Euroseas(US:ESEA)2022-04-21 16:00Part I Key Information The company faces significant risks from industry volatility, global events, regulations, and company-specific factors Industry Risk Factors Profitability is exposed to volatile shipping markets, vessel over-supply, global events, and regulatory pressures - Profitability is heavily dependent on volatile charter rates, which have seen significant recovery in 2021 and early 2022 after prior periods of depression303233 - The market value of vessels fluctuates with charter rates, and a decline could trigger loan covenant breaches, requiring debt prepayment or additional collateral394046 - An over-supply of containership capacity could reduce charter rates, as new orders represented about 26.4% of the existing fleet's capacity as of March 31, 20224748 - The COVID-19 pandemic and geopolitical conflicts create uncertainty, potentially disrupting trade, increasing costs, and negatively impacting global demand for container shipping535455 - Extensive and evolving environmental regulations require significant capital expenditure and can increase operating costs828393 Company Risk Factors Key risks include dependence on an affiliated manager, customer concentration, and restrictive debt covenants - The company has no employees and is entirely dependent on the affiliated manager, Eurobulk Ltd, for all commercial and technical management of its fleet139140 - Affiliates of the Pittas family control approximately 54.7% of the company's voting power, allowing them to influence major corporate decisions and creating potential conflicts of interest152156157 - Existing loan agreements contain restrictive covenants that could lead to debt acceleration if violated, which can be triggered by a decline in vessel market values166167 - The company has historically derived significant revenue from few charterers, with the top five charterers accounting for approximately 79% of revenues in 2021238 - The company is exposed to volatility in LIBOR and its replacement on its floating-rate debt, which it manages using interest rate swaps174175 Risk Factors Relating To Our Common Stock Common stock risks include high price volatility, anti-takeover provisions, and foreign issuer governance status - The market price of the company's common stock has been and may continue to be highly volatile, influenced by industry unpredictability and market fluctuations258259261 - The company's governing documents include anti-takeover provisions, such as a classified board and a shareholder rights plan, which may discourage a merger or acquisition269270 - As a foreign private issuer incorporated in the Marshall Islands, shareholders may have fewer rights and protections than under typical U.S. law154279 Information on the Company The company operates a fleet of containerships with a strategy of disciplined growth and balanced chartering - Euroseas is a pure-play containership company and the only publicly listed firm focused on the feeder and intermediate containership sector281 Fleet Profile (as of March 31, 2022) | Name | Type | Dwt | TEU | Year Built | Employment | TCE Rate ($/day) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | MARCOS V. | Intermediate | 72,968 | 6,350 | 2005 | TC until Dec-24 | $42,200 | | AKINADA BRIDGE | Intermediate | 71,366 | 5,610 | 2001 | TC until Oct-22 | $20,000 | | SYNERGY BUSAN | Intermediate | 50,726 | 4,253 | 2009 | TC until Aug-24 | $25,000 | | SYNERGY ANTWERP | Intermediate | 50,726 | 4,253 | 2008 | TC until Dec-23 | $18,000 | | SYNERGY OAKLAND | Intermediate | 50,787 | 4,253 | 2009 | TC until Mar-26 | $42,000 | | SYNERGY KEELUNG | Intermediate | 50,969 | 4,253 | 2009 | TC until Feb-23 | $14,500 | | EM KEA | Feeder | 42,165 | 3,100 | 2007 | TC until May-23 | $22,000 | | EM ASTORIA | Feeder | 35,600 | 2,788 | 2004 | TC until Feb-25 | $65k/$50k/$20k | | EVRIDIKI G | Feeder | 34,677 | 2,556 | 2001 | TC until Feb-25 | $40,000 | | EM CORFU | Feeder | 34,654 | 2,556 | 2001 | TC until Feb-25 | $40,000 | | DIAMANTIS P | Feeder | 30,360 | 2,008 | 1998 | TC until Oct-24 | $27,000 | | EM SPETSES | Feeder | 23,224 | 1,740 | 2007 | TC until Aug-24 | $29,500 | | JONATHAN P. | Feeder | 23,357 | 1,740 | 2006 | TC until Oct-24 | $26,662 | | EM HYDRA | Feeder | 23,351 | 1,740 | 2005 | TC until Apr-23 | $20,000 | | JOANNA | Feeder | 22,301 | 1,732 | 1999 | TC until Oct-22 | $16,800 | | AEGEAN EXPRESS | Feeder | 18,581 | 1,439 | 1997 | TC until Apr-25 | $41,000 | | Total | 16 Vessels | 635,806 | 50,371 | | | | - The company has seven new eco-design fuel-efficient feeder containerships under construction, with deliveries scheduled for 2023 and 2024284290 - As of March 31, 2022, the company has significant charter coverage, with 95% of ship capacity days for the remainder of 2022 under contract294 Vessel Carrying Value (as of Dec 31, 2021) | Vessel Name | Capacity (TEU) | Carrying Value (in millions) | | :--- | :--- | :--- | | EVRIDIKI G | 2,556 | $6.89 | | JOANNA | 1,732 | $2.63 | | AEGEAN EXPRESS | 1,439 | $1.72 | | EM ASTORIA | 2,788 | $4.19 | | EM CORFU | 2,556 | $4.55 | | AKINADA BRIDGE | 5,610 | $9.10 | | EM KEA | 3,100 | $8.49 | | EM SPETSES | 1,740 | $6.61 | | EM HYDRA | 1,740 | $5.77 | | DIAMANTIS P | 2,008 | $3.68 | | SYNERGY BUSAN | 4,253 | $9.53 | | SYNERGY ANTWERP | 4,253 | $9.43 | | SYNERGY OAKLAND | 4,253 | $9.75 | | SYNERGY KEELUNG | 4,253 | $10.57 | | JONATHAN P. | 1,740 | $25.27 | | MARCOS V. | 6,350 | $57.93 | | Total | 50,371 | $176.11 | Operating and Financial Review and Prospects Financial performance improved significantly in 2021 due to strong market recovery and higher charter rates Key Operational and Financial Metrics (2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Average number of vessels | 14.25 | 17.23 | | Utilization Rate | 98.5% | 95.5% | | Average TCE rate ($/day) | $19,327 | $9,445 | | Time charter revenue | $98.0M | $55.7M | | Net income attributable to common shareholders | $42.4M | $3.3M | | EPS attributable to common shareholders (basic) | $6.07 | $0.58 | - The significant increase in profitability in 2021 was primarily driven by a 104.4% increase in the average TCE rate, reflecting a strong market recovery439 - In 2021, the company acquired two vessels for $65.5 million and contracted to construct two new vessels for approximately $76.1 million401403 - The company fully redeemed its outstanding Series B Preferred Shares in 2021 through a combination of cash and conversion to common shares408 - Net cash from operating activities increased substantially to $52.6 million in 2021 from $2.4 million in 2020, due to higher market rates469470 - As of December 31, 2021, the company had total outstanding bank debt of $119.0 million and contractual obligations for newbuild vessels of $68.5 million464475 Directors, Senior Management and Employees Management services are outsourced to an affiliate, and the company follows foreign private issuer governance rules - The company has no salaried employees, with all executive services provided by the affiliated manager, Eurobulk Ltd521542 - For 2021, the company paid Eurobulk a fixed fee of $2.0 million for executive services, plus a special bonus of $0.46 million307521523 - The Board of Directors is classified into three staggered classes, with terms expiring in 2022, 2023, and 2024528 - The company is exempt from certain Nasdaq rules, including requirements for a majority-independent board and independent committees155530532 - Under its Equity Incentive Plan, the company granted 49,650 non-vested restricted shares in November 2021 to key personnel527 Major Shareholders and Related Party Transactions The company is controlled by the Pittas family, with extensive related-party transactions for core operations Major Shareholders (as of March 31, 2022) | Name of Beneficial Owner | Shares of Common Stock | Percent of Common Stock | | :--- | :--- | :--- | | Containers Shareholders Trinity Ltd. | 2,753,013 | 37.7% | | Eurobulk Marine Holdings Inc. | 528,169 | 7.2% | | Friends Investment Company Inc. | 492,286 | 6.7% | | All directors, officers, and 5% owners as a group | 4,079,250 | 55.9% | - The company has extensive related-party transactions with entities affiliated with the Pittas family for management, brokerage, and other services564567569 Fees Paid to Related Parties (2021) | Related Party | Service | 2021 Fees | | :--- | :--- | :--- | | Eurobulk Ltd. | Management & Executive Services | $6.75 million | | Eurochart S.A. | Chartering & Acquisition Commissions | $1.73 million | | Sentinel & Technomar | Insurance & Crewing | $0.23 million | - In August 2019, the company acquired four feeder containerships from affiliates of the CEO for $28.2 million570 Financial Information The company reports no material legal proceedings and has suspended its common stock dividend since 2013 - The company reports no material legal proceedings other than routine litigation incidental to its business579 - The quarterly dividend on common stock has been suspended since November 2013 to preserve capital for investment580 - All Series B Preferred Shares were fully redeemed or converted into common stock by June 2021, simplifying the capital structure582941 Additional Information This section covers the company's Marshall Islands incorporation, anti-takeover provisions, and tax status - The company's authorized capital stock consists of 200,000,000 shares of common stock and 20,000,000 shares of preferred stock598599 - Anti-takeover provisions are in place, including a classified Board of Directors, 'blank check' preferred stock authority, and a shareholder rights plan612613614 - The company is incorporated in the Marshall Islands and believes it is exempt from U.S. federal income tax on its U.S.-source shipping income625631 - The company does not believe it will be a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes241655 Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rate volatility on floating-rate debt and foreign currency fluctuations - The company is exposed to interest rate risk on its floating-rate debt, with $119.0 million of floating-rate debt outstanding as of December 31, 2021678 - To manage interest rate risk, the company had interest rate swap contracts with a notional amount of $40 million as of December 31, 2021677 - A hypothetical 100 basis point increase in interest rates would have increased the net loss for 2021 by approximately $653,601678 - The company has foreign currency risk as approximately 25% of its vessel operating and drydocking expenses in 2021 were in currencies other than the U.S. dollar685 Part II Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021690692 - Management assessed internal control over financial reporting using the COSO 2013 framework and concluded it was effective as of December 31, 2021694 - The company is a non-accelerated filer and is therefore exempt from the requirement to include an auditor's attestation report on internal controls695 Other Information This section covers audit committee composition, code of ethics, auditor fees, and governance compliance - The Board has determined that all members of the Audit Committee are financial experts and independent under SEC and Nasdaq rules699 Principal Accountant Fees | Fee Category | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Audit Fees | $267 | $259 | | Audit-Related Fees | - | - | | Tax Fees | - | - | | All Other Fees | - | - | | Total | $267 | $259 | - The company has adopted a code of ethics, which is available on its website700 Part III Financial Statements This section presents the audited consolidated financial statements and the independent auditor's report Consolidated Balance Sheet Summary (As of Dec 31) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $32.9 | $9.7 | | Vessels, net | $176.1 | $98.5 | | Total assets | $221.4 | $110.6 | | Liabilities & Equity | | | | Total current liabilities | $37.1 | $28.6 | | Total long-term liabilities | $107.4 | $46.6 | | Total liabilities | $144.6 | $75.2 | | Mezzanine Equity (Preferred) | $0.0 | $8.0 | | Total shareholders' equity | $76.9 | $27.3 | Consolidated Statement of Operations Summary (Year Ended Dec 31) | (in millions) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Time charter revenue | $98.0 | $55.7 | $41.8 | | Total operating expenses, net | $48.2 | $44.0 | $38.0 | | Operating income | $45.7 | $9.3 | $2.0 | | Net income / (loss) | $43.0 | $4.0 | ($1.7) | | Net income / (loss) attributable to common shareholders | $42.4 | $3.3 | ($3.5) | Consolidated Statement of Cash Flows Summary (Year Ended Dec 31) | (in millions) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $52.6 | $2.4 | $3.2 | | Net cash (used in) / provided by investing activities | ($74.1) | $16.3 | ($55.7) | | Net cash provided by / (used in) financing activities | $46.6 | ($18.3) | $45.2 | | Net change in cash | $25.2 | $0.4 | ($7.3) | | Cash at end of year | $31.5 | $6.3 | $5.9 |