Imperial Petroleum Inc./Marshall Islands 6-K, filed Aug 30, 2024
Imperial Petroleum Inc./Marshall Islands (IMPP)
About this 6-K
Imperial Petroleum Inc./Marshall Islands filed this 6-K on August 30, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2024
Commission File Number 001-41095
IMPERIAL PETROLEUM INC.
(Translation of registrant’s name into English)
331 Kifissias Avenue Erithrea 14561 Athens, Greece
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
EXHIBIT INDEX
| 99.1 | Proxy Statement for the 2024 Annual Meeting of Stockholders | |
| 99.2 | Proxy and Notice Cards for the 2024 Annual Meeting of Stockholders | |
| 99.3 | 2023 Annual Report | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 30, 2024
| IMPERIAL PETROLEUM INC. | ||
| By: | /s/ Ifigeneia Sakellari | |
| Name: | Ifigeneia Sakellari | |
| Title: | Chief Financial Officer | |
Exhibit 99.1
IMPERIAL PETROLEUM INC.
331 Kifissias Avenue
Erithrea 14561
Athens, Greece
August 30, 2024
Dear Stockholder:
You are cordially invited to attend the 2024 Annual Meeting of Stockholders of Imperial Petroleum Inc., which will be held on Friday, October 11, 2024 at 11:00 a.m. Greek local time at the Company’s offices at 331 Kifissias Avenue, Erithrea 14561 in Athens, Greece.
The following Notice of the 2024 Annual Meeting of Stockholders and 2024 Proxy Statement describe the items to be considered by the stockholders at the meeting and contain certain information about our company and its officers and directors.
We are pleased to provide our proxy materials to our stockholders over the Internet. On or about August 30, 2024, we will begin mailing a Notice of Internet Availability of Proxy Materials to stockholders informing them that our 2024 Proxy Statement, 2023 Annual Report and voting instructions are available online. As more fully described in that Notice, stockholders may choose to access our proxy materials on the Internet or may request to receive paper copies of the proxy materials. This allows us to conserve natural resources and reduces the costs of printing and distributing the proxy materials, while providing our stockholders with access to the proxy materials in a fast and efficient manner. If you request proxy materials by mail, the Notice of the 2024 Annual Meeting of Stockholders, 2024 Proxy Statement and proxy card or voting instruction card and 2023 Annual Report will be sent to you.
Whether or not you are able to attend the 2024 Annual Meeting in person, it is important that your shares be represented. You can vote your shares by using the Internet, by telephone, or by requesting a printed copy of the proxy materials and completing and returning by mail the proxy card or voting instruction card that you will receive in response to your request. Instructions on each of these voting methods are outlined in the enclosed Proxy Statement. Please vote as soon as possible.
We hope to see you on October 11th.
Sincerely,
Harry N. Vafias
Chairman of the Board of Directors
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL STOCKHOLDERS MEETING TO BE HELD ON OCTOBER 11, 2024
The Notice of Annual Meeting of Stockholders, Proxy Statement, proxy card or voting instruction form and the Company’s 2023 Annual Report to Stockholders are available at www.Imperialpetro.com under the heading “Investor Relations-SEC Filings” or at www.proxyvote.com.
YOUR VOTE IS IMPORTANT.
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE 2024 ANNUAL MEETING AND THAT A QUORUM WILL BE PRESENT, WE URGE YOU TO VOTE AS PROMPTLY AS POSSIBLE BY USING THE INTERNET, BY TELEPHONE, OR BY COMPLETING, SIGNING, DATING AND RETURNING YOUR PROXY CARD OR VOTING INSTRUCTION FORM. A PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED. THE RETURN OF THIS PROXY CARD OR VOTING INSTRUCTION FORM WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON, SHOULD YOU DECIDE TO ATTEND THE 2024 ANNUAL MEETING.
IMPERIAL PETROLEUM INC.
331 Kifissias Avenue
Erithrea 14561
Athens, Greece
NOTICE OF 2024 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On Friday, October 11, 2024
NOTICE IS HEREBY GIVEN that the 2024 Annual Meeting of Stockholders of Imperial Petroleum Inc., a corporation incorporated in the Republic of the Marshall Islands, will be held at 11:00 a.m. Greek local time, Friday, October 11, 2024, at the Company’s offices at 331 Kifissias Avenue, Erithrea 14561 in Athens, Greece for the following purposes:
| 1. | to elect one director to hold office until the annual meeting of stockholders in 2027 and such director’s successor has been duly elected and qualified; |
| 2. | to ratify the appointment of our independent auditors; and |
| 3. | to transact such other business as may properly come before the 2024 Annual Meeting and any adjournments or postponements thereof. |
During the 2024 Annual Meeting, management also will discuss our financial results for the year ended December 31, 2023. Copies of our audited consolidated financial statements are contained in our 2023 Annual Report to Stockholders, which is being made available to stockholders together with the accompanying proxy statement. Our 2023 Annual Report to Stockholders is also available on our website at www.Imperialpetro.com under the heading “Investor Relations-SEC Filings” or at www.proxyvote.com.
Only holders of record of shares of our common stock, par value $0.01 per share, and Series B Preferred Stock, par value $0.01 per share, at the close of business on August 19, 2024 will be entitled to receive notice of, and to vote at, the 2024 Annual Meeting and at any adjournments or postponements thereof.
You are cordially invited to attend the 2024 Annual Meeting. Whether or not you expect to attend the 2024 Annual Meeting in person, please vote your shares by using the Internet, by telephone, or by completing and returning by mail, in the envelope provided, the proxy card or voting instruction form, which is being solicited on behalf of our Board of Directors. The proxy card or voting instruction form shows the form in which your shares of stock are registered. Your signature must be in the same form. Voting your shares by using the Internet, by telephone, or by returning the proxy card or voting instruction form does not affect your right to vote in person, should you decide to attend the 2024 Annual Meeting. We look forward to seeing you.
By Order of the Board of Directors
Harry Vafias
President, Chief Executive Officer and Chairman
Athens, Greece
August 30, 2024
IMPERIAL PETROLEUM INC.
331 Kifissias Avenue
Erithrea 14561
Athens, Greece
PROXY STATEMENT FOR THE 2024 ANNUAL MEETING OF STOCKHOLDERS
To be held on Friday, October 11, 2024
This Proxy Statement is furnished in connection with the solicitation of proxies by and on behalf of the Board of Directors of Imperial Petroleum Inc., a corporation incorporated in the Republic of the Marshall Islands, for use at the 2024 Annual Meeting of Stockholders of the Company to be held at 11:00 a.m. Greek local time, Friday, October 11, 2024, at the Company’s offices at 331 Kifissias Avenue, Erithrea 14561 in Athens, Greece and at any adjournments or postponements thereof.
On or about August 30, 2024, we will begin mailing a Notice of Internet Availability of Proxy Materials to stockholders informing them that our 2024 Proxy Statement, 2023 Annual Report and voting instructions are available online.
VOTING METHODS
Internet Voting
All stockholders of record and street name holders may vote on the Internet by accessing the following website address: http://www.proxyvote.com.
Telephone Voting
All stockholders of record may vote by calling the following toll-free telephone number: 1-800-690-6903. Please follow the voice prompts.
If you are a street name holder, and you requested to receive printed proxy materials, you may vote by telephone if your bank or broker makes that method available to you in the voting instruction form enclosed with the proxy materials that your bank or broker sends you.
Vote by Mail
If you receive a printed copy of the proxy materials, you can vote by completing the accompanying proxy card or voting instruction form and returning it in the return envelope provided. If you receive a Notice, you can request a printed copy of the proxy materials by following the instructions contained in the Notice. If you vote by Internet or telephone, you do not need to return your proxy card or voting instruction form.
Stockholders of Record and Beneficial Owners
If your shares are registered directly in your name on the books of the Company maintained with the Company’s transfer agent, Equiniti Trust Company, LLC, you are considered the “stockholder of record” of those shares and, if you request to receive a paper copy of them, the proxy materials will be mailed directly to you.
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If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in street name (also called a “street name” holder) and, if you request to receive
a paper copy of them, the proxy materials will be forwarded to you by your broker, bank or nominee. As a beneficial owner, you have the right to direct your broker, bank or other nominee how to vote and are also invited to attend the 2024 Annual Meeting. However, since you are not a stockholder of record, you may not vote these shares in person at the 2024 Annual Meeting unless you bring with you a legal proxy from the stockholder of record. A legal proxy may be obtained from your broker, bank or other nominee.
VOTING OF PROXY, REVOCATION
A proxy that is properly executed, whether on the Internet, by telephone or by mail and not subsequently revoked will be voted in accordance with instructions contained therein. If no instructions are given with respect to the matters to be acted upon, proxies will be voted as follows: (i) for the election of the nominee for director described herein, (ii) for the ratification of the appointment of our independent auditors and (iii) otherwise in accordance with the best judgment of the person or persons voting the proxy on any other matter properly brought before the 2024 Annual Meeting or any adjournments or postponements thereof.
Any stockholder who votes by using the Internet, by telephone or by completing and returning by mail the proxy card or voting instruction form may revoke it at any time before it is exercised by (i) delivering written notice to our Secretary of its revocation, (ii) executing and delivering to our Secretary a later dated proxy by using the Internet, by telephone or by mail, or (iii) appearing in person at the 2024 Annual Meeting and expressing a desire to vote his, her or its shares in person. You may not revoke a proxy merely by attending the 2024 Annual Meeting. To revoke a proxy, you must take one of the actions described above.
EXPENSES OF SOLICITATION
The expenses of the preparation of proxy materials and the solicitation of proxies for the 2024 Annual Meeting will be borne by us. In addition to solicitation by mail, proxies may be solicited in person, by telephone, telecopy, electronically or other means, or by our directors, officers and regular employees who will not receive additional compensation for such solicitations. If you choose to vote on the Internet, you are responsible for Internet access charges you may incur. If you choose to vote by telephone, you are responsible for telephone charges you may incur. Although there is no formal agreement to do so, we will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in forwarding the proxy soliciting materials to the beneficial owners of our common stock and Series B Preferred Stock.
VOTING SECURITIES
Holders of our common stock and Series B Preferred Stock as of the close of business on August 19, 2024 will be entitled to notice of, and to vote at, the 2024 Annual Meeting or any adjournments or postponements thereof. On that date there were (1) 33,726,760 shares of our common stock outstanding, the holders of which are entitled to one vote for each share registered in their names with respect to each matter to be voted on at the 2024 Annual Meeting and (2) 16,000 shares of our Series B Preferred Stock outstanding, the holders of which are entitled to 25,000 votes for each share registered in their names with respect to each matter to be voted on at the 2024 Annual Meeting; provided, that no holder of Series B Preferred Stock may exercise voting rights that would result in the aggregate voting power of any beneficial owner of such shares and its affiliates (whether pursuant to ownership of Series B Preferred Stock, Common Stock or otherwise) exceeding 49.99% of the total number of votes eligible to be cast on any matter submitted to a vote of shareholders of the Company. The holders of common stock and Series B Preferred Stock shall vote on the proposals as a single class. The presence in person or by proxy (regardless of whether the proxy has authority to vote on all matters) of stockholders of record holding a majority of the total voting rights of shares entitled to vote at the 2024 Annual Meeting will constitute a quorum at the 2024 Annual Meeting.
Assuming that a quorum is present at the 2024 Annual Meeting, the directors will be elected by a plurality of votes cast. There is no provision for cumulative voting. Approval of other items at the 2024 Annual Meeting will require the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes will not affect the election of the directors or the outcome of the vote on other proposals.
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PROPOSAL ONE — ELECTION OF DIRECTORS
Our Board currently consists of three directors. Under our Amended and Restated Articles of Incorporation, the directors are divided into three classes, one of which is elected each year, with each director elected holding office for a three-year term and until his respective successor is duly elected and qualified. Our Board of Directors has determined that John Kostoyannis and George Xiradakis are each independent, as neither of them have any relationship or have had any transaction with us which the Board believes would compromise their independence.
Mr. Harry N. Vafias is the Class III director whose term expires this year. Mr. Vafias is standing for election as a director at the 2024 Annual Meeting and, if elected, will serve a three-year term expiring at the annual meeting of our stockholders in 2027. Mr. Vafias has consented to be named herein and to serve if elected. We do not know of anything that would preclude the nominee from serving if elected. If the nominee becomes unable to stand for election as a director at the 2024 Annual Meeting, an event not anticipated by the Board, the proxy may be voted for a substitute designated by the Board. The identity and a brief biography of the nominee for director and each continuing director is set forth below.
The Board recommends that stockholders vote FOR the following nominee for director.
NOMINEE FOR ELECTION
| Name |
Age(1) | Positions |
Director Since |
|||||||
| Harry N. Vafias |
46 | President, Chief Executive Officer, Chairman and Class III Director — Term to Expire in 2027 | 2021 | |||||||
DIRECTORS CONTINUING IN OFFICE
| Name |
Age(1) | Positions |
Director Since |
|||||||
| John Kostoyannis |
56 | Class II Director — Term to Expire in 2026 (2) |
2021 | |||||||
| George Xiradakis |
59 | Class I Director — Term to Expire in 2025(2) |
2021 | |||||||
| (1) | As of July 1, 2024. |
| (2) | Member of the Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee. |
Nominee for Election
The Board of Directors has nominated the following individual to serve as director:
Class III Director
Harry N. Vafias
President, Chief Executive Officer and Chairman
Harry N. Vafias has been a member of the Board of Directors and Chief Executive Officer and President of Imperial Petroleum since its inception on May 14, 2021. He has also been the President and Chief Executive Officer and a member of the Board of Directors of StealthGas, which is listed on the Nasdaq Global Select Market, since its inception in December 2004 and its Chief Financial Officer since January 2014 .Mr. Vafias is also the Non-Executive Chairman of C3is Inc., which was spun off from the Company and listed on the Nasdaq Capital Market in June 2023. Mr. Vafias has been actively involved in the tanker and gas shipping industry since 1999. Mr. Vafias worked at Seascope, a leading ship brokering firm specializing in sale and purchase of
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vessels and chartering of oil tankers. Mr. Vafias also worked at Braemar, a leading ship brokering firm, where he gained extensive experience in tanker and dry cargo chartering. Seascope and Braemar merged in 2001 to form Braemar Seascope Group plc, a public company quoted on the London Stock Exchange and one of the world’s largest ship brokering and shipping service groups. From 2000 until 2004, he worked at Brave Maritime and Stealth Maritime, companies providing comprehensive ship management services, where Mr. Vafias headed the operations and chartering departments of Stealth Maritime and served as manager for the sale and purchase departments of both Brave Maritime and Stealth Maritime. Mr. Vafias graduated from City University Business School in the City of London in 1999 with a B.A. in Management Science and from Metropolitan University in 2000 with a Masters degree in Shipping, Trade and Transport.
Directors Continuing in Office
The following directors will continue in office:
Class II Director
John Kostoyannis
Director
John Kostoyannis has been a member of our Board of Directors since November 2021. He has also been a member of the Board of Directors of StealthGas since 2010, and a member of the Board of Directors of C3is Inc. since its spinoff from the Company and Nasdaq listing in June 2023. Mr. Kostoyannis is a Managing Director at Allied Shipbroking Inc., a leading shipbroking house in Greece, providing Sale and Purchase and Chartering services in the shipping industry. Before joining Allied Shipbroking, from 1991 until September 2001, Mr. Kostoyannis worked in several prominent shipbroking houses in London and Piraeus. He is a member of the Hellenic Shipbrokers Association. Mr. Kostoyannis graduated from the City of London Polytechnic in 1988 where he studied Shipping and Economics.
Class I Director
George Xiradakis
George Xiradakis has been a member of our Board of Directors since November 2022. Mr. Xiradakis is the founder and Managing Director of XRTC Business Consultants Ltd. (“XRTC”) (January 1999). The company was established in order to represent financial institutions in the Greek territory and initially acted as the exclusive Shipping Representative of Credit Lyonnais Group in Greece. XRTC expanded its scope as Financial and Advisor Consultant for Greek Shipping, offering its services in national and International Institutions and Organizations. From February 2005 to 2008, XRTC acted as shipping finance consultant of the French banking group NATIXIS. He is also the General Secretary of the Association of Banking and Financial Executives of Hellenic Shipping, Vice President of China Hellenic Chamber (HCCI), Vice President (International and Financial Relations) of the China-Greece Association. He served as the President of the International Propeller Club, Port of Piraeus from 2013 to 2019 and he acted as a VP of the International Propeller Club of the United States. He is now Emeritus President of International Propeller Club, Port of Piraeus, Emeritus Member of The Piraeus Chamber of Commerce & Industry, Member of the Mediterranean Committee of China Classification Society, Piraeus Marine Club, Hellenic Maritime Museum and Hellas Liberty Floating Museum. He has also been a Board Member of other U.S.-listed shipping companies, and is a member of the Board of Directors of C3is Inc. since its spinoff from the Company and Nasdaq listing in June 2023.
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CORPORATE OFFICERS OF THE COMPANY
Our corporate officers are appointed by the Board and serve at the discretion of the Board. Our current executive officers, their respective ages and positions are set forth below. The biographical summary of Mr. Vafias, who serves as a member of the Board, appears above while Ms. Sakellari’s biographical summary is set forth below.
| Name |
Age(1) | Positions | ||||
| Harry N. Vafias |
46 | President, Chief Executive Officer and Chairman | ||||
| Ifigeneia (Fenia) Sakellari |
43 | Interim Chief Financial Officer | ||||
| (1) | As of July 31, 2024 |
The following is the biographical summary of our officer who is not a director:
Ifigeneia (Fenia) Sakellari
Interim Chief Financial Officer
Ifigeneia (Fenia) Sakellari is our Interim Chief Financial Officer. Ms. Sakellari has 19 years of experience in finance and was a finance officer of StealthGas from 2015 to 2022. Prior to this, Ms. Sakellari was employed for seven years with Piraeus Bank where she held positions in both its credit departments (corporate and project finance) and in its private equity investment arm. Ms. Sakellari holds a Bachelor Degree in Management Sciences from the London School of Economics and a Masters Degree in finance from SDA Bocconi.
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CORPORATE GOVERNANCE
Our business is managed under the direction of the Board, in accordance with the Business Corporations Act of the Republic of The Marshall Islands and our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws. Members of the Board are kept informed of our business through discussions with the President and Chief Executive Officer and other members of the Company’s management team, the review of materials provided to directors and participation in meetings of the Board and its committees.
Documents Establishing Our Corporate Governance
The Board of Directors and the Company’s management engage in an ongoing review of our corporate governance practices in order to ensure compliance with the applicable corporate governance rules of the SEC and the listing criteria of the Nasdaq Stock Market.
We have adopted a number of key documents that are the foundation of our corporate governance, including:
| • | a Code of Business Conduct and Ethics; |
| • | Corporate Governance Guidelines; |
| • | a Nominating and Corporate Governance Committee Charter; |
| • | a Compensation Committee Charter; and |
| • | an Audit Committee Charter. |
Our Code of Business Conduct and Ethics is posted on our website, and may be viewed on our website: www.imperialpetro.com under “Company Profile-Corporate Governance.” We will also provide a paper copy of these documents upon the written request of a stockholder. Stockholders may direct their requests to the attention of Investor Relations, Imperial Petroleum Inc., 331 Kifissias Avenue, Erithrea 14561, Athens, Greece.
We are a “foreign private issuer” under the securities laws of the United States and the rules of the Nasdaq Capital Market. Under the securities laws of the United States, “foreign private issuers” are subject to different disclosure requirements than U.S. domiciled registrants, as well as different financial reporting requirements. Under the Nasdaq Capital Market rules, a “foreign private issuer” is subject to less stringent corporate governance requirements. Subject to certain exceptions, the rules of the Nasdaq Capital Market permit a “foreign private issuer” to follow its home country practice in lieu of the listing requirements of the Nasdaq Capital Market. As permitted by these exemptions, as well as by our bylaws and the laws of the Marshall Islands, we to have an audit committee composed solely of two independent committee members, whereas a domestic U.S. public company would be required to have three such independent members. In addition, in lieu of obtaining shareholder approval prior to certain issuances of designated securities, the Company will comply with provisions of the Marshall Islands Business Corporations Act, providing that the Board of Directors approves share issuances.
Independence of Directors
The Board has determined that Messrs. Xiradakis and Kostoyannis, comprising a majority of our Board of Directors, do not have or have not had a material relationship with us either directly or indirectly during 2023 that would interfere with the exercise of their independent judgment as directors of the Company. The Board made its determination of independence in accordance with its Corporate Governance Guidelines, which specifies standards and a process for evaluating director independence. The Corporate Governance Guidelines provide that a director cannot be independent until three years after the end of certain relationships or situations involving the director, members of his/her immediate family and their employment or affiliation with the Company, its auditors, or in other specified circumstances.
Stockholders who wish to send communications on any topic to the Board of Directors or to the independent directors as a group may do so by writing to Imperial Petroleum Inc., 331 Kifissias Avenue, Erithrea 14561 Athens, Greece.
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Board of Directors
In accordance with the Company’s Amended and Restated Bylaws, the Board has specified that the number of directors will be set at three. The Board may change the number of directors by a vote of a majority of the entire Board. Each director is elected to serve until the third succeeding annual meeting of stockholders and until his or her successor shall have been duly elected and qualified, except in the event of death, resignation or removal. A vacancy on the Board created by death, resignation, removal (which may only be for cause), failure of the stockholders to elect the entire class of directors to be elected at any election of directors or for any other reason may be filled only by an affirmative vote of a majority of the remaining directors then in office, even if less than a quorum, at any special meeting called for that purpose or at any regular meeting of the Board.
Committees of the Board
The Board of Directors has established an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation Committee, each of which has a charter that may be viewed at our website, http://www.Imperialpetro.com. We will provide a paper copy of any of these documents upon the written request of a stockholder. Stockholders may direct their requests to the attention of Ifigenia Sakellari, Secretary, Imperial Petroleum Inc., 331 Kifissias Avenue, Erithrea 14561, Athens, Greece. The members of each committee are John Kostoyannis and George Xiradakis, each of whom is an independent director under applicable Nasdaq and SEC requirements.
Audit Committee
Mr. Xiradakis is Chairman of the Audit Committee. The Audit Committee is governed by a written charter, which is reviewed and approved annually by the Board. As stated above, the Board has determined that the continuing members of the Audit Committee will meet the applicable independence requirements, and that all continuing members of the Audit Committee meet the requirement of being financially literate.
The Audit Committee is appointed by the Board and is responsible for, among other matters overseeing the:
| • | integrity of the Company’s financial statements, including its system of internal controls; |
| • | Company’s compliance with legal and regulatory requirements; |
| • | independent auditor’s appointment, qualifications and independence; |
| • | retention, setting of compensation for, termination and evaluation of the activities of the Company’s independent auditors, subject to any required stockholder approval; and |
| • | performance of the Company’s independent audit function and independent auditors, as well as preparing an Audit Committee Report to be included in our annual proxy statement. |
Our Audit Committee is also responsible for establishing procedures for the approval of all related party transactions involving executive officers and directors, which procedures require the audit committee to approve any such transaction. Our Code of Business Conduct and Ethics requires our Audit Committee to review and approve any “related party” transaction, as defined in Item 7.B of Form 20-F, before it is consummated.
The Board of Directors has determined that Mr. Xiradakis whose biographical details are included herein qualifies as an audit committee financial expert as defined under current SEC regulations and each of Messrs. Kostoyannis and Xiradakis is independent in accordance with the listing standards of the Nasdaq Stock Market and SEC rules.
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Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is appointed by the Board and is responsible for, among other matters:
| • | reviewing the Board structure, size and composition and making recommendations to the Board with regard to any adjustments that are deemed necessary; |
| • | identifying candidates for the approval of the Board to fill Board vacancies as and when they arise as well as developing plans for succession, in particular, of the chairman and executive officers; |
| • | overseeing the Board’s annual evaluation of its own performance and the performance of other Board committees; |
| • | retaining, setting compensation and retentions terms for and terminating any search firm to be used to identify candidates; and |
| • | developing and recommending to the Board for adoption a set of Corporate Governance Guidelines applicable to the Company and to periodically review the same. |
Any stockholder or the Board may propose any person for election as a director. A stockholder who wishes to propose an individual for election as a director must provide written notice to our Secretary as described below under “Stockholder Communications with Directors.” Individuals proposed by stockholders in accordance with these procedures will receive the same consideration that individuals identified to the Nominating and Corporate Governance Committee through other means.
The Nominating and Corporate Governance Committee evaluates candidates for election as directors by considering, among other things, (i) the candidate’s experience, education, expertise and skills, and how those attributes relate to our business; (ii) how those attributes of a given candidate would complement the other Board members; (iii) the candidate’s independence from conflict of interest with us; (iv) the candidate’s ability to devote appropriate time and effort in preparation for board meetings; (v) the candidate’s character, judgment and reputation, and current or past service in positions or affiliations; and (vi) in determining whether to recommend the nomination of an incumbent director for election, considerations as to whether the incumbent director has performed effectively in his or her most recent years of service and whether the director continues to substantially meet the criteria for selection as director.
Indemnification
Under the Business Corporations Act of the Republic of The Marshall Islands and our Amended and Restated Bylaws, every director or officer of our company will be indemnified out of our funds against all civil liabilities, losses, damages, charges or expenses (including but not limited to an amount paid to settle an action, satisfy a judgment, liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him or her as such director or officer while exercising his or her powers and discharging his or her duties. The indemnity extends to any person acting as a director or officer in the reasonable belief that he or she has been so appointed or elected, notwithstanding any defect in such appointment or election. The indemnity contained in our Amended and Restated Bylaws does not extend to any matter which would render it void pursuant to the Business Corporations Act of the Republic of The Marshall Islands.
Stockholder Communications with Directors
Any stockholder may propose that any matter, including the nomination of a person for election as a director, be included in the annual stockholder meeting, so long as the matter is properly brought before the meeting in compliance with the procedures set forth in our Amended and Restated Bylaws. Our Amended and Restated Bylaws provide that stockholder who wishes to propose an individual for election as director must provide written notice to the Secretary of our Company of the intention to propose the nominee and the nominee’s willingness to serve as director. Notice must be given not less than 90 days and not more than
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120 days prior to the first anniversary date of the annual meeting for the preceding year. If, however, the date of our annual meeting is more than 30 days before or 60 days after the first anniversary date of the previous year’s annual meeting, a stockholder’s notice must be received at our principal executive offices by the later of (i) the close of business on the 90th day prior to the annual meeting date or (ii) the close of business on the tenth day following the date on which such annual meeting date is first publicly announced or disclosed by us. In addition, each notice must set forth as to each individual whom a stockholder proposes to nominate for election as director, (i) the name of the person to be nominated, (ii) the number and class of all shares of stock of the Company owned by the person and (iii) any other information relating to such individual that is required to be disclosed under the rules of the SEC applicable to solicitations of proxies with respect to nominees for election as directors. These and other provisions in our Amended and Restated Bylaws as to the form and content of a stockholder’s notice may impede stockholders’ ability to bring matters before, or to make nominations for directors at, an annual meeting of stockholders.
Compensation
The Compensation Committee of the Board of Directors has the responsibility to review, discuss and recommend for approval management compensation arrangements. The Compensation Committee is comprised of directors who are independent under Nasdaq Stock Market rules, applicable SEC requirements and the Company’s requirements for independent directors. The members of the Compensation Committee are George Xiradakis, who serves as Chairman, and John Kostoyannis.
Harry N. Vafias serves as the Company’s President and Chief Executive Officer and Ifigeneia Sakellari serves as our Interim Chief Financial Officer. Each of these officers is an employee of the management company and, except for any awards of stock options, restricted stock or other equity awards that may be granted to such individual, as discussed below, are not directly compensated by the Company.
Cash Compensation
The services of our Chief Executive Officer and Interim Chief Financial Officer was provided under the management agreement with Stealth Maritime initially for the first 12 months following the spin-off and then our Board agreed upon management compensation for subsequent periods. Stealth Maritime compensates each of these individuals for their services and we, in turn, reimburse Stealth Maritime for their compensation. The aggregate cash compensation to our officers in 2022 and 2023 was $0.3 million and $0.4 million respectively, and we expect such cash compensation to be approximately $[0.4] million in 2024. Prior to the Spin-Off in December 2021, neither we nor Stealth Maritime paid any compensation to our executive officers.
Our executive officers and directors are also eligible to receive awards under our equity compensation plan described below under “Equity Compensation Plan.” We recognized non-cash stock-based compensation expense of $117,256 in 2022 and $2,434,855 in 2023, and had unrecognized non-cash stock-based compensation expense of $2,999,360 as of December 31, 2023, which we expect to recognize over a weighted average period of 1.2 years. Of these amounts of recognized non-cash stock-based compensation expense, $0.1 million in 2022 and $1.1 million in 2023 related to restricted share or option awards to our executive officers. We did not recognize any share-based compensation expense in 2021.
Our Chief Executive Officer who also serves as Chairman of the Board Directors does not receive additional compensation for his service as a director. Each independent director receives annualized fees of $25,000 plus reimbursement of their out-of-pocket expenses incurred in attending meetings of our Board of Directors or any committee of our Board of Directors.
Equity Awards
We have an equity compensation plan, the 2024 Equity Compensation Plan, which was adopted in April 2024 and is administered by our Board of Directors which can make awards totaling in aggregate up to 10% of the number of shares of common stock outstanding at the time any award is granted. Officers, directors
9
and employees (including any prospective officer or employee) of the Company and its subsidiaries and affiliates and consultants and service providers to (including persons who are employed by or provide services to any entity that is itself a consultant or service provider to) the Company and its subsidiaries and affiliates will be eligible to receive awards under the equity incentive plan. Awards may be made under the expected equity compensation plan in the form of incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, unrestricted stock, restricted stock units and performance shares.
The 2024 Equity Plan replaced the 2021 Equity Plan, under which we will not grant any additional awards. In 2022, 2023 and 2024, we granted an aggregate of 2,944,290 awards under the 2021 Equity Plan. This include grants of restricted shares to our Chief Executive Officer, in an aggregate amount of 1,568,026 shares, Interim Chief Financial Officer, our independent directors and employees of our manager providing services to us, including 247,286 restricted shares to Nikolas Vafias, the senior executive of our manager and father of our Chief Executive Officer. This also includes options to purchase 593,750, 25,000 and 12,500 shares of common stock granted to our Chief Executive Officer, Directors of our Board and Interim Chief Financial Officer, respectively, on October 30, 2023, each at an exercise price of $1.60 per share, the closing price of the Common Stock on October 30, 2023, and 50% of which vest on October 30, 2024 and 50% of which vest on October 30, 2025 and options to purchase 100,000, 10,000 and 3,000, shares of common stock granted to our Chief Executive Officer, Directors of our Board and Interim Chief Financial Officer, respectively, on April 12, 2024, each at an exercise price of $3.60, the closing price of our common stock on April 12, 2024, and 50% of which vest on April 12, 2025 and 50% of which vest on April 12, 2026.
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PROPOSAL TWO — RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Appointment of Auditors
The Audit Committee of the Board, subject to the approval of our stockholders, has appointed the firm of Deloitte Certified Public Accountants S.A., independent registered public accounting firm, as auditors of the Company for the year ending December 31, 2024. The Board recommends approval by our stockholders of the appointment of Deloitte Certified Public Accountants S.A. as our auditors for the fiscal year ending December 31, 2024.
Representatives of Deloitte Certified Public Accountants S.A. are expected to be present at the 2024 Annual Meeting. They will have the opportunity to make a statement if they so desire, and are expected to be available to respond to appropriate questions from stockholders. Deloitte Certified Public Accountants S.A. has been our independent auditors since our inception in 2021 and, by virtue of their familiarity with our affairs and their qualifications, are considered qualified to perform this important function.
Principal Accounting Fees and Services
Deloitte Certified Public Accountants S.A. (“Deloitte”), an independent registered public accounting firm, has audited our annual financial statements for fiscal years ending 2023, 2023 and 2021 acting as our independent auditor since our inception in 2021. All services provided by Deloitte were pre-approved by the Audit Committee. Those services provided before the completion of our Spin-Off from StealthGas Inc. on December 3, 2021, were pre-approved by the Audit Committee of StealthGas Inc.
The table below sets forth the total amount billed and accrued for Deloitte for services performed in 2022 and 2023 and breaks down these amounts by the category of service (in thousands):
| 2022 | 2023 | |||||||
| Audit fees |
$ | 486 | $ | 237 | ||||
| Assurance/audit related fees |
— | — | ||||||
| Tax fees |
— | — | ||||||
| All other fees |
— | — | ||||||
| Total |
$ | 486 | $ | 237 | ||||
Audit fees
Audit fees represent compensation for professional services rendered for (i) the audit of our annual financial statements, (ii) the review of our quarterly financial information and (iii) audit services provided in connection with filing of registration statements and related consents and comfort letters and other audit services required for SEC or other regulatory filings.
Assurance / Audit Related Fees
Deloitte did not provide any services that would be classified in this category in 2022 or 2023.
Tax Fees
Deloitte did not provide any tax services in 2022 or 2023.
All Other Fees
Deloitte did not provide any other services that would be classified in this category in 2022 or 2023.
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Non-audit services
The Audit Committee of our Board of Directors has the authority to pre-approve permissible audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees.
Engagements for proposed services either may be separately pre-approved by the audit committee or entered into pursuant to detailed pre-approval policies and procedures established by the audit committee, as long as the audit committee is informed on a timely basis of any engagement entered into on that basis. Approval for other permitted non-audit services has to be sought on an ad hoc basis. Where no Audit Committee meeting is scheduled within an appropriate time frame, the approval is sought from the Chairman of the Audit Committee subject to confirmation at the next meeting.
The Audit Committee and the Board of Directors recommend that the stockholders vote FOR the ratification of the appointment of Deloitte Certified Public Accountants S.A. as our independent auditors for the fiscal year ending December 31, 2024.
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OTHER MATTERS
Registered and Principal Executive Offices
Our registered address in the Republic of The Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Marshall Islands MH96960. Our principal executive offices are located at 331 Kifissias Avenue, Erithrea 14561 Athens, Greece and our telephone number at that address is + 30 210 625 0001. Our corporate website address is http://www.Imperialpetro.com.
U.S. Securities and Exchange Commission Reports
Copies of the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2023, as filed with the SEC, are available to stockholders free of charge on the Company’s website at www.Imperialpetro.com under the heading “Investor Relations-SEC Filings” or by writing to the attention of Harry Vafias, President and Chief Executive Officer, Imperial Petroleum Inc. at 331 Kifissias Avenue, Erithrea 14561 Athens, Greece.
General
The enclosed proxy is solicited on behalf of the Company’s Board of Directors. Unless otherwise directed, proxies held by Harry N. Vafias, our President and Chief Executive Officer, or Ifigeneia (Fenia) Sakellari, our Interim Chief Financial Officer, will be voted at the 2024 Annual Meeting or any adjournments or postponements thereof FOR the election of the director nominee to the Board named on the proxy card or voting instruction form and FOR the ratification of the appointment of the independent auditors. If any matter other than those described in this Proxy Statement properly comes before the 2024 Annual Meeting, or with respect to any adjournments or postponements thereof, the proxies will vote the shares of common stock and Series B Preferred Stock represented by such proxies in accordance with their best judgment.
Please vote all of your shares. Beneficial stockholders sharing an address who are receiving multiple copies of the proxy materials and Annual Report to Stockholders should contact their broker, bank or other nominee to request that in the future only a single copy of each document be mailed to all stockholders at the shared address.
In addition, if you are the beneficial owner, but not the record holder, of shares of common stock, your broker, bank or other nominee may deliver only one copy of the Proxy Statement and Annual Report to Stockholders to multiple stockholders who share an address unless that nominee has received contrary instructions from one or more of the stockholders. We will deliver promptly, upon written or oral request, a separate copy of the Proxy Statement and Annual Report to Stockholders to a stockholder at a shared address to which a single copy of the documents was delivered. Stockholders who wish to receive a separate copy of the Proxy Statement and Annual Report to Stockholders, now or in the future, should submit their request to us by telephone at + 30 210 625 0001 or by submitting a written request to Imperial Petroleum Inc. at 331 Kifissias Avenue, Erithrea 14561 Athens, Greece.
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Exhibit 99.2
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| VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode above | ||
| IMPERIAL PETROLEUM INC. 331 KIFISSIAS AVE. 14561 ATHENS, GREECE |
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Follow the instructions to obtain your records and to create an electronic voting instruction form. | |
| VOTE BY PHONE - 1-800-690-6903 | ||
| Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. | ||
| VOTE BY MAIL | ||
| Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP THIS PORTION FOR YOUR RECORDS | |||
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
DETACH AND RETURN THIS PORTION ONLY | |||
| For All |
Withhold All |
For All Except |
To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
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| The Board of Directors recommends you vote FOR the following: |
☐ | ☐ | ☐ | |||||||||||||||
| 1. Election of Directors |
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| Nominees |
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| 01) Harry N. Vafias |
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| The Board of Directors recommends you vote FOR the following proposal: |
For | Against | Abstain | |||||||||||||||
| 2. Ratification of appointment of Deloitte Certified Public Accountants S.A. as the Company’s independent auditors for the year ending December 31, 2024. |
☐ | ☐ | ☐ | |||||||||||||||
| NOTE: Such other business as may properly come before the meeting or any adjournment thereof. |
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| Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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| Signature [PLEASE SIGN WITHIN BOX] Date |
Signature (Joint Owners) Date | |||||
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com
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IMPERIAL PETROLEUM INC. THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Proxy card for use at the 2024 Annual Meeting or any adjournment or postponement thereof (the “Meeting”) of Stockholders of Imperial Petroleum Inc., a company organized under the laws of the Republic of the Marshall Islands (the “Company”), to be held on Friday, October 11, 2024 at 11:00 a.m. Greek local time, at the Company’s principal executive offices at 331 Kifissias Avenue, Erithrea 14561 in Athens, Greece.
The person signing on the reverse of this card, being a holder of shares of common stock or Series B preferred stock of the Company, hereby appoints as his/her/its proxy at the Meeting, Harry N. Vafias and Ifigeneia Sakellari, or either of them, with full power of substitution, and directs such proxy to vote (or abstain from voting) at the Meeting all of his, her or its shares of common stock or Series B preferred stock as indicated on the reverse of this card or, to the extent that no such indication is given, to vote as set forth herein, and authorizes such proxy to vote in his discretion on such other business as may properly come before the Meeting.
Please indicate on the reverse of this card how the shares of common stock or Series B preferred stock represented by this proxy are to be voted. If this card is returned duly signed but without any indication as to how the shares of common stock or Series B preferred stock are to be voted in respect of any of the resolutions described on the reverse, the stockholder will be deemed to have directed the proxy to vote FOR the election of the nominee to the Board of Directors, and FOR Proposal Two.
Continued and to be signed on reverse side
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You invested in IMPERIAL PETROLEUM INC. and it’s time to vote!
You have the right to vote on proposals being presented at the Annual Meeting. This is an important notice regarding the availability of proxy material for the stockholder meeting to be held on October 11, 2024.
Get informed before you vote
View the Notice & Proxy Statement, Annual Report online OR you can receive a free paper or email copy of the material(s) by requesting prior to September 27, 2024. If you would like to request a copy of the material(s) for this and/or future stockholder meetings, you may (1) visit www.ProxyVote.com, (2) call 1-800-579-1639 or (3) send an email to sendmaterial@proxyvote.com. If sending an email, please include your control number (indicated below) in the subject line. Unless requested, you will not otherwise receive a paper or email copy.
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IMPERIAL PETROLEUM INC. 331 Kifissias Avenue Erithrea 14561 Athens, Greece |
* Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares.
Vote at www.ProxyVote.com
THIS IS NOT A VOTABLE BALLOT
| This is an overview of the proposals being presented at the upcoming stockholder meeting. Please follow the instructions on the reverse side to vote these important matters. |
| Voting Items | Board Recommends | |||
| 1. | Election of Directors |
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| Nominees: | ||||
| 01) Harry N. Vafias | ||||
| 2. | Ratification of appointment of Deloitte Certified Public Accountants S.A. as the Company’s independent auditors for the year ending December 31, 2024. |
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| NOTE: Such other business as may properly come before the meeting or any adjournment thereof. |
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| Prefer to receive an email instead? While voting on www.ProxyVote.com, be sure to click “Sign up for E-delivery”. |
Table of Contents
Exhibit 99.3
Annual REPORT 2023
Table of Contents
COMPANY PROFILE
Imperial Petroleum Inc. is a ship-owning company providing petroleum products, crude oil and dry bulk seaborne transportation services.
As of December 31, 2023, the Company owned a total of nine vessels; five M.R. product tankers, two suezmax tankers and two handysize dry bulk carriers with a capacity of approximately 628,000 deadweight tons (dwt).
In February 2024 the Company acquired one aframax tanker, the Gstaad Grace II (ex. Stealth Haralambos) (2009 built) and one product tanker, the Aquadisiac (2008 built) from an affiliated entity.
In April 2024, the Company sold its aframax tanker the Gstaad Grace II for a consideration of $42 million.
In May 2024, the Company entered into an agreement to acquire one product tanker, the Clean Imperial (2009 built) and one handyszie drybulk carrier, the Neptulus (2012 built) from an affiliated entity.
Imperial Petroleum Inc.’s shares of common stock and 8.75% Series A Cumulative Redeemable Perpetual Preferred Stock are listed on the Nasdaq Capital Market and trade under the symbols “IMPP” and “IMPPP”, respectively.
KEY COMPANY HIGHLIGHTS
| Revenues of $183.7 million in 2023 - up $86.7 million or 89.4% from 2022. | Full repayment of all outstanding loans within 2023. | |
| Net income of $71.1 million in 2023-up by $41.6 million or 141% from 2022. | Cash and time deposits of $124.0 million as of December 31, 2023. | |
| Active support to our shareholders as within 2023 we repurchased almost 3.5 million common shares and 5.8 million of outstanding warrants. | ||
SUMMARY FINANCIAL HIGHLIGHTS
| (Amounts in $ millions) |
2021 | 2022 | 2023 | |||||||||
| Revenues |
17.4 | 97.0 | 183.7 | |||||||||
| EBITDA |
5.2 | 42.1 | 82.8 | |||||||||
| Net Income |
(3.6 | ) | 29.5 | 71.1 | ||||||||
| Total Cash |
3.4 | 118.9 | 124.0 | |||||||||
| Debt |
27.8 | 69.9 | 0 | |||||||||
Table of Contents
|
HARRY VAFIAS BOARD CHAIRMAN & CEO |
Dear Shareholders,
I am proud to comment on our Company’s performance in 2023 as yet once more we had an outstanding year. Our profits in 2023 climbed to $71.1 million and we ended the year with $124 million of cash, an operating cash flow generation of about $80 million and zero debt on our balance sheet.
The key element of yet another successful year is our progress which we strive to build upon. Compared to 2022, our revenues were up by almost 90% while our profits increased by 141%. Our cash balance increased year on year, even though within 2023 we repaid $70 million of outstanding loans.
In 2023 we focused on supporting our stock by returning capital through share repurchases, and in September 2023 we enacted a $10 million share buyback program under which we bought back about $4.2 million of shares. Another act of support towards our stock is that within 2023 we bought back 5.8 million of outstanding warrants.
Markets in 2023 remained strong and without a doubt, good markets particularly for tankers were the key driver of profit generation. We enjoyed strong markets but volatile given various geopolitical tensions such as the ongoing Russia- Ukraine conflict, Israel conflict with Gaza and the Houthi attacks in the Red Sea which commenced towards the end of 2023. It remains uncertain how macro and any geopolitical variables will affect the oil markets in the coming year’s however Imperial Petroleum is well positioned both strategically and financially to adapt to any market conditions hence we feel confident.
Going forward our focus is to expand our fleet, preserve our profitability, utilize our strong cash base with all acts aiming at enjoying a stronger share price that will reflect the true value and potential of Imperial Petroleum. We feel that our market valuation needs to be corrected and we will continue our hard work towards achieving this goal.
I would like to thank all of our shareholders for their support and patience during our rapid growth phase and appreciation of our efforts towards building a robust Company.
Respectfully,
Harry Vafias
Table of Contents
The table below presents Imperial Petroleum’s fleet as of May 31, 2024.
TANKER VESSELS
| Vessel Name |
Year Built |
Capacity (dwt) |
Vessel Type | |||
| Clean Nirvana |
2008 | 50,000 | MR product tanker | |||
| Magic Wand |
2008 | 47,000 | MR product tanker | |||
| Clean Sanctuary (ex. Falcon Maryam) |
2008 | 46,000 | MR product tanker | |||
| Clean Thrasher |
2009 | 47,000 | MR product tanker | |||
| Clean Justice |
2011 | 46,000 | MR product tanker | |||
| Aquadisiac |
2008 | 51,000 | MR product tanker | |||
| Suez Enchanted |
2007 | 160,000 | Suezmax oil tanker | |||
| Suez Protopia |
2008 | 160,000 | Suezmax oil tanker |
DRYBULK CARRIERS
| Vessel Name |
Year Built |
Capacity (dwt) |
Vessel Type | |||
| Glorieuse |
2012 | 38,000 | Handysize drybulk | |||
| Eco Wildfire |
2013 | 33,000 | Handysize drybulk | |||
| Fleet Total |
678,000 |
VESSELS TO BE DELIVERED
| Vessel Name |
Year Built |
Capacity (dwt) |
Vessel Type | |||
| Neptulus |
2012 | 33,000 | Handysize drybulk | |||
| Clean Imperial |
2009 | 40,000 | MR product tanker |
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 20-F
| ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2023
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-41095
IMPERIAL PETROLEUM INC.
(Exact name of Registrant as specified in its charter)
Not applicable
(Translation of Registrant’s Name into English)
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
331 Kifissias Avenue, Erithrea 14561 Athens, Greece
(Address of principal executive offices)
Harry N. Vafias
331 Kifissias Avenue, Erithrea 14561, Athens, Greece
Telephone: (011) (30) (210) 625 0001
Facsimile: (011) (30) (210) 625 0018
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Common Stock, par value $0.01 per share | IMPP | The Nasdaq Stock Market LLC | ||
| 8.75% Series A Cumulative Redeemable Perpetual Preferred Stock | IMPPP | The Nasdaq Stock Market LLC |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION
PURSUANT TO SECTION 15(d) OF THE ACT:
None
Table of Contents
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2023 was: 29,812,755 shares of Common Stock, par value $0.01 per share, and 795,878 shares of 8.75% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, and 16,000 shares of Series B Preferred Stock, par value $0.01 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | |||||
| Emerging growth company | ☒ | |||||||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report: ☐ Yes ☒ No
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ |
Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Table of Contents
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2 | |||||
| Item 2. |
2 | |||||
| Item 3. |
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| Item 4. |
43 | |||||
| Item 4A. |
65 | |||||
| Item 5. |
65 | |||||
| Item 6. |
82 | |||||
| Item 7. |
87 | |||||
| Item 8. |
92 | |||||
| Item 9. |
92 | |||||
| Item 10. |
92 | |||||
| Item 11. |
117 | |||||
| Item 12. |
118 | |||||
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| Item 13. |
118 | |||||
| Item 14. |
Material Modifications to the Rights of Security Holders and Use of Proceeds |
118 | ||||
| Item 15. |
118 | |||||
| Item 16A. |
119 | |||||
| Item 16B. |
119 | |||||
| Item 16C. |
120 | |||||
| Item 16D. |
121 | |||||
| Item 16E. |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
121 | ||||
| Item 16F. |
122 | |||||
| Item 16G. |
122 | |||||
| Item 16H. |
122 | |||||
| Item 16I. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
122 | ||||
| Item 16J. |
122 | |||||
| Item 16 K |
122 | |||||
| 123 | ||||||
| Item 17. |
123 | |||||
| Item 18. |
123 | |||||
| Item 19. |
123 | |||||
Table of Contents
Imperial Petroleum Inc. is a Marshall Islands company that is referred to in this Annual Report on Form 20-F, together with its subsidiaries, as “Imperial Petroleum,” the “Company,” “we,” “us,” or “our.” This Annual Report should be read in conjunction with our consolidated financial statements and the accompanying notes thereto, which are included in Item 18 to this Annual Report.
Imperial Petroleum Inc. was incorporated under the laws of the Republic of the Marshall Islands on May 14, 2021, by StealthGas Inc. (“StealthGas”) to serve as the holding company of four subsidiaries, each owning one of the tanker vessels in our initial fleet, that it subsequently contributed to us in connection with the Spin-Off (as defined below). On December 3, 2021, StealthGas distributed all of our then outstanding shares of common stock, par value $0.01 per share (“common stock”), and 8.75% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, liquidation preference $25.00 per share (“Series A Preferred Stock”), to its stockholders, which completed our separation from StealthGas (the “Spin-Off”). See “Item 4. Information on the Company—Business Overview—Our Fleet”.
We use the term deadweight tons, or dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, in describing the size of our vessels. Unless otherwise indicated, all references to “U.S. dollars,” “dollars,” “U.S. $” and “$” in this annual report are to the lawful currency of the United States of America.
All share amounts reflect the 1-for-15 reverse split of the Common Stock effected by the Company on April 28, 2023.
This Annual Report on Form 20-F includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material.
All statements in this report that are not statements of historical fact are forward-looking statements as defined in Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”). Forward-looking statements include, but are not limited to, such matters as:
| • | future operating or financial results; |
| • | global and regional economic and political conditions including the conflict in Ukraine and related sanctions, the war in Gaza and ongoing attacks by Houthis in the Red Sea and Gulf of Aden; |
| • | pending or recent acquisitions, business strategy and expected capital spending or operating expenses; |
| • | competition in the maritime transportation industry; |
| • | shipping market trends, including charter rates, factors affecting supply and demand and world tanker fleet and drybulk fleet composition; |
| • | potential disruption of shipping routes due to accidents, diseases, pandemics, political events, piracy or acts by terrorists, along with various ongoing geopolitical pressures such as the conflict in Ukraine and the related global response, the war in Gaza and the ongoing attacks by Houthis in the Red Sea and Gulf of Aden; |
| • | ability to employ our vessels profitably; |
| • | performance by the counterparties to our charter agreements; |
| • | future refined petroleum product and oil prices and production; |
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| • | future supply and demand for oil, refined petroleum products and drybulk cargoes; |
| • | our financial condition and liquidity, including our ability to obtain financing in the future to fund capital expenditures, acquisitions and other general corporate activities, the terms of such financing and our ability to comply with covenants set forth in our financing arrangements; |
| • | performance by the shipyards constructing any newbuilding vessels we order; and |
| • | expectations regarding vessel acquisitions and dispositions. |
When used in this report, the words “anticipate,” “believe,” “intend,” “estimate,” “project,” “forecast,” “plan,” “potential,” “may,” “should” and “expect” reflect forward-looking statements. Such statements reflect our current views and assumptions and all forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect our future financial results are discussed more fully under “Item 3. Key Information—Risk Factors,” as well as elsewhere in this Annual Report on Form 20-F and in our other filings with the U.S. Securities and Exchange Commission (“SEC”). We caution readers of this Annual Report not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or revise any forward-looking statements.
| Item 1. | Identity of Directors, Senior Management and Advisers |
Not Applicable.
| Item 2. | Offer Statistics and Expected Timetable |
Not Applicable.
| Item 3. | Key Information |
| A. | [RESERVED] |
| B. | Capitalization and Indebtedness |
Not applicable
| C. | Reasons For the Offer and Use of Proceeds |
Not Applicable.
| D. | Risk Factors |
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Summary of Risk Factors
An investment in our common stock or Series A Preferred Stock is subject to a number of risks, including risks related to our industry, business and corporate structure. The following summarizes some, but not all, of these risks. Please carefully consider all of the information discussed in “Item 3. Key Information— Risk Factors” in this annual report for a more thorough description of these and other risks.
Risks Related To Our Industry
| • | The cyclical nature of the demand for seaborne transportation of oil and petroleum products may lead to significant changes in our chartering and vessel utilization, which may result in difficulty finding profitable charters for our vessels. |
| • | Charter rates for dry bulk vessels are volatile and may remain at currently low levels or decrease in the future, which may adversely affect our results of operations and financial condition. |
| • | Economic and political factors, including increased trade protectionism and tariffs, imposed sanctions such as the sanctions imposed on Russian oil trade and health crises, such as the COVID-19 pandemic, could materially adversely affect our business, financial position and results of operations. |
| • | The tanker industry is highly dependent upon the crude oil and petroleum products industries, with the level of availability and demand for oil and petroleum products. |
| • | An over-supply of tankers or drybulk carriers may lead to a reduction in charter rates, vessel values and profitability. |
| • | Our operations outside the United States expose us to global risks, such as political conflict, terrorism and public health concerns, including the conflict in Ukraine and related sanction, the war in Gaza and attacks by Houthi Rebels in the Red Sea and Gulf of Aden, which may interfere with the operation of our vessels. |
| • | We are subject to regulation and liability under environmental, health and safety laws that could require significant expenditures. |
| • | The market values of tankers and drybulk carriers are volatile and over time may fluctuate significantly. |
| • | Technological innovation could reduce our charter hire income and the value of our vessels. |
| • | Changes in fuel, or bunker, prices may adversely affect profits. |
| • | Risks involved with operating maritime vessels could affect our business and reputation, which would adversely affect our revenues and stock price. |
| • | Governments could requisition our vessels during a period of war or emergency, and maritime claimants could arrest our vessels. |
Risks Related To Our Business
| • | The small size of our fleet and any limitation in the availability or operation of these vessels could have a material adverse effect on our business, results of operations and financial condition. |
| • | We are dependent on the ability and willingness of our charterers to honor their commitments to us for all our revenues. |
| • | We are exposed to the volatile spot market and charters at attractive rates may not be available when the charters for our vessels expire which would have an adverse impact on our revenues and financial condition. |
| • | Our fleet’s average age is above the average age of the global tanker fleet and only slightly below the average age of the global drybulk carrier fleet, and as our vessels age we may have difficulty competing with younger, more technologically advanced tankers for charters from oil majors and other top-tier charterers. |
| • | Unless we set aside reserves for vessel replacement, at the end of a vessel’s useful life, our revenue will decline, which would adversely affect our cash flows and income. |
| • | We depend upon a few significant customers for a large part of our revenues. The loss of one or more of these customers could adversely affect our financial performance. |
| • | If in the future we again incur debt, the future loan agreements we enter into for such, whether to finance the expansion of our fleet or raise funds by taking loans against our existing vessels which are currently unencumbered, are likely to contain restrictive covenants that may limit our liquidity and corporate activities. |
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| • | The market values of our vessels may decrease, which could cause us to breach covenants in any future credit facilities, and could have a material adverse effect on our business, financial condition and results of operations. |
| • | The book value of some of our vessels is currently higher than their market value, and if we sell a vessel at a time when vessel prices have not increased, the sale may be for less than the vessel’s carrying value, which would result in a reduction in our profits. |
| • | We may incur debt in the future, and a significant increase in our debt levels may adversely affect us and our cash flows. |
| • | We depend on our manager, Stealth Maritime Corporation S.A., to operate our business. |
| • | Delays in the delivery of any newbuilding or secondhand tankers we agree to acquire could harm our operating results. |
| • | We may become exposed to volatility in interest rates, including SOFR. |
| • | We may enter into derivative contracts to hedge exposure to fluctuations in interest rates, which could result in higher than market interest rates and charges against our income. |
Risks Related to Taxation
| • | We may have to pay tax on U.S.-source income and/or may become a passive foreign investment company. |
Risks Related to an Investment in a Marshall Islands Corporation
| • | As a foreign private issuer we are entitled to claim an exemption from certain Nasdaq corporate governance standards, and if we elected to rely on this exemption, you may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements. |
| • | We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law or a bankruptcy act, and it may be difficult to enforce service of process and judgments against us and our officers and directors. |
Risks Related To Our Common Stock
| • | The market price of our common stock has fluctuated and may continue to fluctuate in the future, and we may continue not to pay dividends on our common stock. |
| • | Our stockholders may experience future dilution as a result of future equity offerings and other issuances of our common stock, preferred stock or other securities. In addition, we may elect to sell one or more of our vessels or vessel-owning subsidiaries, conduct a spinoff of such vessels or subsidiaries, or contribute such vessels or vessel-owning subsidiaries to a joint venture, master limited partnership or other entity on terms with which you do not agree. |
| • | Future issuances or sales, or the potential for future issuances or sales, of our common stock may cause the trading price of our securities to decline and could impair our ability to raise capital through subsequent equity offerings. |
| • | The superior voting rights of our Series B preferred stock may limit the ability of our common stockholders to control or influence corporate matters, and the interests of the holder of such shares could conflict with the interests of common stockholders. |
| • | Our restated articles of incorporation and amended and restated bylaws contain anti-takeover provisions that may discourage, delay or prevent (1) our merger or acquisition and/or (2) the removal of incumbent directors and officers and (3) the ability of public stockholders to benefit from a change in control. |
| • | Issuance of preferred stock, such as our Series B preferred stock, may adversely affect the voting power of our common stockholders and have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock. |
Risks Related To Our Series A Preferred Stock
| • | Our Series A Preferred Stock are subordinated to any future debt obligations and investors’ interests could be diluted by the issuance of additional preferred shares and by other transactions. |
| • | Holders of our Series A Preferred Stock have extremely limited voting rights. |
| • | The Series A Preferred Stock represents perpetual equity interests and holders have no right to receive any greater payment than the liquidation preference regardless of the circumstances. |
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Risks Related To Our Industry
The tanker industry is cyclical and volatile, which may adversely affect our earnings and available cash flow.
The tanker industry is both cyclical and volatile in terms of charter rates and profitability. Periodic adjustments to the supply of and demand for crude oil and product tankers cause the industry to be cyclical in nature. We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short and medium-term liquidity. A worsening of current global economic conditions may cause tanker charter rates to decline and thereby adversely affect our ability to charter or re-charter our vessels and any renewal or replacement charters that we enter into, may not be sufficient to allow us to operate our vessels profitably. In addition, the conflict in Ukraine is disrupting energy production and this conflict, as well Houthi attacks on vessels, are disrupting trade patterns, including shipping in the Black Sea, the Red Sea, Gulf of Aden and elsewhere, and the impact of these events on energy prices and tanker rates, which initially have increased, is uncertain. Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products. The factors affecting the supply and demand for tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
The factors that influence demand for tanker capacity include:
| • | supply and demand for energy resources and oil and petroleum products; |
| • | regional availability of refining capacity and inventories compared to geographies of oil production regions; |
| • | national policies regarding strategic oil inventories (including if strategic reserves are set at a lower level in the future as oil decreases in the energy mix); |
| • | global and regional economic and political conditions, including armed conflicts, terrorist activities, embargoes and strikes; |
| • | currency exchange rates; |
| • | the distance over which oil and oil products are to be moved by sea; |
| • | changes in seaborne and other transportation patterns; |
| • | changes in governmental or maritime self-regulatory organizations’ rules and regulations or actions taken by regulatory authorities; |
| • | environmental and other legal and regulatory developments; |
| • | weather and natural disasters; |
| • | developments in international trade, including those relating to the imposition of tariffs; |
| • | competition from alternative sources of energy; and |
| • | international sanctions, embargoes, import and export restrictions, nationalizations and wars. |
The factors that influence the supply of tanker capacity include:
| • | supply and demand for energy resources and oil and petroleum products; |
| • | demand for alternative sources of energy; |
| • | environmental regulations that may affect the technology and fuel of vessels |
| • | the number of newbuilding orders and deliveries, including slippage in deliveries; |
| • | the number of vessel casualties; |
| • | technological advances in tanker design and capacity; |
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| • | the number of shipyards and ability of shipyards to deliver vessels; |
| • | availability of financing for new vessels and shipping activity; |
| • | the degree of scrapping or recycling rate of older vessels, depending, amongst other things, on scrapping or recycling rates and international scrapping or recycling regulations; |
| • | price of steel and vessel equipment; |
| • | the number of conversions of tankers to other uses or conversions of other vessels to tankers; |
| • | the number of product tankers trading crude or “dirty” oil products (such as fuel oil); |
| • | the number of vessels that are out of service, namely those that are laid up, drydocked, awaiting repairs or otherwise not available for hire; |
| • | changes in government and industry environmental and other regulations that may limit the useful lives of tankers and environmental concerns and regulations; |
| • | product imbalances (affecting the level of trading activity); |
| • | developments in international trade, including refinery additions and closures; |
| • | port or canal congestion; and |
| • | speed of vessel operation |
In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance costs, insurance coverage costs, the efficiency and age profile of the existing tanker fleet in the market, and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
We anticipate that the future demand for our tankers will be dependent upon economic growth in the world’s economies, seasonal and regional changes in demand, changes in the capacity of the global tanker fleet and the sources and supply of oil and petroleum products to be transported by sea. Given the number of new tankers currently on order with shipyards, the capacity of the global tanker fleet seems likely to increase and there can be no assurance as to the timing or extent of future economic growth. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.
Declines in oil and natural gas prices for an extended period of time, or market expectations of potential decreases in these prices, could negatively affect our future growth in the tanker sector. Sustained periods of low oil and natural gas prices typically result in reduced exploration and extraction because oil and natural gas companies’ capital expenditure budgets are subject to cash flow from such activities and are therefore sensitive to changes in energy prices. These changes in commodity prices can have a material effect on demand for our services, and periods of low demand can cause excess vessel supply and intensify the competition in the industry, which often results in vessels, particularly older and less technologically-advanced vessels, being idle for long periods of time. We cannot predict the future level of demand for our services or future conditions of the oil and natural gas industry. Any decrease in exploration, development or production expenditures by oil and natural gas companies could reduce our revenues and materially harm our business, results of operations and cash available for distribution.
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Charter rates for dry bulk vessels are volatile and may remain at currently low levels or decrease in the future, which may adversely affect our results of operations and financial condition.
The dry bulk shipping industry continues to be cyclical with high volatility in charter rates and profitability among the various types of dry bulk vessels. In 2021, charter rates for dry bulk vessels stood at the highest levels since 2008. The Baltic Dry Index, or the “BDI”, an index published by The Baltic Exchange of shipping rates for key dry bulk routes, declined in 2022 compared to 2021, and saw a further decline in 2023, principally as a result of an uncertain world economy, and an unstable Chinese economy, which is the main market for dry cargo vessels. However from the fourth quarter of 2023 we saw an improved dry market as Chinese economic stimulus packages started to take effect, combined with reduced capacity in the Panama Canal leading to vessels taking significantly longer routes than normal. The currently historically low orderbook for dry cargo vessels will also likely have a positive effect on the BDI in 2024 and 2025. On April 1, 2024, the BDI stood at 1,821 compared to 1,402 one year earlier.
The factors affecting the supply and demand for drybulk vessels are outside of our control and are difficult to predict. As a result, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.
Factors that influence demand for drybulk vessel capacity include:
| • | demand for and production of drybulk products; |
| • | supply of and demand for energy resources and commodities; |
| • | global and regional economic and political conditions, including weather, natural or other disasters (such as the COVID-19 pandemic), armed conflicts (including the conflicts in Ukraine and Gaza and Houthi attacks in the Red Sea and Gulf of Aden), terrorist activities and strikes; |
| • | environmental and other regulatory developments; |
| • | the location of regional and global exploration, production and manufacturing facilities of the sourcing materials and the distance drybulk cargoes are to be moved by sea; |
| • | changes in seaborne and other transportation patterns including shifts in the location of consuming regions for energy resources, commodities, and transportation demand for drybulk transportation; |
| • | international sanctions, embargoes, import and export restrictions, nationalizations and wars, including the conflict in Ukraine and Gaza; |
| • | natural disaster and weather; |
| • | trade disputes or the imposition of tariffs on various commodities or finished goods tariffs on imports and exports that could affect the international trade; and |
| • | currency exchange rates. |
Factors that influence the supply of drybulk vessel capacity include:
| • | the size of the newbuilding orderbook; |
| • | the prevailing and anticipated freight rates which in turn affect the rate of newbuilding; |
| • | availability of financing for new vessels; |
| • | the number of newbuild deliveries, including slippage in deliveries, which, among other factors, relates to the ability of shipyards to deliver newbuilds by contracted delivery dates and the ability of purchasers to finance such newbuilds; |
| • | the scrapping rate of older vessels, depending, amongst other things, on scrapping rates and international scrapping regulations; |
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| • | health crises, such as the COVID-19 pandemic, and related factors, including port lockdowns, higher crew cost and travel restrictions imposed by governments around the world; |
| • | port and canal congestion; |
| • | the speed of vessel operation which may be influenced by several reasons including energy cost and environmental regulations; |
| • | sanctions; |
| • | the number of vessels that are in or out of service, delayed in ports for several reasons, laid-up, dry docked awaiting repairs or otherwise not available for hire, including due to vessel casualties; |
| • | changes in environmental and other regulations that may limit the useful lives of vessels or effectively cause reductions in the carrying capacity of vessels or early obsolescence of tonnage; and |
| • | ability of the Company to maintain ESG practices acceptable to customers, regulators and financing sources. |
Factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions. We anticipate that the future demand for our drybulk vessels and, in turn, drybulk charter rates, will be dependent, among other things, upon economic growth in the world’s economies, seasonal and regional changes in demand, changes in the capacity of the global drybulk vessel fleet and the sources and supply of drybulk cargo to be transported by sea. A decline in demand for commodities transported in drybulk vessels or an increase in supply of drybulk vessels could cause a significant decline in charter rates, which could materially adversely affect our business, financial condition and results of operations. There can be no assurance as to the sustainability of future economic growth, if any, due to unexpected demand shocks.
World events, including terrorist attacks, international hostilities and potential disruption of shipping routes due to events outside of our control, including the conflict in Ukraine and ongoing Houthi attacks on vessels in the Red Sea and Gulf of Aden, could negatively affect our results of operations and financial condition.
We conduct most of our operations outside of the U.S. and our business, results of operations, cash flows, financial condition and ability to pay dividends, if any, in the future may be adversely affected by changing economic, political and government conditions in the countries and regions where our vessels are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts, including the current political instability in the Middle East, North Africa and other countries and geographic areas, terrorist or other attacks and war or international hostilities. Terrorist attacks and the continuing response of the U.S. and others to these attacks, as well as the threat of future terrorist attacks around the world, continues to cause uncertainty in the world’s financial markets and may affect our business, operating results and financial condition. Continuing conflicts and recent developments in the Middle East, including the Israeli-Palestinian conflict, the escalation of conflict between Russia and Ukraine, and the presence of U.S. or other armed forces in Iraq, Syria, Afghanistan and various other regions, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. These types of attacks have also affected vessels trading in regions such as the Black Sea, South China Sea and the Gulf of Aden off the coast of Somalia. The Company is still taking ships through the Suez Canal, and there is a high risk that Houthis might attack our vessels. Although our vessels are insured, there is a risk that insurers may deny cover, or delay payment if an attack does take place, which attack could destroy our ships or partially damage them. The IMO’s extraordinary council session held on 10th and 11th March 2022, addressed the impacts on shipping and seafarers, as a result of the conflict in the Black Sea and the Sea of Azov. The IMO called for the
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need to preserve the integrity of maritime supply chains and the safety and welfare of seafarers and any spillover effects of the military action on global shipping, logistics and supply chains, in particular the impacts on the delivery of commodities and food to developing nations and the impacts on energy supplies. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.
The conflict between Russia and Ukraine, which commenced in February 2022, has disrupted supply chains and caused instability and significant volatility in the global economy. Much uncertainty remains regarding the global impact of the conflict in Ukraine, and it is possible that such instability, uncertainty and resulting volatility could significantly increase our costs and adversely affect our business, including our ability to secure charters and financing on attractive terms, and as a result, adversely affect our business, financial condition, results of operation and cash flows.
As a result of the conflict between Russia and Ukraine, Switzerland, the US, the EU, the UK and others have announced unprecedented levels of sanctions and other measures against Russia and certain Russian entities and nationals. Such sanctions against Russia may adversely affect our business, financial condition, results of operation and cash flows. For example, apart from the immediate commercial disruptions caused in the conflict zone, escalating tensions among the two countries and fears of potential shortages in the supply of Russian crude have caused the price of oil to trade at high levels. The ongoing conflict could result in the imposition of further economic sanctions against Russia, with uncertain impacts on the drybulk carrier and tanker markets and the world economy. While we do not have any Ukrainian or Russian crew, our vessels currently do sail in the Black Sea and we otherwise conduct limited operations in Russia and Ukraine, it is possible that the conflict in Ukraine, including any increased shipping costs, disruptions of global shipping routes, any impact on the global supply chain and any impact on current or potential customers caused by the events in Russia and Ukraine, could adversely affect our operations or financial performance.
Political uncertainty and an increase in trade protectionism could have a material adverse impact on our charterers’ business and, in turn, could cause a material adverse impact on our results of operations, financial condition and cash flows.
Our operations expose us to the risk that increased trade protectionism from China, other countries in the Asian region, the United States or other nations will adversely affect our business. If the global recovery is undermined by downside risks and the economic downturn returns, or if the regulatory environment otherwise dictates, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing the demand for shipping. Specifically, increasing trade protectionism affecting the markets that our charterers serve may cause (i) a decrease in cargoes available to our charterers in favor of domestic charterers and domestically owned ships and (ii) an increase in the risks associated with importing goods to such markets. For instance, the government of China has implemented economic policies aimed at increasing domestic consumption of Chinese-made goods and restricting currency exchanges within China. Further, on January 23, 2017, former President Trump signed an executive order withdrawing the United States from the Trans-Pacific Partnership, a global trade agreement intended to include the United States, Canada, Mexico, Peru and a number of Asian countries. Further, in January 2019, the United States announced expanded sanctions against Venezuela, which may have an effect on its oil output and in turn affect global oil supply. Throughout 2018 and 2019, former President Trump called for substantial changes to foreign trade policy with China and raised, and proposed to further raise in the future, tariffs on several Chinese goods in order to reverse what he perceived as unfair trade practices that have negatively impacted U.S. businesses. The announcement of such tariffs has triggered retaliatory actions from foreign governments, including China, and may trigger retaliatory actions by other foreign governments, which resulted in a “trade war.” The trade war has had the effect of reducing the supply of goods available for import or export and has therefore resulted in a decrease in demand for shipping. On January 15, 2020, the United States and China signed the Phase One Deal, agreeing to the rollback of tariffs, expansion of trade purchases, and renewed commitments on intellectual property, technology transfer, and currency practices deescalating the trade war. Under the Phase One Deal the U.S. has committed to reduce tariffs from 15 % to 7.5% on US$120 billion worth of goods and China has agreed to halve tariffs on 1,717 U.S. goods,
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lowering the tariff on some items from 10% to 5%, and others from 5 % to 2.5 %, which both took effect on February 14, 2020. U.S. President Biden has stated that there are no immediate plans to cancel the Phase One Deal, but the administration is expected to make changes to the U.S.-China tariff policies.
There is no certainty that the de-escalation of the trade war between the U.S. and China will continue and there is no certainty that additional tariffs will not be imposed by the U.S. or China. Should the de-escalation of the trade war discontinue or an increase in trade barriers or restrictions on trade occur or be perceived to become likely, such events may have an adverse effect on global market conditions, may have an adverse impact on global trade and our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The conflict in Ukraine could disrupt our operations and negatively impact charter rates and costs.
The conflict in Ukraine, and the economic sanctions imposed by the EU, U.S. and other countries in response to Russian action, is disrupting energy production and trade patterns, including shipping in the Black Sea and elsewhere, and its impact on energy prices and tanker rates, which initially have increased, is uncertain. Some of these sanctions and executive orders target the Russian oil sector, including a prohibition on the import of oil from Russia to the United States or the United Kingdom, and the European Union’s recent ban on Russian crude oil and petroleum products which took effect in December 2022 and February 2023, respectively, as well as a price cap on Russian oil of $60 per barrel. Prior to the war, Russia exported approximately 5.5 mbpd of seaborne crude oil and refined petroleum products to the EU, USA, South Korea and Japan. After February 2023, Russia is exporting less than 0.4 mbpd to these countries. The price of crude oil (Brent) initially traded above $100 per barrel as a result of the war and escalating tensions in the region and fears of potential shortages in the supply of Russian crude oil but has since come down and, as of March 31, 2024, was trading above $81 per barrel. Russian crude oil is restricted for export, due to the extension of economic sanctions, and has also been impacted by boycotts and general sentiment, which could result in a reduction in the supply of crude oil and refined petroleum products cargoes available for transportation and, while initially tanker rates have increased, this could negatively impact tanker charter rates over the longer term. In addition, higher oil prices could reduce demand for oil and refined petroleum products, including in the event of any slowdown in the global economy due such high oil prices or the impact of economic sanctions or geopolitical tensions and uncertainty, and in turn reduce demand for tankers and tanker charter rates. A slowdown in the global economy would also negatively affect the demand for products and commodities transported by dry bulk vessels, which would then negatively affect the charter rates for such vessels. The war in Ukraine is also impacting trade flows on drybulk vessels and for a range of commodities. Some of these changes in trade flows could positively affect the demand for vessels, other trade flow changes might negatively affect the vessel demand, such as reduced grain exports ex Ukraine. The conflict may also impact various costs of operating our business, such as bunker expenses, for which we are responsible when our vessels operate in the spot market, which have increased with higher oil prices, war risk insurance premiums and crewing services, as Russia and the Ukraine are significant sources of crews, which may be disrupted or more expensive.
In addition, our vessels carry lawful cargoes originating in Russia, in compliance with existing sanctions, oil majors and other charterers may elect not to charter our vessels simply for doing business with companies that do lawful business in Russia. In addition, it may not be possible for us to obtain war risk insurance for any vessel loading Russian origin cargoes, in which case our vessels would not be allowed to call Russian ports and thereby impacting the vessels’ future trading pattern and earnings.
The situation in Ukraine, and the global response, continues to evolve and its impact on energy supply and demand, energy prices and tanker operations and charter rates remains subject to considerable uncertainty, which could adversely impact our business, results of operations and financial condition.
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Global economic conditions may negatively impact the shipping industry.
The world economy is currently facing a number of ongoing challenges, as a result of recent turmoil and hostilities in various regions, including Syria, Iraq, North Korea, Venezuela, Gaza, the Red Sea, North Africa and Ukraine. The periodic weaknesses in the global economy in recent years have caused, and may continue to cause, a decrease in worldwide demand for certain goods and, thus, shipping.
Beginning in February of 2022, President Biden and several European leaders announced various economic sanctions against Russia in connection with the aforementioned conflicts in the Ukraine region, which may adversely impact our business. Our business could also be adversely impacted by trade tariffs, trade embargoes or other economic sanctions that limit trading activities by the United States or other countries against countries in the Middle East, Asia or elsewhere as a result of terrorist attacks, hostilities or diplomatic or political pressures. On March 8, 2022, President Biden issued an executive order prohibiting the import of certain Russian energy products into the United States, including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal. Additionally, the executive order prohibits any investments in the Russian energy sector by US persons, among other restrictions.
The U.K. formally exited the EU on January 31, 2020 (informally known as “Brexit). On December 24, 2020, the U.K. and EU entered into a trade and cooperation agreement (the “Trade and Cooperation Agreement”), which was entered into force on May 1, 2021 following ratification by the EU. Brexit has led to ongoing political and economic uncertainty and periods of increased volatility in both the U.K. and in wider European markets for some time. Brexit’s long-term effects will depend on the effects of the implementation and application of the Trade and Cooperation Agreement and any other relevant agreements between the U.K. and EU. Brexit has also given rise to calls of other EU member states’ governments to consider withdrawal. These developments and uncertainties, or the perception that they may occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Additionally, Brexit or similar events in other jurisdictions, could impact global markets, including foreign exchange and securities markets. The foregoing factors could depress economic activity and restrict our access to capital, causing a material adverse effect on our business and on our consolidated financial position, results of operations and our ability to pay distributions.
The U.S. government has recently made statements and taken certain actions that may lead to potential changes to U.S. and international trade policies, including recently-imposed tariffs affecting certain Chinese industries. It is unknown whether and to what extent new tariffs (or other new laws or regulations) will be adopted, or the effect that any such actions would have on us or our industry. If any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular, if the U.S. government takes retaliatory trade actions due to the recent U.S.-China trade tension, such changes could have an adverse effect on our business, financial condition, and results of operations.
Economic slowdown in the Asia Pacific region, particularly in China, may have a material adverse effect on us, as we anticipate a significant number of the port calls made by our vessels will continue to involve the loading or discharging of dry bulk commodities in ports in the Asia Pacific region. We expect that a substantial portion of our business will continue to involve port calls in China or Chinese counter parties. Changes in the economic conditions of China, and policies adopted by the government to regulate its economy, including with regards to tax matters and environmental concerns (such as achieving carbon neutrality), and their implementation by local authorities could affect our vessels that are either chartered to Chinese customers or that call to Chinese ports, our vessels that undergo dry docking at Chinese shipyards and any financial institutions with whom we enter into financing agreements, and could have a material adverse effect on our business, results of operations and financial condition.
While global economic conditions have generally improved, relatively weak global economic conditions have had and may continue to have a number of adverse consequences for dry bulk, tankers and other shipping
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sectors, including, among other things; low charter rates, particularly for vessels employed on short-term time charters or in the spot market; decreases in the market value of dry bulk and tanker vessels and limited secondhand market for the sale of vessels; limited financing for vessels; widespread loan covenant defaults; and declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers. The occurrence of one or more of these events could have a material adverse effect on our business, results of operations, cash flows and financial condition.
The tanker industry is highly dependent upon the crude oil and petroleum products industries.
The employment of our subsidiaries’ vessels is driven by the availability of and demand for crude oil and petroleum products, the availability of modern tanker capacity and the scrapping, conversion, or loss of older vessels. Historically, the world oil and petroleum markets have been volatile and cyclical because of the many conditions and events that affect the supply, price, production and transport of oil, including:
| • | increases and decreases in the demand and price for crude oil and petroleum products; |
| • | availability of crude oil and petroleum products; |
| • | demand for crude oil and petroleum product substitutes, such as natural gas, coal, hydroelectric power and other alternate sources of energy that may, among other things, be affected by environmental regulation; |
| • | actions taken by OPEC and major oil producers and refiners; |
| • | political turmoil in or around oil producing nations; |
| • | global and regional political and economic conditions; |
| • | developments in international trade; |
| • | international trade sanctions; |
| • | environmental factors; |
| • | natural catastrophes; |
| • | terrorist acts; |
| • | weather; and |
| • | changes in seaborne and other transportation patterns. |
Despite turbulence in the world economy at times in recent years, worldwide demand for oil and oil products has continued to rise; however, the COVID-19 pandemic caused demand for oil and oil products to stagnant. In the event that the long-term trend falters, the production of and demand for crude oil and petroleum products will encounter pressure which could lead to a decrease in shipments of these products and consequently this would have an adverse impact on the employment of our vessels and the charter rates that they command. Also, if oil prices decline to levels that are uneconomic for producers, it may lead to declining output. As a result of any reduction in demand or output, the charter rates that we earn from our vessels employed on charters related to market rates may decline or remain at low levels, as they did from the second half of 2020 until the third quarter of 2022.
An over-supply of tankers may lead to a reduction in charter rates, vessel values and profitability.
The market supply of tankers is affected by a number of factors, such as supply and demand for energy resources, including oil and petroleum products, supply and demand for seaborne transportation of such energy resources, and the current and expected purchase orders for new-buildings. While currently the orderbook for tankers is at low levels compared to historical standards, if the capacity of new tankers delivered exceeds the capacity of such vessel types being scrapped and converted to non-trading vessels, global fleet capacity will
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increase. If the supply of tanker capacity, for the vessel class sizes comprising our fleet in particular, increases, and if the demand for the capacity of such vessel types decreases, or does not increase correspondingly, charter rates could materially decline. A reduction in charter rates and the value of our tankers may have a material adverse effect on our results of operations.
An over-supply of drybulk vessel capacity may depress the current charter rates and, in turn, adversely affect our profitability.
The market supply of drybulk vessels had increased due to the high level of new deliveries in recent years. Drybulk newbuildings were delivered in significant numbers starting at the beginning of 2006 and continued to be delivered in significant numbers through 2017, before declining to more moderate levels of newbuilding deliveries. In addition, the drybulk newbuilding orderbook may increase further in proportion to the existing fleet. Even though the overall level of the orderbook has declined over the past years, an over-supply of drybulk vessel capacity could depress the current charter rates. Factors that influence the supply of vessel capacity include:
| • | number of new vessel deliveries; |
| • | scrapping rate of older vessels; |
| • | vessel casualties; |
| • | price of steel; |
| • | number of vessels that are out of service; |
| • | vessels’ average speed; |
| • | changes in environmental and other regulations that may limit the useful life of vessels; and |
| • | port or canal congestion. |
If drybulk vessel capacity increases but the demand for vessel capacity does not increase or increases at a slower rate, charter rates could materially decline, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The market values of tankers and drybulk carriers are volatile and over time may fluctuate significantly. When the market values of our vessels are low, we may incur a loss on sale of a vessel or record an impairment charge, which may adversely affect our profitability and possibly lead to defaults under our loan agreements.
The market value of our vessels may fluctuate significantly, and these experienced significant declines during the economic crisis. Currently tanker values are at relatively high levels, but until the second half of 2022 were at relatively low levels for most of the period since the financial crisis in 2008. Drybulk carrier values are currently at relatively low levels, after recent highs from late 2020 through the latter part of 2022, and remain well below the highs reached in 2007 and 2008. The market values of our vessels are subject to potential significant fluctuations depending on a number of factors including:
| • | general economic and market conditions affecting the shipping industry; |
| • | age, sophistication and condition of our vessels; |
| • | types and sizes of vessels; |
| • | availability of other modes of transportation; |
| • | cost and delivery of schedules for new-buildings; |
| • | governmental and other regulations; |
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| • | supply and demand for refined petroleum products; |
| • | the prevailing level of product tanker charter rates and crude oil tanker rates; and |
| • | technological advances. |
As of December 31, 2023, the book value of four out of nine vessels, was higher than their market value. Although we believe that, with respect to each of these vessels, we will recover their carrying values at the end of their useful lives, based on their undiscounted cash flows, if we sell vessels at a time when vessel prices have not increased, the sale may be for less than the vessel’s carrying value in our financial statements, resulting in a reduction in profitability. Furthermore, if vessel values or anticipated future cash flows experience further declines, we may have to record an impairment charge in our financial statements, which would also result in a reduction in our profits. If we in the future again incur indebtedness and subsequently the market value of our fleet declines, we may not be in compliance with certain provisions of any such potential future loan agreements obtained for fleet expansion or financing of existing vessels. If we obtain future financing and the market value of our fleet declines, we may be unable to pledge additional collateral, our lenders could accelerate our debt and foreclose on our fleet. The loss of our vessels would mean we could not run our business.
Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our ESG policies may impose additional costs on us or expose us to additional risks.
Companies across all industries, including the shipping industry, are facing increased scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds, lenders and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. The increased focus and activism related to ESG and similar matters may hinder access to capital, as investors and lenders may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Companies which do not adapt to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition, and/or the stock price of such a company could be materially and adversely affected. As a result, we may be required to implement more stringent ESG procedures or standards so that we continue to have access to capital and our existing and future investors and lenders remain invested in us and make further investments in us.
Specifically, we may face increasing pressures from investors, lenders and other market participants, who are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. Additionally, certain investors and lenders may exclude shipping companies, such as us, from their investing portfolios altogether due to environmental, social and governance factors. If we are faced with limitations in the debt and/or equity markets as a result of these concerns, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to access funds to implement our business strategy or service any future indebtedness, which could have a material adverse effect on our financial condition and results of operations.
If we cannot meet our charterers’ quality and compliance requirements, including regulations or costs associated with the environmental impact of our vessels, we may not be able to operate our vessels profitably which could have an adverse effect on our future performance, results of operations, cash flows and financial position.
Customers have a high focus on quality, emissions and compliance standards with their suppliers across the entire value chain, including shipping and transportation. There is also increasing focus on the environmental footprint of marine transportation. We are required to maintain operating standards for all of our vessels that
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emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations, and are subject vetting processes conducted by prospective charterers. In addition, RightShip, which is a voluntary compliance requirement but a desirable chartering verifier among top charterers, is also demanding compliance with their standards regarding environmental acceptability based on a number of variables and factors important in the maritime industry. If we or our manager, or other affiliated entities, including Stealth Maritime, Brave Maritime, StealthGas or C3is Inc., are rated low or otherwise perform poorly on RightShip evaluations or other vetting processes conducted by charterers, it could lead to the loss of approval to conduct business with us and in turn the loss of revenue under existing charters or future chartering opportunities.
Our continuous compliance with existing and new standards and quality requirements is vital for our operations. Related risks could materialize in multiple ways, including a sudden and unexpected breach in quality and/or compliance concerning one or more vessels and/or a continuous decrease in the quality concerning one or more vessels occurring over time. For instance, in June 2021, the IMO, working with the Marine Environmental Protection Committee, passed amendments to Annex VI aimed at reducing carbon emissions produced by vessels and include two new metrics for measuring a vessel’s overall energy efficiency and actual carbon dioxide emissions: Energy Efficiency Existing Shipping Index (“EEXI”) and Carbon Intensity Indicator (“CII”). If our vessels are only able to comply with the maximum EEXI and CII thresholds by reducing their speed, our vessels may be less attractive to charterers, and we may only be able to charter our vessels for lower charter rates or to less creditworthy charters, if we are able to do so at all. Non-compliance by us, either suddenly or over a period of time, or an increase in requirements by our charterers above and beyond what we deliver, may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
We are subject to regulations and liability under environmental laws that require significant expenditures, which can affect the ability and competitiveness of our vessels to trade, our results of operations and financial condition.
Our business and the operation of our vessels are regulated under international conventions, national, state and local laws and regulations in force in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration, in order to protect against potential environmental impacts. Regulations of vessels, particularly environmental regulations have become more stringent and are expected to be further revised and become stricter in the future, including air emissions (nitrogen and sulfur oxides, particulate matter, etc.), marine pollution, BWTS implementation, GHG emissions, etc. As a result, significant capital expenditures may be required on our vessels to keep them in compliance, and we may be required to pay increased prices for newbuild and secondhand vessels that meet these requirements. See “Business-Environmental and Other Regulations” for more information.
In addition, the heightened environmental, quality and security concerns of the public, regulators, insurance underwriters, financing sources and charterers may generally lead to additional regulatory requirements, including enhanced risk assessment and security requirements, greater inspection, and safety requirements on all vessels in the marine transportation markets and possibly restrictions on the emissions of greenhouse gases from the operation of vessels. These requirements are likely to add incremental costs to our operations and the failure to comply with these requirements may affect the ability of our vessels to obtain and, possibly, collect on insurance or to obtain the required certificates for entry into the different ports where we operate. We could also incur material liabilities, including cleanup obligations and claims for natural resource, personal injury and property damages in the event that there is a release of petroleum or other hazardous materials from our vessels or otherwise in connection with our operations. Violations of, or liabilities under, environmental regulations can result in substantial penalties, fines and other sanctions, including, in certain instances, seizure or detention of our vessels. Any such actual or alleged environmental laws regulations and policies violation, under negligence, willful misconduct or fault, could result in substantial fines, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial
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condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. Events of this nature would have a material adverse effect on our business, financial condition and results of operations.
Environmental regulations in relation to climate change and greenhouse gas (“GHG”) emissions may increase operational and financial restrictions, and environmental compliance costs and our non–scrubber fitted vessels may face difficulties in competing with scrubber-fitted vessels.
GHG reduction measures adopted, or further additional measures to be adopted by the IMO, EU and other jurisdictions for achieving 2030 goals may impose operational and financial restrictions, carbon taxes or an emission trading system on less efficient vessels starting from 2023, gradually affecting younger vessels, even newbuilds after 2030, reducing their trade and competitiveness, increasing their environmental compliance costs, imposing additional energy efficiency investments, or even making such vessels obsolete. Maritime shipping is included within the European Union’s Emission Trading Scheme (ETS) as of January 1, 2024 with a phase-in period requiring shipping companies to surrender 40% of their 2024 emissions in 2025; 70% of their 2025 emissions in 2026; and 100% of their 2026 emissions in 2027. Compliance with the maritime EU ETS may result in additional compliance and administration costs. These or other developments may lead to environmental taxation affecting less energy efficient vessels, reduce their trade and competitiveness and make certain vessels in our fleet obsolete, which may have a material adverse effect on our business, financial condition and results of operations. See “Business-Environmental and Other Regulations” for more information.
Our vessels are not retrofitted with scrubbers and need to use low sulfur fuel containing 0.5% sulfur content, which is currently more expensive than standard marine fuel containing 3.5% sulfur content. If the cost differential between low sulfur fuel and high sulfur fuel is significantly higher than anticipated, or if low sulfur fuel is not available at ports on certain trading routes, it may not be feasible or competitive to operate vessels on certain trading routes without installing scrubbers or without incurring deviation time to obtain compliant fuel. Our vessels may therefore face difficulties in competing with vessels equipped with scrubbers.
Our vessels are subject to periodic inspections by a classification society.
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention. Our fleet is currently classed with Lloyds Register of Shipping, Bureau Veritas, Registro Italiano Navale (RINA) and American Bureau of Shipping (ABS).
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Our vessels are on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also required to be dry docked every two to three years for inspection of the underwater parts of such vessel. However, for vessels not exceeding 15 years that have means to facilitate underwater inspection in lieu of dry docking, the dry docking may be skipped and be conducted concurrently with the special survey.
If a vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable; we would then be in violation of covenants in our loan agreements and insurance contracts or other financing arrangements. This would adversely impact our operations and revenues.
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Changes in fuel, or bunker, prices may adversely affect profits.
While we do not bear the cost of fuel or bunkers under time and bareboat charters, fuel is a significant expense in our shipping operations when vessels are deployed under spot charters. The cost of fuel, including the fuel efficiency or capability to use lower priced fuel, can also be an important factor considered by charterers in negotiating charter rates. Changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the OPEC (“Organization of Petroleum Exporting Countries”) and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Furthermore, fuel may become significantly more expensive in the future, which may reduce our profitability. In addition, the recent entry into force, on January 1, 2020, of the 0.5% global sulfur cap in marine fuels used by vessels that are not equipped with sulfur oxide (“SOx”) exhaust gas cleaning systems (“scrubbers”) under the International Convention for Prevention of Pollution from Ships (“MARPOL”) Annex VI may lead to changes in the production quantities and prices of different grades of marine fuel by refineries and introduces an additional element of uncertainty in fuel markets, which could result in additional costs and adversely affect our cash flows, earnings and results from operations.
Maritime claimants could arrest our vessels, which could interrupt our cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and others may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums of funds to have the arrest lifted.
In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our ships or, possibly, another vessel managed by Stealth Maritime.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of revenues.
A government could requisition for title or seize our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels would adversely impact our operations and revenues, thereby resulting in loss of revenues.
Risks involved with operating ocean-going vessels could affect our business and reputation, which would adversely affect our revenues and stock price.
The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
| • | marine accident or disaster; |
| • | piracy and terrorism; |
| • | explosions; |
| • | environmental accidents; |
| • | pollution; |
| • | loss of life; |
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| • | cargo and property losses or damage; and |
| • | business interruptions caused by mechanical failure, human error, war, political action in various countries, labor strikes or adverse weather conditions. |
Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in a serious accident could harm our reputation as a safe and reliable vessel operator and lead to a loss of business.
Our vessels may suffer damage and we may face unexpected repair costs, which could affect our cash flow and financial condition.
If our vessels suffer damages, they may need to be repaired at a shipyard facility. The costs of repairs are unpredictable and can be substantial. We may have to pay repair costs that our insurance does not cover. The loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, would have an adverse effect on our cash flow and financial condition. We do not intend to carry business interruption insurance.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden, off the coast of Somalia. If these piracy attacks occur in regions in which our vessels are deployed and are characterized by insurers as “war risk” zones, as the Gulf of Aden continues to be, or Joint War Committee (JWC) “war and strikes” listed areas, premiums payable for such coverage, for which we are responsible with respect to vessels employed on spot charters, but not vessels employed on bareboat or time charters, could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including employing onboard security guards, could increase in such circumstances. We usually employ armed guards on board the vessels on time and spot charters that transit areas where Somali pirates operate. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.
Our operations outside the United States expose us to global risks, such as political conflict, terrorism and public health concerns, including the current conflict in Ukraine, which may interfere with the operation of our vessels.
We are an international company and primarily conduct our operations outside the United States. Changing economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered affect us. In the past, political conflicts, particularly in the Arabian Gulf, resulted in attacks on vessels, mining of waterways and other efforts to disrupt shipping in the area. Continuing conflicts, instability and other recent developments in Ukraine, the Middle East and elsewhere, including attacks in recent years involving vessels and vessel seizures for example in the Strait of Hormuz and off the coast of Gibraltar, the attack on an Iranian tanker near the Saudi Arabian port city of Jeddah and in Syria and Afghanistan, may lead to additional acts of terrorism or armed conflict around the world, and our vessels may face higher risks of being attacked or detained, or shipping routes transited by our vessels, such as the Strait of Hormuz or the Black Sea, may be otherwise disrupted. Acts of terrorism may increase with the continuing conflicts in the Middle East and North Africa, and therefore our vessels may face higher risks of being attacked. In addition, future hostilities or other political instability in regions where our vessels trade could affect our trade patterns and adversely affect our operations and performance. If certain shipping lanes were to close it could adversely affect the availability of, and the demand for crude oil and petroleum products. This would negatively affect our business and our customers’ investment decisions over an extended period of time. In addition, sanctions against oil exporting
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countries such as Iran, Syria and Venezuela, and the events in Ukraine and related sanctions against Russia and regions of Ukraine, may also impact the availability of crude oil and petroleum products and which would increase the availability of applicable vessels, thereby impacting negatively charter rates. Changes in laws and regulations, including tax matters and their implementation by local authorities could affect our vessels chartered to customers in certain countries, including Chinese customers, as well as our vessels calling to ports in certain countries, including Chinese ports, and could have a material adverse effect on our business, results of operations and financial condition.
Terrorist attacks, or the perception that oil refineries and product tankers or crude oil tankers are potential terrorist targets, could materially and adversely affect the continued supply of refined petroleum products and crude oil to the United States and to other countries. Furthermore, future terrorist attacks could result in increased volatility of the financial markets in the United States and globally, and could result in an economic recession in the United States or the world. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.
In addition, public health threats, such as the coronavirus, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate, including China, could adversely impact our operations, and the operations of our customers.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Our vessels call in ports in certain geographic areas where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims or penalties which could have an adverse effect on our business, results of operations, cash flows and financial condition.
Our vessels may call on ports located in countries that are subject to sanctions and embargoes imposed by the U.S. or other governments, which could adversely affect our reputation and the market for our common stock.
From time to time on charterers’ instructions, our vessels have called and may again call on ports located in countries subject to sanctions and embargoes imposed by the United States government and countries identified by the United States government as state sponsors of terrorism, such as Iran, Syria and North Korea. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. On January 16, 2016, “Implementation Day” for the Iran Joint Comprehensive Plan of Action (JCPOA), the United States lifted its nuclear-related secondary sanctions against Iran which prohibited certain conduct by non-U.S. companies and individuals that occurred entirely outside of U.S. jurisdiction involving specified industry sectors in Iran, including the energy, petrochemical, automotive, financial, banking, mining, shipbuilding and shipping sectors. By lifting the secondary sanctions against Iran, the U.S. government effectively removed U.S. imposed restraints on dealings by non-U.S. companies, such as our Company, and individuals with these formerly targeted Iranian business sectors.
Non-U.S. companies continued to be prohibited under U.S. sanctions from (i) knowingly engaging in conduct that seeks to evade U.S. restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran, (ii) exporting, re-exporting or transferring to Iran any goods, technology, or services originally exported from the U.S. and / or subject to U.S. export jurisdiction and (iii) conducting transactions with of the Iranian or Iran-related individuals and entities that remain or are placed in the future on OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN List), notwithstanding the lifting of secondary sanctions. However, on August 6, 2018, the U.S. re-imposed an initial round of secondary sanctions and as of November 5, 2018, all of the secondary sanctions the U.S. had suspended under the JCPOA were re-imposed.
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The U.S. government’s primary Iran sanctions have remained largely unchanged, including during the period from the JCPOA Implementation Day to the re-imposition of secondary sanctions in 2018, and as a consequence, U.S. persons also continue to be broadly prohibited from engaging in transactions or dealings with the Government of Iran and Iranian financial institutions, which effectively impacts the transfer of funds to, from, or through the U.S. financial system whether denominated in US dollars or any other currency.
We believe all of our vessels port calls have been made in full compliance with applicable economic sanctions laws and regulations, including those of the United States, the EU and other relevant jurisdictions. Our charter agreements include provisions that restrict trades of our vessels to countries targeted by economic sanctions unless such transportation activities involving sanctioned countries are permitted under applicable economic sanctions and embargo regimes. Our ordinary chartering policy is to seek to include similar provisions in all of our period charters. Prior to agreeing to waive existing charter party restrictions on carrying cargoes to or from ports that may implicate sanctions risks, we ensure that the charterers have proof of compliance with international and U.S. sanctions requirements, or applicable licenses or other exemptions.
Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may vary or may be subject to changing interpretations and we may be unable to prevent our charterers from violating contractual and legal restrictions on their operations of the vessels. Any such violation could result in fines or other penalties for us and could result in some investors deciding, or being required, to divest their interest, or not to invest, in the Company. Additionally, some investors may decide to divest their interest, or not to invest, in the Company simply because we do business with companies that do lawful business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. Investor perception of the value of our shares may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Failure to comply with the U.S. Foreign Corrupt Practices Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.
We operate in a number of countries through the world, including countries that may be known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted policies which are consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) and other anti-bribery laws. We are subject, however, to the risk that we, our affiliated entities or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
A cyber-attack could materially disrupt our business.
Our business operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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Risks Related To Our Business
Our fleet consists of nine tankers and two drybulk carriers. The small size of our fleet and any limitation in the availability or operation of these vessels could have a material adverse effect on our business, results of operations and financial condition.
Our fleet consists of six product tankers, three crude oil tankers and two drybulk carriers. Unless and until we identify and acquire additional vessels, we will depend upon these vessels for all of our revenue. If any of our vessels are unable to generate revenues as a result of off-hire time, early termination of the applicable charter or otherwise, our business, results of operations financial condition and ability to pay dividends on our common stock, if any, and Series A Preferred Stock could be materially adversely affected.
In addition, due to the relatively small size of our fleet we may face additional difficulty arranging debt financing from lenders to fund the expansion of our fleet, or obtain loan against existing vessels which are currently unencumbered, on favorable terms or at all and achieving acceptance from oil majors and other charterers, which increasingly seek to do business with established shipping companies with substantial resources.
We are dependent on the ability and willingness of our charterers to honor their commitments to us for all our revenues.
We derive all our revenues from the payment of charter hire by charterers of our vessels. The ability and willingness of each of our counterparties to perform their obligations under charter agreements with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the refined petroleum product tanker sector, crude oil tanker sector and the drybulk sector, of the shipping industry and the overall financial condition of the counterparties. In addition, in depressed market conditions, charterers may seek to renegotiate their charters or may default on their obligations under charters and our charterers may fail to pay charter hire or attempt to renegotiate charter rates. Should a counterparty fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on bareboat or time charters could be at lower rates. If we lose a charter, we may be unable to re-deploy the related vessel on terms as favorable to us. We would not receive any revenues from such a vessel while it remained unchartered, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition, insure it and service any indebtedness secured by such vessel. The failure by charterers to meet their obligations to us or an attempt by charterers to renegotiate our charter agreements could have a material adverse effect on our revenues, results of operations and financial condition.
Employment of our vessels on time or bareboat charters may prevent us from taking advantage of rising spot charter rates.
The spot market may fluctuate significantly based upon tanker, crude oil and refined petroleum product supply and demand, in the case of our tankers, and drybulk carrier and drybulk cargo supply and demand, in the case of our drybulk carriers. The factors affecting supply and demand for tankers, crude oil and refined petroleum products are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
As of April 1, 2024, nine of our vessels were operating in the spot market. We may employ more vessels on time and bareboat charters in the future, and to the extent we employ our vessels on time and bareboat charters, the charter rates for such vessels will be fixed for a specified time period. We cannot assure you that charter rates will not increase during the period of such employment. If our vessels are employed on time or bareboat charters durng a period of rising spot market charter rates, we would be unable to pursue opportunities to charter our vessels at such higher charter rates. Conversely, spot rates are volatile and cyclical and may decline substantially.
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Charters at attractive rates may not be available when the charters for our vessels expire, which would have an adverse impact on our revenues and financial condition.
As of April 1, 2024, we had both of our handy size dry bulk carriers employed on time charters expiring in April 2024 and all of our tanker vessels employed in the spot market. We are exposed to prevailing charter rates in the product tanker, crude tanker and drybulk carrier sectors, including with respect to our vessels operating in the spot market and when our vessels’ existing time charters expire, and to the extent the counterparties to our fixed-rate time charter contracts fail to honor their obligations to us. The successful operation of our vessels in the competitive and highly volatile spot charter market will depend on, among other things, obtaining profitable spot charters, which depends greatly on vessel supply and demand, and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. When the current charters for our fleet expire or are terminated, it may not be possible to re-charter these vessels at similar rates, or at all, or to secure charters for any vessels we agree to acquire at similarly profitable rates, or at all. As a result, we may have to accept lower rates or experience off hire time for our vessels, which would adversely impact our revenues, results of operations and financial condition.
We depend upon a few significant customers, due to the small size of our fleet, for our revenues. The loss of one or more of these customers could adversely affect our financial performance.
We derive a significant part of our revenue from a small number of charterers. For the year ended December 31, 2021, we had four customers from which we derived 61% of our revenues and for the year ended December 31, 2022, we had two customers from which we derived 33% of our revenues, and for the year ended December 31, 2023, we had 1 customer from which we derived 21% of our revenues. We anticipate a limited number of customers will continue to represent significant amounts of our revenue. If these customers cease doing business or do not fulfill their obligations under the charters of our vessels, due to the increasing financial pressure on these customers or otherwise, our results of operations and cash flows could be adversely affected. Further, if we encounter any difficulties in our relationships with these charterers, our results of operations, cash flows and financial condition could be adversely affected.
Our receipt of the $38.7 million remaining balance of the sales price for our former Aframax tanker depends on the ability of C3is Inc. to pay us such amount.
In July 2023, we sold an Aframax tanker to C3is Inc. for cash consideration of $43 million, of which $4.3 million was received by us upon delivery of the vessel on July 14, 2023 and the $38.7 million balance is payable to us by July 14, 2024. If C3is Inc., which has only operated as a separate company since we spun it off in June 2023 and has a small fleet with limited cash resources, is unable to fund this payment obligation, which is unsecured, we may not receive these funds on time or at all. Our ability to collect these funds in the event of such a payment default, whether through litigation or otherwise, could be uncertain, costly and time consuming.
Technological innovation could reduce our charter hire income and the value of our vessels.
The charter hire rates and the value and operational life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly, including the ability to use alternative combustion fuels. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. More technologically advanced tankers and drybulk carriers have been built since our vessels, which have an average age of 14.8 years as of April 1, 2024, were constructed and tankers and drybulk carriers with further advancements may be built that are even more efficient or more flexible or have longer physical lives, including new vessels powered by alternative fuels or which are otherwise perceived as more environmentally friendly by charterers.
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Competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels, and the resale value of our vessels could significantly decrease, which could also result in impairment costs. In these circumstances, we may also be forced to charter our vessels to less creditworthy charterers, either because the oil majors and other top tier charters will not charter older and less technologically advanced vessels or will only charter such vessels at lower contracted charter rates than we are able to obtain from these less creditworthy, second tier charterers. Consequently, our results of operations and financial condition could be adversely affected.
The aging of our fleet may result in our vessels being less attractive to charterers and in increased operating costs in the future, which could adversely affect our earnings.
Our fleet’s average age, which was approximately 14.8 years, as of April 1, 2024, with our tankers having an average age of 15.7 years and our drybulk carriers having an average age of 11.0 years, which is above the average age of the global tanker fleet and only somewhat below the average age of the global drybulk carrier fleet, respectively. As our vessels age we may have difficulty competing with younger, more technologically advanced vessels for charters from oil majors and other top-tier charterers. In general, the costs to maintain a tanker or drybulk carrier in good operating condition increase with the age of the vessel. Older vessels are typically less fuel-efficient and more costly to maintain than more recently constructed tankers or drybulk carriers, as applicable, due to improvements in engine technology. Cargo insurance rates also increase with the age of a vessel, as do charterer’s concerns regarding the perceived reliability of the vessel’s technical performance. As a result, older vessels are generally less desirable to charterers, particularly oil majors and other top tier charterers.
Unless we set aside reserves for vessel replacement, at the end of a vessel’s useful life, our revenue will decline, which would adversely affect our cash flows and income.
As of April 1, 2024, the vessels in our fleet had an average age of approximately 14.8 years, with our tankers having an average age of 15.7 years and our drybulk carriers having an average age of 11.0 years. Unless we maintain cash reserves for vessel replacement, we may be unable to replace the vessels in our fleet upon the expiration of their useful lives. We estimate the useful life of our vessels to be 25 years from the completion of their construction. Our cash flows and income are dependent on the revenues we earn by chartering our vessels to customers. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, financial condition and results of operations may be materially adversely affected. Any reserves set aside for vessel replacement would not be available for other cash needs or dividends, if any.
Any future financing arrangements may contain restrictive covenants that may limit our liquidity and corporate activities.
As of December 31, 2023 and the date of this report, we did not have any outstanding indebtedness. Secured bank debt is common in the shipping industry, however, and we may incur indebtedness in connection with any further expansion of our fleet or the financing of existing vessels. We expect our future financing arrangements may impose operating and financial restrictions on us. These restrictions may limit our ability to:
| • | incur additional indebtedness; |
| • | create liens on our assets; |
| • | sell capital stock of our subsidiaries; |
| • | make investments; |
| • | engage in mergers or acquisitions; |
| • | pay dividends; and |
| • | make capital expenditures. |
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We expect that any future credit facilities will require us to maintain specified financial ratios, satisfy financial covenants and contain cross-default clauses. As a result of the restrictions in our future financing arrangements we may enter into with respect to future vessels which we have yet to identify, we may need to seek permission from our lenders in order to engage in some corporate actions. Our future lenders’ interests may be different from ours, and we may not be able to obtain their permission when needed. This may prevent us from taking actions that we believe are in our best interest which may adversely impact our revenues, results of operations and financial condition.
If in the future we again incur debt, a failure by us to meet our payment and other obligations contained in the agreements for such indebtedness, including our financial covenants and security coverage requirement, could lead to defaults under any future secured loan agreements. Our lenders could then accelerate our indebtedness outstanding at such time and foreclose on any vessels in our fleet mortgaged thereunder. The loss of our vessels would mean we could not run our business.
The market values of our vessels may decrease, which could cause us to breach covenants in any future credit facilities, and could have a material adverse effect on our business, financial condition and results of operations.
Any future credit facilities, which likely would be secured by liens on our vessels, we enter into will likely contain various financial covenants, including requirements that relate to our financial condition, operating performance and liquidity. For example, we may be required to maintain a maximum consolidated leverage ratio that is based, in part, upon the market value of the vessels securing the applicable loan, as well as a minimum ratio of the market value of vessels securing a loan to the principal amount outstanding under such loan. The market value of drybulk carriers and tankers is sensitive to, among other things, changes in the drybulk carrier and tanker charter markets, respectively, with vessel values deteriorating in times when drybulk carrier charter rates or tanker charter rates, as applicable, are falling and improving when charter rates are anticipated to rise. Lower charter rates coupled with the difficulty in obtaining financing for vessel purchases have adversely affected drybulk carrier and tanker values in the recent past. If we face similar conditions in the future, this could lead to a significant decline in the fair market values of our vessels, which may affect our ability to comply with these loan covenants. If the value of our vessels deteriorates, we may have to record an impairment charge e in our financial statements which would adversely affect our financial results and could further hinder our ability to raise capital.
If in the future we again incur debt, a failure to comply with the covenants contained in such debt agreements and/or obtain covenant waivers or modifications could result in the lenders thereunder requiring us to post additional collateral, enhance our equity and liquidity, increase our interest payments or pay down indebtedness to a level where we were in compliance with such loan covenants, sell vessels in our fleet or accelerate our indebtedness, which would impair our ability to continue to conduct our business. If in the future we incur debt and such indebtedness is accelerated, we may not be able to refinance this debt or obtain additional financing and could lose our vessels if our lenders foreclosed on their liens. In addition, if we find it necessary to sell our vessels at a time when vessel prices are low, we will recognize losses and a reduction in our earnings, which could affect our ability to raise additional capital necessary for us to comply with loan agreements for debt we may incur in the future.
Our ability to obtain debt financing may be dependent on the performance of our then existing charters and the creditworthiness of our charterers, as well as the perceived impact of emissions by our vessels on the climate.
The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require in order to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing, or
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obtain financing at a higher than anticipated cost may materially affect our results of operation and our ability to implement our business strategy.
In 2019, a number of leading lenders to the shipping industry and other industry participants announced a global framework by which financial institutions can assess the climate alignment of their ship finance portfolios, called the Poseidon Principles, and additional lenders have subsequently announced their intention to adhere to such principles. If the ships in our fleet are deemed not to satisfy the emissions and other sustainability standards contemplated by the Poseidon Principles, or other Environmental Social Governance (ESG) standards required by lenders or investors, the availability and cost of bank financing for such vessels may be adversely affected.
An incurrence of a significant amount of debt may adversely affect us and our cash flows.
As of December 31, 2023 and the date of this report, we did not have any outstanding indebtedness. We may, however, incur indebtedness in connection with any further expansion of our fleet or the financing of existing vessels. This increase in the level of indebtedness and the need to service the indebtedness may impact our profitability and cash available for growth of our fleet, working capital and dividends if any. In addition, dividend payments on our Series A Preferred Stock will reduce cash available for growth of our fleet, working capital and dividends, if any, on our common stock. Additionally, any increases in interest rate levels, may increase the cost of servicing any potential future indebtedness.
To finance our future fleet expansion program beyond our current fleet, we may incur secured debt. We would have to dedicate a portion of our cash flow from operations to pay the principal and interest on such future debt. These payments would limit funds otherwise available for working capital, capital expenditures, and other purposes, including any distributions of cash to our stockholders, and our inability to service any such debt could lead to acceleration of such debt and foreclosure on our fleet.
Moreover, carrying secured indebtedness would expose us to increased risks if the demand for oil, oil-related or drybulk marine transportation decreases and charter rates and vessel values are adversely affected.
We may become exposed to volatility in interest rates, including SOFR.
To the extent we enter into credit facilities in the future to finance our fleet, we expect that the loans advanced under such credit facilities would be advanced at a floating rate based on SOFR. Interest rates have increased recently, after a long period of relative stability at historically low levels, and have been volatile in past years, which can affect the amount of interest payable on floating rate debt, and which, in turn, could have an adverse effect on our earnings and cash flow during periods in which we have such debt. Interest rates were at historically low levels for an extended period of time and may continue to increase from these past low levels. Our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our interest rate exposure and the interest rates applicable to any credit facilities and or other financing arrangements we may enter into in the future increase. Moreover, even if we have entered into interest rate swaps or other derivative instruments for purposes of managing our interest rate or bunker cost exposure, our hedging strategies may not be effective and we may incur substantial losses.
Any derivative contracts we may enter into to hedge our exposure to fluctuations in interest rates could result in higher than market interest rates and charges against our income, as well as reductions in our stockholders’ equity.
We may enter into interest rate swaps for purposes of managing our exposure to fluctuations in interest rates applicable to indebtedness under any future credit facilities which are advanced at floating rates. Our hedging strategies, however, may not be effective and we may incur substantial losses if interest rates or currencies move materially differently from our expectations.
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To the extent any interest rate swaps we may enter into do not qualify for treatment as hedges for accounting purposes, we will recognize fluctuations in the fair value of such contracts in our statement of operations. In addition, changes in the fair value of any derivative contracts that do qualify for treatment as accounting hedges, will be recognized in “Accumulated other comprehensive income” on our statement of equity. Our financial condition could also be materially adversely affected to the extent we do not hedge our exposure to interest rate fluctuations under our financing arrangements under which loans may be advanced at a floating rate.
In addition, we may enter in the future into foreign currency derivative contracts in order to hedge an exposure to foreign currencies related to shipbuilding contracts.
Any hedging activities we engage in may not effectively manage our interest rate and foreign exchange exposure or have the desired impact on our financial condition or results of operations.
Because we generate all of our revenues in U.S. dollars but incur a portion of our expenses in other currencies, exchange rate fluctuations could adversely affect our results of operations.
We generate all of our revenues in U.S. dollars and the majority of our expenses are also in U.S. dollars. However, a relatively small portion of our overall expenses, mainly executive compensation, is incurred in Euros. This could lead to fluctuations in net income due to changes in the value of the U.S. dollar relative to the other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the U.S. dollar falls in value can thereby increase, decreasing our net income.
Inflation could adversely affect our business and financial results.
Inflation could adversely affect our business and financial results by increasing the costs of labor and materials needed to operate our business. During 2021, 2022 and 2023, we experienced moderate inflationary cost increases in vessel operating expenses mainly in spares and stores, before such cost increases peaked in late 2022 and followed a slower growth in 2023. In 2022 our main cost driver was the increase in the number of our vessels as well as the effect of COVID-19 pandemic on crew costs. In 2023 our main cost driver was the average increase of our fleet by approximately three vessels. In an inflationary environment such as the current economic environment and depending on the tanker and drybulk industries specific conditions and market cycles, we may be unable to raise our charter rates enough to offset the increasing costs of our operations, which would decrease our profit margins. Inflation may also raise our costs of capital and decrease our purchasing power, making it more difficult to maintain sufficient funds to operate our business. See “Item 5. Operating and Financial Review and Prospects—Inflation.”
We are dependent on our relationship with Stealth Maritime.
Stealth Maritime serves as commercial and technical manager for all of the vessels in our fleet . We are accordingly dependent upon our fleet manager, Stealth Maritime, for:
| • | the administration, chartering and operations supervision of our fleet; |
| • | our recognition and acceptance as owners of product and crude oil carriers, including our ability to attract charterers; |
| • | our ability to obtain vetting approval from oil majors; |
| • | relations with charterers and charter brokers; |
| • | operational expertise; and |
| • | management experience. |
The loss of Stealth Maritime’s services or its failure to perform its obligations to us properly for financial or other reasons could materially and adversely affect our business and the results of our operations, including the
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potential loss of oil major approvals to conduct business with us and in turn our ability to employ our vessels our charters with such oil majors. Although we may have rights against Stealth Maritime if it defaults on its obligations to us, you would have no recourse against Stealth Maritime. In addition, in such a case or if our management agreement were to be terminated we might not be able to find a replacement manager on terms as favorable as those currently in place with Stealth Maritime. Further, we expect that we will need to seek approval from our future lenders to change our manager. We are not permitted to change our commercial or technical our manager from Stealth Maritime, or to allow Stealth Maritime to subcontract or delegate commercial or technical management, without the prior written consent of our lenders.
In addition, if Stealth Maritime suffers material damage to its reputation or relationships, including as a result of a spill or other environmental incident or an accident, or any violation or alleged violation of U.S., EU, UN or other sanctions, involving ships managed by Stealth Maritime whether or not owned by us, it may harm the ability of our company or our subsidiaries to successfully compete in our industry, including due to oil majors and other charterers electing not to do business with Stealth Maritime or us.
Since our manager, Stealth Maritime, is a privately held company and there is little or no publicly available information about it, an investor could have little advance warning of potential financial and other problems that might affect our manager that could have a material adverse effect on us.
We would be materially adversely affected if our manager becomes unable or unwilling to provide services for our benefit at the level of quality they have provided such services to our vessels in the past. If we were required to employ a ship management company other than our manager, we cannot offer any assurances that the terms of such management agreements and results of operations would be equally or more beneficial to us in the long term.
Our manager’s ability to render management services will depend in part on its own financial strength. Circumstances beyond our control could impair Stealth Maritime’s financial strength, and because it is a privately held company, information about its financial strength is not publicly available. As a result, our stockholders and we might have little advance warning of financial or other problems affecting our manager even though their financial or other problems could have a material adverse effect on our stockholders and us.
Our officers face conflicts in the allocation of their time to our business. In addition, the fiduciary duties of our officers and directors may conflict with those of the officers and directors of StealthGas, C3is and/or its affiliates.
Our Chief Executive Officer is involved in other business activities not associated with us, which may result in his spending less time than is appropriate or necessary to manage our business successfully. In particular, Mr. Vafias, who functions as our Chief Executive Officer and President, also provides services in similar capacities for StealthGas and is a significant stockholder of StealthGas, and is the Non-Executive Chairman of C3is Inc. Our officers are not required to work full-time on our affairs and also perform services for StealthGas, C3is Inc. and its affiliates. As a result, there could be material competition for the time and effort of our officers who also provide services to StealthGas, C3is and its affiliates, which could have a material adverse effect on our business, results of operations and financial condition. See “Item 6. Directors, Senior Management and Employees”.
Our officers and directors have fiduciary duties to manage our business in a manner beneficial to us and our stockholders. However, some of our officers and directors also serve as executive officers and/or directors of StealthGas and C3is Inc.. As a result, these individuals have fiduciary duties to manage the business of StealthGas, C3is Inc. and its affiliates in a manner beneficial to such entities and their stockholders. Consequently, these officers and directors may encounter situations in which their fiduciary obligations to StealthGas, C3is Inc. and us are in conflict. There may also be other business opportunities for which StealthGas
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and C3is Inc. may compete with us such as hiring employees, acquiring other businesses, or entering into joint ventures, which could have a material adverse effect on our business.
Companies affiliated with us or our management, including StealthGas, C3is Inc. Stealth Maritime and Brave Maritime, may manage or acquire vessels that compete with our fleet.
Entities affiliated with other members of the Vafias family own vessels that operate in various sectors of the shipping industry, including a number of product and crude oil tankers and drybulk carriers, which are managed by Stealth Maritime and/or Brave Maritime. It is possible that StealthGas, C3is Inc., Stealth Maritime or other companies affiliated with the Vafias family or Stealth Maritime, including Brave Maritime, could, in the future, agree to acquire or manage additional vessels that compete directly with ours and may face conflicts between their own interests and their obligations to us. These conflicts may arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus other vessels in which these persons or entities have an interest. Accordingly, our management and our manager might be faced with conflicts of interest with respect to their own interests and their obligations to us. These conflicts of interests may have an adverse effect on our business and your interests as stockholders.
We may enter into certain significant transactions with companies affiliated with members of the Vafias family which may result in conflicts of interests.
In addition to our management contract with Stealth Maritime, a company controlled by members of the Vafias family other than our Chief Executive Officer, from time to time we may enter into other transactions with companies affiliated with members of the Vafias family. For instance, we acquired an aggregate of eight vessels from entities affiliated with the family of our Chief Executive Officer since 2022, and sold one vessel to C3is Inc. Stealth Maritime also contracts for the crewing of vessels in our fleet with Hellenic Manning Overseas Inc., which is 25% owned by an affiliate of Stealth Maritime. Such transactions could create conflicts of interest that could adversely affect our business or your interests as holders of our shares, as well as our financial position, results of operations and our future prospects.
As our fleet grows in size, we will have to improve our operations and financial systems, staff and crew; if we cannot maintain these systems or continue to recruit suitable employees, our business and results of operations may be adversely affected.
As we expand our fleet, we and Stealth Maritime will have to invest considerable sums in upgrading its operating and financial systems, as well as hiring additional well-qualified personnel to manage the vessels. In addition, as we expand our fleet, we will have to rely on our technical managers to recruit suitable additional seafarers and shoreside administrative and management personnel. Stealth Maritime and those technical managers may not be able to continue to hire suitable employees to the extent we continue to expand our fleet. Our vessels require a technically skilled staff with specialized training. If the technical managers’ crewing agents are unable to employ such technically skilled staff, they may not be able to adequately staff our vessels. If Stealth Maritime is unable to operate our financial and operations systems effectively or our technical managers are unable to recruit suitable employees as we expand our fleet, our results of operation and our ability to expand our fleet may be adversely affected.
Delays in the delivery of any newbuilding or secondhand vessels we agree to acquire could harm our operating results.
Delays in the delivery of any new-building or second-hand vessels we may agree to acquire in the future would delay our receipt of revenues generated by these vessels and, to the extent we have arranged charter employment for these vessels, could possibly result in the cancellation of those charters, and therefore adversely affect our anticipated results of operations. Although this would delay our funding requirements for the installment payments to purchase these vessels, it would also delay our receipt of revenues under any charters we
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arrange for such vessels. The delivery of newbuilding vessels could be delayed, other than at our request, because of, among other things, work stoppages or other labor disturbances; bankruptcy or other financial crisis of the shipyard building the vessel; hostilities, health pandemics such as COVID-19 or political or economic disturbances in the countries where the vessels are being built, including any escalation of tensions involving North Korea; weather interference or catastrophic event, such as a major earthquake, tsunami or fire; our requests for changes to the original vessel specifications; requests from our customers, with whom we have arranged any charters for such vessels, to delay construction and delivery of such vessels due to weak economic conditions and shipping demand and a dispute with the shipyard building the vessel.
In addition, the refund guarantors under any newbuilding contracts, which are banks, financial institutions and other credit agencies, may also be affected by financial market conditions in the same manner as our lenders and, as a result, may be unable or unwilling to meet their obligations under their refund guarantees. If the shipbuilders or refund guarantors are unable or unwilling to meet their obligations to the sellers of the vessels, this may impact our acquisition of vessels and may materially and adversely affect our operations and our obligations under any of our future credit facilities. The delivery of any secondhand vessels could be delayed because of, among other things, hostilities or political disturbances, non-performance of the purchase agreement with respect to the vessels by the seller, our inability to obtain requisite permits, approvals or financing or damage to or destruction of the vessels while being operated by the seller prior to the delivery date.
If we fail to manage our growth properly, we may not be able to successfully expand our market share.
We intend to continue to grow our fleet. The acquisition of such additional vessels could impose significant additional responsibilities on our management and staff, and may necessitate that we, and they, increase the number of personnel. In the future, we may not be able to identify suitable vessels, acquire vessels on advantageous terms or obtain financing for such acquisitions. Any future growth will depend on:
| • | locating and acquiring suitable vessels; |
| • | identifying and completing acquisitions or joint ventures; |
| • | integrating any acquired business successfully with our existing operations; |
| • | expanding our customer base; and |
| • | obtaining required financing. |
Growing a business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel, managing relationships with customers and our commercial and technical managers and integrating newly acquired vessels into existing infrastructures. We may not be successful in executing any growth initiatives and may incur significant expenses and losses in connection therewith.
We may be unable to attract and retain key management personnel and other employees in the shipping industry, which may negatively affect the effectiveness of our management and our results of operation.
Our success depends to a significant extent upon the abilities and efforts of our management team, including our Chief Executive Officer, Harry Vafias. In addition, Harry Vafias is a member of the Vafias family, which controls Stealth Maritime, our fleet manager. Our success will depend upon our and Stealth Maritime’s ability to hire and retain qualified managers to oversee our operations. The loss of any of these individuals could adversely affect our business prospects and financial condition. Difficulty in hiring and retaining personnel could adversely affect our results of operations. We do not have employment agreements directly with our key personnel who are technically employees of Stealth Maritime, our fleet manager, although under our management agreement with Stealth Maritime, our relationship is governed by terms substantially similar to those typically included in employment agreements. We do not maintain “key man” life insurance on any of our officers.
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In the highly competitive international product tanker and crude oil tanker markets, we may not be able to compete for charters with new entrants or established companies with greater resources.
We deploy our vessels in highly competitive markets that are capital intensive. Competition arises primarily from other vessel owners, many of which have larger fleets and greater resources than we do. Competition for the transportation of refined petroleum products and crude oil can be intense and depends on price, location, size, age, condition and the acceptability of the vessel and its managers to the charterers. Competitors with greater resources could enter and operate larger tanker fleets through consolidations or acquisitions, and many larger fleets that compete with us in each of these sectors may be able to offer more competitive prices and fleets.
The international drybulk shipping industry is highly competitive, and we may not be able to compete successfully for charters with new entrants or established companies with greater resources.
We employ our vessels in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. Competition for the transportation of drybulk cargo by sea is intense and depends on price, customer relationships, operating expertise, professional reputation and size, age, location and condition of the vessel. Due in part to the highly fragmented market, additional competitors with greater resources could enter the drybulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates than we are able to offer, which could have a material adverse effect on our fleet utilization and, accordingly, our results of operations.
Purchasing and operating previously owned, or secondhand, vessels may result in increased operating costs and vessels off-hire, which could adversely affect our revenues.
Our examination of secondhand vessels, which may not include physical inspection prior to purchase, does not provide us with the same knowledge about their condition and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and operated exclusively by us. Generally, we do not receive the benefit of warranties on secondhand vessels.
In general, the cost of maintaining a vessel in good operating condition increases with its age. As of April 1, 2024, the average age of the vessels in our fleet was approximately 14.8 years. Older vessels are typically less fuel efficient and more costly to maintain and operate than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.
Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives. If we sell vessels, the sales prices may not equal and could be less than their carrying values at that time and thereby negatively affect our profitability.
The shipping industry has inherent operational risks that may not be adequately covered by our insurance.
We procure hull and machinery insurance, protection and indemnity insurance, which include environmental damage and pollution insurance coverage, and war risk insurance for our fleet. While we endeavor to be adequately insured against all known risks related to the operation of our ships, there remains the possibility that a liability may not be adequately covered and we may not be able to obtain adequate insurance coverage for our fleet in the future. The insurers may also not pay particular claims. Even if our insurance coverage is adequate, we may not be able to timely obtain a replacement vessel in the event of a loss. Our insurance policies
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contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs or lower our revenue. In addition, if one of our ships, or other ships managed by Stealth Maritime or Brave Maritime and owned by an affiliated entity of Stealth Maritime or Brave Maritime, were to incur significant costs from an accident, spill or other environmental liability, our insurance premiums and costs could increase significantly.
The operation of drybulk vessels has particular operational risks.
The operation of drybulk vessels has certain unique risks. With a drybulk vessel, the cargo itself and its interaction with the vessel can be an operational risk. By their nature, drybulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. In addition, drybulk vessels are often subjected to battering treatment during discharging operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment during discharging procedures may affect a vessel’s seaworthiness while at sea. Hull fractures in drybulk vessels may lead to the flooding of the vessels’ holds. If a drybulk vessel suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel’s bulkheads, leading to the loss of a vessel. If we are unable to adequately maintain our vessel and other vessels we may acquire, we may be unable to prevent these events. Any of these circumstances or events could negatively impact our business, financial condition, and results of operations.
We may be subject to lawsuits for damages and penalties.
The nature of our business exposes us to the risk of lawsuits for damages or penalties relating to, among other things, personal injury, property casualty and environmental contamination. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. However, such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
Regulatory and legal risks as a result of our global operations, including with respect to sanctioned countries, could have a material adverse effect on our business, results of operations and financial conditions.
Our global operations increase both the number and the level of complexity of U.S. or foreign laws and regulations applicable to us, some of which can conflict with one another, as is the case, for instance, with certain sanctions issued by U.S., E.U. and U.K. These laws and regulations include international labor laws; U.S. laws such as the FCPA and other laws and regulations established by the Office of Foreign Assets Control; local laws such as the U.K. Bribery Act 2010; data privacy requirements like the European General Data Protection Regulation, enforceable as of May 25, 2018; and the E.U.-U.S. Privacy Shield Framework, adopted by the European Commission on July 12, 2016. Some sanctions may also apply to transportation of goods (including crude oil) originating in sanctioned countries (particularly Iran, Venezuela and Russia), even if the vessel does not travel to those countries, or is otherwise acting on behalf of sanctioned persons. We may inadvertently breach some provisions of those laws and regulations which could result in cease of business activities, criminal sanctions against us, our officers or our employees, fines and materially damage our reputation. In addition, detecting, investigating and resolving such cases of actual or alleged violations may be expensive and time consuming for our senior management.
For example, in 2023 our tanker vessels made 26 voyages carrying cargoes originating in the Russian ports of St. Petersburg and Ust-Luga, for which 3.7% of our fleet calendar days were spent in these Russian ports, and may from time to time in the future carry cargoes originating in Russia, Ukraine or sanctioned countries. It is possible that such cargoes, despite our belief that they are compliant with applicable sanctions, are alleged to have originated from sources that are not in compliance with such sanctions, which could result in penalties against us, including blacklisting of a vessel which would preclude chartering or selling such vessel, and
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negatively impact our acceptability to potential charterers and harm our business. In addition, it may not be possible for us to obtain war risk or other insurances for any vessel loading cargoes originating in such countries, as has been the case for certain of our vessels’ voyages this year. In such a case, if the vessel was involved in an accident, spill or was otherwise damaged in connection with such a voyage, which could result in losses up to the total loss of the vessel, we would have to bear the repair, clean-up or other costs associated with such an incident, as well as the lack of revenue from any off-hire period, in reliance on our existing cash resources, and we would remain obligated to service and repay our outstanding indebtedness secured by such vessel. In addition, any deemed non-compliance with sanctions could constitute an event of default under any loan agreements secured by such vessel, and our lenders may seek to accelerate for immediate repayment any indebtedness outstanding thereunder. Any such occurrences could adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, if ships managed by Stealth Maritime or Brave Maritime, including those not owned by us, and ships owned by an affiliated entity of Stealth Maritime or Brave Maritime, including StealthGas and C3is were deemed to have violated sanctions or other laws and regulations, we could face similar consequences, including an inability to charter, insure or sell our ships, if we, such affiliated entities or our ships are blacklisted by authorities.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations or to make dividend payments.
We are a holding company and our subsidiaries, which are all wholly-owned by us, conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our wholly-owned subsidiaries. As a result, our ability to make dividend payments to you depends on our subsidiaries and their ability to distribute funds to us. If we are unable to obtain funds from our subsidiaries, we may be unable or our Board of Directors may exercise its discretion not to pay dividends.
Obligations associated with being a public company require significant company resources and management attention.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley. Section 404 of Sarbanes-Oxley requires that we evaluate and determine the effectiveness of our internal control over financial reporting.
We work with our legal, accounting and financial advisors to identify any areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. We evaluate areas such as corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We will make changes in any of these and other areas, including our internal control over financial reporting, which we believe are necessary. However, these and other measures we may take may not be sufficient to allow us to satisfy our obligations as a public company on a timely and reliable basis. In addition, compliance with reporting and other requirements applicable to public companies do create additional costs for us and will require the time and attention of management. Our limited management resources may exacerbate the difficulties in complying with these reporting and other requirements while focusing on executing our business strategy. We may not be able to predict or estimate the amount of the additional costs we may incur, the timing of such costs or the degree of impact that our management’s attention to these matters will have on our business.
If management is unable to provide reports as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock.
Under Section 404 of Sarbanes-Oxley, we are required to include in each of our annual reports on Form 20-F, a report containing our management’s assessment of the effectiveness of our internal control over
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financial reporting. If, in such annual reports on Form 20-F, our management cannot provide a report as to the effectiveness of our internal control over financial reporting as required by Section 404, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our shares.
Risks Related to Taxation
A change in tax laws in any country in which we operate or loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries could adversely affect us.
Tax laws, treaties and regulations are highly complex and subject to interpretation. Consequently, we and our subsidiaries are subject to changing laws, treaties and regulations in and between the countries in which we operate. Our tax expense is based on our interpretation of the tax laws in effect at the time the expense was incurred. A change in tax laws, treaties or regulations, or in the interpretation thereof, could result in a materially higher tax expense or a higher effective tax rate on our earnings. Such changes may include measures enacted in response to the ongoing initiatives in relation to fiscal legislation at an international level such as the Action Plan on Base Erosion and Profit Shifting of the Organization for Economic Co-Operation and Development, which contemplates a global minimum tax rate of 15% calculated on a jurisdictional basis, subject to exemptions including for qualifying international shipping income.
In addition, if any tax authority successfully challenges positions we may take in tax filings, our operational structure, intercompany pricing policies, the taxable presence of our subsidiaries in certain countries or any other situation, or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could increase substantially and our earnings and cash flows from operations could be materially adversely affected.
In accordance with the currently applicable Greek law, foreign flagged vessels that are managed by Greek or foreign ship management companies having established an office in Greece are subject to duties towards the Greek state which are calculated on the basis of the relevant vessels’ tonnage. The payment of said duties exhausts the tax liability of the foreign ship owning company and the relevant manager against any tax, duty, charge or contribution payable on income from the exploitation of the foreign flagged vessel. As our manager is located in Greece, we will have to pay these duties. Our operations in Greece may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs, which may include requirements that we pay to the Greek government new taxes or other fees.
In addition, China has enacted a new tax for non-resident international transportation enterprises engaged in the provision of services of passengers or cargo, among other items, in and out of China using their own, chartered or leased vessels, including any stevedore, warehousing and other services connected with the transportation. The new regulation broadens the range of international transportation companies which may find themselves liable for Chinese enterprise income tax on profits generated from international transportation services passing through Chinese ports.
We may have to pay tax on United States-source income, which would reduce our earnings.
Under the United States Internal Revenue Code of 1986, as amended, or the Code, 50% of the gross shipping income of vessel owning or chartering corporations, such as our subsidiaries, that is attributable to transportation that begins or ends, but does not both begin and end, in the United States is characterized as United States-source shipping income. United States-source shipping income is subject to either a (i) 4% United States federal income tax without allowance for deductions or (ii) taxation at the standard United States federal income tax rates (and potentially to a 30% branch profits tax), unless derived by a corporation that qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.
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Generally, we and our subsidiaries will qualify for this exemption for a taxable year if our shares are treated as “primarily and regularly traded” on an established securities market in the United States. Our shares of common stock will be so treated if (i) the aggregate number of our shares of common stock traded during such year on an established securities market in the United States exceeds the aggregate number of our shares of common stock traded during that year on established securities markets in any other single country, (ii) either (x) our shares of common stock are regularly quoted during such year by dealers making a market in our shares or (y) trades in our shares of common stock are effected, other than in de minimis quantities, on an established securities market in the United States on at least 60 days during such taxable year and the aggregate number of our shares of common stock traded on an established securities market in the United States during such year equals at least 10% of the average number of our shares of common stock outstanding during such taxable year and (iii) our shares of common stock are not “closely held” during such taxable year. For these purposes, our shares of common stock will be treated as closely held during a taxable year if, for more than one-half the number of days in such taxable year, one or more persons each of whom owns either directly or under applicable attribution rules, at least 5% of our shares of common stock, own, in the aggregate, 50% or more of our shares of common stock, unless we can establish, in accordance with applicable documentation requirements, that a sufficient number of the shares of common stock in the closely-held block are owned, directly or indirectly, by persons that are residents of foreign jurisdictions that provide United States shipping companies with an exemption from tax that is equivalent to that provided by Section 883 to preclude other stockholders in the closely-held block from owning 50% or more of the closely-held block of shares of common stock.
We believe that it will be the case, and may also be the case in the future, that, one or more persons each of whom owns, either directly or under applicable attribution rules, at least 5% of our shares of common stock own, in the aggregate, 50% or more of our shares of common stock. In such circumstances, we and our subsidiaries may qualify for the exemption provided in Section 883 of the Code only if a sufficient number of shares of the closely-held block of our shares of common stock were owned or treated as owned by “qualified shareholders” so it could not be the case that, for more than half of the days in the taxable year, the shares of common stock in the closely-held block not owned or treated as owned by qualified shareholders represented 50% or more of our shares of common stock. For these purposes, a “qualified shareholder” includes an individual that owns or is treated as owning shares of our common stock and is a resident of a jurisdiction that provides an exemption that is equivalent to that provided by Section 883 of the Code and certain other persons; provided in each case that such individual or other person complies with certain documentation and certification requirements set forth in the Section 883 regulations and designed to establish status as a qualified shareholder.
If we or our subsidiaries do not qualify for the exemption under Section 883 of the Code for any taxable year, then we or our subsidiaries would be subject for those years to the 4% United States federal income tax on gross United States shipping income or, in certain circumstances, to net income taxation at the standard United States federal income tax rates (and potentially also to a 30% branch profits tax). The imposition of such tax could have a negative effect on our business and would result in decreased earnings and cash flow.
We could become a “passive foreign investment company,” which would have adverse United States federal income tax consequences to United States holders and, in turn, us.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income” and working capital and similar assets held pending investment in vessels will generally be treated as an asset which produces passive income. United States stockholders of a PFIC (and holders of warrants
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in a PFIC) are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
In connection with determining our PFIC status we treat and intend to continue to treat the gross income that we derive or are deemed to derive from our time chartering and voyage chartering activities as services income, rather than rental income. We believe that our income from time chartering and voyage chartering activities does not constitute “passive income” and that the assets that we own and operate in connection with the production of that income do not constitute assets held for the production of passive income. We treat and intend to continue to treat, for purposes of the PFIC rules, the income that we derive from bareboat charters as passive income and the assets giving rise to such income as assets held for the production of passive income. There is, however, no legal authority specifically under the PFIC rules regarding our current and proposed method of operation and it is possible that the U.S. Internal Revenue Service, or IRS, may not accept our positions and that a court may uphold such challenge, in which case we and certain of our subsidiaries could be treated as PFICs. In this regard we note that a federal court decision addressing the characterization of time charters concludes that they constitute leases for federal income tax purposes and employs an analysis which, if applied to our time charters, could result in our treatment and the treatment of our vessel-owning subsidiaries as PFICs. In addition, in making the determination as to whether we are a PFIC, we intend to treat the deposits that we make on our newbuilding contracts and that are with respect to vessels we do not expect to bareboat charter as assets which are not held for the production of passive income for purposes of determining whether we are a PFIC. We note that there is no direct authority on this point and it is possible that the IRS may disagree with our position.
On the basis of the foregoing assumptions, we do not believe that we will be a PFIC for 2023. This belief is based in part upon our beliefs regarding the value of the assets that we hold for the production of or in connection with the production of passive income relative to the value of our other assets. Should these beliefs turn out to be incorrect, then we and certain of our subsidiaries could be treated as PFICs for 2023. There can be no assurance that the IRS or a court will not determine values for our assets that would cause us to be treated as a PFIC for 2023 or a subsequent year.
In addition, although we do not believe that we will be a PFIC for 2023, we may choose to operate our business in the current or in future taxable years in a manner that could cause us to become a PFIC for those years. Because our status as a PFIC for any taxable year will not be determinable until after the end of the taxable year, and depends upon our assets, income and operations in that taxable year, there can be no assurance that we will not be considered a PFIC for 2023 or any future taxable year.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States stockholders and warrant holders would face adverse United States tax consequences. Under the PFIC rules, unless those stockholders make an election available under the Code (which election could itself have adverse consequences for such stockholders, as discussed below under “Tax Considerations—United States Federal Income Taxation of United States Holders”), such stockholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common stock, as if the excess distribution or gain had been recognized ratably over the stockholder’s holding period of our common stock. Similar rules would apply to holders of our Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants. See “Tax Considerations—United States Federal Income Tax Consequences—United States Federal Income Taxation of United States Holders” for a more comprehensive discussion of the United States federal income tax consequences to United States stockholders if we are treated as a PFIC. As a result of these adverse tax consequences to United States stockholders, such a finding by the IRS may result in sales of our common stock by United States stockholders, which could lower the price of our common stock and adversely affect our ability to raise capital.
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Risk Related to an Investment in a Marshall Islands Corporation
As a foreign private issuer we are entitled to claim exemptions from certain Nasdaq corporate governance standards, and if we elected to rely on these exemptions, you may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
As a foreign private issuer, we are entitled to claim an exemption from many of Nasdaq’s corporate governance practices. Currently, our corporate governance practices comply with the Nasdaq corporate governance standards applicable to U.S. listed companies other than that we only have two independent members on our audit committee whereas a domestic U.S. company would be required to have three independent members on its audit committee and, in lieu of obtaining stockholder approval prior to the issuance of certain designated securities issuances, the Company will comply with provisions of the Marshall Islands Business Corporations Act providing that the Board of Directors approves share issuances. To the extent we rely on these or other exemptions you may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law or a bankruptcy act.
Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Stockholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public stockholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling stockholders than would stockholders of a corporation incorporated in a U.S. jurisdiction. The Marshall Islands has no established bankruptcy act, and as a result, any bankruptcy action involving our company would have to be initiated outside the Marshall Islands, and our public stockholders may find it difficult or impossible to pursue their claims in such other jurisdictions.
It may be difficult to enforce service of process and judgments against us and our officers and directors.
We are a Marshall Islands company, and our executive offices are located outside of the United States. All of our directors and officers reside outside of the United States, and most of our assets and their assets are located outside the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in the U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. There is also substantial doubt that the courts of the Marshall Islands would enter judgments in original actions brought in those courts predicated on U.S., federal or state securities laws.
Risks Related To Our Common Stock
Our common stock were not publicly traded prior to the completion of the Spin-Off on December 3, 2021. An active trading market that will provide you with adequate liquidity for our common stock may not be sustained.
There was no public market for our common stock prior to the Spin-Off, which was completed on December 3, 2021. The lack of an active trading market on Nasdaq and low trading volume for our common
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stock may make it more difficult for you to sell our common stock and could lead to our share price becoming depressed or volatile. Our shares began regular way trading on the Nasdaq Capital Market on December 6, 2021, and there can be no assurance that an active trading market for our common stock on either Nasdaq or any other exchange will be sustained. If an active and liquid trading market is not sustained, relatively small sales of our common stock could have a significant negative impact on the price of our common stock.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.
As a newly-incorporated company that became publicly traded on December 3, 2021, there is currently only one analyst covering the Company. The trading market for our common stock and Series A Preferred Stock will depend, in part, upon the research and reports that securities or industry analysts publish about us or our business. We do not have any control over analysts as to whether they will cover us, and if they do, whether such coverage will continue. If analysts do not commence coverage of the Company, or if one or more of these analysts cease coverage of the Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline. In addition, if one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price may likely decline.
The market price of our common stock may be subject to significant fluctuations.
The market price of our common stock may be subject to significant fluctuations as a result of many factors, some of which are beyond our control. Among the factors that could affect our stock price are:
| • | actual or anticipated fluctuations in quarterly and annual variations in our results of operations; |
| • | changes in market valuations or sales or earnings estimates or publication of research reports by analysts; |
| • | changes in earnings estimates or shortfalls in our operating results from levels forecasted by securities analysts; |
| • | speculation in the press or investment community about our business or the shipping industry, and the product and crude oil tanker and drybulk sectors in particular; |
| • | changes in market valuations of similar companies and stock market price and volume fluctuations generally; |
| • | payment of dividends; |
| • | strategic actions by us or our competitors such as mergers, acquisitions, joint ventures, strategic alliances or restructurings; |
| • | changes in government and other regulatory developments; |
| • | additions or departures of key personnel; |
| • | general market conditions and the state of the securities markets; and |
| • | domestic and international economic, market and currency factors unrelated to our performance. |
The international tanker and drybulk shipping industry has been highly unpredictable. In addition, the stock markets in general, and the markets for tanker and drybulk shipping and shipping stocks in general, have experienced extreme volatility that has sometimes been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Our common stock may trade at prices lower than you originally paid for such shares.
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You may experience future dilution as a result of future equity offerings and other issuances of our common stock, preferred stock or other securities. In addition, we may elect to sell one or more of our vessels or vessel-owning subsidiaries, conduct a spinoff of such vessels or subsidiaries, or contribute such vessels or vessel-owning subsidiaries to a joint venture, master limited partnership or other entity on terms with which you do not agree.
In order to raise additional capital, including to support our growth plans, or in connection with equity awards, strategic transactions or otherwise, we expect in the future to offer additional common stock, preferred stock or other securities convertible into or exchangeable for our common stock, including convertible debt. We expect that a significant component of the financing for the planned expansion of our fleet will be through equity offerings. We cannot predict the size of future issuances or sales of our common stock, preferred stock or other securities, including those made in connection with future capital raising activities or acquisitions, or the effect, if any, that such issuances or sales may have on the market price of our common stock. The issuance and sale of substantial amounts of common stock, preferred stock or other equity-linked securities, or announcement that such issuance and sales may occur, could adversely affect the market price of our common stock and our Series A Preferred Stock. In addition, we cannot assure you that we will be able to make future sales of our common stock, preferred stock or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors, and investors purchasing stocks or other securities in the future could have rights that are superior to existing stockholders. The issuance of additional common stock, preferred stock or other securities could adversely impact the trading price of our common stock.
Any such capital raising transactions may be at the Imperial Petroleum Inc. or subsidiary level, to which interests in certain vessels in our fleet and rights to receive related cash flows would be transferred, as well as other capital raising alternatives available to us at that particular time. In addition, we may elect to sell one or more of our vessels or vessel-owning subsidiaries, conduct a spinoff of such vessels or subsidiaries, or contribute such vessels or vessel-owning subsidiaries to a joint venture, master limited partnership or other entity on terms with which you do not agree. Any such transfer may reduce our asset base and our rights to cash flows related to the transferred assets. If we contribute assets to a joint venture or master limited partnership, the joint venture or master limited partnership may be owned by or issue equity securities to public or private investors, and as part of any spin-off of assets we may be required to distribute a portion of such assets to holders of outstanding warrants pursuant to the terms of such warrants, thereby reducing our percentage interest in such assets and in the related cash flows.
Future issuances or sales, or the potential for future issuances or sales, of our common stock may cause the trading price of our securities to decline and could impair our ability to raise capital through subsequent equity offerings.
We have issued a significant number of our shares of common stock and we may do so in the future. Shares to be issued in future equity offerings could cause the market price of our common stock to decline, and could have an adverse effect on our earnings per share. In addition, future sales of our common stock or other securities in the public markets, or the perception that these sales may occur, could cause the market price of our common stock to decline, and could materially impair our ability to raise capital through the sale of additional securities.
The market price of our common stock could decline due to sales, or the announcements of proposed sales, of a large number of shares of common stock, including those issuable exercise of our outstanding warrants, in the market, including sales of common stock by our large stockholders, or the perception that these sales could occur. These sales or the perception that these sales could occur could also depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities or make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate. We cannot predict the effect that future sales of common stock or other equity-related securities would have on the market price of our common stock.
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Our Restated Articles of Incorporation, as amended, authorizes our Board, to, among other things, issue additional shares of common or preferred stock or securities convertible or exchangeable into equity securities, without stockholder approval. We may issue such additional equity or convertible securities to raise additional capital.
The issuance of any additional shares of common or preferred stock or convertible securities could be substantially dilutive to our stockholders. Moreover, to the extent that we issue restricted stock units, stock appreciation rights, options or warrants to purchase our common stock in the future and those stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our stockholders may experience further dilution. Holders of shares of our common stock have no preemptive rights that entitle such holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our stockholders.
The superior voting rights of our Series B Preferred Stock may limit the ability of our common stockholders to control or influence corporate matters, and the interests of the holder of such shares could conflict with the interests of common stockholders
While our shares of common stock have one vote per share, each of our 16,000 shares of Series B preferred stock currently outstanding has 25,000 votes per share; however, the voting power of the Series B preferred stock is limited such that no holder of Series B preferred stock may exercise voting rights pursuant to any Series B preferred stock that would result in the total number of votes a holder is entitled to vote on any matter submitted to a vote of stockholders of the Company to exceed 49.99% of the total number of votes eligible to be cast on such matter. The Series B preferred stock, however, have no dividend rights or distribution rights, other than the right upon dissolution to receive a payment equal to the par value per of $0.01 per share.
As of the date of this report, our Chairman and Chief Executive Officer can therefore control 49.99% of the voting power of our outstanding capital stock. Our Chairman and Chief Executive Officer will have substantial influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and significant corporate transactions, even though he owns significantly less than 50% of the Company economically.
The superior voting rights of our Series B preferred stock may limit our common stockholders’ ability to influence corporate matters. The interests of the holder of the Series B preferred stock may conflict with the interests of our common stockholders, and as a result, the holders of our capital stock may approve actions that our common stockholders do not view as beneficial. Any such conflicts of interest could adversely affect our business, financial condition and results of operations, and the trading price of our common stock.
Our amended and restated articles of incorporation and amended and restated bylaws contain anti-takeover provisions that may discourage, delay or prevent (1) our merger or acquisition and/or (2) the removal of incumbent directors and officers and (3) the ability of public stockholders to benefit from a change in control.
Our restated articles of incorporation and amended and restated bylaws contain certain anti-takeover provisions. These provisions include blank check preferred stock, including preferred stock with superior voting rights, such as the Series B preferred stock, the prohibition of cumulative voting in the election of directors, a classified Board of Directors, advance written notice for stockholder nominations for directors, removal of directors only for cause, advance written notice of stockholder proposals for the removal of directors and limitations on action by stockholders. These anti-takeover provisions, either individually or in the aggregate, may discourage, delay or prevent (1) our merger or acquisition by means of a tender offer, a proxy contest or otherwise, that a stockholder may consider in its best interest, (2) the removal of incumbent directors and officers, and (3) the ability of public stockholders to benefit from a change in control. These anti-takeover provisions could substantially impede the ability of stockholders to benefit from a change in control and, as a
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result, may adversely affect the market price of our common stock and stockholders’ ability to realize any potential change of control premium.
Issuance of preferred stock, such as our Series B preferred stock, may adversely affect the voting power of our common stockholders and have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock.
Our restated articles of incorporation authorize our board of directors to issue preferred stock in one or more series and to determine the rights, preferences, privileges and restrictions, with respect to, among other things, dividends, conversion, voting, redemption, liquidation and the number of shares constituting any series without stockholders’ approval. Our board of directors has issued, and may in the future issue, preferred stock with voting rights superior to those of the common stock, such as the Series B preferred stock. If our board of directors determines to issue preferred stock, such issuance may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. The issuance of preferred stock with voting and conversion rights may also adversely affect the voting power of the holders of common stock. This could substantially impede the ability of public stockholders to benefit from a change in control and, as a result, may adversely affect the market price of our common stock and our stockholders’ ability to realize any potential change of control premium.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.
In addition, under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we are an emerging growth company.
For as long as we take advantage of the reduced reporting obligations, the information that we provide our stockholders may be different from information provided by other public companies.
Our common stock ranks junior to the Series A Preferred Stock with respect to dividends and amounts payable in the event of our liquidation.
Our common stock ranks junior to our Series A Preferred Stock with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless accumulated dividends have been paid or set aside for payment on all of our outstanding Series A Preferred Stock for all past completed dividend periods, no dividends may be declared or paid on our common stock subject to limited exceptions. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we have paid to holders of our Series A Preferred Stock a liquidation preference equal to $25.00 per share plus accumulated and unpaid dividends Accordingly, the Series A Preferred Stock may adversely affect the market price of the common stock.
Sales of our common stock by stockholders may have an adverse effect on the then prevailing market price of our common stock.
Sales of a substantial number of our common stock in the public market, including upon exercise of our outstanding warrants, could cause the market price of our common stock to decline and could impair our ability
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to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.
Our Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants are speculative in nature.
Our Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants do not confer any rights of common stock ownership on their holders, such as voting rights, but rather merely represent the right to acquire common stock at a fixed price. Specifically, holders of the Class A Warrants may acquire the common stock issuable upon the exercise of such warrants at an exercise price of $18.75 per share, holders of the Class B Warrants may acquire the common stock issuable upon the exercise of such warrants at an exercise price of $24.00 per share, holders of Class C Warrants may acquire the common stock issuable upon the exercise of such warrants at an exercise price of $8.25 per share, holders of Class D Warrants may acquire the common stock issuable upon the exercise of such warrants at an exercise price of $12.00 per share and holders of Class E Warrants may acquire the common stock issuable upon the exercise of such warrants at an exercise price of $2.00 per share. Moreover, the market value of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants is uncertain and there can be no assurance that the market value of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants will equal or exceed their exercise price.
There is no public market for the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants, Class E Warrants and we do not expect one to develop.
There is presently no established public trading market for our Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants and we do not expect a market to develop. In addition, we do not intend to apply to list our Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants on any securities exchange or nationally recognized trading system, including the Nasdaq. Without an active market, the liquidity of our Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants will be limited.
Holders of our Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants will not have any rights of common stockholders until such Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants are exercised.
Our outstanding Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants do not confer any rights of common stock ownership on their holders, but rather merely represent the right to acquire common stock at a fixed price.
Risks Related to our Series A Preferred Stock
The Series A Preferred Stock are a new issuance and do not have an established trading market, which may negatively affect their market value and your ability to transfer or sell your shares. An active trading market that will provide you with adequate liquidity for our Series A Preferred Stock may not develop. In addition, the lack of a fixed redemption date for our Series A Preferred Stock will increase your reliance on the secondary market for liquidity purposes.
There was no public market for our Series A Preferred Stock prior to the completion of the Spin-Off in December 2021, and immediately after the Spin-Off approximately 21.6% of our Series A Preferred Stock were held by one stockholder and an aggregate of 73.1% of our Series A Preferred Stock were held by seven separate stockholders that are not affiliated with one another, which concentration of ownership could make it less likely that an active and liquid trading market for our Series A Preferred Stock will develop on Nasdaq. In addition,
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since the securities have no stated maturity date, investors seeking liquidity will be limited to selling their shares in the secondary market absent redemption by us. We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market on Nasdaq for our Series A Preferred Stock or, if such market develops, whether it will be maintained. The lack of an active trading market on Nasdaq and low trading volume for our Series A Preferred Stock, may make it more difficult for you to sell our Series A Preferred Stock and could lead to our share price becoming depressed or volatile. If an active and liquid trading market does not develop, relatively small sales of our Series A Preferred Stock could have a significant negative impact on the price of our Series A Preferred Stock.
The Series A Preferred Stock represents perpetual equity interests.
The Series A Preferred Stock represents perpetual equity interests in us and, unlike any future indebtedness, will not give rise to a claim for payment of a principal amount at a particular date. As a result, holders of the Series A Preferred Stock may be required to bear the financial risks of an investment in the Series A Preferred Stock for an indefinite period of time. In addition, the Series A Preferred Stock ranks junior to any potential indebtedness and other liabilities, and to any other senior securities we may issue in the future with respect to assets available to satisfy claims against us.
The shares of our Series A Preferred Stock are subordinated to any potential future debt, and your interests could be diluted by the issuance of additional preferred shares and by other transactions.
Our Series A Preferred Stock are subordinate to any future indebtedness. As of December 31, 2023 and the date of this report, we did not have any outstanding indebtedness, however, we may incur debt as we expand our fleet or finance existing vessels of our fleet. Any future agreements for indebtedness, will restrict our ability to pay dividends on or redeem preferred shares if an event of default has occurred or is continuing. Our future indebtedness may impose similar or greater restrictions on our ability to pay dividends or redeem our preferred shares. Our articles of incorporation authorize the issuance of up to 200,000,000 preferred shares in one or more classes or series. The issuance of additional preferred shares on a parity with or senior to our Series A Preferred Stock would dilute the interests of the holders of our Series A Preferred Stock, and any issuance of preferred shares senior to our Series A Preferred Stock or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our Series A Preferred Stock.
The amount of the liquidation preference applicable to the Series A Preferred Stock is fixed and you have no right to receive any greater payment.
The payment due upon liquidation is fixed at the liquidation preference of $25.00 per Series A Preferred Share, plus an amount equal to all accumulated and unpaid dividends thereon to the date of liquidation, whether or not declared. If, in the case of our liquidation, there are remaining assets to be distributed after payment of this amount, you have no right to receive or to participate in these amounts. In addition, if the market price of your Series A Preferred Stock is greater than the liquidation preference, you have no right to receive the market price from us upon our liquidation.
The terms of the Series A Preferred Stock do not restrict our ability to engage in certain transactions, including spin-offs, transfers of assets or the formation of a master limited partnership, joint venture or other entity that may involve issuance of interests to third-parties in a substantial portion of our assets.
Although the Statement of Designation with respect to the Series A Preferred Stock contains restrictions on our ability to dilute the value of your investment in the Series A Preferred Stock by issuing additional preferred shares ranking senior to the Series A Preferred Stock, we may engage in other transactions that will result in a transfer of value to third parties. We may elect to sell one or more of our vessels or vessel-owning subsidiaries, conduct a spin-off of such vessels or subsidiaries, or contribute such vessels or vessel-owning
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subsidiaries to a joint venture, master limited partnership or other entity on terms with which you do not agree or that are not in the best interests of the holders of Series A Preferred Stock. Any such transfer may reduce our asset base and our rights to cash flows related to the transferred assets. If we contribute assets to a joint venture or master limited partnership, the joint venture or master limited partnership may be owned by or issue equity securities to public or private investors, thereby reducing our percentage interest in such assets and in the related cash flows.
| Item 4. | Information on the Company |
A. History and Development of the Company
We are a provider of international seaborne transportation services to oil producers, refineries and commodities traders and producers, as well as industrial users of drybulk cargoes. As of April 1, 2024, we owned and operated a fleet of six medium range (“MR”) refined petroleum product tankers that carry refined petroleum products such as gasoline, diesel, fuel oil and jet fuel, as well as edible oils and chemicals, one aframax tanker and two suezmax tankers that carry crude oil and two handysize drybulk carriers that transport major bulks such as iron ore, coal and grains, and minor bulks such as bauxite, phosphate and fertilizers. The total cargo carrying capacity of our eleven-vessel fleet is 791,000 dwt. We are managed by Stealth Maritime, a privately owned company controlled by the Vafias Group, which has been active in shipping for over 50 years and is controlled by the Vafias family, of which Harry Vafias, our Chief Executive Officer, is a member.
Imperial Petroleum Inc. was incorporated under the laws of the Republic of the Marshall Islands on May 14, 2021, by StealthGas Inc. to serve as the holding company of four subsidiaries, each owning one of the tanker vessels in our initial fleet, that it subsequently contributed to us in connection with the Spin-Off. On December 3, 2021, StealthGas distributed all of our outstanding common stock and 8.75% Series A Cumulative Redeemable Perpetual Preferred Stock to its stockholders, which completed our separation from StealthGas. Upon consummation of the Spin-Off, the Company and StealthGas became independent publicly traded companies with separate boards of directors and management, although some of the directors and officers of the Company hold similar positions at StealthGas. Our common stock currently trade on the Nasdaq Capital Market under the symbol “IMPP” and our Series A Preferred Stock currently trade on the Nasdaq Capital Market under the symbol “IMPPP.”
On February 2, 2022, we completed an underwritten public offering of 736,000 units for $18.75 per unit, each unit consisting of (i) one share of common stock of the Company and (ii) fifteen Class A Warrant (a “Class A Warrant”) to purchase one share of common stock at an exercise price of $18.75 per share. We also issued underwriter warrants to the representative of the underwriters to purchase up to an aggregate of 36,800 shares of common stock at an exercise price of $20.625 per share. As of April 1, 2024, Class A Warrants had been exercised for 733,133 shares of our common stock, resulting in proceeds to us of $13,746,250. Class A Warrants exercisable for a total of 2,867 shares of common stock, with an exercise price of $18.75 per share, remained outstanding as of April 1, 2024.
In March 2022, we completed an underwritten public offering, including the full exercise of the underwriter’s overallotment option, of 2,874,997 units for $24.00 per unit, each unit consisting of (i) one share of common stock of the Company (or pre-funded warrants, all of which were subsequently exercised for common stock, in the case of 260,000 units) and (ii) fifteen Class B Warrant (a “Class B Warrant”) to purchase one share of common stock at an exercise price of $24.00 per share. We also issued underwriter warrants to the representative of the underwriters to purchase up to an aggregate of 115,000 shares of Common stock at an exercise price of $30.00 per share. As of April 1, 2024, Class B Warrants had been exercised for an aggregate of 2,088,197 shares of our common stock, resulting in gross proceeds to us of $22,081,720. Class B Warrants exercisable for a total of 786,800 Class B Warrants, with an exercise of $24.00 per share, remained outstanding as of April 1, 2024.
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In May 2022, we completed an underwritten public offering, including the full exercise of the underwriter’s overallotment option, of 5,575,757 units for $8.25 per unit, each unit consisting of (i) one share of common stock of the Company and (ii) fifteen Class C Warrant to purchase one share of common stock at an exercise price of $8.25 per share. The Company also issued warrants to the representative of the underwriters (the “May 2022 Representative Purchase Warrants”) to purchase up to an aggregate of 139,394 shares of common stock at an exercise price of $10.3125 per share. As of April 1, 2024, Class C Warrants had been exercised for an aggregate of 357,167 shares of our common stock, resulting in gross proceeds to us of $2,946,625, and we had repurchased Class C Warrants exercisable for an aggregate of 3,871,323 shares of common stock. Class C Warrants exercisable for a total of 1,347,267 shares of common stock, with an exercise of $8.25 per share, remained outstanding as of April 1, 2024.
In June 2022, several existing holders of Class B Warrants exercised outstanding Class B Warrants to purchase an aggregate of 2,076,667 shares of Common Stock for cash, at an exercise price reduced by the Company from $24.00 per share to $10.50 per share, resulting in gross proceeds to us of $21,805,000. The exercising holders also received Class D Warrants to purchase up to an aggregate of 2,076,667 shares of Common Stock in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. In the fourth quarter of 2023, we repurchased Class D Warrants exercisable for an aggregate of 1,903,333 shares of common stock. Class D Warrants exercisable for a total of 173,334 shares of common stock, with an exercise of $12.00 per share, remained outstanding as of April 1, 2024.
Under our at-the-market (“ATM”) program with Maxim Group LLC and Virtu Americas LLC, which we entered into in December 2022, we sold 3,385,342 shares of common stock for gross proceeds of $12,522,156. We terminated the ATM program on March 13, 2023.
On February 14, 2023, we entered into agreements to acquire two handysize drybulk carriers, built in Japan at Nakai Zosen in 2012 and at Shin Kurushima Onishi in 2013 respectively, with an aggregate capacity of approximately 71,000 dwt, from entities affiliated with our Chief Executive Officer, for aggregate cash consideration of $25.5 million and 13,875 shares of Series C Cumulative Convertible Perpetual Preferred Stock (the “Series C Convertible Preferred Stock”). The transactions closed upon delivery to us of the vessels in March 2023, including the issuance of the Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock had a dividend rate of 5.00% per annum per $1,000 liquidation preference per share, payable in cash or additional shares of Series C Convertible Preferred Stock at the Company’s election, and was convertible, at the holder’s option, after the six-month anniversary of issuance into shares of the Company’s common stock at a conversion price equal to the lower of $7.50 and the ten-day volume weighted average price of the common stock. On December 21, 2023, all 13,875 shares of the Series Convertible Preferred Stock were converted by the holder, Flawless Management Inc., into 6,932,043 shares of our Common Stock.
On June 21, 2023, we completed the spin-off of our previously wholly-owned subsidiary, C3is Inc., the holding company for two drybulk carriers, the Eco Angelbay and the Eco Bushfire, each with an aggregate capacity of 64,000 dwt. Imperial Petroleum stockholders and warrantholders received one C3is common share for every eight shares of Imperial Petroleum’s common stock owned, or in the case of holders of Imperial Petroleum’s outstanding Warrants that they have the right to purchase pursuant to Warrants owned, at the close of business on June 13, 2023. We retain an interest in C3is Inc. through our ownership of Series A Convertible Preferred Stock of C3is Inc., with an aggregate liquidation preference of $15,000,000, which is currently convertible into common stock of C3is Inc., at a conversion price of $0.03241 per share.
In July 2023, we concluded a memorandum of agreement for the disposal of the vessel Stealth Berana to C3is Inc., an affiliated party, for $43,000,000. Payment of 10% of the purchase price was effected at the time of delivery, with the remaining balance due no later than one year after delivery of the vessel, which took place on July 14, 2023. The remaining balance bears interest at an implicit rate of 8.1% per annum and is payable in July 2024.
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On August 11, 2023, we entered into a securities purchase agreement with institutional investors, pursuant to which we agreed to issue and sell, in a registered direct offering 8,499,999 units, each unit consisting of one share of common stock, or one pre-funded warrant to purchase a Common Share at an exercise price of $0.01 per Common Share in lieu of one Common Share, and one Class E Warrant to purchase one Common Share, at an exercise price of $2.00 per Common Share, at a purchase price of $2.00 per Unit including a Common Share and Class E Warrant and a purchase price of $1.99 per Unit including a Pre-Funded Warrant and Class E Warrant. The offering closed on August 15, 2023, and the aggregate gross proceeds to us from the offering, before placement agent fees and expenses, were $16,975,331.
On September 5, 2023, we entered into an agreement with affiliates of the Vafias family to acquire two tanker vessels, the aframax tanker Gstaad Grace II (ex Stealth Haralambos), built in 2009 and the product tanker Aquadisiac built in 2008, with an aggregate capacity of approximately 164,000 dwt, which were each delivered to us in February 2024.
On September 7, 2023, we announced that our Board of Directors had authorized the repurchase of up to $10,000,000 of shares of our common stock. As of April 1, 2024, 4,251,884 shares of common stock had been repurchased for an aggregate of $8.4 million (excluding commissions), with the average purchase price of $1.97 per share. On October 9, 2023, we repurchased Class C Warrants exercisable for 1,480,000 shares of common stock and Class D Warrants exercisable for 1,100,000 shares of common stock for an aggregate purchase price of approximately $0.67 million. On December 6, 2023, we repurchased Class C Warrants exercisable for 2,391,323 shares of common stock and Class D Warrants exercisable for 803,333 shares of common stock for an aggregate purchase price of approximately $0.85 million.
Our principal executive offices are located at 331 Kifissias Avenue, Erithrea 14561 Athens, Greece. Our telephone number from the United States is 011 30 210 625 0001. Our website address is www.imperialpetro.com. The information contained on or linked to from our website is not incorporated herein by reference.
Our company operates through a number of subsidiaries which directly own the vessels in our fleet. A list of our subsidiaries, including their respective jurisdiction of incorporation, as of April 1, 2024, all of which are wholly-owned by us other is set forth in Exhibit 8 to this Annual Report on Form 20-F.
B. Business Overview
Our fleet consists of (1) six MR refined petroleum product tankers that carry refined petroleum products such as gasoline, diesel, fuel oil and jet fuel, as well as edible oils and chemicals, (2) one aframax tanker and two suezmax tankers that carry crude oil and (3) two handysize drybulk carriers that transport major bulks such as iron ore, coal and grains, and minor bulks such as bauxite, phosphate and fertilizers. The total cargo carrying capacity of our 11-vessel fleet is 791,000 dwt. Please see information in the section “Our Fleet”, below. During 2021, 2022 and 2023, our fleet (owned by StealthGas until December 2, 2021) had a fleet operational utilization of 90.5%, 84.8% and 75.1%, respectively, and we generated voyage revenues of $17.4 million, $97.0 million and $183.7 million, respectively.
Our business strategy is focused on providing consistent stockholder returns by carefully selecting the timing and the structure of our investments in vessels and by reliably, safely and competitively operating the vessels we own, through our affiliate, Stealth Maritime.
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Our Fleet
As of April 1, 2024, the profile and deployment of our fleet is the following:
| Name | Year |
Country |
Vessel Size (dwt) |
Vessel |
Employment |
Daily Charter Rate |
Expiration of Charter(1) |
|||||||||||||
| Tankers |
||||||||||||||||||||
| Magic Wand |
2008 | Korea | 47,000 | MR product tanker | Spot | |||||||||||||||
| Clean Thrasher |
2008 | Korea | 47,000 | MR product tanker | Spot | |||||||||||||||
| Clean Sanctuary (ex. Falcon Maryam) |
2009 | Korea | 46,000 | MR product tanker | Spot | |||||||||||||||
| Aquadisiac |
2008 | Korea | 51,000 | MR product tanker | Spot | |||||||||||||||
| Clean Nirvana |
2008 | Korea | 50,000 | MR product tanker | Spot | |||||||||||||||
| Clean Justice |
2011 | Japan | 46,000 | MR product tanker | Spot | |||||||||||||||
| Gstaad Grace II (ex. Stealth Haralambos) |
2009 | China | 113,000 | Aframax tanker | Spot | |||||||||||||||
| Suez Enchanted |
2007 | Korea | 160,000 | Suezmax tanker | Spot | |||||||||||||||
| Suez Protopia |
2008 | Korea | 160,000 | Suezmax tanker | Spot | |||||||||||||||
| Drybulk Carriers |
||||||||||||||||||||
| Eco Wildfire |
2013 | Japan | 33,000 | Handysize drybulk | Time Charter | $ | 18,200 | April 2024 | ||||||||||||
| Glorieuse |
2012 | Japan | 38,000 | Handysize drybulk | Time Charter | $ | 9,250 | April 2024 | ||||||||||||
| Fleet Total |
791,000 dwt | |||||||||||||||||||
| (1) | Earliest date charters could expire. |
We intend to take advantage of the cyclical nature of the market by buying and selling ships when we believe favorable opportunities exist. We will deploy our fleet on a mix of period charters, including time and bareboat charters which can last up to twelve years, and spot market charters, which generally last from one to six months, according to our assessment of market conditions.
We refer you to the risk factor entitled “The market values of our vessels are volatile, and may remain at relatively low levels for a prolonged period and over time may fluctuate significantly. When the market values of our vessels are low, we may incur a loss on sale of a vessel or record an impairment charge, which may adversely affect our profitability and possibly lead to defaults under our loan agreements” and the discussion in the section of this annual report entitled “Item 3. Key Information—Risk Factors – Industry Risk Factors”.
Commercial and Technical Management of Our Fleet
We have entered into a management agreement with Stealth Maritime, pursuant to which Stealth Maritime provides us with technical, administrative, commercial and certain other services. Stealth Maritime is a leading ship-management company based in Greece, established in 1999 in order to provide shipping companies with a range of services. Our manager’s safety management system is ISM certified in compliance with IMO’s regulations by Lloyd’s Register. In relation to the technical services, Stealth Maritime is responsible for arranging for the crewing of the vessels, the day to day operations, inspections and vetting, maintenance, repairs, drydocking and insurance. Administrative functions include, but are not limited to accounting, back-office, reporting, legal and secretarial services. In addition, Stealth Maritime provides services for the chartering of our vessels and monitoring thereof, freight collection, and sale and purchase. For our drybulk vessels, Stealth Maritime subcontracts these services to its affiliate Brave Maritime.
Under our management agreement with Stealth Maritime, which we entered into in conjunction with the Spin-Off, we pay Stealth Maritime a fixed management fee of $440 per vessel operating under a voyage
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or time charter per day on a monthly basis in advance, pro-rated for the calendar days we own the vessels. We pay a fixed fee of $125 per vessel per day for each of our vessels operating on bareboat charter. We are also obligated to pay Stealth Maritime a fee equal to 1.25% of the gross freight, demurrage and charter hire collected from the employment of our vessels. Stealth Maritime will also earn a fee equal to 1.0% of the contract price of any vessel bought or sold by them on our behalf.
The initial term of our management agreement with Stealth Maritime will expire on December 31, 2025. Unless six months’ notice of non-renewal is given by either party prior to the end of the then current term, this agreement will automatically extend for additional 12-month periods.
For additional information about the management agreement, including the calculation of management fees and termination provisions, see “Item. 7. Major Stockholders and Related Party Transactions—B. Related Party Transactions—Management and Other Fees.”
Crewing and Employees
Stealth Maritime ensures that all seamen have the qualifications and licenses required to comply with international regulations and shipping conventions, and that our vessels employ experienced and competent personnel. Since 2021, Hellenic Manning Overseas Inc (HMO), formerly known as Navis Maritime Services Inc., based in Manila, is responsible for providing the crewing of our fleet, under Stealth Maritime’s technical management excluding our Aframax tanker for which up to April 2023 crew management was provided by Bernard Schulte Management and afterwards up until its sale to C3is was managed by HMO and one of our product tankers for which Bernard Schulte was the crew manager up to February of 2023, to the extent that these vessels were not deployed on bareboat charters. These responsibilities include training, compensation, transportation and additional insurance of the crew.
Chartering of the Fleet
We, through Stealth Maritime, manage the employment of our fleet. We deploy our tankers and drybulk carriers on period charters, including time and bareboat charters that can last up to several years, and spot market charters along with short-term time charters, which generally last from one to twelve months, subject to market conditions. Time and bareboat charters are for a fixed period of time, but could also occasionally include optional periods giving charterers the right to extend the charter. A voyage charter is generally a contract to carry a specific cargo from a loading port to a discharging port for an agreed-upon total charge. Under voyage charters we pay for voyage expenses such as port, canal and fuel costs. Under a time charter the charterer pays for voyage expenses while under a bareboat charter the charterer pays for voyage expenses and operating expenses such as crewing, supplies, maintenance and repairs including special survey and drydocking costs.
Vessels operating in the spot market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improvements in tanker charter rates, although we are then exposed to the risk of declining tanker charter rates. Typically, spot market charters can last from a few days up to two months. If we commit vessels to period charters, future spot market rates may be higher or lower than those rates at which we have period chartered our vessels.
In formulating our chartering strategy, we evaluate past, present and future performance of the freight markets and balance the mix of our chartering arrangements in order to achieve optimal results for the fleet. As of April 1, 2024, we had our handysize drybulk carriers under time charter employment both expiring in April 2024, respectively, and all of our tanker vessels operating in the spot market.
Our vessels trade globally. Some of the areas where we usually operate are the Middle East-Far East range, the Mediterranean, North West Europe range, Africa, USA and Latin America. As freight rates usually vary between these areas as well as voyage and operating expenses, we evaluate such parameters when positioning our vessels for new employment.
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Customers
Our assessment of a charterer’s financial condition and reliability is an important factor in negotiating employment for our vessels. Principal charterers for our tankers include national, major and other independent energy companies and energy traders, and industrial users of those products. Principal charterers for our drybulk carriers include drybulk charterers, including major national and private industrial users, commodity producers and traders. For the years ended December 31, 2021, 2022 and 2023, we had four, two and 1 customers account for 61%, 33% and 21%, respectively, of our total revenues. In addition, any vessels under bareboat charter may be sub-chartered to third parties.
The average age of our tankers is above the average age of the global tanker fleet and the average age of our drybulk carriers is only somewhat lower than the average date of the global drybulk carrier fleet, and as our vessels age we may have difficulty competing with younger, more technologically advanced tankers for charters from oil majors and other top-tier charterers and more technologically advanced drybulk carriers for charters from major industrial users, commodity producers and traders and other top-tier charterers. In these circumstances, we may also be forced to charter our vessels to less creditworthy charterers, either because the oil majors, industrial users and commodity producers and traders and other top tier charters will not charter older and less technologically advanced vessels or will only charter such vessels at lower contracted charter rates than we are able to obtain from other charterers.
Dry-BMS (RightShip Standards)
This program is designed to allow ship managers to measure their SMS against agreed industry standards, with the aim of improving fleet performance and risk management. This will ensure that policies align with the industry’s best practice to both advance our vessels’ performance and attain high standards of health, safety, security and pollution prevention. The draft guidelines focus on 30 areas of management practice across the four most serious risk areas faced in vessel operations: performance, people, plant and process. This grades the excellence of a company’s SMS against measurable expectations and targets without involving the burdens of excessive inspections. This standard is not meant to replace any pre-existing system or rule but rather to enhance their existing application and raise the levels of excellence achieved. The minimum benefits of this venture would (a) cover all relevant ship management issues in one document, (b) be relevant to the entire dry bulk shipping industry worldwide, (c) complement other statutory requirements and industry guidance and (d) be frequently evaluated to drive continuous improvement across the management companies on an international level.
Environmental and other Regulations
Government regulations significantly affect the ownership and operation of our vessels. They are subject to international conventions and national, state and local laws and regulations in force in the countries in which they may operate or are registered.
A variety of governmental and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (United States Coast Guard (the “USCG”), harbor master or equivalent), classification societies, flag state administration (country of registry), charterers and particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and financial assurances for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created
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a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations. However, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, any future requirements may limit our ability to do business, increase our operating costs, force the early retirement of one or more of our vessels, and/or affect their resale value, all of which could have a material adverse effect on our financial condition and results of operations.
Environmental Regulations—International Maritime Organization (the “IMO”)
The IMO, the United Nations agency for maritime safety and the prevention of pollution by ships, has negotiated international conventions relating to pollution by ships. In 1973, the IMO adopted the MARPOL, which has been periodically updated with relevant amendments. MARPOL addresses pollution from ships by oil, noxious liquid substances carried in bulk, harmful substances carried by sea in packaged form, sewage, garbage, and air emissions. For example, MARPOL Annex III regulates the transportation of marine pollutants, and imposes standards on packing, marking, labeling, documentation, stowage, quantity limitations and pollution prevention. Our vessels are subject to standards imposed by the IMO.
In September 1997, the IMO adopted MARPOL Annex VI to address air pollution from ships. Effective in May 2005, Annex VI set limits on SOx and nitrogen oxide (“NOx”) emissions from ship exhausts and prohibited deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also included a global cap on the sulfur content of fuel oil and allowed for special areas to be established with more stringent controls on emissions. Options for complying with the requirements of Annex VI include use of low sulfur fuels, modifications to vessel engines, or the addition of post combustion emission controls. Annex VI has been ratified by some, but not all IMO member states. Vessels that are subject to Annex VI must obtain an International Air Pollution Prevention Certificate evidencing compliance with Annex VI. We have obtained International Air Pollution Prevention Certificates for all of our vessels and believe they are compliant in all material respects with current Annex VI requirements.
Amendments to Annex VI, effective July 2010, set progressively stricter regulations to control SOx and NOx emissions from ships, which present both environmental and health risks. The amendments required a progressive reduction of sulfur levels in bunker fuels to be phased in by 2020 and imposed more stringent NOx emission standards on marine diesel engines, depending on their date of installation. The Annex VI amendments have also established tiers of stringent NOx emissions standards for new marine engines, depending on their dates of installation. The United States ratified the amendments, and all vessels subject to Annex VI must comply with the amended requirements when entering U.S. ports or operating in U.S. waters. Since January 1, 2020, the amended Annex VI required that fuel oil contain no more than 0.50% sulfur. It is up to individual parties to MARPOL to enforce fines and sanctions, and several major port state regimes have announced plans to do so. We may incur costs to comply with the amended Annex VI requirements.
In November 2022, amendments to MARPOL Annex VI adopted by the IMO came into effect. These amendments require ships to improve their energy efficiency with a view to reducing their greenhouse gas emissions, with a particular focus on carbon emissions, both through changes in technical specifications as well as in modifications in vessels’ operational parameters. The USCG is working to implement the amended provisions of MARPOL Annex VI, chiefly through proposed rule 1625-AC78, which remains at the proposed rule stage since its original publication in October of 2022. The amended MARPOL provisions and the rules proposed by the USCG to implement them, in addition to any other new or more stringent air emission regulations which may be adopted, could require significant capital expenditures to retrofit vessels and could otherwise increase our investment and operating costs.
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As of April 1, 2024, nine of our eleven vessels have ballast water treatment systems installed. In 2024, we will be drydocking one aframax tanker, the Gstaad Grace II (ex.Stealth Haralambos), and one product tanker, the Clean Sanctuary. Both of the aforementioned vessels will have ballast water treatment systems installed as part of their drydocking.
More stringent emission standards apply in coastal areas designated by the IMO as SOx Emission Control Areas (“ECAs”). For SOx, current ECAs in which a 0.1% cap on the sulfur content of fuel is enforced include: (i) the North American ECA, which includes the area extending 200 nautical miles from the Atlantic/Gulf and Pacific Coasts of the United States and Canada, the Hawaiian Islands, and the French territories of St. Pierre and Miquelon; (ii) the US Caribbean ECA, including Puerto Rico and the US Virgin Islands; (iii) the Baltic Sea ECA; and (iv) the North Sea ECA. Similar restrictions on the sulfur content of fuel apply in Icelandic and inland Chinese waters. Similar restrictions apply in Icelandic and inland Chinese waters. Specifically, as of January 1, 2019, China expanded the scope of its Domestic ECAs to include all coastal waters within 12 nautical miles of the mainland. Vessels operating within an ECA or an area with equivalent standards must use fuel with a sulfur content that does not exceed 0.10%. Additionally, two new NOx ECAs, the Baltic Sea and the North Sea, will be enforced for ships constructed (keel laying) on or after January 1, 2021, or existing ships which replace an engine with “non-identical” engines, or install an “additional” engine. Other ECAs may be designated, and the jurisdictions in which our vessels operate may adopt more stringent emission standards independent of IMO. Effective from January 1, 2022, all vessels entering Korean ports are prohibited from consuming marine fuel with sulfur content exceeding 0.5% cap and are prohibited from consuming marine fuel with sulfur content exceeding 0.1% cap in the SOx ECAs. For NOx, current ECAs in which certain requirements exist regarding the engines used by vessels and the attendant NOx emissions, include (i) the North American ECA, and (ii) the US Caribbean ECA. Additionally, two new NOx ECAs, the Baltic Sea and the North Sea, are being enforced for ships constructed (keel laying) on or after January 1, 2021, or existing ships which replace an engine with “non-identical” engines, or install an “additional” engine. We may incur costs to install control equipment on our engines in order to comply with these requirements. In December 2021, the member states of the Convention for the Protection of the Mediterranean Sea Against Pollution agreed to support the designation of a new ECA in the Mediterranean. The Mediterranean Sea ECA for SOx and Particulate Matter was approved at MEPC 78 and was formally designated during MEPC 79 in December 2022. MEPC 79 designated the Mediterranean Sea as an ECA for SOx and particulate matter, under MARPOL Annex VI. The amendment is expected to enter into force on May 1, 2024, with the new limit taking effect on May 1, 2025. Other ECAs may be designated, and the jurisdictions in which our vessels operate may adopt more stringent emission standards independent of IMO.
Many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969 (the “CLC”) (the United States, with its separate OPA regime described below, is not a party to the CLC). This convention generally applies to vessels that carry oil in bulk as cargo. Under this convention and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, the registered owner of a regulated vessel is strictly liable for pollution damage in the territorial waters or exclusive economic zone of a contracting state caused by the discharge of any oil from the ship, subject to certain defenses. Under an amendment to the 1992 Protocol that became effective on November 1, 2003, for vessels of 5,000 to 140,000 gross tons, liability per incident is limited to 4.51 million Special Drawing Rights (“SDR”) plus 631 SDR for each additional gross ton over 5,000. For a vessel over 140,000 gross tons, liability is limited to 89.77 million SDR. SDR is an International Monetary Fund unit pegged to a basket of currencies. The right to limit liability under the CLC is forfeited where the spill is caused by the owner’s actual fault and, under the 1992 Protocol, where the spill is caused by the owner’s intentional or reckless conduct. Vessels trading in states that are parties to the CLC must provide evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law regimes govern, and liability is imposed either on the basis of fault or in a manner similar to that convention. We believe that our protection and indemnity insurance will cover any liability under the CLC.
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In 2001, the IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”), which imposes strict liability on ship owners for pollution damage caused by discharges of bunker oil in jurisdictional waters of ratifying states. The Bunker Convention also requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). Because the Bunker Convention does not apply to pollution damage governed by the CLC, it applies only to discharges from any of our vessels that are not transporting oil. The Bunker Convention entered into force on November 21, 2008. Liability limits under the Bunker Convention were increased as of June 2015. In jurisdictions where the Bunker Convention has not been adopted, such as the United States, liability for spills or releases of oil from ship’s bunkers may be strictly imposed or fault-based. .
Our vessels may also become subject to the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea adopted in 1996 as amended by the Protocol to the HNS Convention, adopted in April 2010 (2010 HNS Protocol) (collectively, the “2010 HNS Convention”), if it enters into force. The 2010 HNS Convention creates a regime of liability and compensation for damage from hazardous and noxious substances (“HNS”). The 2010 HNS Convention sets up a two-tier system of compensation composed of compulsory insurance taken out by ship owners and an HNS Fund that will come into play when the insurance is insufficient to satisfy a claim or does not cover the incident. Under the 2010 HNS Convention, if damage is caused by bulk HNS, claims for compensation will first be sought from the ship owner up to a maximum of 100 million SDR. If the damage is caused by packaged HNS or by both bulk and packaged HNS, the maximum liability is 115 million SDR. Once the limit is reached, compensation will be paid from the HNS Fund up to a maximum of 250 million SDR. The 2010 HNS Convention has not been ratified by a sufficient number of countries to enter into force, and at this time we cannot estimate with any certainty the costs of compliance with its requirements should it enter into force.
The IMO adopted International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”) in February 2004. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention took effect on September 8, 2017. Many of the implementation dates originally contained in the BWM Convention had already passed prior to its effectiveness, so that the period for installation of mandatory ballast water exchange requirements would be very short, with several thousand ships per year needing to install the systems. Consequently, the IMO Assembly passed a resolution in December 2013 revising the dates for implementation of the ballast water management requirements so that they are triggered by the entry into force date. In effect, this makes all vessels constructed before September 8, 2017 “existing” vessels, allowing for the installation of ballast water management systems on such vessels at the first renewal International Oil Pollution Prevention (“IOPP”) survey following entry into force of the BWM Convention. In July 2017, the implementation scheme was further changed to require vessels with IOPP certificates expiring between September 8, 2017 and September 8, 2019 to comply at their second IOPP renewal. All ships must have installed a ballast water treatment system by September 8, 2024. Each vessel in our current fleet has been issued or will be issued a ballast water management plan Statement of Compliance by the classification society with respect to the applicable IMO regulations and guidelines. The cost of compliance could increase for our vessels as a result of these requirements, although it is difficult to predict the overall impact of such a requirement on our operations.
The operation of our vessels is also affected by the requirements set forth in the ISM Code of the IMO. The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive Safety Management System (“SMS”) that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Vessel operators must obtain a “Safety Management Certificate” from the government of the vessel’s flag state to verify that it is being operated in compliance with its approved SMS. The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, decrease available insurance
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coverage for the affected vessels and result in a denial of access to, or detention in, certain ports. Currently, each of the vessels in our fleet is ISM code-certified. However, there can be no assurance that such certification will be maintained indefinitely. Non-compliance with the ISM Code may subject such party to increased liability, invalidate existing insurance or decrease available insurance coverage for the affected vessels and result in a denial of access to, or detention in, certain ports. For example, the USCG and E.U. authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and E.U. ports.
The operations of our product tankers are subject to compliance with the IMO’s International Code for the Construction and Equipment of Ships carrying Dangerous Chemicals in Bulk (the “IBC Code”) for chemical tankers built after July 1, 1986. The IBC Code includes ship design, construction and equipment requirements and other standards for the bulk transport of certain liquid chemicals. Amendments to the IBC Code pertaining to revised international certificates of fitness for the carriage of dangerous goods entered into force in June 2014, and additional requirements regarding stability, tank purging, venting and inerting requirements entered into force in January 2016. Further amendments to the IBC Code entered into force on January 1, 2021 including revisions to carriage requirements for products. Moreover, on June 10, 2022, the IMO adopted additional amendments to the IBC Code to reduce flooding risks. These amendments are expected to enter into force on July 1, 2024. We may need to make certain expenditures to comply with these amendments.
Environmental Regulations—The United States Oil Pollution Act of 1990 and the U.S. Comprehensive Environmental Response, Compensation, and Liability Act
The United States Oil Pollution Act of 1990 (“OPA”), established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA applies to discharges of any oil from a vessel, including discharges of fuel oil (bunkers) and lubricants. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which include the United States’ territorial sea and its two hundred nautical mile exclusive economic zone. The United States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which applies to the discharge of hazardous substances other than oil, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Accordingly, both OPA and CERCLA impact our operations.
Under OPA, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the discharge of pollutants results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of pollutants from their vessels. OPA broadly defines these other damages to include:
| • | natural resources damage and the costs of assessment thereof; |
| • | real and personal property damage; |
| • | net loss of taxes, royalties, rents, fees and other lost revenues; |
| • | lost profits or impairment of earning capacity due to property or natural resources damage; and |
| • | net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources. |
In December 2015, the USCG adjusted the limits of liability of responsible parties under the OPA and established a procedure to further adjust these limits every three years. Effective November 12, 2019, the OPA liability is limited to the greater of $1,200 per gross ton or $997,100 for non tank vessels, subject to adjustment by the USCG for inflation every three years. On December 23, 2022, the USCG again adjusted those limits to the greater of $1,300 per gross ton or $1,076,000 per non-tank vessel. Effective March 23, 2023, the current limits of OPA liability for double-hulled tank vessels larger than 3,000 gross tons are the greater of $2,500 per gross ton or
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$21,521,000, subject to adjustment for inflation by the USCG every three years. These limits of liability do not apply if an incident was directly caused by violation of applicable United States federal safety, construction or operating regulations or by a responsible party’s gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities.
OPA requires owners and operators of vessels over 300 gross tons to establish and maintain with the USCG evidence of financial responsibility sufficient to meet their potential liabilities under the OPA. Under the USCG regulations implementing OPA, vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance, or guaranty. Under the OPA regulations, an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessels in the fleet having the greatest maximum liability under OPA.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
We currently maintain, for each of our vessels, pollution liability coverage insurance in the amount of $1 billion per vessel per incident. In addition, we carry hull and machinery and protection and indemnity insurance to cover the risks of fire and explosion. Under certain circumstances, fire and explosion could result in a catastrophic loss. While we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates. If the damages from a catastrophic spill exceeded our insurance coverage, it would have a severe effect on us and could possibly result in our insolvency.
OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject as discussed above. Under the self-insurance provisions, the ship owner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the USCG regulations by providing a financial guaranty evidencing sufficient self-insurance.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states, which have enacted such legislation, have not yet issued implementing regulations defining vessels owners’ responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call.
Environmental Regulations—Other Environmental Initiatives
The EU has adopted legislation that: (1) requires member states to refuse access to their ports to certain sub-standard vessels, according to vessel type, flag and number of previous detentions; (2) creates an obligation on member states to inspect at least 25% of vessels using their ports annually and provides for increased surveillance of vessels posing a high risk to maritime safety or the marine environment; (3) provides
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the EU with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies; and (4) requires member states to impose criminal sanctions for certain pollution events, such as the unauthorized discharge of tank washings. It is impossible to predict what additional legislation or regulations, if any, may be promulgated by the EU or any other country or authority.
On May 15, 2009, the IMO adopted the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009 (the “Hong Kong Convention”). The Hong Kong Convention was ratified by 16 states, representing 40% of the world fleet, in June 2023 and will enter into force on June 26, 2025. The Hong Kong Convention requires ships over 500 gross tonnes operating in international waters to maintain an Inventory of Hazardous Materials (an “IHM”). Only warships, naval auxiliary and governmental, non-commercial vessels are exempt from the requirements of the Hong Kong Convention. The IHM has three parts:
| • | Part I - hazardous materials inherent in the ship’s structure and fitted equipment; |
| • | Part II - operationally generated wastes; and |
| • | Part III - stores. |
Once the Hong Kong Convention has entered into force, each new and existing ship will be required to maintain Part I of IHM.
The Paris Memorandum of Understanding on Port State Control, to which 27 nations are parties, adopted the “New Inspection Regime” (“NIR”), effective January 1, 2011. The NIR is a significant departure from the previous system, as it is a risk based targeting mechanism that will reward quality vessels with a smaller inspection burden and subject high risk ships to more in depth and frequent inspections. The NIR is designed to identify potential substandard ships and increase the effectiveness of inspections. The inspection record of a vessel, its age and type, the Voluntary IMO Member State Audit Scheme, and the performance of the flag State and recognized organizations are used to develop the risk profile of a vessel.
The European Parliament and the Council of the E.U. have adopted regulation 2015/757, European Monitoring, Reporting and Verification Regulation (the “EU-MRV”) on the monitoring, reporting and verification of CO2 emissions from maritime transport. It entered into force on July 1, 2015 and monitoring began January 1, 2018. The maritime EU-MRV regulation applies to all merchant ships of 5,000 gross tons or above on voyages from, to and between ports under jurisdiction of E.U. member states. Companies operating the vessels will have to monitor the CO2 emissions released while in port and for any voyages to or from a port under the jurisdiction of an E.U. member state and to keep records on CO2 emissions on both per-voyage and annual bases. Furthermore, as of January 1, 2018, our vessels began monitoring and reporting CO2 emissions pursuant to the IMO DCS regulation, which is part of the IMO’s efforts to reduce GHG emissions from ships by 50% by 2050 compared to 2008. On February 4, 2019, the European Commission tabled a proposal concerning the amendment of the EU-MRV. The main objective of the proposal was to amend the EU-MRV in order to take account of the new IMO DCS for fuel oil consumption of ships that was introduced by the IMO in March 2018. As part of the IMO’s efforts to reduce GHG emissions from ships, an initial IMO GHG strategy envisaged a reduction in carbon intensity of international shipping (a 40 % reduction of average CO2 emissions per transport work by 2030 and a 70 % reduction by 2050, compared to 2008) and a 50 % reduction in total annual GHG emissions from international shipping by 2050, compared to 2008. The globally applicable IMO DCS system, currently runs in parallel with the EU-MRV, thus duplicating regulation for shipping companies whose ships sail both inside and outside the EU. The EU recently included international carbon emissions from the maritime sector in the EU emissions trading system. These monitoring and reporting processes adopted by the EU-MRV and the IMO DCS regulations is considered to be part of a market-based mechanism for a carbon tax to be adopted. On June 22, 2022, the European Union revised proposed amendments to regulation 2015/757.
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On September 16, 2020, the European Parliament voted in favor of amending the EU MRV Regulation to require shipping companies to reduce on a linear basis their annual average CO2 emissions relative to transport work for all their ships by at least 40% by 2030, with penalties for non-compliance. In May 2023, EU ETS regulations were amended in order to include emissions from maritime transport activities in the EU ETS and to require the monitoring, reporting and verification of emissions of additional greenhouse gases and emissions from additional ship types. In January 2024, the EU ETS was extended to cover CO2 emissions from all large ships (of 5,000 gross tonnage and above) entering EU ports, and will apply to methane and nitrous oxide emissions beginning in 2026. Shipping companies will need to buy allowances that correspond to the emissions covered by the system.
The introduction of shipping into the EU ETS means that an additional approximately 80 to 100 million emission allowances will be put on the market. Of these, auction revenues from 20 million emission allowances will go to the Innovation Fund, a funding program that develops low-carbon technologies, to be used for shipping-specific projects. The remaining revenues will go to the EU Member States and must be used for climate-related purposes.
On March 23, 2012, the USCG adopted ballast water discharge standards under the U.S. National Invasive Species Act. The regulations, which became effective on June 21, 2012, set maximum acceptable discharge limits for living organisms and established standards for ballast water management systems, and they are consistent with the requirements under the BWM Convention described above. The requirements are being phased in based on the size of the vessel and its next dry docking date. As of the date of this report, the USCG has approved forty Ballast Water Treatment Systems. A list of approved equipment can be found on the Coast Guard Maritime Information Exchange web page. Several U.S. states, such as California, have also adopted more stringent legislation or regulations relating to the permitting and management of ballast water discharges compared to U.S. Environmental Protection Agency (“EPA”) regulations.
The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil or hazardous substances in navigable waters and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA. Under EPA regulations we are required to obtain a CWA permit to discharge ballast water and other wastewaters incidental to the normal operation of our vessels if we operate within the three mile territorial waters or inland waters of the United States. This permit, which the EPA has designated as the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels (“VGP”), incorporates the current USCG requirements for ballast water management, as well as supplemental ballast water requirements, and includes requirements applicable to 26 specific discharge streams, such as deck runoff, bilge water and gray water. The USCG and the EPA have entered into a memorandum of understanding which provides for collaboration on the enforcement of the VGP requirements. As a result, the USCG includes the VGP as part of its normal Port State Control inspections. The EPA issued a VGP that became effective in December 2013. Among other things, it contained numeric ballast water discharge limits for most vessels and more stringent requirements for exhaust gas scrubbers and required the use of environmentally friendly lubricants. We have submitted NOIs (Notices Of Intent) for Discharges Incidental to the Normal Operation of a Vessel under the 2013 VGP to the U.S. EPA for all our ships trading in U.S. waters. The 2013 VGP was set to expire on December 13, 2018; however, its provisions will remain in effect until the regulations under the 2018 Vessel Incidental Discharge Act (“VIDA”) are final and enforceable. VIDA, signed into law on December 4, 2018, establishes a new framework for the regulation of vessel incidental discharges under CWA Section 312(p). VIDA requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the USCG to develop implementation, compliance, and enforcement regulations within two years of the EPA’s promulgation of its performance standards. All provisions of the 2013 VGP will remain in force and effect until the USCG regulations under VIDA are finalized. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking – Vessel Incident Discharge National Standards of Performance in the Federal Register for public comment. The comment period closed on November 25, 2020. Compliance with the EPA and USCG ballast water management regulations could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements at potentially substantial cost, or may otherwise restrict our vessels from entering United States waters.
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Climate Control Initiatives
Although the Kyoto Protocol requires adopting countries to implement national programs to reduce emissions of greenhouse gases, emissions of greenhouse gases from international shipping are not currently subject to the Kyoto Protocol. The Kyoto Protocol was extended to 2020 at the 2012 United Nations Climate Change Conference, with the hope that a new climate change treaty would be adopted by 2015 and come into effect by 2020. The Paris Agreement adopted under the United Nations Framework Convention on Climate Change in December 2015 contemplates commitments from each nation party thereto to take action to reduce greenhouse gas emissions and limit increases in global temperatures but did not include any restrictions or other measures specific to shipping emissions. However, restrictions on shipping emissions are likely to continue to be considered and a new treaty may be adopted in the future that includes restrictions on shipping emissions. International or multi-national bodies or individual countries may adopt their own climate change regulatory initiatives. The IMO’s Marine Environment Protection Committee adopted two sets of mandatory requirements to address greenhouse gas emissions from shipping that entered into force in January 2013. The Energy Efficiency Design Index establishes minimum energy efficiency levels per capacity mile and applies to new vessels of 400 gross tons or greater. Currently operating vessels must develop and implement Ship Energy Efficiency Plans. By 2025, all new ships built must be 30% more energy efficient than those built in 2014, but it is likely that the IMO will increase these requirements such that new ships must be up to 50% more energy efficient than those built in 2014 by 2022. These new requirements could cause us to incur additional costs to comply. Draft MARPOL amendments released in November 2020 and adopted in June 2021 built on the EEDI and SEEMP by requiring ships to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (“EEXI”) and reduce operational carbon intensity reductions based on a new operational carbon intensity indicator, in line with the IMO strategy which aims to reduce carbon intensity of international shipping by 40% by 2030. The EEXI, which entered into force in January 2023, requires alterations to a vessel’s design, machinery or arrangements to meet a certain goal of CO2 grams emitted per capacity tonne mile under certain reference conditions. This measure accounts for the vessel’s engine power, fuel consumption and CO2 conversion capacity, all of which make it impossible to effect EEXI compliance by merely reducing the ship’s speed or cargo load. Alongside the EEXI, a mandatory Carbon Intensity Indicator (“CII”) was introduced on January 1, 2023. CII requirements are set to become particularly stringent by 2030. The USCG plans to develop and propose regulations to implement these provisions in the United States. This measure of annual efficiency is used to rate vessels based on the grams of CO2 they emit per dwt-mile, giving all cargo vessels above 5,000 GT a rating of A to E every year. The rating thresholds will become increasingly stringent towards 2030. For ships that achieve a D rating for three consecutive years or an E rating, a corrective action plan needs to be developed as part of the SEEMP and approved. These changes were accompanied by the introduction of the so-called “Enhanced SEEMP,” a strengthened version of SEEMP that includes new mandatory content, such as a CII target implementation plan, on top of being subject to approval by appropriate authorities. These new requirements for existing ships will be reviewed by the end of 2025, with particular focus on the enforcement of the carbon intensity rating requirements. The IMO is also considering the development of market-based mechanisms for limiting greenhouse gas emissions from ships, but it is impossible to predict the likelihood of adoption of such a standard or the impact on our operations. In April 2015, the EU adopted regulations requiring the monitoring and reporting of greenhouse gas emissions from marine vessels (of over 5,000 gross tons) which went into effect in January 2018. As described above, following a July 14, 2021 European Commission proposal, the European Parliament voted to include CO2, methane (NH4) and nitrous oxide (N2O) emissions from shipping within the EU’s Emissions Trading Scheme. The proposal was adopted in May 2023, and became effective January 1, 2024. The EU ETS now applies to all voyages by vessels 5,000 gross tonnage and above that start or finish within the EU. It requires vessel operators to purchase allowances that correspond to the emissions covered by the system. The scheme phased in for CO2 in 2024, and will phase in for methane and nitrous oxide in 2026. Additional jurisdictions may adopt similar GHG emissions monitoring and reduction schemes in the future. The EPA has issued a finding that greenhouse gas emissions endanger the public health and safety and has adopted regulations under the Clean Air Act to limit emissions of greenhouse gases from certain mobile sources and proposed regulations to limit greenhouse gas emissions from large stationary sources, although the mobile source regulations do not apply to greenhouse gas emissions from vessels. Any passage of climate control initiatives by
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the IMO, the EU or the individual countries in which we operate that limit greenhouse gas emissions from vessels could require us to limit our operations or make significant financial expenditures that we cannot predict with certainty at this time. Passage of climate control initiatives that affect the demand for oil may also materially affect our business. Even in the absence of climate control legislation and regulations, our business may be materially affected to the extent that climate change may result in sea level changes or more intense weather events.
On June 29, 2017, the Global Industry Alliance, or (the “GIA”), was officially inaugurated. The GIA is a program, under the Global Environmental Facility-United Nations Development Program-IMO project, which supports shipping, and related industries, as they move towards a low carbon future. Organizations including, but not limited to, ship owners, operators, classification societies, and oil companies, signed to launch the GIA.
The China Maritime Safety Administration (the “China MSA”) issued the Regulation on Data Collection of Energy Consumption for Ships in November 2018. This regulation is effective as of January 1, 2019 and requires ships calling on Chinese ports to report fuel consumption and transport work details directly to the China MSA. This regulation also contains additional requirements for Chinese-flagged vessels (domestic and international) and other non-Chinese-flagged international navigating vessels. In November 2022, the China MSA published an additional Regulation of Administrative Measures of Ship Energy Consumption Data and Carbon Intensity, which came into effect on December 22, 2022. This regulation was essentially enacted to implement MARPOL Annex VI to Chinese-flagged vessels, though a few of its provisions also apply to foreign ships with a gross tonnage of at least 400 entering and exiting Chinese ports. This Regulation essentially applies more stringent rules around that collection and reporting of data related to ships’ energy consumption, as is already required by the 2018 regulation.
On October 23, 2023, the China MSA modified its monitoring and inspection requirements for vessels subject to intensified monitoring and inspection. Effective December 1, 2023, the requirements expand the kinds of vessels that can be included in the list and authorize provincial-level offices to enter vessels parallel to the China MSA’s existing authority. The modified rules no longer distinguish between Chinese and foreign vessels. Currently, we have no vessels on the list in question, and we strongly monitor compliance with applicable rules and regulations to avoid any such entry. Nevertheless, because it is unclear how the China MSA may amend the list’s entry requirements, any number of our vessels could be entered into the list regardless of our efforts. This would subsequently result in heightened monitoring, inspection and compliance costs, as well as associated delays in the vessels’ operations.
On June 29, 2017, the Global Industry Alliance, or the GIA, was officially inaugurated. The GIA is a program, under the Global Environmental Facility-United Nations Development Program-IMO project, which supports shipping, and related industries, as they move towards a low carbon future. Organizations including, but not limited to, ship owners, operators, classification societies, and oil companies, signed to launch the GIA.
In addition, the United States is currently experiencing changes in its environmental policy, the results of which have yet to be fully determined. For example, in 2021, the United States announced its commitment to working with the IMO to adopt a goal of achieving zero emissions from international shipping by 2050. Additional legislation or regulation applicable to the operation of our ships that may be implemented in the future could negatively affect our profitability. Additional legislation or regulation applicable to the operation of our ships that may be implemented in the future could negatively affect our profitability. Furthermore, recent action by the IMO’s Maritime Safety Committee and U.S. agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats, as described below. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is difficult to predict at this time.
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Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the Maritime Transportation Security Act of 2002 “MTSA”) came into effect in the United States. To implement certain portions of the MTSA, in July 2003, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to the International Convention for the Safety of Life at Sea (“SOLAS”), created a new chapter of the convention dealing specifically with maritime security. The chapter went into effect in July 2004, and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the newly created International Ship and Port Facilities Security or, ISPS, Code. Among the various requirements are:
| • | on-board installation of automatic information systems to enhance vessel-to-vessel and vessel-to-shore communications; |
| • | on-board installation of ship security alert systems; |
| • | the development of vessel security plans; and |
| • | compliance with flag state security certification requirements. |
The USCG regulation’s aim to align with international maritime security standards exempted non-United States vessels from MTSA vessel security measures provided such vessels have on board, by July 1, 2004, a valid International Ship Security Certificate (“ISSC”) that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. We have obtained ISSCs for all of our vessels and implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Codes to ensure that our vessels attain compliance with all applicable security requirements within the prescribed time periods. We do not believe these requirements will have a material financial impact on our operations.
IMO Cyber Security
The Maritime Safety Committee, at its 98th session in June 2017, adopted Resolution MSC.428(98)—Maritime Cyber Risk Management in Safety Management Systems. The resolution encourages administrations to ensure that cyber risks are appropriately addressed in existing safety management systems (as defined in the ISM Code) no later than the first annual verification of the company’s Document of Compliance after January 1, 2021. Owners risk having ships detained if they have not included cyber security in the SMS of ships.
Vessel Recycling Regulations
The EU has adopted a regulation that seeks to facilitate the ratification of the IMO Recycling Convention and sets forth rules relating to vessel recycling and management of hazardous materials on vessels. In addition to new requirements for the recycling of vessels, the new regulation contains rules for the control and proper management of hazardous materials on vessels and prohibits or restricts the installation or use of certain hazardous materials on vessels. The new regulation applies to vessels flying the flag of an EU member state and certain of its provisions apply to vessels flying the flag of a third country calling at a port or anchorage of a member state. For example, when calling at a port or anchorage of a member state, a vessel flying the flag of a third country will be required, among other things, to have on board an inventory of hazardous materials that complies with the requirements of the new regulation and the vessel must be able to submit to the relevant authorities of that member state a copy of a statement of compliance issued by the relevant authorities of the country of the vessel’s flag verifying the inventory. The new regulation took effect on non-EU-flagged vessels calling on EU ports of call beginning on December 31, 2020.
Classification and Inspection
All our vessels are certified as being “in class” by a classification society member of the International Association of Classification Societies such as Lloyds Register of Shipping and Bureau Veritas, Registro Italiano
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Navale (Rina) and American Bureau of Shipping (ABS). All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard contracts and memoranda of agreement. If the vessel is not certified on the date of closing, we have no obligation to take delivery of the vessel. Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classification society that is a member of the International Association of Classification Societies. Every vessel’s hull and machinery is “classed” by a classification society authorized by its country of registry. The classification society certifies that the vessel has been built and maintained in accordance with the rules of such classification society and complies with applicable rules and regulations of the country of registry of the vessel and the international conventions of which that country is a member. Each vessel is inspected by a surveyor of the classification society every year—an annual survey, every two to three years—an intermediate survey, and every four to five years—a special survey. Vessels also may be required, as part of the intermediate survey process, to be drydocked every 30 to 36 months for inspection of the underwater parts of the vessel and for necessary repairs related to such inspection; alternatively, such requirements may be dealt concurrently with the special survey.
In addition to the classification inspections, many of our customers, including the major oil companies, regularly inspect our vessels as a pre-condition to chartering voyages on these vessels. We believe that our well-maintained, high quality tonnage should provide us with a competitive advantage in the current environment of increasing regulations, and customer emphasis on quality of service.
All areas subject to surveys as defined by the classification society, are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.
Vessels are dry docked for the special survey for inspection of the underwater parts and for repairs related to inspections. If any defects are found, the classification surveyor will issue a “recommendation” which must be rectified by the ship owner within the prescribed time limits.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes amongst others the handling and management of situations such as mechanical failure and/or physical damage to the ship, collision, third party property loss, cargo loss or damage, business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. While we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
We procure hull and machinery insurance, protection and indemnity insurance, which include environmental damage and pollution insurance coverage, war risk and other insurance coverage for our fleet with insurance carriers that also provide insurance coverage for ships owned by affiliated entities, including StealthGas and private Vafias family interests. Accordingly, if one of our ships, or other ships managed by Brave Maritime or Stealth Maritime and owned by an affiliated entity of Brave Maritime or Stealth Maritime, including StealthGas and C3is, were to incur significant costs from an accident, spill or other environmental liability or were subject to insurance fraud or other incident, our insurance premiums and costs could increase significantly or we may not be able to obtain insurance for our ships.
Hull and Machinery Insurance
We have in place Fleet Marine Hull and Machinery and Fleet War Risk insurance policies, providing cover for particular damage to the vessel, salvage and towage costs following a casualty as well as for vessel Actual or Constructive Total Loss, subject to a deductible of $150,000 or $200,000 (depending on the ship) per incident.
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We also maintain Increased Value insurance. Under the Increased Value insurance, in case of total loss of a vessel, we will be able to recover the sum insured under the Increased Value policy in addition to the sum insured under the Hull and Machinery policy. Increased Value insurance also covers excess liabilities which are not recoverable in full by the Hull and Machinery policies by reason of under insurance.
For each ship the sum of the values insured under the Hull & Machinery and Increased Value policies represent its fair market value.
Protection and Indemnity Insurance
Protection and indemnity insurance, is a form of mutual indemnity insurance, which is designed to cover third party liabilities likely to arise out of our shipping activities. It is provided by non-profit-making insurance organizations commonly known as Protection and Indemnity Associations or “ P&I Clubs”. This insurance aims to respond towards third-party liability claims and other related expenses arising amongst others from injury or death of crew, shore personnel working on board the ships during cargo operations and other third parties, loss of or damage to cargoes, claims arising from collisions with other vessels, damage to third-party properties, pollution arising from oil or other substances, salvage costs to the extent that they aim to control or mitigate the environmental effect following a casualty, Wreck removal and other discretionary costs.
Our current Protection and Indemnity insurance provides cover for Oil Pollution up to $1.0 billion per vessel per incident. The 13 P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. Claims pooling between the clubs is regulated by the Pooling Agreement which defines the risks that can be pooled and how losses are to be shared between the participating clubs. The Pool provides a mechanism for sharing all claims in excess of US$10 million up to, approximately US$3.1 billion.
Under the current structure, clubs’ contributions to claims in the lower pool layer i.e from $10 million to $30 million are assessed on a tripartite formula which takes account of each club’s contributing tonnage, premium and claims record. For claims falling in the upper pool layer from $50 million to $100 million, 7.5% is retained by the club bringing the claim and 92.5% is shared by all on a tonnage-weighted basis.
The International Group clubs arrange a common market reinsurance contract to provide reinsurance for claims which exceed the upper limit of the pool (US $100 million) up to an amount of US $3.1 billion any one claim (US $1 billion for Oil Pollution claims). It is said to be the largest single marine reinsurance contract in the market. Claims from $30 million to $100 million are reinsured from a captive, named Hydra.
As members of Mutual P&I Associations, we may become subject to unbudgeted supplementary calls payable to the P&I Club depending on its financial year results that they are determined by 3 main parameters, i.e., their exposure from payment of claims, the income through premium and the income arising from investments. Our aim at every renewal is to conclude our P&I insurance with “A rated” P&I clubs as this, amongst other benefits, eliminates the risk of unbudgeted supplementary calls being imposed.
Competition
We operate in a highly competitive global market based primarily on supply and demand of vessels and cargoes.
Ownership of medium range product tankers and crude oil tankers capable of transporting crude oil and refined petroleum products, such as gasoline, diesel, fuel oil and jet fuel, as well as edible oils and chemicals, is highly diversified and is divided among many independent tanker owners. Many oil companies and other oil trading companies, the principal charterers of our product tankers and crude oil tankers, also operate their own vessels and transport oil for themselves and third-party charterers in direct competition with independent owners
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and operators. Competition for charters, including for the transportation of oil and oil products, can be intense and depends on price as well as on the location, size, age, condition, specifications and acceptability of the vessel and its operator to the charterer and is frequently tied to having an available vessel with the appropriate approvals from oil majors. Principal factors that are important to our charterers include the quality and suitability of the vessel, its age, technical sophistication, safety record, compliance with IMO standards and the heightened industry standards that have been set by some energy companies, and the competitiveness of the bid in terms of overall price.
The drybulk sector is characterized by relatively low barriers to entry, and ownership of drybulk vessels is highly fragmented. In general, we compete with other owners of drybulk vessels for charters based upon price, customer relationships, operating expertise, professional reputation and size, age, location and condition of the vessel. We negotiate the terms of our charters (whether voyage charters, period time charters, bareboat charters or pools) based on market conditions. In the drybulk sector we currently compete primarily with other owners of drybulk vessels, many of which may have more resources than us and may operate vessels that are newer, and therefore more attractive to charterers than vessels we may operate. We currently compete primarily with owners of drybulk vessels in the handymax and handysize class sizes.
Seasonality
Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere, but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result, our revenues may be stronger in fiscal quarters ended December 31 and March 31 and relatively weaker during the fiscal quarters ended June 30 and September 30.
Coal, iron ore and grains, which are the major bulks of the drybulk shipping industry, are somewhat seasonal in nature. The energy markets primarily affect the demand for coal, with increases during hot summer periods when air conditioning and refrigeration require more electricity and towards the end of the calendar year in anticipation of the forthcoming winter period. The demand for iron ore tends to decline in the summer months because many of the major steel users, such as automobile makers, reduce their level of production significantly during the summer holidays. Grain trades are seasonal as they are driven by the harvest within a climate zone. Because three of the five largest grain producers (the United States of America, Canada and the European Union) are located in the northern hemisphere and the other two (Argentina and Australia) are located in the southern hemisphere, harvests occur throughout the year and grains transportation requires drybulk shipping accordingly.
The Tanker Industry
In broad terms, demand for oil and oil products traded by sea is primarily affected by global and regional economic conditions, as well as other factors such as changes in the location of productive capacity, and variations in regional prices. Demand for shipping capacity is a product of the physical quantity of the cargo (measured, depending on the cargo in terms of tons or cubic metrics), together with the distance the cargo is carried. Demand cycles move broadly in line with developments in the global economy, with growth rate of demand for products slowing significantly and becoming negative in some years in the period immediately after the onset of the global economic downturn in late 2008, before recovering gradually from 2011 with general improvement in the global macro-economic environment. Low crude prices between 2015 and 2017 induced greater consumption, which led to increased seaborne trade of crude oil as well as refined products. Growth in seaborne trade slowed in 2018 because of inventory drawdown in crude as well as refined products. In 2019, the decline in seaborne trade was on account of lower refinery runs and weaker economic growth. Refineries underwent maintenance in the first half of 2019 to prepare for low sulfur fuel oil and MGO demand related with IMO 2020 regulations on the control of Sulphur emission, while refinery runs were lower in the second half of 2019 due to weaker economic growth.
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The outbreak of COVID-19 severely affected the demand for crude oil and refined petroleum products in 2020 and 2021 as several major economies enforced lockdowns to contain the spread of the virus and mitigate the damage caused by the pandemic. The decline in trade was mainly led by a sharp decline in both crude oil and oil products trade following restrictions enforced by authorities in several major economies. In 2022, oil demand and trade improved significantly as Covid-19 restrictions were being eased out and longer haul routes started emerging as a result of the war in Ukraine. Specifically, in 2022, 3,369 million tons of crude oil, products and vegetable oils/chemicals were moved by sea. Of this, crude shipments constituted 1,967 million tons of cargo and products 1,032 million tons, with the balance made up of other bulk liquids, including vegetable oils, chemicals and associated products. Products trades have received a boost in the last decade as a result of developments in exploration and production activity in the U.S. Horizontal drilling and hydraulic fracturing have triggered a shale oil revolution and rising crude oil production has also ensured the availability of cheaper feedstocks to local refineries. As a result, the U.S. has become a major net exporter of products. In 2023 global imports of crude oil reached 2,161.5 million tons marking a 6.6% year on year increase, while global exports of crude oil reached 2,167.5 million tons marking a 5.7% year on year increase. Moreover, in 2023 imports of clean products reached 807.1 million tons marking a 3.3% year on year decline while exports of clean products reached 797.3 million tons marking a 5.4% year on year decline.
Crude oil is transported in uncoated vessels, which range upwards in size from 55,000 dwt. Products are carried predominantly in coated ships and include commodities such as gas oil, gasoline, jet fuel, kerosene and naphtha (often referred to as ‘clean products’), and fuel oil and vacuum gas oil (often referred to as ‘dirty products’). In addition, some product tankers are also able to carry bulk liquid chemicals and edible oils and fats if they have the appropriate International Maritime Organization (IMO) certification. These vessels are classified as product/chemical tankers, and as such, they represent a swing element in supply, having the ability to move between trades depending on market conditions. Clean petroleum products are therefore carried by non-IMO product tankers and IMO certified product/chemical tankers. IMO tankers will also carry, depending on their tank coatings, a range of other products including organic and inorganic bulk liquid chemicals, vegetable oils and animal fats and special products such as molasses.
Two other important factors are likely to affect product tanker supply in the future. The first is the requirement to retrofit Ballast Water Management Systems (BWTS) to existing vessels. In February 2004, the IMO adopted the International Convention for the Control and Management of Ships’ Ballast Water and Sediments. The IMO Ballast Water Management (BWM) Convention contains an environmentally protective numeric standard for the treatment of a ship’s ballast water before it is discharged. This standard, detailed in Regulation ‘D-2’ of the BWM Convention, sets out the numbers of organisms allowed in specific volumes of treated discharge water. The IMO ‘D-2’ standard is also the standard that has been adopted by the U.S. Coast Guard’s ballast water regulations and the U.S. EPA’s Vessel General Permit. The BWM Convention also contains an implementation schedule for the installation of IMO member state type approved treatment systems in existing ships and in new vessels, requirements for the development of vessel ballast water management plans, requirements for the safe removal of sediments from ballast tanks, and guidelines for the testing and type approval of ballast water treatment technologies. In July 2017, the IMO extended the regulatory requirement of compliance to the BWM Convention from September 8, 2017 to September 8, 2019. Vessels trading internationally will have to comply with the BWM Convention upon their next special survey after that date. Expenditure of this kind has become another factor impacting the decision to scrap older vessels after BWM Convention came into force in 2019.
The second factor that is likely to impact future vessel supply is the drive to control sulfur emission from ships. Heavy fuel oil (HFO) has been the main fuel of the shipping industry for many years. It is relatively inexpensive and widely available, but it is ‘dirty’ from an environmental point of view. The sulfur content of HFO consumed by ships has been about 3.5% until the end of 2019. It is the reason that maritime shipping accounts for 8% of global emissions of sulfur dioxide (SO2), an important source for acid rain, as well as respiratory diseases. In some port cities, such as Hong Kong, shipping is the largest single source of SO2 emissions, as well as emissions of particulate matter (PM), which are directly tied to the sulfur content of the fuel. One estimate suggests that PM emissions from maritime shipping led to 87,000 premature deaths worldwide in 2012.
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Vessel chartering
Product tankers and crude oil tankers are ordinarily chartered either through a voyage charter or a time charter, under a longer term contract of affreightment (“COA”) or in pools. Under a voyage charter, the owner agrees to provide a vessel for the transport of cargo between specific ports in return for the payment of an agreed freight rate per ton of cargo or an agreed dollar lump sum amount. Voyage costs, such as canal and port charges and bunker expenses, are the responsibility of the owner. Under a time charter, the ship owner places the vessel at the disposal of a charterer for a given period of time in return for a specified rate (either hire per day or a specified rate per dwt capacity per month) with the voyage costs being the responsibility of the charterer. In both voyage charters and time charters, operating costs (such as repairs and maintenance, crew wages and insurance premiums), as well as drydockings and special surveys, are the responsibility of the ship owner. The duration of time charters varies, depending on the evaluation of market trends by the ship owner and by charterers. Occasionally, tankers are chartered on a bareboat basis. Under a bareboat charter, operations of the vessels and all operating costs are the responsibility of the charterer, while the owner only pays the financing costs of the vessel. A COA is another type of charter relationship where a charterer and a ship owner enter into a written agreement pursuant to which a specific cargo will be carried over a specified period of time. COAs benefit charterers by providing them with fixed transport costs for a commodity over an identified period of time. COAs benefit ship owners by offering ascertainable revenue over that same period of time and eliminating the uncertainty that would otherwise be caused by the volatility of the charter market. A shipping pool is a collection of similar vessel types under various ownerships, placed under the care of a single commercial manager. The manager markets the vessels as a single fleet and collects the earnings which are distributed to individual owners under a pre-arranged weighing system by which each participating vessel receives its share. Pools have the size and scope to combine voyage charters, time charters and COA with freight forward agreements for hedging purposes, to perform more efficient vessel scheduling thereby increasing fleet utilization.
Market cyclicality and trends
The international tanker shipping industry is cyclical and volatile, having reached historical highs in 2008 and historical lows in 2016. Charter rates improved in the first half of 2020; before declining sharply in the second half of 2020 and remaining at low levels in 2021 and early 2022, before significantly improving in the second half of 2022 and the first quarter of 2023 and remained at high levels for the majority of 2023. Tanker charter hire rates and vessel values for all tankers are influenced by the supply-demand dynamics of the tanker market. Demand for vessels depends on the international trade of oil and refined petroleum products, including the availability of crude oil. Also, in general terms, time charter rates are less volatile than spot rates as they reflect the fact that the vessel is fixed for a longer period of time. In the spot market, rates will reflect the immediate underlying conditions in vessel supply and demand, and are thus prone to more volatility.
At the same time, the supply of tankers vessels cannot be changed drastically in the short term as it takes about nine months to build a ship and, usually, there is a lag of, at least, fifteen to eighteen months between placing an order to build a vessel and its delivery. In the near term, supply is limited by the existing number of vessels and can only be adjusted by increasing or decreasing the operating speed of a vessel but various economic and operational factors could limit the range of such adjustments.
Typically, periods of high charter rates result in an increased rate of new vessel ordering, often more than what the demand levels warrant; these vessels begin to be delivered eighteen months or more later when demand growth for vessels may have slowed down thus creating oversupply and quick correction of charter rates. The cyclicality of charter rates is also reflected in vessel values.
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The Drybulk Shipping Industry
The global drybulk vessel fleet is divided into four principal categories based on a vessel’s carrying capacity. These categories are:
Capesize. Capesize vessels have a carrying capacity of exceeding 100,000 dwt. Only the largest ports around the world possess the infrastructure to accommodate vessels of this size. Capesize vessels are primarily used to transport iron ore or coal and, to a much lesser extent, grains, primarily on long-haul routes.
Panamax. Panamax vessels have a carrying capacity of between 60,000 and 100,000 dwt. These vessels are designed to meet the physical restrictions of the Panama Canal locks (hence their name “Panamax” — the largest vessels able to transit the Panama Canal prior to its 2016 expansion, making them more versatile than larger vessels). These vessels carry coal, grains, and, to a lesser extent, minerals such as bauxite/alumina and phosphate rock.
Handymax/Supramax. Handymax vessels have a carrying capacity of between 40,000 and 60,000 dwt. These vessels operate on a large number of geographically dispersed global trade routes, carrying primarily grains and minor bulks. The standard vessels are usually built with 25-30 ton cargo gear, enabling them to discharge cargo where grabs are required (particularly industrial minerals), and to conduct cargo operations in countries and ports with limited infrastructure. This type of vessel offers good trading flexibility and can, therefore, be used in a wide variety of bulk and neobulk trades, such as steel products.
Handysize. Handysize vessels have a carrying capacity of between 28,000 and to 40,000 dwt. These vessels are almost exclusively carry minor bulk cargo. Increasingly, vessels of this type operate on regional trading routes, and may serve as trans-shipment feeders for larger vessels. Handysize vessels are well suited for small ports with length and draft restrictions. Their cargo gear enables them to service ports lacking the infrastructure for cargo loading and discharging.
The supply of drybulk vessels is dependent on the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or loss. The level of scrapping activity is generally a function of scrapping prices in relation to current and prospective charter market conditions, as well as operating, repair and survey costs.
The demand for drybulk vessel capacity is determined by the underlying demand for commodities transported in drybulk vessels, which in turn is influenced by trends in the global economy. Demand for drybulk vessel capacity is also affected by the operating efficiency of the global fleet, with port congestion, which has been a feature of the market since 2004, absorbing tonnage and therefore leading to a tighter balance between supply and demand. In evaluating demand factors for drybulk vessel capacity, we believe that drybulk vessels can be the most versatile element of the global shipping fleets in terms of employment alternatives.
Drybulk Carrier Charter Hire Rates. Charter hire rates fluctuate by varying degrees among drybulk vessel size categories. The volume and pattern of trade in a small number of commodities (major bulks) affect demand for larger vessels. Therefore, charter rates and vessel values of larger vessels often show greater volatility. Conversely, trade in a greater number of commodities (minor bulks) drives demand for smaller drybulk vessels. Accordingly, charter rates and vessel values for those vessels are subject to less volatility.
Charter hire rates paid for drybulk vessels are primarily a function of the underlying balance between vessel supply and demand, although at times other factors may play a role. Furthermore, the pattern seen in charter rates is broadly mirrored across the different charter types and the different drybulk vessel categories. However, because demand for larger drybulk vessels is affected by the volume and pattern of trade in a relatively small number of commodities, charter hire rates (and vessel values) of larger ships tend to be more volatile than those for smaller vessels.
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In the time charter market, rates vary depending on the length of the charter period and vessel specific factors such as age, speed and fuel consumption.
In the voyage charter market, rates are influenced by cargo size, commodity, port dues and canal transit fees, as well as commencement and termination regions. In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes with costly ports or canals generally command higher rates than routes with low port dues and no canals to transit. Voyages with a load port within a region that includes ports where vessels usually discharge cargo or a discharge port within a region with ports where vessels load cargo also are generally quoted at lower rates, because such voyages generally increase vessel utilization by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return charter to a loading area.
Within the drybulk shipping industry, the charter hire rate references most likely to be monitored are the freight rate indexes issued by the Baltic Exchange. These references are based on actual charter hire rates under charters entered into by market participants as well as daily assessments provided to the Baltic Exchange by a panel of major shipbrokers.
Legal Proceedings
To our knowledge, there are no material legal proceedings to which we are a party or to which any of our properties are subject, other than routine litigation incidental to our business. In our opinion, the disposition of these lawsuits should not have a material impact on our consolidated results of operations, financial position and cash flows.
See Note 15 “Commitments and Contingencies” to the audited financial statements included elsewhere in this report.
Properties
Other than our vessels, we do not own any material property.
C. Organizational Structure
As of April 1, 2024, we were the sole owner of all the outstanding shares of the subsidiaries listed in Exhibit 8.
D. Properties
Other than our vessels we do not have any material property. For information on our fleet, see “Item 4. Information on the Company—Business Overview.”
We have no freehold or material leasehold interest in any real property. We lease office space from an affiliated company of Stealth Maritime. See “Item 7. Major Stockholders and Related Party Transactions—B. Related Party Transactions—Office Space.”
| Item 4A. | Unresolved Staff Comments |
None.
| Item 5. | Operating and Financial Review and Prospects |
The following presentation of management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements, accompanying notes thereto
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and other financial information, appearing elsewhere in this annual report. Imperial Petroleum Inc. was incorporated under the laws of the Republic of the Marshall Islands on May 14, 2021, and did not commence operations until the consummation of the Spin-Off on December 3, 2021. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in the section entitled “Risk Factors” and elsewhere in this report. You should also carefully read the following discussion with “Risk Factors” and “Forward-Looking Statements.” The financial statements have been prepared in accordance with U.S. GAAP.
We use the term deadweight ton, or dwt, in describing the size of vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry.
Overview
Imperial Petroleum Inc. was incorporated under the laws of the Republic of the Marshall Islands on May 14, 2021, by StealthGas Inc. to serve as the holding company of four subsidiaries, each owning one of the tanker vessels in our initial fleet, that it subsequently contributed to us in connection with the Spin-Off. On December 3, 2021, StealthGas distributed all of our outstanding common stock and 8.75% Series A Cumulative Redeemable Perpetual Preferred Shares to its stockholders, which completed our separation from StealthGas.
The accompanying consolidated financial statements presented in this Annual Report include the accounts of Imperial Petroleum Inc. and its wholly owned subsidiaries (collectively, the “Company”) using the historical carrying costs of the assets and the liabilities of the subsidiaries from their dates of incorporation. For periods up to December 3, 2021, the accompanying financial statements reflect the financial position and results of the carve-out operations of the subsidiaries that were contributed to Imperial Petroleum Inc.
We are a provider of international seaborne transportation services to oil producers, refineries and commodities traders and producers, as well as industrial users of drybulk cargoes. As of April 1, 2024, we owned and operated a fleet of six MR refined petroleum product tankers that carry refined petroleum products such as gasoline, diesel, fuel oil and jet fuel, as well as edible oils and chemicals, one aframax tanker and two suezmax tankers that carry crude oil and two handysize drybulk carriers that transport major bulks such as iron ore, coal and grains, and minor bulks such as bauxite, phosphate and fertilizers. The total cargo carrying capacity of our eleven-vessel fleet is 791,000 dwt. We will actively manage the deployment of our fleet on a mix of period charters, including time and bareboat charters which can last up to twelve years, and spot market charters, which generally last from one to six months, according to our assessment of market conditions. Some of our vessels may participate in shipping pools, or, in some cases in contracts of affreightment, although we have not employed any of our vessels under such arrangements to date. As of April 1, 2024, we had both of our handysize drybulk vessels operating under time charter contracts, the Glorieuse and the Eco Wildfire both scheduled to expire in April 2024, while our nine tanker vessels operated in the spot market.
On June 21, 2023, we completed the spin-off of our previously wholly-owned subsidiary, C3is Inc., the holding company for two drybulk carriers, the Eco Angelbay and the Eco Bushfire, each with an aggregate capacity of 64,000 dwt. Imperial Petroleum stockholders and warrantholders received one C3is common share for every eight shares of Imperial Petroleum’s common stock owned, or in the case of holders of Imperial Petroleum’s outstanding Warrants that they have the right to purchase pursuant to Warrants owned, at the close of business on June 13, 2023. We retain an interest in C3is Inc. through our ownership of Series A Convertible Preferred Stock of C3is Inc., with an aggregate liquidation preference of $15,000,000, which is currently convertible into common stock of C3is Inc., at a conversion price of $0.03241 per share, as of April 1, 2024.
Vessels operating on period charters, principally time and bareboat charters, provide more predictable cash flows but can yield lower profit margins than vessels operating in the spot market during periods characterized
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by favorable market conditions. Vessels operating in the spot market generate revenues that are less predictable but may enable us to achieve increased profit margins during periods of high rates in the charter market, although we are exposed to the risk of having to seek to employ our vessels at low prevailing rates in weak market conditions, which may have a materially adverse impact on our overall financial performance.
As described below under “—Results of Operations”, the mix of charters our vessels are deployed on, which affects our utilization, revenues, expenses and profitability, has differed in recent periods and over time we expect will continue to vary. Our fleet’s percentage of calendar days operating on time and bareboat period charters increased slightly from 72.5% in 2020, comprised of 30.5% bareboat days and 42.0% time charter days, to 77.2% in 2021, comprised of 25.0% bareboat days and 52.2% time charter days, with spot market days decreasing from 24.3% to 20.6% and fleet operational utilization declining from 95.7% to 90.5% from 2020 to 2021, reflecting, principally, the weak conditions that were prevailing in the product and crude oil tanker charter markets in 2021, in which circumstances we generally prefer not to lock-in our vessels for extended periods at the low rates then available under time or bareboat period charters. In the year ended December 31, 2022, the percentage of our fleet’s total calendar days on which our vessels operated in the spot market was 43.7%, time charter activity was 43.1% and bareboat activity was 9.8%. Our fleet total operational utilization for the year ended December 31, 2022 was 84.8%. In the year ended December 31, 2023, the percentage of our fleet’s total calendar days on which our vessels operated in the spot market was 66.4%, time charter activity was 29.0%, while we had no bareboat activity. Our fleet total operational utilization for the year ended December 31, 2023 was 75.1%.
Operating vessels in the spot market, can result in decreased utilization, revenues and profitability in weak charter markets, as compared to periods of stronger markets or employment on period charters entered into during more favorable market conditions. This was the case for those of our tankers operating in the spot market in the first months of 2022 until conditions in the crude oil and product tanker charter markets began to improve substantially, particularly in the second half of 2022 and remained favorable throughout the majority of 2023 as well. In relation to the drybulk carriers operating in the spot market in 2023, conditions in the drybulk charter market deteriorated significantly from the strong markets experienced from late 2020 to the latter part of 2022 and therefore the spot exposure of our drybulk carriers in 2023 was very low. In general, with any improvement in market conditions we may seek to employ our vessels in the spot market to take advantage of higher charter rates, as we have generally done with our tankers in the fourth quarter of 2022 and throughout 2023, or on a higher percentage of period charters, principally time charters, if attractive rates become available.
Compared to operating in the spot market both time and bareboat period charters offer (1) higher utilization rates, particularly in weaker markets, (2) lower costs, particularly for bareboat charters under which we are not responsible for voyage or operating expenses, while under time charters we are responsible for operating expenses and in the spot market we are responsible for both voyage and operating expenses, and (3) may generate higher or lower revenues and profit margins depending on market conditions in the product tanker, crude oil tanker and drybulk carrier charter markets, as applicable, with generally higher rates than spot charters in weak markets and lower rates than spot charters in stronger markets, and at what point in the charter market cycle the bareboat or time charters were entered into. The proportion of time our fleet operates on bareboat charters versus time charters and in the spot market affects our revenues and expenses, as vessels employed on bareboat charters generate lower revenues and expenses, because under bareboat charters we are not responsible for either voyage expenses or, unlike time charters, operating expenses, and the charter rates for bareboat charters are correspondingly lower. Profit margins for vessels employed on bareboat charters are generally somewhat lower than time charters, reflecting the lack of exposure to operational risk and the risk of operating expense increases. See “—Basis of Presentation and General Information—Revenues” for additional information regarding the different types of charters on which we employ our vessels.
We will be evaluating vessel purchase opportunities to expand our fleet accretive to our earnings and cash flow. Additionally, we will consider selling certain of our vessels when favorable sales opportunities present themselves. If, at the time of sale, the carrying value is lower than the sales price, we will realize a gain on sale,
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which will increase our earnings, but if, at the time of sale, the carrying value of a vessel is more than the sales price, we will realize a loss on sale, which will negatively impact our earnings. Please see “—Critical Accounting Estimates” below, for a further discussion of the consequences of selling our vessels for amounts below their carrying values.
Factors Affecting Our Results of Operations
We believe that the important measures for analyzing trends in the results of our operations consist of the following:
| • | Calendar days. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, dry dockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenue and the amount of expense that we record during that period. In. We may also elect to sell vessels in our fleet from time to time. |
| • | Voyage days. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with major repairs, dry dockings or special or intermediate surveys. The shipping industry uses voyage days (also referred to as available days) to measure the number of days in a period during which vessels are available to generate revenues. |
| • | Fleet utilization; Fleet operational utilization. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our calendar days during that period, and we calculate fleet operational utilization by dividing the number of our voyage days-excluding commercially idle days-during a period, by the number of our calendar days during that period. The shipping industry uses fleet utilization to measure a company’s efficiency in minimizing the amount of days that its vessels are off-hire for reasons such as scheduled repairs, vessel upgrades or drydockings and other surveys, and uses fleet operational utilization to also measure a company’s efficiency in finding suitable employment for its vessels. |
| • | Cyclicality. As of April 1, 2024, we had both our handysize drybulk carriers operating under time charter contracts, the Glorieuse and the Eco Wildfire both scheduled to expire in April 2024, and our nine tanker vessels operating in the spot market. Tanker charter market rates have been strong since the second half of 2022, after remaining at low levels for most periods of recent years. Conversely, drybulk charter rates, which were at high levels from late 2020 until the latter part of 2022, declined throughout most part of 2023 and stabilized at moderate levels towards the end of 2023. While the global economy has begun to recover in parts of the world, in the event of renewed weakness in the global economy charter rates face significant downside risks, as a weaker global economy may lead to lower demand for the seaborne transport of refined petroleum products, crude oil or drybulk cargoes. In addition, the conflict in Ukraine is disrupting energy production and trade patterns, including shipping in the Black Sea and elsewhere, and its impact on energy prices and tanker rates, which initially have increased, is uncertain, particularly if it results in an economic downturn and reduced demand for oil. |
| • | Seasonality. As of April 1, 2024, we had two vessels operating under time charter contracts, the drybulk handysize carrier Glorieuse and the drybulk handysize carrier Eco Wildfire both scheduled to expire in April 2024, while our nine tanker vessels operated in the spot market. At the end of these charters, seeking period employment may expose us to seasonal changes. For instance, the tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance, and drybulk markets are typically stronger in the spring months due to grain season in the Southern Hemisphere, autumn months due to coal inventories and weaker in winter months. |
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Our ability to control our fixed and variable expenses, including those for commission expenses, crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses also affect our financial results. Factors beyond our control, such as developments relating to market premiums for insurance and the value of the U.S. dollar compared to currencies in which certain of our expenses, primarily crew wages are denominated, can also cause our vessel operating expenses to increase. In addition, our net income is affected by any financing arrangements, including any interest rate swap arrangements.
Below please see data regarding our fleet and average daily results for the years ended December 31, 2021, 2022 and 2023, which we use in analyzing our performance.
| Year Ended December 31, | ||||||||||||
| Fleet Data | 2021 | 2022 | 2023 | |||||||||
| Average number of vessels(1) |
4.0 | 7.0 | 10.0 | |||||||||
| Total voyage days for fleet(2) |
1,428 | 2,464 | 3,481 | |||||||||
| Total time charter days for fleet(3) |
762 | 1,099 | 1,058 | |||||||||
| Total bareboat charter days for fleet(3) |
365 | 249 | 0 | |||||||||
| Total spot market days for fleet(4) |
301 | 1,116 | 2,423 | |||||||||
| Total calendar days for fleet(5) |
1,460 | 2,552 | 3,650 | |||||||||
| Fleet utilization(6) |
97.8 | % | 96.6 | % | 95.4 | % | ||||||
| Fleet operational utilization(7) |
90.5 | % | 84.8 | % | 75.1 | % | ||||||
| Average Daily Results | (In U.S. dollars per day per vessel) | |||||||||||
| Adjusted average charter rate(8) |
9,649 | 25,654 | 34,816 | |||||||||
| Vessel operating expenses(9) |
5,091 | 6,424 | 7,025 | |||||||||
| General and administrative expenses(10) |
421 | 695 | 1,352 | |||||||||
| Management fees (11) |
361 | 410 | 440 | |||||||||
| Total daily operating expenses(12) |
5,512 | 7,119 | 8,377 | |||||||||
| (1) | Average number of vessels is the number of owned vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of our fleet during the period divided by the number of calendar days in that period. |
| (2) | Our total voyage days for our fleet reflect the total days the vessels we operated were in our possession for the relevant periods, net of off-hire days associated with major repairs, drydockings or special or intermediate surveys. |
| (3) | Total time and bareboat charter days for fleet are the number of voyage days the vessels in our fleet operated on time or bareboat charters for the relevant period. |
| (4) | Total spot market charter days for fleet are the number of voyage days the vessels in our fleet operated on spot market charters for the relevant period. |
| (5) | Total calendar days are the total days the vessels we operated were in our possession for the relevant period including off-hire days associated with major repairs, drydockings or special or intermediate surveys. |
| (6) | Fleet utilization is the percentage of time that our vessels were available for revenue generating voyage days, and is determined by dividing voyage days by fleet calendar days for the relevant period. |
| (7) | Fleet operational utilization is the percentage of time that our vessels generated revenue, and is determined by dividing voyage days, excluding commercially idle days, by fleet calendar days for the relevant period. |
| (8) | Average time charter equivalent daily rate is a measure of the average daily revenue performance of a vessel. We determine the average time charter equivalent daily rate by dividing voyage revenues net of voyage expenses (the “Time charter equivalent revenues”) by voyage days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage and are payable by us under a spot charter (which would otherwise be paid by the charterer under a time or bareboat charter contract), as well as commissions or any voyage costs incurred while the vessel is idle. Time charter equivalent revenues and average time charter equivalent daily rate are non-GAAP measures which provide additional meaningful information in conjunction with voyage revenues, the most directly |
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| comparable GAAP measure to time charter equivalent revenues, because they assist Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance. They are also standard shipping industry performance measures used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (i.e., spot charters or time charters, but not bareboat charters) under which the vessels may be employed between the periods. Our calculation of time charter equivalent revenues and average time charter equivalent daily rate may not be comparable to that reported by other companies in the shipping or other industries. Under bareboat charters, we are not responsible for either voyage expenses, unlike spot charters, or vessel operating expenses, unlike spot charters and time charters; Reconciliation of time charter equivalent revenues as reflected in the consolidated statements of operations and calculation of average time charter equivalent daily rate follow: |
| 2021 | 2022 | 2023 | ||||||||||
| Voyage revenues |
$ | 17,362,669 | $ | 97,019,878 | $ | 183,725,820 | ||||||
| Voyage expenses |
$ | 3,584,415 | $ | 33,807,342 | $ | 62,530,941 | ||||||
| Charter equivalent revenues |
$ | 13,778,254 | $ | 63,212,536 | $ | 121,194,879 | ||||||
| Total voyage days for fleet |
1,428 | 2,464 | 3,481 | |||||||||
| Adjusted average charter rate |
$ | 9,649 | $ | 25,654 | $ | 34,816 | ||||||
| (9) | Vessel operating expenses, including related party vessel operating expenses, consist of crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, is calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period. |
| (10) | Daily general and administrative expenses are calculated by dividing total general and administrative expenses by fleet calendar days for the relevant period. |
| (11) | Management fees are based on a fixed rate management fee of $440 per day for each vessel in our fleet under spot or time charter and a fixed rate fee of $125 per day for each of the vessels operating on bareboat charter. Daily management fees are calculated by dividing total management fees by fleet calendar days for the relevant period. |
| (12) | Total operating expenses, or “TOE”, is a measurement of our total expenses associated with operating our vessels. TOE is the sum of vessel operating expenses and general and administrative expenses. Daily TOE is calculated by dividing TOE by fleet calendar days for the relevant time period. |
Basis of Presentation and General Information
Revenues
Our voyage revenues are driven primarily by the number and type of vessels in our fleet, the number of voyage days during which our vessels generate revenues, the mix of charters our vessels are employed on and hire that our vessels earn under charters which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age of our vessels, condition and specifications of our vessels and the levels of supply and demand in the product tanker and crude oil tanker charter markets and the drybulk carrier charter markets.
We employ our vessels under time, bareboat and spot charters. Bareboat charters provide for the charterer to bear the cost of operating the vessel and as such typically market rates for bareboat charters are lower than those for time charters. Vessels operating on period charters, principally time and bareboat charters, provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot charter market during periods characterized by favorable market conditions. As a result, during the time our vessels are committed on period charters we will be unable, during periods of improving charter markets, to take advantage of improving charter rates as we could if our vessels were employed only on spot charters. Vessels operating in the spot charter market generate revenues that are less predictable but may enable us to capture increased profit margins during
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periods of high rates in the charter market, although we are exposed to the risk of having to seek to employ our vessels at low prevailing rates in weak market conditions, and may have a materially adverse impact on our overall financial performance. If we commit vessels on period charters, future spot market rates may be higher or lower than those rates at which we have time chartered our vessels.
Voyage Expenses
Voyage expenses include port and canal charges, bunker (fuel oil) expenses and commissions. These charges and expenses increase in periods during which vessels are employed on the spot market or in periods during which vessels are not employed, because during such periods, these expenses are paid by the vessel owner. Under period charters, these charges and expenses, including bunkers (fuel oil) but excluding commissions which are always paid by the vessel owner, are paid by the charterer. Commissions on hire are paid to our manager Stealth Maritime and/or third-party brokers. Stealth Maritime receives a fixed brokerage commission of 1.25% on freight, hire and demurrage for each vessel based on our management agreement. As of April 1, 2024, we had nine vessels operating in the spot market.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our ability to control these fixed and variable expenses, also affects our financial results. In addition, the type of charter under which our vessels are employed (time, bareboat or spot charter) also affects our operating expenses because we do not pay the operating expenses of vessels that we deploy on bareboat charters. Factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance and regulations related to safety and environmental matters may also cause these expenses to increase.
Management Fees
During each of the years ended December 31, 2021, 2022 and 2023, we paid Stealth Maritime, our fleet manager, a fixed rate management fee of $440 per day for each vessel in our fleet under spot or time charter and a fixed rate fee of $125 per day for each of the vessels operating on bareboat charter. These rates remained the same after the Spin-Off, under our new management agreement with Stealth Maritime. Our Manager also receives a fee equal to 1.0% calculated on the price stated in the relevant memorandum of agreement for any vessel bought or sold by them on our behalf.
General and Administrative Expenses
We incur general and administrative expenses that consist primarily of legal fees, audit fees, office rental fees, officers and board remuneration or reimbursement, directors’ and officers’ insurance, listing fees and other general and administrative expenses. Our general and administrative expenses also include our direct compensation expenses and the value of non-cash executive services provided through, and other expenses arising from, our management agreement with Stealth Maritime, our directors’ compensation and the value of the lease expense for the space we rent from Stealth Maritime. For our compensation expenses, pursuant to our management agreement, we initially reimbursed Stealth Maritime for its payment of the compensation of our executive officers for the first 12 months following the spin-off and thereafter our Board agrees any further management compensation. For periods up to December 3, 2021, an allocation of general and administrative expenses incurred by StealthGas Inc. has been included in General and administrative expenses based on the number of calendar days the vessels to be contributed operated under StealthGas Inc.’s fleet compared to the number of calendar days of the total StealthGas Inc.’s fleet.
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Inflation
Inflation has had only a moderate effect on our expenses in 2021 however the effect became more intense in early 2022 following the outbreak of Russian war against Ukraine and had a milder impact on our expenses throughout 2023 as well. In general, the pressure on energy prices brought upon by the Russian invasion in Ukraine has resulted in inflationary effects mainly on financing expenses, prior to the repayment of our debt in the first half of 2023, and operating expenses, as well as bunker costs for which we are responsible when our vessels operate in the spot market or are unemployed. Although these impacts have been milder in 2023 and are expected to subside further in 2024, a resumption of increased inflationary pressures would increase our financing, operating voyage and administrative expenses further.
Depreciation and Dry docking
The carrying value of our vessels includes the original cost of the vessels plus capitalized expenses since acquisition relating to improvements and upgrading of the vessels, less accumulated depreciation and less any impairment. We depreciate our vessels on a straight-line basis, from the date they were originally built over their estimated useful lives, determined to be 25 years. Depreciation is based on cost less the estimated scrap value of the vessels which equals $350 per light weight ton. We expense costs associated with drydockings and special and intermediate surveys as incurred which may affect the volatility of our results. During 2021, we did not drydock any vessels. In 2022, we drydocked one Suezmax tanker, the Suez Enchanted and one Handysize drybulk vessel, the Eco Angelbay, at a total cost of $1.9 million. In 2023, we drydocked three MR product tankers, namely the Clean Thrasher, the Magic Wand and the Clean Nirvana, one Suezmax tanker, the Suez Protopia, and two drybulk handysize vessels, the Eco Glorieuse and the Eco Wildfire, at a total cost of $6.6 million. Five of these vessels were installed with ballast water treatment systems as part of their drydocking. The installation of the ballast water treatment systems is considered an improvement and the respective cost has been capitalized in the vessel cost. In 2024, we expect to drydock two vessels, our aframax tanker the Gstaad Grace II (ex. Stealth Haralambos) and our product tanker the Clean Sanctuary. Both of these vessels will be installed with ballast water treatment systems as part of their drydocking.
Interest Expense and Finance Costs
As of December 31, 2023, we did not have any outstanding indebtedness. In the first half of 2023, we repaid $70 million of outstanding indebtedness under secured credit facilities. We incurred interest expense under these credit facilities in 2021, 2022 and the first half of 2023 and will incur interest expense under any new credit facilities we enter into to finance new acquisitions or existing vessels, as described in the “—Liquidity and Capital Resources” section below. We would also incur financing costs in connection with establishing those facilities, which would be deferred and amortized over the period of the facility, which we would also include in interest expense.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting estimates are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting estimates that involve a high degree of judgment. For a description of our significant accounting policies, see Note 2 to our consolidated financial statements included elsewhere herein.
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Impairment of long-lived assets:
We follow the Accounting Standards Codification (“ASC”) Subtopic 360-10, “Property, Plant and Equipment” (“ASC 360-10”), which requires long-lived assets used in operations be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. On a quarterly basis, in case an impairment indicator exists for a vessel, we perform an analysis of the anticipated undiscounted future net cash flows for such vessel. If the carrying value of the related vessel exceeds the undiscounted cash flows and the fair market value of the vessel, the carrying value is reduced to its fair value and the difference is recorded as an impairment loss in the consolidated statement of operations.
We review certain indicators of potential impairment, such as vessel fair values, vessel sales and purchases, business plans and overall market conditions including any regulatory changes that may have a material impact on the vessel lives. The decline in the values of our vessels was considered to be an indicator of potential impairment. We determined undiscounted projected net operating cash flows for each vessel with carrying value exceeding its fair value and compared it to the vessel’s carrying value. This assessment was made at the individual vessel level since separately identifiable cash flow information for each vessel was available. In developing estimates of future cash flows to be generated over remaining useful lives of the vessels, we made assumptions about the future, such as: (1) vessel charter rates, (2) vessel utilization rates, (3) vessel operating expenses, (4) dry docking costs, (5) vessel scrap values at the end of vessels’ remaining useful lives and (6) the remaining useful lives of the vessels. These assumptions were based on historical trends as well as future expectations in line with our historical performance and our expectations for future fleet utilization under our current fleet deployment strategy, vessel sales and purchases, and overall market conditions.
Projected cash flows were determined for the vessels by considering the revenues from existing charters for those vessels that have long term employment, and revenue estimates based on nine-year historical average rates (base rates) for periods for which there is no charter in place. With regards to operating expenses and utilization rate, these were based on historical trends. Revenue estimates are highly subjective. We believe that the nine-year average historical average rates represent an appropriate estimation of the future revenue rates since they more accurately reflect the earnings capacity of our vessels and because they capture the volatility of the market as they include numerous market highs and lows. Furthermore, they are considered a fair estimate based on past experience.
The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of new-buildings.
Sensitivity Analysis.
The impairment test is highly sensitive to variances in future charter rates. When we conducted the analysis of the impairment test as of December 31, 2023 we also performed a sensitivity analysis related to the future cash flow estimates. Set forth below is an analysis, as of December 31, 2023, of the percentage difference between the current average rates for our fleet compared with the base rates used in the impairment test as described above, as well as an analysis of the impact on our impairment analysis if we were to utilize the most recent five-year, three-year and one-year historical average rates, which shows the number of vessels whose carrying value would not have been recovered and the related impairment charge.
| Percentage difference between our actual average 2023 rates as compared with the base rates |
5-year historical average rate |
3-year historical average rate |
1-year historical average rate |
|||||||||||||||||||||||||
| No. of vessels |
Amount ($ million) |
No. of vessels |
Amount ($ million) |
No. of vessels |
Amount ($ million) |
|||||||||||||||||||||||
| Product Tankers |
103.62 | % | — | — | — | — | — | — | ||||||||||||||||||||
| Handysize Drybulk Carriers |
(4.06 | %)% | — | — | — | — | — | — | ||||||||||||||||||||
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Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether they will improve by any significant degree. Charter rates may remain at relatively low levels for some time, or decline, which could adversely affect our revenue and profitability, and future assessments of vessel impairment.
Based on the carrying value of each of our vessels held for use as of December 31, 2023 and what we believe the charter-free market values of each of these vessels was as of these dates, four of our owned vessels in the water had current carrying values above their market values (2022: five). We believe that the aggregate carrying value of these vessels, assessed separately, exceeds their aggregate charter-free market value by approximately $5.1 million (2022: $19 million). However, we believe that with respect to each of these four vessels, we will recover their carrying values at the end of their useful lives, based on their undiscounted cash flows.
Implications of Being an Emerging Growth Company
We had less than $1.235 billion in revenue during our last fiscal year, which means that we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act. An emerging growth company may take advantage or specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
| • | exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act; |
| • | exemption from new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies; and |
| • | exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and financial statements. |
We may take advantage of these provisions until December 31, 2026. We will cease to be an emerging growth company if, among other things, we have more than $1.235 billion in “total annual gross revenues” during the most recently completed fiscal year. We may choose to take advantage of some, but not all, of these reduced burdens. For as long as we take advantage of the reduced reporting obligations, the information that we provide stockholders may be different from information provided by other public companies. We are choosing to “opt out” of the extended transition period relating to the exemption from new or revised financial accounting standards and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Results of Operations
Year ended December 31, 2023 compared to year ended December 31, 2022
The average number of vessels in our fleet was 10.00 for the year ended December 31, 2023 and 6.99 for the year ended December 31, 2022, respectively.
REVENUES—Voyage revenues for the year ended December 31, 2023 were $183.7 million compared to $97.0 million for the year ended December 31, 2022, an increase of $86.7 million, primarily due to the increase in our average number of vessels by approximately three vessels and the full year of operation of our two suezmax tankers that were delivered in early June 2022, along with stronger market conditions prevailing during
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the majority of the year 2023. Total calendar days for our fleet were 3,650 for the year ended December 31, 2023 compared to 2,522 for the year ended December 31, 2022. Of the total calendar days in 2023, nil or 0.0% were bareboat charter days, 1,058 or 29.0% were time charter days and 2,423 or 66.4% were spot days. This compares to 249 or 9.8% bareboat charter days, 1,099 or 43.1% time charter days and 1,116 or 43.7% spot days in 2022. Our fleet operational utilization was 75.1% and 84.8% for the years ended December 31, 2023 and December 31, 2022 respectively.
VOYAGE EXPENSES—Voyage expenses were $62.5 million for the year ended December 31, 2023 compared to $33.8 million for the year ended December 31, 2022. This increase of voyage expenses by $28.7 million is attributable to the increase in the spot days of our fleet by 1,307 days or 117.1%. Voyage expenses consisted largely of bunker charges amounting to $34.5 million for 2023, accounting for 55.2% of total voyage expenses. Voyage expenses also included port expenses of $15.8 million for the year ended December 31, 2023, corresponding to 25.3% of total voyage expenses, and commission to third parties which were $7.3 million, equivalent to 11.7% of total voyage expenses for year 2023. For the year ended December 31, 2022, voyage expenses included bunker charges of $24.2 million corresponding to 71.6% of total voyage expenses, port expenses of $5.2 million corresponding to 15.4% of total voyage expenses, and commission to third parties of $3.1 million corresponding to 9.2% of total voyage expenses.
VESSEL OPERATING EXPENSES—Vessel operating expenses were $25.6 million for the year ended December 31, 2023 compared to $16.4 million for the year ended December 31, 2022, an increase of $9.2 million, or 56.1%. The increase in operating expenses was primarily due to the average size of our fleet increasing by approximately 3 vessels in conjunction with an increase in daily supply costs by approximately 66% and daily maintenance costs by approximately 57% due to increased maintenance needs relating to some of our vessels.
DRY DOCKING COSTS—Dry docking costs were $6.6 million for the year ended December 31, 2023 compared to $1.9 million for the year ended December 31, 2022. Dry docking costs for the year ended December 31, 2023 related to the dry docking of three of our product tankers, one of our suezmax tankers and two of our drybulk carriers, while during the year ended December 31, 2022 one of our suezmax vessels and one of our drybulk carriers underwent drydocking.
MANAGEMENT FEES—Management fees were $1.6 million for the year ended December 31, 2023 compared to $1.0 million for the year ended December 31, 2022, an increase of $0.6 million or 60%. The increase was due to the increase in the average size of our fleet by approximately three vessels. The daily management fees per vessel did not change during these periods and remained at $440 per day for vessels under time and spot charter and $125 per day for vessels under bareboat charter.
GENERAL AND ADMINISTRATIVE EXPENSES—General and administrative expenses for the year ended December 31, 2023 were $4.9 million compared to $1.8 million for the year ended December 31, 2022, an increase of $3.1 million or 172.2%. This increase is mainly attributed to a $2.3 million increase in stock-based compensation costs along with an increase in reporting costs mainly related to our spin off project. The remaining unrecognized stock-based compensation cost relating to the 2,407,037 restricted shares of common stock and options to purchase common stock granted under our equity compensation plan in 2022 and 2023, amounting to $2,999,360 as of December 31, 2023, is expected to be recognized over the remaining period of 1.2 years, according to the contractual terms of those non-vested share awards. The aggregate cash compensation to our officers in 2023 and 2022 was $0.4 million and $0.3 million, respectively, and we expect such cash compensation to be approximately $0.4 million in 2024.
DEPRECIATION—Depreciation expenses for the year ended December 31, 2023 were $15.6 million while for the year ended December 31, 2022 depreciation expenses were $12.3 million. The $3.3 million increase in depreciation expenses is due to the increase in the average size of our fleet by approximately three vessels.
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IMPAIRMENT LOSS—Impairment loss for the year ended December 31, 2023 was $9.0 million and related to the spin-off of two of our drybulk carriers to C3is Inc. in June 2023. The decline in the drybulk vessels’ fair values compared to the values prevailing when these vessels were acquired resulted in the incurrence of an impairment loss. We did not incur any impairment charges for the year ended December 31, 2022.
GAIN ON SALE OF VESSEL—Gain on sale of vessel for the year ended December 31, 2023 was $8.2 million and related to the sale of our aframax tanker Afrapearl II (ex. Stealth Berana) to C3is Inc.
NET PROFIT/LOSS—As a result of the above factors, we recorded a net income of $71.1 million for the year ended December 31, 2023 compared to a net income of $29.5 million for the year ended December 31, 2022.
Year ended December 31, 2022 compared to year ended December 31, 2021
The average number of vessels in our fleet was 6.99 for the year ended December 31, 2022 and 4.0 for the year ended December 31, 2021, respectively.
REVENUES—Voyage revenues for the year ended December 31, 2022 were $97.0 million compared to $17.4 million for the year ended December 31, 2021, an increase of $79.6 million, primarily due to the increase in the size of our average fleet by three vessels, the higher number of spot voyages and improved market conditions resulting in higher charter rates, particularly in the spot market. Total calendar days for our fleet were 2,552 for the year ended December 31, 2022 compared to 1,460 for the year ended December 31, 2021. Of the total calendar days in 2022, 249 or 9.8% were bareboat charter days, 1,099 or 43.1% were time charter days and 1,116 or 43.7% were spot days. This compares to 365 or 25.0% bareboat charter days, 762 or 52.2% were time charter days and 301 or 20.6% were spot days in 2021. Our fleet operational utilization was 84.8% and 90.5% for the years ended December 31, 2022 and December 31, 2021, respectively.
VOYAGE EXPENSES—Voyage expenses were $33.8 million for the year ended December 31, 2022 compared to $3.6 million for the year ended December 31, 2021. This increase of voyage expenses by $30.2 million is attributable to the increase in the spot days of our fleet by 815 days or 271% and the rise in daily bunker costs by approximately $14,000. Voyage expenses consisted largely of bunker charges amounting to $24.2 million for 2022, accounting for 71.6% of total voyage expenses. Voyage expenses also included port expenses of $5.2 million for the year ended December 31, 2022, corresponding to 15.4% of total voyage expenses, and commission to third parties which were $3.1 million, equivalent to 9.2% of total voyage expenses for year 2022. For the year ended December 31, 2021, voyage expenses included bunker charges of $2.0 million corresponding to 55.6% of total voyage expenses, port expenses of $1.0 million corresponding to 27.8% of total voyage expenses, and commission to third parties of $0.5 million corresponding to 13.9% of total voyage expenses.
VESSEL OPERATING EXPENSES—Vessel operating expenses were $16.4 million for the year ended December 31, 2022 compared to $7.4 million for the year ended December 31, 2021, an increase of $9.0 million, or 121.6%. The increase in operating expenses was primarily due to the average size of our fleet increasing by approximately 3 vessels and one of our product tankers coming off bareboat in September 2022.
DRY DOCKING COSTS—Dry docking costs were $1.9 million for the year ended December 31, 2022 compared to $0.01 million for the year ended December 31, 2021. Dry docking costs for the year ended December 31, 2022 related to the dry docking of one of our Suezmax tankers and one of our Handysize drybulk vessels.
MANAGEMENT FEES—Management fees were $1.0 million for the year ended December 31, 2022 compared to $0.5 million for the year ended December 31, 2021, an increase of $0.5 million or 100%. The increase was due to the increase in the average size of our fleet by approximately three vessels. The daily management fees per vessel did not change during these periods and remained at $440 per day for vessels under time and spot charter and $125 per day for vessels under bareboat charter.
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GENERAL AND ADMINISTRATIVE EXPENSES—General and administrative expenses for the year ended December 31, 2022 were $1.8 million compared to $0.6 million for the year ended December 31, 2021, an increase of $1.2 million or 200%, mainly due to the increased reporting costs related to being a public reporting company.
DEPRECIATION—Depreciation expenses for the year ended December 31, 2022 were $12.3 million while for the year ended December 31, 2021 depreciation expenses were $8.7 million. The $3.6 million increase in depreciation expenses is due to the increase in the average size of our fleet by approximately three vessels.
NET PROFIT/LOSS—As a result of the above factors, we recorded a net profit of $29.5 million for the year ended December 31, 2022 and a net loss of $3.6 million for the year ended December 31, 2021.
Recent Accounting Pronouncements
Please refer to Note 2 of the financial statements included elsewhere in this report.
Liquidity and Capital Resources
As of December 31, 2023, we had cash and cash equivalents including time deposits of $124 million. During the year ended December 31, 2023, the Company raised $29.1 million in gross proceeds, or $27.6 million in net proceeds, from public offerings of equity securities and from the partial exercises of warrants issued in such offerings.
Our principal sources of funds for our liquidity needs have been equity offerings and cash flows from operations, which we expect to continue to be components of the financing for further fleet growth. Potential additional sources of funds may include bank borrowings. Our principal use of funds has been to acquire our vessels, maintain the quality of our vessels, and fund working capital requirements. In July 2023, we sold our Aframax tanker to C3is Inc. for cash consideration of $43 million, of which $4.3 million was received by us upon delivery of the vessel on July 14, 2023 and the balance is payable to us by July 14, 2024, with the remaining balance accruing interest at a rate of 8.1% per annum.
Our liquidity needs, as of December 31, 2023, primarily relate to funding expenses for operating our vessels, any vessel acquisition and vessel improvements that may be required and general and administrative expenses. In September 2023, we entered into agreements to acquire two tankers for an aggregate purchase price of $71 million, which we funded with cash on hand paid upon their delivery to us on a charter-free basis in February 2024.
As of December 31, 2023, we had no outstanding debt, as within the first and second quarter of 2023 we repaid all of our then outstanding loans amounting to $70 million.
We believe that our working capital along with our cash flows generated from operations are sufficient for our present short-term liquidity requirements. We believe that, unless there is a major and sustained downturn in market conditions applicable to our specific shipping industry sectors, our internally generated cash flows will be sufficient to fund our operations, including working capital requirements, for at least 12 months.
In September 2023, the Company’s Board of Directors approved a share repurchase program and authorized the officers of the Company to repurchase, from time to time, up to $10,000,000 of the Company’s common stock. As of April 1, 2024, we had repurchased 4,251,884 shares of common stock for an aggregate amount of $8.4 million under this program, of which 3,444,536 shares for an aggregate of $5.9 million were repurchased in 2023. We also repurchased outstanding warrants for an additional $1.5 million in the fourth quarter of 2023.
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Our contractual obligations as of December 31, 2023 were:
| Payments due by period (in thousands of U.S. dollars) | ||||||||||||||||
| Total | Less than 1 year (2024) |
1-3 years (2025-2026) |
3-5 years (2027-2028) |
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| Management fees (1) |
8,796 | 1,725 | 3,533 | 3,538 | ||||||||||||
| Office lease |
156 | 78 | 78 | — | ||||||||||||
| Executive fees |
1,980 | 396 | 792 | 792 | ||||||||||||
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| Total |
$ | 10,932 | $ | 2,199 | $ | 4,403 | $ | 4,330 | ||||||||
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| (1) | Based on our management agreement with Stealth Maritime, we pay $125 per vessel per day for vessels on bareboat charter and $440 per vessel per day for vessels not on bareboat charter for our existing fleet. We also pay 1.25% of the gross freight, demurrage and charter hire collected from employment of our ships and 1% of the contract price of any vessels bought or sold on our behalf. The term of our management agreement with Stealth Maritime will expire in December 2025, but is extended on a year-to-year basis thereafter, unless six months’ written notice is provided prior to the expiration of the term or if a vessel is sold. |
We have 795,878 shares of Series A Preferred Stock outstanding, which have a dividend rate of 8.75% per annum per $25.00 of liquidation preference per share, with respect to which we paid aggregate dividends of $1.7 million in each of the years ended December 31, 2023 and 2022.
From time to time and depending upon market conditions, we may consider various capital raising alternatives to finance the strategic growth and diversification of our fleet. Any such capital raising transactions may be at the Imperial Petroleum Inc. or subsidiary level, to which interests in certain vessels in our fleet and rights to receive related cash flows would be transferred, as well as other capital raising alternatives available to us at that particular time. In addition, we may elect to sell one or more of our vessels or vessel-owning subsidiaries, conduct a spinoff of such vessels or subsidiaries, or contribute such vessels or vessel-owning subsidiaries to a joint venture, master limited partnership or other entity. Any such transfer may reduce our asset base and our rights to cash flows related to the transferred assets. If we contribute assets to a joint venture or master limited partnership, the joint venture or master limited partnership may be owned by or issue equity securities to public or private investors, and as part of any spin-off of assets we may be required to distribute a portion of such assets to holders of outstanding warrants pursuant to the terms of such warrants, thereby reducing our percentage interest in such assets and in the related cash flows.
Cash Flows
As of December 31, 2023, we had a working capital surplus of $168.7 million.
Net cash provided by operating activities—was $79.5 million for the year ended December 31, 2023 and $40.9 million for the year ended December 31, 2022. This mainly represents the net amount of cash, after expenses, generated by chartering our vessels. Net cash provided by operating activities increased in the year ended December 31, 2023 compared to the year ended December 31, 2022 by $38.6 million mainly due to the sharp increase in our profitability due to an increase in the average size of our fleet along with improved market conditions. Net cash provided by operating activities was $40.9 million for the year ended December 31, 2022 and $5.2 million for the year ended December 31, 2021. Net cash provided by operating activities increased in the year ended December 31, 2022 compared to the year ended December 31, 2021 by $35.7 million mainly due to a sharp rise in profitability as a result of the increase in average number of vessels of our fleet and a noticeable improvement in market charter rates.
Net cash provided by investing activities— was $12.3 million for the year ended December 31 2023, while for the year ended December 31, 2022 net cash used in investing activities was $186.7 million. During the
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year ended December 31, 2023 we utilized $28.1 million for the acquisition of two vessels, placed $167.5 million of available funds on time deposits and had $203.8 million of funds under time deposits maturing during the course of the year. We also received net proceeds of $3.9 million from the sale of one of our vessels. Net cash used in investing activities in the year ended December 31, 2022 comprised an amount of $118.7 million utilized for the acquisition of six vessels while $68 million of available funds were placed into time deposits. During the year ended December 31, 2021, net cash used in investing activities amounted to $0.1 million and related to cash outflows for improvement of vessels.
Net cash (used in)/provided by financing activities— As part of StealthGas up to December 3, 2021, we were dependent upon StealthGas for the major part of our working capital and financing requirements as StealthGas used a centralized approach to cash management and financing of its operations. Financial transactions were accounted for through the Net Parent Investment account. Accordingly, none of StealthGas’s cash and cash equivalents or debt at the corporate level had been assigned to us. Net Parent Investment represented StealthGas’s interest in our net assets and includes our cumulative losses as adjusted for cash distributions to and cash contributions from StealthGas. The related transactions with StealthGas were reflected as cash flows as a financing activity.
For the year ended December 31, 2023 cash outflows for financing activities amounted to $57.4 million, while for the year ended December 31, 2022 cash inflows from financing activities were $196.9 million. During the year ended December 31, 2023, we raised $27.6 million in net proceeds from equity financings, expended $70.4 million in order to repay all of our outstanding indebtedness and expended $7.4 million on common share and outstanding warrant repurchases. During the year ended December 31, 2023, we also paid dividends on our Series A and Series C Preferred Stock amounting to $2.1 million and provided $5.0 million to C3is Inc. in connection with its Spin-Off.
During the year ended December 31, 2022, we raised $204.6 million from equity financings and bank borrowings, which were partly offset by loan repayments amounting to $5.4 million and dividends paid on our Series A Preferred Stock amounting to $1.7 million. During the year ended December 31, 2021, we had inflows amounting to $28.0 million from our senior secured term loan facility with DNB which was offset by net distributions to StealthGas amounting to $33.5 million.
As and when we identify assets that we believe will provide attractive returns, we may enter into specific term loan facilities and borrow amounts under these facilities as the vessels are delivered to us. Aside from the proceeds of equity offerings, this is the primary driver of the timing and amount of cash provided to us by our financing activities.
We operate in a capital intensive industry which requires significant amounts of investment, and we expect to fund a significant portion of this investment through long term debt. We will maintain debt levels we consider prudent based on our market expectations, cash flow, interest coverage and percentage of debt to capital. StealthGas, and the subsidiaries that owned the four tankers that comprised our initial fleet, entered into credit facilities in connection with financing the acquisition of these vessels. We entered into a senior secured credit facility with DNB to refinance the outstanding balances under these credit facilities that were entered into by StealthGas for which the four tankers served as security prior to the Spin-Off, which facility was repaid in full by cash on hand on March 10, 2023. In September and November 2022, we entered into senior secured credit facilities to refinance part of the purchase price for the other four tankers in our fleet, which we acquired earlier in 2022. In the first and second quarter of 2023 we repaid all of our then outstanding loans amounting to $70 million.
Capital Expenditures
We may make capital expenditures from time to time in connection with our vessel acquisitions and improvements. Please refer to section above “Liquidity and Capital Resources –Cash Flows” for a discussion of how we plan to cover our working capital requirements and possible capital commitments.
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C. Research and Development, Patents and Licenses
None.
D. Trend Information
Tankers
The tanker industry is both cyclical and volatile in terms of charter rates and profitability while geopolitical events affect the demand for seaborne transportation. Indicatively, during the ten-year period from the first quarter of 2013- through the fourth quarter of 2022, average earnings for an Aframax tanker fluctuated between $3,479 to $90,991 per day on a quarterly basis. Similarly, average MR tanker earnings fluctuated between $5,809 to -$41,411 per day over the same period. Asset values are also subject to price fluctuations and market cyclicality. For example, the price of a 5-year-old Aframax tanker fluctuated between $27.0 million and $60.0 million during the ten-year period from the first quarter of 2013 through the fourth quarter of 2022 while the price of a 5-year-old MR tanker ranged between $22.0 million and $40.0 million over the same period.
In late 2019 and during the first half of 2020, tanker shipping charter rates reached near record highs driven mainly by extraordinary floating storage demand and dropped to less than operating cost levels by the end of the year. Specifically, average Aframax tanker earnings spiked over $50,000 per day in the fourth quarter of 2019 as compared to approximately $5,700 per day in the fourth quarter of 2020, $7,648 per day in the second quarter of 2021 and $11,093 in the fourth quarter of 2021. Similarly, average MR tanker earnings stood at approximately $20,000 per day in the fourth quarter of 2019 before dropping to approximately $6,400 per day in the fourth quarter of 2020, $6,880 in the second quarter of 2021 and $7,847 in the fourth quarter of 2021. The geopolitical crisis between Russia and Ukraine has caused tanker charter rates to rise significantly. Indicatively, average Aframax tanker earnings were $32,266 per day in the first quarter of 2022, and spiked to $82,810 per day in mid-March 2023 Similarly, average MR tanker earnings stood at $9,749 per day in the first quarter of 2022, and spiked to $31,489 per day in mid-March 2023. Ongoing geopolitical tensions such as the events in the Middle East which commenced in the fourth quarter of 2023 in conjunction with the Houthi attacks in the Red Sea created an upward pressure on rates. Indicatively, by the end of year 2023 rates for aframax, suezmax and MR tankers had climbed to $55,000 per day, $60,400 per day and $33,000 per day. As of April 1, 2024, rates for aframax, suezmax and MR tankers were in the region of $46,000, $40,000 and $30,000, respectively.
The ongoing war in Ukraine and the embargo imposed by the European Union to Russian crude oil and refined petroleum products along with the crisis in the Middle East are creating shifts in trade patterns, benefiting longer-haul routes and thus supporting tanker tonne-mile demand and tanker vessel charter rates. Specifically, crude tanker dwt demand is estimated to have increased by 6.6% in 2022 and is currently estimated to have increased by 6.7% in 2023, and product tanker demand is estimated to have increased by approximately 3.1% in 2022 supported by increasing demand for oil products and is currently expected to have increased by around 10% in 2023 as demand for oil transportation recovers further, refinery capacity in key exporting regions further expands and Russia looks for alternative markets to outsource its refined petroleum products. On the supply side, the crude tanker trading fleet is estimated to have increased by 2.0% in 2023 while the product tanker fleet is estimated to have increased by approximately 0.5%.
Drybulk Carriers
Over the course of 2022, the BDI registered a low of 965 on August 31, 2022 and a high of 3,369 on May 23, 2022. Since the start of the financial crisis in 2008 the performance of the BDI has been characterized by high volatility, as the growth in the size of the drybulk fleet outpaced growth in vessel demand for an extended period of time.
Specifically, in the period from 2010 to 2020, the size of the fleet in terms of deadweight tons grew by an annual average of about 6.0% while the corresponding growth in tonne-mile demand for drybulk carriers grew by
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4.2%, resulting in a drop of about 61% in the value of the BDI over the period. In 2022, the total size of the drybulk fleet in deadweight tons rose by about 2.8%, compared to a decline in tonne-mile demand of 1.8%, which resulted in a year over year drop of about 34% in the value of the BDI. According to preliminary industry estimates,the total size of the drybulk fleet is expected to have risen by about 1.9% in 2023, compared to tonne-mile demand growth of 2.2%. Meanwhile, the war in Ukraine has amplified the volatility in the drybulk market with the BDI ranging between 965 and 3,369 in 2022. Specifically, the BDI ranged from a low of 965 on August 31, 2022 and a high of 3,369 on May 23, 2022 while it stood at 1,424 on March 10, 2023. Similarly, average handysize drybulk carrier spot rates ranged from a low of $10,833 per day on December 30, 2022 and a high of $33,333 per day on March 25, 2022. As at the end of 2023 spot rates for handysize drybulk carriers stood close to $11,800 per day while as at the end of March 1, 2024 rates had declined to approximately $11,200 per day. In the short term, the effect of the invasion of Ukraine has been mildly positive for the drybulk market, yet the overall longer-term effect on ton-mile demand is uncertain given that cargoes such as grains, coal and iron ore exported previously from Ukraine and Russia will need to be substituted by cargoes from different sources. Overall, the BDI declined significantly in the second half of 2022, which was attributed in part to the easing of port congestion which positively affected the drybulk carrier demand in 2021 as well as to the weakening Chinese demand for drybulk commodities, a trend which was expected to continue in 2023 but the Gaza war and the resulting upscaling of hostilities in Suez Canal at Gulf of Aden proved otherwise, pushing BDI to higher numbers, especially during the fourth quarter of 2023. The resultant condition of the two major Canals, Panama due to drafts and subsequent congestion and Suez because of Houthis hostilities, pushed BDI to its high of 2023 during December 2023, climbing at 3,346 before stabilizing to 2,000, a figure still better than the rest of 2023. As of April 1, 2024 the BDI index stood at 1,821.
In addition, the continuing war in Ukraine led to increased economic uncertainty amidst fears of a more generalized military conflict or significant inflationary pressures, due to the increases in fuel and grain prices following the sanctions imposed on Russia. Whether the present dislocation in the markets and resultant inflationary pressures will transition to a long-term inflationary environment is uncertain, and the effects of such a development on charter rates, vessel demand and operating expenses in the sector in which we operate are uncertain. As described above, the initial effect of the invasion in Ukraine on the drybulk freight market ranged from neutral to positive, despite the short-term volatility in charter rates and increases on specific items of operating costs, mainly in the context of increased crew costs. If these conditions are sustained, the longer-term net impact on the drybulk freight market and our business would be difficult to predict. Historically, a positive relationship is registered between global inflation and drybulk vessel freight rates, and therefore the inflationary trends have not, and we do not expect them to have, a material impact on our results of operations. However, such events may have unpredictable consequences, and contribute to instability in global economy, a decrease in supply or cause a decrease in worldwide demand for certain goods and, thus, shipping. Regarding the possible impact of supply chain disruptions that have or may emanate from the military conflict in Ukraine, our operations have not been affected materially and we do not expect them to be in the future.
See “Business—The Tanker Industry” and “Business—The Drybulk Carrier Industry.”
E. Critical Accounting Estimates
Please see “—Critical Accounting Estimates” above.
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| Item 6. | Directors, Senior Management and Employees |
A. Directors, Senior Management and Employees
The following table sets forth, as of April 1, 2024, information for each of our directors and executive officers.
| Name |
Age | Positions |
Year Became Director |
Year Director’s Current Term Expires |
||||||||||
| Harry N. Vafias |
45 | Chief Executive Officer, President and Class III Director | 2021 | 2024 | ||||||||||
| John Kostoyannis |
56 | Class II Director | 2021 | 2026 | ||||||||||
| George Xiradakis |
59 | Class I Director | 2021 | 2025 | ||||||||||
| Ifigeneia (Fenia) Sakellari |
43 | Interim Chief Financial Officer | ||||||||||||
Certain biographical information about each of these individuals is set forth below.
Harry N. Vafias has been a member of the Board of Directors and Chief Executive Officer and President of Imperial Petroleum since its inception on May 14, 2021. He has also been the President and Chief Executive Officer and a member of the Board of Directors of StealthGas, which is listed on the Nasdaq Global Select Market, since its inception in December 2004 and its Chief Financial Officer since January 2014. Mr. Vafias is also the Non-Executive Chairman of C3is Inc., which has been listed on the Nasdaq Capital Market since its spin-off from the Company in June 2023. Mr. Vafias has been actively involved in the tanker and gas shipping industry since 1999. Mr. Vafias worked at Seascope, a leading ship brokering firm specializing in sale and purchase of vessels and chartering of oil tankers. Mr. Vafias also worked at Braemar, a leading ship brokering firm, where he gained extensive experience in tanker and dry cargo chartering. Seascope and Braemar merged in 2001 to form Braemar Seascope Group plc, a public company quoted on the London Stock Exchange and one of the world’s largest ship brokering and shipping service groups. From 2000 until 2004, he worked at Brave Maritime and Stealth Maritime, companies providing comprehensive ship management services, where Mr. Vafias headed the operations and chartering departments of Stealth Maritime and served as manager for the sale and purchase departments of both Brave Maritime and Stealth Maritime. Mr. Vafias graduated from City University Business School in the City of London in 1999 with a B.A. in Management Science and from Metropolitan University in 2000 with a Masters degree in Shipping, Trade and Transport.
John Kostoyannis has been a member of our Board of Directors since November 2021. He has also been a member of the Board of Directors of StealthGas since 2010. Mr. Kostoyannis is a Managing Director at Allied Shipbroking Inc., a leading shipbroking house in Greece, providing Sale and Purchase and Chartering services in the shipping industry. Before joining Allied Shipbroking, from 1991 until September 2001, Mr. Kostoyannis worked in several prominent shipbroking houses in London and Piraeus. He is a member of the Hellenic Shipbrokers Association. Mr. Kostoyannis graduated from the City of London Polytechnic in 1988 where he studied Shipping and Economics. He is a director of C3is Inc., which is listed on the Nasdaq Capital Market.
George Xiradakis has been a member of our Board of Directors since November 2021. Mr. Xiradakis is the founder and Managing Director of XRTC Business Consultants Ltd. (“XRTC”) (January 1999). The company was established in order to represent financial institutions in the Greek territory and initially acted as the exclusive Shipping Representative of Credit Lyonnais Group in Greece. XRTC expanded its scope as Financial and Advisor Consultant for Greek Shipping, offering its services in national and International Institutions and Organizations. From February 2005 to 2008, XRTC acted as shipping finance consultant of the French banking group NATIXIS. He is also the General Secretary of the Association of Banking and Financial Executives of Hellenic Shipping, Vice President of China Hellenic Chamber (HCCI), Vice President (International and Financial Relations) of the China-Greece Association. He served as the President of the International Propeller Club, Port of Piraeus from 2013 to 2019 and he acted as a VP of the International Propeller Club of the
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United States. He is now Emeritus President of International Propeller Club, Port of Piraeus, Emeritus Member of The Piraeus Chamber of Commerce & Industry, Member of the Mediterranean Committee of China Classification Society, Piraeus Marine Club, Hellenic Maritime Museum and Hellas Liberty Floating Museum. He is currently a director of C3is Inc., which is listed on the Nasdaq Capital Market, and has also been a Board Member of other US listed shipping companies.
Ifigeneia (Fenia) Sakellari is our Interim Chief Financial Officer. Ms. Sakellari has 18 years of experience in finance and has been a finance officer of StealthGas since 2015. Prior to this, Ms. Sakellari was employed for seven years with Piraeus Bank where she held positions in both its credit departments (corporate and project finance) and in its private equity investment arm. Ms. Sakellari holds a Bachelor Degree in Management Sciences from the London School of Economics and a Masters Degree in finance from SDA Bocconi.
Our President and Chief Executive Officer Harry Vafias, and the other individuals providing services to us or our subsidiaries may face a conflict regarding the allocation of their time between our business and the other business interests of StealthGas or its affiliates. The amount of time our officers and such other individuals providing services to us will allocate between our business and the business of StealthGas and its affiliates will vary from time to time depending on various circumstances and needs of the businesses, such as the level of strategic activity of each business. While there will be no formal requirements or guidelines for the allocation of time spent between our business and the other businesses they are involved in, the performance of their duties will be subject to the ongoing oversight of our board of directors.
B. Compensation of Directors and Senior Management
Our Chief Executive Officer who also serves as a Board Director will not receive additional compensation for his service as a director. Each independent director receives annualized fees of $25,000 plus reimbursement of their out-of-pocket expenses incurred in attending meetings of our Board of Directors or any committee of our Board of Directors. We have no direct employees. The services of our Chief Executive Officer and Interim Chief Financial Officer was provided under the management agreement with Stealth Maritime initially for the first 12 months following the spin-off and then our Board agreed upon management compensation for subsequent periods. Stealth Maritime compensates each of these individuals for their services and we, in turn, reimburse Stealth Maritime for their compensation. The aggregate cash compensation to our officers in 2022 and 2023 was $0.3 million and $0.4 million respectively, and we expect such cash compensation to be approximately $0.4 million in 2024. Prior to the Spin-Off, neither we nor Stealth Maritime has paid any compensation to our executive officers. Our executive officers and directors are also eligible to receive awards under our equity compensation plan described below under “—Equity Compensation Plan” We recognized non-cash stock-based compensation expense of $117,256 in 2022 and $2,434,855 in 2023, and had unrecognized non-cash stock-based compensation expense of $2,999,360 as of December 31, 2023, which we expect to recognize over a weighted average period of 1.2 years. Of these amounts of recognized non-cash stock-based compensation expense, $0.1 million in 2022 and $1.1 million in 2023 related to restricted share or option awards to our executive officers.
We have no service contracts with any of our directors that provide for benefits upon termination of employment.
C. Board Practices
We have three members on our board of directors. The board of directors may change the number of directors to not less than three, nor more than 15, by a vote of a majority of the entire board. Each director shall be elected to serve until the third succeeding annual meeting of stockholders and until his or her successor shall have been duly elected and qualified, except in the event of death, resignation or removal. A vacancy on the board created by death, resignation, removal (which may only be for cause), or failure of the stockholders to elect the entire class of directors to be elected at any election of directors or for any other reason, may be filled only by
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an affirmative vote of a majority of the remaining directors then in office, even if less than a quorum, at any special meeting called for that purpose or at any regular meeting of the board of directors. The current term of our Class I director expires in 2024, the term of our Class II director expires in 2026 and the term of our Class III director expires in 2025.
Corporate Governance
Our Board of Directors and our Company’s management reviews our corporate governance practices in order to oversee our compliance with the applicable corporate governance rules of the Nasdaq Stock Market and the SEC.
We have adopted a number of key documents that are the foundation of our corporate governance, including:
| • | a Code of Business Conduct and Ethics; |
| • | a Nominating and Corporate Governance Committee Charter; |
| • | a Compensation Committee Charter; and |
| • | an Audit Committee Charter. |
We will provide a paper copy of any of these documents upon the written request of a stockholder. Stockholders may direct their requests to the attention of Investor Relations, c/o Harry Vafias, Imperial Petroleum Inc., 331 Kifissias Avenue, Erithrea 14561 Athens, Greece. These documents are also available on our website at www.imperialpetro.com under the heading “Corporate Governance.”
To promote open discussion among the independent directors, our independent directors will meet in regularly scheduled executive sessions without participation of our Company’s management. Stockholders who wish to send communications on any topic to the Board of Directors or to the independent directors may do so by writing to Imperial Petroleum Inc., 331 Kifissias Avenue, Erithrea 14561 Athens, Greece.
We are a “foreign private issuer” under the securities laws of the United States and the rules of the Nasdaq Capital Market. Under the securities laws of the United States, “foreign private issuers” are subject to different disclosure requirements than U.S. domiciled registrants, as well as different financial reporting requirements. Under the Nasdaq Capital Market rules, a “foreign private issuer” is subject to less stringent corporate governance requirements. Subject to certain exceptions, the rules of the Nasdaq Capital Market permit a “foreign private issuer” to follow its home country practice in lieu of the listing requirements of the Nasdaq Capital Market. As permitted by these exemptions, as well as by our bylaws and the laws of the Marshall Islands, we currently intend to have an audit committee composed solely of two independent committee members, whereas a domestic U.S. public company would be required to have three such independent members. In addition, in lieu of obtaining stockholder approval prior to certain issuances of designated securities, the Company will comply with provisions of the Marshall Islands Business Corporations Act, providing that the Board of Directors approves share issuances.
Committees of the Board of Directors
The Board of Directors has established an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation Committee. The members of the Audit Committee are George Xiradakis (Chairman), and John Kostoyannis. The members of the Nominating and Corporate Governance Committee are John Kostoyannis (Chairman) and George Xiradakis. The members of the Compensation Committee are George Xiradakis (Chairman) and John Kostoyannis. Each of the directors on the Audit Committee has been determined by our Board of Directors to be independent.
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Audit Committee
The Audit Committee is governed by a written charter, which is approved and annually adopted by the Board. The Board has determined that the members of the Audit Committee meet the applicable independence requirements of the SEC and the Nasdaq Stock Market, that all members of the Audit Committee fulfill the requirement of being financially literate and that George Xiradakis is an Audit Committee financial expert as defined under current SEC regulations.
The Audit Committee is appointed by the Board and is responsible for, among other matters overseeing the:
| • | integrity of the Company’s financial statements, including its system of internal controls; |
| • | Company’s compliance with legal and regulatory requirements; |
| • | independent auditor’s qualifications and independence; |
| • | retention, setting of compensation for, termination and evaluation of the activities of the Company’s independent auditors, subject to any required stockholder approval; and |
| • | performance of the Company’s independent audit function and independent auditors, |
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is appointed by the Board and is responsible for, among other matters:
| • | reviewing the Board structure, size and composition and making recommendations to the Board with regard to any adjustments that are deemed necessary; |
| • | identifying candidates for the approval of the Board to fill Board vacancies as and when they arise as well as developing plans for succession, in particular, of the chairman and executive officers; |
| • | overseeing the Board’s annual evaluation of its own performance and the performance of other Board committees; |
| • | retaining, setting compensation and retentions terms for and terminating any search firm to be used to identify candidates; and |
| • | developing and recommending to the Board for adoption a set of Corporate Governance Guidelines applicable to the Company and to periodically review the same. |
Compensation Committee
The Compensation Committee is appointed by the Board and is responsible for, among other matters:
| • | establishing and periodically reviewing the Company’s compensation programs; |
| • | reviewing the performance of directors, officers and employees of the Company who are eligible for awards and benefits under any plan or program and adjust compensation arrangements as appropriate based on performance; |
| • | reviewing and monitoring management development and succession plans and activities; |
| • | reporting on compensation arrangements and incentive grants to the Board; |
| • | retaining, setting compensation and retention terms for, and terminating any consultants, legal counsel or other advisors that the Compensation Committee determines to employ to assist it in the performance of its duties; and |
| • | preparing any Compensation Committee report included in our annual proxy statement. |
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Code of Ethics
We have adopted a code of ethics that complies with the applicable guidelines issued by the SEC, copies of which are available on our website: www.imperialpetro.com under “Investor Relations” and upon written request by our stockholders at no cost.
D. Employees
We have no salaried employees. Our manager employs and provides us with the services of our Chief Executive Officer, Interim Chief Financial Officer and any other management executives the Company may require. In each case their services are provided under the management agreement with Stealth Maritime. Stealth Maritime compensates each of these individuals for their services and we, in turn, reimburse Stealth Maritime for their compensation. For our compensation expenses, pursuant to our management agreement, we reimburse Stealth Maritime for its payment of the compensation of our Chief Executive Officer and Interim Chief Financial Officer as described above.
As of December 31, 2023, 89 officers and 133 crew members served on board the vessels in our fleet. However, these officers and crew are not directly employed by the Company.
E. Share Ownership
The shares of common stock beneficially owned by our directors and senior managers and/or companies affiliated with these individuals are disclosed in “Item 7. Major Stockholders and Related Party Transactions” below.
Equity Compensation Plan
We have an equity compensation plan, the 2024 Equity Compensation Plan, which was adopted in April 2024 and is administered by our Board of Directors which can make awards totaling in aggregate up to 10% of the number of shares of common stock outstanding at the time any award is granted. Officers, directors and employees (including any prospective officer or employee) of the Company and its subsidiaries and affiliates and consultants and service providers to (including persons who are employed by or provide services to any entity that is itself a consultant or service provider to) the Company and its subsidiaries and affiliates will be eligible to receive awards under the equity incentive plan. Awards may be made under the expected equity compensation plan in the form of incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, unrestricted stock, restricted stock units and performance shares.
The 2024 Equity Plan replaced the 2021 Equity Plan, under which we will not grant any additional awards. In 2022, 2023 and 2024, we granted an aggregate of 2,944,290 awards under the 2021 Equity Plan. This include grants of restricted shares to our Chief Executive Officer, in an aggregate amount of 1,568,026 shares, Interim Chief Financial Officer, our independent directors and employees of our manager providing services to us, including 247,286 restricted shares to Nikolas Vafias, the senior executive of our manager and father of our Chief Executive Officer. This also includes options to purchase 593,750, 25,000 and 12,500 shares of common stock granted to our Chief Executive Officer, Directors of our Board and Interim Chief Financial Officer, respectively, on October 30, 2023, each at an exercise price of $1.60 per share, the closing price of the Common Stock on October 30, 2023, and 50% of which vest on October 30, 2024 and 50% of which vest on October 30, 2025 and options to purchase 100,000, 10,000 and 3,000, shares of common stock granted to our Chief Executive Officer, Directors of our Board and Interim Chief Financial Officer, respectively, on April 12, 2024, each at an exercise price equal to the closing price of the Common Stock on April 12, 2024, and 50% of which vest on April 12, 2025 and 50% of which vest on April 12, 2026.
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| Item 7. | Major Stockholders and Related Party Transactions |
A. Major Stockholders
The following table sets forth certain information regarding the beneficial ownership of our outstanding shares of common stock as of April 1, 2024 by:
| • | each person or entity that we know beneficially owns 5% or more of our shares of common stock; |
| • | our Chief Executive Officer and our other executive officers; |
| • | each of our directors; and |
| • | all of our current directors and executive officers as a group. |
The table also includes information regarding the beneficial ownership of our outstanding Series A Preferred Stock by each of directors and executive officers individually and as a group. Beneficial ownership is determined in accordance with the rules of the SEC.
In general, a person who has or shares voting power and/or dispositive power with respect to securities is treated as a beneficial owner of those securities. It does not necessarily imply that the named person has the economic or other benefits of ownership. For purposes of this table, shares subject to options, warrants or rights currently exercisable or exercisable within 60 days of April 1, 2024 are considered as beneficially owned by the person holding such options, warrants or rights. The applicable percentage of ownership for each stockholder is based on 33,257,291 issued and 29,441,660 outstanding shares of Common Stock and 795,878 8.75% Series A Cumulative Redeemable Perpetual Preferred Shares issued and outstanding, and giving effect to 436,253 restricted shares of common stock awarded on April 12, 2024. As of April 1, 2024, we also had outstanding Class A Warrants to purchase up to 2,867 shares of common stock at an exercise price of $18.75 per share, Class B Warrants to purchase up to 786,800 shares of common stock at an exercise price of $24.00 per share, Class C Warrants to purchase up to 1,347,267 shares of common stock at an exercise price of $8.25 per share, Class D Warrants to purchase up to 173,334 shares of common stock at an exercise price of $12.00 per share, Class E Warrants to purchase up to 8,499,999 shares of common stock at an exercise price of $2.00 per share, and underwriters warrants to purchase up to 36,800 shares of common stock at an exercise price of $20.625 per share, 115,000 shares of common stock at an exercise price of $30.00 per share and 139,394 shares of common stock at an exercise price of $10.3125 per share.
Information for certain holders is based on their latest filings with the Securities and Exchange Commission or information delivered to us. All of our stockholders, including the stockholders listed in this table, are entitled to one vote for each share of common stock held. Series A Preferred Stock generally have no voting rights, other than in very limited circumstances. See “Item 10. Additional Information—Authorized Capital—Description of Series A Preferred Stock.”
| Common Stock Beneficially Owned |
Series A Preferred Stock Beneficially Owned |
|||||||||||||||
| Name of Beneficial Owner |
Number | Percentage | Number | Percentage | ||||||||||||
| Principal Stockholders |
||||||||||||||||
| Flawless Management Inc.(1) |
6,991,255 | 23.7 | % | 148,030 | 18.6 | % | ||||||||||
| Arethusa Properties Ltd.(1) |
2,680,991 | 9.1 | % | |||||||||||||
| Hudson Bay Capital Management LP(3) |
1,896,483 | 6.4 | % | |||||||||||||
| Executive Officers and Directors |
||||||||||||||||
| Harry N. Vafias(1)(2) |
11,291,159 | 38.4 | % | 172,063 | 21.6 | % | ||||||||||
| John Kostoyannis |
16,469 | * | 235 | * | ||||||||||||
| George Xiradakis |
19,375 | * | — | * | ||||||||||||
| Ifigeneia (Fenia) Sakellari |
24,166 | * | 66 | * | ||||||||||||
| All executive officers and directors as a group (four persons) |
11,351,169 | 38.6 | % | 172,364 | 21.7 | % | ||||||||||
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| * | Less than 1%. |
| (1) | According to Amendment No. 2 to Schedule 13D jointly filed with the SEC on January 8, 2024 by Flawless Management Inc., Arethusa Properties LTD and Harry N. Vafias, Harry N. Vafias has sole voting power and sole dispositive power with respect to the aggregate 10,969,884 shares owned by Flawless Management Inc., Arethusa Properties LTD and Harry N. Vafias. |
| (2) | Includes 1,472,788 shares of restricted common stock, of which 273,775 vest on May 15, 2024, 95,238 vest on July 15, 2024, 275,000 vest on October 30, 2024, 273,775 vest on May 15, 2025, 275,000 vest on October 30, 2025, 140,000 vest on April 12, 2025 and 140,000 vest on April 12, 2026, subject to satisfaction of the vesting criteria. Excludes (i) options exercisable to acquire 593,750 shares of Common Stock at an exercise price per share of $1.60, the closing price of the Common Stock on October 30, 2023, and an option expiration date of October 30, 2033, 50% of which options vest on October 30, 2024 and 50% of which options vest on October 30, 2025, subject to satisfaction of the time-based vesting terms and (ii) options exercisable to acquire 100,000 shares of Common Stock at an exercise price per share equal to the closing price of the Common Stock on April 12, 2024, and an option expiration date of April 12, 2034, 50% of which options vest on April 12, 2025 and 50% of which options vest on April 12, 2026, subject to satisfaction of the time-based vesting terms. Harry N. Vafias also holds 16,000 shares of Series B Preferred Stock, each of which entitles the holder hereof to 25,000 votes per share on all matters submitted to a vote of the shareholders of the Company, provided however, that no holder of Series B preferred shares may exercise voting rights pursuant to Series B preferred shares that would result in the aggregate voting power of any beneficial owner of such shares and its affiliates (whether pursuant to ownership of Series B preferred shares, common shares or otherwise) to exceed 49.99% of the total number of votes eligible to be cast on any matter submitted to a vote of shareholders of the Company. |
| (3) | Based on a Schedule 13G jointly filed, on February 5, 2024, by Hudson Bay Capital Management LP and Sander Gerber, which indicates these shares of common stock are issuable upon exercise of outstanding warrants that contain a 9.99% blocker provision and that the reported number of shares gave effect to this blocker provision. |
Our common stock and Series A Preferred Stock began regular-way trading on the Nasdaq Capital Market on December 6, 2021. As of April 1, 2024, we had approximately 57 common stockholders of record. Seven of the common stockholders of record were located in the United States and held in the aggregate 21,066,988 shares of common stock representing approximately 70.7% of our outstanding shares of common stock. However, the seven United States stockholders of record include CEDEFAST, which, as nominee for The Depository Trust Company, is the record holder of 21,062,691 shares of common stock. Accordingly, we believe that the shares held by CEDEFAST include shares of common stock beneficially owned by both holders in the United States and non-United States beneficial owners. As a result, these numbers may not accurately represent the number of beneficial owners in the United States. We are not aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.
B. Related Party Transactions
Pursuant to our Audit Committee Charter, our Audit Committee is responsible for establishing procedures for the approval of all related party transactions involving executive officers and directors. Our Code of Business Conduct and Ethics requires our Audit Committee to review and approve any “related party” transaction as defined in Item 7.B of Form 20-F before it is consummated.
Contribution Agreement
In November 2021, we entered into the Contribution Agreement with StealthGas in connection with the Spin-Off. The Contribution Agreement sets forth the agreements between us and StealthGas regarding the contribution of the subsidiaries owning the vessels comprising our initial fleet and the refinancing of the existing indebtedness of StealthGas securing the vessels comprising our fleet with borrowings under a Senior Secured Credit Facility with DNB, which were the principal transaction necessary to separate us from StealthGas.
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The Contribution Agreement also provided for the settlement or extinguishment of certain liabilities and other obligations between us and StealthGas, if any. Following the Spin-Off, StealthGas and Imperial Petroleum will operate independently, and neither will have any ownership interest in the other nor will there be any ongoing relationships between StealthGas and Imperial Petroleum after the separation. Pursuant to the Contribution Agreement, on the distribution date of December 3, 2021, StealthGas distributed to its stockholders all 318,351 shares of our common stock and all 795,878 shares of our Series A Preferred Stock, with one of our common stock and one of our Series A Preferred Stock being distributed for every eight shares and forty-eight shares, respectively, of StealthGas common stock held by StealthGas stockholders.
The Contribution Agreement provided that the Spin-Off and the transfer of StealthGas’ product and crude oil tanker vessel-owning subsidiaries to us, was subject to, among other things, the approval of StealthGas’ Board of Directors, our entry into a Senior Secured Credit Facility with DNB and the application of borrowings thereunder to refinance the existing indebtedness of StealthGas securing the vessels comprising our fleet, approval of our request for our common stock and Series A Preferred Stock to be listed on Nasdaq and the effectiveness of the registration statement relating to the Spin-Off distribution. The fulfillment of the foregoing conditions did not create any obligation on the part of StealthGas to effect the Spin-Off. StealthGas had the right not to complete the Spin-Off if, at any time, the board of directors of StealthGas determined, in its sole discretion, that the Spin-Off was not in the best interests of StealthGas or its stockholders, or that market conditions are such that it was not advisable to effect the Spin-Off.
We and StealthGas agreed to take all actions reasonably necessary or desirable to consummate and make effective the transactions contemplated by the Contribution Agreement. The Contribution Agreement provided that it may be terminated by StealthGas at any time prior to the separation by and in the sole discretion of StealthGas without the approval of us or the stockholders of StealthGas.
Any and all agreements, arrangements, commitments and understandings, between us and our subsidiaries and other affiliates, on the one hand, and StealthGas and its subsidiaries and other affiliates (other than us and our affiliates), on the other hand, terminated as of the distribution date of December 3, 2021.
Management Affiliations
Harry Vafias, our president, chief executive officer and one of our directors, is an officer, director and the sole stockholder of Flawless Management Inc., our largest stockholder immediately after completion of the Spin-Off. He is also the son of the principal and founder of Brave Maritime, an affiliate of Stealth Maritime, which is our management company. Stealth Maritime may subcontract the technical management of some of our vessels to Brave Maritime in the future.
Management and Other Fees
In connection with the Spin-Off, we entered into a management agreement with Stealth Maritime, pursuant to which Stealth Maritime provides us with technical, administrative, commercial and certain other services, on substantially the same terms, including the same fee levels, as Stealth Maritime provides these services to the vessel-owning subsidiaries of StealthGas contributed to us in connection with the Spin-Off. In relation to the technical services, Stealth Maritime is responsible for arranging for the crewing of the vessels, the day to day operations, inspections and vetting, supplies, maintenance, repairs, bunkering drydocking and insurance. Administrative functions include but are not limited to accounting, back-office, reporting, legal and secretarial services. In addition, Stealth Maritime provides services for the chartering of our vessels and monitoring thereof, freight collection, and sale and purchase. In providing most of these services, Stealth Maritime pays third parties and receives reimbursement from us. Under the management agreement Stealth Maritime subcontracts certain of its obligations. For our drybulk vessels, Stealth Maritime subcontracts these services to its affiliate Brave Maritime.
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Stealth Maritime also provides crew management services to certain of our vessels. The majority of these services have been subcontracted by Stealth Maritime to an affiliated ship-management company, Hellenic Manning Overseas Inc. (formerly known as Navis Maritime Services Inc.), which is 25% owned by an affiliate of Stealth Maritime. The Company pays to Stealth Maritime a fixed monthly fee of $2,500 per vessel for these crew management services, all of which fees are passed on to Hellenic Manning Overseas Inc. For the years ended December 31, 2021, 2022 and 2023, these crew management fees were, $0.06 million, $0.14 million and $0.3 million, respectively. As of April 1, 2024, all of our vessels were being manned by Hellenic Manning Overseas Inc., while for our Aframax tanker sold in July 2023 and for one of our product tankers, crewing services were provided by Bernard Shulte Management up until April 2023 and February 2023 respectively with a lumpsum monthly fee of $0.1 million. We are not responsible for crewing vessels deployed on bareboat charters.
In the years ended December 31, 2021, 2022 and 2023, Stealth Maritime received a fixed management fee of $440 per vessel per day operating under a voyage or time charter, and a fixed fee of $125 per vessel per day for each of our vessels operating on bareboat charter, with respect to the vessels in our fleet. In addition, our manager arranges for supervision onboard the vessels, when required, by superintendent engineers and when such visits exceed a period of five days in a twelve-month period we are charged $500 for each additional day. We pay our manager, Stealth Maritime, a fee equal to 1.25% of the gross freight, demurrage and charter hire collected from the employment of our vessels. Stealth Maritime also receives a fee equal to 1.0% calculated on the price as stated in the relevant memorandum of agreement for any vessel bought or sold by them on our behalf. Under our management agreement with Stealth Maritime which we entered into in conjunction with the Spin-Off, we pay management fees and commissions at the same rate.
The above management fees for the years ended December 31, 2021, 2022 and 2023 were $0.5 million, $1.0 million and $1.6 million, respectively. We also paid $0.03 million, $0.03 million and $0.06 million, respectively, in the years ended December 31, 2021, 2022 and 2023 related to onboard supervision which were included in our operating expenses – related party. For the years ended December 31, 2021, 2022 and 2023, total brokerage commissions of 1.25% amounted to $0.22 million, $1.2 million and $2.3 million, respectively, and in each period were included in voyage expenses – related party. For the years ended December 31, 2021, 2022 and 2023, commissions on vessels purchased/sold were nil, $1.2 million and $0.8 million, respectively.
We also reimburse Stealth Maritime for its payment for services related to our executive officers.
Additional vessels that we may acquire in the future may be managed by Stealth Maritime or other unaffiliated management companies.
Under the management agreement we have agreed to keep Stealth Maritime and its employees, agents and sub-contractors indemnified and to hold them harmless against all actions, proceedings, claims, demands or liabilities whatsoever or howsoever arising which may be brought against them or incurred or suffered by them arising out of or in connection with the performance of the management agreement and against and in respect of all costs, loss, damages, and expenses, which they may suffer or incur, during the course of the performance of the management agreement.
The initial term of our management agreement with Stealth Maritime will expire on December 31, 2025 and will be extended on a year-to-year basis thereafter unless six-month written notice of termination is provided by either party prior to the expiration of the term.
Stealth Maritime may terminate the management agreement prior to the end of its term if any money payable by us is not paid within 30 days following demand by Stealth Maritime. The management agreement will also terminate (1) upon an order being made or resolution passed for the winding up, dissolution, liquidation or bankruptcy of us or Stealth Maritime (otherwise than for the purpose of reconstruction or amalgamation) or if a
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receiver is appointed, or if we or Stealth Maritime suspends payment, ceases to carry on business, or makes any special arrangement or composition with creditors or (2) in the case of the sale of all of our vessels or if all of our vessels become a total loss or are declared as a constructive or compromised or arranged total loss or are requisitioned.
Office Space
Stealth Maritime provided our office space to us without charge for the first year after the completion of the Spin-Off, and thereafter the lease rate has been €5,000 per month. The lease ended on January 1, 2024. The lease rate for 2024 is €72,000 per year as per renewed contact effective from January 1, 2024 and may be terminated by tenant upon eight weeks’ notice to landlord.
Vessel Acquisition Agreements; Series C Preferred Stock
On March 4, 2022, we entered into agreements to acquire two MR product tankers, built 2008 and 2011, from Brave Maritime, an entity affiliated with the father of our Chief Executive Officer, for an aggregate purchase price of $31.0 million, which were delivered to us in March and May 2022, respectively. The transaction was approved by the Company’s audit committee comprised of independent directors.
On July 7, 2022, we entered into agreements to acquire two handysize drybulk carriers from entities affiliated with the family of our Chief Executive Officer for an aggregate purchase price of $39.0 million, which were delivered to us in the second half of 2022. The transaction was approved by the Company’s audit committee comprised of independent directors.
On February 14, 2023, we entered into agreements to acquire two handysize drybulk carriers from entities affiliated with our Chief Executive Officer for aggregate cash consideration of $25.5 million and 13,875 shares of Series C Cumulative Convertible Perpetual Preferred Stock. Delivery of the vessels on a charter-free basis, and closing of the transactions, occurred in March 2023. The Series C Convertible Preferred Stock had a dividend rate of 5.00% per annum per $1,000 liquidation preference per share, which is payable in cash or additional shares of Series C Convertible Preferred Stock at our election, and was convertible, at the holder’s option, after the six-month anniversary of issuance into shares of our common stock at a conversion price equal to the lower of $7.50 and the ten-day volume weighted average price of the common stock. The transaction was approved by a committee comprised of independent directors, which received a fairness opinion from an independent financial advisor in connection with the issuance of the Series C Convertible Preferred Stock in the transaction. On December 21, 2023, all 13,875 shares of our Series Convertible Preferred Stock were converted by the holder, Flawless Management Inc., into 6,932,043 shares of our Common Stock.
On September 5, 2023, we entered into an agreement with entities affiliated with the Vafias family to acquire two tanker vessels, the aframax tanker Gstaad Grace II (ex. Stealth Haralambos), built in 2009 and the product tanker Aquadisiac built in 2008, with an aggregate capacity of approximately 164,000 dwt. The aggregate purchase price for these acquisitions is $71 million. Both vessels were delivered to us on a charter-free basis in February 2024. The transaction was approved by the Company’s audit committee comprised of independent directors.
Vessel Sale to C3is Inc.
On July 7, 2023, we entered into a memorandum of agreement for the disposal of the vessel “Stealth Berana” to C3is Inc., in which we hold an interest through Series A Convertible Preferred Stock, for $43,000,000. The vessel was delivered to her new owners in July 2023. Payment of 10% of the purchase price was effected at the time of delivery, with the remaining balance due no later than one year after delivery of the vessel, which took place on July 14, 2023. The remaining balance bears interest at an implicit rate of 8.1% per annum and is payable in July 2024.
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Series B Preferred Stock
On October 21, 2022, we entered into a stock purchase agreement and issued 16,000 shares of our newly-designated Series B Preferred Stock, par value $0.01 per share, to our Chairman and Chief Executive Officer, Harry Vafias, in return for cash consideration of $200,000. The issuance of the Series B Preferred Stock was approved by an independent committee of the Board of Directors of the Company, which received a fairness opinion from an independent financial advisor that the transaction was fair from a financial point of view to the Company. See “Item 10. Additional Information A. Share Capital – Description of Series B Preferred Stock” for a description of the Series B Preferred Stock.
C. Interest of Experts and Counsel
Not applicable
| Item 8. | Financial Information |
See “Item 18. Financial Statements” below.
Significant Changes. Other than as described in Note 16 “Subsequent Events” to our consolidated financial statements included in this Annual Report, no significant change has occurred since the date of such consolidated financial statements.
Legal Proceedings. To our knowledge we are not currently a party to any material lawsuit that, if adversely determined, would have a material effect on our financial position, results of operations or liquidity. From time to time in the future we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We have not been involved in any legal proceedings which may have, or have had a material effect on our financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our financial position, results of operations or liquidity. See Note 15 “Commitments and Contingencies” to our consolidated financial statements included elsewhere in this Annual Report.
| Item 9. | The Offer and Listing |
Trading on the Nasdaq Stock Market
Following the Spin-Off, regular way trading in our common stock and Series A Preferred Stock began on the Nasdaq Capital Market on December 6, 2021, under the symbols “IMPP” and “IMPPP”, respectively.
| Item 10. | Additional Information |
A. Share Capital
Authorized Capitalization
Under our amended and restated articles of incorporation, our authorized capital stock consists of 2,000,000,000 shares of common stock, par value $0.01 per share, and 200,000,000 shares of preferred stock, par value $0.01 per share. All of our shares of stock are in registered form. As of April 1, 2024, the Company had 33,257,291 shares of common stock issued and 29,005,407 shares of common stock outstanding (an additional 436,253 restricted shares of common stock were granted under the 2021 Equity Plan on April 12, 2024), 795,878 8.75% Series A Cumulative Redeemable Perpetual Preferred Stock and 16,000 shares of Series B Preferred Stock issued and outstanding, as well as Class A Warrants to purchase up to 2,867 shares of common stock at an exercise price of $18.75 per share, Class B Warrants to purchase up to 786,800 shares of common stock at an exercise price of $24.00 per share, Class C Warrants to purchase up to 1,347,267 shares of common stock at an
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exercise price of $8.25 per share, Class D Warrants to purchase up to 173,334 shares of common stock at an exercise price of $12.00 per share, Class E Warrants to purchase up to 8,499,999 shares of common stock at an exercise price of $2.00 per share, and underwriters warrants to purchase up to 36,800 shares of common stock at an exercise price of $20.625 per share, 115,000 shares of common stock at an exercise price of $30.00 per share and 139,394 shares of common stock at an exercise price of $10.3125 per share.
Common Stock
Under our amended and restated articles of incorporation, we are authorized to issue up to 2,000,000,000 shares of common stock, par value $0.01 per share, of which there were 33,257,291 shares issued and 29,812,755 shares outstanding as of December 31, 2023 and 29,005,407 shares outstanding as of April 1, 2024 (an additional 436,253 restricted shares of common stock were granted under the 2021 Equity Plan on April 12, 2024). As of April 1, 2024, we also had outstanding Class A Warrants to purchase up to 2,867 shares of common stock at an exercise price of $18.75 per share, Class B Warrants to purchase up to 786,800 shares of common stock at an exercise price of $24.00 per share, Class C Warrants to purchase up to 1,347,267 shares of common stock at an exercise price of $8.25 per share, Class D Warrants to purchase up to 173,334 shares of common stock at an exercise price of $12.00 per share, Class E Warrants to purchase up to 8,499,999 shares of common stock at an exercise price of $2.00 per share, and underwriters warrants to purchase up to 36,800 shares of common stock at an exercise price of $20.625 per share, 115,000 shares of common stock at an exercise price of $30.00 per share and 139,394 shares of common stock at an exercise price of $10.3125 per share.
Each outstanding share of common stock is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by their holders at meetings of the stockholders. Holders of our common stock (i) have equal ratable rights to dividends from funds legally available therefore, if declared by the Board of Directors; (ii) are entitled to share ratably in all of our assets available for distribution upon liquidation, dissolution or winding up; and (iii) do not have preemptive, subscription or conversion rights or redemption or sinking fund provisions. All issued common stock when issued will be fully paid for and non-assessable.
Our stockholders have approved the amendment of the Company’s amended and restated articles of incorporation to effect one or more reverse stock splits of the shares of our common stock issued and outstanding at the time of the reverse split at an exchange ratio of between one-for-two and one-for-five hundred, with the Board of Directors to determine, in its sole discretion, whether to implement any reverse stock split, as well as the specific timing and ratio, within such approved range of ratios; provided that any such split is implemented prior to the third anniversary of the Spin-Off.
Dividends. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. Our board of directors will, however, evaluate our dividend policy consistent with our cash flows and liquidity requirements and we may consider paying dividends on our common stock depending on future performance of our business and financial condition. Declaration and payment of any future dividend is subject to the discretion of our Board of Directors. The timing and amount of dividend payments will be dependent upon our earnings, financial condition, cash requirements and availability, restrictions in our loan agreements, or other financing arrangements, the provisions of Marshall Islands law affecting the payment of distributions to stockholders and other factors, and will be subject to the priority of our Series A Preferred Stock, which, as described elsewhere in this report, earn dividends at a dividend rate of 8.75% per annum per $25.00 of liquidation preference per share. Because we are a holding company with no material assets other than the stock of our subsidiaries, our ability to pay dividends will depend on the earnings and cash flow of our subsidiaries and their ability to pay dividends to us. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment thereof.
Warrants
General. As of April 1, 2024, we had outstanding Class A Warrants to purchase up to 2,867 shares of common stock at an exercise price of $18.75 per share, Class B Warrants to purchase up to 786,800 shares of
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common stock at an exercise price of $24.00 per share, Class C Warrants to purchase up to 1,347,267 shares of common stock at an exercise price of $8.25 per share, Class D Warrants to purchase up to 173,334 shares of common stock at an exercise price of $12.00 per share, Class E Warrants to purchase up to 8,499,999 shares of common stock at an exercise price of $2.00 per share and underwriters warrants to purchase up to 36,800 shares of common stock at an exercise price of $20.625 per share, 115,000 shares of common stock at an exercise price of $30.00 per share and 139,394 shares of common stock at an exercise price of $10.3125 per share.
The following summary of certain terms and provisions of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants is not complete and is subject to, and qualified in its entirety by the provisions of the forms of Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants, respectively, which are each filed as an exhibit to this Annual Report.
Exercisability. The Class A Warrants are exercisable at any time after their original issuance, of February 2, 2022, up to the date that is five years after their original issuance (February 2, 2027). The Class B Warrants are exercisable at any time after their original issuance, of March 23, 2022, up to the date that is five years after their original issuance (March 23, 2027). The Class C Warrants are exercisable at any time after their original issuance, of May 19, 2022, up to the date that is five years after their original issuance (May 19, 2027). The Class D Warrants are exercisable at any time after their original issuance, of June 15, 2022, up to the date that is five years after their original issuance (June 15, 2027). The Class E Warrants are exercisable at any time after their original issuance, of August 15, 2023, up to the date that is five years after their original issuance (August 15, 2028). The Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the common stock underlying the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the issuance of such shares, by payment in full in immediately available funds for the number of shares of common stock purchased upon such exercise. If a registration statement registering the issuance of the common stock underlying the Class A Warrants, Class B Warrants, Class C Warrants, Class E Warrants, or the resale of the common stock underlying the Class D Warrants, under the Securities Act is not effective or available and, in the case of the Class A Warrants, Class B Warrants, Class C Warrants and Class E Warrants, an exemption from registration under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the Class A Warrant, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the Class A Warrant, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants. No fractional shares of common stock will be issued in connection with the exercise of a Class A Warrant, Class B Warrant, Class C Warrant, Class D Warrant or Class E Warrants. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise Limitation. A holder will not have the right to exercise any portion of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, upon election by a holder prior to the issuance of any Class A warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants, 9.99%) of the number of shares of our common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, upon at least 61 days’ prior notice from the holder to us with respect to any increase in such percentage.
Exercise Price. The exercise price per whole share of common stock purchasable upon exercise of the Class A Warrants is $18.75 per share, upon exercise of the Class B Warrants is $24.00 per share, upon exercise of the Class C Warrants is $8.25 per share, upon exercise of the Class D Warrants is $12.00 per share and upon exercise of the Class E Warrants is $2.00 per share. The exercise price and number of shares of common stock
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issuable upon exercise will adjust in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock.
Transferability. Subject to applicable laws, the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We do not intend to apply for the listing of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants on any stock exchange. Without an active trading market, the liquidity of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants will be limited.
Rights as a Stockholder. Except as otherwise provided in the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants or by virtue of such holder’s ownership of our common stock, the holder of a Class A Warrant, Class B Warrant, Class C Warrants, Class D Warrants or Class E Warrants does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.
Fundamental Transactions. In the event of a fundamental transaction, as described in the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants and generally including, with certain exceptions, any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding common stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding common stock, the holders of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction. Additionally, as more fully described in the Class A Warrant, Class B Warrant, Class C Warrants, Class D Warrants and Class E Warrants, as applicable, in the event of certain fundamental transactions, the holders of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants will be entitled to receive consideration in an amount equal to the Black Scholes value of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, respectively, on the date of consummation of such transaction.
Governing Law. The Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants and related warrant agency agreement, as applicable, are governed by New York law.
Underwriter’s Warrants. The February 2022 Representative’s Purchase Warrants, issued to the representative of the underwriters of our February 2022 underwritten public offering, have substantially similar terms as the Class A Warrants other than that they will be exercisable for up to an aggregate of 36,800 shares of common stock at any time, and from time to time, in whole or in part, during the period commencing July 31, 2022 and expiring January 31, 2027 at an exercise price of $20.625 per share. These warrants are governed by New York law.
The March 2022 Representative’s Purchase Warrants, issued to the representative of the underwriters of our March 2022 underwritten public offering, have substantially similar terms as the Class B Warrants other than that they will be exercisable for up to an aggregate of 115,000 shares of common stock, at any time, and from time to time, in whole or in part, during the period commencing September 18, 2022 and expiring March 18, 2027 at an exercise price of $30.00 per share. These warrants are governed by New York law.
The May 2022 Representative’s Purchase Warrants, issued to the representative of the underwriters of our May 2022 underwritten public offering, have substantially similar terms as the Class C Warrants other than that
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they will be exercisable for up to an aggregate of 139,394 shares of common stock, at any time, and from time to time, in whole or in part, during the period commencing November 12, 2022 and expiring May 16, 2027 at an exercise price of $10.3125 per share. These warrants are governed by New York law.
Preferred Stock
Under our amended and restated articles of incorporation, we are authorized to issue up to 200,000,000 shares of preferred stock, par value $0.01 per share, of which 800,000 shares have been designated as Series A Preferred Stock, of which 795,878 shares of Series A Preferred Stock are outstanding as of December 31, 2023 and April 1, 2024; 16,000 shares have been designated as Series B Preferred Stock, all of which were outstanding as of December 31, 2023 and April 1, 2024. On December 21, 2023, all 13,875 shares of our Series C Convertible Preferred Stock were converted by the holder, Flawless Management Inc., into 6,932,043 shares of our Common Stock. The undesignated authorized preferred stock may be issued in one or more series and our Board of Directors, without further approval from our stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights, liquidation preferences and other rights and restrictions relating to any series. Issuances of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things, adversely affect the relative voting power of the holders of our common stock. See “Description of Series A Preferred Stock” and “Description of Series B Preferred Stock” below.
Transfer Agent and Registrar
Equiniti Trust Company, LLC is the transfer agent and registrar for Imperial Petroleum common stock and Series A Preferred Stock, and the warrant agent for the Class A, B and C Warrants.
Listing
Our common stock is listed on the Nasdaq Capital Market under the symbol “IMPP.” Our Series A Preferred Stock is listed on the Nasdaq Capital Market under the symbol “IMPPP.”
Description of Series A Preferred Stock
The following description of the Series A Preferred Stock does not purport to be complete and is subject to, and qualified in its entirety by reference to the Statement of Designations designating the Series A Preferred Stock (the “Statement of Designations”) and setting forth the rights, preferences and limitations of the Series A Preferred Stock. A copy of the Statement of Designations, is filed as an exhibit to this Annual Report.” References to “Imperial Petroleum Inc.,” “we,” “our” and “us” refer specifically to Imperial Petroleum Inc.
General
As of December 31, 2022 and April 1, 2024, there were 800,000 Series A Preferred Stock authorized, and 795,878 Series A Preferred Stock issued and outstanding. We may, without notice to or consent of the holders of the then-outstanding Series A Preferred Stock, authorize and issue additional Series A Preferred Stock as well as Parity Securities and Junior Securities and, subject to the further limitations described under “—Voting Rights”, Senior Securities.
The holders of our common stock are entitled to receive dividends out of assets legally available for that purpose at times and in amounts as our board of directors may from time to time determine. Upon the occurrence of a liquidation, dissolution or winding up the holders of common stock would be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities and payment to the holders of shares of any class or series of capital stock (including the Series A Preferred Stock) having preferential rights to receive distributions of our assets.
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The Series A Preferred Stock entitle the holders thereof to receive cumulative cash dividends when, as and if declared by our board of directors out of legally available funds for such purpose. Each share of Series A Preferred Stock have a fixed liquidation preference of $25.00 per share plus an amount equal to accumulated and unpaid dividends thereon to the date fixed for payment, whether or not declared. Please read “—Liquidation Rights.”
The Series A Preferred Stock represents perpetual equity interests in us and, unlike any potential indebtedness we may incur in the future, will not give rise to a claim for payment of a principal amount at a particular date. As such, the Series A Preferred Stock ranks junior to any future indebtedness and other liabilities with respect to assets available to satisfy claims against us.
All the Series A Preferred Stock are represented by a single certificate issued to the Securities Depository (as defined below) and registered in the name of its nominee and, so long as a Securities Depository has been appointed and is serving, no person acquiring Series A Preferred Stock will be entitled to receive a certificate representing such shares unless applicable law otherwise requires or the Securities Depository resigns or is no longer eligible to act as such and a successor is not appointed. Please read “—Book-Entry System.”
The Series A Preferred Stock are not convertible into common stock or other of our securities and will not have exchange rights or be entitled or subject to any preemptive or similar rights. The Series A Preferred Stock will not be subject to mandatory redemption or to any sinking fund requirements. The Series A Preferred Stock will be subject to redemption, in whole or from time to time in part, at our option commencing on September 30, 2022. Please read “—Redemption.”
Ranking
The Series A Preferred Stock, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of our affairs, rank:
| • | senior to all classes of our common stock, and to each other class or series of stock established after the initial issue date of the Series A Preferred Stock by our board of directors, the terms of which class or series do not expressly provide that it is made senior to or on parity with the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, dissolution or winding-up of our affairs, whether voluntary or involuntary (collectively, the “Junior Securities”); |
| • | on a parity with any class or series of stock established after the initial issue date of the Series A Preferred Stock by our board of directors, the terms of which class or series are not expressly subordinated or senior to the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, dissolution or winding-up of our affairs, whether voluntary or involuntary (collectively, the “Parity Securities”); and |
| • | junior to (i) any future indebtedness and other liabilities with respect to assets available to satisfy claims against us, and (ii) each class or series of capital stock expressly made senior to the Series A Preferred Stock as to the payment of dividends and amounts payable upon liquidation, dissolution or winding up, whether voluntary or involuntary (such shares described in this clause (ii), the “Senior Securities”). |
Under the Statement of Designations, we may issue Junior Securities and, so long as cumulative dividends on the Series A Preferred Stock are not in arrears, Parity Securities from time to time in one or more series without the consent of the holders of the Series A Preferred Stock. Our board of directors has the authority to determine the preferences, powers, qualifications, limitations, restrictions and special or relative rights or privileges, if any, of any such series before the issuance of any shares of that series. Our board of directors will also determine the number of shares constituting each series of securities. Our ability to issue additional Senior Securities is limited as described under “—Voting Rights.”
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Liquidation Preference
The holders of issued and outstanding Series A Preferred Stock will be entitled, in the event of any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, to receive the liquidation preference of $25.00 per share in cash plus an amount equal to accumulated and unpaid dividends thereon to (but not including) the date fixed for payment of such amount (whether or not declared), and no more, before any distribution will be made to the holders of our common stock or any other Junior Securities. A consolidation or merger of us with or into any other entity, individually or in a series of transactions, will not be deemed a liquidation, dissolution or winding up of our affairs for this purpose. In the event that our assets available for distribution to holders of the issued and outstanding Series A Preferred Stock and any Parity Securities are insufficient to permit payment of all required amounts, our assets then remaining will be distributed among the Series A Preferred Stock and any Parity Securities, as applicable, ratably on the basis of their relative aggregate liquidation preferences. After payment of all required amounts to the holders of the outstanding shares of Series A Preferred Stock and Parity Securities, our remaining assets and funds will be distributed among the holders of the common stock and any other Junior Securities then issued and outstanding according to their respective rights.
Voting Rights
The Series A Preferred Stock have no voting rights except as provided by Marshall Islands law and as follows. In the event that six quarterly dividends, whether consecutive or not, payable on Series A Preferred Stock are in arrears, the holders of Series A Preferred Stock will have the right, voting separately as a class together with holders of any other Parity Securities upon which like voting rights have been conferred and are exercisable, at the next meeting of stockholders called for the election of directors, to elect one member of our board of directors, and the size of our board of directors will be increased as needed to accommodate such change (unless the size of our board of directors already has been increased by reason of the election of a director by holders of Parity Securities upon which like voting rights have been conferred and with which the Series A Preferred Stock voted as a class for the election of such director). The right of such holders of Series A Preferred Stock to elect one member of our board of directors will continue until such time as all dividends accumulated and in arrears on the Series A Preferred Stock have been paid in full, at which time such right will terminate, subject to revesting in the event of each and every subsequent failure to pay six quarterly dividends as described above. Upon any termination of the right of the holders of the Series A Preferred Stock and any other Parity Securities to vote as a class for a director, the term of office of all directors then in office elected by such holders voting as a class will terminate immediately. Any director elected by the holders of the Series A Preferred Stock and any other Parity Securities shall each be entitled to one vote per director on any matter before our board of directors.
Unless we have received the affirmative vote or consent of the holders of at least two-thirds of the outstanding Series A Preferred Stock, voting as a single class, we may not (i) adopt any amendment to our articles of incorporation or Statement of Designations, that adversely alters the preferences, powers or rights of the Series A Preferred Stock, (ii) issue any Parity Securities if the cumulative dividends payable on outstanding Series A Preferred Stock are in arrears, or (iii) create or issue any Senior Securities.
On any matter described above on which the holders of the Series A Preferred Stock are entitled to vote as a class, such holders will be entitled to one vote per share. The Series A Preferred Stock held by us or any of our subsidiaries or affiliates will not be entitled to vote.
Dividends
General
Holders of Series A Preferred Stock will be entitled to receive, when, as and if declared by our board of directors out of legally available funds for such purpose, cumulative cash dividends from December 3, 2021.
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Dividend Rate
Dividends on Series A Preferred Stock will be cumulative, commencing December 3, 2021 and payable on each Dividend Payment Date, commencing December 30, 2021, when, as and if declared by our board of directors or any authorized committee thereof out of legally available funds for such purpose. Dividends on the Series A Preferred Stock will accrue at a rate of 8.75% per annum per $25.00 stated liquidation preference per Series A Preferred Stock. The dividend rate is not subject to adjustment.
Dividend Payment Date
The “Dividend Payment Dates” for the Series A Preferred Stock will be each March 30, June 30, September 30 and December 30, commencing December 30, 2021. Dividends will accumulate in each dividend period from and including the preceding Dividend Payment Date or the initial issue date, as the case may be, to but excluding, the applicable Dividend Payment Date for such dividend period. If any Dividend Payment Date otherwise would fall on a day that is not a Business Day, declared dividends will be paid on the immediately succeeding Business Day without the accumulation of additional dividends. Dividends on the Series A Preferred Stock will be payable based on a 360-day year consisting of twelve 30-day months.
“Business Day” means a day on which the Nasdaq Stock Market is open for trading and which is not a Saturday, a Sunday or other day on which banks in New York City are authorized or required by law to close.
Payment of Dividends
Not later than the close of business, New York City time, on each Dividend Payment Date, we will pay those dividends, if any, on the Series A Preferred Stock that have been declared by our board of directors to the holders of such shares as such holders’ names appear on our share transfer books maintained by the Registrar and Transfer Agent on the applicable Record Date. The applicable record date (the “Record Date”), will be three Business Days immediately preceding the applicable Dividend Payment Date, except that in the case of payments of dividends in arrears, the Record Date with respect to a Dividend Payment Date will be such date as may be designated by our board of directors in accordance with our Bylaws then in effect and the Statement of Designations.
So long as the Series A Preferred Stock are held of record by the Securities Depository or its nominee, declared dividends will be paid to the Securities Depository in same-day funds on each Dividend Payment Date. The Securities Depository will credit accounts of its participants in accordance with the Securities Depository’s normal procedures. The participants will be responsible for holding or disbursing such payments to beneficial owners of the Series A Preferred Stock in accordance with the instructions of such beneficial owners.
No dividend may be declared or paid or set apart for payment on any Junior Securities (other than dividend payable solely in shares of Junior Securities) unless full cumulative dividends have been or contemporaneously are being paid or provided for on all issued and outstanding Series A Preferred Stock and any Parity Securities through the most recent respective dividend payment dates. Accumulated dividends in arrears for any past dividend period may be declared by our board of directors and paid on any date fixed by our board of directors, whether or not a Dividend Payment Date, to holders of the Series A Preferred Stock on the record date for such payment, which may not be more than 60 days, nor less than 15 days, before such payment date. Subject to the next succeeding sentence, if all accumulated dividends in arrears on all outstanding Series A Preferred Stock and any Parity Securities have not been declared and paid, or sufficient funds for the payment thereof have not been set apart, payment of accumulated dividends in arrears will be made in order of their respective dividend payment dates, commencing with the earliest. If less than all dividends payable with respect to all Series A Preferred Stock and any Parity Securities are paid, any partial payment will be made pro rata with respect to the Series A Preferred Stock and any Parity Securities entitled to a dividend payment at such time in proportion to the aggregate amounts remaining due in respect of such shares at such time. Holders of the Series A Preferred
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Stock will not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends. No interest or sum of money in lieu of interest will be payable in respect of any dividend payment which may be in arrears on the Series A Preferred Stock.
Redemption
The Series A Preferred Stock represent perpetual equity interests in us. We will have no obligation to redeem or repurchase any Series A Preferred Stock at any time.
Optional Redemption
We may redeem, at our option, in whole or from time to time in part, the Series A Preferred Stock (i) on or after June 30, 2022 and prior to June 30, 2023, at a price equal to $26.00 per Series A Preferred Stock, (ii) on or after June 30, 2023 and prior to June 30, 2024, at a price equal to $25.75 per Series A Preferred Share, (iii) on or after June 30, 2024 and prior to June 30, 2025, at a price equal to $25.50 per Series A Preferred Stock, (iv) on or after June 30, 2025 and prior to June 30, 2026, at a price equal to $25.25 per Series A Preferred Stock and (v) on or after June 30, 2026, at a price equal to $25.00 per Series A Preferred Stock, plus, in each case, an amount equal to all accumulated and unpaid dividends thereon to (but not including) the date of redemption, whether or not declared. Any such optional redemption may be effected only out of funds legally available for such purpose.
Redemption Upon a Change of Control
In connection with a Change of Control (as defined below), we may, at our option, redeem the Series A Preferred Stock, in whole but not in part, no later than 90 days after the first date on which such Change of Control occurs, at a redemption price of (1) if the “Change of Control” occurs prior to December 31, 2023, $26.50 per share and (2) if the “Change of Control” occurs on or after December 31, 2023 at the same redemption prices as apply to an optional redemption as set forth above under “Optional Redemption”, plus, in the case of either (1) or (2), an amount equal to all accumulated and unpaid dividends thereon to (but not including) the date of redemption, whether or not declared. Any such redemption may be effected only out of funds legally available for such purpose.
A “Change of Control” means the following events have occurred and are continuing:
| • | the acquisition by any “person” or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our shares entitling that person or group to exercise more than 50% of the total voting power of all of our shares entitled to vote generally in elections of directors (except that such person or group will be deemed to have beneficial ownership of all securities that such person or group has the right to acquire, whether such right is currently exercisable or is exercisable only upon the passage of time or occurrence of a subsequent condition); and |
| • | following the closing of any transaction referred to in the above bullet point, neither we nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the New York Stock Exchange (“NYSE”), the NYSE American or the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (collectively, “Nasdaq”) or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American or the Nasdaq. |
Redemption Procedure
We will give notice of any redemption by mail, postage prepaid, not less than 30 days and not more than 60 days before the scheduled date of redemption, to the holders of any shares to be redeemed as such holders’
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names appear on our share transfer books maintained by the Registrar and Transfer Agent at the address of such holders shown therein. Such notice shall state: (1) the redemption date, (2) the number of shares of Series A Preferred Stock to be redeemed and, if less than all issued and outstanding Series A Preferred Stock are to be redeemed, the number (and the identification) of shares to be redeemed from such holder, (3) the redemption price, (4) the place where the Series A Preferred Stock are to be redeemed and shall be presented and surrendered for payment of the redemption price therefor, and (5) that dividends on the shares to be redeemed will cease to accumulate from and after such redemption date.
If fewer than all of the issued and outstanding Series A Preferred Stock are to be redeemed, the number of shares to be redeemed will be determined by us, and such shares will be redeemed pro rata or by lot as the Securities Depository shall determine, with adjustments to avoid redemption of fractional shares. So long as all Series A Preferred Stock are held of record by the Securities Depository or its nominee, we will give notice, or cause notice to be given, to the Securities Depository of the number of shares of Series A Preferred Stock to be redeemed and the Securities Depository will determine the number of shares of Series A Preferred Stock to be redeemed from the account of each of its participants holding such shares in its participant account.
So long as the Series A Preferred Stock are held of record by the Securities Depository or its nominee, the redemption price will be paid by the Paying Agent to the Securities Depository on the redemption date. The Securities Depository’s normal procedures provide for it to distribute the amount of the redemption price in same-day funds to its participants who, in turn, are expected to distribute such funds to the persons for whom they are acting as agent.
If we give or cause to be given a notice of redemption, then we will deposit with the Paying Agent funds sufficient to redeem the Series A Preferred Stock as to which notice has been given by the close of business, New York City time, no later than the Business Day immediately preceding the date fixed for redemption, and will give the Paying Agent irrevocable instructions and authority to pay the redemption price to the holder or holders thereof upon surrender or deemed surrender (which will occur automatically if the certificate representing such shares is issued in the name of the Securities Depository or its nominee) of the certificates therefor. If notice of redemption shall have been given, then from and after the date fixed for redemption, unless we default in providing funds sufficient for such redemption at the time and place specified for payment pursuant to the notice, all dividends on such shares will cease to accumulate and all rights of holders of such shares as our stockholders will cease, except the right to receive the redemption price, including an amount equal to accumulated and unpaid dividends to (but not including) the date fixed for redemption, whether or not declared. We will be entitled to receive from the Paying Agent the interest income, if any, earned on such funds deposited with the Paying Agent (to the extent that such interest income is not required to pay the redemption price of the shares to be redeemed), and the holders of any shares so redeemed will have no claim to any such interest income. Any funds deposited with the Paying Agent hereunder by us for any reason, including, but not limited to, redemption of Series A Preferred Stock, that remain unclaimed or unpaid after two years after the applicable redemption date or other payment date, shall be, to the extent permitted by law, repaid to us upon our written request after which repayment the holders of the Series A Preferred Stock entitled to such redemption or other payment shall have recourse only to us.
If only a portion of the Series A Preferred Stock represented by a certificate has been called for redemption, upon surrender of the certificate to the Paying Agent (which will occur automatically if the certificate representing such shares is registered in the name of the Securities Depository or its nominee), the Paying Agent will issue to the holder of such shares a new certificate (or adjust the applicable book-entry account) representing the number of shares of Series A Preferred Stock represented by the surrendered certificate that have not been called for redemption.
Notwithstanding any notice of redemption, there will be no redemption of any Series A Preferred Stock called for redemption until funds sufficient to pay the full redemption price of such shares, including all accumulated and unpaid dividends to the date of redemption, whether or not declared, have been deposited by us with the Paying Agent.
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We and our affiliates may from time to time purchase the Series A Preferred Stock, subject to compliance with all applicable securities and other laws. Neither we nor any of our affiliates has any obligation or any present plan or intention, to purchase any Series A Preferred Stock. Any shares repurchased and cancelled by us will revert to the status of authorized but unissued preferred stock, undesignated as to series.
Notwithstanding the foregoing, in the event that full cumulative dividends on the Series A Preferred Stock and any Parity Securities have not been paid or declared and set apart for payment, we may not repurchase, redeem or otherwise acquire, in whole or in part, any Series A Preferred Stock or Parity Securities except pursuant to a purchase or exchange offer made on the same terms to all holders of Series A Preferred Stock and any Parity Securities. Common stock and any other Junior Securities may not be redeemed, repurchased or otherwise acquired unless full cumulative dividends on the Series A Preferred Stock and any Parity Securities for all prior and the then-ending dividend periods have been paid or declared and set apart for payment.
No Sinking Fund
The Series A Preferred Stock do not have the benefit of any sinking fund.
Description of Series B Preferred Stock
The following description of the Series B Preferred Stock is a summary and does not purport to be complete and is qualified by reference to the Statement of Designation filed as an exhibit to this Annual Report.
On October 21, 2022, we issued 16,000 shares of our newly-designated Series B Preferred Stock, par value $0.01 per share. As of April 1, 2024, there were 16,000 shares of Series B Preferred Stock authorized, and 16,000 shares of Series B Preferred Stock issued and outstanding.
Voting
To the fullest extent permitted by law, each share of Series B preferred stock entitles the holder hereof to 25,000 votes per share on all matters submitted to a vote of the shareholders of the Company, provided however, that no holder of Series B preferred stock may exercise voting rights pursuant to Series B preferred stock that would result in the aggregate voting power of any beneficial owner of such shares and its affiliates (whether pursuant to ownership of Series B preferred stock, common stock or otherwise) to exceed 49.99% of the total number of votes eligible to be cast on any matter submitted to a vote of shareholders of the Company. To the fullest extent permitted by law, the holder of Series B preferred stock shall have no special voting or consent rights and shall vote together as one class with the holders of the common stock on all matters put before the shareholders.
Conversion
The Series B preferred stock is not convertible into shares of common stock or any other security.
Redemption
The Series B preferred stock is not redeemable.
Dividends
The Series B preferred stock has no dividend rights.
Transferability
All issued and outstanding Series B preferred stock must be held of record by one holder, and the Series B preferred stock shall not be transferred or sold without the prior approval of our board of directors.
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Liquidation Preference
Upon any liquidation, dissolution or winding up of the Company, the Series B preferred stock will rank pari-passu with the common stockholders and shall be entitled to receive a payment equal to the par value of $0.01 per share. The Series B preferred stockholder has no other rights to distributions upon any liquidation, dissolution or winding up of the Company.
B. Articles of Incorporation and Bylaws
Our articles of incorporation and our bylaws are filed as Exhibit 1.1 and Exhibit 1.2, respectively, hereto.
Purpose.
Our purpose is to engage in any lawful act or activity relating to the business of chartering, rechartering or operating tankers, drybulk carriers or other vessels or any other lawful act or activity customarily conducted in conjunction with shipping, and any other lawful act or activity approved by the Board of Directors of the Corporation. Our articles of incorporation and bylaws do not impose any limitations on the ownership rights of our stockholders.
Under our bylaws, annual stockholder meetings will be held at a time and place selected by our Board of Directors. The meetings may be held in or outside of the Marshall Islands. Special meetings may be called by the Board of Directors. Our Board of Directors may set a record date between 15 and 60 days before the date of any meeting to determine the stockholders that will be eligible to receive notice and vote at the meeting.
Directors.
Our directors are elected by a plurality of the votes cast at a meeting of the stockholders by the holders of shares entitled to vote in the election. There is no provision for cumulative voting.
The Board of Directors may change the number of directors by a vote of a majority of the entire board. Each director shall be elected to serve until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal, or the earlier termination of his term of office. The Board of Directors has the authority to fix the amounts which shall be payable to the members of our Board of Directors for attendance at any meeting or for services rendered to us.
Dissenters’ Rights of Appraisal and Payment.
Under the BCA, our stockholders have the right to dissent from various corporate actions, including any merger or sale of all or substantially all of our assets not made in the usual course of our business, and receive payment of the fair value of their shares. However, the right of a dissenting stockholder under the BCA to receive payment of the fair value of his shares is not available for the shares of any class or series of stock, which shares or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of the stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a securities exchange or admitted for trading on an interdealer quotation system or (ii) held of record by more than 2,000 holders. The right of a dissenting stockholder to receive payment of the fair value of his or her shares shall not be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation. In the event of any further amendment of our articles of incorporation, a stockholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting stockholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting stockholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the circuit court in the judicial circuit in the Marshall Islands
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in which our Marshall Islands office is situated. The value of the shares of the dissenting stockholder is fixed by the court after reference, if the court so elects, to the recommendations of a court-appointed appraiser.
Stockholders’ Derivative Actions.
Under the BCA, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of common stock both at the time the derivative action is commenced and at the time of the transaction to which the action relates.
Anti-takeover Provisions of our Charter Documents.
Several provisions of our articles of incorporation and bylaws may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our Board of Directors to maximize stockholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise, that a stockholder may consider in its best interest and (2) the removal of incumbent officers and directors.
Blank Check Preferred Stock.
Under the terms of our articles of incorporation, our Board of Directors has authority, without any further vote or action by our stockholders, to issue up to 200,000,000 shares of blank check preferred stock, of which 800,000 have been designated Series A Preferred Stock and of which 795,878 are issued and outstanding as of April 1, 2024 and 16,000 have been designated Series B Preferred Stock and of which 16,000 are issued and outstanding as of April 1, 2024. Our Board of Directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of control of our company or the removal of our management.
Classified Board of Directors.
Our articles of incorporation provide for a Board of Directors serving staggered, three-year terms. Approximately one-third of our Board of Directors will be elected each year. This classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of our company. It could also delay stockholders who do not agree with the policies of the Board of Directors from removing a majority of the Board of Directors for two years.
Election and Removal of Directors.
Our articles of incorporation and bylaws prohibit cumulative voting in the election of directors. Our bylaws require parties other than the Board of Directors to give advance written notice of nominations for the election of directors. Our bylaws also provide that our directors may be removed only for cause and only upon the affirmative vote of the holders of at least 80% of the outstanding shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Calling of Special Meetings of Stockholders.
Our bylaws provide that special meetings of our stockholders may be called only by resolution of our Board of Directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations.
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Our bylaws provide that stockholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of stockholders must provide timely notice of their proposal in writing to the corporate secretary.
Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not less than 90 days or more than 120 days prior to the first anniversary date of the previous year’s annual meeting. If, however, the date of our annual meeting is more than 30 days before or 60 days after the first anniversary date of the previous year’s annual meeting, a stockholder’s notice must be received at our principal executive offices by the later of (i) the close of business on the 90th day prior to the annual meeting date or (ii) the close of business on the tenth day following the date on which such annual meeting date is first publicly announced or disclosed by us. Our bylaws also specify requirements as to the form and content of a stockholder’s notice. These provisions may impede stockholders’ ability to bring matters before an annual meeting of stockholders or make nominations for directors at an annual meeting of stockholders.
Business Combinations.
Our articles of incorporation prohibit us from engaging in a “business combination” with certain persons for three years following the date the person becomes an interested stockholder. Interested stockholders generally include:
| • | persons who are the beneficial owners of 15% or more of the outstanding voting stock of the corporation; and |
| • | persons who are affiliates or associates of the corporation and who hold 15% or more of the corporation’s outstanding voting stock at any time within three years before the date on which the person’s status as an interested stockholder is determined. |
Subject to certain exceptions, a business combination includes, among other things:
| • | certain mergers or consolidations of the corporation or any direct or indirect majority-owned subsidiary of the company; |
| • | the sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets having an aggregate market value equal to 10% or more of either the aggregate market value of all assets of the corporation, determined on a consolidated basis, or the aggregate value of all the outstanding stock of the corporation; |
| • | certain transactions that result in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; |
| • | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation that is owned directly or indirectly by the interested stockholder; and |
| • | any receipt by the interested stockholder of the benefit (except as a stockholder) of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
These provisions of our articles of incorporation do not apply to a business combination if:
| • | before a person becomes an interested stockholder, the board of directors of the corporation approves the business combination or transaction in which the stockholder became an interested stockholder; |
| • | upon consummation of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, other than certain excluded shares; |
| • | following a transaction in which the person became an interested stockholder, the business combination is (a) approved by the board of directors of the corporation and (b) authorized at a regular or special |
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| meeting of stockholders, and not by written consent, by the vote of the holders of at least two-thirds of the voting stock of the corporation not owned by the stockholder; or |
| • | the transaction is with a stockholder that was or became an interested stockholder prior to or at the time the Spin-Off was consummated. |
C. Material Contracts
We refer to “Item 7. Major Stockholders and Related Party Transactions—B. Related Party Transactions” for a discussion of our material agreements outside the ordinary course of our business to which we are a party. We have entered into a management agreement with Stealth Maritime as described as described in “—Related Party Transactions – Management Arrangements” and a vessel sale agreement with C3is Inc “—Related Party Transactions—Vessel Sale to C3is Inc.”
Other than the agreements discussed in the aforementioned section of this annual report, we have no material contracts, other than contracts entered into in the ordinary course of business, to which we or any member of the group is a party.
D. Exchange Controls and Other Limitations Affecting Stockholders
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common stock.
We are not aware of any limitations on the rights to own our common stock, including rights of non-resident or foreign stockholders to hold or exercise voting rights on our common stock, imposed by foreign law or by our articles of incorporation or bylaws.
E. Tax Considerations
Marshall Islands Tax Consequences
The following discussion is based on the current laws of the Republic of the Marshall Islands applicable to persons who do not reside in, maintain offices in or engage in business in the Republic of the Marshall Islands.
Imperial Petroleum is incorporated in the Marshall Islands. Under current Marshall Islands law, Imperial Petroleum is not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by Imperial Petroleum to holders of its common stock or Series A Preferred Stock that are not residents or domiciled or carrying any commercial activity in the Marshall Islands. The holders of Imperial Petroleum common stock and Series A Preferred Stock will not be subject to Marshall Islands tax on the sale or other disposition of such common stock or Series A Preferred Stock.
United States Federal Income Tax Consequences
The following discussion of United States federal income tax matters is based on the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, or the Treasury Regulations, all as of the date of this report, and all of which are subject to change, possibly with retroactive effect. This discussion is also based in part upon Treasury Regulations promulgated under Section 883 of the Code. The discussion below is based, in part, on the description of Imperial Petroleum’s business as described in “Business” above and assumes that Imperial Petroleum will conduct its business as described in that section.
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United States Federal Income Taxation of Our Company
Taxation of Operating Income: In General
Unless exempt from United States federal income taxation under the rules discussed below, a foreign corporation is subject to United States federal income taxation in respect of any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic alliance, joint operating agreement, code sharing arrangement or other joint venture it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses, which we refer to as “shipping income,” to the extent that the shipping income is derived from sources within the United States. For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States exclusive of certain U.S. territories and possessions constitutes income from sources within the United States, which we refer to as “U.S.-source shipping income.”
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within the United States. We are not permitted by law to engage in transportation that produces income which is considered to be 100% from sources within the United States. Shipping income attributable to transportation exclusively between non-United States ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any United States federal income tax.
In the absence of exemption from tax under Section 883 of the Code, our gross U.S.-source shipping income would be subject to a 4% tax imposed without allowance for deductions as described below.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 of the Code and the Treasury Regulations thereunder, Imperial Petroleum will be exempt from United States federal income taxation on its U.S.-source shipping income if:
| • | Imperial Petroleum is organized in a foreign country, or its country of organization, that grants an “equivalent exemption” to corporations organized in the United States; and |
either
| • | more than 50% of the value of Imperial Petroleum’s stock is owned, directly or indirectly, by “qualified shareholders,” individuals who are “residents” of a foreign country that grants an “equivalent exemption” to corporations organized in the United States, which we refer to as the “50% Ownership Test,” or |
| • | Imperial Petroleum’s stock is “primarily and regularly traded on an established securities market” in a country that grants an “equivalent exemption” to United States corporations, or in the United States, which we refer to as the “Publicly-Traded Test.” |
The Marshall Islands jurisdiction where Imperial Petroleum and certain of its shipowning subsidiaries, are incorporated, and Liberia where its other shipowning subsidiaries are incorporated, grant an “equivalent exemption” to United States corporations. Therefore, Imperial Petroleum will be exempt from United States federal income taxation in any taxable year with respect to our U.S.-source shipping income if Imperial Petroleum satisfies either the 50% Ownership Test or the Publicly-Traded Test for such taxable year.
Imperial Petroleum does not expect that it will be able to satisfy the 50% Ownership Test for any taxable year due to the anticipated, widely-held nature of its stock.
Imperial Petroleum’s ability to satisfy the Publicly-Traded Test is discussed below.
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The Treasury Regulations provide, in pertinent part, that the stock of a foreign corporation will be considered to be “primarily traded” on an established securities market in a country if the number of shares of each class of stock that is traded during the taxable year on all established securities markets in that country exceeds the number of shares in each such class that is traded during that year on established securities markets in any other single country. Imperial Petroleum common stock and Series A Preferred Stock will be “primarily traded” on the Nasdaq Capital Market, which is an established securities market for these purposes.
Under the regulations, Imperial Petroleum stock will be considered to be “regularly traded” on an established securities market if one or more classes of its stock representing more than 50% of our outstanding shares, by total combined voting power of all classes of stock entitled to vote and total value, is listed on the market (the “listing threshold”). Since Imperial Petroleum common stock and Series A Preferred Stock, which represent more than 50% of our outstanding shares, by total combined voting power of all classes of stock entitled to vote and total value, will be listed on the Nasdaq Capital Market, Imperial Petroleum will satisfy the listing threshold.
It is further required that with respect to each class of stock relied upon to meet the listing threshold (i) such class of the stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year (or 1/6 of the days in the case of a short taxable year); and (ii) the aggregate number of shares of such class of stock traded on such market is at least 10% of the average number of shares of such class of stock outstanding during such year (or as appropriately adjusted in the case of a short taxable year). Imperial Petroleum expects to satisfy the trading frequency and trading volume tests described in this paragraph. Even if this were not the case, the relevant Treasury regulations provide that the trading frequency and trading volume tests will be deemed satisfied by a class of stock if, as Imperial Petroleum expects to be the case with its common stock and Series A Preferred Stock, such class of stock is traded on an established market in the United States, such as the Nasdaq Capital Market and such class of stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the Treasury regulations provide that, in pertinent part, a class of a non-U.S. corporation’s stock will not be considered to be “regularly traded” on an established securities market for any taxable year if 50% or more of the outstanding shares of such class of the corporation’s stock is owned, actually or constructively under specified attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of such class of the corporation’s stock (the “5% Override Rule”).
For purposes of being able to determine the persons who own 5% or more of a class of a corporation’s stock (“5% Stockholders”) the Treasury regulations permit a corporation to rely on Schedule 13G and Schedule 13D filings with the SEC to identify persons who have a 5% or more beneficial interest in such corporation’s common stock, which currently are our sole class of voting shares, or, if our Series A Preferred Stock are then entitled to vote, our Series A Preferred Stock. The Treasury regulations further provide that an investment company that is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Stockholder for such purposes.
It is possible that 5% Stockholders may own more than 50% of the Imperial Petroleum common stock. In the event the 5% Override Rule is triggered, the Treasury regulations provide that the 5% Override Rule will nevertheless not apply if Imperial Petroleum can establish that within the group of 5% Stockholders, there are sufficient 5% Stockholders that are considered to be “qualified shareholders” for purposes of Section 883 of the Code to preclude non-qualified 5% Stockholders in the closely-held group from owning 50% or more of the corporation’s common stock for more than half the number of days during the taxable year. To establish this exception to the 5% Override Rule, 5% Stockholders owning a sufficient number of our common stock would have to provide the Corporation with certain information in order to substantiate their status as qualified shareholders. If, after the Spin-Off, 5% Stockholders were to own more than 50% of the Imperial Petroleum common stock, there is no assurance that Imperial Petroleum would be able to satisfy the foregoing requirements.
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Taxation in Absence of Exemption
If the benefits of Section 883 of the Code are unavailable for any taxable year, Imperial Petroleum’s U.S. source shipping income, to the extent not considered to be “effectively connected” with the conduct of a United States trade or business, as described below, will be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions (“4% gross basis tax regime”). Since under the sourcing rules described above, no more than 50% of our shipping income is treated as being derived from United States sources, the maximum effective rate of United States federal income tax on our shipping income will not exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the Section 883 of the Code are unavailable and Imperial Petroleum’s U.S. source shipping income is considered to be “effectively connected” with the conduct of a United States trade or business, as described below, any such “effectively connected” U.S. source shipping income, net of applicable deductions, would be subject to the United States federal corporate income tax currently imposed at rates of up to 21%. In addition, Imperial Petroleum may be subject to the 30% United States federal “branch profits” taxes on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of such United States trade or business.
Imperial Petroleum’s U.S. source shipping income would be considered “effectively connected” with the conduct of a United States trade or business only if:
| • | Imperial Petroleum has, or is considered to have, a fixed place of business in the United States involved in the earning of shipping income; and |
| • | Substantially all of Imperial Petroleum’s U.S. source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States. |
Imperial Petroleum does not intend to have, or permit circumstances that would result in having, any vessel operating to the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of Imperial Petroleum’s shipping operations and other activities, Imperial Petroleum believes that none of its U.S. source shipping income will be “effectively connected” with the conduct of a United States trade or business.
United States Taxation of Gain on Sale of Vessels
Regardless of whether Imperial Petroleum qualifies for exemption under Section 883 of the Code, Imperial Petroleum will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by Imperial Petroleum will be considered to occur outside of the United States.
United States Federal Income Taxation of U.S. Holders
The following discussion regarding the material U.S. federal income tax consequences, subject to the limitations described below, to U.S. Holders (as defined below) of acquiring, and of owning and disposing, our common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants and Class D Warrants, does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person.
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As used herein, the term “U.S. Holder” means a beneficial owner of Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, and that is a United States citizen or resident, United States corporation or other United States entity taxable as a corporation, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or the trust has in effect a valid election to be treated as a United States person.
This discussion does not purport to deal with the tax consequences of owning Imperial Petroleum common stock, Series A Preferred Stock Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants to all categories of investors, some of which, such as dealers in securities, investors whose functional currency is not the United States dollar and investors that own, actually or under applicable constructive ownership rules, 10% or more of our common stock, may be subject to special rules. This discussion deals only with holders who hold Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants as a capital asset. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under United States federal, state, local or foreign law of the ownership of Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants.
If a partnership holds Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, you are encouraged to consult your tax advisor.
The foregoing treatment of the common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants are not binding on the IRS or the courts.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by Imperial Petroleum with respect to its common stock or Series A Preferred Stock to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or “qualified dividend income” to the extent of Imperial Petroleum’s current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of Imperial Petroleum’s current or accumulated earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis their common stock or Series A Preferred Stock on a dollar-for-dollar basis and thereafter as capital gain. Because Imperial Petroleum is not a United States corporation, U.S. Holders that are corporations will generally not be entitled to claim a dividends received deduction with respect to any distributions such corporate U.S. Holders receive. Dividends paid with respect to the Imperial Petroleum common stock or Series A Preferred Stock will generally be treated as “passive category income” or, in the case of certain types of U.S. Holders, “general category income” for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.
Dividends paid on the Imperial Petroleum common stock or Series A Preferred Stock to a U.S. Holder who is an individual, trust or estate (a “U.S. Individual Holder”) are expected generally to be treated as “qualified dividend income” provided certain requirements are met. Qualified dividend income is taxable to such U.S. Individual Holders at preferential tax rates provided that (1) Imperial Petroleum is not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which as discussed below, Imperial Petroleum does not believe it is, has been or will be), (2) the Imperial Petroleum common stock or Series A Preferred Stock, as applicable, are readily tradable on an established
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securities market in the United States (such as the Nasdaq Capital Market, on which the Imperial Petroleum common stock and Series A Preferred Stock will be listed), (3) the U.S. Individual Holder has owned the common stock or Series A Preferred Stock, as applicable, for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock or Series A Preferred Stock, respectively, become ex-dividend, and (4) the U.S. Individual Holder is not under an obligation (whether pursuant to a short sale or otherwise) to make payments with respect to positions in similar or related property. There is no assurance that any dividends paid on the Imperial Petroleum common stock or Series A Preferred Stock will be eligible for these preferential rates in the hands of a U.S. Individual Holder. Any dividends paid by Imperial Petroleum that are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder.
Special rules may apply to any “extraordinary dividend”, which is generally a dividend paid by Imperial Petroleum in an amount which is equal to or in excess of ten percent (in the case of common stock) or five percent (in the case of Series A Preferred Stock) of a stockholder’s adjusted tax basis (or fair market value in certain circumstances) in Imperial Petroleum common stock or Series A Preferred Stock. If Imperial Petroleum pays an “extraordinary dividend” on its common stock or Series A Preferred Stock that is treated as “qualified dividend income,” then any loss derived by a U.S. Individual Holder from the sale or exchange of such common stock or Series A Preferred Stock will be treated as long-term capital loss to the extent of such dividend.
For foreign tax credit purposes, if at least 50 percent of our stock by voting power or by value is owned, directly, indirectly or by attribution, by United States persons, then, subject to the limitation described below, a portion of the dividends that we pay in each taxable year will be treated as U.S.-source income, depending in general upon the ratio for that taxable year of our U.S.-source earnings and profits to our total earnings and profits. The remaining portion of our dividends (or all of our dividends, if we do not meet the 50 percent test described above) will be treated as foreign-source income and generally will be treated as passive category income or, in the case of certain types of United States holders, general category income for purposes of computing allowable foreign tax credits for United States federal income tax purposes. However, if, in any taxable year, we have earnings and profits and less than ten percent of those earnings and profits are from United States sources, then, in general, dividends that we pay from our earnings and profits for that taxable year will be treated entirely as foreign-source income. Where a United States holder that is an individual receives a dividend on our shares that is a qualifying dividend (as described in the second preceding paragraph), special rules will apply that will limit the portion of such dividend that will be included in such individual’s foreign source taxable income and overall taxable income for purposes of calculating such individual’s foreign tax credit limitation.
Sale, Exchange or other Disposition of Common Stock or Series A Preferred Stock
Assuming Imperial Petroleum does not constitute a passive foreign investment company for any taxable year, a U.S. Holder generally will recognize taxable gain or loss for U.S. federal income tax purposes upon a sale, exchange or other disposition of Imperial Petroleum common stock or Series A Preferred Stock in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis in such stock. Such gain or loss will generally be treated as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition. Gain or loss realized by a United States holder on the sale or exchange of common stock or Series A Preferred Stock generally will be treated as U.S.-source gain or loss for United States foreign tax credit purposes. A United States holder’s ability to deduct capital losses against ordinary income is subject to certain limitations.
Exercise of Class A Warrants, Class B Warrants, Class C Warrants and Class D Warrants
A U.S. Holder should not recognize gain or loss on the exercise of Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants and related receipt of common stock (unless cash is
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received in lieu of the issuance of a fractional shares of common stock). A U.S. Holder’s initial tax basis in the common stock received on the exercise of a Class A Warrant, Class B Warrant, Class C Warrants, Class D Warrants or Class E Warrants should be equal to the sum of (a) such U.S. Holder’s initial tax basis in such warrant plus (b) the exercise price paid by such U.S. Holder on the exercise of such warrant. If we were to become a PFIC, pursuant to proposed Treasury Regulations a U.S. Holder’s holding period for the common stock received will begin on the date on which such U.S. holder acquired its Class A Warrant, Class B Warrant, Class C Warrants, Class D Warrants or Class E Warrants.
In certain limited circumstances, a U.S. Holder may be permitted to undertake a cashless exercise of Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants into common stock. The U.S. federal income tax treatment of a cashless exercise of warrants into common stock is unclear, and the tax consequences of a cashless exercise could differ from the consequences upon the exercise of a Class A Warrant, Class B Warrant, Class C Warrant or Class D Warrant described in the preceding paragraph. U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax consequences of a cashless exercise of Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants.
Disposition of Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants
A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of a Class A Warrant, Class B Warrant, Class C Warrant, Class D Warrant or Class E Warrant in an amount equal to the difference, if any, between the amount of cash plus the fair market value of any property received and such U.S. Holder’s tax basis in the Class A Warrant, Class B Warrant, Class C Warrant, Class D Warrant or Class E Warrant sold or otherwise disposed of. Subject to the PFIC rules discussed below, any such gain or loss generally will be a capital gain or loss, which will be long-term capital gain or loss if the Class A Warrant, Class B Warrant, Class C Warrant, Class D Warrant or Class E Warrant is held for more than one year. Deductions for capital losses are subject to complex limitations under the Code.
Expiration of Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants without Exercise
Upon the lapse or expiration of a Class A Warrant, Class B Warrant, Class C Warrant, Class D Warrant or Class E Warrant, a U.S. Holder will recognize a loss in an amount equal to such U.S. Holder’s tax basis in the Class A Warrant, Class B Warrant, Class C Warrant or Class D Warrant, respectively. Subject to the PFIC rules discussed below, any such loss generally will be a capital loss and will be long-term capital loss if the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants are held for more than one year. Deductions for capital losses are subject to complex limitations under the Code.
Certain Adjustments to the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants
Under Section 305 of the Code, an adjustment to the number of shares of common stock that will be issued on the exercise of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, or an adjustment to the exercise price of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, may be treated as a constructive distribution to a U.S. Holder of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants, respectively, if, and to the extent that, such adjustment has the effect of increasing such U.S. Holder’s proportionate interest in our earnings and profits or our assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or property to the stockholders). Adjustments to the exercise price of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and Class E Warrants made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders of the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants and
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Class E Warrants should generally not be considered to result in a constructive distribution. Any such constructive distribution would be taxable whether or not there is an actual distribution of cash or other property (see more detailed discussion of the rules applicable to distributions we make at “Distributions” above).
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a U.S. Holder that holds stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants in a foreign corporation classified as a passive foreign investment company, or PFIC, for United States federal income tax purposes. In general, Imperial Petroleum will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, either:
| • | at least 75% of Imperial Petroleum’s gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or |
| • | at least 50% of the average value of Imperial Petroleum’s assets during such taxable year produce, or are held for the production of, passive income, which we refer to as “passive assets”. |
For purposes of determining whether Imperial Petroleum is a PFIC, Imperial Petroleum will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of its subsidiary corporations, in which Imperial Petroleum owns at least 25% of the value of the subsidiary’s stock. Income earned, or deemed earned, by Imperial Petroleum in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute “passive income” unless Imperial Petroleum were treated under specific rules as deriving rental income in the active conduct of a trade or business.
Based on Imperial Petroleum’s anticipated operations and future projections, Imperial Petroleum does not believe that it is a PFIC for the taxable year ended December 31, 2023. Although there is no legal authority directly on point, and Imperial Petroleum is not relying upon an opinion of counsel on this issue, Imperial Petroleum’s belief is based principally on the position that, for purposes of determining whether Imperial Petroleum is a PFIC, the gross income Imperial Petroleum derives or is deemed to derive from the time chartering and voyage chartering activities of its wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, such income should not constitute passive income, and the assets that Imperial Petroleum or its wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether Imperial Petroleum is a PFIC. Imperial Petroleum believes there is substantial legal authority supporting its position consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Moreover, in the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree with Imperial Petroleum’s position. In addition, although Imperial Petroleum intends to conduct its affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, there can be no assurance that the nature of Imperial Petroleum’s operations will not change in the future.
As discussed more fully below, if Imperial Petroleum were to be treated as a PFIC for any taxable year which included a U.S. Holder’s holding period in Imperial Petroleum common stock or Series A Preferred Stock, then such U.S. Holder would be subject to different U.S. federal income taxation rules depending on whether the U.S. Holder makes an election to treat Imperial Petroleum as a “qualified electing fund” (a “QEF election”). As an alternative to making a QEF election, a U.S. Holder should be able to make a “mark-to-market” election with respect to Imperial Petroleum common stock or Series A Preferred Stock, as discussed below. In addition, if Imperial Petroleum were to be treated as a PFIC, a U.S. Holder of Imperial Petroleum common stock or Series A Preferred Stock would be required to file annual information returns with the IRS.
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In addition, if a U.S. Holder owns Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants and Imperial Petroleum is a PFIC, such U.S. Holder must generally file IRS Form 8621 with the IRS
U.S. Holders Making a Timely QEF Election
A U.S. Holder who makes a timely QEF election with respect to Imperial Petroleum common stock or Series A Preferred Stock (an “Electing Holder”) would report for U.S. federal income tax purposes his pro rata share of Imperial Petroleum’s ordinary earnings and of Imperial Petroleum’s net capital gain, if any, for Imperial Petroleum’s taxable year that ends with or within the taxable year of the Electing Holder. Imperial Petroleum’s net operating losses or net capital losses would not pass through to the Electing Holder and will not offset Imperial Petroleum’s ordinary earnings or net capital gain reportable to the Electing Holder in subsequent years (although such losses would ultimately reduce the gain, or increase the loss, if any, recognized by the Electing Holder on the sale of his common stock or Series A Preferred Stock). Distributions received from Imperial Petroleum by an Electing Holder are excluded from the Electing Holder’s gross income to the extent of the Electing Holder’s prior inclusions of Imperial Petroleum’s ordinary earnings and net capital gain. The Electing Holder’s tax basis in his common stock or Series A Preferred Stock would be increased by any amount included in the Electing Holder’s income. Distributions received by an Electing Holder, which are not includible in income because they have been previously taxed, would decrease the Electing Holder’s tax basis in Imperial Petroleum common stock or Series A Preferred Stock, as applicable. An Electing Holder would generally recognize capital gain or loss on the sale or exchange of Imperial Petroleum common stock or Series A Preferred Stock. In order for an Electing Holder to make a QEF election, we would need to provide such Electing Holder with annual information regarding Imperial Petroleum. If we were aware that we were to be treated as a PFIC for any taxable year, we currently expect that we would provide each United States Holder with all necessary information, to the extent reasonably available, in order to make the QEF election described above with respect to our common stock and Series A Preferred Stock. We may elect to provide such information on our website. A QEF election will not be available with respect to Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants.
U.S. Holders Making a Timely Mark-to-Market Election
A U.S. Holder who makes a timely mark-to-market election with respect to Imperial Petroleum common stock or Series A Preferred Stock would include annually in the U.S. Holder’s income, as ordinary income, any excess of the fair market value of the common stock or Series A Preferred Stock at the close of the taxable year over the U.S. Holder’s then adjusted tax basis in the common stock or Series A Preferred Stock, respectively. The excess, if any, of the U.S. Holder’s adjusted tax basis at the close of the taxable year over the then fair market value of the common stock or Series A Preferred Stock would be deductible in an amount equal to the lesser of the amount of the excess or the net mark-to-market gains that the U.S. Holder included in income in previous years with respect to the common stock or Series A Preferred Stock, as applicable. A U.S. Holder’s tax basis in his common stock and Series A Preferred Stock would be adjusted to reflect any income or loss amount recognized pursuant to the mark-to-market election. A U.S. Holder would recognize ordinary income or loss on a sale, exchange or other disposition of the common stock or Series A Preferred Stock; provided, however, that any ordinary loss on the sale, exchange or other disposition may not exceed the net mark-to-market gains that the U.S. Holder included in income in previous years with respect to the common stock or Series A Preferred Stock. A mark-to-market election will not be available with respect to the Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants.
U.S. Holders Not Making a Timely QEF Election or Mark-to-Market Election
A U.S. Holder who does not make a timely QEF Election or a timely mark-to-market election with respect to Imperial Petroleum common stock, Series A Preferred Stock or is holding our Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants (a “Non-Electing Holder”) would be subject
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| to special rules with respect to (i) any “excess distribution” (generally, the portion of any distributions received by the Non-Electing Holder on the common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants), and (ii) any gain realized on the sale or other disposition of the common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants. Under these rules, (i) the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s holding period for the common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants; (ii) the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, would be taxed as ordinary income; and (iii) the amount allocated to each of the other prior taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. If a Non-Electing Holder dies while owning Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, the Non-Electing Holder’s successor would be ineligible to receive a step-up in the tax basis of those common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants. |
Unearned Income Medicare Contribution Tax
Certain U.S. Holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants. U.S. Holders are encouraged to consult their own tax advisors regarding the effect, if any, of this tax on the ownership and disposition of our common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants and Class D Warrants.
United States Federal Income Taxation of “Non-U.S. Holders”
A beneficial owner of Imperial Petroleum common stock or Series A Preferred Stock (other than a partnership) that is not a U.S. Holder is referred to herein as a “Non-U.S. Holder.”
Dividends on Common Stock and Series A Preferred Stock
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on dividends received from Imperial Petroleum with respect to its common stock or with respect to its Series A Preferred Stock, unless such income is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, such income is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, unless:
| • | such gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States, if the Non-U.S. Holder is entitled to the benefits of a United States income tax treaty |
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| with respect to that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or |
| • | the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met. |
If the Non-U.S. Holder is engaged in a United States trade or business for United States federal income tax purposes, the income from the common stock or Series A Preferred Stock, including dividends and the gain from the sale, exchange or other disposition of the common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants that is effectively connected with the conduct of that trade or business will generally be subject to regular United States federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, its earnings and profits that are attributable to the effectively connected income, subject to certain adjustments, may be subject to an additional United States federal “branch profits” tax at a rate of 30%, or at a lower rate as may be specified by an applicable United States income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements. Such payments will also be subject to backup withholding tax if a U.S. Individual Holder:
| • | fails to provide an accurate taxpayer identification number; |
| • | is notified by the IRS that he failed to report all interest or dividends required to be shown on your United States federal income tax returns; or |
| • | in certain circumstances, fails to comply with applicable certification requirements. |
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an appropriate IRS Form W-8.
If a stockholder sells Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless the stockholder certifies that it is a non-U.S. person, under penalties of perjury, or the stockholder otherwise establishes an exemption. If a stockholder sells Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants through a non-United States office of a non-United States broker and the sales proceeds are paid outside the United States then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if a stockholder sells Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants through a non-United States office of a broker that is a United States person or has some other contacts with the United States.
Backup withholding is not an additional tax. Rather, a stockholder generally may obtain a refund of any amounts withheld under backup withholding rules that exceed the stockholder’s United States federal income tax liability by filing a refund claim with the IRS.
Individuals who are U.S. Holders (and to the extent specified in the applicable Treasury Regulations, certain individuals who are Non-U.S. Holders and certain United States entities) who hold “specified foreign financial assets” (as defined in Section 6038D of the Code and the applicable Treasury Regulations) are required to file IRS Form 8938 (Statement of Specified Foreign Financial Assets) with information relating to each such asset
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for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year. Specified foreign financial assets would include, among other assets, Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, unless Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants were held through an account maintained with a United States financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, the statute of limitations on the assessment and collection of United States federal income tax with respect to a taxable year for which the filing of IRS Form 8938 is required may not close until three years after the date on which IRS Form 8938 is filed. U.S. Holders (including United States entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations under Section 6038D of the Code.
Imperial Petroleum encourages each stockholder and warrant holder to consult with his, her or its own tax advisor as to particular tax consequences to it of acquiring, holding and disposing of Imperial Petroleum common stock, Series A Preferred Stock, Class A Warrants, Class B Warrants, Class C Warrants, Class D Warrants or Class E Warrants, including the applicability of any state, local or foreign tax laws and any proposed changes in applicable law.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the informational requirements of the Exchange Act. In accordance with these requirements, we file reports and other information as a foreign private issuer with the SEC. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. You may access our public filings with the SEC without charge on this website.
I. Subsidiary Information
Not applicable.
| Item 11. | Quantitative and Qualitative Disclosures About Market Risk |
Our risk management policy
Our primary market risks relate to adverse movements in freight rates for product tankers and crude oil tankers and any declines that may occur in the value of our assets which are made up primarily of product tankers and crude oil tankers. Our policy is to also continuously monitor our exposure to other business risks, including the impact of changes in interest rates, currency rates, and bunker prices on earnings and cash flows. We assess these risks and, when appropriate, enter into derivative contracts with credit-worthy counter parties to minimize our exposure to the risks. In regard to bunker prices, as our employment policy for our vessels has continued to be and is expected to continue with a high percentage of our fleet on spot employment, we are directly exposed for the majority of our fleet to increases in bunker fuel prices.
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Interest rate risk
We did not have any outstanding indebtedness as of December 31, 2023, as we repaid all $70.0 million of our outstanding indebtedness in the first half of 2023. If, however, we again incur indebtedness in the future to finance our fleet, we would expect to be subject to market risks relating to changes in interest rates, because we would expect such loans to be floating rate debt on which we pay interest based on SOFR plus a margin. Currently we have, and during 2023 we had, no interest rate swap agreements outstanding.
Foreign exchange rate fluctuation
We generate all of our revenues in U.S. dollars and incurred about 12.0% of our expenses in currencies other than U.S. dollars in 2023 (2022: 8.4%; 2021: 13.8%). For accounting purposes, expenses incurred in other currencies are converted into U.S. dollars at the exchange rate prevailing on the date of each transaction. Due to our relatively low percentage exposure of any particular currency other than our base currency, which is the U.S. dollar we believe that such currency movements will not otherwise have a material effect on us. As such, we do not hedge these exposures as the amounts involved do not make hedging economic. As of April 1, 2024, we have no payment obligations related to the building of vessels in currencies other than U.S. dollars.
We have not and do not intend to enter into foreign currency contracts for speculative purposes.
| Item 12. | Description of Securities Other than Equity Securities |
Not Applicable.
| Item 13. | Defaults, Dividend Arrearages and Delinquencies |
Not applicable.
| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Not applicable.
| Item 15. | Controls and Procedures |
a. Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2023. Disclosure controls and procedures are defined under SEC rules as controls and other procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on the Company’s evaluation, management concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2023.
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b. Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, and for the assessment of the effectiveness of internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with US GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In making its assessment of the Company’s internal control over financial reporting as of December 31, 2023, management used the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and evaluated the internal control over financial reporting.
Management concluded that, as of December 31, 2023 the Company’s internal control over financial reporting was effective.
c. Attestation Report of the Registered Public Accounting Firm.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission for “emerging growth companies” that permit us to provide only management’s report in this report.
d. Changes in Internal Control Over Financial Reporting
Not applicable.
| Item 16A. | Audit Committee Financial Expert |
The Board has determined that George Xiradakis is an Audit Committee financial expert as defined by the U.S. Securities and Exchange Commission and meets the applicable independence requirements of the U.S. Securities and Exchange Commission and the Nasdaq Stock Market.
| Item 16B. | Code of Ethics |
We have adopted a Code of Business Conduct and Ethics, a copy of which is posted on our website, and may be viewed at http://www.imperialpetro.com. We will also provide a paper copy free of charge upon written
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request by our stockholders. Stockholders may direct their requests to the attention of: Investor Relations, 331 Kifissias Avenue, Erithrea 14561 Athens, Greece. No waivers of the Code of Business Conduct and Ethics were granted to any person during the fiscal year ended December 31, 2023.
| Item 16C. | Principal Accountant Fees and Services |
Deloitte Certified Public Accountants S.A. (“Deloitte”), an independent registered public accounting firm, has audited our annual financial statements for fiscal years ended 2021, 2022 and 2023, acting as our independent auditor since our inception in 2021. All services provided by Deloitte were pre-approved by the Audit Committee. Those services provided before the completion of our Spin-Off on December 3, 2021, were pre-approved by the Audit Committee of StealthGas. The chart below sets forth the total amount billed and accrued for Deloitte for services performed in 2022 and 2023 and breaks down these amounts by the category of service (in thousands):
| 2022 | 2023 | |||||||
| Audit fees |
$ | 486 | $ | 237 | ||||
| Assurance/audit related fees |
— | — | ||||||
| Tax fees |
— | — | ||||||
| All other fees |
— | — | ||||||
| Total |
$ | 486 | $ | 237 | ||||
(1) Audit fees
Audit fees represent compensation for professional services rendered for (i) the audit of our annual financial statements, (ii) the review of our quarterly financial information (iii) audit services provided in connection with filing of registration statements and related consents and comfort letters and other audit services required for SEC or other regulatory filings.
(2) Assurance / Audit Related Fees
Deloitte did not provide any services that would be classified in this category in 2022 or 2023.
(3) Tax Fees
Deloitte did not provide any tax services in 2022 or 2023.
(4) All Other Fees
Deloitte did not provide any other services that would be classified in this category in 2022 or 2023.
Non-audit services
The Audit Committee of our Board of Directors has the authority to pre-approve permissible audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees.
Engagements for proposed services either may be separately pre-approved by the audit committee or entered into pursuant to detailed pre-approval policies and procedures established by the audit committee, as long as the audit committee is informed on a timely basis of any engagement entered into on that basis.
Approval for other permitted non-audit services has to be sought on an ad hoc basis.
Where no Audit Committee meeting is scheduled within an appropriate time frame, the approval is sought from the Chairman of the Audit Committee subject to confirmation at the next meeting.
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| Item 16D. | Exemptions from the Listing Standards for Audit Committees |
None.
| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
On September 7, 2023, we publicly announced that our Board of Directors had authorized the repurchase of up to $10,000,000 of shares of our common stock. As of April 1, 2024, 4,251,884 shares of common stock had been repurchased for an aggregate of $8.4 million (excluding commissions), with the average purchase price of $1.97 per share.
Shares may be purchased from time to time in open market or privately negotiated transactions, which may include derivative transactions, at times and prices that are considered to be appropriate by the Company and the program may be discontinued at any time. The below table presents information about our stock repurchases through April 1, 2024. All purchases, other than the repurchase of 15,400 shares of common stock in a negotiated repurchase in November 2023, have been made on the open market within the safe harbor provisions of Regulation 10b-18 under the Exchange Act.
| Period | Total Number of Shares Purchased (a) |
Average Price Paid Per Share (b) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (c) |
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (d) |
||||||||||||
| September 1 to 30, 2023 |
141,901 | 1.554 | 141,901 | 9,779,429 | ||||||||||||
| October 1 to 30, 2023 |
1,257,170 | 1.690 | 1,399,071 | 7,655,351 | ||||||||||||
| November 1 to 30, 2023 |
1,405,444 | 1.633 | 2,804,515 | 5,360,060 | ||||||||||||
| December 1 to 31, 2023 |
640,021 | 1.946 | 3,444,536 | 4,144,273 | ||||||||||||
| January 1 to 31, 2024 |
807,348 | 3.102 | 4,251,884 | 1,609,768 | ||||||||||||
On October 9, 2023, we repurchased Class C Warrants exercisable for 1,480,000 shares of common stock and Class D Warrants exercisable for 1,100,000 shares of common stock for an aggregate purchase price of approximately $0.67 million. On December 6, 2023, we repurchased Class C Warrants exercisable for 2,391,323 shares of common stock and Class D Warrants exercisable for 803,333 shares of common stock for an aggregate purchase price of approximately $0.85 million.
During fiscal year 2023, our Chief Executive Officer, through an entity controlled by him, made purchases of shares of the Company’s Common Stock as set forth below.
| Period | Total Number of Shares Purchased (a) |
Average Price Paid Per Share (b) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (c) |
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (d) |
||||||||||||
| December 20 to 21, 2023 |
200,000 | 2.4544 | ||||||||||||||
| January 2 to 4, 2024 |
397,035 | 2.8820 | ||||||||||||||
Our Chief Executive Officer, also acquired, through Flawless Management Inc., 6,932,043 shares of our Common Stock in December 2023 upon conversion of all of its outstanding shares of our Series C Convertible
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Preferred Stock and 2,083,686 shares of our Common Stock and 28,146 shares of our Series A Preferred Stock in December 2023 upon the transfer of the interests in Arethusa Properties LTD, and received compensatory awards of restricted stock and options to acquire common stock, each subject to vesting, in 2023.
| Item 16F. | Change in Registrant’s Certifying Accountant |
Not Applicable.
| Item 16G. | Corporate Governance |
Statement of Significant Differences Between our Corporate Governance Practices and Nasdaq Corporate Governance Standards for Non-Controlled U.S. Issuers
As a foreign private issuer, we are not required to comply with certain of the corporate governance practices followed by U.S. companies under the Nasdaq corporate governance standards. We, however, voluntarily comply with all applicable Nasdaq corporate governance standards other than that, (1) we have two rather than three members on our audit committee, each of whom is independent under Nasdaq and SEC rules, and (2) while Nasdaq requires listed companies to obtain prior stockholder approval for certain issuances of authorized stock in transactions not involving a public offering, as permitted under Marshall Islands law and our articles of incorporation and bylaws, we do not need prior stockholder approval to issue shares of authorized stock, including under equity compensation plans such as our 2024 Equity Compensation Plan.
| Item 16H. | Mine Safety Disclosures |
Not Applicable.
| Item 16I. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. |
Not Applicable.
Item 16J. Insider Trading Policies.
Pursuant to applicable SEC transition guidance, the disclosure required by Item 16J will only be applicable to the Company from the fiscal year ending on December 31, 2024.
Risk Management and Strategy
Our company recognizes the importance of safeguarding the security of the computer systems, software, networks, and other technology assets used in our business, both ashore and onboard our vessels.
Our manager, Stealth Maritime, has implemented processes for identifying, assessing, and mitigating cybersecurity risks and, as part of an Enterprise Risk Management, or ERM, process, our manager has implemented a cybersecurity risk management program that is informed by recognized industry standards and frameworks and incorporates elements of the same.
Our manager’s cybersecurity risk management program incorporates a number of components, including, but not limited to, information security policies and operating procedures, periodic information security risk assessments and other vulnerability analyses, and ongoing monitoring of critical risks from cybersecurity threats using automated tools.
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Additionally, our manager has implemented a process to conduct cybersecurity awareness training for employees during onboarding and, thereafter, throughout the year, and conducts regular phishing simulations in an effort to raise awareness of spoofed or manipulated electronic communications and other cybersecurity threats.
Our manager maintains a Cybersecurity Incident Response Plan, which is designed to guide responses to cyber incidents, including to mitigate and contain any potential cybersecurity incidents that could affect its systems, network, or data. The Cybersecurity Incident Response Plan identifies the individuals responsible for developing, maintaining, and following procedures related to cybersecurity incident response, including escalation protocols.
As part of our manager’s cybersecurity risk management program, all processes around third-party vendor risk management are maintained, including a framework for managing third-party information security risks.
Governance
Our Board of Directors has ultimate responsibility for the oversight of cybersecurity risks and responses to cybersecurity incidents, should they arise. The Board of Directors is informed periodically regarding the status of initiatives to further reduce cybersecurity risk by the IT function and other functions as needed.
The key individuals responsible for the overall assessment and day-to-day management of material risks from cybersecurity threats include the Head of Information Technology and head of the legal function at our manager Stealth Maritime. Our manager’s current Head of IT at our manager possesses approximately 26 years of experience with information technology and cybersecurity risk management programs.
Our manager’s Head of IT, alongside the head of our manager’s legal function and our Chief Financial Officer, provide quarterly reports to the Board of Directors covering cybersecurity and other information technology risks affecting us. These reports may include reviewing our manager’s current infrastructure and the status of key cybersecurity initiatives, including the status of ongoing mitigation efforts, providing insights into the latest cybersecurity threats, and discussing any recent security incidents impacting similarly-situated companies. In the event of a cybersecurity incident, we have implemented a process in which our Chief Financial Officer and the head of our manager’s legal function would report such incident to our board of directors if the incident is determined to present critical risk to us.
| Item 17. | Financial Statements |
See Item 18
| Item 18. | Financial Statements |
Reference is made to the financial statements beginning on page F-1, which are incorporated herein by reference.
| Item 19. | Exhibits |
| Number | Description | |
| 1.1 | Restated Articles of Incorporation of the Company, as amended by Articles of Amendment, dated April 27, 2023, to Restated Articles of Incorporation | |
| 1.2 | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form F-1 (File No. 333-262264) filed with the SEC on January 20, 2022) | |
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| Number | Description | |
| 1.3 | Statement of Designation of 8.75% Series A Cumulative Redeemable Perpetual Preferred Stock (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form F-1 (File No. 333-262264) filed with the SEC on January 20, 2022) | |
| 1.4 | Statement of Designation of Series B Preferred Stock (incorporated by reference to Exhibit 99.1 to the Company’s Report on Form 6-K filed with the SEC on October 21, 2022) | |
| 2.1 | Description of Securities | |
| 4.1 | Management Agreement between Imperial Petroleum Inc. and Stealth Maritime S.A. (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form F-1 (File No. 333-262264) filed with the SEC on January 20, 2022) | |
| 4.2.1 | Warrant Agency Agreement, dated February 2, 2022, between the Company and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 6-K filed with the SEC on February 3, 2022) | |
| 4.2.2 | Warrant Agency Agreement, dated March 23, 2022, between the Company and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 6-K filed with the SEC on March 23, 2022) | |
| 4.2.3 | Warrant Agency Agreement, dated May 19, 2022, between the Company and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 6-K filed with the SEC on May 19, 2022) | |
| 4.3 | Form of Class A Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Report on Form 6-K filed with the SEC on February 3, 2022) | |
| 4.4 | Form of Class B Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Report on Form 6-K filed with the SEC on March 23, 2022) | |
| 4.5 | Form of Class C Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Report on Form 6-K filed with the SEC on May 19, 2022) | |
| 4.6 | Form of Class D Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 6-K filed with the SEC on June 13, 2022) | |
| 4.7 | Form of Class E Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 6-K filed with the SEC on August 15, 2023) | |
| 4.8 | Representative’s Purchase Warrants (incorporated by reference to Exhibit 4.3 to the Company’s Report on Form 6-K filed with the SEC on March 23, 2022; Exhibit 4.5 to the Company’s Registration Statement on Form F-1 (File No. 333-263593) filed with the SEC on March 16, 2022; Exhibit 4.4 to the Company’s Report on Form 6-K filed with the SEC on March 23, 2022 and Exhibit 4.3 to the Company’s Report on Form 6-K filed with the SEC on May 19, 2022) | |
| 4.9 | Contribution Agreement between Imperial Petroleum Inc. and StealthGas Inc. (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form F-1 (File No. 333-262264) filed with the SEC on January 20, 2022) | |
| 4.10 | MoA for sale of Aframax Tanker (incorporated by reference to Exhibit 99.4 to the Company’s Report on Form 6-K filed with the SEC on August 10, 2023) | |
| 4.11 | 2021 Equity Compensation Plan (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-1 (File No. 333-262264) filed with the SEC on January 20, 2022) | |
| 4.12 | 2024 Equity Compensation Plan | |
| 8 | Subsidiaries | |
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| Number | Description | |
| 11.1 | Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Company’s Registration Statement on Form F-1 (File No. 333-260829) filed with the SEC on November 12, 2021) | |
| 12.1 | Certification of the Chief Executive Officer | |
| 12.2 | Certification of the Chief Financial Officer | |
| 13.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 13.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 15.1 | Consent of Deloitte Certified Public Accountants S.A. | |
| 97 | Compensation Recovery Policy | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| IMPERIAL PETROLEUM INC.
| ||
| By: | /s/ Harry N. Vafias | |
| Name: | Harry N. Vafias | |
| Title: | President and Chief Executive Officer | |
Date: April 12, 2024
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IMPERIAL PETROLEUM INC.
CONSOLIDATED FINANCIAL STATEMENTS
Index to consolidated financial statements
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Imperial Petroleum Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Imperial Petroleum Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte Certified Public Accountants S.A.
Athens, Greece
April 12, 2024
We have served as the Company’s auditor since 2021.
F-2
Table of Contents
Imperial Petroleum Inc.
(Expressed in United States dollars)
| As of December 31, 2022 |
As of December 31, 2023 |
|||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
50,901,092 | 91,927,512 | ||||||
| Time deposits |
68,000,000 | 32,099,810 | ||||||
| Restricted cash |
1,005,827 | — | ||||||
| Receivable from related parties (Note 3) |
146,708 | 37,906,821 | ||||||
| Trade and other receivables |
7,898,103 | 13,498,813 | ||||||
| Other current assets (Note 12) |
240,002 | 302,773 | ||||||
| Inventories |
5,507,423 | 7,291,123 | ||||||
| Advances and prepayments |
172,908 | 161,937 | ||||||
|
|
|
|
|
|||||
| Total current assets |
133,872,063 | 183,188,789 | ||||||
|
|
|
|
|
|||||
| Non current assets |
||||||||
| Vessels, net (Note 4) |
226,351,081 | 180,847,252 | ||||||
| Restricted cash |
5,600,000 | — | ||||||
| Investment in related party (Note 3) |
— | 12,798,500 | ||||||
|
|
|
|
|
|||||
| Total non current assets |
231,951,081 | 193,645,752 | ||||||
|
|
|
|
|
|||||
| Total assets |
365,823,144 | 376,834,541 | ||||||
|
|
|
|
|
|||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities |
||||||||
| Trade accounts payable |
8,115,462 | 8,277,118 | ||||||
| Payable to related party (Note 3) |
3,016,438 | 2,324,334 | ||||||
| Accrued liabilities (Note 6) |
1,982,306 | 3,008,500 | ||||||
| Deferred income |
1,089,959 | 919,116 | ||||||
| Current portion of long-term debt (Note 5) |
10,176,538 | — | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
24,380,703 | 14,529,068 | ||||||
| Non current liabilities |
||||||||
| Long-term debt (Note 5) |
59,787,923 | — | ||||||
|
|
|
|
|
|||||
| Total non current liabilities |
59,787,923 | — | ||||||
|
|
|
|
|
|||||
| Total liabilities |
84,168,626 | 14,529,068 | ||||||
|
|
|
|
|
|||||
| Commitments and contingencies (Note 15) |
||||||||
| Stockholders’ equity |
||||||||
| Capital stock, $0.01 par value, 2,000,000,000 authorized at December 31, 2022 and 2023, 12,972,358 shares issued and outstanding at December 31, 2022 and 33,257,291 issued and 29,812,755 outstanding at December 31, 2023 (Note 8) |
129,724 | 332,573 | ||||||
| Preferred stock, 200,000,000 authorized (Note 8) |
||||||||
| Preferred stock, Series A, $0.01 par value, 800,000 preferred shares authorized, 795,878 and 795,878 preferred shares, issued and outstanding at December 31, 2022 and 2023, respectively (Note 8) |
7,959 | 7,959 | ||||||
| Preferred stock, Series B, $0.01 par value, 16,000 preferred shares authorized, 16,000 and 16,000 preferred shares, issued and outstanding at December 31, 2022 and 2023, respectively (Note 8) |
160 | 160 | ||||||
| Treasury stock nil and 3,444,536 shares at December 31, 2022 and 2023, respectively with a par value of $0.01 per share (Note 8) |
— | (5,885,727 | ) | |||||
| Additional paid-in capital (Note 8) |
252,912,550 | 270,242,635 | ||||||
| Retained earnings |
28,604,125 | 97,607,873 | ||||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
281,654,518 | 362,305,473 | ||||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ equity |
365,823,144 | 376,834,541 | ||||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
Imperial Petroleum Inc.
Consolidated statements of operations
(Expressed in United States dollars)
| For the years ended December 31, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| Revenues |
||||||||||||
| Revenues (Note 12) |
17,362,669 | 97,019,878 | 183,725,820 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenues |
17,362,669 | 97,019,878 | 183,725,820 | |||||||||
|
|
|
|
|
|
|
|||||||
| Expenses |
||||||||||||
| Voyage expenses |
3,366,223 | 32,604,893 | 60,276,962 | |||||||||
| Voyage expenses – related party (Notes 3) |
218,192 | 1,202,449 | 2,253,979 | |||||||||
| Vessels’ operating expenses (Note 13) |
7,346,527 | 16,227,636 | 25,295,851 | |||||||||
| Vessels’ operating expenses – related party (Notes 3, 13) |
86,500 | 165,500 | 346,583 | |||||||||
| Dry-docking costs |
14,380 | 1,890,247 | 6,551,534 | |||||||||
| Management fees – related party (Note 3) |
527,425 | 1,045,640 | 1,606,440 | |||||||||
| General and administrative expenses (including $311,676, $296,274 and $400,072 to related party) (Note 3) |
614,786 | 1,773,590 | 4,934,468 | |||||||||
| Depreciation (Note 4) |
8,674,663 | 12,290,463 | 15,629,116 | |||||||||
| Impairment loss (Note 4) |
— | — | 8,996,023 | |||||||||
| Net gain on sale of vessel – related party (Note 3) |
— | — | (8,182,777 | ) | ||||||||
| Total expenses |
20,848,696 | 67,200,418 | 117,708,179 | |||||||||
|
|
|
|
|
|
|
|||||||
| (Loss)/Income from operations |
(3,486,027 | ) | 29,819,460 | 66,017,641 | ||||||||
|
|
|
|
|
|
|
|||||||
| Other (expenses) / income |
||||||||||||
| Interest and finance costs |
(145,013 | ) | (1,610,145 | ) | (1,821,908 | ) | ||||||
| Interest income |
980 | 1,290,059 | 4,470,396 | |||||||||
| Interest income-related party (Note 3) |
— | — | 1,363,360 | |||||||||
| Dividend income from related party (Note 3) |
— | — | 404,167 | |||||||||
| Foreign exchange (loss)/gain |
(9,919 | ) | 11,554 | 700,346 | ||||||||
|
|
|
|
|
|
|
|||||||
| Other (expenses)/income, net |
(153,952 | ) | (308,532 | ) | 5,116,361 | |||||||
|
|
|
|
|
|
|
|||||||
| Net (loss)/income |
(3,639,979 | ) | 29,510,928 | 71,134,002 | ||||||||
|
|
|
|
|
|
|
|||||||
| (Loss)/Earnings per share attributable to common shareholders — basic (Note 11) |
(11.87 | ) | 2.89 | 3.22 | ||||||||
|
|
|
|
|
|
|
|||||||
| (Loss)/Earnings per share attributable to common shareholders — diluted (Note 11) |
(11.87 | ) | 2.89 | 2.93 | ||||||||
|
|
|
|
|
|
|
|||||||
| Weighted average number of shares, basic |
318,351 | 8,559,000 | 18,601,539 | |||||||||
|
|
|
|
|
|
|
|||||||
| Weighted average number of shares, diluted |
318,351 | 8,593,575 | 22,933,671 | |||||||||
|
|
|
|
|
|
|
|||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
Imperial Petroleum Inc.
Consolidated statements of stockholders’ equity
(Expressed in United States dollars)
| Capital stock | Treasury stock | Preferred stock | Additional Paid-in Capital (Note 8) |
(Accumulated Deficit)/ Retained Earnings |
Former Parent Company Investment |
Total | ||||||||||||||||||||||||||||||||||
| Number of Shares (Note 8) |
Amount (Note 8) |
Number of Shares (Note 8) |
Amount (Note 8) |
Number of Shares (Note 8) |
Amount (Note 8) |
|||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 |
— | — | — | — | — | — | — | — | 134,061,923 | 134,061,923 | ||||||||||||||||||||||||||||||
| Net decrease in former Parent Company Investment |
— | — | — | — | — | — | — | — | (7,792,798 | ) | (7,792,798 | ) | ||||||||||||||||||||||||||||
| Net loss for the period from January 1, 2021 to Spin-Off |
— | — | — | — | — | — | — | — | (3,168,422 | ) | (3,168,422 | ) | ||||||||||||||||||||||||||||
| Dividends to former Parent Company |
— | — | — | — | — | — | — | — | (25,752,729 | ) | (25,752,729 | ) | ||||||||||||||||||||||||||||
| Capitalization at spin-off, including issuance of capital and preferred stock |
318,351 | 3,184 | — | — | 795,878 | 7,959 | 97,336,831 | — | (97,347,974 | ) | — | |||||||||||||||||||||||||||||
| Issuance of Series A preferred shares over par as part of Spin-Off |
— | — | — | — | — | — | 15,113,723 | — | — | 15,113,723 | ||||||||||||||||||||||||||||||
| Deemed contribution of Series A preferred shares as part of Spin-Off |
— | — | — | — | — | — | (15,113,723 | ) | — | — | (15,113,723 | ) | ||||||||||||||||||||||||||||
| Net loss for the period from spin-off to December 31, 2021 |
— | — | — | — | — | — | — | (471,557 | ) | — | (471,557 | ) | ||||||||||||||||||||||||||||
| Dividends declared on Series A preferred shares ($0.16 per preferred share) |
— | — | — | — | — | — | (130,574 | ) | — | — | (130,574 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Balance, December 31, 2021* |
318,351 | 3,184 | — | — | 795,878 | 7,959 | 97,206,257 | (471,557 | ) | — | 96,745,843 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Issuance of common stock (including the exercise of warrants) net of issuance costs |
12,463,531 | 124,635 | — | — | — | — | 156,696,839 | — | — | 156,821,474 | ||||||||||||||||||||||||||||||
| Issuance of restricted shares and stock based compensation |
190,476 | 1,905 | — | — | — | — | 115,351 | — | — | 117,256 | ||||||||||||||||||||||||||||||
| Issuance of Series B preferred shares |
— | — | — | — | 16,000 | 160 | 199,840 | — | — | 200,000 | ||||||||||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | — | 29,510,928 | — | 29,510,928 | ||||||||||||||||||||||||||||||
| Deemed dividend on warrant inducement ($1.42 per share) (Note 8) |
— | — | — | — | — | — | — | (2,943,675 | ) | — | (2,943,675 | ) | ||||||||||||||||||||||||||||
| Incremental fair value of the class D warrants (Note 8) |
— | — | — | — | — | — | — | 2,943,675 | — | 2,943,675 | ||||||||||||||||||||||||||||||
| Dividends declared on Series A preferred shares ($2.19 per preferred share) |
— | — | — | — | — | — | (1,305,737 | ) | (435,246 | ) | — | (1,740,983 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Balance December 31, 2022* |
12,972,358 | 129,724 | — | — | 811,878 | 8,119 | 252,912,550 | 28,604,125 | 281,654,518 | |||||||||||||||||||||||||||||||
| Issuance of common stock (including the exercise of warrants) net of issuance costs |
11,767,579 | 117,676 | — | — | — | — | 27,460,093 | — | — | 27,577,769 | ||||||||||||||||||||||||||||||
| Stock repurchase |
— | — | (3,444,536 | ) | (5,885,727 | ) | — | — | — | — | — | (5,885,727 | ) | |||||||||||||||||||||||||||
| Warrants repurchase |
— | — | — | — | — | — | (1,521,738 | ) | — | — | (1,521,738 | ) | ||||||||||||||||||||||||||||
| Issuance of restricted shares and stock based compensation |
1,585,311 | 15,853 | — | — | — | — | 2,419,002 | — | — | 2,434,855 | ||||||||||||||||||||||||||||||
| Dividends declared on Series A preferred shares ($2.19 per preferred share) |
— | — | — | — | — | — | — | (1,740,983 | ) | — | (1,740,983 | ) | ||||||||||||||||||||||||||||
| Dividends declared on Series C preferred shares ($28.06 per preferred share) |
— | — | — | — | — | — | — | (389,271 | ) | — | (389,271 | ) | ||||||||||||||||||||||||||||
| Conversion of Series C preferred shares |
6,932,043 | 69,320 | — | — | — | — | 9,930,680 | 6,507,789 | — | 16,507,789 | ||||||||||||||||||||||||||||||
| Deemed dividends on Series C Preferred shares ($0.94 per preferred share) |
— | — | — | — | — | — | — | (6,507,789 | ) | — | (6,507,789 | ) | ||||||||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | — | 71,134,002 | — | 71,134,002 | ||||||||||||||||||||||||||||||
| Distribution of net assets of C3is |
— | — | — | — | — | — | (20,957,952 | ) | (20,957,952 | ) | ||||||||||||||||||||||||||||||
| Balance, December 31, 2023 |
33,257,291 | 332,573 | (3,444,536 | ) | (5,885,727 | ) | 811,878 | 8,119 | 270,242,635 | 97,607,873 | — | 362,305,473 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| * | Adjusted to reflect the reverse stock split effect on April 28, 2023 (see Note 1 and 8) |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
Imperial Petroleum Inc.
Consolidated statements of cash flows
(Expressed in United States dollars)
| For the years ended December 31, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| Cash flows from operating activities: |
||||||||||||
| Net (loss)/income for the year |
(3,639,979 | ) | 29,510,928 | 71,134,002 | ||||||||
| Adjustments to reconcile net (loss)/income to net cash provided by operating activities: |
||||||||||||
| Depreciation |
8,674,663 | 12,290,463 | 15,629,116 | |||||||||
| Amortization of deferred finance charges |
32,587 | 94,007 | 474,039 | |||||||||
| Noncash lease expense |
— | — | 62,609 | |||||||||
| Shared based compensation |
— | 117,256 | 2,434,855 | |||||||||
| Impairment loss |
— | — | 8,996,023 | |||||||||
| Net gain on sale of vessel - related party |
— | — | (8,182,777 | ) | ||||||||
| Unrealized foreign exchange gain on time deposits |
— | — | (426,040 | ) | ||||||||
| Dividends income from related party |
— | — | (404,167 | ) | ||||||||
| Changes in operating assets and liabilities: |
||||||||||||
| (Increase)/decrease in |
||||||||||||
| Trade and other receivables |
(734,400 | ) | (6,497,828 | ) | (6,477,912 | ) | ||||||
| Other current assets |
173,930 | (240,002 | ) | (62,771 | ) | |||||||
| Inventories |
577,151 | (5,248,577 | ) | (1,908,513 | ) | |||||||
| Changes in operating lease liabilities |
— | — | (62,609 | ) | ||||||||
| Advances and prepayments |
(10,943 | ) | (22,364 | ) | (181,990 | ) | ||||||
| Increase/(decrease) in |
||||||||||||
| Trade accounts payable |
289,086 | 6,685,211 | 118,523 | |||||||||
| Due from related party |
— | — | (2,248,863 | ) | ||||||||
| Due to related party |
(708,968 | ) | 2,105,698 | (692,104 | ) | |||||||
| Accrued liabilities |
238,351 | 1,495,632 | 1,383,841 | |||||||||
| Deferred income |
347,727 | 607,638 | (54,903 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by operating activities |
5,239,205 | 40,898,062 | 79,530,359 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash flows from investing activities: |
||||||||||||
| Dividends income received |
— | — | 241,667 | |||||||||
| Proceeds from sale of vessel, net |
— | — | 3,865,890 | |||||||||
| Acquisition and improvement of vessels |
(142,600 | ) | (118,678,560 | ) | (28,145,103 | ) | ||||||
| Maturity of bank time deposits |
— | (68,000,000 | ) | (167,501,480 | ) | |||||||
| Purchase of bank time deposits |
— | — | 203,827,710 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash (used in)/provided by investing activities |
(142,600 | ) | (186,678,560 | ) | 12,288,684 | |||||||
|
|
|
|
|
|
|
|||||||
| Cash flows from financing activities: |
||||||||||||
| Proceeds from issuance of Series B preferred shares |
— | 200,000 | — | |||||||||
| Net transfers to former Parent Company |
(7,792,798 | ) | — | — | ||||||||
| Dividends paid to former Parent Company |
(25,752,729 | ) | — | — | ||||||||
| Proceeds from equity offerings |
— | 168,001,415 | 29,070,586 | |||||||||
| Stock issuance costs |
— | (11,179,941 | ) | (1,492,817 | ) | |||||||
| Stock repurchase |
— | — | (5,885,727 | ) | ||||||||
| Warrants repurchase |
— | — | (1,521,738 | ) | ||||||||
| Deferred finance charges paid |
(196,000 | ) | (404,633 | ) | — | |||||||
| Customer deposits paid |
(500,000 | ) | (368,000 | ) | — | |||||||
| Dividends paid on preferred shares |
(130,574 | ) | (1,740,983 | ) | (2,130,254 | ) | ||||||
| Loan repayments |
— | (5,354,000 | ) | (70,438,500 | ) | |||||||
| Proceeds from long-term debt |
28,000,000 | 47,792,500 | — | |||||||||
| Cash retained by C3is Inc. at spin off |
— | — | (5,000,000 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net cash (used in)/provided by financing activities |
(6,372,101 | ) | 196,946,358 | (57,398,450 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net (decrease)/increase in cash, cash equivalents and restricted cash |
(1,275,496 | ) | 51,165,860 | 34,420,593 | ||||||||
| Cash, cash equivalents and restricted cash at the beginning of the year |
7,616,555 | 6,341,059 | 57,506,919 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash, cash equivalents and restricted cash at the end of the year |
6,341,059 | 57,506,919 | 91,927,512 | |||||||||
|
|
|
|
|
|
|
|||||||
| Supplemental cash flow information: |
||||||||||||
| Interest paid |
— | 898,368 | 1,735,054 | |||||||||
| Non cash investing activity – Vessel improvements included in liabilities |
— | — | 859,320 | |||||||||
| Non cash investing and financing activity – Part payment of vessel acquisition through issuance of Series C Preferred Shares |
— | — | 10,000,000 | |||||||||
| Non cash investing activity – Dividend on Series A Perpetual Convertible Preferred shares included in related parties |
— | — | 162,500 | |||||||||
| Distribution of net assets of C3is Inc. to shareholders and warrant holders |
— | — | 20,957,952 | |||||||||
| Reconciliation of cash, cash equivalents and restricted cash |
||||||||||||
| Cash and cash equivalents |
3,389,834 | 50,901,092 | 91,927,512 | |||||||||
| Restricted cash, current |
451,225 | 1,005,827 | — | |||||||||
| Restricted cash, non-current |
2,500,000 | 5,600,000 | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total cash, cash equivalents and restricted cash shown in the statements of cash flows |
6,341,059 | 57,506,919 | 91,927,512 | |||||||||
|
|
|
|
|
|
|
|||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
Imperial Petroleum Inc.
Notes to the consolidated financial statements
(Expressed in United States dollars)
| 1. | General Information and Basis of Presentation |
Imperial Petroleum Inc. (“Imperial”) was formed by StealthGas Inc (the “former Parent Company”) on May 14, 2021 under the laws of the Republic of the Marshall Islands. Initial share capital of Imperial consisted of 33 common shares. StealthGas Inc. separated its crude and product tankers by transferring to Imperial its interest in 4 subsidiaries, Clean Power Inc., MR Roi Inc., King of Hearts Inc. and Tankpunk Inc. (the “Subsidiaries”), each owning one tanker. The transfer was completed on November 10, 2021 in exchange for 318,318 newly issued common shares and 795,878 Series A 8.75% Preferred Shares (the “Series A Preferred Shares”) in Imperial. On December 3, 2021, StealthGas Inc. distributed the 318,351 common shares and 795,878 8.75% Series A Preferred Shares (with a liquidation preference of $25.00 per share) in Imperial to holders of StealthGas Inc.’s common stock on a pro rata basis (the “Spin-Off”).
The accompanying consolidated financial statements include the accounts of Imperial and its wholly owned subsidiaries (collectively, the “Company”) using the historical carrying costs of the assets and the liabilities of the Subsidiaries from their dates of incorporation until their dates of disposal, if any. For periods up to December 3, 2021, the accompanying financial statements reflect the financial position and results of the carve-out operations of the Subsidiaries that were contributed to Imperial.
On June 21, 2023, the Company completed the spin-off transaction (the “Spin-off”) of its wholly-owned subsidiary C3is Inc. (“C3is”), which was formed by the Company in July 2022. Prior to the Spin-off, Imperial received all issued and outstanding common shares and all 600,000 5.00% Series A Perpetual Convertible Preferred shares of C3is (Note 3) in exchange for the contribution to C3is of the entities owning Imperial’s two Handysize drybulk carriers, “Eco Bushfire” and “Eco Angelbay” together with $5,000,000 in cash as working capital. Imperial, as the sole shareholder of C3is, distributed the C3is’s common shares to the Company’s stockholders and warrant holders in accordance with the terms of the Company’s outstanding warrants on a pro rata basis on June 21, 2023. Common shares of C3is commenced trading on June 21, 2023 on the Nasdaq Capital Market under the ticker symbol “CISS”. Imperial Inc. continues to operate in the tanker and dry bulk shipping market and remains a publicly traded company.
The assets and liabilities of C3is on June 21, 2023, were as follows:
| June 21, 2023 | ||||
| Cash and cash equivalents |
5,000,000 | |||
| Trade and other receivables |
877,202 | |||
| Inventories |
124,813 | |||
| Advances and prepayments |
192,961 | |||
| Due from related party |
188,750 | |||
| Vessels, net (after impairment of $8,996,023) |
28,500,000 | |||
| Trade accounts payable |
816,187 | |||
| Accrued and other liabilities |
357,647 | |||
| Deferred income |
115,940 | |||
| Net assets of C3is distributed to stockholders and warrantholders |
33,593,952 | |||
| Less investment in preferred shares of C3is issued as part of Spin-off |
(12,636,000 | ) | ||
| Distribution of net assets of C3is to stockholders and warrantholders |
20,957,952 | |||
F-7
Table of Contents
At December 31, 2023, the Company’s fleet was comprised of 9 vessels consisting of 5 medium range (M.R.) type Product tankers, 2 Suezmax crude oil tankers and 2 Handysize drybulk carriers providing worldwide marine transportation services under long, medium or short-term charters.
The Company’s vessels are managed by Stealth Maritime Corporation S.A. (the “Manager”), a company controlled by members of the family of the Company’s Chief Executive Officer. The Manager, a related party, was incorporated in Liberia and registered in Greece on May 17, 1999 under the provisions of law 89/1967, 378/1968 and article 25 of law 27/75 as amended by article 4 of law 2234/94. (See Note 3).
During the year ended December 31, 2023, the Company held 100% interest in the below companies, each owning one vessel.
| Company | Date of Incorporation |
Name of Vessel Owned by Subsidiary |
Dead Weight Tonnage (“dwt”) |
Acquisition Date |
Disposal Date |
|||||||||||||||
| Clean Power Inc. |
5/2/2007 | Magic Wand | 47,000 | 9/1/2008 | — | |||||||||||||||
| MR Roi Inc. |
5/2/2007 | Clean Thrasher | 47,000 | 27/2/2008 | — | |||||||||||||||
| King of Hearts Inc. |
17/3/2008 | Clean Sanctuary | 46,000 | 14/7/2009 | — | |||||||||||||||
| Nirvana Product Trading Inc |
25/2/2022 | Clean Nirvana | 50,000 | 28/3/2022 | — | |||||||||||||||
| Volume Jet Trading Inc. |
25/2/2022 | Clean Justice | 46,000 | 31/5/2022 | — | |||||||||||||||
| Intercontinental Crude and Product Enterprises Inc. |
18/5/2022 | Suez Enchanted | 160,000 | 3/6/2022 | — | |||||||||||||||
| Petroleum Trading and Shipping Inc. |
21/4/2022 | Suez Protopia | 160,000 | 3/6/2022 | — | |||||||||||||||
| Haven Exotic Trading Inc. |
31/1/2023 | Eco Wildfire | 33,000 | 28/3/2023 | — | |||||||||||||||
| Blue Oddysey International Inc. |
31/1/2023 | Glorieuse | 38,000 | 27/3/2023 | — | |||||||||||||||
| Tankpunk Inc. |
6/1/2008 | Stealth Berana | ** | 115,804 | 26/7/2010 | — | ||||||||||||||
| Drybulk International Trading and Shipping Inc.* |
4/7/2022 | Eco Bushfire | 32,000 | 21/9/2022 | 21/6/2023 | |||||||||||||||
| Raw Commodities & Exports Inc.* |
4/7/2022 | Eco Angelbay | 32,000 | 19/10/2012 | 21/6/2023 | |||||||||||||||
| * | Consolidated by the Company up to June 21, 2023, the date the Spin-off of C3is Inc. was completed. |
| ** | This vessel was sold on July 14, 2023 (Note 3). |
Prior to the Spin-Off, the Company was dependent upon StealthGas Inc. for a major part of its working capital and financing requirements as StealthGas Inc. used a centralized approach to cash management and financing of its operations. Financial transactions relating to the Company were accounted for through the net parent investment account.
For periods up to December 3, 2021, the consolidated statements of operations reflect expense allocations made to the Company by StealthGas Inc. for certain corporate functions and for shared services provided by StealthGas Inc. These allocations were made by StealthGas Inc. on a pro-rata
basis. See Note 3 “Transactions with Related Parties – General and administrative expenses” for further information on expenses allocated by StealthGas Inc. Both the Company and StealthGas Inc. consider the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by the Company during the periods presented.
Effective as of the opening of trading on April 28, 2023, the Company effected a one-for-fifteen reverse stock split of its shares of common stock. The reverse stock split affected all outstanding shares of common stock. No fractional shares were issued in connection with the reverse split. Stockholders who would otherwise hold a fractional share of the Company’s common stock received a cash payment in lieu of such fractional share. Furthermore, in connection with the reverse stock split, the exercise price of the Company’s outstanding warrants at that date increased and the number of shares issuable upon their exercise decreased in accordance with their terms. In addition, the conversion price of the Company’s Series C Cumulative Convertible Perpetual Preferred Shares was proportionately adjusted in accordance with their terms (Note 9). The par value and other terms of the Company’s shares of common stock were not affected by the reverse stock split.
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During 2021, 2022 and 2023 four, two and one charterers, respectively, accounted for 10% or more of the Company’s revenues.
| Year ended December 31, | ||||||||||||
| Charterer |
2021 | 2022 | 2023 | |||||||||
| A |
— | — | 21 | % | ||||||||
| B |
16 | % | — | — | ||||||||
| C |
15 | % | — | — | ||||||||
| D |
15 | % | — | — | ||||||||
| E |
15 | % | — | — | ||||||||
| F |
— | 16 | % | — | ||||||||
| G |
— | 17 | % | — | ||||||||
| 2. | Significant Accounting Policies |
Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of Imperial Petroleum Inc. and its subsidiaries referred to in Note 1 from their date of incorporation/ acquisition and until their date of disposal. All inter-company balances and transactions have been eliminated upon consolidation.
Use of Estimates: The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses recognized during the reporting period. Actual results could differ from those estimates.
Other comprehensive (loss) / income: The Company has no other comprehensive (loss) / income and accordingly comprehensive (loss) / income equals net (loss) / income for all periods presented. As such, no statement of comprehensive (loss) / income has been presented.
Foreign Currency Translation: The functional currency of the Company is the U.S. Dollar because the Company’s vessels operate in international shipping markets, which utilize the U.S. Dollar as the functional currency. The accounting books of the Company are maintained in U.S. Dollars. Transactions involving other currencies are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies, are translated to reflect the period end exchange rates. Resulting gains or losses are separately reflected in the accompanying consolidated statements of operations.
Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits and certificates of deposit with original maturity of three months or less to be cash equivalents.
Time Deposits: Time deposits held with banks with original maturities longer than three months are classified and presented as Time Deposits. In the event remaining maturities are shorter than 12 months, such deposits are classified as current assets; if original maturities are longer than 12 months, such deposits are classified as non-current assets.
Restricted Cash: Restricted cash mainly reflects deposits with certain banks that can only be used to pay the current loan installments or which are required to be maintained as a certain minimum cash balance per mortgaged vessel or funds held in escrow. In the event that the obligation relating to such funds is expected to be terminated within the next twelve months, these funds are classified as current assets; otherwise they are classified as non-current assets.
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Trade Receivables: The amount shown as trade receivables includes estimated recoveries from charterers for hire, freight and demurrage billings, net of allowance for doubtful accounts. At each balance sheet date, all potentially un-collectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts. No provision for doubtful accounts was required for any of the periods presented.
Inventories: Inventories consist of bunkers (for vessels under voyage charter or on ballast or idle) and lubricants which are stated at the lower of cost and net realizable value. The cost is determined by the first-in, first-out method. The Company considers victualing and stores as being consumed when purchased and, therefore, such costs are expensed when incurred.
Vessels, net: Vessels, net are stated at cost less depreciation and impairment, if any. Cost consists of the contract price less discounts and any material expenses incurred upon acquisition (initial repairs, improvements, acquisition and expenditures made to prepare the vessel for its initial voyage). Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels, or otherwise are charged to expenses as incurred.
Impairment or Disposal of Long-lived Assets: The Company follows the Accounting Standards Codification (“ASC”) Subtopic 360-10, “Property, Plant and Equipment” (“ASC 360-10”), which requires impairment losses to be recorded for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. If indicators of impairment are present, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related vessels, quarterly. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value and the difference is recorded as an impairment loss in the consolidated statements of operations. Various factors including anticipated future charter rates, estimated scrap values, future dry-docking costs and estimated vessel operating costs are included in this analysis. These factors are based on historical trends as well as future expectations. Undiscounted cash flows are determined by considering the revenues from existing charters for those vessels that have long term employment and when there is no charter in place the estimates based on historical average rates for the respective class of vessel.
Vessels’ Depreciation: The cost of each of the Company’s vessels is depreciated on a straight-line basis over the vessel’s remaining economic useful life, after considering the estimated residual value. Management estimates the useful life of each of the Company’s vessels to be 25 years, from the date of their construction.
Segment Reporting: The Company reports financial information and evaluates its operations by total charter revenues and not by the type of vessel, length of vessel employment, customer or type of charter. As a result, management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet, and thus, the Company has determined that it operates under one reportable segment as well as one operating segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographical information is impracticable.
Accounting for Special Survey and Dry-docking Costs: Special survey and dry-docking costs are expensed in the period incurred.
Accounting for Revenue and Related Expenses: The Company generates revenues from charterers for the charter hire of its vessels. Vessels are chartered on time charters, bareboat charters or voyage charters.
A time charter is a contract for the use of a vessel for a specific period of time and a specified daily charter hire rate, which is generally payable in advance. Operating costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance and lubricants are paid for by the Company under time charter agreements. A time charter generally provides typical warranties and owner protective restrictions. The
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performance obligations in a time charter are satisfied over the term of the contract beginning when the vessel is delivered to the charterer until it is redelivered back to the owner of the vessel. Some of the Company’s time charters may also contain profit sharing provisions, under which the Company can realize additional revenues in the event that spot rates are higher than the base rates in these time charters. A bareboat charter is a contract in which the vessel owner provides the vessel to the charterer for a fixed period of time at a specified daily rate, which is generally payable in advance, and the charterer generally assumes all risks and costs of operation during the bareboat charter period. The Company’s time charter and bareboat contracts are classified as operating leases pursuant to Accounting Standards Codification (“ASC”) 842 – Leases, and therefore do not fall under the scope of Accounting Standards Codification (“ASC”) 606 because (i) the vessel is an identifiable asset (ii) the owner of the vessel does not have substantive substitution rights and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives the economic benefits from such use. Time charter and bareboat revenues are recognized when a charter agreement exists, the vessel is made available to the charterer and collection of the related revenue is reasonably assured. Time charter and bareboat charter revenues are recognized as earned on a straight-line basis over the term of the charter as service is provided. Revenues from profit sharing arrangements in time charters are recognized in the period earned. Under time charter agreements, all voyages expenses, except commissions are assumed by the charterer. Under bareboat charter agreements, the charterer further assumes all vessel operating expenses, dry-docking expenses and risk of operation.
The Company elected to make use of a practical expedient for lessors, not to separate the lease and non-lease components included in the time charter revenue but rather to recognize operating lease revenue as a combined single lease component for all time charter contracts as the related lease component, the hire of a vessel, and the non-lease component, the fees for operating and maintaining the vessel, have the same timing and pattern of transfer (both the lease and non-lease components are earned by passage of time) and the predominant component is the lease.
A voyage charter is a contract in which the vessel owner undertakes to transport a specific amount and type of cargo on a load port-to-discharge port basis, subject to various cargo handling terms. The Company accounts for a voyage charter when all the following criteria are met: (1) the parties to the contract have approved the contract in the form of a written charter agreement and are committed to perform their respective obligations, (2) the Company can identify each party’s rights regarding the services to be transferred, (3) the Company can identify the payment terms for the services to be transferred, (4) the charter agreement has commercial substance (that is, the risk, timing, or amount of the Company’s future cash flows is expected to change as a result of the contract) and (5) it is probable that the Company will collect substantially all of the consideration to which it will be entitled in exchange for the services that will be transferred to the charterer. The Company determined that its voyage charters consist of a single performance obligation which is met evenly as the voyage progresses and begins to be satisfied once the vessel is ready to load the cargo. The voyage charter party agreement generally has a demurrage/despatch clause according to which, in the case of demurrage the charterer reimburses the vessel owner for any potential delays exceeding the allowed lay-time as per the charter party clause at the ports visited which is recorded as demurrage revenue, while in the case of despatch, the owner reimburses the charterer for the earlier discharging of the cargo from the agreed time. The Company has determined that there is one single performance obligation for each of its voyage charters, which is to provide the charterer with an integrated transportation service within a specified time period. In addition, the Company has concluded that a contract for a voyage charter meets the criteria to recognize revenue over time because the charterer simultaneously receives and consumes the benefits of the Company’s performance as the Company performs. Therefore, since the Company’s performance obligation under each voyage contract is met evenly as the voyage progresses, revenues from voyage charters are recognized on a straight-line basis over the voyage duration which commences once the vessel is ready to load the cargo and terminates upon the completion of the discharge of the cargo. Demurrage/despatch revenues/expenses are recognized when the amount can be estimated and its collection/payment is probable. In voyage charters, vessel operating and voyage expenses are paid for by the Company. The voyage charters are considered service contracts which fall under the provisions of ASC 606 because the Company retains control over the operations of the vessels such as the routes taken or the vessels’ speed.
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Deferred income mainly represents cash received for undelivered performance obligations. The portion of the deferred revenue that will be earned within the next twelve months is classified as current liability and the remaining as long-term liability.
Vessel voyage expenses are direct expenses to voyage revenues and primarily consist of brokerage commissions, port expenses, canal dues and bunkers. Brokerage commissions are paid to shipbrokers and the Manager for their time and efforts for negotiating and arranging charter party agreements on behalf of the Company and expensed over the related charter period and all the other voyage expenses are expensed as incurred except for expenses during the ballast portion of the voyage. Any expenses incurred during the ballast portion of the voyage (period between the contract date and the date of the vessel’s arrival to the load port) such as bunker expenses, canal tolls and port expenses are deferred and are recognized on a straight-line basis, in voyage expenses, over the voyage duration as the Company satisfies the performance obligations under the contract provided these costs are (1) incurred to fulfill a contract that the Company can specifically identify, (2) able to generate or enhance resources of the company that will be used to satisfy performance of the terms of the contract, and (3) expected to be recovered from the charterer. These costs are considered ‘contract fulfillment costs’ and are included in ‘other current assets’ in the accompanying consolidated balance sheets.
Vessel operating expenses comprise all expenses relating to the operation of the vessel, including crewing, repairs and maintenance, insurance, stores, lubricants and other operating expenses. Vessel operating expenses are expensed as incurred.
Equity Compensation Plan: Share-based compensation includes vested and non-vested shares that may be granted to employees of the Company, to employees of the Manager and to non-employee directors, for their services as directors and is included in General and administrative expenses in the consolidated statements of operations. These shares are measured at their fair value, which is equal to the market value of the Company’s common stock on the grant date. The shares that do not contain any future service vesting conditions are considered vested shares and the total fair value of such shares is recognized in full on the grant date. The shares that contain a time-based service vesting condition are considered non-vested shares on the grant date and a total fair value of such shares is recognized over the vesting period on a straight-line basis over the requisite service period for each separate portion of the award as if the award was, in substance, multiple awards (graded vesting attribution method). The fair value is recognized (as compensation expense) over the requisite service period for all awards that vest. The Company accounts for forfeitures as they occur (Note 10).
Dividends: Dividends on cumulative preferred shares are recorded when declared. Dividends are recorded in equity against retained earnings to the extent there are retained earnings on the date of recording, while any shortfall is recorded in additional paid-in capital.
(Loss)/Earnings per common share: Basic (loss)/earnings per common share are computed under the two-class method by dividing net income by the weighted average number of common shares outstanding during the period. Dividends on cumulative redeemable perpetual preferred shares reduce the income available to common shareholders, (whether or not earned). Diluted earnings per common share, reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised. Dilution is computed by either the treasury stock method or the two–class method, whichever results in the more dilutive effect. Under the treasury stock method, all of the Company’s dilutive securities are assumed to be exercised or converted and the proceeds used to repurchase common shares at the weighted average market price of the Company’s common stock during the relevant periods. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included in the denominator of the diluted earnings per share computation to the extent these are not anti-dilutive.
Offering costs: Expenses directly attributable to an equity offering are deferred and set off against the proceeds of the offering within paid-in capital, unless the offering is aborted, in which case they are written-off and charged to earnings.
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Distinguishing Liabilities from Equity: The Company follows the provisions of ASC 480 “Distinguishing liabilities from equity” to determine the classification of certain freestanding financial instruments as either liabilities or equity. ASC 480 requires that a warrant which contains an obligation that may require the issuer to redeem the shares in cash, be classified as a liability and accounted for at fair value.
Investment in related party (Financial Instruments, Recognition and Measurement): The Company has elected to measure equity securities without a readily determinable fair value, that do not qualify for the practical expedient in ASC 820 Fair Value Measurement to estimate fair value using the Net Asset Value (“NAV”) per share (or its equivalent), at its cost minus impairment, if any. At each reporting period, the Company also evaluates indicators such as the investee’s performance and its ability to continue as going concern and market conditions, to determine whether an investment is impaired in which case, the Company will estimate the fair value of the investment to determine the amount of the impairment loss.
Stock and warrant repurchases: The Company records the repurchase of its common shares and warrants at cost. The Company’s common shares repurchased for retirement are immediately cancelled and the Company’s common stock is accordingly reduced. Any excess of the cost of the shares over their par value is allocated in additional paid-in capital, in accordance with ASC 505-30-30, Treasury Stock. For warrants repurchased, if the instrument is classified as equity, any cash paid in the settlement is recorded as an offset to additional paid-in capital. The Company’s warrants are all classified as equity.
Recent Accounting Pronouncements: In November 2023, the FASB issued ASU 2023-07, which requires the disclosure of significant segment expenses that are part of an entity’s segment measure of profit or loss and regularly provided to the chief operating decision maker. In addition, it adds or makes clarifications to other segment-related disclosures, such as clarifying that the disclosure requirements in ASC 280 are required for entities with a single reportable segment and that an entity may disclose multiple measures of segment profit and loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be adopted retrospectively. The Company does not believe that the adoption of this accounting standard will have a material effect on these financial statements and related disclosures.
| 3. | Transactions with Related Parties |
The Manager provides the vessels with a wide range of shipping services such as chartering, technical support and maintenance, insurance, consulting, financial and accounting services, for a fixed daily fee of $440 per vessel operating under a voyage or time charter or $125 per vessel operating under a bareboat charter (the “Management fees”) and a brokerage commission of 1.25% on freight, hire and demurrage per vessel (the “Brokerage commissions”), as per the management agreement between the Manager and the Company. In addition, the Manager arranges for supervision onboard the vessels, when required, by superintendent engineers and when such visits exceed a period of five days in a twelve month period, an amount of $500 is charged for each additional day (the “Superintendent fees”).
The Manager also provides crew management services to the vessels Magic Wand, Clean Thrasher, Clean Sanctuary, Clean Justice, Suez Protopia, Suez Enchanted, Eco Wildfire, Glorieuse, Clean Nirvana since February 2023, Stealth Berana since April 2023 and up to its sale on July 2023, Eco Bushfire since September 2022 and up to the Spin-off and Eco Angelbay since October 2022 and up to the Spin-off. These services have been subcontracted by the Manager to an affiliated ship-management company, Hellenic Manning Overseas Inc. (ex. Navis Maritime Services Inc.). The Company pays to the Manager a fixed monthly fee of $2,500 per vessel for crew management services (the “Crew management fees”).
The Manager also acts as a sales and purchase broker for the Company in exchange for a commission fee equal to 1% of the gross sale or purchase price of vessels or companies. The commission fees relating to vessels
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purchased (“Commissions – vessels purchased”) are capitalized to the cost of the vessels as incurred. The commission fees relating to vessels sold (“Commissions – vessels sold”) are included in the consolidated statement of operations.
In addition to management services, the Company reimburses the Manager for the compensation of its executive officers (the “Executive compensation”). Furthermore, the Company rents office space from the Manager and incurs a rental expense (the “Rental Expense”).
On February 14, 2023, the Company entered into memoranda of agreement with companies affiliated with members of the family of the Company’s Chief Executive Officer for the acquisition of the vessels “Glorieuse” and “Eco Wildfire” for a total consideration of $35.5 million (Note 4). The vessels were delivered to the Company on March 27, 2023 and March 28, 2023, respectively. The aggregate purchase price of $18,500,000 of the vessel Glorieuse comprised of $8,500,000 in cash and 13,875 Series C Cumulative Convertible Perpetual Preferred Shares (“Series C Preferred Shares”) (Note 9).
On June 21, 2023, the Company completed the Spin-off (Note 1), and received 600,000 Series A Perpetual Convertible Preferred shares of C3is, having a liquidation preference of $25 per share and a par value of $0.01 per share. The Company is the holder of all of the issued and outstanding Series A Perpetual Convertible Preferred share of C3is (Note 1). The Series A Perpetual Convertible Preferred share do not have voting rights. The Series A Perpetual Convertible Preferred are convertible into common stock of C3is at the Company’s option at any time and from time to time on or after the date that is the date 90 days following the issuance date, at a conversion price equal to 150% of the VWAP of C3is common shares over the five consecutive trading day period commencing on the issuance date. The conversion price will be adjusted to the lowest price of issuance of common stock by C3is in any registered offering of common stock of C3is after the original issuance of Series A Perpetual Convertible Preferred Shares. Furthermore, Imperial is entitled to receive cumulative cash dividends, at the annual rate of 5.00% on the stated amount of $25 per share, of the 600,000 Series A Perpetual Convertible Preferred shares, receivable quarterly in arrears on the 15th day of January, April, July and October in each year, subject to C3is’s Board of Directors approval. The Company recognized for the period from June 21, 2023 to December 31, 2023, the amount of $404,167, which is presented in ‘Dividend income from related party’ in the accompanying consolidated statements of operations.
As there was no observable market for the Series A Perpetual Convertible Preferred shares, these were recorded at $12,636,000, being the fair value of the shares determined through Level 3 inputs of the fair value hierarchy by taking into consideration a third-party valuation based on the income approach taking into account the present value of the future cash flows the Company expects to receive from holding the equity instrument.
Investment in related party was initially measured at fair value which is deemed to be the cost and subsequently assessed for the existence of any observable market for the Series A Perpetual Convertible Preferred Shares and any observable price changes for identical or similar investments as well as the existence of any indications for impairment. As per the Company’s assessment no such case was identified as at December 31, 2023.
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The valuation methodology applied comprised the bifurcation of the value of the Series A Perpetual Convertible Preferred shares in three components namely, the “straight” preferred stock component, the embedded option component and the control premium component. The mean of the sum of the three components was used to estimate the value for the Series A Perpetual Convertible Preferred shares at $12,636,000. The valuation methodology and the significant other observable inputs used for each component are set out below:
| Valuation technique |
Significant other observable input |
Values | ||||||
| “Straight” Preferred Stock component |
Discounted Cash Flow Model | - Weighted average cost of capital |
13 | % | ||||
| Embedded Option component |
Black & Scholes | - Volatility - Risk-free rate - Weighted average cost of capital - Strike price - Share price (based on the first 5 trading days volume weighted average) |
$ $ |
78 4 13 3.50 2.33 |
% % %
| |||
| Control Premium Component |
Discounted Cash Flow Model | - Control premium
- Weighted average cost of capital |
|
12 13 |
% % | |||
As of December 31, 2023, the aggregate value of investments in C3is amounted to $12,798,500, including $162,500 of accrued dividends and are separately presented as ‘Investment in related party’ in the accompanying consolidated balance sheet. As of December 31, 2023, the Company did not identify any indications for impairment or any observable prices for identical or similar investments of the same issuer.
On July 7, 2023, the Company entered into a memorandum of agreement with C3is for the disposal of the vessel “Stealth Berana” for an aggregate consideration of $43,000,000 (Note 4). The vessel was delivered to her new owners on July 14, 2023. 10% of the total consideration i.e. $4,300,000 was received in cash, while the remaining amount of $38,700,000 is receivable in July 2024 and has no stated interest. The Company’s receivable from C3is was recorded at its fair value of $35,700,000 (the “Remaining Selling Price”) on July 14, 2023. Since the collection of the remaining amount of $38,700,000 depends only on the passage of time, this arrangement has been accounted for as seller financing and the financing component amounting to $3,000,000, being the difference between the Remaining Selling Price of $35,700,000 and the amount of $38,700,000, receivable in July 2024, will be accounted for as interest income over the life of the receivable i.e. until July 2024. Interest income amounting to $1,363,360 for the period from July 14, 2023 to December 31, 2023 is included in “Interest income -related party” in the consolidated statement of operations. Net gain recognized from the sale of the vessel “Stealh Berana” amounted to $8,182,777.
On September 5, 2023, the Company entered into memoranda of agreement with companies affiliated with members of the family of the Company’s Chief Executive Officer for the acquisition of two tanker vessels for an aggregate purchase price of $71,000,000. No deposit was paid as of December 31, 2023. The vessels were delivered to the Company in the first quarter of 2024 (Note 16).
The current account balance with C3is at December 31, 2023 was a receivable of $37,906,821 (2022: nil). The receivable relates to the outstanding amount for the disposal of the vessel “Stealth Berana” which includes the Remaining Selling Price, accrued interest of $1,363,360 and receivable of $843,461 relating to inventory on board the vessel.
The related party receivable balance with European Institute of Regional Investments Inc. mainly relating to collections received on behalf of the Company was nil as at December 31, 2023 (2022: $146,708).
The current account balance with the Manager at December 31, 2023 was a liability of $2,324,334 (2022: $3,016,438). The liability mainly represents payments made by the Manager on behalf of the Company.
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The amounts charged by the Company’s related parties comprised the following:
| Year ended December 31, | ||||||||||||||
| Location in statement of operations |
2021 | 2022 | 2023 | |||||||||||
| Management fees |
Management fees – related party | 527,425 | 1,045,640 | 1,606,440 | ||||||||||
| Brokerage commissions |
Voyage expenses – related party | 218,192 | 1,202,449 | 2,253,979 | ||||||||||
| Superintendent fees |
Vessels’ operating expenses – related party | 26,500 | 28,500 | 57,000 | ||||||||||
| Crew management fees |
Vessels’ operating expenses – related party | 60,000 | 137,000 | 289,583 | ||||||||||
| Executive compensation |
General and administrative expenses | 19,875 | 296,274 | 400,072 | ||||||||||
| General and administrative expenses – Former Parent |
General and administrative expenses |
291,801 | — | — | ||||||||||
| Commissions – vessels purchased |
Vessels, net | — | 1,168,000 | 355,000 | ||||||||||
| Commissions-vessels sold |
Vessels, net | — | — | 430,000 | ||||||||||
| Rental expense |
General and administrative expenses | — | — | 65,104 | ||||||||||
| 4. | Vessels, net |
An analysis of vessels, net is as follows:
| Vessel Cost | Accumulated depreciation |
Net book value |
||||||||||
| Balance as at January 1, 2022 |
231,714,888 | (111,751,904 | ) | 119,962,984 | ||||||||
| Acquisitions and improvements |
118,678,560 | — | 118,678,560 | |||||||||
| Depreciation for the year |
— | (12,290,463 | ) | (12,290,463 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Balance as at December 31, 2022 |
350,393,448 | (124,042,367 | ) | 226,351,081 | ||||||||
|
|
|
|
|
|
|
|||||||
| Acquisitions and improvements |
39,004,423 | — | 39,004,423 | |||||||||
| Impairment loss (Note 1) |
(10,894,124 | ) | 1,898,101 | (8,996,023 | ) | |||||||
| Disposal |
(57,938,600 | ) | 26,555,487 | (31,383,113 | ) | |||||||
| Spin-off of drybulk carriers (Note 1) |
(28,500,000 | ) | (28,500,000 | ) | ||||||||
| Depreciation for the year |
— | (15,629,116 | ) | (15,629,116 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Balance as at December 31, 2023 |
292,065,147 | (111,217,895 | ) | 180,847,252 | ||||||||
|
|
|
|
|
|
|
|||||||
The additions during the year ended December 31, 2022 mainly relate to the acquisition of the vessels “Clean Nirvana”, “Clean Justice”, “Suez Enchanted”, “Suez Protopia”, “Eco Bushfire” and “Eco Angelbay”.
The additions during the year ended December 31, 2023 mainly relate to the acquisition of the vessels “Glorieuse” and “Eco Wildfire” (Note 3).
The disposal during the year ended December 31, 2023 relates to the sale of vessel “Stealth Berana” (Note 3).
As of December 31, 2022, and December 31, 2023, the Company performed an impairment review of its vessels held for use, due to the prevailing conditions in the shipping industry. As the undiscounted net operating cash flows, for the four vessels whose fair value was below their carrying value, exceeded each vessel’s carrying value, no impairment was recorded. An impairment loss amounting to $8,996,023 was identified and recorded for the year ended December 31, 2023 related to the Spin-off (Note 1).
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| 5. | Long-term Debt |
| Term Loans |
Drawn | December 31, | ||||||||||
| Amount | 2022 | 2023 | ||||||||||
| Issued in November 2021 maturing in November 2026 (“term loan A”) |
28,000,000 | 23,196,000 | — | |||||||||
|
|
|
|
|
|||||||||
| Issued in September 2022 maturing in September 2026 (“term loan B”) |
17,000,000 | 16,450,000 | — | |||||||||
|
|
|
|
|
|||||||||
| Issued in November 2022 maturing in November 2027 (“term loan C”) |
30,792,500 | 30,792,500 | — | |||||||||
|
|
|
|||||||||||
| Total |
70,438,500 | — | ||||||||||
| Current portion of long-term debt |
10,324,000 | — | ||||||||||
| Long-term debt |
60,114,500 | — | ||||||||||
|
|
|
|||||||||||
| Total debt |
70,438,500 | — | ||||||||||
| Current portion of deferred finance charges |
147,462 | — | ||||||||||
| Deferred finance charges non-current |
326,577 | — | ||||||||||
|
|
|
|||||||||||
| Total deferred finance charges |
474,039 | — | ||||||||||
|
|
|
|||||||||||
| Total debt |
70,438,500 | — | ||||||||||
| Less: Total deferred finance charges |
474,039 | — | ||||||||||
|
|
|
|||||||||||
| Total debt, net of deferred finance charges |
69,964,461 | — | ||||||||||
| Less: Current portion of long-term debt, net of current portion of deferred finance charges |
10,176,538 | — | ||||||||||
|
|
|
|||||||||||
| Total long – term debt |
59,787,923 | — | ||||||||||
|
|
|
|||||||||||
On March 10, 2023, the Company prepaid $23.2 million representing the then outstanding balance of the term loan A using cash on hand and the related mortgages of the vessels “Magic Wand”, “Clean Thrasher”, “Clean Sanctuary” and “Stealth Berana” was released.
In the first quarter of 2023, the Company repaid the amount of $1.4 million in line with the amortization schedule of the term loans B and C, and then proceeded with their full prepayment as follows:
On April 7, 2023, the Company prepaid $30.0 million representing the then outstanding balance of the term loan C using cash on hand and the related mortgages of the vessels “Suez Enchanted” and “Suez Protopia” were released.
On April 25, 2023, the Company prepaid $15.9 million representing the then outstanding balance of the term loan B using cash on hand and the related mortgages of the vessels “Clean Nirvana” and “Clean Justice” were released.
Bank loan interest expense for the above loans for the years ended December 31, 2021, 2022 and 2023 amounted to $87,724, $1,444,884 and $1,271,409, respectively. Interest expense is included in interest and finance costs in the consolidated statements of operations. For the years ended December 31, 2021, 2022 and 2023, the amortization of deferred financing charges amounted to $32,587, $94,007 and $474,039, respectively, and is included in interest and finance costs in the consolidated statements of operations. The interest rate on the outstanding loans as of December 31, 2022 was based on LIBOR for term loans A and C and on SOFR for term loan B plus a margin that ranged between 1.95% and 2.55%. The average interest rate (including the margin) on the above loans was 7.55% for the year ended December 31, 2023 (2022: 6.28%).
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| 6. | Accrued Liabilities |
Accrued liabilities consist of the following:
| As of December 31, | ||||||||
| 2022 | 2023 | |||||||
| Interest on long-term debt |
463,645 | — | ||||||
| Administrative expenses |
372,570 | 67,464 | ||||||
| Voyage expense |
527,581 | 1,071,393 | ||||||
| Vessel operating expenses |
618,510 | 1,869,643 | ||||||
|
|
|
|
|
|||||
| Total |
1,982,306 | 3,008,500 | ||||||
|
|
|
|
|
|||||
| 7. | Fair Value of Financial Instruments and Concentration of Credit Risk |
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, time deposits, trade and other receivables, trade accounts payable, balances with related parties and accrued liabilities. The Company limits its credit risk with respect to accounts receivable by performing ongoing credit evaluations of its customers’ financial condition and generally does not require collateral for its trade accounts receivable. The Company places its cash and cash equivalents and time deposits with high credit quality financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions.
Fair Value Disclosures: The Company has categorized assets and liabilities recorded at fair value based upon the fair value hierarchy specified by the guidance. The levels of fair value hierarchy are as follows:
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.
The carrying values of cash and cash equivalents, time deposits, trade and other receivables, trade accounts payable, balances with related parties and accrued liabilities are reasonable estimates of their fair value due to the short-term nature of these financial instruments. Cash and cash equivalents are considered Level 1 items as they represent liquid assets with short-term maturities.
| 8. | Stockholders’ Equity |
Under the Company’s articles of incorporation, the Company’s authorized capital stock consists of 2,000,000,000 common shares, par value $0.01 per share, and of 200,000,000 preferred shares, par value $0.01 per share. Following the Spin-Off discussed in Note 1, the Company issued a total of 318,351 common shares and 795,878 of 8.75% Series A cumulative redeemable perpetual preferred shares. Each outstanding common share is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by their holders at meetings of the shareholders. Holders of common shares (i) have equal ratable rights to dividends from funds legally available therefore, if declared by the Board of Directors; (ii) are entitled to share ratably in all of our assets available for distribution upon liquidation, dissolution or winding up; and (iii) do not have preemptive, subscription or conversion rights or redemption or sinking fund provisions. All issued common shares are fully paid for and non-assessable.
| i) | NASDAQ Notification |
On June 17, 2022, the Company received a written notification from the NASDAQ Stock Market, indicating that because the closing bid price of the Company’s common stock for 30 consecutive business days, from May 5, 2022 to June 16, 2022, was below the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq Capital Market, the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2).
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Table of Contents
Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the applicable grace period to regain compliance was 180 days, or until December 14, 2022. In December 2022, the Company received formal notification from the Listing Qualification Department of the Nasdaq Stock Market notifying the Company that it has been granted an additional 180-day compliance period, or until June 12, 2023, to regain compliance with the minimum $1.00 bid price per share requirement of Nasdaq’s Marketplace Rule 5550(a)(2). The Company can cure this deficiency if the closing bid price of its common stock is $1.00 per share or higher for at least ten consecutive business days during the grace period. At the opening of trading on April 28, 2023, following an approval from the Company’s Board of Directors, the Company effected 1-for-15 reverse stock split of the Company’s common stock. On May 16, 2023 the Company regained compliance with Nasdaq Listing Rule 5550(a)(2) concerning the minimum bid price of the Company’s common stock.
| ii) | Equity Offerings – common stock and warrants |
During the year ended December 31, 2022, the Company raised $168,001,415 in gross proceeds, or $156,821,474 in net proceeds, from public offerings and from the partial exercises of warrants issued in the underwritten public offerings (details are provided below).
In the first quarter of 2022, the Company completed an underwritten public offering for 736,000 of its common stock and 11,040,000 Class A Warrants exercisable for 736,000 shares of common stock at an exercise price of $18.75 per share, including full exercise of the underwriter’s overallotment option. The Company also issued the underwriters of the offering 552,000 warrants (the “February 2022 Representative Purchase Warrants”), exercisable for 36,800 shares of common stock at an exercise price of $20.625 per share. The offering resulted in gross proceeds to the Company of $13,800,000. During the year ended December 31, 2022, an aggregate of 10,997,000 Class A Warrants had been exercised for 733,133 shares of the Company’s common stock, resulting in gross proceeds to the Company of $13,746,250 (2023: nil).
In March 2022, the Company completed an underwritten public offering, including the full exercise of the underwriter’s overallotment option, of 2,874,997 units for $24 per unit, each unit consisting of (i) one share of common stock of the Company and (ii) fifteen Class B Warrants to purchase one share of common stock at an exercise price of $24 per share. The Company also issued 1,724,998 warrants to the representative of the underwriters (the “March 2022 Representative Purchase Warrants”) to purchase up to an aggregate of 115,000 shares of common stock at an exercise price of $30.00 per share. The offering resulted in gross proceeds to the Company of $68,999,920. In June 2022, several existing holders of Class B Warrants exercised 31,150,000 outstanding Class B Warrants to purchase an aggregate of 2,076,667 shares of common stock for cash, at an exercise price reduced by the Company from $24 per share to $10.5 per share, resulting in gross proceeds to the Company of $21,805,000. The exercising holders also received an aggregate of 31,150,000 Class D Warrants to purchase up to an aggregate of 2,076,667 shares of common stock at an exercise price per share of $12. The Company treated this warrant inducement transaction as a warrant modification and has recognized the incremental fair value of $2,943,675 of the Class D Warrants as a deemed dividend. As the Company was in an accumulated deficit position at the time of the transaction, the offsetting amount has been recorded against additional paid-in-capital.
For the year ended December 31, 2022, an aggregate of 31,322,950 Class B Warrants had been exercised for 2,088,197 shares of the Company’s common stock, resulting in gross proceeds to the Company of $22,081,720 (2023: nil).
In May 2022, the Company completed an underwritten public offering, including the full exercise of the underwriter’s overallotment option, of 5,575,757 units for $8.25 per unit, each unit consisting of (i) one share of common stock of the Company and (ii) fifteen Class C Warrants to purchase one share of common stock at an exercise price of $8.25 per share. The Company also issued 2,090,909 warrants to the representative of the underwriters (the “May 2022 Representative Purchase Warrants”) to purchase up to an aggregate of 139,394 shares of common stock at an exercise price of $10.3125 per share. The offering resulted in gross proceeds to the
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Company of $45,999,999. For the year ended December 31, 2022, an aggregate of 5,357,500 Class C Warrants had been exercised for 357,167 shares of the Company’s common stock, resulting in proceeds to the Company of $2,946,625 (2023: nil).
In December 2022, the Company completed a public offering of 98,280 shares of common stock, resulting in gross proceeds to the Company of $426,901.
In January 2023, February 2023 and March 2023, the Company completed a public offering of 3,287,062 shares of common stock resulting in gross proceeds of $12,095,255.
In August 2023, the Company completed an underwritten public offering of 8,499,999 units, each unit consisting of (i) one share of common stock of the Company at a price per share of $2.00 or one pre-funded warrant exercisable for one share of common stock at a price per share of $1.99 and (ii) one Class E Warrant to purchase one share of common stock at an exercise price of $2.00 per share. The holders of the pre-funded warrants were permitted to cashless exercise their warrants into common stock. As a result, 6,033,333 units were issued at a price per share of $2.00 and 2,447,184 were cashless exercised from the issued pre-funded warrants at a price per warrant of $1.99. The offering resulted in gross proceeds to the Company of $16,975,331.
During the year ended December 31, 2023, certain Class C and D warrants were repurchased. In October 2023, the Company repurchased 22,200,000 Class C warrants exercisable to 1,480,000 common shares for an amount of $414,400 and 16,500,000 Class D Warrants exercisable to 1,100,000 common shares for an amount of $253,000. In addition, in December 2023, the Company repurchased 35,869,862 Class C warrants exercisable to 2,391,323 common shares for an amount of $669,570 and 12,049,995 Class D Warrants exercisable to 803,333 common shares for an amount of $184,768. As of December 31, 2023, the number of common shares that can potentially be issued under each outstanding class of warrants are:
| Warrant class |
Shares to be issued upon exercise of remaining warrants |
|||
| Class A |
2,867 | |||
| Class B |
786,800 | |||
| Class C |
1,347,267 | |||
| Class D |
173,334 | |||
| Class E |
8,499,999 | |||
|
|
|
|||
| Total |
10,810,267 | |||
|
|
|
|||
In addition, an aggregate of 291,194 additional common shares are potentially issuable upon exercise of the February 2022, March 2022 and May 2022 Representative Purchase Warrants.
The Company in its assessment for the accounting of the warrants issued during the year ended December 31, 2022 and 2023 has taken into consideration ASC 480 “Distinguishing liabilities from equity” and determined that the warrants should be classified as equity instead of liability. Upon exercise of the warrants, the holder is entitled to receive common shares.
| iii) | Treasury stock |
On September 7, 2023, the Company’s Board of Directors approved a stock repurchase plan for an amount of up to $10,000,000 to be used for repurchasing the Company’s common shares. For the year ended December 31, 2023, the Company completed the repurchase of 3,444,536 shares paying an average price per share of $1.71 and $5,885,727 in total. These shares are held as treasury stock by the Company. For the year ended December 31, 2021 and 2022, the Company did not repurchase any of its common shares.
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| iv) | Preferred Shares: |
The table below presents a summary of preferred shares outstanding as of December 31, 2022 and 2023.
| Series | Description | Initial Issuance Date |
Total Shares Outstanding |
Liquidation Preference per Share (in dollars) |
Carrying value (1) |
Dividend Rate | ||||||||||||||||
| Series A |
8.75% Cumulative Redeemable Perpetual |
November 10, 2021 | 795,878 | $ | 25 | $ | 7,959 | |
8.75% per annum of the Liquidation Preference per share |
| ||||||||||||
|
|
|
|
|
|||||||||||||||||||
| Series B |
Series B Preferred Shares |
October 21, 2022 | 16,000 | $ | 0.01 | 160 | No dividend rights | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
| 811,878 | $ | 8,119 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
| 1) | There are no issuance costs. |
8.75% Series A cumulative redeemable perpetual preferred shares:
Holders of Series A Preferred Shares will be entitled to receive, when, as and if declared by the Company’s board of directors out of legally available funds for such purpose, cumulative cash dividends from the date of the Spin-Off.
Dividends on the Series A Preferred Shares accrue at a rate of 8.75% per annum per $25.00 stated liquidation preference per Series A Preferred Share. The dividend rate is not subject to adjustment. Dividends are payable on the 30th day of March, June, September and December of each year. In December 2021, the Company declared and paid dividends amounting $130,574 ($0.1640625 per share) on its Series A preferred shares relating to the period from December 3, 2021 to December 29, 2021.
Aggregate dividends of $1,740,983 were paid on the Company’s 795,878 Series A Preferred Shares ($0.1640625 per share) during both the years ended December 31, 2022 and 2023.
In the event of any liquidation, dissolution or winding-up of the Company’s affairs, whether voluntary or involuntary, holders of the Series A Preferred Shares will have the right to receive the liquidation preference of $25.00 per share plus an amount equal to all accumulated and unpaid dividends thereon to (but not including) the date of payment, whether or not declared, before any payments are made to holders of the Company’s common shares or any other junior securities.
The Series A Preferred Shares represent perpetual equity interests in the Company. The Company has no obligation to redeem or repurchase any Series A Preferred Shares at any time. The Series A Preferred Shares are subject to redemption, in whole or from time to time in part, at the Company’s option commencing on June 30, 2022.
Holders of the Series A Preferred Shares generally have no voting rights. However, if and whenever dividends payable on the Series A Preferred Shares are in arrears for six or more quarterly periods, whether or not consecutive, holders of Series A Preferred Shares (voting together as a class with holders of any Parity Securities upon which like voting rights have been conferred and are exercisable) will, subject to certain exceptions, be entitled to elect one additional director to serve on the Company’s board of directors unless the size of the board of directors already has been increased by reason of the election of a director by holders of Parity Securities upon which like voting rights have been conferred. This right will continue until the Company pays, or declares and sets apart for payment, all cumulative dividends on the Series A Preferred Shares.
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Series B preferred shares:
On October 21, 2022, the Company entered into a stock purchase agreement and issued 16,000 shares of its newly-designated Series B Preferred Shares, par value $0.01 per share, to its Chairman and Chief Executive Officer, Harry Vafias, considered a related party, in return for cash consideration of $200,000. The issuance of the Series B preferred shares was approved by an independent committee of the board of directors of the Company which received a fairness opinion from an independent financial advisor that the transaction was fair from a financial point of view to the Company. Each series B preferred share entitles the holder to 25,000 votes per share on all matters submitted to a vote of the shareholders of the Company, provided however, that no holder of series B preferred shares may exercise voting rights pursuant to series B preferred shares that would result in the aggregate voting power of any beneficial owner of such shares and its affiliates to exceed 49.99 % of the total number of votes eligible to be cast on any matter submitted to a vote of shareholders of the Company. The holder of series B preferred shares shall have no special voting or consent rights and shall vote together as one class with the holders of the common shares on all matters put before the shareholders. The series B preferred shares are not convertible into common shares or any other security, are not redeemable, are not transferable and have no dividend rights. Upon any liquidation, dissolution or winding up of the Company, the series B preferred shares will rank pari-passu with the common shareholders and shall be entitled to receive a payment equal to the par value of $0.01 per share. The Series B preferred holder has no other rights to distributions upon any liquidation, dissolution or winding up of the Company.
| 9. | Mezzanine equity |
On February 17, 2023, the Company entered into a Share Purchase Agreement with Flawless Management Inc. and sold to Flawless Management Inc. 13,875 newly issued Series C Cumulative Convertible Perpetual Preferred Shares (“Series C Preferred Shares”) having a liquidation preference of one thousand dollars ($1,000) per share (“the Liquidation Preference”). The Series C Cumulative Convertible Perpetual Preferred Shares were used as a partial consideration for the acquisition of the Handysize drybulk carrier “Glorieuse” (Note 3,4) from an affiliated company.
Each holder of Series C Preferred Share, at any time and from time to time on or after the date that is the date immediately following the six-month anniversary of February 17, 2023, may elect to convert, in whole or in part, its Series C Preferred Shares into shares of common stock at a rate equal to the Series C Liquidation Preference, plus the amount of any accrued and unpaid dividend thereon to and including the conversion date, divided by the lower of (1) $7.50 and (2) the Ten-Day VWAP, subject to adjustment from time to time, provided, that, the conversion price shall not be less than $1.50. If the Company shall, at any time or from time to time, pay a stock dividend or otherwise makes a distribution or distributions on its shares of common stock or any other equity or equity equivalent securities payable in shares of common stock, or effect a subdivision or split of the outstanding common shares, the conversion price in effect immediately before such stock dividend or distribution, subdivision or split shall be proportionately decreased and, conversely, if the Company shall, at any time or from time to time, effect a combination (including by means of a reverse stock split) of the outstanding shares of common stock the conversion price in effect before such combination shall be proportionately increased. Following the reverse stock split on April 28, 2023 (Note 1), the conversion price was adjusted to reflect the 1-for-15 reverse stock split.
The holder of the Series C Preferred Shares shall be entitled to receive dividends from time to time out of any assets of the Company legally available for the payment of dividends at a rate equal to 5.00% per annum when, as, and if declared by the Board of Directors. Dividends, to the extent declared to be paid by the Company, shall be paid quarterly on each January 15, April 15, July 15 and October 15 of each year commencing on July 15, 2023. Dividends on the Series C Preferred Shares shall be payable based on a 360-day year consisting of twelve 30-day months. The dividend rate of 5.00% per annum is not subject to adjustment. As of December 31, 2023, the Company paid dividends of $389,271 on the Company’s 13,875 Series C Preferred Shares to Flawless Management Inc.
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Table of Contents
The Series C Preferred Shares were redeemable upon a change in control, which is defined as the acquisition by any “person” or “group” of beneficial ownership through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of the Company’s shares entitling that person or group to exercise more than 50% of the total voting power of all of the Company’s shares entitled to vote generally in elections of directors. The occurrence of the above events was not solely in the control of the Company, and hence Series C Preferred Shares were initially classified within Mezzanine equity as per ASC 480-10-S99 “Distinguishing liabilities from Equity – SEC Materials”. The Series C Preferred Shares were recorded at $10.0 million at initial recognition representing the acquisition price of the vessel Glorieuse amounting to $18.5 million less the cash consideration of $8.5 million. The acquisition price of the vessel, which approximated its fair value as determined by an independent broker, was used for the determination of the fair value of the mezzanine equity, since it was more clearly evident and, thus, more reliably measurable than the fair value of the Series C Preferred Shares issued.
On December 21, 2023, all 13,875 Series C Preferred Shares, were converted by their holder, Flawless Management Inc., into 6,932,043 shares of the Company’s common stock. The Series C Preferred Shares were converted with a conversion price of $2.02, which represented the daily volume weighted average price of the Company’s common stock over the 10 consecutive trading days expiring on the trading day immediately prior to the date of delivery of the written notice of conversion. The Company, based on ASC 470-20-40-5, determined that the Series C Preferred Shares conversion feature is in essence a redemption, since such conversion was settled by a delivery of a variable number of shares of common stock with a fixed monetary amount and by applying ASC 260-10-S99-2 has recognized the difference between the carrying amount of the Series C Preferred Shares at the date of conversion and the fair value of the common stock delivered on the same date amounting to $6,507,789 as a deemed dividend, included in the statement of stockholders’ equity.
| 10. | Equity Compensation Plan |
In 2021 the Company’s shareholders and board of directors adopted an Equity Compensation Plan (“the Plan”) under which the Company’s employees, directors or other persons or entities providing significant services to the Company or its subsidiaries are eligible to receive awards including restricted stock, restricted stock units, unrestricted stock, bonus stock, performance stock, stock appreciation rights and options to purchase common stock. The Plan is administered by the Compensation Committee of the Company’s board of directors and the aggregate number of shares of common stock that may be issued with respect to awards granted under this Plan cannot exceed 10% of the number of shares of Company’s common stock issued and outstanding at the time any award is granted. The Company’s Board of Directors may terminate the Plan at any time. For the year ended December 31, 2023, a total of 1,775,787 restricted shares and 631,250 options to purchase common stock had been granted under the Plan since the first grant in the fourth quarter of 2022 (2022: 190,476 restricted shares, 2021: nil).
Restricted shares
On November 21, 2022, the Company granted $1,000,000 worth of shares of the Company’s common stock under the Plan to the Company’s CEO. The number of shares awarded was determined based on the closing price at the grant date i.e. on November 21, 2022 which was equal to $5.25. 95,238 of the restricted shares vested on July 17, 2023 and the remaining 95,238 of the restricted shares vest on July 15, 2024.
On March 21, 2023, the Company granted 280,392 of non-vested restricted shares under the Plan to employees of the Manager. The fair value of each share granted was $2.55 which is equal to the market value of the Company’s common stock on that day. 140,196 of the restricted shares vested on July 17, 2023 and the remaining 140,196 of the restricted shares vest on July 15, 2024.
On May 15, 2023, the Company granted 547,550 of non-vested restricted shares under the Plan to the Company’s CEO. The fair value of each share granted was $3.48 which is equal to the market value of the
F-23
Table of Contents
Company’s common stock on that day. 273,775 of the restricted shares vest on May 15, 2024 and the remaining 273,775 of the restricted shares vest on May 15, 2025.
On October 25, 2023, the Company granted 179,244 of non-vested restricted shares under
the Plan to employees of the Manager. The fair value of each share granted was $1.59 which is equal to the market value of the Company’s common stock on that day. 89,622 of the restricted shares vest on October 25, 2024 and the remaining
89,622 of the restricted shares vest on October 25, 2025.
On October 30, 2023, the Company
granted 578,125 of non-vested restricted shares under the Plan to the Company’s CEO, Interim CFO and non-executive members of Board of Directors of the
Company. The fair value of each share granted was $1.60 which is equal to the market value of the Company’s common stock on that day. 289,062 of the restricted shares vest on October 30, 2024 and the remaining 289,063 of the restricted
shares vest on October 30, 2025.
All unvested restricted shares are conditional upon the option holder’s continued service as an employee of the Company, or as a director until the applicable vesting date. Until the forfeiture of any restricted shares, the grantee has the right to vote such restricted shares, to receive and retain all regular cash dividends paid on such restricted shares and to exercise all other rights provided that the Company will retain custody of all distributions other than regular cash dividends made or declared with respect to the restricted shares.
The Company pays dividends on all restricted shares regardless of whether they have vested and there is no obligation of the employee to return the dividend when employment ceases. The Company did not pay any dividends during the years ended December 31, 2021, 2022 and 2023.
The stock-based compensation expense for the years ended December 31, 2021, 2022 and 2023 amounted to nil, $117,256 and $2,343,210, respectively and is included in the consolidated statements of operations under the caption “General and administrative expenses”.
No non-vested shares existed as of December 31, 2021. A summary of the status of the Company’s non-vested restricted shares as of December 31, 2022 and 2023, is presented below:
| Number of restricted shares |
Weighted average grant date fair value per non-vested share |
|||||||
| Non-vested, January 1, 2022 |
— | |||||||
| Granted |
190,476 | 5.25 | ||||||
|
|
|
|
|
|||||
| Non-vested, December 31, 2022 |
190,476 | 5.25 | ||||||
|
|
|
|
|
|||||
| Granted |
1,585,311 | 2.42 | ||||||
| Vested |
(235,434 | ) | (3.64 | ) | ||||
|
|
|
|
|
|||||
| Non-vested, December 31, 2023 |
1,540,353 | 2.58 | ||||||
|
|
|
|
|
|||||
The remaining unrecognized compensation cost relating to the shares granted amounting to $2,370,009 as of December 31, 2023, is expected to be recognized over the remaining weighted average period of 1.1 years, according to the contractual terms of those non-vested share awards.
Options to purchase common shares
On October 30, 2023, the Company granted options to acquire up to 631,250 shares of common stock under the Plan to the Company’s CEO, Interim CFO and non-executive members of Board of Directors of the Company. 50% of these options vest on October 30, 2024 and the remaining 50% vest on October 30, 2025. These options expire on October 30, 2033. The fair value of each option granted was $1.14. The fair value of
F-24
Table of Contents
each option granted was estimated on the date of the grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used in computing the fair value of the options granted: expected volatility of 81%; expected term of 5.75 years; risk-free interest rate of 5%. The expected term of the options granted was estimated to be the average of the vesting and the contractual term. The expected volatility was generally based on historical volatility of the stock prices of various tanker shipping companies as calculated using historical data during approximately 6 years prior to the grant date.
The Company had no stock option activity during the years ended December 31, 2021 and 2022. A summary of the Company’s non-vested stock option activity and related information for the year ended December 31, 2023, is as follows:
| December 31, 2023 | ||||||||
| Option shares # |
Weighted- Average Exercise Price $ |
|||||||
| Outstanding – beginning of year |
— | — | ||||||
| Granted |
631,250 | 1.60 | ||||||
| Exercised |
— | — | ||||||
| Outstanding – end of year |
631,250 | 1.60 | ||||||
| Exercisable – end of year |
— | |||||||
No options vested during the year ended December 31, 2023. The remaining unrecognized compensation cost relating to the options granted amounting to $629,351 as of December 31, 2023, is expected to be recognized over the remaining period of 1.4 years, according to the contractual terms of those non-vested options.
The stock-based compensation expense for the vested and non-vested options for the years ended December 31, 2021, 2022 and 2023 amounted to nil, nil and $91,645, respectively, and is included in the consolidated statements of operations under the caption “General and administrative expenses”.
As at December 31, 2023, the intrinsic value of outstanding stock options was $1.04 per option.
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Table of Contents
| 11. | (Loss)/Earnings per share |
The Company calculates basic and diluted loss/earnings per share as follows:
| Year Ended December 31, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| Numerator |
||||||||||||
| Net (loss)/income |
(3,639,979 | ) | 29,510,928 | 71,134,002 | ||||||||
| Less: Cumulative dividends on preferred shares |
(140,246 | ) | (1,740,983 | ) | (2,130,254 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Less: Deemed dividend on warrant inducement (Note 8) |
— | (2,943,675 | ) | — | ||||||||
|
|
|
|
|
|
|
|||||||
| Less: Deemed divided from conversion of the Series C Preferred Shares (Note 9) |
— | — | (6,507,789 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Less: Undistributed earnings allocated to non-vested shares |
— | (61,906 | ) | (2,508,399 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net (loss)/income attributable to common shareholders, basic |
(3,780,225 | ) | 24,764,364 | 59,987,560 | ||||||||
| Denominator |
||||||||||||
| Weighted average number of shares outstanding, basic |
318,351 | 8,559,000 | 18,601,539 | |||||||||
|
|
|
|
|
|
|
|||||||
| Weighted average number of shares outstanding, diluted |
318,351 | 8,593,575 | 22,933,671 | |||||||||
|
|
|
|
|
|
|
|||||||
| (Loss)/Earnings per share, basic |
(11.87 | ) | 2.89 | 3.22 | ||||||||
| (Loss)/Earnings per share, diluted |
(11.87 | ) | 2.89 | 2.93 | ||||||||
|
|
|
|
|
|
|
|||||||
As of December 31, 2023, diluted earnings per share reflects the potential dilution from the incremental shares of the 631,250 unexercised options to acquire common shares, the 1,540,353 non-vested share awards that had dilutive effect and the potential dilution from the conversion of outstanding Series C Preferred Shares (Note 9) calculated with the “if converted” method by using the average closing market price over the period up to their conversion. Securities that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS, because to do so would have anti-dilutive effect, are any incremental shares of unexercised warrants that are out-of-the money as of the reporting date, calculated with the treasury stock method. As of December 31, 2023, the aggregate number of unexercised warrants was 10,810,267 (Note 8).
As of December 31, 2022, diluted earnings per share reflects the potential dilution from the incremental shares of the Class A warrants that had dilutive effect. The Company excluded the dilutive effect of 190,476 non-vested share awards in calculating dilutive EPS for its common shares as of December 31, 2022, as they were anti-dilutive.
There were no dilutive securities for the year ended December 31, 2021.
The weighted average number of shares outstanding was adjusted to reflect the reverse stock split effected on April 28, 2023 (Note 1).
The reported loss per common share calculations give retroactive effect to the issuance of the common shares as of January 1, 2021.
F-26
Table of Contents
| 12. | Revenues |
The amounts in the accompanying consolidated statements of operations are analyzed as follows:
| Year ended December 31, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| Time charter revenues |
10,813,545 | 26,331,752 | 21,738,874 | |||||||||
| Bareboat revenues |
2,717,105 | 1,906,328 | — | |||||||||
| Voyage charter revenues |
3,679,869 | 67,957,871 | 158,583,636 | |||||||||
| Other income |
152,150 | 823,927 | 3,403,310 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
17,362,669 | 97,019,878 | 183,725,820 | |||||||||
|
|
|
|
|
|
|
|||||||
Time charter agreements may have renewal options for one to 12 months. The related charter hire is generally payable in advance. The time charter party generally provides typical warranties regarding the speed and the performance of the vessel as well as some owner protective restrictions such that the vessel is sent only to safe ports by the charterer, subject always to compliance with applicable sanction laws, and carry only lawful and non-hazardous cargo. The Company may enter into time charters ranging from one month to twelve months and in isolated cases on longer terms depending on market conditions. The charterer has the full discretion over the ports visited, shipping routes and vessel speed, subject only to the owner protective restrictions discussed above.
Vessels may also be chartered under voyage charters, where a contract is made for the use of a vessel under which the Company is paid freight on the basis of moving cargo from a loading port to a discharge port. A significant portion of the voyage hire is typically paid upon the completion of the voyage.
The amount of revenue earned as demurrage relating to the Company’s voyage charters for the years ended December 31, 2021, 2022 and 2023 was $0.9 million, $7.0 million and $19.2 million, respectively and is included within “Voyage charter revenues” in the above table.
As of December 31, 2022 and December 31, 2023, receivables from the Company’s voyage charters amounted to $6.1 million and $12.6 million, respectively.
As of December 31, 2022 and 2023, the Company recognized $240,002 and $302,773, respectively, of contract fulfillment costs which mainly represent bunker expenses incurred prior to commencement of loading relating to the Company’s voyage charters. These costs are recorded in “Other current assets” in the consolidated balance sheets.
As of December 31, 2022 and 2023, revenues relating to undelivered performance obligations of the Company’s voyage charters amounted to $15.0 million and $6.7 million, respectively. The Company will recognize the undelivered performance obligation as of December 31, 2023 as revenues in the first quarter of 2024.
| 13. | Vessel Operating Expenses |
The amount in the accompanying consolidated statements of operations are analyzed as follows:
| Year ended December 31, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| Vessels’ Operating Expenses |
||||||||||||
| Crew wages and related costs |
4,321,751 | 8,592,098 | 13,452,713 | |||||||||
| Insurance |
323,719 | 780,973 | 1,168,486 | |||||||||
| Repairs and maintenance |
845,200 | 2,474,586 | 3,884,234 | |||||||||
| Spares and consumable stores |
1,181,483 | 2,901,979 | 4,821,081 | |||||||||
| Miscellaneous expenses |
760,874 | 1,643,500 | 2,315,920 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
7,433,027 | 16,393,136 | 25,642,434 | |||||||||
|
|
|
|
|
|
|
|||||||
F-27
Table of Contents
| 14. | Income Taxes |
Under the laws of the countries of the companies’ incorporation and/or vessels’ registration, the companies are not subject to tax on international shipping income, however, they are subject to registration and tonnage taxes, which have been included in Vessels’ operating expenses in the consolidated statements of operations.
Pursuant to the Internal Revenue Code of the United States (the “Code”), U.S. source income from the international operations of ships is generally exempt from U.S. tax if the company operating the ships meets certain requirements. Among other things, in order to qualify for this exemption, the company operating the ships must be incorporated in a country which grants an equivalent exemption from income taxes to U.S. corporations. The Company satisfies these initial criteria. In addition, these companies must be more than 50% owned by individuals who are residents, as defined, in the country of incorporation or another foreign country that grants an equivalent exemption to U.S. corporations. The Company also currently satisfies the more than 50% beneficial ownership requirement.
| 15. | Commitments and Contingencies |
| • | From time to time the Company expects to be subject to legal proceedings and claims in the ordinary course of its business, principally relating to personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. Currently, the Company 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 consolidated financial statements. |
| • | Future minimum contractual charter revenues, gross of commissions, based on vessels committed to non-cancellable, time and bareboat charter contracts as of December 31, 2023, amount to $346,750 during the twelve months ending December 31, 2024. |
| 16. | Subsequent events |
On February 18 and 28, 2024 the vessels “Aquadisiac” and “Gstaad Grace II (ex. Stealth Haralambos)”, respectively, were delivered to the Company (Note 3).
From January 8, 2024 to January 23, 2024 the Company repurchased 807,348 shares of common stock for an aggregate of consideration of $2.5 million under its share repurchase program.
In April 2024, the Company granted (1) 426,253 of restricted shares of common stock under the Plan to the Company’s CEO, Interim CFO, non-executive members of the Board of Directors of the Company and employees of the Manager, and (2) options to acquire up to 111,000 of common stock under the Plan to the Company’s CEO, Interim CFO and non-executive members of the Board of Directors of the Company. 50% of these restricted shares and options vest in April 2025 and the remaining 50% vest in April 2026.
In April 2024, the Company’s 2024 Equity Compensation Plan, was adopted, under which awards can be made totaling in aggregate up to 10% of the number of shares of common stock outstanding at the time any award is granted.
In April 2024, the Company paid dividends amounting to $435,246 to the holders of the Company’s Series A Preferred Shares.
F-28
Table of Contents
| CORPORATE DIRECTORY
Directors and Executive Officers
Harry N.Vafias Chief Executive Officer Imperial Petroleum Inc.
George Xiradakis Director & Chairman of the Audit Committee Managing Director
John Kostoyannis Director Managing Director Allied Shipbroking
Corporate Communications
Harry N.Vafias Chief Executive Officer Imperial Petroleum Inc. Kifissia, 14561 Greece Tel.: +30 210 62 50 001 info@imperialpetro.com
Corporate Office Imperial Petroleum Inc. 331 Kifissias Avenue Kifissia, 14561 Greece Tel.: +30 210 62 50 001
Transfer Agent Equinity Trust Company LLC 55 Challenger Road, 2nd Floor Ridgefield Park, NJ 07660 Tel: (718) 921-8124
Legal Counsel Goodwin Procter LLP 620 Eighth Avenue New York, NY 10018
Auditors Deloitte Certified Public Accountants S.A. 3a Fragoklissias & Granikou Str. Marousi 15152, Athens Greece
Stock Listing Imperial Petroleum Inc.’s common stock is traded on the Nasdaq Global Select Market Under the Symbol “IMPP”
Website Corporate Investor information, press releases, fleet information and SEC filings may be obtained through our website at www.imperialpetro.com |
FORWARD LOOKING STATEMENTS
Matters discussed in this report may constitute forward-looking statements. Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although IMPERIAL PETROLEUM INC. believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, IMPERIAL PETROLEUM INC. cannot assure you that it will achieve or accomplish these expectations, beliefs or projections. Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies and currencies, general market conditions, including changes in charter hire rates and vessel values, charter counterparty performance, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled drydockings, shipyard performance, changes in IMPERIAL PETROLEUM INC’s operating expenses, including bunker prices, drydocking and insurance costs, ability to obtain financing and comply with covenants in any financing arrangements, or actions taken by regulatory authorities, potential liability from pending or future litigation, domestic and international political conditions, the conflict in Ukraine and related sanctions, the conflict on Israel and Gaza, the potential disruption of shipping routes due to ongoing attacks by Houthis in the Red Sea and Gulf of Aden or accidents and political events or acts by terrorists. |
Table of Contents
Imperial Petroleum Inc. 331 Kifissias Avenue I Kifissia, 14561 Greece Tel.: +30 2106250001-16 I Fax: +30 2106250018-19 www.imperialpetro.com I info@imperialpetro.com