Note 9 - Financial Instruments

6 Months Ended

Jun. 30, 2014

Disclosure Text Block Supplement [Abstract]

Financial Instruments Disclosure [Text Block]

9.	Financial Instruments

The principal financial assets of the Company consist of cash on hand and at banks, interest rate swaps and accounts receivable due from charterers. The principal financial liabilities of the Company consist of long-term loans and accounts payable due to suppliers and related parties.

Interest rate risk

The Company enters into interest rate swap contracts as economic hedges to manage some of its exposure to variability in its floating rate long-term debt. Under the terms of the interest rate swaps the Company and the bank agreed to exchange, at specified intervals the difference between a paying fixed rate and floating rate interest amount calculated by reference to the agreed principal amounts and maturities. As of June 30, 2014, the Company had two open swap contracts for a total notional amount of $20.00 million. Details of our interest rate swaps are discussed in Note 29 of our consolidated financial statements for the year ended December 31, 2013 included in the Company’s annual report on Form 20-F.

Concentration of credit risk

Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash and trade accounts receivable. The Company places its temporary cash investments, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluation of the relative credit standing of these financial institutions that are considered in the Company’s investment strategy. The Company limits its credit risk with accounts receivable by performing ongoing credit evaluations of its customers’ financial condition and generally does not require collateral for its accounts receivable.

Fair value of financial instruments

The estimated fair values of the Company's financial instruments, such as trade receivables, trade accounts payable, cash and cash equivalents and restricted cash, approximate their individual carrying amounts as of December 31, 2013 and June 30, 2014, due to their short-term maturity. The fair value of the Company's long-term borrowings approximates $58.94 million as of June 30, 2014, or approximately, $0.50 million less than its carrying value of $59.44 million. The fair value of the long-term borrowings is estimated based on current interest rates offered to the Company for similar loans. LIBOR rates are observable at commonly quoted intervals for the full terms of the loans and hence fair value of the long-term bank loans are considered Level 2 items in accordance with the fair value hierarchy due to their variable interest rate, being the LIBOR. The fair value of the Company’s “Other investments” approximates its carrying value. The Company’s interest rate swaps are stated at fair value, and fair value was determined as the estimated amount the Company would pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the Company and its counterparties.

The Company follows guidance relating to “Fair value measurements”, which establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities;

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;

Level 3: Unobservable inputs that are not corroborated by market data.

The fair value of the Company’s interest rate swap agreements is determined using a discounted cash flow approach based on market-based LIBOR swap rates. LIBOR swap rates are observable at commonly quoted intervals for the full terms of the swaps and therefore are considered Level 2 items. The fair values of the interest rate swap determined through Level 2 of the fair value hierarchy as defined in guidance relating to “Fair value measurements” are derived principally from or corroborated by observable market data. Inputs include quoted prices for similar assets, liabilities (risk adjusted) and market-corroborated inputs, such as market comparables, interest rates, yield curves and other items that allow value to be determined. As of December 31, 2013 and June 30, 2014 no fair value measurements for assets or liabilities under Level 1 or Level 3 were recognized in the Company’s unaudited condensed consolidated financial statements.

	Fair Value Measurement at Reporting Date Using
	Total, December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Liabilities
Derivatives, current and long-term portion	$	1,017,748		-	$	1,017,748		-

	Fair Value Measurement at Reporting Date Using
	Total, June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Liabilities
Derivatives, current and long-term portion	$	675,846		-	$	675,846		-

Derivatives not designated as hedging instruments	Balance Sheet Location	December 31, 2013		June 30, 2014
Interest rate contracts	Current liabilities - Derivatives		697,889		501,015
Interest rate contracts	Long-term liabilities - Derivatives		319,859		174,831
Total derivative liabilities			1,017,748		675,846

Derivatives not designated as hedging instruments	Location of gain (loss) recognized	Six Months Ended June 30, 2013			Six Months Ended June 30, 2014
Interest rate – Fair value	Change in fair value of derivatives		882,937			341,902
Interest rate contracts - Realized loss	Change in fair value of derivatives		(884,964	)		(437,767	)
Total loss on derivatives			(2,027	)		(95,865	)