C3is (CISS) - 2024 Q2 - Quarterly Report

Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operational results, and future outlook Overview C3is Inc., spun off in June 2023, operates a four-vessel fleet of drybulk and crude oil carriers, totaling 213,468 dwt as of June 30, 2024, with a new Handysize acquired in April 2024 - C3is Inc. began operating as a separate company from Imperial Petroleum on June 21, 2023, following a spin-off[2] - The company provides transportation for drybulk charterers and, since Q3 2023, for oil producers, refineries, and commodities traders[34] - In April 2024, the company acquired a 33,664 DWT handysize bulk carrier from an affiliated company for $16.19 million[3] Fleet Profile as of June 30, 2024 | Name | Year built | DWT | Vessel Type | Employment Status | | :--- | :--- | :--- | :--- | :--- | | DRYBULK FLEET | | | | | | EcoBushfire | 2011 | 32,000 | Handysize drybulk carrier | Time Charter | | Eco Angelbay | 2009 | 32,000 | Handysize drybulk carrier | Time Charter | | Eco Spitfire | 2012 | 33,664 | Handysize drybulk carrier | Time Charter | | TANKER FLEET | | | | | | Afrapearl II | 2010 | 115,804 | Aframax oil tanker | Spot | | Fleet Total | | 213,468 | | | Selected Financial Data This section presents summary historical financial and operational data for the six-month periods ended June 30, 2023 and 2024, highlighting significant revenue growth, increased operating activities, and a notable net loss in 2024 Selected Statement of Comprehensive Income Data (Six-Month Period Ended June 30, USD) | Metric | 2023 | 2024 | | :--- | :--- | :--- | | Revenues | 4,855,097 | 23,619,205 | | Income from operations | 387,474 | 8,546,707 | | Net income / (loss) | 388,125 | (7,970,332) | Selected Balance Sheet Data (USD) | Metric | As of Dec 31, 2023 | As of June 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | 695,288 | 32,317,158 | | Total assets | 95,472,015 | 137,408,185 | | Total liabilities | 39,928,166 | 71,096,936 | | Total stockholders' equity | 55,543,849 | 66,311,249 | Selected Fleet Data (Six-Month Period Ended June 30) | Metric | 2023 | 2024 | | :--- | :--- | :--- | | Average number of vessels | 2.00 | 3.3 | | Total voyage days for fleet | 362 | 594 | | Fleet utilization | 100.0% | 99.3% | Results of Operations For the six months ended June 30, 2024, revenues surged to $23.6 million, driven by fleet expansion, yet a $15.2 million non-cash loss on warrants resulted in an $8.0 million net loss despite increased operating income - Revenues increased by $18.7 million to $23.6 million for the six months ended June 30, 2024, primarily due to the increase in the average number of vessels[16] - Voyage and vessel operating expenses increased due to the larger fleet size, with voyage expenses significantly impacted by bunker and port costs as the Aframax tanker operated in the spot market[16] - A loss on warrants of $15.2 million was recognized, related to the net fair value losses on Class B and C warrants issued in 2024, which were classified as liabilities[16] - General and Administrative costs rose to $2.1 million from $0.5 million, mainly due to expenses from two public offerings, a reverse stock split, and costs of operating as a public company[16] Liquidity and Capital Resources As of June 30, 2024, the company maintained strong liquidity with $32.3 million in cash and no bank debt, funding operations primarily through cash flow and equity offerings, with significant vessel payments due in July 2024 and April 2025 Cash Flow Summary (Six-Month Period Ended June 30, USD) | Metric | 2023 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | 1,694,917 | 21,392,996 | | Net cash used in investing activities | — | (6,611,629) | | Net cash provided by financing activities | 3,305,083 | 16,840,503 | - As of June 30, 2024, the company had cash and cash equivalents of $32.3 million and bank time deposits of $13.2 million[46] - The company had no bank debt as of June 30, 2024, but may incur debt in the future to finance fleet growth[19] - Key liquidity needs include a $14.6 million payment due in April 2025 for a handysize bulk carrier, with a $38.7 million payment for the Aframax tanker made in July 2024[47] Forward-Looking Statements This section highlights that forward-looking statements are subject to significant risks and uncertainties, including market conditions, operating costs, financing availability, and geopolitical events, which could cause actual results to differ materially - Forward-looking statements are based on current assumptions which are inherently subject to significant uncertainties and contingencies[49] - Important factors that could cause results to differ include market conditions, charter rates, vessel values, operating costs, and the ability to obtain financing[50] - Geopolitical risks cited include the conflict in Ukraine, the conflict in Israel and Gaza, and potential shipping disruptions by Houthis in the Red Sea[50] Unaudited Interim Condensed Consolidated Financial Statements This section presents the company's unaudited interim condensed consolidated financial statements, including the balance sheets, statements of comprehensive income, stockholders' equity, cash flows, and accompanying notes Unaudited Interim Condensed Consolidated Balance Sheets As of June 30, 2024, total assets increased to $137.4 million, driven by higher cash and vessel values, while total liabilities rose to $71.1 million due to increased related-party payables and a new warrant liability Consolidated Balance Sheet Highlights (USD) | Metric | As of Dec 31, 2023 | As of June 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | 695,288 | 32,317,158 | | Vessels, net | 75,161,431 | 87,400,747 | | Total assets | 95,472,015 | 137,408,185 | | Payable to related parties | 38,531,016 | 54,730,861 | | Warrant liability | — | 14,486,493 | | Total liabilities | 39,928,166 | 71,096,936 | | Total stockholders' equity | 55,543,849 | 66,311,249 | Unaudited Interim Condensed Consolidated Statements of Comprehensive Income For the six months ended June 30, 2024, revenues surged to $23.6 million and operating income increased, but a $15.2 million non-cash loss on warrants led to an $8.0 million net loss, or ($4.61) per share Consolidated Statement of Comprehensive Income (Six-Month Period Ended June 30, USD) | Metric | 2023 | 2024 | | :--- | :--- | :--- | | Revenues | 4,855,097 | 23,619,205 | | Total expenses | 4,467,623 | 15,072,498 | | Income from operations | 387,474 | 8,546,707 | | Loss on warrants | — | (15,176,536) | | Net income/(loss) | 388,125 | (7,970,332) | | Earnings/(loss) per share, basic | 11.54 | (4.61) | Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $66.3 million by June 30, 2024, primarily from $19.0 million in equity offerings and warrant exercises, partially offset by an $8.0 million net loss and a $2.9 million deemed dividend - Stockholders' equity increased by $10.8 million during the first six months of 2024[55] - Net proceeds from the issuance of common stock and exercise of warrants totaled approximately $19.0 million[55] - The net loss of $8.0 million and a deemed dividend of $2.9 million reduced retained earnings to an accumulated deficit of $2.9 million[55] Unaudited Interim Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash from operations significantly increased to $21.4 million, while investing activities used $6.6 million and financing provided $16.8 million, resulting in a $31.6 million net increase in cash Consolidated Statement of Cash Flows (Six-Month Period Ended June 30, USD) | Metric | 2023 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | 1,694,917 | 21,392,996 | | Net cash used in investing activities | — | (6,611,629) | | Net cash provided by financing activities | 3,305,083 | 16,840,503 | | Net increase in cash and cash equivalents | 5,000,000 | 31,621,870 | | Cash and cash equivalents at end of period | 5,000,000 | 32,317,158 | Notes to the Unaudited Interim Condensed Consolidated Financial Statements These notes provide detailed explanations of accounting policies and financial figures, covering the basis of presentation, related-party transactions, vessel accounting, warrant classification and valuation, and equity offerings Note 1. Basis of Presentation and General Information The financial statements are prepared under U.S. GAAP for interim reporting, covering C3is Inc.'s fleet of four vessels managed by a related party, with management asserting no going concern doubt despite a working capital deficit - The company was spun off from Imperial Petroleum Inc. on June 21, 2023[85] - A 1-for-100 reverse stock split was effected on April 12, 2024, and all share/per share data has been retroactively adjusted[89] - Management believes there is no substantial doubt about the company's ability to continue as a going concern, despite a working capital deficit of $6.6 million, due to available cash, operational cash flows, and potential financing[87] Note 3. Transactions with Related Parties The company engages in significant related-party transactions, including management services and vessel acquisitions from affiliates using seller financing, resulting in $54.7 million payable to related parties as of June 30, 2024 - The company acquired the vessel 'Afrapearl II' from Imperial Petroleum Inc. in July 2023 for $43 million, with $38.7 million payable in July 2024[66] - The company acquired the vessel 'Eco Spitfire' from an affiliated company in April 2024 for $16.19 million, with $14.57 million payable in April 2025[95] Related Party Expenses (Six-Month Period Ended June 30, 2024) | Expense Category | Amount (USD) | | :--- | :--- | | Management fees | 263,120 | | Voyage expenses (commissions) | 295,839 | | Vessels' operating expenses | 67,167 | | General and administrative expenses | 225,445 | | Interest expense | 1,691,831 | Note 5. Vessels, Net The net book value of vessels increased to $87.4 million by June 30, 2024, primarily due to the $15.2 million acquisition of 'Eco Spitfire', offset by depreciation, with no impairment loss recognized Vessels, Net (USD) | Metric | Balance, Dec 31, 2023 | Balance, June 30, 2024 | | :--- | :--- | :--- | | Vessel cost | 79,824,125 | 94,990,150 | | Accumulated depreciation | (4,662,694) | (7,589,403) | | Net book value | 75,161,431 | 87,400,747 | - The increase in vessel value relates to the acquisition of the 'Eco Spitfire' in the first half of 2024[71] - The company performed an impairment review of its vessels as of June 30, 2024, and concluded that no impairment loss was necessary[72] Note 8. Stockholders' Equity During the first six months of 2024, the company raised $13.1 million from equity offerings, but warrant liabilities, remeasured to fair value, resulted in a $15.2 million loss and a $2.9 million deemed dividend due to down-round adjustments - In January and March 2024, the company completed two offerings, raising total gross proceeds of $13.1 million through the sale of common shares and warrants[99][120] - Class B and C warrants were classified as liabilities due to exercise price adjustment clauses, and are remeasured to fair value at each reporting date[101] - The change in fair value of the warrant liability resulted in a recognized loss of $15,176,536 for the six months ended June 30, 2024[102] - A down-round adjustment on warrants triggered a change in the conversion price of Series A Preferred Shares, resulting in a deemed dividend of $2,862,000[123] Note 14. Subsequent Events In July 2024, the company paid the remaining $38.7 million for the Aframax oil tanker 'Afrapearl II', funded by cash from operations, cash on hand, and recent equity offering proceeds - In July 2024, the company paid the remaining $38.7 million purchase price for the Aframax oil tanker[112]