C3is (CISS) - 2024 Q4 - Annual Report

PART I Key Information This section outlines the principal risks associated with the company's business, industry, and corporate structure Risk Factors This subsection details the specific risks faced by the company, categorized into industry, business, taxation, corporate structure, and investment-related risks - The drybulk and tanker shipping industries are cyclical and highly volatile, leading to significant fluctuations in charter rates, vessel utilization, and profitability[25][28][36] - Geopolitical events, including conflicts in Ukraine and Gaza and Houthi attacks in the Red Sea, disrupt shipping routes and can materially affect business operations and financial results[25][87] - The company's small fleet size (three drybulk carriers and one tanker) makes it highly dependent on the performance of these few vessels, where any operational limitations could materially harm the business[25][111] - Investors face significant future dilution risk from equity offerings, expected to be a primary financing source for fleet expansion, and from the conversion of Series A Convertible Preferred Shares and warrant exercises[29][198][199] - The company's common stock may be delisted from Nasdaq for failing to meet the minimum bid price requirement, adversely affecting liquidity and access to capital markets[29][206] - Imperial Petroleum holds all 600,000 Series A Convertible Preferred Shares, granting it approximately 49.99% of aggregate voting power and considerable control over shareholder matters[215] Information on the Company C3is Inc., incorporated in the Marshall Islands in July 2022, was spun off from Imperial Petroleum in June 2023 to provide international seaborne transportation services with a focus on reliable vessel operation and strategic fleet expansion History and Development of the Company C3is Inc. was incorporated on July 25, 2022, in the Marshall Islands and completed its spin-off from Imperial Petroleum on June 21, 2023, becoming an independent, Nasdaq-listed company - C3is Inc. was incorporated on July 25, 2022, and completed its spin-off from Imperial Petroleum on June 21, 2023, becoming a separate publicly traded company[218] - Initial assets contributed by Imperial Petroleum included two drybulk carriers and $5 million in cash, in exchange for C3is's Common Shares and Series A Convertible Preferred Stock[218] Business Overview The company operates a fleet of three drybulk carriers and one Aframax tanker, totaling 213,468 dwt, employing a mix of short-term time charters and spot market employment, with management outsourced to Brave Maritime Fleet Profile (as of April 15, 2025) | Name | Year Built | Country Built | Size (dwt) | Vessel Type | Employment Status | Daily Charter Rate | Expiration of Charter(1) | | :--------------- | :--------- | :------------ | :--------- | :------------------------ | :---------------- | :----------------- | :----------------------- | | Drybulk Carriers | | | | | | | | | Eco Bushfire | 2011 | Japan | 32,000 | Handysize drybulk carrier | Time Charter | $ 16,000 | May 2025 | | Eco Angelbay | 2009 | Japan | 32,000 | Handysize drybulk carrier | Time Charter | $ 9,500 | May 2025 | | Eco Spitfire | 2012 | Japan | 33,664 | Handysize drybulk carrier | Time Charter | $ 10,750 | May 2025 | | Tanker | | | | | | | | | Afrapearl II | 2010 | Korea | 115,804 | Aframax oil tanker | Spot | - | - | - The company's fleet is managed by Brave Maritime, which handles technical, administrative, and commercial services for a fixed daily fee of $440 per vessel, plus commissions on charter hire (1.25%) and vessel sales/purchases (1.0%)[225][226] - The company is subject to significant environmental regulations from the IMO, US (OPA, CERCLA), and EU, covering air emissions (SOx, NOx), ballast water management (BWM Convention), and greenhouse gases (EEXI, CII, EU ETS)[240][244][254][262] Operating and Financial Review and Prospects This section analyzes the company's financial performance and condition, highlighting increased revenues in FY2024 driven by fleet expansion, offset by a net loss primarily due to non-cash warrant losses and higher operating costs Key Financial Performance (2023 vs. 2024) | Metric | 2023 | 2024 | Change | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Voyage Revenues | $28.7M | $42.3M | +$13.6M | Increase in the average number of vessels in the fleet | | Vessel Operating Expenses | $4.8M | $8.4M | +$3.6M | Increase in the average number of vessels | | General & Admin Costs | $1.2M | $3.0M | +$1.8M | Expenses related to public offerings, warrants, and operating as a public company | | Loss on Warrants | $0 | $11.1M | -$11.1M | Fair value losses on warrants classified as liabilities | | Net Income/(Loss) | $9.3M | ($2.7M) | -$12.0M | Primarily due to loss on warrants and increased operating/finance costs | Fleet Operational Data | Metric | July 25 - Dec 31, 2022 | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2024 | | :--- | :--- | :--- | :--- | | Average number of vessels | 1.09 | 2.5 | 3.6 | | Total voyage days | 136 | 900 | 1,327 | | Fleet utilization | 78.2% | 99.9% | 99.5% | | Adjusted average charter rate | $20,511 | $23,453 | $21,233 | | Vessel operating expenses/day | $5,151 | $5,323 | $6,277 | - As of December 31, 2024, the company had $12.6 million in cash, cash equivalents, and time deposits and no outstanding bank debt, with primary liquidity needs related to the remaining $14.57 million purchase price for the Eco Spitfire, paid in April 2025[412][414][415] - The company's impairment test as of December 31, 2024, showed that while three of four vessels had carrying values approximately $11 million above market values, projected undiscounted cash flows exceeded carrying values, resulting in no impairment loss recognized[373] Directors, Senior Management and Employees This section details the company's leadership and governance structure, including its four-member board, outsourced executive services from Brave Maritime, and compensation practices, with established Audit, Nominating, and Compensation committees Board of Directors and Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Harry Vafias | 47 | Non-Executive Chairman, Class III Director | | Dr. Diamantis Andriotis | 43 | Chief Executive Officer, President and Class I Director | | John Kostoyannis | 58 | Class II Director | | George Xiradakis | 60 | Class III Director | | Nina Pyndiah | 62 | Chief Financial Officer | - The company has no direct employees; CEO, CFO, and other executive services are provided through the management agreement with Brave Maritime, which is reimbursed for their compensation[461][474] - Aggregate cash compensation for executive officers was $0.3 million in 2023 and $0.4 million in 2024; non-executive directors receive annual fees, with the Chairman receiving €72,000 and independent directors €25,000[459][461] - The Board of Directors is classified into three classes with staggered three-year terms, which may have an anti-takeover effect[463][592] Major Stockholders and Related Party Transactions This section discloses major shareholders and related party transactions, highlighting Imperial Petroleum Inc.'s significant voting power and key agreements with Brave Maritime, including management services, vessel acquisitions, and office space leases Major Beneficial Owners (as of April 15, 2025) | Name of Beneficial Owner | Common Shares Beneficially Owned | Percentage | | :--- | :--- | :--- | | Imperial Petroleum Inc. | 4,935,671 | 86.8% | | Pandora Consultants II SA. | 42,947 | 5.5% | | Harry Vafias | 95,578 | 12.2% | - Imperial Petroleum Inc. holds 600,000 Series A Convertible Preferred Shares, granting it voting power equivalent to 49.99% of total votes, providing significant influence over corporate matters[483][484] - The company has a management agreement with Brave Maritime, an entity affiliated with the Vafias family, for all technical, commercial, and administrative services[495] - In July 2023, the company acquired the Aframax tanker 'Afrapearl II' from Imperial Petroleum for $43 million; in April 2024, it acquired the drybulk carrier 'Eco Spitfire' from a Brave Maritime affiliate for $16.19 million[507][508] Additional Information This section details the company's share capital, corporate governance, material contracts, and tax considerations, including authorized shares, outstanding warrants with adjustment features, and U.S. federal income tax rules for foreign shipping companies Share Capital The company's authorized capital includes 2 billion common shares and 200 million preferred shares, with multiple classes of warrants and Series A Convertible Preferred Shares outstanding, all subject to complex adjustment features and potential dilution Authorized and Outstanding Shares (as of April 15, 2025) | Security | Authorized | Outstanding | | :--- | :--- | :--- | | Common Stock, $0.01 par | 2,000,000,000 | 780,768 | | Preferred Stock, $0.01 par | 200,000,000 | 600,000 (Series A) | - The company has five classes of warrants outstanding (A, B-1, B-2, C-1, C-2) to purchase common stock, with Class B and C exercise prices subject to downward adjustment based on future stock offerings or splits, potentially leading to significantly more common shares[523][537][545][556][565] - The 600,000 Series A Convertible Preferred Shares held by Imperial Petroleum have a $25.00 liquidation preference per share, a 5.0% cumulative dividend, and a conversion price that adjusts downward to the lowest price of any subsequent registered offering, currently at $3.0391 per share[570][573][576] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include fluctuations in freight rates and vessel values, potential interest rate risk on future debt, and foreign exchange risk from non-U.S. dollar expenses, with no current bank debt or interest rate swaps - The company's main market risks are fluctuations in shipping freight rates and vessel values[660] - The company has no outstanding bank debt or interest rate swap agreements, thus currently having no direct exposure to interest rate risk[661] - In 2024, 15.1% of expenses were incurred in currencies other than the U.S. dollar, creating foreign exchange rate risk, which the company does not currently hedge[662] PART II Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no auditor attestation report due to emerging growth company status - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[667] - Management's report on internal control over financial reporting concluded the system was effective as of December 31, 2024, based on the COSO framework[671][672] - The annual report does not include an auditor's attestation report on internal controls, as the company is an emerging growth company[673] Corporate Governance and Other Matters This section covers corporate governance, including the Audit Committee financial expert, Code of Business Conduct, principal accountant fees, differences from Nasdaq standards as a foreign private issuer, and the Board-overseen cybersecurity risk management program Principal Accountant Fees (in thousands) | Fee Category | 2023 | 2024 | | :--- | :--- | :--- | | Audit fees | $203 | $205 | | Assurance/audit related fees | — | — | | Tax fees | — | — | | All other fees | — | — | | Total | $203 | $205 | - As a foreign private issuer, the company differs from Nasdaq corporate governance standards by having a two-member audit committee and not requiring prior stockholder approval for certain share issuances[688] - The company has a cybersecurity risk management program managed by Brave Maritime, with ultimate oversight by the Board of Directors, including risk assessments, employee training, and an incident response plan[692][693][698] PART III Financial Statements This section presents the audited consolidated financial statements for C3is Inc. for fiscal years 2023 and 2024, and prior periods, prepared under U.S. GAAP and audited by Deloitte Certified Public Accountants S.A. Consolidated Balance Sheets The consolidated balance sheet shows total assets increased to $100.5 million in 2024, driven by vessel acquisitions, while total liabilities decreased to $29.1 million, and total stockholders' equity grew to $71.4 million Consolidated Balance Sheet Data (as of Dec 31) | (In millions of U.S. Dollars) | 2023 | 2024 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $20.3 | $16.3 | | Vessels, net | $75.2 | $84.1 | | Total assets | $95.5 | $100.5 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $39.9 | $18.7 | | Warrant liability (non-current) | $0.0 | $10.4 | | Total liabilities | $39.9 | $29.1 | | Total stockholders' equity | $55.5 | $71.4 | Consolidated Statements of Operations For the year ended December 31, 2024, total revenues increased to $42.3 million, but the company reported a net loss of $2.7 million, primarily due to a non-cash loss on warrants and higher operating and finance costs Consolidated Statement of Operations Data (Year Ended Dec 31) | (In millions of U.S. Dollars) | 2022 (Period) | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Revenues | $3.3 | $28.7 | $42.3 | | Total expenses | $2.7 | $18.3 | $32.2 | | Income from operations | $0.6 | $10.4 | $10.1 | | Interest and finance costs | $0.0 | $1.4 | $2.5 | | Loss on warrants | $0.0 | $0.0 | ($11.1) | | Net income/(loss) | $0.6 | $9.3 | ($2.7) | Consolidated Statements of Cash Flows In 2024, net cash from operating activities significantly increased to $25.0 million, while investing activities used $1.4 million, and financing activities used $19.7 million, resulting in a year-end cash balance of $4.6 million Consolidated Statement of Cash Flows Data (Year Ended Dec 31) | (In millions of U.S. Dollars) | 2022 (Period) | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $1.1 | $5.6 | $25.0 | | Net cash used in investing activities | ($39.4) | ($12.4) | ($1.4) | | Net cash provided by/(used in) financing activities | $38.3 | $7.5 | ($19.7) | | Net increase in cash and cash equivalents | $0.0 | $0.7 | $3.9 |