the 2017 Joint Venture) in the Company's unaudited interim condensed consolidated statements of comprehensive loss. Net proceeds from
the sale of the 2017 Joint Venture amounted to $19,555. The two companies that owned the vessels (City of Athens Pte. Ltd. and Eco Nine Pte. Ltd.) are in the final stages of dissolving.
|
14.
|
Gain on sale of vessels:
|
On January 14, January 21, February 21 and March 19, 2020 the Company sold the M/T Eco Revolution, M/T Eco Fleet, M/T Stenaweco Elegance and M/T Eco Palm Desert respectively to unaffiliated third parties. The gross
proceeds from the sales were $23,000, $21,000, $33,500 and $34,800 for M/T Eco Revolution, M/T Eco Fleet, M/T Stenaweco Elegance and M/T Eco Palm Desert respectively. Out of the four vessels, the M/T Eco Revolution and M/T Eco Fleet were presented
under Assets held for sale in the Company's December 31, 2019 Balance sheets and were written down to their fair value less costs to sell. As a result of the abovementioned sales the Company recognized a gain from the disposal of vessels amounting
to $5,291, which is separately presented in the Company's accompanying unaudited interim condensed consolidated statements of comprehensive loss for the six months ended June 30, 2020.
On January 15, January 21 and March 9, 2020 the Company terminated the time charters of M/T Eco Fleet, M/T Stenaweco Elegance and M/T Eco Palm Desert and incurred time charter termination fees amounting to $500,
$1,850 and $1,700 respectively.
On July 6, 2020 the Company completed a registered direct offering for the sale of 6,345,600 common shares for proceeds of $14,873 (net of placement agent fees of 6.25%) with unaffiliated
investors. Maxim acted as the placement agent. No warrants, derivatives, or other share classes were associated with this agreement.