20-F 1 d8498133_20-f.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________
FORM 20-F
_________________
(Mark One)

☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(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, 2019

OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the transition period from _________________ to _________________

OR

☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report
| Commission file number 001-33283
EUROSEAS LTD.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant's name into English)
Marshall Islands
(Jurisdiction of incorporation or organization)
4 Messogiou & Evropis Street, 151 24 Maroussi Greece
(Address of principal executive offices)
Tasos Aslidis, Tel: (908) 301-9091, euroseas@euroseas.gr, Euroseas Ltd. c/o Tasos Aslidis, 11 Canterbury Lane, Watchung, NJ 07069
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common shares, $0.03 par value | ESEA | Nasdaq Capital Market
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report
| 5,600,259 common shares, $0.03 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by 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
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or an emerging growth company. See definition of "accelerated filer", "large accelerated filer" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
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. ☐
† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
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
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☒ Yes ☐ No

TABLE OF CONTENTS
Page

Forward-Looking Statements |  | 1
Part I |  |
Item 1. | Identity of Directors, Senior Management and Advisers | 2
Item 2. | Offer Statistics and Expected Timetable | 2
Item 3. | Key Information | 2
Item 4. | Information on the Company | 37
Item 4A. | Unresolved Staff Comments | 53
Item 5. | Operating and Financial Review and Prospects | 54
Item 6. | Directors, Senior Management and Employees | 65
Item 7. | Major Shareholders and Related Party Transactions | 70
Item 8. | Financial Information | 74
Item 9. | The Offer and Listing | 75
Item 10. | Additional Information | 76
Item 11. | Quantitative and Qualitative Disclosures About Market Risk | 88
Item 12. | Description of Securities Other than Equity Securities | 89

Part II

Item 13. | Defaults, Dividend Arrearages and Delinquencies | 89
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | 89
Item 15. | Controls and Procedures | 89
Item 16A. | Audit Committee Financial Expert | 90
Item 16B. | Code of Ethics | 90
Item 16C. | Principal Accountant Fees and Services | 91
Item 16D. | Exemptions from the Listing Standards for Audit Committees | 91
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 91
Item 16F. | Change in Registrant's Certifying Accountant | 91
Item 16G. | Corporate Governance | 91
Item 16H. | Mine Safety Disclosure | 91

Part III

Item 17. | Financial Statements | 91
Item 18. | Financial Statements | 92
Item 19. | Exhibits | 92

FORWARD-LOOKING STATEMENTS
Euroseas Ltd. and its wholly owned subsidiaries, or the Company, desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. This annual report contains forward-looking statements. These forward-looking statements include information about possible or assumed future results of our operations or our performance. Words such as "expects," "intends," "plans," "believes," "anticipates," "estimates," and variations of such words and similar expressions are intended to identify the forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding:

| • | our future operating or financial results;

| • | future, pending or recent acquisitions, joint ventures, business strategy, areas of possible expansion, and expected capital spending or operating expenses;

| • | container shipping industry trends, including charter rates and factors affecting vessel supply and demand;

| • | our financial condition and liquidity, including our ability to obtain additional financing in the future to fund capital expenditures, acquisitions and other general corporate activities;

| • | availability of crew, number of off-hire days, drydocking requirements and insurance costs;

| • | our expectations about the availability of vessels to purchase or the useful lives of our vessels;

| • | our expectations relating to dividend payments and our ability to make such payments;

| • | our ability to leverage to our advantage our manager's relationships and reputations in the container shipping industry;

| • | changes in seaborne and other transportation patterns;

| • | changes in governmental rules and regulations or actions taken by regulatory authorities;

| • | potential liability from future litigation;

| • | global and regional political conditions;

| • | acts of terrorism and other hostilities, including piracy;

| • | business disruptions due to natural disasters or other disasters outside our control, such as the recent novel Coronavirus COVID-19 ("Coronavirus") outbreak; and

| • | other factors discussed in the section titled "Risk Factors."

WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT, EXCEPT AS REQUIRED BY LAW, OR THE DOCUMENTS TO WHICH WE REFER YOU IN THIS ANNUAL REPORT, TO REFLECT ANY CHANGE IN OUR EXPECTATIONS WITH RESPECT TO SUCH STATEMENTS OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY STATEMENT IS BASED.
1

PART I

Item 1. | Identity of Directors, Senior Management and Advisers

Not Applicable.

Item 2. | Offer Statistics and Expected Timetable

Not Applicable.

Item 3. | Key Information

Please note: Throughout this report, all references to "we," "our," "us" and the "Company" refer to Euroseas Ltd. and its subsidiaries. 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. We use the term twenty-foot equivalent unit, or teu, in describing the size of our containerships in addition to dwt. Teu, expressed in number of containers, refers to the maximum number of twenty-foot long containers that can be placed on board. Unless otherwise indicated, all references to "dollars" and "$" in this report are to, and amounts are presented in, U.S. dollars. All share and per share amounts have been adjusted to account for the 1-for-8 reverse stock split, effective at the close of trading on December 18, 2019.

A. | Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial and other data of Euroseas Ltd. for each of the years in the five-year period ended December 31, 2019. The table should be read together with "Item 5. Operating and Financial Review and Prospects." Excluding fleet data, the selected consolidated financial data of Euroseas Ltd. is a summary of, is derived from, and is qualified by reference to, our audited consolidated financial statements and notes thereto, which have been prepared in accordance with U.S. generally accepted accounting principles, or "U.S. GAAP."
Our audited consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 2017, 2018 and 2019 and the consolidated balance sheets at December 31, 2018 and 2019, together with the notes thereto, are included in "Item 18. Financial Statements" and should be read in their entirety.
Following the close of trading on the Nasdaq Capital Market on May 30, 2018, the Company completed the spin-off of its drybulk fleet (excluding M/V Monica P, a handymax drybulk carrier, which was agreed to be sold) to EuroDry Ltd. ("EuroDry"). Shareholders of the Company received one EuroDry common share for every five common shares of the Company they owned as of May 23, 2018. Shares of EuroDry commenced trading on May 31, 2018 on the Nasdaq Capital Market under the symbol "EDRY." EuroDry operates in the dry cargo, drybulk shipping markets, owning and operating drybulk vessels previously owned and operated by Euroseas, and is now a separate publicly traded company. As a result of the spin-off and the subsequent sale of M/V Monica P, the Company has become a pure containership company and the only publicly listed company concentrating on the feeder and intermediate containership sector. Accordingly, the results of operations and financial condition of EuroDry have been presented in discontinued operations for all historical comparative periods presented. The summary financials below refer to Euroseas Ltd. "continuing operations" giving effect to the spin-off of drybulk vessels to EuroDry ("discontinued operations") unless otherwise noted; historical comparative periods have been adjusted accordingly.
As further described in Note 2 to our consolidated financial statements on January 1, 2018 we adopted the new accounting guidance for revenue from contracts with customers (ASC 606) and on January 1, 2019 we adopted the new accounting guidance for leases (ASC 842), in each case using the modified retrospective approach. As such, the information prior to adoption of such new guidance has not been restated and continues to be reported under the accounting standards in effect for such periods.
See next page for table of Euroseas Ltd. – Summary of Selected Historical Financials.
2

Euroseas Ltd. – Summary of Selected Historical Financials (in U.S. Dollars except for Fleet Data and number of shares) |
Year Ended December 31, |
|  | 2015 |  |  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |
Statement of Operations Data |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Time charter revenue |  |  | 35,509,971 |  |  |  | 21,409,236 |  |  |  | 24,278,048 |  |  |  | 36,062,202 |  |  |  | 41,769,278 |
Voyage charter revenue |  |  | - |  |  |  | 47,979 |  |  |  | 559,319 |  |  |  | 206,682 |  |  |  | - |
Related party management fee income |  |  | 240,000 |  |  |  | 240,000 |  |  |  | 240,000 |  |  |  | - |  |  |  | - |
Commissions |  |  | (1,965,466 | ) |  |  | (1,151,879 | ) |  |  | (1,318,248 | ) |  |  | (1,844,147 | ) |  |  | (1,745,599 | )
Net revenue, continuing operations |  |  | 33,784,505 |  |  |  | 20,545,336 |  |  |  | 23,759,119 |  |  |  | 34,424,737 |  |  |  | 40,023,679 |
Voyage expenses |  |  | (1,852,482 | ) |  |  | (1,209,085 | ) |  |  | (1,564,489 | ) |  |  | (1,261,088 | ) |  |  | (1,055,408 | )
Vessel operating expenses |  |  | (21,833,674 | ) |  |  | (13,853,444 | ) |  |  | (15,019,342 | ) |  |  | (19,986,170 | ) |  |  | (23,983,282 | )
Other operating income |  |  | - |  |  |  | - |  |  |  | 499,103 |  |  |  | - |  |  |  | - |
Dry-docking expenses |  |  | (1,332,378 | ) |  |  | (2,204,784 | ) |  |  | (571,291 | ) |  |  | (2,774,924 | ) |  |  | (2,714,662 | )
Vessel depreciation |  |  | (8,108,231 | ) |  |  | (4,959,487 | ) |  |  | (3,585,965 | ) |  |  | (3,305,951 | ) |  |  | (4,178,886 | )
Related party management fees |  |  | (3,589,167 | ) |  |  | (2,399,461 | ) |  |  | (2,632,637 | ) |  |  | (3,536,094 | ) |  |  | (3,671,335 | )
General and administrative expenses |  |  | (2,886,884 | ) |  |  | (2,673,594 | ) |  |  | (2,502,203 | ) |  |  | (2,565,502 | ) |  |  | (2,444,495 | )
Net gain on sale of vessels |  |  | 461,586 |  |  |  | 10,597 |  |  |  | 803,811 |  |  |  | 1,340,952 |  |  |  | - |
Loss on write-down of vessels held for sale |  |  | (1,641,885 | ) |  |  | (5,924,668 | ) |  |  | (4,595,819 | ) |  |  | - |  |  |  | - |
Operating (loss) / income, continuing operations |  |  | (6,978,610 | ) |  |  | (12,668,590 | ) |  |  | (5,409,713 | ) |  |  | 2,335,960 |  |  |  | 1,975,611 |
Interest and other financing costs |  |  | (1,398,553 | ) |  |  | (1,370,830 | ) |  |  | (1,554,695 | ) |  |  | (3,050,768 | ) |  |  | (3,424,969 | )
(Loss)/gain on derivatives, net |  |  | (261,674 | ) |  |  | (119,154 | ) |  |  | 12,389 |  |  |  | (44,343 | ) |  |  | (2,885 | )
Other investment income |  |  | 1,212,938 |  |  |  | 1,024,714 |  |  |  | - |  |  |  | - |  |  |  | - |
Impairment of other investment |  |  | - |  |  |  | (4,421,452 | ) |  |  | - |  |  |  | - |  |  |  | - |
Loss on debt extinguishment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (328,291 | )
Foreign exchange gain / (loss) |  |  | 16,711 |  |  |  | (31,033 | ) |  |  | (30,214 | ) |  |  | 13,963 |  |  |  | 2,024 |
Interest income |  |  | 26,445 |  |  |  | 22,277 |  |  |  | 37,972 |  |  |  | 81,792 |  |  |  | 95,839 |
Equity loss in joint venture |  |  | (2,158,393 | ) |  |  | (2,444,627 | ) |  |  | - |  |  |  | - |  |  |  | - |
Impairment in joint venture |  |  | - |  |  |  | (14,071,075 | ) |  |  | - |  |  |  | - |  |  |  | - |
Net loss, continuing operations |  |  | (9,541,136 | ) |  |  | (34,079,770 | ) |  |  | (6,944,261 | ) |  |  | (663,396 | ) |  |  | (1,682,671 | )
Dividends to Series B preferred shares |  |  | (1,639,149 | ) |  |  | (1,725,699 | ) |  |  | (1,808,811 | ) |  |  | (1,335,733 | ) |  |  | (1,271,782 | )
Preferred deemed dividend |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (504,577 | )
Net loss attributable to common shareholders, continuing operations |  |  | (11,180,285 | ) |  |  | (35,805,469 | ) |  |  | (8,753,072 | ) |  |  | (1,999,129 | ) |  |  | (3,459,030 | )
Loss per share attributable to common shareholders- basic and diluted, continuing operations (1) |  |  | (13.95 | ) |  |  | (35.08 | ) |  |  | (6.33 | ) |  |  | (1.41 | ) |  |  | (1.21 | )
Preferred stock dividends declared |  |  | 1,639,149 |  |  |  | 1,725,699 |  |  |  | 1,808,811 |  |  |  | 1,335,733 |  |  |  | 1,271,782 |
Preferred dividends declared per preferred share outstanding at end of period |  |  | 48.53 |  |  |  | 48.60 |  |  |  | 48.48 |  |  |  | 68.13 |  |  |  | 158.97 |
Weighted average number of shares outstanding during period, basic and diluted (1) |  |  | 801,349 |  |  |  | 1,020,713 |  |  |  | 1,383,440 |  |  |  | 1,414,775 |  |  |  | 2,861,928 |

(1) In December 2019, the Company completed a 1-for-8 reverse stock split. The reverse stock split was undertaken with the objective of meeting the minimum $1.00 per share requirement for listing the Company's common stock on the Nasdaq Capital Market. The weighted average number of shares as well as the earnings / losses per share shown above have been adjusted retroactively to give effect to the shares associated with this reverse split.
3

|  | Euroseas Ltd. – Summary of Selected Historical Financials (continued) As of December 31, |
Balance Sheet Data |  | 2015 |  |  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |
Current assets, continuing operations |  |  | 20,872,484 |  |  |  | 8,285,054 |  |  |  | 12,168,251 |  |  |  | 11,994,168 |  |  |  | 6,297,092 |
Current assets of discontinued operations |  |  | 711,815 |  |  |  | 2,159,029 |  |  |  | 3,914,117 |  |  |  | - |  |  |  | - |
Vessels, net |  |  | 52,521,193 |  |  |  | 41,145,269 |  |  |  | 52,132,079 |  |  |  | 48,826,128 |  |  |  | 116,230,333 |
Deferred assets and other long term assets, continuing operations |  |  | 51,185,084 |  |  |  | 33,459,098 |  |  |  | 28,919,785 |  |  |  | 6,134,267 |  |  |  | 4,334,267 |
Long-term assets of discontinued operations |  |  | 47,116,387 |  |  |  | 58,645,054 |  |  |  | 65,195,329 |  |  |  | - |  |  |  | - |
Total assets |  |  | 172,406,963 |  |  |  | 143,693,504 |  |  |  | 162,329,561 |  |  |  | 66,954,563 |  |  |  | 126,861,692 |
Total current liabilities, continuing operations |  |  | 20,391,502 |  |  |  | 9,710,927 |  |  |  | 12,649,309 |  |  |  | 11,592,535 |  |  |  | 24,851,259 |
Current liabilities of discontinued operations |  |  | (1,026,121 | ) |  |  | 1,463,708 |  |  |  | 5,883,288 |  |  |  | - |  |  |  | - |
Long term bank loans, including current portion |  |  | 22,201,040 |  |  |  | 20,402,911 |  |  |  | 34,014,502 |  |  |  | 36,586,790 |  |  |  | 84,483,105 |
Related party loan, current |  |  | - |  |  |  | 2,000,000 |  |  |  | - |  |  |  | - |  |  |  | 5,000,000 |
Vessel profit participation liability |  |  | - |  |  |  | - |  |  |  | 1,297,100 |  |  |  | 1,067,500 |  |  |  | - |
Long-term liabilities of discontinued operations |  |  | 16,440,000 |  |  |  | 28,243,478 |  |  |  | 30,364,035 |  |  |  | - |  |  |  | - |
Total liabilities |  |  | 45,279,121 |  |  |  | 55,781,792 |  |  |  | 80,021,604 |  |  |  | 44,376,584 |  |  |  | 98,753,414 |
Preferred shares |  |  | 32,079,249 |  |  |  | 33,804,948 |  |  |  | 35,613,759 |  |  |  | 18,757,361 |  |  |  | 7,654,577 |
Number of common shares outstanding (1) |  |  | 1,024,470 |  |  |  | 1,359,514 |  |  |  | 1,409,266 |  |  |  | 1,564,456 |  |  |  | 5,600,259 |
Common stock |  |  | 30,734 |  |  |  | 40,785 |  |  |  | 42,279 |  |  |  | 46,934 |  |  |  | 168,008 |
Total shareholders' equity |  |  | 95,048,593 |  |  |  | 54,106,764 |  |  |  | 46,694,198 |  |  |  | 3,820,618 |  |  |  | 20,453,701 |
Cash Flow Data |  |  |  |  |  | Year Ended December 31, |
|  |  | 2015 |  |  |  | 2016 |  |  |  | 2017 |  |  |  | 2018 |  |  |  | 2019 |
Net cash (used in) / provided by operating activities of continuing operations |  |  | (905,910 | ) |  |  | (5,088,067 | ) |  |  | 5,053,025 |  |  |  | (1,474,830 | ) |  |  | 3,240,429 |
Net cash provided by/(used in) investing activities of continuing operations |  |  | 8,904,008 |  |  |  | 1,109,456 |  |  |  | (16,511,220 | ) |  |  | 6,253,868 |  |  |  | (55,720,226 | )
Net cash (used in)/ provided by financing activities of continuing operations |  |  | (20,058,980 | ) |  |  | (6,341,223 | ) |  |  | 12,750,658 |  |  |  | 135,403 |  |  |  | 45,198,270 |

(1) In December 2019, the Company completed a 1-for-8 reverse stock split. The reverse stock split was undertaken with the objective of meeting the minimum $1.00 per share requirement for listing the Company's common stock on the Nasdaq Capital Market. The weighted average number of shares as well as the earnings / losses per share shown above have been adjusted retroactively to give effect to the shares associated with this reverse split.
4

Fleet Data (1) |  | 2015 |  |  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |
Number of vessels |  |  | 12.74 |  |  |  | 8.67 |  |  |  | 9.28 |  |  |  | 11.49 |  |  |  | 13.1 |
Calendar days |  |  | 4,650 |  |  |  | 3,175 |  |  |  | 3,386 |  |  |  | 4,191 |  |  |  | 4,782 |
Available days |  |  | 4,587 |  |  |  | 3,028 |  |  |  | 3,285 |  |  |  | 4,115 |  |  |  | 4,680 |
Voyage days |  |  | 4,285 |  |  |  | 2,844 |  |  |  | 3,184 |  |  |  | 3,814 |  |  |  | 4,636 |
Utilization Rate (percent) |  |  | 93.0 | % |  |  | 93.9 | % |  |  | 96.9 | % |  |  | 92.7 | % |  |  | 99.1 | %
|  |  |  |  |  | (In U.S. Dollars per day per vessel) |
Average TCE rate (2) |  |  | 7,855 |  |  |  | 7,120 |  |  |  | 7,309 |  |  |  | 9,179 |  |  |  | 8,782 |
Vessel Operating Expenses |  |  | 4,695 |  |  |  | 4,363 |  |  |  | 4,436 |  |  |  | 4,769 |  |  |  | 5,015 |
Management Fees |  |  | 772 |  |  |  | 756 |  |  |  | 777 |  |  |  | 844 |  |  |  | 768 |
G&A Expenses |  |  | 621 |  |  |  | 842 |  |  |  | 739 |  |  |  | 612 |  |  |  | 511 |
Total Operating Expenses excluding drydocking expenses |  |  | 6,088 |  |  |  | 5,961 |  |  |  | 5,952 |  |  |  | 6,225 |  |  |  | 6,294 |
Drydocking expenses |  |  | 287 |  |  |  | 694 |  |  |  | 169 |  |  |  | 662 |  |  |  | 568 |

(1) For the definition of calendar days, available days, voyage days and utilization rate, see "Item 5.A – Operating Results".
(2) Time charter equivalent rate, or TCE rate, is a measure of the average daily revenue performance of our vessels and is determined by dividing time charter revenue and voyage charter revenue less voyage expenses or time charter equivalent revenue, or TCE revenues, by the number of voyage days during the relevant time period. TCE revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with time charter revenue and voyage charter revenue, the most directly comparable U.S. GAAP measure, because it assists the Company's management in making decisions regarding the deployment and use of its vessels and because the Company believes that it provides useful information to investors regarding the Company's financial performance. TCE revenues and TCE rate 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, time charters, pool agreements and bareboat charters) under which the vessels may be employed between the periods (see also "Item 5.A – Operating Results"). Our definition of TCE revenues and TCE rate may not be comparable to that used by other companies in the shipping industry.
5

The following table reflects the reconciliation of TCE revenues to time charter revenue and voyage charter revenue as reflected in the consolidated statement of operations and our calculation of TCE rates for the periods presented.
Year Ended December 31,

|  | 2015 |  |  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |
(In U.S. dollars, except for voyage days and TCE rates which are expressed in U.S. dollars per day) |
Time charter revenue |  |  | 35,509,971 |  |  |  | 21,409,236 |  |  |  | 24,278,048 |  |  |  | 36,062,202 |  |  |  | 41,769,278 |
Voyage charter revenue |  |  | - |  |  |  | 47,979 |  |  |  | 559,319 |  |  |  | 206,682 |  |  |  | - |
Voyage expenses |  |  | (1,852,482 | ) |  |  | (1,209,085 | ) |  |  | (1,564,489 | ) |  |  | (1,261,088 | ) |  |  | (1,055,408 | )
Time Charter Equivalent or TCE Revenues |  |  | 33,657,489 |  |  |  | 20,248,130 |  |  |  | 23,272,878 |  |  |  | 35,007,796 |  |  |  | 40,713,870 |
Voyage days |  |  | 4,285 |  |  |  | 2,844 |  |  |  | 3,184 |  |  |  | 3,814 |  |  |  | 4,636 |
Average TCE rate |  |  | 7,855 |  |  |  | 7,120 |  |  |  | 7,309 |  |  |  | 9,179 |  |  |  | 8,782 |

B. | Capitalization and Indebtedness

Not Applicable.

C. | Reasons for the Offer and Use of Proceeds

Not Applicable.

D. | Risk Factors

Any investment in our common stock involves a high degree of risk. You should consider carefully the following factors, as well as the other information set forth in this annual report, before making an investment in our common stock. Some of the following risks relate principally to the industry in which we operate and our business in general. Other risks relate to the securities market for, and ownership of, our common stock. Any of the described risks could significantly and negatively affect our business, financial condition, operating results and common stock price. The following risk factors describe the material risks that are presently known to us.
Industry Risk Factors
The cyclical nature of the shipping industry may lead to volatile changes in charter rates, which may reduce our revenues and negatively affect our results of operations.
We are an independent shipping company that operates in the container shipping industry. Our profitability is dependent upon the charter rates we are able to charge for our ships. The supply of, and demand for, shipping capacity strongly influence charter rates. The demand for shipping capacity is determined primarily by the demand for containerized goods trade and the distance that those goods must be moved by sea. The demand for trade is affected by, among other things, world and regional economic and political conditions (including developments in international trade, economic slowdowns caused by public health events such as the recent Coronavirus outbreak, fluctuations in industrial and agricultural production and armed conflicts), environmental concerns, weather patterns, and changes in seaborne and other transportation costs. The size of the existing fleet in a particular market, the number of new vessel deliveries, the scrapping of older vessels and the number of vessels out of active service (i.e., laid-up, drydocked, awaiting repairs or otherwise not available for hire) determine the supply of shipping capacity, which is measured by the amount of suitable tonnage available to carry cargo. The cyclical nature of the container shipping industry may lead to volatile changes in charter rates, which may reduce our revenues and net income.
In addition to the prevailing and anticipated charter 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 and insurance coverage, the efficiency and age profile of the existing 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
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correctly assess the nature, timing and degree of changes in industry conditions. Some of these factors may have a negative impact on our revenues and net income.
Our future profitability will be dependent on the level of charter rates in the international container shipping industry.
Containership rates ended 2013 at very depressed levels but increased gradually through the period to mid-2015 reaching levels comparable to those seen during the previous peak in mid-2011. However, the second half of the year 2015 saw a decline to the very low levels seen in 2013. In 2016, this declining trend continued, at a milder pace, reaching, or, for containerships greater than 2000 teu, falling below their 2013 levels, an all-time low. Beginning in early 2017 containership rates started a recovery. In the second half of the year rates initially stabilized and then slightly eased. In 2018 rates initially increased through May to the levels last seen in the second half of 2015, but still remained below their historical average. Thereafter, a decline began which erased the entirety of the gains by year end. Containership rates started 2019 in a depressed mode but by March had gradually strengthened to levels that, although were below those achieved in the first half of 2018, were noticeably higher than the low rates seen in 2016. The remainder of the year experienced one of the slowest growth rates in the containerized trade, as global economic growth weakened and continued fears of a U.S.-China 'trade war' escalated. In January 2020, freight rates rose initially, only to decrease significantly as a result of the Coronavirus outbreak that originated in China. The Coronavirus pandemic has resulted in disruptions to industrial production and supply chains within China, which have caused uncertainty in the short-term outlook for the sector.
Rates in the containership market are influenced by the balance of demand for and supply of vessels and may remain depressed or decline again in the future. Because the factors affecting the supply of and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are unpredictable, and as a result so are the rates at which we can charter our vessels. In addition, we may not be able to successfully charter our vessels in the future or renew existing charters at rates sufficient to allow us to meet our obligations or to pay dividends to our shareholders.
Some of the factors that influence demand for vessel capacity include:

| • | supply of, and demand for, containerized cargo;
| • | changes in the production of semi-finished and finished consumer and industrial products, and the resulting changes in the international pattern of trade;
| • | global and regional economic and political conditions, armed conflicts and terrorist activities;
| • | pandemics, such as the outbreak of Coronavirus in China in 2020;
| • | embargoes and strikes;
| • | the location of regional and global manufacturing facilities;
| • | availability of credit to finance international trade;
| • | the location of consuming regions for semi-finished and finished consumer and industrial products;
| • | the distance containerized commodities are to be moved by sea;
| • | environmental and other regulatory developments;
| • | currency exchange rates;
| • | changes in global production and manufacturing distribution patterns of finished goods that utilize containerized commodities;
| • | changes in seaborne and other transportation patterns; and
| • | weather and other natural phenomena.

Some of the factors that influence the supply of vessel capacity include:

| • | the number of newbuilding orders and deliveries including slippage in deliveries;
| • | the scrapping rate of older vessels;
| • | the price of steel and other materials;
| • | port and canal congestion;
| • | changes in environmental and other regulations that may limit the useful life of vessels;
| • | vessel casualties;
| • | the number of vessels that are out of service; and

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| • | changes in global commodity production.

We anticipate that the future demand for our container vessels and the charter rates of the corresponding markets will be dependent upon economic recovery and growth in the United States, Europe, Japan, China and India and the overall world economy as well as seasonal and regional changes in demand and changes to the capacity of the world fleet. The capacity of the world fleet may increase and economic growth may not continue. Adverse economic, political, social or other developments could also have a material adverse effect on our business and results of operations.
An over-supply of containership capacity may lead to a reduction in charter rates and profitability and may require us to raise additional capital in order to remain compliant with our loan covenants and affect our ability to pay dividends or redeem preferred stock in the future.
The market supply of containerships has been increasing, and the number of containerships on order reached historic highs in 2014. The orderbook has gradually declined and in 2019 neared its lowest level of the last twenty years. Growth of the fleet is also affected by the scrapping rate. If the number of new ships delivered exceeds the number of vessels being scrapped and lost, vessel capacity will increase. An over-supply of containership capacity may result in a further reduction of charter rates. As reported by industry sources, the containership fleet increased by 3.2% in 2016, 2.9% in 2017, 5.6% in 2018 and 4.0% in 2019. As of April 15, 2020, containership volumes have decreased by 0.6%. Specifically, as reported by industry sources, the capacity of the fully cellular worldwide container vessel fleet, as of April 15, 2020, was approximately 23.0 million teu with approximately another 2.35 million teu, or about 10.22% of the fleet capacity on order. If the supply of vessel capacity increases but the demand for vessel capacity does not increase correspondingly, charter rates and vessel values could materially decline.
If such a rate decline occurs upon the expiration or termination of our current charters, we may only be able to re-charter those vessels at reduced rates or we may not be able to charter these vessels at all. Many containership charters we renewed or concluded during 2016 and 2017 were at unprofitable rates and were entered into because they resulted in lower losses than would have resulted had we put the vessels in lay-up. Charter rates have improved since and reached marginally profitable levels during 2018 and into 2019, but remained volatile and fluctuated during 2018, which continued into 2019. Charters renewed or entered into around the end of 2019 were at rates that were profitable in some cases, but could decrease again, depending on changes of demand for and supply of shipping capacity. Any inability to enter into more profitable charters may require us to raise additional capital in order to remain compliant with our loan covenants and may also affect our ability to pay dividends in the future.
The market value of our vessels can fluctuate significantly, which may adversely affect our financial condition, cause us to breach financial covenants, result in the incurrence of a loss upon disposal of a vessel or increase the cost of acquiring additional vessels.
The value of our vessels may fluctuate, adversely affecting our earnings and liquidity and causing us to breach our secured credit agreements.
The fair market values of our vessels are related to prevailing charter rates. While the fair market value of vessels and the freight charter market have a very close relationship as the charter market moves from trough to peak, the time lag between the effect of charter rates on market values of ships can vary. A decrease in the market values of our vessels could limit the amount of funds that we can borrow or trigger certain financial covenants under our current or future credit facilities, and we may incur a loss if we sell vessels following a decline in their market value. Furthermore, a decrease in the market value of our vessels could require us to raise additional capital in order to remain compliant with our loan covenants, and could result in the foreclosure of our vessels and adversely affect our earnings and financial condition.
The market value of our vessels may increase or decrease depending on the following factors:

| • | general economic and market conditions affecting the shipping industry in general;
| • | supply of container vessels, including newbuildings;
| • | demand for container vessels;
| • | types and sizes of vessels;
| • | scrap values;
| • | other modes of transportation;

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| • | cost of newbuildings;
| • | technological advances;
| • | new regulatory requirements from governments or self-regulated organizations;
| • | competition from other shipping companies; and
| • | prevailing level of charter rates.

As vessels grow older, they generally decline in value. Due to the cyclical nature of the container shipping industry, if for any reason we sell vessels at a time when prices have fallen, we could incur a loss and our business, results of operations, cash flow, financial condition and ability to pay dividends could be adversely affected.
In addition, we periodically re-evaluate the carrying amount and period over which vessels are depreciated to determine if events have occurred that would require modification to such assets' carrying values or their useful lives. A determination that a vessel's estimated remaining useful life or fair value has declined below its carrying amount could result in an impairment charge against our earnings and a reduction in our shareholders' equity.
Our secured loan agreements, which are secured by mortgages on our vessels, contain various financial covenants. Any change in the assessed market value of any of our vessels might also cause a violation of the covenants of each secured credit agreement, which, in turn, might restrict our cash and affect our liquidity. Among those covenants are requirements that relate to our net worth, operating performance and liquidity. For example, there is a maximum fleet leverage covenant that is based, in part, upon the market value of the vessels securing the loans, as well as requirements to maintain a minimum ratio of the market value of our vessels mortgaged thereunder to our aggregate outstanding balance under each respective loan agreement. If the assessed market value of our vessels declines below certain thresholds, we may violate these covenants and may incur penalties for breach of our credit agreements. For example, these penalties could require us to prepay the shortfall between the assessed market value of our vessels and the value of such vessels required to be maintained pursuant to the secured credit agreement, or to provide additional security acceptable to the lenders in an amount at least equal to the amount of any shortfall. If we are unable to pledge additional collateral, our lenders could accelerate our debt and foreclose on our fleet. Furthermore, we may enter into future loans, which may include various other covenants, in addition to the vessel-related ones, that may ultimately depend on the assessed values of our vessels. Such covenants could include, but are not limited to, maximum fleet leverage covenants and minimum fair net worth covenants.
Adverse economic conditions, especially in the Asia Pacific region, the European Union or the United States, could harm our business, results of operations and financial condition.
Because a significant number of the port calls made by our vessels involves the loading or discharging of containerships in ports in the Asia Pacific region, economic turmoil in that region may exacerbate the effect of any economic slowdown on us. China has been one of the world's fastest growing economies and a major manufacturing hub for the production and export of finished goods which are predominantly shipped in containerships. However, China's growth rate of real gross domestic product, or "GDP", has been declining and is forecasted to further decline in 2020, especially due to the recent impact of the Coronavirus, and, the United States, a major trading partner of China, has indicated that it may seek to implement more protectionist trade measures, in order to protect its domestic economy, which might further affect the growth rate of the Chinese economy, in particular, and the Asia Pacific region in general. Additionally, the European Union, or the EU, and certain of its member states are facing significant economic and political challenges, including a risk of increased protectionist policies. Our business, results of operations and financial condition will likely be harmed by any significant economic downturn and economic instability in the Asia Pacific region, including China, or in the EU or the United States.
Outbreaks of epidemic and pandemic of diseases and governmental responses thereto could adversely affect our business.
Our operations are subject to risks related to outbreaks of infectious diseases. For example, the recent outbreak of Coronavirus, a virus causing potentially deadly respiratory tract infections originating in China, may negatively affect economic conditions and the demand for our shipping regionally as well as globally and otherwise impact our operations and the operations of our customers and suppliers. Governments in affected countries are imposing travel bans, quarantines and other emergency public health measures. In response to the Coronavirus outbreak, countries such as China, Italy, Spain and France have implemented lockdown measures, and other countries and local governments may enact similar policies. As of March 15, 2020, the United States has temporarily restricted travel by foreign nationals into the country from a number of areas, including China and Europe. In addition, on March 18, 2020, the U.S. and Canada agreed to restrict all nonessential travel across the border. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing
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businesses. These restrictions, though temporary in nature, including future prevention and mitigation measures, may continue and increase depending on developments in the Coronavirus outbreak and are likely to have an adverse impact on global economic conditions, which could materially adversely affect our future operations. As a result of these measures, our vessels may not be able to call on ports, or may be restricted from disembarking from ports, located in regions affected by Coronavirus. The ultimate severity of the Coronavirus outbreak is uncertain at this time and therefore we cannot predict the impact it may have on our future operations, which could be material and adverse.
Eurozone's potential inability to deal with the sovereign debt issues of some of its members could have a material adverse effect on the profitability of our business, financial condition and results of operations.
Despite the efforts of the European Council since 2011 to implement a structured financial support mechanism for Eurozone countries experiencing financial difficulties, questions remain about the capability of a number of member countries to refinance their sovereign debt and meet their debt obligations. In March 2011, the European Council agreed on the need for Eurozone countries to establish a permanent stability mechanism, the European Stability Mechanism (or "the ESM"), which will be activated by mutual agreement to provide external financial assistance to Eurozone countries. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations and the overall stability of the euro. An extended period of adverse development in the outlook for European countries could reduce the overall demand for our services. These potential developments, or market perceptions concerning these and related issues, could have a material adverse effect on our financial position, results of operations and cash flow.
Liner companies, which comprise the largest contingent of charterers of containerships, have been placed under significant financial pressure, thereby increasing our charter counterparty risk which may have a material adverse effect on our business, financial condition and results of operations.
The decline in global trade after the financial crisis of 2008 and the subsequent economic slowdown has resulted in a significant decline in demand for the seaborne transportation of products in containers, including for exports from China to Europe and the United States. Consequently, the cargo volumes and, especially, freight rates (i.e., the rates that liner companies charge to their clients) achieved by liner companies, which charter containerships from ship owners like us, declined sharply in the second half of 2011. They stabilized toward the end of 2012, remained at similar levels in 2013, but declined in 2014 and 2016 also due to a growing oversupply of containerships despite a short-lived recovery in the middle of 2015. In 2017, a rate recovery began, which was maintained throughout the year and the first half of 2018. The second half of 2018 and the beginning of 2019 saw a decline in containership charter rates mainly due to measured demand for goods because of the uncertainty surrounding the possibility of increased protectionist policies by governments worldwide. Rates made progress throughout 2019, although improvements were mostly weighted towards the larger size container segments. Current containership rates still remain below historical averages, affecting their profitability. The recent Coronavirus pandemic has also had a major impact on containership rates, causing prolonged uncertainty in the markets. The financial challenges faced by liner companies, some of which have announced efforts to obtain third party aid and restructure their obligations, including our charterers, have reduced demand for containership charters and may increase the likelihood of our customers being unable or unwilling to pay us contracted charter rates. The combination of the current surplus of containership capacity and the expected increase in the size of the world containership fleet over the next several years may make it difficult to secure substitute employment for our containerships if our counterparties fail to perform their obligations under the currently arranged time charters, and any new charter arrangements we are able to secure may be at lower rates.
The containership industry is highly competitive, and we may be unable to compete successfully for charters with established companies or new entrants that may have greater resources and access to capital, which may have a material adverse effect on our business, prospects, financial condition, liquidity and results of operations.
The containership industry is highly competitive and capital intensive. Competition arises primarily from other vessel owners, some of whom may have greater resources and access to capital than we have. Competition among vessel owners for the seaborne transportation of semi-finished and finished consumer and industrial products can be intense and depends on the charter rate, location, size, age, condition and the acceptability of the vessel and its operators to the charterers. Due in part to the highly fragmented market, many of our competitors with greater resources and access to capital than we have could operate larger fleets than we may operate and thus be able to offer lower charter rates or higher quality vessels than we are able to offer. If this were to occur, we may be unable to retain or attract new charterers on attractive terms or at all, which may have a material adverse effect on our business, prospects, financial condition, liquidity and results of operations.
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Changes in the economic and political environment in China and policies adopted by the Chinese government to regulate China's economy may have a material adverse effect on our business, financial condition and results of operations.
The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, (or "OECD"), in such respects as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, rate of inflation and balance of payments position. Prior to 1978, the Chinese economy was a planned economy. Since 1978, increasing emphasis has been placed on the utilization of market forces in the development of the Chinese economy. Annual and five-year State Plans are adopted by the Chinese government in connection with the development of the economy. Although state-owned enterprises still account for a substantial portion of the Chinese industrial output, in general, the Chinese government is reducing the level of direct control that it exercises over the economy through State Plans and other measures. There is an increasing level of freedom and autonomy in areas such as allocation of resources, production, pricing and management and a gradual shift in emphasis to a "market economy" and enterprise reform. Limited price reforms were undertaken, with the result that prices for certain commodities are principally determined by market forces. Many of the reforms are unprecedented or experimental and may be subject to revision, change or abolition based upon the outcome of such experiments. The Chinese government may not continue to pursue a policy of economic reform. The level of imports to and exports from China could be adversely affected by the nature of the economic reforms pursued by the Chinese government, as well as by changes in political, economic and social conditions or other relevant policies of the Chinese government, such as changes in laws, regulations or export and import restrictions, all of which could adversely affect our business, operating results, financial condition and cash flows.
We conduct business in China, where the legal system is not fully developed and has inherent uncertainties that could limit the legal protections available to us.
Some of our vessels may be chartered to Chinese customers and from time to time on our charterers' instructions, our vessels may call on Chinese ports. Such charters and voyages may be subject to regulations in China that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Chinese government new taxes or other fees. Applicable laws and regulations in China may not be well publicized and may not be known to us or to our charterers in advance of us or our charterers becoming subject to them, and the implementation of such laws and regulations may be inconsistent. Changes in Chinese laws and regulations, including with regards to tax matters, or changes in their implementation by local authorities could affect our vessels if chartered to Chinese customers as well as our vessels calling to Chinese ports and could have a material adverse impact on our business, financial condition and results of operations.
The current state of global financial markets and current economic conditions may adversely impact our ability to obtain additional financing on acceptable terms or at all, which may hinder or prevent us from expanding our business.
Global financial markets and economic conditions have been, and continue to be, volatile. Beginning in February 2020, partially due to fears associated with the spread of the Coronavirus, global financial markets, and starting in late February, financial markets in the U.S., experienced even greater relative volatility and a steep and abrupt downturn, which volatility and downturn may continue as the Coronavirus continues to spread. On March 11, 2020, the World Health Organization declared the Coronavirus outbreak a pandemic. In response to the Coronavirus outbreak, many countries, ports and organizations, including those where we conduct a large part of our operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have and will likely continue to cause severe trade disruptions. This continuing volatility may negatively affect the general willingness of banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile, and currently below historical average, asset values of vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations, it has been and may continue to be negatively affected by this decline in lending. In addition, the current state of global financial markets and current economic conditions might adversely impact our ability to issue additional equity at prices which will not be dilutive to our existing shareholders or preclude us from issuing equity at all.
Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets has increased as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Due to these factors, we cannot be certain that additional financing will be available, if needed, and to the extent required, on acceptable terms
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or at all. If additional financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing business.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. These requirements include, but are not limited to, the International Convention for the Prevention of Pollution from Ships of 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as MARPOL, including the designation of emission control areas, ECAs, thereunder, the International Convention on Load Lines of 1966, or the LL Convention, the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocol in 1976, 1984 and 1992, and amended in 2000, and generally referred to as the CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, or Bunker Convention, the International Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, the International Convention for the Control and Management of Ships' Ballast Water and Sediments, or the BWM Convention, the U.S. Oil Pollution Act of 1990, or OPA, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Clean Water Act, or the CWA, the U.S. Clean Air Act, or the CAA, the U.S. Outer Continental Shelf Lands Act, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, and European Union regulations. Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. Furthermore, events like the explosion of the Deepwater Horizon and the subsequent release of oil into the Gulf of Mexico, or other events, may result in further regulation of the shipping industry, and modifications to statutory liability schemes. Thus, we may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations.
Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Because such conventions, laws and regulations are often revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale price or useful life of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations. We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. An oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. There can be no assurance that any such insurance we have arranged to cover certain environmental risks will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition and our ability to pay dividends. We currently maintain, for each of our vessels, pollution liability coverage insurance of $1.0 billion per incident. If the damages from a catastrophic spill exceeded our insurance coverage, it would severely and adversely affect our business, results of operations, cash flows, financial condition and ability to pay dividends.
Environmental requirements can also require a reduction in cargo capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including clean up obligations and natural resource damages in the event that there is a release of bunkers or hazardous substances from our vessels or otherwise in connection with our operations. We could also become subject to personal injury or property damage claims relating to the release of hazardous substances associated with our existing or historic
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operations. Violations of, or liabilities under, environmental requirements can result in substantial penalties, fines and other sanctions, including in certain instances, seizure or detention of our vessels.
We are subject to international safety regulations and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the ISM Code set forth in Chapter IX of SOLAS. The ISM Code requires shipowners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management System" 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. We rely upon the safety management system that we and our technical managers have developed for compliance with the ISM Code. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. Currently, each of our vessels and Eurobulk Ltd. ("Eurobulk"), our affiliated ship management company (the "Manager"), are ISM Code-certified, but we may not be able to maintain such certification indefinitely.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel's management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the United Nations' International Maritime Organization (the "IMO"). The document of compliance (the "DOC"), and the safety management certificate (the "SMC"), are renewed as required.
In addition, vessel classification societies also impose significant safety and other requirements on our vessels. In complying with current and future environmental requirements, vessel-owners and operators may also incur significant additional costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance.
The operation of our vessels is also affected by other government regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. Because such conventions, laws, and regulations are often revised, we may not be able to predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations. We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and financial assurances with respect to our operations. See Item 4: "Information on the Company – Business Overview – Environmental and Other Regulations in the Shipping Industry" for more information.
Regulations relating to ballast water discharge may adversely affect our revenues and profitability.
The IMO has imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be discharged from a vessel's ballast water. Depending on the date of the IOPP renewal survey, existing vessels constructed before September 8, 2017 must comply with the updated D-2 standard on or after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ships constructed on or after September 8, 2017 are to comply with the D-2 standards on or after September 8, 2017. We currently have 13 vessels that do not comply with the updated guideline and costs of compliance may be substantial and adversely affect our revenues and profitability.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit ("VGP") program and U.S. National Invasive Species Act ("NISA") are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act ("VIDA"), which was signed into law on December 4, 2018, requires that the U.S. Environmental Protection Agency ("EPA") develop national standards of performance for approximately 30 discharges, similar to those found in the VGP within two years. By approximately 2022, the U.S. Coast Guard must develop corresponding implementation, compliance and enforcement regulations
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regarding ballast water. The new regulations could require the installation of new equipment, which may cause us to incur substantial costs.
Regulations relating to low sulfur emissions that came into effect on January 1, 2020 may adversely affect our revenues and profitability.
Under maritime regulations that came into effect on January 1, 2020, ships will have to reduce sulfur emissions, for which the principal solutions are the use of scrubbers or buying fuel with low sulfur content which is more expensive than standard marine fuel. We do not currently intend to install scrubbers on our fleet. Our fuel costs and fuel inventories have increased as a result of these sulfur emission regulations, but the effect is limited by the fact that our vessels are under time charter agreements and these costs are paid by the charterer. However, fuel costs are taken into account by the charterer in determining the amount of time charter hire and, therefore, fuel costs also indirectly affect time charter rates. Low sulfur fuel is more expensive than standard marine fuel containing 3.5% sulfur content and may become more expensive or difficult to obtain as a result of increased demand, which may have a material adverse effect on our business, results of operations, cash flows and financial condition.
Increased inspection procedures and tighter import and export controls and new security regulations could increase costs and disrupt our business.
International container shipping is subject to various security and customs inspection and related procedures in countries of origin and destination. Inspection procedures may result in the seizure of contents of our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us.
It is possible that changes to existing procedures will be proposed or implemented. Any such changes may affect the container shipping industry and have the potential to impose additional financial and legal obligations on carriers and, in certain cases, to render the shipment of certain types of goods by container uneconomical or impractical. These additional costs could reduce the volume of goods shipped in containers, resulting in a decreased demand for container vessels. In addition, it is unclear what financial costs any new security procedures might create for container vessel owners, or whether companies responsible for the global traffic of containers at sea, referred to as container line operators, may seek to pass on certain of the costs associated with any new security procedures to vessel owners.
If our vessels fail to maintain their class certification and/or fail any annual survey, intermediate survey, drydocking or special survey, those vessels would be unable to carry cargo, thereby reducing our revenues and profitability and violating certain covenants in our loan agreements.
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 SOLAS. Our vessels are currently classed with Det Norske Veritas ("DNV"), Bureau Veritas and Nippon Kaiji Kyokai. ISM and International Ship and Port Facilities Security ("ISPS") certifications have been awarded to the vessels by Bureau Veritas or Liberian Flag Administration and to the Manager by Bureau Veritas.
A vessel must undergo annual surveys, intermediate surveys, drydockings 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. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the underwater parts of such vessel.
If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable. That status could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
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 ("IACS"). All of our vessels that we have purchased, and may agree to purchase in the future, must be certified as being "in class" prior to their delivery under our standard purchase contracts and memorandum of agreement. If the vessel is not certified on the date of closing, we have no obligation to take delivery of the vessel. We have all of our vessels, and intend to have all vessels that we acquire in the future, classed by IACS members. See Item 4: "Information on the
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Company – Business Overview – Environmental and Other Regulations in the Shipping Industry" for more information.
Rising fuel prices may adversely affect our results of operations and the marketability of our vessels.
Fuel (bunkers) is a significant, if not the largest, operating expense for many of our shipping operations when our vessels are under voyage charter. When a vessel is operating under a time charter, these costs are paid by the charterer. However, fuel costs are taken into account by the charterer in determining the amount of time charter hire and, therefore, fuel costs also indirectly affect time charter rates. While the price of fuel is currently at relatively low levels due to the price of oil, 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 Organization of the Petroleum Exporting Countries ("OPEC") and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Fuel prices had been at historically high levels through mid-2014, but by the first quarter of 2016 fuel prices had fallen by more than 50%. Oil prices began rising in February 2016 until June 2016, due to, among other reasons, the war in Syria, oscillated until November 2016, due to movements in the U.S. dollar exchange rate and various geopolitical events, surging again since end-November 2016, due to the announcement by OPEC of future production cuts. In the two-year period 2017-2018, oil prices fluctuated between about $45/bbl (for West Texas Intermediate, "WTI") and about $75/bbl, before reaching $76.41/bbl in October 2018 and then falling to $42.53/bbl by December 24, 2018. Thereafter, oil prices rebounded responding, at least partly, to a 90-day trade-war truce agreed between the United States and China. By April 1, 2019 the WTI rose by 49.1% to $63.43/bbl. Oil markets faced a steep one-day loss on August 7, 2019 with the WTI closing at $51.09/bbl, after the United States threatened to impose more tariffs on China, then soared to $62.90/bbl in September when key oil facilities in Saudi Arabia were disabled in a missile attack. Prices dropped to around $55.0/bbl in October 2019, and then began rising until the end of the year to approximately $61.0/bbl. In the first week of January 2020, following turmoil in the Persian Gulf, the price of oil increased to $62.70/bbl, only to drop once again to $57.86/bbl by mid-January as disruptions eventually eased. However, by February 1, 2020 the price dropped to $52.10/bbl, as concerns over the Coronavirus pandemic started emerging, and further dropped starting on March 9, 2020 to $23.43/bbl, and $20.31/bbl by April 1, 2020, after OPEC and Russia failed to agree on maintaining production cuts, and Saudi Arabia increased its own production. The lowest price seen thus far in 2020 was on April 21, 2020 at $11.61/bbl, which slightly picked up to $16.94/bbl by April 24, 2020. Oil prices are significantly below their 10-year average of $70/bbl (for WTI). Any increases in the price of fuel, especially if exceeding its 10-year average, may adversely affect our operations, especially if such increases are combined with lower containership rates.
Upon redelivery of vessels at the end of a period time or trip time charter, we may be obligated to repurchase bunkers on board at prevailing market prices, which could be materially higher than fuel prices at the inception of the charter period. We may also be obligated to value our bunkers, inventories, on board at the end of a period time or trip time charter, at a lower value than the acquisition value, if prevailing market prices are significantly lower at the time of the vessel redelivery from the charterer.
Rising crew costs may adversely affect our profits.
Crew costs are a significant expense for us under our charters. There is a limited supply of well-qualified crew. We generally bear crewing costs under our charters. An increase in the world vessel operating fleet will likely result in higher demand for crews which, in turn, might drive crew costs further up. Any increase in crew costs may adversely affect our profitability especially if such increase is combined with lower containership rates.
Maritime claimants could arrest or attach our vessels, which would interrupt our business or have a negative effect on our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders and other parties 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 or attaching a vessel through foreclosure proceedings. The arresting or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums to have the arrest or attachment lifted which would have a material adverse effect on our financial condition and results of operations.
In addition, in some jurisdictions, such as South Africa, under the "sister ship" theory of liability, a claimant may arrest both the vessel that is subject to the claimant's maritime lien, and any "associated" vessel, which is any
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vessel owned or controlled by the same owner. Claimants could try to assert "sister ship" liability against one of our vessels for claims relating to another of our vessels.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
We expect that our vessels will call in ports in South America and other 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, which could have an adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
A government could requisition for title or seize one or more of our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Also, a government could requisition one or more of 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. Even if we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of the payment would be uncertain. Government requisition of one or more of our vessels could have a material adverse effect on our financial condition and results of operations.
World events outside our control may negatively affect our ability to operate, thereby reducing our revenues and results of operations or our ability to obtain additional financing, thereby restricting the implementation of our business strategy.
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, terrorist or other attacks, war or international hostilities. Terrorist attacks such as the attacks on the United States on September 11, 2001 and similar attacks that followed, the continuing response to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty in the world financial markets and may affect our business, results of operations and financial condition. The continuing conflicts in Iraq, Iran, Afghanistan, Libya, Egypt, Ukraine, Syria, amongst other countries, 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 have a material adverse effect on our ability to obtain additional financing on terms acceptable to us or at all. Terrorist attacks on vessels may in the future also negatively affect our operations and financial condition and directly impact our vessels or our customers. Future terrorist attacks could result in increased volatility and turmoil of the financial markets in the United States of America and globally and could result in an economic recession in the United States of America or the world. Any of these occurrences could have a material adverse impact on our financial condition, costs and operating cash flows.
Disruptions in world financial markets and the resulting governmental action could have a material adverse impact on our ability to obtain financing, our results of operations, financial condition and cash flows, and could cause the market price of our common stock to further decline.
Europe, the United States and other parts of the world have exhibited weak economic conditions, are exhibiting volatile economic trends or have been in a recession. For example, during the 2008-2009 crisis, the credit markets in the United States experienced sudden and significant contraction, deleveraging and reduced liquidity, and the United States federal government and state governments have since implemented a broad variety of governmental action and/or new regulation of the financial markets. Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The Securities and Exchange Commission ("SEC"), other regulators, self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies, and may effect changes in law or interpretations of existing laws. A number of financial institutions and especially banks that traditionally provide debt to shipping companies like ours have experienced serious financial difficulties and, in some cases, have entered bankruptcy proceedings or are in regulatory enforcement actions. As a result, access to credit markets around the world has been reduced. The extension of Quantitative Easing ("QE") and more recently the reversal of it, high levels of Non-Performing Loans ("NPLs") in Europe and stricter lending requirements may reduce bank lending capacity and/or make the terms of any lending more onerous.
We face risks related to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, among other factors. Major market disruptions and the changes in market conditions and regulatory changes worldwide may adversely affect our business or impair our ability to borrow
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amounts under our credit facilities or any future financial arrangements. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors, including proposals to reform the financial system, together with the concurrent decline in charter rates and vessel values, may have a material adverse effect on our results of operations, financial condition or cash flows, and might cause the price of our common stock on the Nasdaq Capital Market to decline.
In addition, public health threats, such as 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.
We may require substantial additional financing to fund acquisitions of additional vessels and to implement our business plans. Sufficient financing may not be available on terms that are acceptable to us or at all. If we cannot raise the financing we need in a timely manner and on acceptable terms, we may not be able to acquire the vessels necessary to implement our business plans and consequently we may not be able to pay dividends.
Effects and events related to the Greek sovereign debt and economic crisis may adversely affect our operating results.
Greece has experienced a macroeconomic downturn in recent years, which has been slowly recovering, partially as a result of the sovereign debt crisis and the related austerity measures implemented by the Greek government. Eurobulk's operations in Greece may be subjected to new regulations or regulatory action that may require us to incur new or additional compliance or other administrative costs and may require that we or Eurobulk pay to the Greek government new taxes or other fees. We and Eurobulk also face the risk that strikes, work stoppages, civil unrest and violence within Greece may disrupt our and Eurobulk's shore-side operations located in Greece. The Greek government's taxation authorities have increased their scrutiny of individuals and companies to secure tax law compliance. If economic and financial market conditions remain uncertain, persist or deteriorate further, the Greek government may impose further changes to tax and other laws to which we and Eurobulk may be subject or change the ways they are enforced, which may adversely affect our business, operating results, and financial condition.
We rely on information technology, and if we are unable to protect against service interruptions, data corruption, cyber-based attacks or network security breaches, our operations could be disrupted and our business could be negatively affected.
We rely on information technology networks and systems to process, transmit and store electronic and financial information; to capture knowledge of our business; to coordinate our business across our operation bases; and to communicate internally and with customers, suppliers, partners and other third-parties. These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns, hardware or software failures, power outages, computer viruses, cyberattacks, telecommunication failures, user errors or catastrophic events. Our information technology systems are becoming increasingly integrated, so damage, disruption or shutdown to the system could result in a more widespread impact. 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 in our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business and results of operations. If our information technology systems suffer severe damage, disruption or shutdown, and our business continuity plans do not effectively resolve the issues in a timely manner, our operations could be disrupted and our business could be negatively affected. In addition, cyber-attacks could lead to potential unauthorized access and disclosure of confidential information and data loss and corruption. There is no assurance that we will not experience these service interruptions or cyber-attacks in the future. Further, as the methods of cyber-attacks continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerabilities to cyber-attacks.
The withdrawal of the United Kingdom from the European Union could adversely affect us.
The United Kingdom ("U.K.") referendum on its membership in the EU resulted in the U.K. withdrawing from the EU on January 31, 2020 ("Brexit"). We have operations in the EU, and as a result, we face risks associated with the potential uncertainty and disruptions that may follow Brexit, including volatility in exchange rates and interest rates and potential material changes to the regulatory regime applicable to our business or global trading parties. While the framework for the U.K. and Europe's future relationship has been laid out in a Withdrawal Agreement, negotiations are ongoing and final terms of the withdrawal remain uncertain. Brexit could adversely affect European or worldwide
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political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets generally and in the U.K., specifically. While we have limited exposure to the U.K. or the Pound sterling ("GBP"), any of these effects of Brexit, and others we cannot anticipate or that may evolve over time, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Seasonal fluctuations could affect our operating results and the amount of available cash with which we service our debt or could pay dividends.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. To the extent we operate vessels in the spot market, this seasonality may result in quarter-to-quarter volatility in our operating results which could affect our ability to reinstate payment of dividends to our common shareholders. For example, the containership market is typically stronger in the spring and fall months following the celebration of Chinese New Year in the first quarter of each year and in anticipation of the increased demand during the year-end holiday season. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. This seasonality has not materially affected our operating results and the amount of available cash with which we service our debt or could pay dividends, because our fleet is currently employed on period time charters, but this seasonality may materially affect our operating results if our vessels are employed in the spot market in the future.
We may have difficulty securing profitable employment for our vessels if their charters expire in a depressed market.
As of April 15, 2020, 17 of our vessels are employed on time charter contracts, while one vessel is idle, and on February 24, 2020, we signed an agreement to sell another vessel for scrap, which has not been delivered to the buyers yet due to Coronavirus restrictions. 15 of our vessels are under time charters scheduled to expire during 2020 and two of our vessels' time charters are scheduled to expire in 2021. As April 15, 2020, the containership charter rates for vessels like ours remain below historical averages. When the current charters of our vessels are due for renewal, we may be unable to re-charter these vessels at similar or better rates or we might not be able to charter them at all. Although we do not receive any revenues from our vessels while not employed, we are required to pay expenses necessary to maintain the vessel in proper operating condition, insure it and service any indebtedness secured by such vessel. If we cannot re-charter our vessels on time charters or trade them in the spot market profitably, our results of operations and operating cash flow will be adversely affected.
Reliance on suppliers may limit our ability to obtain supplies and services when needed.
We rely on a significant number of third party suppliers of consumables, spare parts and equipment to operate, maintain, repair and upgrade our fleet of ships. Delays in delivery or unavailability or poor quality of supplies could result in off-hire days due to consequent delays in the repair and maintenance of our fleet or lead to our time charters being terminated. This would negatively impact our revenues and cash flows. Cost increases could also negatively impact our future operations.
The derivative contracts we enter into to hedge our exposure to fluctuations in interest rates can result in higher than market rates and reductions in our stockholders' equity as well as charges against our income, while there is no assurance of the credit worthiness of our counterparties.
We enter into interest rate swaps generally for purposes of managing our exposure to fluctuations in interest rates applicable to indebtedness under our credit facilities which were advanced at floating rates based on the London Interbank Offered Rate ("LIBOR"). Interest rates and currency hedging may result in us paying higher than market rates. As of December 31, 2018, the aggregate notional amount of interest rate swaps relating to our fleet as of such date was $10 million. As of December 31, 2019, all previous swap contracts had matured and the Company had no open position in interest rate swaps. In April 2020, we entered into a new interest rate swap agreement for a notional amount of $30 million. There is no assurance that our derivative contracts or any that we enter into in the future will provide adequate protection against adverse changes in interest rates or that our bank counterparties will be able to perform their obligations. In addition, as a result of the implementation of new regulation of the swaps markets in the United States, the European Union and elsewhere over the next few years, the cost of interest rate may increase or suitable hedges may not be available. While we monitor the credit risks associated with our bank counterparties, there can be no assurance that these counterparties would be able to meet their commitments under our derivative contracts or any future derivative contract. Our bank counterparties include financial institutions that are based in European Union countries that have faced and might face again financial stress. The potential for our bank counterparties to
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default on their obligations under our derivative contracts may be highest when we are most exposed to the fluctuations in interest and currency rates such contracts are designed to hedge, and several or all of our bank counterparties may simultaneously be unable to perform their obligations due to the same events or occurrences in global financial markets.
To the extent our existing interest rate swaps do not, and future derivative contracts may not, qualify for treatment as hedges for accounting purposes we would recognize fluctuations in the fair value of such contracts in our income statement. In addition, to the extent any future derivative contracts qualify for treatment as hedges for accounting purposes, changes in the fair value of our derivative contracts would be recognized in "Accumulated Other Comprehensive Loss" affecting our accumulated deficit, and may affect compliance with the net worth covenant requirements in our credit facilities. Changes in the fair value of our derivative contracts that do not qualify for treatment as hedges for accounting and financial reporting purposes affect, among other things, our net income and our earnings per share. For additional information see "Item 5. Operating and Financial Review and Prospects" and "Item 11. Quantitative and Qualitative Disclosures about Market Risk".
We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.
We may be involved in various litigation matters from time to time. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent which may have a material adverse effect on our financial condition and operating cash flows.
Company Risk Factors
We depend entirely on Eurobulk to manage and charter our fleet, which may adversely affect our operations if Eurobulk fails to perform its obligations.
We have no employees and we currently contract the commercial and technical management of our fleet, including crewing, maintenance and repair, to Eurobulk, our affiliated ship management company. We may lose the Manager's services or the Manager may fail to perform its obligations to us which could have a material adverse effect on our financial condition and results of our operations. Although we may have rights against our Manager if it defaults on its obligations to us, you will have no recourse against our Manager. Further, we will need to seek approval from our lenders to change the Manager as our ship manager.
Because the Manager is a privately held company, there is little or no publicly available information about it and there may be very little advance warning of operational or financial problems experienced by the Manager that may adversely affect us.
The ability of the Manager to continue providing services for our benefit will depend in part on its own financial strength. Circumstances beyond our control could impair the Manager's financial strength, and because the Manager is privately held it is unlikely that information about its financial strength would become public unless the Manager began to default on its obligations. As a result, there may be little advance warning of problems affecting the Manager, even though these problems could have a material adverse effect on us.
We may have difficulty properly managing our growth through acquisitions of new or secondhand vessels and we may not realize expected benefits from these acquisitions, which may negatively impact our cash flows, liquidity and our ability to pay dividends to our stockholders.
We intend to grow our business by ordering newbuild vessels and through selective acquisitions of high-quality secondhand vessels to the extent that they are available. Our future growth will primarily depend on:
• the operations of the shipyards that build any newbuild vessels we may order;
• the availability of employment for our vessels;
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• locating and identifying suitable high-quality secondhand vessels;
• obtaining newbuild contracts at acceptable prices;
• obtaining required financing on acceptable terms;
• consummating vessel acquisitions;
• enlarging our customer base;
• hiring additional shore-based employees and seafarers;
• continuing to meet technical and safety performance standards; and
• managing joint ventures or significant acquisitions and integrating the new ships into our fleet.
Ship values are correlated with charter rates. During periods in which charter rates are high, ship values are generally high as well, and it may be difficult to consummate ship acquisitions or enter into shipbuilding contracts at favorable prices. During periods in which charter rates are low and employment is scarce, ship values are low and any vessel acquired without an attached time charter will automatically incur additional expenses to operate, insure, maintain and finance the ship, thereby significantly increasing the acquisition cost. In addition, any vessel acquisition may not be profitable at or after the time of acquisition and may not generate cash flows sufficient to justify the investment. We may not be successful in executing any future growth plans and we cannot give any assurance that we will not incur significant expenses and losses in connection with such growth efforts. Other risks associated with vessel acquisitions that may harm our business, financial condition and operating results include the risks that we may:
• fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements;
• be unable to hire, train or retain qualified shore-based and seafaring personnel to manage and operate our growing business and fleet;
• decrease our liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions;
• significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;
• incur or assume unanticipated liabilities, losses or costs associated with any vessels or businesses acquired; or
• incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.
Furthermore, a delay in the delivery to us of any such vessel acquired, or the failure of the shipyard to deliver a vessel at all, could cause us to breach our obligations under a related charter and could adversely affect our earnings. In addition, the delivery of any of these vessels with substantial defects could have similar consequences.
A shipyard could fail to deliver a newbuild on time or at all because of:

| • | work stoppages or other hostilities, political or economic disturbances that disrupt the operations of the shipyard;

| • | quality or engineering problems;

| • | bankruptcy or other financial crisis of the shipyard;

| • | a backlog of orders at the shipyard;

| • | disputes between us and the shipyard regarding contractual obligations;

| • | weather interference or catastrophic events, such as major earthquakes or fires;

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| • | our requests for changes to the original vessel specifications or disputes with the shipyard; or

| • | shortages of or delays in the receipt of necessary construction materials, such as steel, or equipment, such as main engines, electricity generators and propellers.

If we fail to properly manage our growth through acquisitions of newbuild or secondhand vessels we may not realize the expected benefits from these acquisitions, which may negatively impact our cash flows, liquidity and our ability to pay dividends to our stockholders. Unlike newbuild vessels, secondhand vessels typically do not carry warranties as to their condition. While we generally inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel's condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for secondhand vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flows, liquidity and our ability to pay dividends to our stockholders.
Our business depends upon certain members of our senior management who may not necessarily continue to work for us.
Our future success depends to a significant extent upon our chairman and chief executive officer, Aristides J. Pittas, certain members of our senior management and our Manager. Mr. Pittas has substantial experience in the container shipping industry and has worked with us and our Manager for many years. He, our Manager and certain members of our senior management team are crucial to the execution of our business strategies and to the growth and development of our business. If these individuals were no longer to be affiliated with us or our Manager, or if we were to otherwise cease to receive services from them, we may be unable to recruit other employees with equivalent talent and experience, which could have a material adverse effect on our financial condition and results of operations.
Certain of our shareholders hold shares of Euroseas in amounts to give them a significant percentage of the total outstanding voting power represented by our outstanding shares.
As of April 15, 2020, Friends Investment Company Inc., (or "Friends"), Containers Shareholders Trinity Ltd., Eurobulk Marine Holdings Inc. and Diamantis Shareholders Ltd., all affiliates of the Company controlled by the Pittas family and partly owned by our Chairman and CEO, Vice Chairman and people affiliated or working with Eurobulk amongst others, own approximately 62.0% of the outstanding shares of our common stock and unvested incentive award shares, representing 59.3% of total voting power (after accounting for the certain voting rights of our Series B Preferred Shares before conversion and 56.8% of total voting power on an as converted basis). As a result of this share ownership and for as long as Friends owns a significant percentage of our outstanding common stock, Friends will be able to influence the outcome of any shareholder vote, including the election of directors, the adoption or amendment of provisions in our amended and restated articles of incorporation or bylaws, as amended, and possible mergers, corporate control contests and other significant corporate transactions. In addition, as of April 15, 2020, funds advised by Tennenbaum Capital Partners LLC ("TCP") and Preferred Friends Investment Company Inc., an affiliate of the Company partly owned by our Chairman and CEO, Vice Chairman and people affiliated or working with Eurobulk amongst others, owned shares of our Series B Convertible Perpetual Preferred Shares, to which we will refer as the Series B Preferred Shares, that are convertible into 4.6% and 3.8%, respectively, of our common shares and unvested incentive award shares on an as-converted basis.
Our corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands, and as such we are entitled to exemption from certain Nasdaq corporate governance standards. As a result, you may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
Our Company's corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands. Therefore, we are exempt from many of Nasdaq's corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification of material non-compliance with Nasdaq corporate governance practices, and the establishment and composition of an audit committee and a formal written audit committee charter. For a list of the practices followed by us in lieu of Nasdaq's corporate governance rules, we refer you to the section of this annual report entitled "Board Practices—Corporate Governance" under Item 6.
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We and our principal officers have affiliations with the Manager that could create conflicts of interest detrimental to us.
Our principal officers are also principals, officers and employees of the Manager, which is our ship management company. These responsibilities and relationships could create conflicts of interest between us and the Manager. Conflicts may also arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus other vessels that are or may be managed in the future by the Manager. Circumstances in any of these instances may make one decision advantageous to us but detrimental to the Manager and vice versa. Further, it is possible that in the future Eurobulk may manage additional vessels which will not belong to Euroseas and in which the Pittas family may have non-controlling, little or even no power or participation, and Eurobulk may not be able to resolve all conflicts of interest in a manner beneficial to us and our shareholders.
Companies affiliated with Eurobulk or our officers and directors may acquire vessels that compete with our fleet.
Companies affiliated with Eurobulk or our officers and directors own container carriers and may acquire additional containership vessels in the future. These vessels could be in competition with our fleet and other companies affiliated with Eurobulk might be faced with conflicts of interest with respect to their own interests and their obligations to us. Eurobulk, Friends and Aristides J. Pittas, our Chairman and Chief Executive Officer, have granted us a right of first refusal to acquire any containership that any of them may consider for acquisition in the future. In addition, Aristides J. Pittas will use his best efforts to cause any entity with respect to which he directly or indirectly controls to grant us this right of first refusal. Were we, however, to decline any such opportunity offered to us or if we did not have the resources or desire to accept any such opportunity, Eurobulk, Friends and Aristides J. Pittas, and any of their respective affiliates, could acquire such vessels.
Our officers do not devote all of their time to our business.
Our officers are involved in other business activities that may result in their spending less time than is appropriate or necessary in order to manage our business successfully. Our Chief Executive Officer, Chief Financial Officer, Chief Administrative Officer, Internal Auditor and Secretary are not employed directly by us, but rather their services are provided pursuant to our Master Management Agreement with Eurobulk. All our corporate officers hold similar positions with EuroDry Ltd. ("EuroDry"), a publicly listed company spun-off from Euroseas in May 2018, and our CEO is also President of Eurobulk and involved in the management of other affiliates and is a member of the board of other companies. Therefore, our officers may spend a material portion of their time providing services to other companies. They may also spend a material portion of their time providing services to Eurobulk and its affiliates on matters unrelated to us.
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.
We may not be able to pay dividends.
Our Board of Directors decided to suspend the quarterly dividend in the fourth quarter of 2013 in order to focus every resource available in exploiting investment opportunities in the market. Our last dividend of $0.15 per share was declared in August 2013 and was paid in September 2013. This was the thirty-second consecutive quarterly dividend declared and paid. We have not declared any dividends on our common stock since then, and we may not resume dividend payments as we may not earn sufficient revenues or we may incur expenses or liabilities that would reduce or eliminate the cash available for distribution as dividends. Our loan agreements may also limit the amount of dividends we can pay under some circumstances based on certain covenants included in the loan agreements.
The declaration and payment of any dividends will be subject at all times to the discretion of our Board of Directors. Our Series B Preferred Shares provide that we must pay a cash dividend to holders of the Series B Preferred Shares in an amount equal to 40% of any dividend we pay on our common shares on an as-converted-basis in addition to the dividend of the Series B Preferred Shares that is payable at the time. This provision may be an important factor when our Board of Directors determines whether to declare dividends on our common shares. The timing and amount
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of dividends will depend on our earnings, financial condition, cash requirements and availability, restrictions in our loan agreements, growth strategy, charter rates in the container shipping industry, the provisions of Marshall Islands law affecting the payment of dividends and other factors. Marshall Islands law generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares), but, if there is no surplus, dividends may be declared out of the net profits (basically, the excess of our revenue over our expenses) for the fiscal year in which the dividend is declared or the preceding fiscal year. Marshall Islands law also prohibits the payment of dividends while a company is insolvent or if it would be rendered insolvent upon the payment of a dividend. As a result, we may not be able to pay dividends.
If we do not have sufficient cash to pay dividends on our Series B Preferred Shares when due, we may suffer adverse consequences.
The Series B Preferred Shares paid dividends in-kind until January 29, 2019 (rather than in cash). After that date, dividends to holders of the Series B Preferred Shares are paid in cash. If we do not have sufficient cash to pay dividends to holders of the Series B Preferred Shares, then our failure to pay such dividends would be a dividend payment default and would therefore cause the dividend rate to increase, pursuant to the terms of the Statement of Designations of the Series B Preferred Shares. In addition, failure to pay dividends on our Series B Preferred Shares when due will adversely affect our ability to utilize shelf registration statements to sell our securities, which has been an important fund-raising avenue for us in the past.
If we are unable to fund our capital expenditures, we may not be able to continue to operate some of our vessels, which would have a material adverse effect on our business and our ability to pay dividends.
In order to fund our capital expenditures, we may be required to incur borrowings or raise capital through the sale of debt or equity securities. Our ability to access the capital markets through future offerings may be limited by our financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for necessary future capital expenditures, including for our vessel under construction, would limit our ability to continue to operate some of our vessels and could have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends. Even if we are successful in obtaining such funds through financings, the terms of such financings could further limit our ability to pay dividends.
Our existing loan agreements contain restrictive covenants that may limit our liquidity and corporate activities.
Our existing loan agreements 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;
| • | make capital expenditures;
| • | change the management of our vessels or terminate or materially amend the management agreement relating to each vessel; and
| • | sell our vessels.

Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions. The lenders' interests may be different from our interests, and we may not be able to obtain the lenders' permission when needed. This may prevent us from taking actions that are in our best interest.
Servicing future debt would limit funds available for other purposes.
To finance our fleet, we have incurred secured debt under loan agreements for our vessels. We also currently expect to incur additional secured debt to finance the acquisition of additional vessels we may decide to acquire in the future. We must dedicate a portion of our cash flow from operations to pay the principal and interest on our debt. These payments limit funds otherwise available for working capital expenditures and other purposes. As of December
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31, 2019, we had total bank debt of approximately $85.2 million. Our bank debt repayment schedule as of December 31, 2019 required us to repay $42.5 million of bank debt during the next two years and all remaining bank debt in the third and fourth year. As of April 1, 2020, we repaid $3.3 million of our total bank debt decreasing our outstanding bank debt to $81.9 million. If we are unable to service our debt, it could have a material adverse effect on our financial condition, results of operations and cash flows.
A further rise in interest rates could cause an increase in our costs and have a material adverse effect on our financial condition and results of operations. To finance vessel purchases, we have borrowed, and may continue to borrow, under loan agreements that provide for periodic interest rate adjustments based on indices that fluctuate with changes in market interest rates. If interest rates increase significantly, it would increase our costs of financing our acquisition of vessels, which could have a material adverse effect on our financial condition and results of operations. Any increase in debt service would also reduce the funds available to us to purchase other vessels.
Our ability to obtain additional debt financing may be dependent on the performance of our then existing charters and the creditworthiness of our charterers.
The actual or perceived credit quality of our charterers, and any defaults by them, may be one of the factors that materially affect our ability to obtain the additional debt financing that we will require to purchase additional vessels or may significantly increase our costs of obtaining such financing. We may be unable to obtain additional financing, or may be able to obtain additional financing only at a higher-than-anticipated cost, which may materially affect our results of operations, cash flows and our ability to implement our business strategy.
Credit market volatility may affect our ability to refinance our existing debt or incur additional debt.
The credit markets have recently experienced extreme volatility and disruption, which has limited credit capacity for certain issuers, and lenders have requested shorter terms and lower leverage ratios. The market for new debt financing is extremely limited and in some cases not available at all. If current levels of market disruption and volatility continue or worsen, we may not be able to refinance our existing debt or incur additional debt, which may require us to seek other funding sources to meet our liquidity needs or to fund planned expansion.
We are exposed to volatility in LIBOR, and we may enter into derivative contracts, which can result in higher than market interest rates and charges against our income. If volatility in LIBOR occurs, it could affect our profitability, earnings and cash flow.
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to be eliminated or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness and obligations. The amount outstanding under our senior secured credit facility has been, and amounts under additional credit facilities that we may enter in the future, will generally be, advanced at a floating rate based on LIBOR, which has been volatile in prior years, which can affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. In addition, in recent years, LIBOR has been at relatively low levels, but may rise in the future as the current low interest rate environment comes to an end. Our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our credit facilities and any other financing arrangements we may enter into in the future. Even if we enter into interest rate swaps or other derivative instruments for purposes of managing our interest rate exposure, our hedging strategies may not be effective and we may incur substantial losses.
LIBOR has historically been volatile, with the spread between LIBOR and the prime lending rate widening significantly at times. These conditions are the result of the disruptions in the international credit markets. Because the interest rates borne by our outstanding indebtedness fluctuate with changes in LIBOR, if this volatility were to occur, it would affect the amount of interest payable on our debt, which in turn, could have an adverse effect on our profitability, earnings and cash flow.
Furthermore, the calculation of interest in most financing agreements in our industry has been based on published LIBOR rates. Due in part to uncertainty relating to the LIBOR calculation process in recent years, it is likely that LIBOR will be phased out in the future. As a result, our loan agreements contain provisions that entitle the lenders, in their discretion, to replace published LIBOR as the base for the interest calculation with their cost-of-funds rate. Since some of our loans have such clauses, our borrowing costs could increase significantly, which would have an adverse effect on our profitability, earnings and cash flow.
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In addition, the banks currently reporting information used to set LIBOR will likely stop such reporting after 2021, when their commitment to reporting information ends. The Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has proposed an alternative rate to replace U.S. Dollar LIBOR: the Secured Overnight Financing Rate, or "SOFR." The impact of such a transition from LIBOR to SOFR could be significant for us.
In order to manage our exposure to interest rate fluctuations, we may from time to time use interest rate derivatives to effectively fix some of our floating rate debt obligations. No assurance can however be given that the use of these derivative instruments, if any, may effectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position. Interest rate derivatives may also be impacted by the transition from LIBOR to SOFR or other alternative rates. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. Such risk may have an adverse effect on our financial condition and results of operations.
As we expand our business, we may need to upgrade our operations and financial systems, and add more staff and crew. If we cannot upgrade these systems or recruit suitable employees, our performance may be adversely affected.
Our Manager's current operating and financial systems may not be adequate if we expand the size of our fleet, and our attempts to improve those systems may be ineffective. In addition, if we expand our fleet, we will have to rely on our Manager to recruit suitable additional seafarers and shore-side administrative and management personnel. Our Manager may not be able to continue to hire suitable employees as we expand our fleet. If our Manager's affiliated crewing agent encounters business or financial difficulties, we can make satisfactory arrangements with unaffiliated crewing agents or else we may not be able to adequately staff our vessels. If we are unable to operate our financial and operations systems effectively or to recruit suitable employees, our performance may be materially adversely affected.
If we acquire additional ships, whether on the secondhand market or newbuildings, and those vessels are not delivered on time or are delivered with significant defects, our earnings and financial condition could be adversely affected.
We expect to acquire additional vessels in the future either from the secondhand markets or by placing newbuilding orders. A delay in the delivery of any of these vessels to us or the failure of the contract counterparty to deliver a vessel at all could cause us to breach our obligations under a related time charter and could adversely affect our earnings, our financial condition and the amount of dividends, if any, that we pay in the future. The delivery of any vessels we might decide to acquire, whether newbuildings or secondhand vessels, could be delayed or certain events may arise which could result in us not taking delivery of a vessel, such as a total loss of a vessel, a constructive loss of a vessel, substantial damage to a vessel prior to delivery or construction not in accordance with agreed upon specification or with substantial defects.
Labor interruptions could disrupt our business.
Our vessels are manned by masters, officers and crews that are employed by third parties. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out normally and could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
We will not be able to take advantage of potentially favorable opportunities in the current market with respect to vessels employed on time charters.
As of April 15, 2020, 17 of our vessels are employed under time charters with remaining terms ranging from less than one month to 10 months based on the minimum duration of the charter contracts, with options to extend for an additional seven to 22 months. The percentage of our fleet that is under time charter contracts represents approximately 47% of our vessel capacity for the remainder of 2020 and 5% of our capacity in 2021. Although time charters provide relatively steady streams of revenue, vessels committed to time charters may not be available for chartering during periods of increasing charter rates. If we cannot re-charter these vessels on time charters or trade them profitably, our results of operations and operating cash flow may suffer. We may not be able to secure charter rates in the future that will enable us to operate our vessels profitably. Although we do not receive any revenues from certain of our vessels while such vessels are unemployed, we are required to pay expenses necessary to maintain the
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vessel in proper operating condition, insure it and service any indebtedness secured by such vessel. Despite the fact that 17 of our 19 vessels are employed, we may be forced to lay up vessels if rates drop to levels below daily running expenses or if we are unable to find employment for the vessels for prolonged periods of time.
We or our Manager 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 operations.
Our success depends to a significant extent upon the abilities and efforts of our management team. Our success will depend upon our and our Manager's ability to hire additional employees and to retain key members of our management team. The loss of any of these individuals could adversely affect our business prospects and financial condition and operating cash flows. Difficulty in hiring and retaining personnel could adversely affect our results of operations. We do not currently intend to maintain "key man" life insurance on any of our officers.
Risks involved with operating ocean-going vessels could affect our business and reputation, which may reduce our revenues.
The operation of an ocean-going vessel carries inherent risks. These risks include, among others, the possibility of:

| • | marine disaster;
| • | piracy;
| • | environmental accidents;
| • | grounding, fire, explosions and collisions;
| • | cargo and property losses or damage;
| • | business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes, adverse weather conditions, natural disasters or other disasters outside our control, such as the recent Coronavirus outbreak; and
| • | work stoppages or other labor problems with crew members serving on our vessels including crew strikes and/or boycotts.

Such occurrences could result in death or injury to persons, loss of property or environmental damage, delays in the delivery of cargo, loss of revenues from or termination of charter contracts, governmental fines, penalties or restrictions on conducting business, higher insurance rates, and damage to our reputation and customer relationships generally. Any of these circumstances or events could increase our costs or lower our revenues, which could result in reduction in the market price of our shares of common stock. The involvement of our vessels in an environmental disaster may harm our reputation as a safe and reliable vessel owner and operator.
The operation of containerships has certain unique operational risks which could affect our business, financial condition, results of operations and ability to pay dividends.
The operation of certain ship types, such as containerships, has certain unique risks. Containerships operate at higher speeds as compared to other ocean-going vessels in order to move cargoes around the world quickly and minimize delivery delays. These high speeds can result in greater impact in collisions and groundings resulting in more damage to the vessel when compared to vessels operating at lower speeds. In addition, due to the placement of the containers on a containership, there is a greater risk that containers carried on deck will be lost overboard if an accident does occur. Furthermore, with the highly varied cargo that can be carried on a single containership, there can be additional difficulties with any clean-up operation following an accident. Also, we may not be able to correctly control the contents and condition of cargoes within the containers which may give rise to events such as customer complaints, accidents on-board the ships or problems with authorities due to carriage of illegal cargoes. Any of these circumstances or events could negatively impact our business, financial condition, results of operations and ability to pay dividends. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.
Our vessels may suffer damage and may face unexpected drydocking costs, which could affect our cash flows and financial condition.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover. The loss of earnings while these vessels are being repaired and reconditioned, as well as the actual cost of these
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repairs, would decrease our earnings. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located near our vessels' positions. The loss of earnings and any costs incurred while these vessels are forced to wait for space or to steam to more distant drydocking facilities would decrease our earnings.
Purchasing and operating previously owned vessels may result in increased operating costs and vessels off-hire, which could adversely affect our earnings. The aging of our fleet may result in increased operating costs in the future, which could adversely affect our results of operations.
Although we inspect the secondhand vessels prior to purchase, this inspection does not provide us with the same knowledge about their condition and cost of any required (or anticipated) repairs that it 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 costs to maintain a vessel in good operating condition increase with the age of the vessel. As of April 15, 2020, the vessels in our fleet had an average age of approximately 17.7 years. As our vessels age, they may become less fuel efficient and more costly to maintain and will not be as advanced as more recently constructed vessels due to improvements in design and engine technology. Rates for cargo insurance, paid by charterers, also 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 our 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, we are not certain that the price for which we sell them will equal their carrying amount at that time.
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 15, 2020, the vessels in our fleet had an average age of approximately 17.7 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.
Technological innovation could reduce our charter income and the value of our vessels.
The charter 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. 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. If new vessels are built that are more efficient or more flexible or have longer physical lives than our vessels, 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. As a result, our available cash could be adversely affected.
We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or otherwise adversely affect our business.
We enter into, among other things, charter-party agreements. Such agreements subject us to counterparty risks. The ability and willingness of each of our counterparties to perform its obligations under a contract 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 maritime and offshore industries, the overall financial condition of the counterparty, charter rates received for specific types of vessels, and various expenses. In addition, in depressed market conditions, our charterers may no longer need a vessel that is currently under charter or may be able to obtain a comparable vessel at lower rates. As a result, charterers may seek to renegotiate the terms of their existing charter parties or avoid their
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obligations under those contracts, especially when the contracted charter rates are significantly above market levels. 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 time charters would be at lower rates given currently decreased charter rate levels. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters may be at lower rates given currently decreased charter rate levels. As a result, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends in the future and compliance with covenants in our credit facilities.
A decrease in spot charter rates may provide an incentive for some charterers to default on their charters.
When we enter into a time charter, charter rates under that charter are fixed for the term of the charter. If the spot charter rates or short-term time charter rates in the containership shipping industry remain significantly lower than the time charter equivalent rates that some of our charterers are obligated to pay us under our existing charters, the charterers may have incentive to default under that charter or attempt to renegotiate the charter. If our charterers fail to pay their obligations, we would have to attempt to re-charter our vessels at lower charter rates, which would affect our ability to operate our vessels profitably and may affect our ability to comply with covenants contained in our current or future credit facilities and financing agreements.
We may not have adequate insurance to compensate us adequately for damage to, or loss of, our vessels.
We procure insurance for our fleet against risks commonly insured against by vessel owners and operators which includes hull and machinery insurance, protection and indemnity insurance (which, in turn, includes environmental damage and pollution insurance) and war risk insurance and freight, demurrage and defense insurance for our fleet. We generally do not maintain insurance against loss of hire which covers business interruptions that result in the loss of use of a vessel except in cases we consider such protection appropriate. We may not be adequately insured against all risks and we may not be able to obtain adequate insurance coverage for our fleet in the future. The insurers may not pay particular claims. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Our insurance policies contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs. Since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Moreover, the insurers may default on any claims they are required to pay. If our insurance is not enough to cover claims that may arise, it may have a material adverse effect on our financial condition, results of operations and cash flows.
Because we obtain some of our insurance through protection and indemnity associations ("P&I Associations"), we may also be subject to calls in amounts based not only on our own claim records, but also the claim records of other members of the P&I Associations.
We are indemnified for legal liabilities incurred while operating our vessels through membership in P&I Associations or clubs. P&I Associations are mutual insurance associations whose members must contribute to cover losses sustained by other association members. The objective of a P&I Association is to provide mutual insurance based on the aggregate tonnage of a member's vessels entered into the association. Claims are paid through the aggregate premiums of all members of the association, although members remain subject to calls for additional funds if the aggregate premiums are insufficient to cover claims submitted to the association. We cannot assure you that the P&I Association to which we belong will remain viable or that we will not become subject to additional funding calls which could adversely affect us. Claims submitted to the association may include those incurred by members of the association as well as claims submitted to the association from other P&I Associations with which our P&I Association has entered into inter-association agreements.
We may be subject to calls in amounts based not only on our claim records but also the claim records of other members of the protection and indemnity associations through which we receive insurance coverage for tort liability, including pollution-related liability. Our payment of these calls could result in significant expense to us, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
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Our vessels are exposed to operational risks, including terrorism, cyber-terrorism and piracy that may not be adequately covered by our insurance.
The operation of any vessel includes risks such as weather conditions, mechanical failure, collision, fire, contact with floating objects, cargo or property loss or damage and business interruption due to political circumstances in countries, piracy, terrorist and cyber-terrorist attacks, armed hostilities and labor strikes. Such occurrences could result in death or injury to persons, loss, damage or destruction of property or environmental damage, delays in the delivery of cargo, loss of revenues from or termination of charter contracts, governmental fines, penalties or restrictions on conducting business, higher insurance rates and damage to our reputation and customer relationships generally.
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. Although the frequency of sea piracy worldwide has generally decreased since 2013, sea piracy incidents continue to occur, particularly in the Gulf of Aden off the coast of Somalia and increasingly in the Sulu Sea and the Gulf of Guinea, with dry bulk vessels and tankers particularly vulnerable to such attacks. Acts of piracy could result in harm or danger to the crews that man our vessels.
If these piracy attacks occur in regions in which our vessels are deployed that insurers characterized as "war risk" zones or Joint War Committee "war and strikes" listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including the employment of onboard security guards, could increase in such circumstances. Furthermore, while we believe the charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold charter-hire until the vessel is released. A charterer may also claim that a vessel seized by pirates was not "on-hire" for a certain number of days and is therefore entitled to cancel the charter party, a claim that we would dispute. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, any 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 earnings.
We may not be adequately insured against all risks, and our insurers may not pay particular claims. With respect to war risks insurance, which we usually obtain for certain of our vessels making port calls in designated war zone areas, such insurance may not be obtained prior to one of our vessels entering into an actual war zone, which could result in that vessel not being insured. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Under the terms of our credit facilities, we will be subject to restrictions on the use of any proceeds we may receive from claims under our insurance policies. Furthermore, in the future, we may not be able to maintain or obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs in the event of a claim or decrease any recovery in the event of a loss. If the damages from a catastrophic oil spill or other marine disaster exceeded our insurance coverage, the payment of those damages could have a material adverse effect on our business and could possibly result in our insolvency.
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. 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 hard to predict at this time. We do not carry cyber-attack insurance, which could have a material adverse effect on our business, financial condition and results of operations.
In general, we do not carry loss of hire insurance. Occasionally, we may decide to carry loss of hire insurance when our vessels are trading in areas where a history of piracy has been reported. Loss of hire insurance covers the loss of revenue during extended vessel off-hire periods, such as those that occur during an unscheduled drydocking or unscheduled repairs due to damage to the vessel. Accordingly, any loss of a vessel or any extended period of vessel off-hire, due to an accident or otherwise, could have a material adverse effect on our business, financial condition and results of operations.
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If our vessels call on ports located in countries or territories that are subject to sanctions or embargoes imposed by the U.S. government, the European Union, the United Nations, or other governments it could lead to monetary fines or penalties and/or adversely affect our reputation and the market for our shares of common stock and its trading price.
Although we do not expect that our vessels will call on ports located in countries or territories subject to country-wide or territory-wide sanctions and/or embargoes imposed by the U.S. government or other authorities or countries identified by the U.S. government or other authorities as state sponsors of terrorism ("Sanctioned Jurisdictions"), and we endeavor to take precautions reasonably designed to mitigate such activities, including relevant trade exclusion clauses in our charter contracts forbidding the use of our vessels in trade that would violation economic sanctions, it is possible that, from time to time, vessels in our fleet on charterers' instructions, and without our knowledge or consent, may call on ports located in such countries or territories in the future. If such activities result in a sanctions violation, we could be subject to monetary fines, penalties, or other sanctions, and our reputation and the market for our common stock could be adversely affected.
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. Current or future counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of sanctions imposed by the U.S. administration, the EU, and/or other international bodies. If we determine that such sanctions require us to terminate existing or future contracts to which we or our subsidiaries are party or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected, we could face monetary fines or penalties, or we may suffer reputational harm.
All of the Company's revenues are from chartering-out its vessels on voyage or time charter contracts. The Company's vessels can also enter into pooling arrangements under which an international company and trading house involved in the use and/or transportation of commodities directs the Company's vessel to carry cargoes on its behalf. In time charters and pooling arrangements, the Company has no contractual relationship with the owner of the cargo. The vessel is directed to a load port to load the cargo, and to a discharge port to offload the cargo, based solely on the instructions of the charterer. As of April 15, 2020, none of our vessels have called on ports in Sanctioned Jurisdictions in the past or are arranged to call such ports in the future. The vessels' shipowning companies do not presently have, and have not in the past had, any agreements, arrangements or contracts with the governments of Iran, North Korea, Sudan, Syria or Cuba or entities that these countries control.
Although we believe that we have been 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 with all applicable sanctions and embargo laws and regulations in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries or territories identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our common stock may adversely affect the price at which our common stock trades. 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. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries or territories subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries or territories, or engaging in operations associated with those countries or territories pursuant to contracts with third parties that are unrelated to those countries or territories or entities controlled by their governments. Investor perception of the value of our common stock may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries or territories.
We expect to operate substantially outside the United States, which will expose us to political and governmental instability, which could harm our operations.
We expect that our operations will be primarily conducted outside the United States and may be adversely affected by changing or adverse political and governmental conditions in the countries where our vessels are flagged or registered and in the regions where we otherwise engage in business. Any disruption caused by these factors may interfere with the operation of our vessels, which could harm our business, financial condition and results of operations. Past political efforts to disrupt shipping in these regions, particularly in the Arabian Gulf, have included attacks on ships and mining of waterways. In addition, terrorist attacks outside this region, such as the attacks that
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occurred against targets in the United States on September 11, 2001 and on a number of occasions in other countries following that, as well as continuing or new unrest and hostilities in Iraq, Iran, Afghanistan, Libya, Egypt, Ukraine, Syria and elsewhere in the world, may lead to additional armed conflicts or to further acts of terrorism and civil disturbance. Any such attacks or disturbances may disrupt our business, increase vessel operating costs, including insurance costs, and adversely affect our financial condition and results of operations. Our operations may also be adversely affected by expropriation of vessels, taxes, regulation, economic sanctions or other adverse events or circumstances in or affecting the countries and regions where we operate or where we may operate in the future.
Further, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. In particular, leaders in the United States have indicated the United States may seek to implement more protective trade measures. President Donald Trump was elected on a platform promoting trade protectionism. The results of the presidential election have thus created significant uncertainty concerning the future relationship between the United States, China and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs. For example, on January 23, 2017, 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. In March 2018, President Trump announced tariffs on imported steel and aluminum into the United States that could have a negative impact on international trade generally. In 2019, the United States announced additional sanctions relating to Venezuela, including those against the Government of Venezuela and Petróleos de Venezuela (PdVSA), which may impact Venezuela’s oil output, and in turn, affect global oil supply. Protectionist developments, or the perception they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in:
(a) the cost of goods exported from regions globally,
(b) the length of time required to transport goods and
(c) the risks associated with exporting goods.
Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs, which could have an adverse impact on 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, results of operations, financial condition and our ability to pay any cash distributions to our stockholders.
The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.
We are incorporated under the laws of the Republic of the Marshall Islands and we conduct operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S. bankruptcy court's jurisdiction if any other bankruptcy court would determine it had jurisdiction.
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 (the "Exchange Act"), and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act of 2002 ("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
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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.
Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.
We generate all our revenues in U.S. dollars, but we incur approximately 25% of our vessel operating expenses and drydocking expenses, all of our vessel management fees, and approximately 6% in 2019 of our general and administrative expenses in currencies other than the U.S. dollar. This could lead to fluctuations in our operating expenses, which would affect our financial results. Expenses incurred in foreign currencies increase when the value of the U.S. dollar falls, which would reduce our profitability and cash flows. In 2019, we had no exposure to the GBP.
We depend upon a few significant customers for a large part of our revenues and the loss of one or more of these customers could adversely affect our financial performance.
We have historically derived a significant part of our revenues from a small number of charterers. During 2019, 2018, and 2017, approximately 86%, 97% and 91%, respectively, of our revenues derived from our top five charterers. If one or more of our charterers chooses not to charter our vessels or is unable to perform under one or more charters with us and we are not able to find a replacement charter, we could suffer a loss of revenues that could adversely affect our financial condition and results of operations.
United States tax authorities could treat us as a "passive foreign investment company," which could have adverse United States federal income tax consequences to United States holders.
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." United States shareholders of 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 addition, United States shareholders of a PFIC are required to file annual information returns with the United States Internal Revenue Service, or IRS.
Based on our current method of operation, we do not believe that we have been, are or will be a PFIC with respect to any taxable year. In this regard, we treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time chartering activities should not constitute "passive income," and the assets that we own and operate in connection with the production of that income should not constitute passive assets.
There is substantial legal authority supporting this 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, it should be noted that there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, in the absence of legal authority directly relating to PFIC rules, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations changed.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders will face adverse United States federal income tax consequences. Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, as amended, (which election could itself have adverse consequences for such shareholders, as discussed in Item 10 of this Annual Report under "Taxation — United States Federal Income Taxation of U.S. Holders"), such shareholders would be subject to 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 shares, as if the excess distribution or gain had been recognized ratably over the United States shareholder's holding period of our shares. See "Taxation — United States Federal Income Taxation of U.S. Holders" in this Annual Report under Item 10 for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.
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Based on the current and expected composition of our and our subsidiaries' assets and income, it is not anticipated that we will be treated as a PFIC. Our actual PFIC status for any taxable year, however, will not be determinable until after the end of such taxable year. Accordingly, there can be no assurances regarding our status as a PFIC for the current taxable year or any future taxable year. See the discussion in the section entitled "Item 10.E. Taxation — Passive Foreign Investment Company Status and Significant Tax Consequences". We urge U.S. Holders to consult with their own tax advisors regarding the possible application of the PFIC rules.
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 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 common stock.
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, or the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as us and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code, or Section 883, and the applicable Treasury Regulations promulgated thereunder.
We intend to take the position that we qualified for this statutory tax exemption for United States federal income tax return reporting purposes for our 2019 taxable year and we intend to so qualify for future taxable years. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption for any future taxable year and thereby become subject to United States federal income tax on our U.S.-source shipping income. For example, in certain circumstances we may no longer qualify for exemption under Section 883 for a particular taxable year if shareholders, other than "qualified shareholders", with a five percent or greater interest in our common shares owned, in the aggregate, 50% or more of our outstanding common shares for more than half the days during the taxable year. Due to the factual nature of the issues involved, there can be no assurances on our tax-exempt status. In addition, we may fail to qualify if our common stock comes to represent 50% or less of the value or outstanding voting power of our stock.
If we are not entitled to exemption under Section 883 for any taxable year, we would be subject for those years to an effective 2% United States federal income tax on the shipping income we derive during the year which is attributable to the transport of cargoes to or from the United States. The imposition of this taxation would have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders.
Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties, and an adverse effect on our business.
We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take action determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977. 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.
It may be difficult to enforce service of process and enforcement of judgments against us and our officers and directors.
We are a Marshall Islands corporation, and our subsidiaries are incorporated in jurisdictions outside of the United States. Our executive offices are located outside of the United States in Maroussi, Greece. A majority of our
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directors and officers reside outside of the United States, and a substantial portion of our assets and the assets of our officers and directors are located outside of 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 of 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, Greece or jurisdictions in which our subsidiaries are organized would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws. In addition, the protection afforded minority shareholders in the Marshall Islands is different than those offered in the United States.
Risk Factors Relating To Our Common Stock
The trading volume for our common stock has been low, which may cause our common stock to trade at lower prices and make it difficult for you to sell your common stock.
Although our shares of common stock have traded on the Nasdaq Global Market since January 31, 2007, on the Nasdaq Global Select Market since January 1, 2008, and on the Nasdaq Capital Market since June 26, 2015, the trading volume has been lower over the last couple of years. Our shares may not actively trade in the public market and any such limited liquidity may cause our common stock to trade at lower prices and make it difficult to sell your common stock.
The market price of our common stock has been and may in the future be subject to significant fluctuations.
The market price of our common stock has been and may in the future be subject to significant fluctuations as a result of many factors, some of which are beyond our control. Among the factors that have in the past and could in the future affect our stock price are:

| • | actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry;
| • | 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;
| • | 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 container shipping industry has been highly unpredictable. In addition, the stock markets in general, and the markets for container 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 shares may trade at prices lower than you originally paid for such shares.
If our common stock does not meet the Nasdaq Capital Market's minimum share price requirement, and if we cannot cure such deficiency within the prescribed timeframe, our common stock could be delisted.
Under the rules of the Nasdaq Capital Market, listed companies are required to maintain a share price of at least $1.00 per share. If the share price declines below $1.00 for a period of 30 consecutive business days, then the listed company has a cure period of at least 180 days to regain compliance with the $1.00 per share minimum. The company may regain compliance if the bid price of its common shares closes at $1.00 per share or more for a minimum of ten consecutive business days at any time during the 180-day cure period. If the price of our common stock closes
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below $1.00 for 30 consecutive days, and if we cannot cure that deficiency within the 180-day timeframe, then our common stock could be delisted. On January 14, 2019, we received such a notice as our share price traded below $1.00 for 30 consecutive days, however Nasdaq determined that the Company was eligible for an additional 180-day period, or until January 13, 2020, to regain compliance. In December 2019, we effected a 1-for-8 reverse stock split to comply with the minimum share price requirement.
If the market price of our common stock remains below $5.00 per share, under stock exchange rules, our shareholders will not be able to use such shares as collateral for borrowing in margin accounts. This inability to continue to use our common stock as collateral may lead to sales of such shares creating downward pressure on and increased volatility in the market 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.
The trading market for our common shares 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.
Our Amended and Restated Articles of Incorporation, Bylaws and Shareholders' Rights Plan contain anti-takeover provisions that may discourage, delay or prevent any (1) merger or acquisition, (2) the removal of incumbent directors and officers and (3) the ability of public shareholders to benefit from a change in control.
Our current amended and restated articles of incorporation and bylaws contain certain anti-takeover provisions. These provisions include blank check preferred stock, the prohibition of cumulative voting in the election of directors, a classified Board of Directors, advance written notice for shareholder nominations for directors, removal of directors only for cause, advance written notice of shareholder proposals for the removal of directors and limitations on action by shareholders. In addition, on May 10, 2019 we adopted a shareholders' rights plan, which replaced and is substantially similar to our prior shareholder rights agreement that expired on May 27, 2019, pursuant to which our Board of Directors may cause the substantial dilution of any person that attempted to acquire us without the approval of our Board of Directors. 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 shareholder may consider in its best interest, (2) the removal of incumbent directors and officers, and (3) the ability of public shareholders to benefit from a change in control. These anti-takeover provisions could substantially impede the ability of shareholders to benefit from a change in control and, as a result, may adversely affect the market price of our common stock and shareholders' ability to realize any potential change of control premium.
Future sales of our common stock could cause the market price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, may depress the market price for our common stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future.
We may issue additional shares of our stock in the future and our stockholders may elect to sell large numbers of shares held by them from time to time. Our amended and restated articles of incorporation authorize us to issue up to 200,000,000 shares of common stock and 20,000,000 shares of preferred stock.
On January 27, 2014 we entered into an agreement to sell 25,000 of our Series B Preferred Shares to a fund managed by TCP and 5,700 shares to Preferred Friends Investment Company Inc., an affiliate of the Company. The Series B Preferred Shares are convertible into common shares. Pursuant to a registration rights agreement between us and TCP, we filed a registration statement registering for resale all of the common shares issuable upon conversion of the Series B Preferred Shares, which has resulted in these shares becoming freely tradable without restriction under the Securities Act of 1933, as amended (the "Securities Act"), if such shares are sold under the registration statement. On December 29, 2016 we sold 89,928 shares of our common stock to Friends for total proceeds of $1,000,000. Further, on December 23, 2016 we issued 112,500 shares of our common stock to two funds managed by TCP in order to purchase the M/V "RT Dagr". We entered into a registration obligation agreement requiring us to register under the Securities Act the 112,500 shares sold to the funds managed by TCP, and such shares will become freely tradable
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without restriction under the Securities Act if they are sold under the registration statement that we intend to file. In June 2019, we redeemed $11.7 million of our Series B Preferred Shares, leaving an $8 million face value of our Series B Preferred Shares outstanding.
In December 2016 and January 2017, we filed with the SEC two prospectus supplements to issue and sell, in an at-the-market ("ATM") offering, shares of our common stock having an aggregate offering price of up to $10 million. From December 21, 2016 through January 26, 2017, we issued and sold 160,078 shares of our common stock through the ATM offering for net proceeds of approximately $2.7 million. In October 2018, we filed with the SEC a new prospectus supplement under which we may issue and sell, in an ATM offering, shares of our common stock having an aggregate offering price of up to $4.2 million; in October 2019, we issued and sold 144,727 shares of our common stock in this ATM offering for net proceeds of approximately $0.85 million. On March 12, 2020, we filed with the SEC a shelf registration statement on Form F-3 and filed an amendment thereto on March 27, 2020, which, if declared effective, will give us the ability to sell in one or more offerings, within a three-year period, up to 2,369,950 shares of our common stock that were previously acquired in private transactions or in the open market or which are issuable upon conversion of Series B Convertible Perpetual Preferred Shares (the "Series B Preferred Shares") or any convertible notes into which the Series B Preferred Shares may convert.
Issuance of preferred stock may adversely affect the voting power of our shareholders 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 Board of Directors approved the issuance of 30,700 shares of our Series B Preferred Shares in 2014 (of which 8,000 are outstanding as of April 15, 2020) and may decide in the future to issue preferred shares 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 subject to prior shareholders' approval. If our Board determines to issue preferred shares, such issuance may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable. The issuance of preferred shares with voting and conversion rights may also adversely affect the voting power of the holders of common shares. This could substantially impede the ability of public shareholders to benefit from a change in control and, as a result, may adversely affect the market price of our common stock and shareholders' ability to realize any potential change of control premium.
Our Series B Preferred Shares are senior obligations of ours and rank prior to our common stock with respect to dividends, distributions and payments upon liquidation, which could have an adverse effect on the value of our common stock.
The rights of the holders of our Series B Preferred Shares rank senior to the obligations to holders of our common shares. Upon our liquidation, the holders of Series B Preferred Shares will be entitled to receive a liquidation preference of $1,000 per share, plus all accrued but unpaid dividends, prior and in preference to any distribution to the holders of any other class of our equity securities, including our common shares. The existence of the Series B Preferred Shares could have an adverse effect on the value of our common shares.
Because the Republic of the Marshall Islands, where we are incorporated, does not have a well-developed body of corporate law, shareholders may have fewer rights and protections than under typical state law in the United States, such as Delaware, and shareholders may have difficulty in protecting their interests with regard to actions taken by our Board of Directors.
Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws, as amended, and by the Marshall Islands Business Corporations Act (the "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. For example, under Marshall Islands law, a copy of the notice of any meeting of the shareholders must be given not less than 15 days before the meeting, whereas in Delaware such notice must be given not less than 10 days before the meeting. Therefore, if immediate shareholder action is required, a meeting may not be able to be convened as quickly as it can be convened under Delaware law. Also, under Marshall Islands law, any action required to be taken by a meeting of shareholders may only be taken without a meeting if consent is in writing and is signed by all of the shareholders entitled to vote, whereas under Delaware law action may be taken by consent if approved by the number of shareholders that would be required to approve such action at a meeting. Therefore,
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under Marshall Islands law, it may be more difficult for a company to take certain actions without a meeting even if a majority of the shareholders approve of such action. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of Delaware and other states with substantially similar legislative provisions, public shareholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction.

Item 4. | Information on the Company

A. | History and Development of the Company

Euroseas Ltd. is a Marshall Islands company incorporated under the BCA on May 5, 2005. We are a provider of worldwide ocean-going transportation services. On May 30, 2018, the Company spun-off its drybulk fleet (excluding M/V Monica P, a handymax drybulk carrier, which was agreed to be sold at the time) into EuroDry Ltd., a separate publicly listed company also listed on Nasdaq Capital Market. Shareholders of the Company received one EuroDry Ltd. share for every five shares of the Company they held. As a result of the spin-off and the subsequent sale of M/V Monica P, the Company has become a pure containership company and the only publicly listed company concentrating on the feeder and intermediate containership sector. Our containerships transport dry and refrigerated containerized cargoes, mainly including manufactured products and perishables. As of April 15, 2020, our fleet consisted of 19 containerships. The total cargo carrying capacity of the 19 containerships is 660,940 dwt or 51,083 teu. Two of our vessels were acquired before January 1, 2004 and were controlled by the Pittas family interests. On June 29, 2005, the shareholders of the two vessels (and of five additional vessels that have since been sold) transferred their ownership in each of the vessels to Euroseas in exchange for shares in Friends, a 100% owner of Euroseas at that time. Since June 2005, the Company has purchased 28 vessels and ordered four newbuildings. Euroseas took delivery of three of the newbuildings in February 2016, January 2017 and May 2018, respectively, while one newbuilding vessel contract was cancelled. The Company sold 15 vessels and spun-off 6 of its vessels into EuroDry on May 30, 2018.
During 2019, we acquired eight containership vessels. In August 2019, we took delivery of four feeder containerships, owned by affiliates of the Pittas family including our CEO, for $28.2 million (comprising a cash consideration of $15 million and the issuance of 2,816,902 common shares), the M/V EM Hydra and M/V EM Spetses, both 1,740 teu feeder containerships built in 2005 and 2007, respectively, the M/V EM Kea, a 3,100 teu feeder containership built in 2007, and the M/V Diamantis P, a 2,008 teu feeder containership built in 1998. In November 2019, we took delivery of four intermediate 4,253 teu containerships, three built in 2009 and one in 2008, and also assumed the charters they were under. The vessels were acquired from companies controlled by Synergy Holdings Limited for approximately $40 million. On February 24, 2020, we signed an agreement to sell the M/V Manolis P, a 1,452 teu vessel, built in 1995 for scrap, for approximately $2.8 million. The vessel reached her destination port on April 7, 2020, but so far has not been delivered to the buyers due to Coronavirus restrictions and port lockdowns in the territory of arrival (Alang, India). The scrap price has dropped since the date of the agreement to sell the M/V Manolis P, and the buyers are now seeking to terminate the agreement on the basis that timely delivery did not occur. We are in the process of seeking a settlement with the buyers; however, if the agreement were to be terminated and we would sell the vessel at currently prevailing scrap prices, we would receive approximately $0.7 million less for the vessel than under the current agreement.
Our common shares traded under the symbol ESEA on the Nasdaq Global Market beginning January 31, 2007 and on the Nasdaq Global Select Market beginning January 1, 2008, and since June 26, 2015 have traded on the Nasdaq Capital Market.
Our executive offices are located at 4 Messogiou & Evropis Street, 151 24, Maroussi, Greece. Our telephone number is +30-211-1804005.
The SEC maintains an Internet website at www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our website address is www.euroseas.gr. The information contained on our website is not part of this annual report.

B. | Business Overview

Our fleet consists of containerships that transport container boxes providing scheduled service between ports. Please see the information in the section titled "Our Fleet", below. During 2015, 2016, 2017, 2018 and 2019, we had a fleet utilization of 93.0%, 93.9%, 96.9%, 92.7% and 99.1%, respectively, our vessels achieved daily time charter equivalent rates of $7,855, $7,120, $7,309, $9,179 and $8,782, respectively, and we generated voyage charter revenue
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and time charter revenue totalling $35.51 million, $21.46 million, $24.84 million, $36.27 million and $41.77 million respectively.
Our business strategy is focused on providing consistent shareholder returns by carefully selecting the timing and the structure of our investments in containership vessels and by reliably, safely and competitively operating the vessels we own, through our affiliate, Eurobulk. Representing a continuous ship-owning and management history that dates back to the 19th century, we believe that one of our advantages in the industry is our ability to select and safely operate containership vessels of any age.
Our Fleet
As of April 15, 2020, the profile and deployment of our fleet is the following:

Name | Type | Dwt | TEU | Year Built | Employment (*) | TCE Rate ($/day)
Container Carriers |  |  |  |  |  |
AKINADA BRIDGE | Intermediate | 71,366 | 5,610 | 2001 | TC until Oct-20 | $16,000
SYNERGY BUSAN | Intermediate | 50,726 | 4,253 | 2009 | TC until Aug-20 | $12,900
SYNERGY ANTWERP | Intermediate | 50,726 | 4,253 | 2008 | TC until May-20 | CONTEX(**) 4250 less 6.25%; floor $8,000 / ceiling $16,000
SYNERGY OAKLAND | Intermediate | 50,787 | 4,253 | 2009 | TC until Oct-20 plus 8-12 months extension option | $9,000 until Feb-20; $10,000 until Oct-20; option CONTEX(**) 4250 less 10%
SYNERGY KEELUNG (+) | Intermediate | 50,969 | 4,253 | 2009 | TC until Dec-20/Jun-22 plus 8-12 months option | $10,000 until Jun-21; $11,750 until Jun-22; option $14,500
EM KEA | Feeder | 42,165 | 3,100 | 2007 | TC until Apr-20 | $9,700
EM ASTORIA | Feeder | 35,600 | 2,788 | 2004 | TC until Sep-20 | $8,500
EVRIDIKI G | Feeder | 34,677 | 2,556 | 2001 | TC until Sep-20 | $10,250
EM CORFU | Feeder | 34,654 | 2,556 | 2001 | TC until Sep-21 | $10,200
EM ATHENS | Feeder | 32,350 | 2,506 | 2000 | TC until Oct-20 | $9,250
EM OINOUSSES | Feeder | 32,350 | 2,506 | 2000 | Idle | -
DIAMANTIS P | Feeder | 30,360 | 2,008 | 1998 | TC until Jul-20 | $8,000
EM SPETSES | Feeder | 23,224 | 1,740 | 2007 | TC until Apr-20 | $7,000
EM HYDRA | Feeder | 23,351 | 1,740 | 2005 | TC until May-20 | $7,500
JOANNA | Feeder | 22,301 | 1,732 | 1999 | TC until Feb-21 | $8,050
MANOLIS P | Feeder | 20,346 | 1,452 | 1995 | Sold Feb-20(***) | -
AEGEAN EXPRESS | Feeder | 18,581 | 1,439 | 1997 | TC until Jul-20 | $7,500
NINOS | Feeder | 18,253 | 1,169 | 1990 | TC until May-20 | $7,750
KUO HSIUNG | Feeder | 18,154 | 1,169 | 1993 | TC until May-20 | $7,500
Total Container Carriers | 19 | 660,940 | 51,083 |  |  |

(*) | TC denotes time charter. All dates listed are the earliest redelivery dates under each TC unless the contract rate is lower than the current market rate in which cases the latest redelivery date is assumed; vessels with the latest redelivery date shown are marked by (+).

(**) | The CONTEX (Container Ship Time Charter Assessment Index) has been published by the Hamburg and Bremen Shipbrokers' Association (VHBS) since October 2007. The CONTEX is a company-independent index of time charter rates for container ships. It is based on assessments of the current day charter rates of six selected container ship types, which are representative of their size categories: Type 1,100 TEU and Type 1,700 TEU with a charter period of one year, and the Types 2,500, 2,700, 3,500 and 4,250 TEU all with a charter period of two years.

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(***) | On February 24, 2020, we entered into an agreement to sell the M/V Manolis P for scrap. The vessel reached her destination port on April 7, 2020, but so far has not been delivered to the buyers due to Coronavirus restrictions and port lockdowns in the territory of arrival (Alang, India). The scrap price has dropped since the date of the agreement to sell the M/V Manolis P, and the buyers are now seeking to terminate the agreement on the basis that timely delivery did not occur. We are in the process of seeking a settlement with the buyers.

We plan to expand our fleet by investing in vessels in the containership market under favorable market conditions. We also intend to take advantage of the cyclical nature of the market by buying and selling ships when we believe favorable opportunities exist. We employ our vessels in the spot and time charter market. As of April 15, 2020, 17 of our vessels are employed under time charter contracts, while one is undergoing repairs and one is currently under contract to be sold.
As of April 15, 2020, approximately 47% of our ship capacity days for the remainder of 2020 and approximately 5% of our ship capacity days in 2021 are under contract.
In "Critical Accounting Policies – Impairment of vessels" below, we discuss our policy for impairing the carrying values of our vessels. During the past few years, the market values of vessels have experienced extraordinarily high volatility, and substantial declines in many vessel classes. As a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below those vessels' carrying value. We may not impair those vessels' carrying value under our accounting impairment policy, due to our belief that future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such vessels' carrying amounts.
The table set forth below indicates (i) the carrying value of each of our vessels as of December 31, 2018 and 2019, respectively, (ii) which of our vessels we believe has a basic market value below its carrying value, and (iii) the aggregate difference between carrying and market value represented by such vessels. This aggregate difference represents the approximate analysis of the amount by which we believe we would have to reduce our net income/ (loss) if we sold all of such vessels in the current environment, using industry-standard valuation methodologies, in cash, in arm's-length transactions. For purposes of this calculation, we have assumed that the vessels would be sold at a price that reflects our estimate of their current basic market values. However, we are not holding our vessels for sale, except as otherwise noted in this report.
Our estimates of basic market value assume that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without any notations. Our estimates are based on information available from various industry sources, including:

| • | reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
| • | news and industry reports of similar vessel sales;
| • | news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates;
| • | approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;
| • | offers that we may have received from potential purchasers of our vessels; and
| • | vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.

As we obtain information from various industry and other sources, our estimates of basic market value are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them.
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Name | Capacity | Purchase Date | Carrying Value as of December 31, 2018 (in millions) | Carrying Value as of December 31, 2019 (in millions)
Container Carriers | (teu) |  |  |
EVRIDIKI | 2,556 | May-2008 | $8.88(1) | $8.06(2)
MANOLIS P | 1,452 | Apr-2007 | $2.11 | $1.79
NINOS | 1,169 | Feb-2001 | $1.51 | $1.51
JOANNA | 1,732 | Jul-2013 | $3.81 | $3.40
KUO HSIUNG | 1,169 | May-2002 | $1.57 | $1.57
AEGEAN EXPRESS | 1,439 | Sep-2016 | $2.51 | $2.25
AKINADA BRIDGE | 5,610 | Dec-2017 | $10.54 | $10.33
EM ASTORIA | 2,788 | Jun-2017 | $4.55 | $4.42
EM ATHENS | 2,506 | Sep-2017 | $4.03 | $3.87
EM CORFU | 2,556 | Nov-2017 | $5.28 | $4.95
EM OINOUSSES | 2,506 | Oct-2017 | $4.04 | $3.86
EM KEA | 3,100 | Aug-2019 | - | $9.31
EM SPETSES | 1,740 | Aug-2019 | - | $7.40
EM HYDRA | 1,740 | Aug-2019 | - | $6.57
DIAMANTIS P | 2,008 | Aug-2019 | - | $4.95(2)
SYNERGY BUSAN | 4,253 | Nov-2019 | - | $10.12
SYNERGY ANTWERP | 4,253 | Nov-2019 | - | $10.06
SYNERGY OAKLAND | 4,253 | Nov-2019 | - | $10.45
SYNERGY KEELUNG | 4,253 | Nov-2019 | - | $11.36
Total Container Carriers | 51,083 |  | $48.83 | $116.23

(1) Indicates a container vessel for which we believe, as of December 31, 2018, the basic charter-free market value is lower than the vessel's carrying value as of December 31, 2018. We believe that the carrying value of this vessel, assessed separately, of $8.88 million as of December 31, 2018 exceeds its basic charter-free market value of approximately $7.70 million by approximately $1.18 million. As further discussed in "Critical Accounting Policies – Impairment of vessels" below, we believe that the carrying values of our vessels as of December 31, 2018 were recoverable.
(2) Indicates container vessels for which we believe, as of December 31, 2019, the basic charter-free market value is lower than the vessel's carrying value as of December 31, 2019. We believe that the aggregate carrying value of these vessels, assessed separately, of $13.01 million as of December 31, 2019 exceeds their aggregate basic charter-free market value of approximately $11.50 million by approximately $1.51 million. As further discussed in "Critical Accounting Policies – Impairment of vessels" below, we believe that the carrying values of our vessels as of December 31, 2019 were recoverable.
We note that as of April 15, 2020, 17 of our container vessels are employed under time charter contracts of durations from less than one to 10 months until the earliest redelivery charter period. If we sell those vessels with the charters attached, the sale price may be affected by the relationship of the charter rate to the prevailing market rate for a comparable charter with the same terms.
We refer you to the risk factor entitled "The market value of our vessels can fluctuate significantly, which may adversely affect our financial condition, cause us to breach financial covenants, result in the incurrence of a loss upon disposal of a vessel or increase the cost of acquiring additional vessels" and the discussion in Item 3.D under "Industry Risk Factors."
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Management of Our Fleet
The operations of our vessels are managed by Eurobulk Ltd., or Eurobulk, an affiliated company. Eurobulk manages our fleet under a Master Management Agreement with us and separate management agreements with each shipowning company. Eurobulk was founded in 1994 by members of the Pittas family and is a reputable ship management company with strong industry relationships and experience in managing vessels. Under our Master Management Agreement, Eurobulk is responsible for providing us with: (i) executive services associated with us being a public company; (ii) other services to our subsidiaries and commercial management services, which include obtaining employment for our vessels and managing our relationships with charterers; and (iii) technical management services, which include managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging our hire of qualified officers and crew, arranging and supervising drydocking and repairs, arranging insurance for vessels, purchasing stores, supplies, spares and new equipment for vessels, appointing supervisors and technical consultants and providing technical support and shoreside personnel who carry out the management functions described above and certain accounting services.
Our Master Management Agreement with Eurobulk compensates Eurobulk with an annual fee and a daily management fee per vessel managed. Our Master Management Agreement, which we initially entered into in 2008, was amended and restated as of January 1, 2018, and its term was extended until January 1, 2023. It provided for a 5% discount of the daily vessel management fee for any period during which the number of the Euroseas-owned vessels (including vessels in which Euroseas is a part owner) managed by Eurobulk is greater than 20 ("volume discount"), which was permanently incorporated into the daily management fee effective January 1, 2018 (see below). The Master Management Agreement can be terminated by Eurobulk only for cause or under other limited circumstances, such as sale of the Company or Eurobulk or the bankruptcy of either party. This Master Management Agreement will automatically be extended after the initial period for an additional five-year period unless terminated on or before the 90th day preceding the initial termination date. Pursuant to the Master Management Agreement, vessels we might acquire in the future will enter into a separate management agreement with Eurobulk with a term and rate as specified in the Master Management Agreement.
During 2017, in exchange for providing us with the services described above, we paid Eurobulk an annual fee of $2,000,000 and a management fee of 685 Euros per vessel per day for any operating vessel and 50% (i.e. 342.5 Euro) of that amount for any vessel laid-up including the 5% volume discount. The management fee is adjusted annually for Eurozone inflation every January 1st. There was no adjustment for inflation from January 1, 2017, to date and, hence, we continued to pay Eurobulk an annual fee of $2,000,000 and a fee of 685 Euros per vessel per day in operation and 342.5 Euros per vessel per day in lay-up. In the case of newbuilding vessel contracts, the same management fee of 685 Euros becomes effective when construction of the vessels actually begins. Under the amended and restated Master Management Agreement, as of January 1, 2018, the volume discount has been permanently incorporated into the daily management fee which remained unchanged at 685 Euros in 2018 and 2019, and will be adjusted annually for inflation in the Eurozone. On May 30, 2018, the Company signed an addendum with the Manager according to which daily management fees were kept at 685 Euros per day per vessel and, effective May 30, 2018, the fixed cost was adjusted to $1,250,000. As a result, for the year 2018, the fixed cost was calculated at $2,000,000 pro-rated for the period of January 1, 2018 until May 30, 2018 and at $1,250,000 for the period of May 31, 2018 until December 31, 2018. On November 15, 2019, the Company signed an addendum adjusting the fixed annual cost to $2,000,000 to compensate Eurobulk Ltd. for the increase in the fleet and certain management services provided by Synergy Marine Ltd., a company controlled by Andreas Papathomas and which became affiliated with the Company post-acquisition, as a result of his appointment to the Board of Directors of the Company in November 2019. As a result, for the year 2019, the fixed cost was calculated at $1,250,000 pro-rated for the period of January 1, 2019 until November 15, 2019 and at $2,000,000 for the period of November 16, 2019 until December 31, 2019.
Our Competitive Strengths
We believe that we possess the following competitive strengths:

| • | Experienced Management Team. Our management team has significant experience in all aspects of commercial, technical, operational and financial areas of our business. Aristides J. Pittas, our Chairman and Chief Executive Officer, holds a dual graduate degree in Naval Architecture and Marine Engineering and Ocean Systems Management from the Massachusetts Institute of Technology. He has worked in various technical, shipyard and ship management capacities and since 1991 has focused on the ownership and operation of vessels carrying dry cargoes. Dr. Anastasios Aslidis, our Chief Financial Officer, holds a Ph.D. in Ocean Systems Management also from Massachusetts Institute of Technology and has over 20 years of experience, primarily as a partner at a Boston based international consulting firm focusing on investment and risk management in the maritime industry.

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| • | Cost Efficient Vessel Operations. We believe that because of the efficiencies afforded to us through Eurobulk, the strength of our management team and the quality of our fleet, we are, and will continue to be, a reliable, low cost vessel operator, without compromising our high standards of performance, reliability and safety. Despite the average age of our fleet being approximately 17.7 years on April 15, 2020, our total vessel operating expenses, including management fees and general and administrative expenses but excluding drydocking expenses were $6,294 per day for the year ended December 31, 2019. We consider this amount to be among the lowest of the publicly listed containerships shipping companies in the United States. Our technical and operating expertise allows us to efficiently manage and transport a wide range of cargoes with a flexible trade route profile, which helps reduce ballast time between voyages and minimize off-hire days. Our professional, well-trained masters, officers and onboard crews further help us to control costs and ensure consistent vessel operating performance. We actively manage our fleet and strive to maximize utilization and minimize maintenance expenditures for operational and commercial utilization. For the year ended December 31, 2019, our operational fleet utilization was 99.9%, up from 96.0% in 2018, while our commercial utilization rate was 99.2%, up from 96.7% in 2018. Our total fleet utilization rate in 2019 was 99.1%.

| • | Strong Relationships with Customers and Financial Institutions. We believe ourselves, Eurobulk and the Pittas family to have developed strong industry relationships and to have gained acceptance with charterers, lenders and insurers because of long-standing reputation for safe and reliable service and financial responsibility through various shipping cycles. Through Eurobulk, we offer reliable service and cargo carrying flexibility that enables us to attract customers and obtain repeat business. We also believe that the established customer base and reputation of ourselves, Eurobulk and the Pittas family help us to secure favorable employment for our vessels with well-known charterers.

Our Business Strategy
Our business strategy is focused on providing consistent shareholder returns by carefully timing and structuring acquisitions of containerships and by reliably, safely and competitively operating our vessels through Eurobulk. We continuously evaluate purchase and sale opportunities, as well as long term employment opportunities for our vessels. Key elements of the above strategy are:

| • | Renew and Expand our Fleet. We expect to grow our fleet in a disciplined manner through timely and selective acquisitions of quality vessels. We perform in-depth technical review and financial analysis of each potential acquisition and only purchase vessels as market opportunities present themselves. We focus on purchasing well-maintained secondhand vessels, newbuildings or newbuilding resales based on the evaluation of each investment option at the time it is made. In January 2017, we sold one containership. In June, September, October and December 2017, we took delivery of five secondhand containerships, and in December 2017, we sold one containership. On May 30, 2018, we spun-off our drybulk fleet (excluding M/V Monica P, which was agreed to be sold) into EuroDry. As a result of the spin-off and subsequent sale of Monica P in June 2018, we became a pure containership company. In August and November 2019, we acquired eight secondhand containerships, expanding our fleet to nineteen containership vessels.

| • | Maintain Balanced Employment. We intend to employ our fleet on either longer term time charters, i.e. charters with duration of more than a year, or shorter term time/spot charters. We seek longer term time charter employment to obtain adequate cash flow to cover as much as possible of our fleet's recurring costs, consisting of vessel operating expenses, management fees, general and administrative expenses, interest expense and drydocking costs for the upcoming 12-month period. When we expect charter rates to improve we try to increase the percentage of our fleet employed in shorter term contracts (allowing us to take advantage of higher rates in the future), while when we expect the market to weaken we try to increase the percentage of our fleet employed in longer term contracts (allowing us to take advantage of higher current rates). We believe this balanced employment strategy will provide us with more predictable operating cash flows and sufficient downside protection, while allowing us to participate in the potential upside of the spot market during periods of rising charter rates. As of April 15, 2020, on the basis of our existing time charters, approximately 47% of our vessel capacity for the remainder of 2020 and approximately 5% in 2020 are under time charter contracts, which will ensure employment of a portion of our fleet, partly protect us from market fluctuations and increase our ability to make principal and interest payments on our debt and pay dividends to our shareholders.

| • | Optimize Use of Financial Leverage. We intend to use bank debt to partly fund our vessel acquisitions and increase financial returns for our shareholders. We actively assess the level of debt we incur in light of our ability to repay that debt based on the level of cash flow generated from our balanced chartering strategy and efficient operating cost structure. Our bank debt repayment schedule as of December 31, 2019 calls for a reduction of approximately 14.7% of our debt by the end of 2020 and an additional reduction of about 41.2% by the end of 2021 for a total of 55.9% reduction over the next two years, excluding any new debt that we

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assumed or may assume. As our debt is being repaid we expect that our ability to raise or borrow additional funds more cheaply in order to grow our fleet and generate better returns for our shareholders will increase.
Our Customers
Our major charterer customers during the last three years include CMA-CGM ("CMA"), Golden Sea Shipping ("GSS"), Hapag Lloyd, MSC and Maersk Line amongst others. We are a relationship driven company, and our top five customers in 2019 include three of our top five customers from 2018 and three from 2017. Our top five customers accounted for approximately 87% of our revenues in 2019, 97% of our revenues in 2018 and 91% of our revenues in 2017. In 2019, CMA, GSS, Hapag Lloyd, MSC and Maersk accounted for 24%, 21%, 16%, 15% and 11% of our revenues, respectively. In 2018, CMA, GSS and MSC accounted for 51%, 33% and 11%, of our revenues, respectively. In 2017, CMA, GSS and MSC accounted for 34%, 31% and 17% of our revenues, respectively. Our dependence on our key charterer customers is moderate, as in the event of a charterer default our vessels can generally be re-chartered at the market rate, in the spot or charter market, although it is likely that such rate will be lower than the charter rate agreed with the charterer. In addition, as of the date of this report, none of our charterers have reported any inability to pay their obligations to us as a result of the Coronavirus outbreak.
The Containership Industry
Containership shipping refers to the transport of containerized trade which encompasses mainly the carriage of finished goods, but an increasing number of other cargoes in container boxes. Containerized trade has been the fastest growing sector of seaborne trade, although in the last three years the rate of growth has slowed. Containerships are categorized by their size measured in terms of twelve-foot equivalent unit ("teu") capacity and whether they have their own gearing (cranes). The different categories of containerships are as follows: (i) Post-Panamax vessels are generally vessels with carrying capacity of more than 4,000 teu; (ii) Panamax vessels are vessels with carrying capacity from 3,000 to 4,000 teu, and, in some designs, even up to 5,000 teu; these vessels are called such because the measurements of their beam and draft are the maximum allowable through the original Panama Canal; and (iii) Feeder containerships are vessels with carrying capacity from 500 to 3,000 teu and are usually equipped with cargo loading and unloading gear. Containerships are primarily employed in time charter contracts with liner companies, which in turn employ them as part of the scheduled liner operations. Feeder containerships are put in liner schedules feeding containers to and from central regional ports (hubs) where larger containerships provide cross ocean or longer haul service. The length of the time charter contract can range from several months to years.
Our Competitors
We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel location, size, age and vessel condition, as well as on reputation. Eurobulk arranges our charters (whether spot charters, time charters or shipping pools) through Eurochart S.A. ("Eurochart"), an affiliated brokering company which negotiates the terms of the charters based on market conditions. We compete primarily with other shipowners of carriers in the Feeder and Panamax containership sectors. Ownership of containerships is highly fragmented and is divided among state controlled and independent shipowners. Some of our publicly listed competitors include Danaos Corporation (NYSE: DAC), Costamare Inc. (NASDAQ: CMRE) and Performance Shipping Inc. (formerly Diana Containerships Inc.) (NYSE: DCIX).
Seasonality
The containership shipping industry's seasonal trends are driven by the import patterns of manufactured goods and refrigerated cargoes by the major importers, such as the United States, Europe and Japan. The volume of containerized trade is usually higher in the fall in preparation for the holiday season. During this period, container shipping rates are higher and, as a result, so are charter rates.
Environmental and Other Regulations in the Shipping Industry
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modifications and implementation of certain operating procedures.
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A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the United States Coast Guard ("USCG"), harbor master or equivalent), classification societies, flag state administrations (countries of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations 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 the operation of one or more of our vessels.
Increasing environmental concerns have created a demand for vessels that conform to 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 and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
While we do not carry oil as cargo, we do carry fuel oil (bunkers) in our containerships. We currently maintain, for each of our vessels, pollution liability insurance coverage of $1.0 billion per incident. If the damages from a catastrophic spill exceeded our insurance coverage, that would have a material adverse effect on our financial condition and operating cash flows.
International Maritime Organization
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels (the "IMO"), has adopted the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as "MARPOL," the International Convention for the Safety of Life at Sea of 1974 ("SOLAS Convention"), and the International Convention on Load Lines of 1966 (the "LL Convention"). MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to drybulk, tanker and LNG carriers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried in bulk in liquid or in packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997; new emissions standards, titled IMO-2020, took effect on January 1, 2020.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits "deliberate emissions" of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below. Emissions of "volatile organic compounds" from certain vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or "PCBs") are also prohibited. We believe that all our vessels are currently compliant in all material respects with these regulations.
The Marine Environment Protection Committee, or "MEPC," adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels or certain exhaust gas cleaning systems. Once the cap becomes effective, ships will be required to obtain bunker delivery notes and International Air Pollution Prevention ("IAPP") Certificates from their flag states that specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur
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on ships were adopted and took effect on March 1, 2020. These regulations subject ocean-going vessels to stringent emissions controls, and may cause us to incur substantial costs.
Sulfur content standards are even stricter within certain "Emission Control Areas," or ("ECAs"). As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. Other areas in China are subject to local regulations that impose stricter emission controls. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency ("EPA") or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The EPA promulgated equivalent (and in some senses stricter) emissions standards in 2010. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection having commenced on January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency Management Plans ("SEEMPS"), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index ("EEDI"). Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of Liability for Maritime Claims (the "LLMC") sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that our vessels are in substantial compliance with SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (the "ISM Code"), our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
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The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel's management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained applicable documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The documents of compliance and safety management certificates are renewed as required.
Although all our vessels are currently ISM Code-certified, such certification may not be maintained by all our vessels at all times. 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 U.S. Coast Guard 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.
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code ("IMDG Code"). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods and (3) new mandatory training requirements. Amendments which took effect on January 1, 2020 also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tank, (2) new abbreviations for segregation groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers ("STCW"). As of February 2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
The IMO's Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water (the "Polar Code"). The Polar Code, which entered into force on January 1, 2017, covers design, construction, equipment, operational, training, search and rescue as well as environmental protection matters relevant to ships operating in the waters surrounding the two poles. It also includes mandatory measures regarding safety and pollution prevention as well as recommendatory provisions. The Polar Code applies to new ships constructed after January 1, 2017, and after January 1, 2018, ships constructed before January 1, 2017 are required to meet the relevant requirements by the earlier of their first intermediate or renewal survey.
Furthermore, recent action by the IMO's Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of such regulations is hard to predict at this time.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships' Ballast Water and Sediments (the "BWM Convention") in 2004. The BWM Convention entered into force on September 8, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. 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, and require all ships to carry a ballast water record book and an international ballast water management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date "existing vessels" and allows
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for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention ("IOPP") renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention's implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. Ships over 400 gross tons generally must comply with a "D-1 standard," requiring the exchange of ballast water only in open seas and away from coastal waters. The "D-2 standard" specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most ships, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ballast water management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). As of October 13, 2019, MEPC 72's amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management Systems, which governs assessment of ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial.
Once mid-ocean ballast exchange or ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean carriers and may have a material effect on our operations. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the "Bunker Convention") to impose strict liability on ship owners (including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention 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 LLMC). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ship's bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the Bunker Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti‑Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti‑fouling Systems on Ships, or the "Anti‑fouling Convention." The Anti‑fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti‑fouling System Certificate is issued for the first time; and subsequent surveys when the anti‑fouling systems are altered or replaced. We have obtained Anti‑fouling System Certificates for all of our vessels that are subject to the Anti‑fouling Convention.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
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United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. 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 affects all "owners and operators" whose vessels trade or operate within the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.'s territorial sea and its 200-nautical mile exclusive economic zone around the U.S. The U.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, 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. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are "responsible parties" and are jointly, severally and strictly liable (unless the spill 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 oil from their vessels, including bunkers (fuel). OPA defines these other damages broadly to include:

| (i) | injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;

| (ii) | injury to, or economic losses resulting from, the destruction of real and personal property;

| (iii) | loss of subsistence use of natural resources that are injured, destroyed or lost;

| (iv) | net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;

| (v) | lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and

| (vi) | net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.

OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective November 12, 2019, the USCG adjusted the limits of OPA liability for non-tank vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,200 per gross ton or $ 997,100 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship) or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing the 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 $5.0 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.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. 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. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply and plan
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to comply going forward with the USCG's financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling and a pilot inspection program for offshore facilities. However, several of these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement's ("BSEE") revised Production Safety Systems Rule ("PSSR"), effective December 27, 2018, modified and relaxed certain environmental and safety protections under the 2016 PSSR. Additionally, the BSEE amended the Well Control Rule, effective July 15, 2019, which rolled back certain reforms regarding the safety of drilling operations, and the U.S. President has proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling. The effects of these proposals and changes are currently unknown. Compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could impact the cost of our operations and adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining vessel owners' responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where the Company's vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1.0 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have an adverse effect on our business and results of operations.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) ("CAA") requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. The CAA requires states to adopt State Implementation Plans, or "SIPs," some of which regulate emissions resulting from vessel loading and unloading operations which may affect our vessels.
The U.S. Clean Water Act ("CWA") prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, 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 and CERCLA. In 2015, the EPA expanded the definition of "waters of the United States" ("WOTUS"), thereby expanding federal authority under the CWA. Following litigation on the revised WOTUS rule, in December 2018, the EPA and Department of the Army proposed a revised, limited definition of "waters of the United States." The proposed rule was published in the Federal Register on February 14, 2019 and was subject to public comment. On October 22, 2019, the agencies published a final rule repealing the 2015 Rule defining "waters of the United States" and recodified the regulatory text that existed prior to the 2015 Rule. The final rule became effective on December 23, 2019. On January 23, 2020, the EPA published the "Navigable Waters Protection Rule," which replaces the rule published on October 22, 2019, and redefines "waters of the United States." The effect of this rule is currently unknown.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering U.S. Waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act ("VIDA"), which was signed into law on December 4, 2018 and replaces the 2013 Vessel General Permit ("VGP") program (which authorizes discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, stringent requirements for exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants) and current Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act ("NISA"), such as mid-ocean ballast exchange programs and installation of approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under Clean Water Act (CWA), requires the EPA to develop
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performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance, and enforcement regulations within two years of EPA's promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent ("NOI") or retention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where required. Compliance with the EPA, U.S. Coast Guard and state regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.
Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in the Baltic, the North Sea and the English Channel (the so called "SOx-Emission Control Area"). As of January 2020, EU member states must also ensure that ships in all EU waters, except the SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
International Labour Organization
The International Labour Organization (the "ILO") is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006 ("MLC 2006"). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships that are 500 gross tonnage or over and are either engaged in international voyages or flying the flag of a Member and operating from a port, or between ports, in another country. We believe that all our vessels are in substantial compliance with and are certified to meet MLC 2006.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse gas emissions from ships. The U.S. initially entered into the agreement, but on June 1, 2017, the U.S. President announced that the United States intends to withdraw from the Paris Agreement, which provides for a four-year exit
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process, meaning that the earliest possible effective withdrawal date cannot be before November 4, 2020. The timing and effect of such action has yet to be determined.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy identifies "levels of ambition" to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could cause us to incur additional substantial expenses.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol's second period from 2013 to 2020. Starting in January 2018, large ships over 5,000 gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile sources and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, the U.S. President signed an executive order to review and possibly eliminate the EPA's plan to cut greenhouse gas emissions, and in August 2019, the Administration announced plans to weaken regulations for methane emissions. The EPA or individual U.S. states could enact environmental regulations that would affect our operations.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or certain weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime Transportation Security Act of 2002 ("MTSA"). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship and Port Facility Security Code ("the ISPS Code"). The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate ("ISSC") from a recognized security organization approved by the vessel's flag state. Ships operating without a valid certificate may be detained, expelled from or refused entry at port until they obtain an ISSC. The various requirements, some of which are found in the SOLAS Convention, include, for example, on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship's identity, position, course, speed and navigational status; on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore; the development of vessel security plans; ship identification number to be permanently marked on a vessel's hull; a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and compliance with flag state security certification requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel's compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures
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could have a significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.
Inspection by Classification Societies
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 SOLAS. Most insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified "in class" by a classification society which is a member of the International Association of Classification Societies, the IACS. The IACS has adopted harmonized Common Structural Rules, or "the Rules," which apply to oil tankers and bulk carriers contracted for construction on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. All of our vessels are certified as being "in class" by all the applicable Classification Societies (e.g., American Bureau of Shipping, Lloyd's Register of Shipping).
A vessel must undergo annual surveys, intermediate surveys, drydockings 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. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the underwater parts of the vessel. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
The following table lists the upcoming intermediate or special survey for the vessels in our current fleet. Special surveys typically require drydocking of the vessels while intermediate surveys may not, depending on the age of the vessel and its condition. The intermediate surveys listed in the table below will not require drydocking of the vessels, unless otherwise specified below.

Vessel | Next | Type
EVRIDIKI G. | June 2021 | Special Survey (Drydocking)
EM CORFU | October 2021 | Special Survey (Drydocking)
AKINADA BRIDGE | November 2021 | Intermediate Survey
KUO HSIUNG | November 2021 | Special Survey (Drydocking)
AEGEAN EXPRESS | October 2020 | Intermediate Survey
EM ASTORIA | October 2021 | Intermediate Survey
JOANNA P | January 2022 | Intermediate Survey
EM ATHENS | December 2020 | Special Survey (Drydocking)
EM SPETSES | July 2020 | Special Survey
EM KEA | July 2020 | Special Survey
EM HYDRA | June 2020 | Special Survey
DIAMANTIS P | September 2021 | Intermediate Survey (Drydocking)
SYNERGY BUSAN | January 2022 | Intermediate Survey
SYNERGY ANTWERP | November 2021 | Intermediate Survey
SYNERGY OAKLAND | February 2022 | Intermediate Survey
SYNERGY KEELUNG | May 2022 | Intermediate Survey
NINOS | July 2020 | Intermediate Survey

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Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy incidents, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market. We carry insurance coverage as customary in the shipping industry. However, not all risks can be insured, specific claims may be rejected, and we might not be always able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery Insurance
We procure hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance and freight, demurrage and defense insurance for our fleet. We generally do not maintain insurance against loss of hire (except for certain charters for which we consider it appropriate), which covers business interruptions that result in the loss of use of a vessel.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or "P&I Associations," and covers our third-party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs."
Our current protection and indemnity insurance coverage for pollution is $1 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. The International Group's website states that the Pool provides a mechanism for sharing all claims in excess of $10 million up to, currently, approximately $8.2 billion. As a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the associations based on our claim records as well as the claim records of all other members of the individual associations and members of the shipping pool of P&I Associations comprising the International Group.

C. | Organizational structure

Euroseas is the sole owner of all outstanding shares of the subsidiaries listed in Note 1 of our consolidated financial statements under "Item 18. Financial Statements" and in Exhibit 8.1 to this annual report.

D. | Property, plants and equipment

We do not own any real property. As part of the management services provided by Eurobulk during the period in which we have conducted business to date, we have shared, at no additional cost, offices with Eurobulk. We do not have current plans to lease or purchase office space, although we may do so in the future.
Our interests in our vessels are owned through our wholly-owned vessel owning subsidiaries and these are our only material properties. Please refer to Note 1, "Basis of Presentation and General Information", of the attached Financial Statements for a listing of our vessel owning subsidiaries. Our vessels are subject to priority mortgages, which secure our obligations under our various credit facilities. For further details regarding our credit facilities, refer to "Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Credit Facilities."
Item 4A. Unresolved Staff Comments
None.
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Item 5. | Operating and Financial Review and Prospects

The following discussion should be read in conjunction with "Item 3. Key Information – D. Risk Factors", "Item 4. Business Overview", and our financial statements and footnotes thereto contained in this annual report. This discussion contains forward-looking statements, which are based on our assumptions about the future of our business. Our actual results may differ materially from those contained in the forward-looking statements. Please read "Forward-Looking Statements" for additional information regarding forward-looking statements used in this annual report. Reference in the following discussion to "we," "our" and "us" refer to Euroseas and our subsidiaries, except where the context otherwise indicates or requires.
We are constantly evaluating opportunities to increase the number of our vessels deployed on time charters or to participate in shipping pools (if available for our vessels); however, we only expect to enter into additional time charters or shipping pools if we can obtain contract terms that satisfy our criteria. Containerships are employed almost exclusively on time charter contracts. We carefully evaluate the length and rate of the time charter contract at the time of fixing or renewing a contract considering market conditions, trends and expectations.
We constantly evaluate 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 less than the sales price, we will realize a gain on sale, 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 Policies", below, for a further discussion of the consequences of selling our vessels for amounts below their carrying values.
Significant Developments in 2019
Trinity/Diamantis Vessel Acquisition
In August 2019, we completed the acquisition of four feeder containerships, owned by affiliates of the Pittas family including our CEO, for a consideration of $28.2 million, comprising a cash payment of $15 million and the issuance of 2,816,902 common shares to the sellers (the "Trinity/Diamantis Vessel Acquisition"). We financed the cash portion of the Trinity/Diamantis Vessel Acquisition price via the arrangement of two bank loans, drawing a total of $16.2 million with the excess amount used for general corporate purposes. The cash portion of the Trinity/Diamantis Vessel Acquisition price was used to repay the existing indebtedness of the vessels with the sellers receiving only payment in Euroseas common shares. The Trinity/Diamantis Vessel Acquisition was evaluated and approved by a special committee of independent members of the Board of Directors. The four vessels are the M/V "EM Hydra" and the M/V "EM Spetses", both 1,740 teu feeder containership built in 2005 and 2007, respectively, the M/V "EM Kea", a 3,100 teu feeder containership built in 2007, and the M/V "Diamantis P", a 2,008 teu feeder containership vessel built in 1998.
Synergy Vessel Acquisition
In November 2019, we acquired and took delivery of four container carrier vessels of intermediate size of 4,253 teu, all built in South Korea, three in 2009 and the other in 2008. The vessels were acquired from companies controlled by Synergy Holdings Limited, for approximately $40 million (the "Synergy Vessel Acquisition"). The Synergy Vessel Acquisition of the four vessels (the "Synergy Vessels") was financed by bank debt of $32 million, a private placement of $6 million at a share price of $5.68 subscribed equally by an entity affiliated to the Company's Chief Executive Officer and an entity controlled by the seller of the Synergy Vessels and $2 million of the Company's cash. The Company also assumed the charters the vessels were under on the date of the transfer. As part of the Synergy Vessel Acquisition, the Company has agreed that the Manager enter into an agreement with Synergy Marine Limited for the provision of certain management services for the next three years. Mr. Andreas Papathomas, Chairman of Synergy Holdings Limited, was appointed to our Board of Directors. We also agreed to issue an additional $0.5 million in shares of Euroseas common stock to Synergy Holdings Limited if certain conditions are fulfilled in one year.
Series B Preferred Shares
On June 10, 2019, the Board of Directors agreed to redeem $11.7 million of the Series B Preferred Shares. In parallel with the redemption, the holders of Series B Preferred Shares agreed to reduce the annual dividend rate to 8% per annum, effective June 11, 2019, which will apply until January 29, 2021, after which date the dividend rate
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will increase to 14%, and will be payable only in cash. From January 29, 2019 to June 11, 2019, the Series B Preferred Shares carried a dividend rate of 12% per annum, which was paid in cash.
Reverse Stock Split
On December 18, 2019, we completed a 1-for-8 reverse stock split, effective at the close of trading on December 18, 2019. Our common shares began trading on a split-adjusted basis on December 19, 2019. The reverse stock split was undertaken with the objective of meeting the minimum $1.00 per share requirement for listing our common shares on the Nasdaq Capital Market.
A. Operating results
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, drydockings or special or intermediate surveys or days of vessels in lay-up. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during that period.
Available days. We define available days as the total number of Calendar days in a period net of off-hire days associated with scheduled repairs, drydockings or special or intermediate surveys, or days of vessels in lay-up. The shipping industry uses available days to measure the number of days in a period during which vessels were available to generate revenues.
Voyage days. We define voyage days as the total number of Available days in a period net of off-hire days associated with unscheduled repairs or days waiting to find employment but including days our vessels were sailing for repositioning. The shipping industry uses voyage days to measure the number of days in a period during which vessels actually generate revenues or are sailing for repositioning purposes.
Fleet utilization. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our available days during that period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire either waiting to find employment, or commercial off-hire, or for reasons such as unscheduled repairs or other off-hire time related to the operation of the vessels, or operational off-hire. We distinguish our fleet utilization into commercial and operational. We calculate our commercial fleet utilization by dividing our available days net of commercial off-hire days during a period by our available days during that period. We calculate our operational fleet utilization by dividing our available days net of operational off-hire days during a period by our available days during that period.
Spot Charter Rates. We calculate spot charter rates on contracts made in the spot market for the use of a vessel for a specific voyage ("voyage charter") to transport a specified agreed upon cargo at a specified freight rate per ton or occasionally a lump sum amount. Under a voyage charter agreement, the charter party generally commits to a minimum amount of cargo and the charterer is liable for any short loading of cargo or "dead" freight. Spot charter rates are volatile and fluctuate on a seasonal and year to year basis. The fluctuations are caused by imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes.
Time Charter Equivalent ("TCE"). A standard maritime industry performance measure used to evaluate performance is the daily TCE. Daily TCE revenues are time charter revenues and voyage charter revenues minus voyage expenses divided by the number of voyage days during the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter whereas under spot market voyage charters, we pay such voyage expenses. We believe that the daily TCE neutralizes the variability created by unique costs associated with particular voyages or the employment of containerships on time charter or on the spot market (containerships are, generally, chartered on a time charter basis) and presents a more accurate representation of the revenues generated by our vessels. Our definition of TCE may not be comparable to that used by other companies in the shipping industry.
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Basis of Presentation and General Information
We use the following measures to describe our financial performance:
Time charter revenue and Voyage charter revenue. Our charter revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charter revenue 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, condition and specifications of our vessels, levels of supply and demand in the transportation market, the number of vessels on time charters, spot charters and in pools and other factors affecting charter rates in the containership market.
Commissions. We pay commissions on all chartering arrangements of 1.25% to Eurochart, a company affiliated with our CEO, plus additional commission of up to 1.25% to other brokers involved in the transaction, plus address commission of up to 3.75% deducted from charter hire. These additional commissions, as well as changes to charter rates will cause our commission expenses to fluctuate from period to period. Eurochart also receives a fee equal to 1% calculated as stated in the relevant memorandum of agreement for any vessel sold by it on our behalf.
Voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage which would otherwise be paid by the charterer under a time charter contract, as well as commissions. Under time charters, the charterer pays voyage expenses whereas under spot market voyage charters, we pay such expenses. The amounts of such voyage expenses are driven by the mix of charters undertaken during the period. Voyage expenses are also incurred, when our vessels are sailing for repositioning purposes or for drydocking, which we pay.
Vessel operating expenses. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically changed in line with the size of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general (including, for instance, developments relating to market prices for insurance or inflationary increases) may also cause these expenses to increase.
Related party management fees. These are the fees that we pay to our affiliated ship manager under our management agreements for the technical and commercial management that Eurobulk performs on our behalf.
Vessel depreciation. We depreciate our vessels on a straight-line basis with reference to the cost of the vessel, age and scrap value as estimated at the date of acquisition. Depreciation is calculated over the remaining useful life of the vessel. Remaining useful lives of property are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons. Revisions of estimated lives are recognized over current and future periods.
Drydocking and special survey expense. Our vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are trading. Drydocking and special survey expenses are accounted on the direct expense method as this method eliminates the significant amount of time and subjectivity to determine which costs and activities related to drydocking and special survey should be deferred.
Interest expense and loan costs. We traditionally finance vessel acquisitions partly with debt on which we incur interest expense. The interest rate we pay is generally linked to the 3-month LIBOR rate, although from time to time we may utilize fixed rate loans or could use interest rate swaps to eliminate our interest rate exposure. Interest due is expensed in the period incurred. Loan costs are deferred and amortized over the period of the loan; the un-amortized portion is written-off if the loan is prepaid early.
General and administrative expenses. We incur expenses consisting mainly of executive compensation, professional fees, directors' liability insurance and reimbursement of our directors' and officers' travel-related expenses. We acquire executive services of our chief executive officer, chief financial officer, chief administrative officer, internal auditor and corporate secretary, through Eurobulk as part of our Master Management Agreement.
In evaluating our financial condition, we focus on the above measures to assess our historical operating performance and we use future estimates of the same measures to assess our future financial performance. In addition, we use the amount of cash at our disposal and our total indebtedness to assess our short-term liquidity needs and our ability to finance additional acquisitions with available resources (see also discussion under "Capital Expenditures" below). In assessing the future performance of our present fleet, the greatest uncertainty relates to the spot market performance which affects those of our vessels that are not employed under fixed time charter contracts as well as the level of the new charter rates for the charters that are to expire. Decisions about the acquisition of additional vessels or possible sales of existing vessels are based on financial and operational
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evaluation of such action and depend on the overall state of the containership vessel market, the availability of purchase candidates, available employment, anticipated drydocking cost and our general assessment of economic prospects for the sectors in which we operate.
Results from Operations
Year ended December 31, 2019 compared to year ended December 31, 2018
Time charter revenue and voyage charter revenue. Time charter revenue for 2019 amounted to $41.77 million, increasing by 15.2% compared to the year ended December 31, 2018 during which they amounted to $36.27 million. In 2019, we operated an average of 13.1 vessels, a 14.0% increase over the average of 11.49 vessels we operated during the same period in 2018. In the year 2019 our fleet had 4,636 voyage days earning revenue as compared to 3,814 voyage days earning revenue in 2018. Market charter rates in the year ended December 31, 2019 were slightly lower for our containership vessels compared to the year ended December 31, 2018, which was reflected in the average earnings of our ships. While employed, our vessels generated a TCE rate of $8,782 per day per vessel in 2019 compared to a TCE rate of $9,179 per day per vessel in 2018, a decrease of 4.3%. The average TCE rate our vessels achieve is a combination of the time charter rate earned by our vessels under time charter contracts, which is not influenced by market developments during the duration of the charter (unless the two charter parties renegotiate the terms of the charter or the charterer is unable to make the contracted payments or we enter into new charter party agreements), and the TCE rate earned by our vessels employed in the spot market which is influenced by market developments.
Commissions. We paid a total of $1.75 million in charter commissions for the year ended December 31, 2019, representing 4.2% of charter revenues. This represents a decrease over the year ended December 31, 2018, where commissions paid were $1.84 million, representing 5.1% of charter revenues.
Voyage expenses. Voyage expenses for the year 2019 were $1.06 million and relate to expenses for repositioning voyages between time charter contracts and owners' expenses at certain ports. For the year ended December 31, 2018, voyage expenses amounted to $1.26 million and related mainly to expenses for certain voyage charters and the types of voyage expenses mentioned above. Our vessels are generally chartered under time charter contracts. Voyage expenses usually represent a small fraction (2.5% and 3.5% in 2019 and 2018, respectively) of charter revenues. Voyage expenses are dependent on the number of voyage charters, the cost of fuel, port costs and canal tolls and the number of days our vessels sailed without a charter.
Vessel operating expenses. Vessel operating expenses were $23.99 million in 2019 compared to $19.99 million in 2018. In 2019, we operated an average of 13.1 vessels, a 14.0% increase over the average of 11.49 vessels we operated during the same period in 2018. Further, daily vessel operating expenses per vessel amounted to $5,015 per day in 2019 versus $4,769 per day in 2018, an increase of 5.2% mainly due to higher costs for lubricants and other vessel supplies.
Related party management fees. These are part of the fees we pay to Eurobulk under our Master Management Agreement. During 2019, Eurobulk charged us 685 Euros per day per vessel totalling $3.67 million for the year, or $768 per day per vessel. During 2018, Eurobulk charged us 685 Euros per day per vessel totalling $3.54 million for the year, or $844 per day per vessel. The increase in the total amount of U.S. dollars charged within 2019 is due to the higher number of vessels operated within 2019 compared to the previous year, partly offset by the favorable movement in $/euro exchange rates during 2019 compared to 2018.
General and administrative expenses. These expenses include the fixed portion of our management fees, incentive awards, legal and auditing fees, directors' and officers' liability insurance and other miscellaneous corporate expenses. In 2019, we had a total of $2.44 million of general and administrative expenses as compared to $2.57 million in 2018. The decrease of $0.13 million is due to the lower fixed management fee during most of 2019, which was in effect after the Company's spin-off in 2018.
Drydocking expenses. These are expenses we pay for our vessels to complete a drydocking as part of an intermediate or special survey. In 2019, we had one vessel completing her special surveys with drydock, four vessels completing their in-water (intermediate) surveys and a vessel completing her special survey with drydock that started in 2018, for a total cost of $2.71 million. During 2018, we had three vessels completing their special surveys with drydock, three vessels completing their in-water (intermediate) surveys and a vessel starting her special survey, that was ultimately completed in 2019, for a total cost of $2.77 million.
Vessel depreciation. Vessel depreciation for 2019 was $4.18 million. Comparatively, vessel depreciation for 2018 amounted to $3.31 million. The increase is due to the higher number of vessels in our fleet in 2019.
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Net gain on sale of vessels. In March 2018, the Company agreed to sell its drybulk carrier M/V "Monica P." The 20-year-old vessel was sold on June 25, 2018, for a net amount of $6.3 million and the Company recorded a $1.34 million gain on the sale. In 2019 we had no vessel sales.
Interest and other financing costs. Interest expense and other financing costs for the year 2019 were $3.42 million. Comparatively, during the same period in 2018, interest and other financing costs amounted to $3.05 million. Interest expense charged was higher in 2019 due to the higher average outstanding debt, partly offset by a lower average LIBOR rate, as compared to 2018.
Loss on debt extinguishment. For the year ended December 31, 2019, loss on debt extinguishment was $0.3 million and related to the write-off of the unamortized debt discount in connection with the refinancing of the participating mortgage loan the Company had entered into with Credit Agricole, partly offset by the lower amount, at which the vessel profit participation liability was finally settled.
Derivatives gain/loss. In 2019, we had a realized loss of $0.003 million from the net interest settlement on our interest rate swap contract that we entered into in October 2014 and matured in May 2019, as compared to a realized loss of $0.20 million and an unrealized gain of $0.20 million in 2018. We had entered into the interest rate swap to mitigate our exposure to possible increases in interest rates. The performance of our derivative contracts depends on the movement of interest rates. A decline in interest rates increases our loss in our derivative contracts and vice versa.
Dividend Series B Preferred Shares and Preferred deemed dividend. The Series B Preferred Shares paid dividends in-kind until January 29, 2019 at a rate of 5% per annum. On June 10, 2019, we agreed to redeem $11.7 million of the outstanding Series B Preferred Shares with a simultaneous reduction of the dividend rate for the remaining outstanding shares to 8.0% per annum effective from June 11, 2019 until January 29, 2021, payable in cash. Thereafter, the Series B Preferred Shares will carry a dividend rate of 14% per annum, also payable in cash. Since January 29, 2019, the Series B Preferred Shares carried a dividend of 12% per annum. In 2019, the Company declared dividends of $1.27 million, of which $0.08 million were paid in-kind, $1.03 million were paid in cash and another $0.16 million were accrued as of December 31, 2019 and were paid in cash in the first quarter of 2020, and recorded preferred deemed dividends of $0.50 million arising out of the redemption of approximately $11.7 million of Series B Preferred Shares. In 2018, there were $1.34 million dividends paid in-kind. The decrease in 2019 is due to the redemption of $11.7 million in value of the outstanding Series B Preferred Shares, partly offset by the increase of the annual dividend rate to 12% and 8%, up from 5% during 2018, as explained above. In addition, $0.50 million of preferred deemed dividends were recorded in 2019 as a result of the redemption of $11.7 million of the Series B Preferred Shares, representing the difference between (1) the fair value of the consideration transferred to the holders of the Series B Preferred Shares (comprising the cash payment offered) and (2) the carrying amount of the Series B Preferred Shares before the redemption (net of issuance costs).
Net loss attributable to common shareholders. As a result of the above, net loss attributable to common shareholders for the year ended December 31, 2019 was $3.46 million, as compared to a net loss of $2.0 million for the year ended December 31, 2018.
Year ended December 31, 2018 compared to year ended December 31, 2017
For a discussion of the year ended December 31, 2018 compared to the year ended December 31, 2017, please refer to Part A, Item 5, "Operating and Financial Review and Prospects" in our Annual Report on Form 20-F for the year ended December 31, 2018.
Critical Accounting Policies
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 accounting principles generally accepted in the United States of America, or 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 policies 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 policies that involve a high degree of judgment and the methods of their application.
Depreciation
We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation and
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impairment (if any). Depreciation is based on cost less the estimated residual scrap value. An increase in the useful life of the vessel or in the residual value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of the vessel or in the residual value would have the effect of increasing the annual depreciation charge and possibly an impairment charge. We depreciate our vessels on a straight-line basis over their estimated useful lives, estimated to be 25 years from date of initial delivery from the shipyard and the residual value of our vessels is estimated to be $250 per lightweight ton.
Impairment of long-lived assets
We review our vessels held for use and their related intangible assets and liabilities for impairment whenever events or changes in circumstances (such as vessel market values, vessel sales and purchases, business plans and overall market conditions) indicate that the carrying amount of the assets may not be recoverable. If indicators for impairment are present, we determine undiscounted projected net operating cash flows for the related long-lived assets and compare it to their carrying values. When the estimate of undiscounted projected net operating cash flows, excluding interest charges, expected to be generated by the use and eventual disposition of the asset is less than its carrying amount, we evaluate the asset for an impairment loss. In the event that impairment occurred, we would determine the fair value of the related asset and we record a charge to operations calculated by comparing the asset's carrying value to the estimated fair market value. We estimate fair market value primarily through the use of third party valuations performed on an individual vessel basis.
The carrying values of the Company's 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 newbuildings.
The Company determines the rates to be used in its impairment analysis based on the prevailing market charter rates for the first two years and on inflation-unadjusted historical average rates, from year three onwards. The Company calculates the historical average rates over a 18-year period for 2019, excluding outliers, and a 17-year period for 2018, which both start in 2002 and take into account complete market cycles, and which provide a more representative reference for the long term rates. These rates are used for the period a vessel is not under a charter contract; if there is a contract, the charter rate of the contract is used for the period of the contract.
Our impairment exercise is highly sensitive on variances in the time charter rates and vessel operating costs; it also requires assumptions for:

| • | the effective fleet utilization rate;

| • | estimated scrap values;

| • | future drydocking costs; and

| • | probabilities of sale for each vessel.

Our estimates for the time charter rates for the first two years are based on the prevailing market charter rates (based on the length of charters that can be secured at the time of the analysis, generally, one to two years). Vessel utilization estimates are based on the status of each vessel at the time of the assessment and the Company's past experience in finding employment for its vessels at comparable market conditions. Cost estimates, like drydocking and operating costs, are based on the Company's data for its own vessels; past estimates for such costs have generally been very close to the actual levels observed. Specifically, we use our budgeted operating expenses escalated by 1.5% per annum and our budgeted drydocking costs, assuming a five-year special survey cycle. Overall, the assumptions are based on historical trends as well as future expectations. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. Our impairment test for the year ended December 31, 2019 identified two of our vessels with indication for impairment as presented in the following table. For these vessels, we performed our impairment analysis which indicated no impairment. Furthermore, we performed sensitivity analysis for the charter rates and operating cost assumptions (which are the inputs most sensitive to variations) allowing for variances of up to 10%, and a further reduction in charter rates for the following two years, to reflect any possible effect from the slowdown of economic activity due to the Coronavirus pandemic, without an impairment indication.
There can be no assurance as to how long-term charter rates and vessel values will increase as compared to their current levels and approach historical average levels for similarly aged vessels or whether they will improve by any significant degree. Charter rates, which improved significantly during 2018, but gradually weakened towards the end of 2018 and through most of 2019 (apart from a brief upsurge in the fourth quarter), have weakened once again in early 2020, and may return to their previously very depressed levels which could adversely affect our revenue,
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profitability and future assessments of vessel impairment. The impairment analysis may determine that the carrying value of a vessel is recoverable if the vessel is held and operated to the end of its useful life, however, if the vessel is sold when the market is depressed, the Company might suffer a loss on the sale. Whether the Company realizes a gain or loss on the sale of a vessel is primarily a function of the relative market values of vessels at the time the vessel was acquired less the accumulated depreciation and impairment, if any, versus the relative market values on the date a vessel is sold.
For a discussion of the potential loss in the case of sale of all of our vessels with market value below their carrying value, we refer to the "Item 4.B. Business Overview – Our Fleet".
For the two vessels which as of December 31, 2019 had impairment indication, a comparison of the average estimated daily time charter equivalent rate used in our impairment analysis with the average "break even rate" for the uncontracted period is presented below:

Vessel | Charter Rate as of 12/31/2019 | Remaining Months Chartered | Remaining Life (years) | Rate Year 1 (2020) | Rate Year 2 (2021) | Rate Year 3+ (2022+) | Breakeven Rate (USD/day)
Evridiki | 10,250 | 8.0 | 6.5 | 10,902 | 10,902 | 12,917 | 11,113
Diamantis P | 8,000 | 6.0 | 3.5 | 8,966 | 8,966 | 9,884 | 8,775

Recent Accounting Pronouncements
Please refer to Note 2 of the financial statements included in Item 18 of this annual report for a description of recent accounting pronouncements that may apply to us.

B. | Liquidity and Capital Resources

Historically, our sources of funds have been equity provided by our shareholders, operating cash flows and long-term borrowings. Our principal use of funds has been capital expenditures to establish and expand our fleet, maintain the quality of our vessels during operations and the periodically required drydockings, comply with international shipping standards and environmental laws and regulations, fund working capital requirements and, if necessary, operating shortfalls, make principal repayments on outstanding loan facilities, and pay dividends.
Beginning in February 2020, partially due to fears associated with the spread of the Coronavirus, global financial markets, and starting in late February, financial markets in the U.S., experienced even greater relative volatility and a steep and abrupt downturn, which volatility and downturn may continue as the Coronavirus continues to spread. On March 11, 2020, the World Health Organization declared the Coronavirus outbreak a pandemic. In response to the Coronavirus outbreak, many countries, ports and organizations, including those where we conduct a large part of our operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have and will likely continue to cause severe trade disruptions. The extent to which the Coronavirus will impact the Company's results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the Coronavirus and the actions to contain or treat its impact, among others. Accordingly, an estimate of the impact of the Coronavirus cannot be made at this time. We expect to rely on cash available, funds generated from operating cash flows, funds from our shareholders, equity offerings, and long term borrowings to meet our liquidity needs going forward and to finance our capital expenditures and working capital needs in 2020 and beyond. There are also $7.35 million of undrawn amounts available under our revolving facility with Eurobank Ergasias S.A., which can be used to finance up to 55% of the market value of post 2001-built ships.
Cash Flows
As of December 31, 2019, we had a working capital deficit of $18.6 million and have been incurring losses. For the year ended December 31, 2019, we generated net cash from operating activities of $3.1 million. Our cash balance amounted to $1.0 million and cash in restricted and retention accounts amounted to $4.9 million as of December 31, 2019. The holders of Series B Preferred Shares will receive a cash dividend at an annual dividend rate of 8% until January 29, 2021, which will increase to 14% thereafter. For 2020, we expect our daily TCE rates to potentially decrease compared to 2019, due to decreased time charter rates observed in the market, as of the date of this report, and the impact of the Coronavirus outbreak on the demand in the dry-bulk shipping industry. We intend to fund our working capital requirements and capital commitments via cash on hand and cash flows from operations,
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as well as via the cash proceeds expected to be generated through the sale of certain of the Company's older vessels for scrap. In the event that these are not sufficient, we may also use funds from debt refinancing and equity offerings and convert to equity the related party loans, if required, among other options. We believe we will have adequate funding through the sources described above and, accordingly, we believe we have the ability to continue as a going concern and finance our obligations as they come due over the next twelve months following the date of the issuance of our financial statements. Consequently, our consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
Year ended December 31, 2019 compared to year ended December 31, 2018
Net cash from operating activities.
Our net surplus from cash flows provided by operating activities for 2019 was $3.24 million as compared to a cash flow deficit from operating activities of $1.48 million in 2018.
The major drivers of the change of cash flows from operating activities for the year ended December 31, 2019 compared to the year ended December 31, 2018, are the following: the increase in the average number of vessels in our fleet, offset by the decrease of the market rates during the year ended December 31, 2019, which resulted in a lower TCE rate of $8,782 compared to $9,179 for the year ended December 31, 2018. The increase in the average number of vessels in our fleet is also reflected in the increase of our operating income (excluding non-cash items) to $6.25 million for the year ended December 31, 2019 from $4.43 million for the corresponding period in 2018. This positive effect also added a net working capital inflow of $0.92 million during the year ended December 31, 2019 compared to a net working capital outflow of $3.48 million for the year ended December 31, 2018, mainly due to the significant decrease in the amount of reimbursements made to our Manager, partly offset by the higher net interest expense for the year ended December 31, 2019 compared to the corresponding period in 2018.
Net cash from investing activities.
Net cash flows used in investing activities were $55.72 million for the year ended December 31, 2019 compared to $6.25 million provided by investing activities for the year ended December 31, 2018. The net decrease in cash flows from investing activities of $61.97 million from 2018 is mainly attributable to an increase of $55.72 million in payments for vessel acquisitions and major improvements during the year ended December 31, 2019 compared to the same period of 2018, combined with a decrease of $6.25 million in proceeds from vessel sales that took place in 2018.
Net cash from financing activities.
Net cash flows provided by financing activities were $45.20 million for the year ended December 31, 2019, compared to net cash flows provided by financing activities of $0.14 million for the year ended December 31, 2018. This increase in cash flows provided by financing activities of $45.06 million, compared to the year ended December 31, 2018, is attributable to (i) a decrease of $18.95 million in long term debt principal payments during the year ended December 31, 2019, (ii) an increase of $4.76 million in proceeds from issuance of common stock, net of offering expenses during the year ended December 31, 2019 compared to the same period of 2018, (iii) an increase in proceeds of long term debt (net of loan arrangement fees paid) of $30.77 million during the year ended December 31, 2019 (including $5.0 million of related party loans), compared to the same period of 2018 and (iv) an outflow of funds of $3.30 million to a spun-off subsidiary (EuroDry) during the year ended December 31, 2018, partly offset by an outflow of $11.69 million arising from the redemption of the Series B Preferred Shares and an outflow of $1.03 million of dividends on the Series B Preferred Shares paid in cash during 2019. For the year ended December 31, 2018, there was no redemption of cash dividend payment on the Series B Preferred Shares.
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Year ended December 31, 2018 compared to year ended December 31, 2017
For a discussion of the year ended December 31, 2018 compared to the year ended December 31, 2017, please refer to Part A, Item 5, "Operating and Financial Review and Prospects" in our Annual Report on Form 20-F for the year ended December 31, 2018.
Debt Financing
We operate in a capital-intensive industry which requires significant amounts of investment, and we fund a major portion of this investment through long term debt. We maintain debt levels we consider prudent based on our market expectations, cash flow, interest coverage and percentage of debt to capital.
As of December 31, 2019, we had five outstanding loans with a combined outstanding balance of $90.21 million. These loans mature between 2020 and 2023. Our long-term debt as of December 31, 2019 comprises bank loans granted to our vessel-owning subsidiaries with a combined outstanding balance of $85.21 million with margins over LIBOR ranging from 2.95% to 3.90%, and a related party loan with a balance of $5.00 million and an interest rate of 8%. A description of our loans as of December 31, 2019 is provided in Note 8 of our attached financial statements. As of December 31, 2019, we are scheduled to repay approximately $17.54 million of the above bank loans in 2020, including the $5.0 million related party loan.
Our loan agreements contain covenants.
Our loans have various covenants such as minimum requirements regarding the security cover ratio (the ratio of fair value of vessel to outstanding loan less cash in retention accounts) and restrictions as to changes in management and ownership of the ship-owning companies, distribution of profits or assets (in effect not permitting dividend payment or other distributions in cases that an event of default has occurred), additional indebtedness and mortgage of vessels without the lender's prior consent, sale of vessels, maximum fleet-wide leverage, sale of capital stock of our subsidiaries, ability to make investments and other capital expenditures, entering in mergers or acquisitions, minimum cash balance requirements and minimum cash retention accounts (restricted cash). When necessary, we do provide supplemental collateral in the form of restricted cash or cross-collateralize vessels to ensure compliance with security cover ratio ("loan-to-value" ratio). Increases in restricted cash required to satisfy loan covenants would reduce funds available for investment or working capital and could have a negative impact on our operations. If we cannot cure any violated covenants, we might be required to repay all or part of our loans, which, in turn, might require us to sell one or more of our vessels under distressed conditions. As of December 31, 2019, we were not in default of any credit facility covenant.
Shelf Registration
On December 19, 2016, the SEC declared effective our shelf registration statement on Form F-3 pursuant to which we registered common shares, preferred shares, debt securities, warrants and units up to a total dollar amount of $400,000,000 (about $5.70 million of which were used under our ATM offering), to be sold by the Company, as well as 715,422 common shares to be sold by certain selling shareholders.
On March 12, 2020, we filed with the SEC a shelf registration statement on Form F-3 and filed an amendment thereto on March 27, 2020. The shelf registration statement, if declared effective, will give us the ability to offer and sell, within a three year period, up to $400,000,000 of our securities, consisting of common shares, preferred shares, debt securities, warrants and units, as well as 2,369,950 common shares that were previously acquired in private transactions or in the open market or which are issuable upon conversion of the Series B Preferred Shares or any convertible notes into which the Series B Preferred Shares may convert.
Capital Expenditures
We make capital expenditures from time to time in connection with our vessel acquisitions or participation in joint ventures to acquire vessels.
In 2010, we entered into our Euromar joint venture with two private equity firms. The Company had not provided any guarantees to Euromar beyond its capital already invested or funds put in escrow. None of the loans entered into by Euromar had any recourse to the Company. On September 7, 2017, Euroseas became the sole owner of Euromar at a nominal price of $1. The Company acquired the 85.714% interest in Euromar it did not already own and Euromar became a wholly-owned subsidiary of the Company. As of December 31, 2017, all vessels of Euromar were sold with the consent of Euromar's lenders; all proceeds from such sales and any funds in excess of other liabilities were applied towards the indebtedness of Euromar with any excess indebtedness written off; Euromar was released from all its corporate guarantees to its lenders.
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In June 2017 we took delivery of the feeder containership M/V "EM Astoria" for $4.75 million. In September 2017 we took delivery of the feeder containership M/V "EM Athens" for $4.2 million. In October 2017 we took delivery of the feeder containership M/V "EM Oinousses" for $4.3 million and the feeder containership M/V "EM Corfu" for $5.7 million. In December 2017 we took delivery of the intermediate containership M/V "Akinada Bridge" for $11.1 million. All these five containerships were purchased from Euromar for $29.85 million.
In August 2019 we took delivery of four feeder containerships, the M/V "Diamantis P", M/V "EM Hydra", M/V "EM Spetses", and M/V "EM Kea", owned by affiliates of the Pittas family including the Company's CEO, for a total of $28.2 million. The consideration towards the feeder vessels included a cash payment of $15.0 million, financed by two bank loans, and the issuance of 2,816,902 shares of common stock to the sellers. In November 2019, we took delivery of four intermediate size containerships, the M/V "Synergy Busan", M/V "Synergy Antwerp", M/V "Synergy Oakland" and M/V "Synergy Keelung", for a cost of approximately $40 million. The acquisition was financed by bank debt of $32.0 million, existing funds of the Company and $6.0 million raised in private placements.
We currently have six vessels scheduled for drydocking over the next 12 months. We may face delays in performing these drydocks or special surveys due to the effects of the Coronavirus, particularly if travel restrictions persist (refer to section above "B. Liquidity and Capital Resources – Cash Flows" for a discussion of how we plan to cover our working capital requirements and capital commitments).
Dividends
In, 2017, 2018 and 2019, the Company declared no dividend on its common stock. During the fourth quarter of 2013, the Company decided to suspend the quarterly dividend on its common stock to focus all its resources in exploiting investment opportunities in the markets.
Within 2017 and 2018, the Company declared eight consecutive quarterly dividends on its Series B Preferred Shares, amounting to $1.81 million in 2017 and $1.34 million in 2018, all of which were paid in-kind. Within 2019, the Company declared dividends of $1.27 million, of which $0.08 million were paid in-kind, $1.03 million were paid in cash during 2019 and another $0.16 million were accrued as of December 31, 2019 and were paid in the first quarter of 2020. The Series B Preferred Shares paid dividends in-kind until January 29, 2019 at a rate of 5% per annum. From January 29, 2019 to January 29, 2021, the dividend rate on the Series B Preferred Shares was set to increase to 12% per annum and to 14% per annum thereafter. On June 10, 2019, we redeemed $11.7 million of the Series B Preferred Shares, with a simultaneous reduction of the dividend rate to 8% per annum until January 29, 2021, after which date it will be increased to 14% per annum. From January 29, 2019 to June 11, 2019, the Series B Preferred Shares carried a dividend rate of 12% per annum.

C. | Research and development, patents and licenses, etc.

Not applicable.

D. | Trend information

Our results of operations depend primarily on the charter rates that we are able to realize. Charter rates paid for container vessels are primarily a function of the underlying balance between vessel supply and demand.
The demand for containership capacity is determined by the underlying demand for commodities transported in these vessels, which in turn is influenced by trends in the global economy. One of the main drivers of the containerized trade has been the growth in exports of finished goods. Demand for containership capacity is also affected by the operating efficiency of the global fleet, i.e., the average speed the fleet operates, and port congestion. A factor affecting mainly the containership sector, especially during periods of high fuel prices and/or low charter rates, is slow-steaming (i.e., the practice of running a vessel at lower speeds to economize on fuel costs). Slow-steaming increases the number of ships required to carry a given amount of trade volume and thus increases demand for ships as do higher levels of port congestion, leading to higher charter rates if all other factors influencing rates are unchanged.
The supply of containerships is dependent on the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or loss. According to industry sources, as of April 15, 2020, the capacity of the fully cellular worldwide container vessel fleet was approximately 23.0 million teu with approximately 2.35 million teu, or, about 10.22% of the present fleet capacity on order. If the supply of vessel capacity increases but the demand for vessel capacity does not increase correspondingly, charter rates and vessel values could materially decline. 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 average age at which a vessel is scrapped over
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the last ten years has been between 25 and 27 years, with smaller vessels scrapped at a later age. During strong markets, the average age at which the vessels are scrapped increases; during 2004, 2005, 2006, 2007 and the first nine months of 2008, the majority of the Feeder, Handysize and Intermediate size containerships that were scrapped were in excess of 30 years of age. Continued weakness of containership charter rates resulted in increased scrapping rates at even lower vessel scrapping ages. In fact, 2016 saw scrapping of more than 500,000 teu, a 35-year record. In 2017 scrapping reached 398,610 teu, while in 2018, scrapping rates declined year on year reaching 119,910 teu. In 2019, the scrapping rate increased, reaching 182,560 teu. So far in 2020, there have been 29,570 teu of containerships that have been scrapped.
Declining shipping charter rates have a negative impact on our earnings when our vessels are employed in the spot market or when they are to be re-chartered after completing a time charter contract. As of April 15, 2020, approximately 47% of our ship capacity days in remainder of 2020 and approximately 5% of our ship capacity days in 2021, are under time charter contracts. If the market rates decrease from current levels or the supply of vessels increases, our vessels may have difficulty securing employment and, if so, may be employed at rates lower than their present charters.
On March 11, 2020, the World Health Organization declared the Coronavirus outbreak a pandemic. In response to the outbreak, many countries, ports and organizations, including those where the Company conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have and will likely continue to cause severe economic growth and trade disruptions. Preliminary estimates of industry analysts have containerized trade declining in excess of 10% in 2020 with a similar rebound in 2021. At the same time, the increased uncertainty may cause restrain in placing orders for the construction of new vessels or may cause increase scrapping of existing vessels resulting in lower growth or even decline in the available number of container vessels; this, in turn, might create tight market conditions when containerized trade increases again. The extent to which the Coronavirus will impact economic growth, consumption patterns, containerized trade and the supply of vessels and, consequently, the Company's results of operations and financial condition is highly uncertain and cannot be predicted at this time.

E. | Off-balance Sheet Arrangements

As of December 31, 2019, we did not have any off-balance sheet arrangements.

F. | Tabular Disclosure of Contractual Obligations

Contractual Obligations and Commitments
Contractual obligations are set forth in the following table as of December 31, 2019:

In U.S. dollars | Total | Less Than | One to Three Years | Three to | More Than Five Years
One Year | Five Years |
Long-term bank loans | $85,207,220 | $12,541,840 | $38,665,380 | $34,000,000 | -
Related party loan | $5,000,000 | $5,000,000 | - | - | -
Interest Payments (1) | $10,093,000 | $4,425,000 | $4,877,000 | $791,000 | -
Vessel Management fees (2) | $15,516,488 | $5,131,034 | $10,385,454 |  |
Other Management fees (3) | $6,120,800 | $2,000,000 | $4,120,800 |  |
Total | $121,937,508 | $29,097,874 | $58,048,634 | $34,791,000 |

(1) Assuming the amortization of the loans as of December 31, 2019 described above, each loan's interest rate margin over LIBOR and average LIBOR rates of about 1.61%, 1.21%, 1.21%, 1.41% and 1.81% per annum for the five years, respectively, based on the LIBOR yield curve as of December 31, 2019. This also includes our obligation
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to make payments required as of December 31, 2019 under our related party loan, with an interest rate of 8% per annum.
(2) Refers to our obligation for management fees under our Master Management Agreement and management agreements with the shipowning companies in effect as of December 31, 2019 and expiring on January 1, 2023. The management fees have been computed for 2020 based on the agreed rate of 685 Euros per day per vessel (approximately $767). For the years after 2020, we have assumed an annual increase in the rate of 2% for inflation. We assumed a rate of 1.12 in the US dollar to Euro exchange rate. We further assume that we hold our vessels until they reach 25 years of age, after which they are considered to be scrapped and no longer bear obligations.
(3) Refers to our obligation for management fees of $2,000,000 per year under our Master Management Agreement with Eurobulk for the cost of providing executive services to the Company. This fee is adjusted for inflation in Greece during the previous calendar year every January 1st. From January 1, 2021 on, we have assumed an inflation rate of 2.0% per year. The agreement expires on January 1, 2023.
G. Safe Harbor
See "Forward-Looking Statements" at the beginning of this annual report.

Item 6. | Directors, Senior Management and Employees

A. | Directors and Senior Management

The following sets forth the name and position of each of our directors and executive officers.

Name | Age | Position
Aristides J. Pittas | 60 | Chairman, President and CEO; Class A Director
Dr. Anastasios Aslidis | 60 | CFO and Treasurer; Class A Director
Aristides P. Pittas | 68 | Vice Chairman; Class A Director
Stephania Karmiri | 52 | Secretary
Panagiotis Kyriakopoulos | 59 | Class B Director
Christian Donohue | 52 | Director
Andreas Papathomas | 68 | Director
George Taniskidis | 59 | Class C Director
Apostolos Tamvakakis | 62 | Class C Director

Aristides J. Pittas has been a member of our Board of Directors and our Chairman and Chief Executive Officer since our inception on May 5, 2005. Since 1997, Mr. Pittas has also been the President of Eurochart, our affiliate. Eurochart is a shipbroking company specializing in chartering and selling and purchasing ships. Since January 1995, Mr. Pittas has been the President and Managing Director of Eurobulk, our affiliated ship management company. He resigned as Managing Director of Eurobulk in June 2005. Eurobulk is a ship management company that provides ocean transportation services. From September 1991 to December 1994, Mr. Pittas was the Vice President of Oceanbulk Maritime SA, a ship management company. From March 1990 to August 1991, Mr. Pittas served both as the Assistant to the General Manager and the Head of the Planning Department of Varnima International SA, a shipping company operating tanker vessels. From June 1987 until February 1990, Mr. Pittas was the head of the Central Planning department of Eleusis Shipyards S.A. From January 1987 to June 1987, Mr. Pittas served as Assistant to the General Manager of Chios Navigation Shipping Company in London, a company that provides ship management services. From December 1985 to January 1987, Mr. Pittas worked in the design department of Eleusis Shipyards S.A. where he focused on shipbuilding and ship repair. Mr. Pittas has a B.Sc. in Marine Engineering from University of Newcastle - Upon-Tyne and a MSc in both Ocean Systems Management and Naval Architecture and Marine Engineering from the Massachusetts Institute of Technology.
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Dr. Anastasios Aslidis has been our Chief Financial Officer and Treasurer and member of our Board of Directors since September 2005. Prior to joining Euroseas, Dr. Aslidis was a partner at Marsoft, an international consulting firm focusing on investment and risk management in the maritime industry. Dr. Aslidis has more than 25 years of experience in the maritime industry. He also served as consultant to the Boards of Directors of shipping companies (public and private) advising on strategy development, asset selection and investment timing. Dr. Aslidis holds a Ph.D. in Ocean Systems Management (1989) from the Massachusetts Institute of Technology, M.S. in Operations Research (1987) and M.S. in Ocean Systems Management (1984) also from the Massachusetts Institute of Technology, and a Diploma in Naval Architecture and Marine Engineering from the National Technical University of Athens (1983).
Aristides P. Pittas has been a member of our Board of Directors since our inception on May 5, 2005 and our Vice Chairman since September 1, 2005. Mr. Pittas has been a shareholder in over 100 oceangoing vessels during the last 20 years. Since February 1989, Mr. Pittas has been the Vice President of Oceanbulk Maritime SA, a ship management company. From November 1987 to February 1989, Mr. Pittas was employed in the supply department of Drytank SA, a shipping company. From November 1981 to June 1985, Mr. Pittas was employed at Trust Marine Enterprises, a brokerage house as a sale and purchase broker. From September 1979 to November 1981, Mr. Pittas worked at Gourdomichalis Maritime SA in the operation and Freight Collection department. Mr. Pittas has a B.Sc in Economics from Athens School of Economics.
Stephania Karmiri has been our Secretary since our inception on May 5, 2005. Since July 1995, Mrs. Karmiri has been executive secretary to Eurobulk, our affiliated ship management company. Eurobulk is a ship management company that provides ocean transportation services. At Eurobulk, Mrs. Karmiri has been responsible for dealing with sale and purchase transactions, vessel registrations/deletions, bank loans, supervision of office administration and office/vessel telecommunication. From May 1992 to June 1995, she was secretary to the technical department of Oceanbulk Maritime SA, a ship management company. From 1988 to 1992, Mrs. Karmiri served as assistant to brokers for Allied Shipbrokers, a company that provides shipbroking services to sale and purchase transactions. Mrs. Karmiri has taken assistant accountant and secretarial courses from Didacta college.
Panagiotis Kyriakopoulos has been a member of our Board of Directors since our inception on May 5, 2005. Since July 2002, he has been the Chief Executive Officer of STAR INVESTMENTS S.A., one of the leading Mass Media Companies in Greece, running television and radio stations. From July 1997 to July 2002 he was the C.E.O. of the Hellenic Post Group, the Universal Postal Service Provider, having the largest retail network in Greece for postal and financial services products. From March 1996 until July 1997, Mr. Kyriakopoulos was the General Manager of ATEMKE SA, one of the leading construction companies in Greece listed on the Athens Stock Exchange. From December 1986 to March 1996, he was the Managing Director of Globe Group of Companies, a group active in the areas of shipowning and management, textiles and food and distribution. The company was listed on the Athens Stock Exchange. From June 1983 to December 1986, Mr. Kyriakopoulos was an assistant to the Managing Director of Armada Marine S.A., a company active in international trading and shipping, owning and managing a fleet of twelve vessels. Presently he is Chairman of the Hellenic Private Television Owners Association, BoD member of the Hellenic Federation of Enterprises (SEV) and BoD member of Digea S.A. He has also been an investor in the shipping industry for more than 20 years. Mr. Kyriakopoulos has a B.Sc. degree in Marine Engineering from the University of Newcastle upon Tyne, a MSc. degree in Naval Architecture and Marine Engineering with specialization in Management from the Massachusetts Institute of Technology and a Master degree in Business Administration (MBA) from Imperial College, London.
George Taniskidis has been a member of our Board of Directors since our inception on May 5, 2005. He is the Chairman of Core Capital Partners, a consulting firm specializing in debt restructuring. He was Chairman and Managing Director of Millennium Bank and a member of the Board of Directors of BankEuropa (subsidiary bank of Millennium Bank in Turkey) until May 2010. He was also a member of the Executive Committee and the Board of Directors of the Hellenic Banks Association. From 2003 until 2005, he was a member of the Board of Directors of Visa International Europe, elected by the Visa issuing banks of Cyprus, Malta, Portugal, Israel and Greece. From 1990 to 1998, Mr. Taniskidis worked at XIOSBANK (until its acquisition by Piraeus Bank in 1998) in various positions, with responsibility for the bank's credit strategy and network. Mr. Taniskidis studied Law in the National University of Athens and in the University of Pennsylvania Law School, where he received a L.L.M. After law school, he joined the law firm of Rogers & Wells in New York, where he worked until 1989 and was also a member of the New York State Bar Association. He is also a member of the Young Presidents Organization.
Apostolos Tamvakakis has been a member of our Board of Directors since June 25, 2013. Mr. Tamvakakis has also been a member of the Board of Directors of EuroDry Ltd. since May 5, 2018. From January 2015 to February 2017 he was independent non-executive Vice Chairman of the Board of Directors of Piraeus Bank. Since July 2012 he participated as a Member of the Board of Directors and Committees in various companies. From December 2009 to June 2012, Mr. Tamvakakis was appointed Chief Executive Officer of the National Bank of Greece. From May
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2004 to March 2009, he served as Chairman and Managing Director of Lamda Development, a real estate development company of the Latsis Group and from March 2009 to December 2009, he served on the management team of the Geneva-based Latsis Group, as Head of Strategy and Business Development. From October 1998 to April 2004, he served as Deputy CEO of National Bank of Greece. Prior to that, he worked as Deputy Governor of National Mortgage Bank of Greece, as Deputy General Manager of ABN AMRO Bank, as Manager of Corporate Finance at Hellenic Investment Bank and as Planning Executive at Mobil Oil Hellas. He also served as Vice-Chairman of Athens Stock Exchange, Chairman of the Steering Committee of Interalpha Group of Banks, Chairman of Ethnokarta, National Securities, AVIS (Greece), ETEVA and the Southeastern European Board of the Europay Mastercard Group. Mr. Tamvakakis has also served in numerous boards of directors and committees. He is the Chairman and Managing Partner of EOS Capital Partners Alternative Investment Fund Manager, the investment manager of a private equity fund "EOS Hellenic Renaissance Fund". He holds the positions of Vice Chairman of Gek Terna, Member of the BoD of Quest Holdings, Chairman of the Liquidations Committee of PQH Single Special Liquidation S.A. and member of the Marketing Commission of the Hellenic Olympic Committee. He is a graduate of the Athens University of Economics and has an M.A. in Economics from the Saskatchewan University in Canada with major in econometrics and economics.
Christian Donohue has been a member of the Board of Directors of Euroseas since December 7, 2017. Mr. Donohue has also been a member of the Board of Directors of EuroDry Ltd. since May 30, 2018. Mr. Donohue was initially appointed to the Board of Directors pursuant to the provisions of the Statement of Designation of our Series B Preferred Shares, and on July 29, 2019 was appointed as a Director. Mr. Donohue is a Managing Director at BlackRock, and he held the same position at Tennenbaum Capital Partners before Tennenbaum Capital Partners was acquired by BlackRock in 2018.
Andreas Papathomas has been a member of the Board of Directors since November 8, 2019. Mr Papathomas' background is in international business and shipping. He read Economics at Gonville & Caius College, Cambridge and undertook post-graduate studies in international economics in Geneva, following which he joined his late father's shipping business, now called the Synergy Group, where he is currently Chairman. He has successfully run the Synergy Group since 1980 and, over the years, has been involved in all aspects of shipping, including chartering, international trade, sale & purchase, financing and operations.
Family Relationships
Aristides P. Pittas, Vice Chairman, is the cousin of Aristides J. Pittas, our Chairman, President and CEO.

B. | Compensation

Executive Compensation
We have no direct employees. The services of our Chief Executive Officer, Chief Financial Officer, Chief Administrative Officer, Internal Auditor and Secretary are provided by Eurobulk. These services are provided to us under our Master Management Agreement with Eurobulk under which we pay a fee, before bonuses, adjusted annually for Eurozone inflation to account for the increased management cost associated with us being a public company and other services to our subsidiaries. During 2016 and 2017, under this Master Management Agreement, as amended, we paid Eurobulk $2,000,000 each year for the services of our executives, Mr. Aristides J. Pittas, Dr. Anastasios Aslidis and Mr. Symeon Pariaros, our Secretary, Mrs. Stephania Karmiri, and our Internal Auditor. Following the spin-off, with effect May 30, 2018, the executive services fee we pay to Eurobulk each year for the services of our executives, Mr. Aristides J. Pittas, Dr. Anastasios Aslidis and Mr. Symeon Pariaros, our Secretary, Mrs. Stephania Karmiri, and our Internal Auditor, was adjusted to $1,250,000. On November 15, 2019, the Company signed an addendum adjusting the fixed annual executive compensation to $2,000,000 to compensate Eurobulk Ltd. for the increase in the fleet and certain management services provided by Synergy Marine Ltd., a company controlled by Andreas Papathomas and which became affiliated with the Company post-acquisition as a result of his appointment to the Board of Directors of the Company in November 2019. As a result, for the year 2019, the fixed cost was calculated at $1,250,000 pro-rated for the period of January 1, 2019 until November 15, 2019 and at $2,000,000 for the period of November 16, 2019 until December 31, 2019.
Director Compensation
Our directors who are also our officers or have executive positions or beneficially own greater than 10% of the outstanding common stock receive no compensation for serving on our Board of Directors or its committees.
Directors who are not our officers, do not have any executive position or do not beneficially own greater than 10% of the outstanding common stock receive the following compensation: an annual retainer of $7,500, plus $1,875
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for attending a quarterly meeting of the Board of Directors, plus an additional retainer of $3,750 if serving as Chairman of the Audit Committee. They also participate in the Company's Equity Incentive Plan.
All directors are reimbursed reasonable out-of-pocket expenses incurred in attending meetings of our Board of Directors or any committee of our Board of Directors.
Equity Incentive Plan
In May 2018, our Board of Directors approved a new equity incentive plan (the "2018 Equity Incentive Plan") to replace the 2014 Equity Incentive Plan. The 2018 Equity Incentive Plan is administered by the Board of Directors which can make awards totaling in aggregate up to 75,000 shares over 10 years after the 2018 Equity Incentive Plan's adoption date. 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 are eligible to receive awards under the 2018 Equity Incentive Plan. Awards may be made under the 2018 Equity Incentive 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.
On November 2, 2017, an award of 12,534 non-vested restricted shares, was made to 18 key persons, comprising directors and officers of the Company and key employees of Eurobulk of which 50% vested on July 1, 2018 and 50% vested on July 1, 2019; awards to officers and directors amounted to 7,213 shares and the remaining 5,321 shares were awarded to employees of Eurobulk On November 21, 2018, an award of 15,681 non-vested restricted shares, was made to 18 key persons of which 50% vested on November 16, 2019 and 50% will vest on November 16, 2020; awards to officers and directors amounted to 9,021 shares and the remaining 6,660 shares were awarded to employees of Eurobulk. On November 4, 2019, an award of 15,444 non-vested restricted shares, was made to 17 key persons of which 50% will vest on July 1, 2020 and 50% will vest on July 1, 2021; awards to officers and directors amounted to 8,713 shares and the remaining 6,731 shares were awarded to employees of Eurobulk.
C. Board Practices
The current term of our Class A directors expires in 2020, the term of our Class B director expires in 2021 and the term of our Class C directors expires in 2022.
There are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.
Our Board of Directors does not have separate compensation or nomination committees, and instead, the entire Board of Directors performs those responsibilities.
Audit Committee
We currently have an Audit Committee comprised of three independent members of our Board of Directors. The Audit Committee is responsible for reviewing the Company's accounting controls and the appointment of the Company's outside auditors. The members of the Audit Committee are Mr. Panos Kyriakopoulos (Chairman and "audit committee financial expert" as such term is defined under SEC regulations), Mr. Apostolos Tamvakakis and Mr. George Taniskidis.
Code of Ethics
We have adopted a code of ethics that complies with the applicable guidelines issued by the SEC. Our code of ethics is posted on our website: http://www.euroseas.gr under "Corporate Governance." We intend to disclose any waivers of the code of ethics on our website under "Corporate Governance."
Corporate Governance
Our Company's corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands. We are exempt from many of Nasdaq's corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification of material non-compliance with Nasdaq corporate governance practices, and the establishment and composition of an audit committee and a formal written audit committee charter. The practices that we follow in lieu of Nasdaq's corporate governance rules are described below.
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| • | We are not required under Marshall Islands law to maintain a Board of Directors with a majority of independent directors, and we may not be able to maintain a Board of Directors with a majority of independent directors in the future.

| • | In lieu of a compensation committee comprised of independent directors, our Board of Directors will be responsible for establishing the executive officers' compensation and benefits. Under Marshall Islands law, compensation of the executive officers is not required to be determined by an independent committee.

| • | In lieu of a nomination committee comprised of independent directors, our Board of Directors will be responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees. Shareholders may also identify and recommend potential candidates to become board members in writing. No formal written charter has been prepared or adopted because this process is outlined in our bylaws.

| • | In lieu of obtaining an independent review of related party transactions for conflicts of interests, consistent with Marshall Islands law requirements, a related party transaction will be permitted if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors and the Board of Directors in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, or, if the votes of the disinterested directors are insufficient to constitute an act of the Board of Directors as defined in Section 55 of the Marshall Islands Business Corporations Act, by unanimous vote of the disinterested directors; or (ii) the material facts as to his relationship or interest are disclosed and the shareholders are entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a simple majority vote of the shareholders; or (iii) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

| • | As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law, we will notify our shareholders of meetings between 15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our bylaws provide that shareholders must give us advance notice to properly introduce any business at a meeting of the shareholders. Our bylaws also provide that shareholders may designate in writing a proxy to act on their behalf.

| • | In lieu of holding regular meetings at which only independent directors are present, our entire Board of Directors, a majority of whom are independent, will hold regular meetings as is consistent with the laws of the Republic of the Marshall Islands.

| • | The Board of Directors adopted a new Equity Incentive Plan in February 2018. Shareholder approval was not necessary since Marshall Islands law permits the Board of Directors to take such actions.

| • | As a foreign private issuer, we are not required to obtain shareholder approval if any of our directors, officers, or 5% or greater shareholders has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the company, or assets to be acquired, or in the consideration to be paid in the transaction(s) and the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, could result in an increase in outstanding common stock or voting power of 5% or more.

| • | In lieu of obtaining shareholder approval prior to the issuance 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.

Other than as noted above, we are in full compliance with all other applicable Nasdaq corporate governance standards.
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D. Employees
We have no salaried employees, although we pay Eurobulk for the services of our Chief Executive Officer, Chief Financial Officer, Chief Administrative Officer, Internal Auditor and Secretary: Mr. Aristides J. Pittas, Dr. Anastasios Aslidis, Mr. Symeon Pariaros, Mr. Konstantinos Siademas and Ms. Stephania Karmiri, respectively. Eurobulk also ensures that all seamen have the qualifications and licenses required to comply with international regulations and shipping conventions, and that all of our vessels employ experienced and competent personnel. As of December 31, 2019, approximately 152 officers and 266 crew members served on board the vessels in our fleet.
E. Share Ownership
With respect to the ownership of our common stock by each of our directors and executive officers, and all of our directors and executive officers as a group, see "Item 7. Major Shareholders and Related Party Transactions".
All of the shares of our common stock have the same voting rights and are entitled to one vote per share.
Equity Incentive Plan
See Item 6.B of this annual report, "Compensation."
Options
No options were granted during the fiscal year ended December 31, 2019. There are currently no options outstanding to acquire any of our shares.
Warrants
We do not currently have any outstanding warrants.

Item 7. | Major Shareholders and Related Party Transactions

A. | Major Stockholders

The following table sets forth certain information regarding the beneficial ownership of our voting stock as of April 15, 2020 by each person or entity known by us to be the beneficial owner of more than 5% of the outstanding shares of our voting stock, each of our directors and executive officers, and all of our directors and executive officers and 5% owners as a group. All of our shareholders, including the shareholders listed in this table, are entitled to one vote for each share of common stock held.

Name of Beneficial Owner (1) |  | Number of Shares of Voting Common Stock Beneficially Owned |  |  | Percent of Voting of common Stock (17) |  |  | Number of Shares of Voting Series B Preferred Stock Beneficially Owned (18) |  |  | Percent of Voting of Series B Preferred Shares (18) |  |  | Number of Shares of Voting Common Stock Beneficially Owned Upon Conversion; 50% Voting Before Conversion |  |  | Percent of Total Voting Securities |
Containers Trinity Shareholders Ltd. (2) |  |  | 2,171,479 |  |  |  | 38.8 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 35.5 | %
Eurobulk Marine Holdings Inc. (3) |  |  | 531,614 |  |  |  | 9.5 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8.7 | %
Synergy Holdings Limited (4) |  |  | 528,169 |  |  |  | 9.4 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8.6 | %
Friends Investment Company Inc. (5) |  |  | 503,303 |  |  |  | 9.0 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8.2 | %
Diamantis Shareholders Ltd (6) |  |  | 243,451 |  |  |  | 4.3 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4.0 | %
Family United Navigation Co |  |  | 87,842 |  |  |  | 1.6 | % |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 1.4 | %
Tennenbaum Opportunities Fund V, LP (7, 8) |  |  | 76,050 |  |  |  | 1.4 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1.2 | %
Tennenbaum Opportunities Partners V, LLC (7, 8) |  |  | 36,450 |  |  |  | 0.7 | % |  |  | 4,345 |  |  |  | 54.3 | % |  |  | 278,526 |  |  |  | 5.2 | %
Preferred Friends Investment Company Inc (8) |  |  | - |  |  |  | - |  |  |  | 3,655 |  |  |  | 45.7 | % |  |  | 234,295 |  |  |  | 3.8 | %
Aristides J Pittas(9) |  |  | 12,504 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
Anastasios Aslidis (10) |  |  | 10,775 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
Panagiotis Kyriakopoulos (11) |  |  | 4,220 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |

Aristides P Pittas (12) |  |  | 2,598 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
Apostolos Tamvakakis (13) |  |  | 1,742 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
George Taniskidis (14) |  |  | 562 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
Christian Donohue |  |  | - |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
Andreas Papathomas |  |  | - |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
Stephania Karmiri (15) |  |  | - |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
Symeon Pariaros (16) |  |  | 562 |  |  |  | * |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | * |
All directors and officers and 5% owners as a group |  |  | 4,236,197 |  |  |  | 75.6 | % |  |  | 8,000 |  |  |  | 100.0 | % |  |  | 512,821 |  |  |  | 77.7 | %

* Indicates less than 1.0%.
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(1) | Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the Securities Exchange Act of 1934, as amended, and generally includes voting or investment power with respect to securities. Except as subject to community property laws, where applicable, the person named above has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by him/her.

(2) | Represents 2,171,479 shares of common stock held of record by Containers Trinity Shareholders Ltd. ("CTS"). A majority of the shareholders of CTS are members of the Pittas family. Investment power and voting control by CTS resides in its Board of Directors which consists of three directors, affiliated with the Pittas family. Actions by CTS may be taken by a majority of the members on its Board of Directors.

(3) | Represents 528,169 shares of common stock held of record by Eurobulk Marine Holdings Inc. ("EMH"). A majority of the shareholders of EMH are members of the Pittas family. Investment power and voting control by EMH resides in its Board of Directors which consists of three directors, a majority of whom are members of the Pittas family. Actions by EMH may be taken by a majority of the members on its Board of Directors.

(4) | Represents 528,169 shares of common stock held of record by Synergy Holdings Ltd. ("SHL"). SHL is indirectly controlled by a trust (under which Andreas Papathomas is a beneficiary) which may be deemed to have beneficial ownership of shares beneficially owned by SHL. Mr. Papathomas is a director of the Company.

(5) | Represents 531,614 shares of common stock held of record by Friends. A majority of the shareholders of Friends are members of the Pittas family. Investment power and voting control by Friends resides in its Board of Directors which consists of five directors, a majority of whom are members of the Pittas family. Actions by Friends may be taken by a majority of the members on its Board of Directors.

(6) | Represents 243,451 shares of common stock held of record by Diamantis Shareholders Ltd. ("DSL"). A majority of the shareholders of DSL are members of the Pittas family. Investment power and voting control by DSL resides in its Board of Directors which consists of three directors, affiliated with the Pittas family. Actions by DSL may be taken by a majority of the members on its Board of Directors.

(7) | Tennenbaum Capital Partners, LLC serves as investment advisor to, inter alia, Tennenbaum Opportunities Partners V, LP and Tennenbaum Opportunities Fund VI, LLC, which are the registered holders of the Common Shares and Series B Preferred Shares of Euroseas Ltd. beneficially owned by Tennenbaum Capital Partners, LLC. Tennenbaum Capital Partners, LLC is indirectly controlled by BlackRock, Inc., which may be deemed to have beneficial ownership of shares beneficially owned by Tennenbaum Capital Partners, LLC. The address of Tennenbaum Opportunities Partners V, LP, Tennenbaum Opportunities Fund V, LLC and Tennenbaum Capital Partners, LLC is 2951 28th Street, Suite 1000, Santa Monica, CA 90405. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. Tennenbaum Opportunities Partners V, LP and Tennenbaum Opportunities Fund VI, LLC currently hold (a) 112,500 shares of common stock and (b) Series B Preferred Shares that are convertible into 278,526 shares of common stock.

(8) | Common shares are issuable upon conversion of Series B Preferred Shares (or any convertible notes into which the Series B Preferred Shares may convert) owned by this shareholder (based on the current conversion ratio).

(9) | Does not include 1,004,507 shares of common stock held of record by CTS, EMH, Friends and DSL by virtue of ownership interest in above entities by Mr. Pittas. Mr. Pittas disclaims beneficial ownership except to the

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extent of his pecuniary interest. Does not include 1,041 Series B Preferred Shares held of record by Preferred Friends Investment Company Inc., by virtue of ownership interest in Preferred Friends Investment Company Inc. by Mr. Pittas. Includes 1,750 shares vesting on July 1, 2020, 1,741 shares of common stock vesting on November 16, 2020 and 1,750 shares vesting on July 1, 2021.

(10) | Does not include 20,344 shares of common stock held of record by CTS and DSL by virtue of ownership interest in above entities by Mr. Aslidis. Mr. Aslidis disclaims beneficial ownership except to the extent of his pecuniary interest. Includes 1,188 shares vesting on July 1, 2020, 1,182 shares of common stock vesting on November 16, 2020 and 1,188 shares vesting on July 1, 2021.

(11) | Includes 188 shares vesting on July 1, 2020, 186 shares of common stock vesting on November 16, 2020 and 188 shares vesting on July 1, 2021.

(12) | Does not include 279,640 shares of common stock held of record by CTS, EMH, Friends, DSL and Family United Navigation Co., by virtue of ownership interest in above entities by Mr. Pittas and members of his family. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest. Does not include 24 shares of Series B Preferred stock held of record by Preferred Friends Investment Company Inc., by virtue of ownership interest in Preferred Friends Investment Company Inc. by Mr. Pittas and members of his family. Includes 482 shares vesting on July 1, 2020, 475 shares of common stock vesting on November 16, 2020 and 482 shares vesting on July 1, 2021.

(13) | Includes 188 shares vesting on July 1, 2020, 186 shares of common stock vesting on November 16, 2020 and 188 shares vesting on July 1, 2021.

(14) | Does not include 45,264 shares held of record by Friends, by virtue of Mr. Taniskidis' ownership in CTS, Friends and DSL. Mr. Taniskidis disclaims beneficial ownership except to the extent of his pecuniary interest. Does not include 96 Series B Preferred Shares held of record by Preferred Friends Investment Company Inc., by virtue of ownership interest in Preferred Friends Investment Company Inc. by Mr. Taniskidis. Includes 188 shares vesting on July 1, 2020, 186 shares of common stock vesting on November 16, 2020 and 188 shares vesting on July 1, 2021.

(15) | Does not include 67 shares of common stock held of record by Friends, by virtue of Mrs. Karmiri's ownership in Friends. Mrs. Karmiri disclaims beneficial ownership except to the extent of her pecuniary interest.

(16) | Includes 188 shares vesting on July 1, 2020, 186 shares of common stock vesting on November 16, 2020 and 188 shares vesting on July 1, 2021.

(17) | Voting stock includes 23,299 unvested shares for a total of 5,600,259 issued and outstanding shares of the Company as of April 15, 2020.

(18) | As of April 15, 2020, Series B Preferred Shares vote on an as-converted basis weighted by 50%.

B. | Related Party Transactions

The operations of our vessels are managed by Eurobulk, an affiliated ship management company owned by our Chairman and CEO and his family, under a Master Management Agreement with us and separate management agreements with each shipowning company. Under our Master Management Agreement, Eurobulk is responsible for all aspects of management and compliance for the Company, including the provision of the services of our Chief Executive Officer, Chief Financial Officer, Chief Administrative Officer, Internal Auditor and Secretary. Eurobulk is also responsible for all commercial management services, which include obtaining employment for our vessels and managing our relationships with charterers. Eurobulk also performs technical management services, which include managing day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging our hire of qualified officers and crew, arranging and supervising dry docking and repairs, arranging insurance for vessels, purchasing stores, supplies, spares and new equipment for vessels, appointing supervisors and technical consultants and providing technical support and shoreside personnel who carry out the management functions described above and certain accounting services.
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Our Master Management Agreement with Eurobulk, which we initially entered in 2008, was most recently amended and restated as of January 1, 2018 and its term was extended until January 1, 2023. The Master Management Agreement can be terminated by Eurobulk only for cause or under other limited circumstances, such as sale of the Company or Eurobulk or the bankruptcy of either party. The Master Management Agreement will automatically be extended after the initial period for an additional five-year period unless terminated on or before the 90th day preceding the preceding termination date. Each new vessel we may acquire in the future will enter into a separate management agreement with Eurobulk with a rate and term coinciding with the rate and remaining term of the Master Management Agreement pursuant to the Master Management Agreement. During 2017, under the Master Management Agreement, as amended, we paid Eurobulk a fixed cost of $2,000,000 annually, which is adjusted for a per ship per day cost of 685 Euros (or about $768 based on $1.12/Euro exchange rate) and also adjusted annually for inflation in the Eurozone every January 1st (there was no inflation adjustment on January 1, 2018 or 2019, as the inflation rate was not positive), reflecting a 5% discount if the number of vessels wholly or partially owned by Euroseas and managed by Eurobulk is more than 20, which has been the case from January 1, 2012 to December 2017 as the total number of vessels owned by us (including the vessels owned by Euromar) was greater than 20. In absence of this discount, the cost per ship per day would have been 720 Euros. This cost would have been reduced by half (342.5 Euros per vessel per day, or 360 Euros per vessel per day as appropriate) for any vessels that are laid up. Vessels under construction start paying the daily management fee after steel cutting. Under the amended and restated Master Management Agreement, as of January 1, 2018, the volume discount has been permanently incorporated into the daily management fee, which remained 685 Euros in 2018 and 2019 and will be annually adjusted for Eurozone inflation. As of May 30, 2018, the fixed annual cost was adjusted to $1,250,000. For the year 2018, the fixed annual cost was calculated at $2,000,000 pro-rated for the period from January 1, 2018 until May 29, 2018 and $1,250,000 thereafter for the period from May 30, 2018 until December 31, 2018 for a total amount of $1,561,126. On November 15, 2019, the Company signed an addendum adjusting the fixed annual cost to $2,000,000 to compensate Eurobulk Ltd. for the increase in the fleet and certain management services provided by Synergy Marine Ltd., a company controlled by Andreas Papathomas and which became affiliated with the Company post-acquisition, as a result of his appointment to the Board of Directors of the Company in November 2019. As a result, for the year 2019, the fixed cost was calculated at $1,250,000 pro-rated for the period of January 1, 2019 until November 15, 2019 and at $2,000,000 for the period of November 16, 2019 until December 31, 2019 for a total amount of $1,344,250.
Eurobulk has received fees for management and executive compensation expenses of $3,939,113, $5,097,220 and $5,015,585 during 2017, 2018 and 2019, respectively.
We receive chartering and sale and purchase services from Eurochart, an affiliate, and pay a commission of 1.25% on charter revenue and 1% on vessel sale price. During 2019, Eurochart received: nil for vessel sales, as there were none in 2019, and $493,341 for chartering services calculated as 1.25% of chartering revenues. During 2018, Eurochart received commissions of $64,500 for vessel sales and chartering commissions of $453,361.
Technomar S.A., a crewing agent, and Sentinel Marine Services Inc., an insurance brokering company, are affiliates to whom we pay a fee of about $50 per crew member per month and pay a commission on insurance premiums not exceeding 5%, respectively.
In August 2019, we took delivery of four feeder containerships, the M/V "Diamantis P", M/V "EM Hydra", M/V "EM Spetses", and M/V "EM Kea", owned by affiliates of the Pittas family, controlled by the Company's CEO for $28.2 million. The consideration towards the feeder vessels included a cash payment of $15.0 million, financed by two bank loans, and issuance of 2,816,902 shares of common stock to the sellers. The vessels acquisition transactions were evaluated and approved by a special committee of independent members of the Board of Directors.
On September 30, 2019, we reached an agreement with a related party, Colby Trading Ltd., a company controlled by the Pittas family and affiliated with our CEO, to draw a $2.5 million loan to finance the special survey and water ballast treatment plant installation on M/V "Akinada Bridge". The interest rate applied is 8% per annum. Interest on the loan is payable quarterly. The loan is payable in four repayment installments of a principal amount of $625,000 each. The first repayment installment will be due on May 15, 2020 and the remaining three installments will be paid on a quarterly basis thereafter and the loan will be paid in full by November 2020. Under certain circumstances, the Company can pay principal in equity, and the loan is convertible in common stock of the Company at the option of the lender at certain times. We paid $51,111 on interest for this loan for the fiscal year 2019.
On November 1, 2019, the Company entered into a second agreement with Colby Trading Ltd., to draw another $2.5 million loan to finance working capital needs. Interest on the loan is 8% per annum and is payable quarterly. There are no principal repayments until December 31, 2020, when the loan matures. Under certain circumstances, the Company can pay principal in equity, and the loan is convertible in common stock of the Company at the option of the lender at certain times. We paid $33,333 on interest for this loan for the fiscal year 2019.
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Aristides J. Pittas is currently the Chairman of each of Eurochart and Eurobulk, both of which are our affiliates.
We have entered into a registration rights agreement with Friends, our largest shareholder, pursuant to which we granted Friends the right, under certain circumstances and subject to certain restrictions, to require us to register under the Securities Act shares of our common stock held by Friends. Under the registration rights agreement, Friends has the right to request us to register the sale of shares held by it on its behalf and may require us to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period. In addition, Friends has the ability to exercise certain piggyback registration rights in connection with registered offerings initiated by us.
Eurobulk, Friends and Aristides J. Pittas, our Chairman and Chief Executive Officer, have granted us a right of first refusal to acquire any containership which any of them may consider for acquisition in the future. In addition, Mr. Pittas has granted us a right of first refusal to accept any chartering out opportunity for a containership which may be suitable for any of our vessels, provided that we have a suitable vessel, properly situated and available, to take advantage of the chartering out opportunity. Mr. Pittas has also agreed to use his best efforts to cause any entity he directly or indirectly controls to grant us this right of first refusal.

C. | Interests of Experts and Counsel

Not Applicable.

Item 8. | Financial Information

A. | Consolidated Statements and Other Financial Information

See Item 18.
Legal Proceedings
As of April 15, 2020, a subsidiary of the Company, Alterwall Business Inc. (the owner of M/V "Ninos"), is involved in a dispute with a fuel oil supplier who claimed a maritime lien against the vessel after the supplier, which had time-chartered the vessel from the Company, went bankrupt in October 2009 and failed to pay certain invoices. The vessel was arrested in Karachi in November 2009 and released after a bank guarantee for an amount of $0.53 million was provided on behalf of the Company, for which the bank has restricted an equal amount of the Company's cash which is presented within Restricted Cash. The legal proceedings are ongoing. Although the Company believes it will be successful in its claim, it has made a provision of $0.15 million in 2016 for any costs that may be incurred.
To our knowledge, there are no other 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 or cash flows.
Dividend Policy
We paid a quarterly dividend to our common stock for thirty-two consecutive quarters from our inception in 2005 until November 2013 when our Board of Directors decided to suspend our quarterly dividend in order to focus every resource available in exploiting investment opportunities in the market. Our last dividend of $1.20 per share (adjusted for the 1-for-10 reverse stock split effected on July 23, 2015 and the 1-for-8 reverse stock split effected on December 18, 2019) was declared in August 2013. The exact timing and amount of any future dividend payments to our common stock will be determined by our Board of Directors and will be dependent upon our earnings, financial condition, cash requirement and availability, restrictions in its loan agreements, growth strategy, the provisions of Marshall Islands law affecting the payment of distributions to shareholders and other factors, such as the acquisition of additional vessels.
If reinstated, the payment of dividends to our common stock is not guaranteed or assured, and may again be discontinued at any time at the discretion of our Board of Directors. 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 these subsidiaries and their ability to pay dividends to us. If there is a substantial decline in the containership charter market, our earnings would be negatively affected, thus limiting our ability to pay dividends.
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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 of such dividends. Dividends may be declared in conformity with applicable law by, and at the discretion of, our Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, stock or other property of the Company.
The Series B Preferred Shares paid dividends in-kind until January 29, 2019 at a rate of 5% per annum. From January 29, 2019 to January 29, 2021, the dividend rate on the Series B Preferred Shares was set to increase to 12% per annum and to 14% per annum thereafter. On June 10, 2019, the Board of Directors agreed to redeem approximately $11.7 million of the Series B Preferred Shares with a simultaneous reduction of the dividend rate to 8% per annum until January 29, 2021, after which date it will increase to 14% per annum, payable only in cash. From January 29, 2019 to June 19, 2019, the Series B Preferred Shares carried a dividend rate of 12% per annum. Cash dividends are declared at each quarter and actual payments are made within the following quarter. In addition, if a cash dividend is paid on the Company's common stock after January 29, 2019, the holders of Series B Preferred Shares shall receive an additional cash dividend in an amount equal to 40% of the common stock dividend it would have received on an as-converted basis. The Series B Preferred Shares can be converted at the option of their holders at any time, and at the option of the Company only if certain share price and liquidity milestones are met. Each Series B Preferred Share is convertible into common stock at an initial conversion price of $15.58 (subject to adjustment, including upon a default). The Series B Preferred Shares are redeemable in cash by the Company at any time after the fifth anniversary of the original issue date, i.e. January 29, 2019. Holders of the Series B Preferred Shares may require the Company to redeem their shares only upon the occurrence of certain corporate events. For each of the years ended December 31, 2017 and 2018, the Company declared four consecutive dividends totaling $1.81 million and $1.34 million, respectively, all of which were paid in-kind. For the year ended December 31, 2019 the Company declared dividends of $1.27 million, of which $0.08 million were paid in-kind, $1.03 million were paid in cash during 2019 and another $0.16 million were accrued as of December 31, 2019 and were paid in cash in the first quarter of 2020. In addition, $0.50 million of preferred deemed dividends were recorded as a result of the redemption of $11.7 million of the Series B Preferred Shares, representing the difference between (1) the fair value of the consideration transferred to the holders of the Series B Preferred Shares (comprising the cash payment offered) and (2) the carrying amount of the Series B Preferred Shares before the redemption (net of issuance costs).

B. | Significant Changes

In January 2020, M/V "EM Oinousses" experienced an engine room fire while sailing off Mozambique carrying empty containers. The fire was extinguished without any injuries to the crew but the vessel experienced damage. The vessel is currently undergoing evaluation for the type of repairs required and is idle during the evaluations. It is expected that the Company's insurance will cover the majority of the costs. It is possible that the vessel may be scrapped after the insurance process is completed.
On February 24, 2020, we signed a contract to sell M/V "Manolis P", a 1,452 teu vessel, built in 1995 for scrap. The vessel reached her destination port on April 7, 2020, but so far has not been delivered to the buyers due to Coronavirus restrictions and port lockdowns in the territory of arrival (Alang, India). The scrap price has dropped since the date of the agreement to sell the M/V Manolis P, and the buyers are now seeking to terminate the agreement on the basis that timely delivery did not occur. We are in the process of seeking a settlement with the buyers.
In April 2020, we entered into one interest rate swap with Eurobank for a notional amount of $30.0 million, in order to manage interest costs and the risk associated with changing interest rates of the Company's loans. Under the terms of the swap, Eurobank makes a quarterly payment to the Company equal to the 3-month LIBOR while the Company pays a fixed rate of 0.78% based on the notional amount. The swap is effective from April 24, 2020 until April 24, 2025.
No other significant events occurred after December 31, 2019.

Item 9. | The Offer and Listing

A. | Offer and Listing Details

The trading market for shares of our common stock is the Nasdaq Capital Market, on which our shares have traded under the symbol "ESEA" since June 26, 2015.
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B. | Plan of Distribution

Not Applicable.

C. | Markets

The trading market for shares of our common stock is the Nasdaq Capital Market, on which our shares have traded under the symbol "ESEA" since June 26, 2015. Our shares began trading on the Nasdaq Global Market on January 31, 2007 and on the Nasdaq Global Select Market on January 1, 2008, and have traded on the Nasdaq Capital Market since June 26, 2015. Prior thereto, our shares traded on the OTCBB under the symbol "ESEAF.OB" until October 5, 2006 and then under the symbol "EUSEF.OB" until January 30, 2007.

D. | Selling Shareholders

Not Applicable.

E. | Dilution

Not Applicable.

F. | Expenses of the Issue

Not Applicable.

Item 10. | Additional Information

A. | Share Capital

Not Applicable.

B. | Memorandum and Articles of Association

Amended and Restated Articles of Incorporation and Bylaws, as amended
Our current amended and restated articles of incorporation were filed with the SEC as Exhibit 1.1 (Amended and Restated Articles of Incorporation) to our Annual Report on Form 20-F on May 27, 2011, and our current bylaws, as amended, were filed with the SEC as Exhibits 1.2 (Bylaws) and 1.4 (Amendment to Bylaws) to our Annual Report on Form 20-F on May 28, 2010.
Purpose
Our purpose, as stated in our amended and restated articles of incorporation, is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Business Corporations Act of the Marshall Islands, or the BCA.
Authorized Capitalization
Under our amended and restated articles of incorporation, our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.03 per share and 20,000,000 shares of preferred stock par value $0.01 per share. All of our shares of stock are in registered form.
Common Stock
As of April 15, 2020, we are authorized to issue up to 200,000,000 shares of common stock, par value $0.03 per share, of which there are 5,600,259 shares issued and outstanding (taking into effect the 1-for-8 reverse stock split). 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 shareholders. 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
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not have preemptive, subscription or conversion rights or redemption or sinking fund provisions. All issued shares of our common stock when issued will be fully paid for and non-assessable.
Preferred Stock
As of April 15, 2020, we are authorized to issue up to 20,000,000 shares of preferred stock, par value $0.01 per share, of which there are 8,000 shares issued and outstanding. The preferred stock may be issued in one or more series and our Board of Directors, without further approval from our shareholders, 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 voting power of the holders of our common stock. On January 27, 2014, the Company entered into an agreement to sell 25,000 shares of its Series B Preferred Shares to a fund managed by TCP and 5,700 shares to Preferred Friends Investment Company Inc., an affiliate of the Company, for net proceeds of approximately $29 million. These shares were issued on January 29, 2014. Additional Series B Convertible Preferred Shares were issued when dividends to preferred shares were paid in-kind (see below).
At the spin-off date Euroseas distributed EuroDry Series B Preferred Shares to holders of Euroseas' Series B Preferred Shares in exchange for a number of such Euroseas Series B Preferred Shares, representing 50% of Euroseas Series B Preferred Stock, i.e., $14,500,000 of the initial preferred shares amount of the Company and $3,692,131 of dividends paid in kind. Euroseas contributed to EuroDry its interests in seven of its drybulk subsidiaries and related intercompany debts and obligations in exchange for approximately 2,254,830 of EuroDry common shares and 19,042 of EuroDry Series B Preferred Shares (representing all of EuroDry's issued and outstanding stock as of that time). Euroseas made a special dividend of 100% of EuroDry's outstanding common shares to holders of Euroseas' common stock as of the record date of the special dividend. In addition, Euroseas distributed 100% of EuroDry's Series B Preferred Shares to holders of Euroseas' Series B Preferred Shares as described above.
The Series B Preferred Shares paid dividends quarterly in arrears in-kind until January 29, 2019 at a rate 5% per annum. The first payment of interest was on March 31, 2014. The dividend rate was set to increase to 12% for the two years following January 29, 2019 and to 14% thereafter, payable only in cash. Cash dividends are declared at each quarter and actual payments are made within the following quarter. If a cash dividend is paid on the Company's common stock after January 29, 2019, the holders of Series B Preferred Shares shall receive an additional cash dividend in an amount equal to 40% of the common stock dividend it would have received on an as-converted basis. The Series B Preferred Shares can be converted at the option of their holders at any time, and at the option of the Company only if certain share price and liquidity milestones are met. Each Series B Preferred Share is convertible into common stock at an initial conversion price of $15.58 (subject to adjustment, including upon a default). Holders of the Series B Preferred Shares may require the Company to redeem their shares only upon the occurrence of certain corporate events.
On June 10, 2019, the Company redeemed $11.7 million of value of its outstanding Series B Preferred Shares with a simultaneous reduction of the annual dividend rate to 8% for the $8 million value of preferred shares remaining outstanding until January 29, 2021. After this date, the annual dividend rate will increase to 14%, and will be payable in cash. From January 29, 2019 to June 11, 2019, the Series B Preferred Shares carried a dividend rate of 12% per annum.
Subject to certain ownership thresholds, holders of Series B Preferred Shares have the right to appoint one director to the Company's board of directors and TCP also has consent rights over certain corporate actions including authorizing, creating or issuing any class or series of capital stock that runs senior or in parity with the Series B Preferred Shares, engaging in certain transactions with affiliates or engaging in transactions that increase the leverage of the Company more than a certain level. However, following the partial redemption on June 10, 2019 mentioned above, the holders' of Series B Preferred Shares right to appoint a director and consent rights terminated. Christian Donohue, who was initially appointed as Director by the holders of the Series B Preferred Shares, was appointed to serve as a Director by the Board of Directors in July 2019. In addition, the holders of Series B Preferred Shares will vote as one class with the Company's common stock on all matters on which shareholders are entitled to vote, with each Series B Preferred Share having a number of votes equal to 50% of the numbers of shares of common stock of the Company into which such Series B Preferred Share would be convertible on the applicable record date.
The rights and privileges of the Series B Preferred Shares are set forth in the Amended and Restated Statement of Designation of the Rights, Preferences and Privileges of the Series B Convertible Preferred Shares, a copy of which is included as Exhibit 4.28 hereto and is incorporated by reference herein.
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Directors
Our directors are elected by a plurality of the votes cast at a meeting of the shareholders by the holders of shares entitled to vote in the election. Cumulative voting may not be used to elect directors.
Our Board of Directors must consist of at least three directors, such number to be determined by the Board of Directors by a majority vote of the entire Board of Directors from time to time. Shareholders may change the number of our directors only by an affirmative vote of the holders of the majority of the outstanding shares of capital stock entitled to vote generally in the election of directors.
Our Board of Directors is divided into three classes as set out below in "Classified Board of Directors." Each director is elected to serve until the third succeeding annual meeting after his election and until his successor shall have been elected and qualified, except in the event of his death, resignation or removal.
Our bylaws were amended on March 25, 2010 in connection with our Joint Venture in order to ensure that for so long as the percentage of ownership interest of Eton Park and Rhône (considered separately) in us, is (i) greater than 35%, the Joint Venture affiliates of Eton Park or Rhône, as applicable, together with their respective permitted transferees, shall each be entitled to select two (2) directors for appointment to our Board of Directors or (ii) between 7.5% and 35%, the Joint Venture affiliates of Eton Park or Rhône, as applicable, together with their respective permitted transferees shall each be entitled to select one (1) director for appointment to the Board of Directors, in each case in addition to the current seven seats on the Board of Directors and adjusted in proportion to any change in the total number of seats on the Board of Directors.
Shareholder Meetings
Under our bylaws, as amended, annual shareholder 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 at any time by the Board of Directors, the Chairman of the Board or by the President. Notice of every annual and special meeting of shareholders must be given to each shareholder of record entitled to vote at least 15 but no more than 60 days before such meeting.
Dissenters' Rights of Appraisal and Payment
Under the BCA, our shareholders have the right to dissent from various corporate actions, including any merger or consolidation 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. In the event of any further amendment of our amended and restated articles of incorporation, a shareholder 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 shareholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting shareholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which the Company's shares are primarily traded on a local or national securities exchange.
Shareholders Derivative Actions
Under the BCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder 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.
Limitations on Liability and Indemnification of Officers and Directors
The BCA authorizes corporations to limit or eliminate the personal liability of directors and officers to corporations and their shareholders for monetary damages for breaches of directors' fiduciary duties. Our bylaws, as amended, include a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent permitted by law.
Our bylaws, as amended, provide that we must indemnify our directors and officers to the fullest extent authorized by law. We are also expressly authorized to carry directors' and officers' insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.
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The limitation of liability and indemnification provisions in our bylaws, as amended, may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Anti-takeover Effect of Certain Provisions of our Amended and Restated Articles of Incorporation and Bylaws, as Amended
Several provisions of our amended and restated articles of incorporation and bylaws, as amended, which are summarized below, may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change in control and enhance the ability of our Board of Directors to maximize shareholder 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 shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.
Blank Check Preferred Stock
Under the terms of our amended and restated articles of incorporation, our Board of Directors has authority, without any further vote or action by our shareholders, to issue up to 20,000,000 shares of blank check preferred stock. Our Board of Directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change in control of our company or the removal of our management.
Classified Board of Directors
Our amended and restated articles of incorporation provide for the division of our Board of Directors into three classes of directors, with each class as nearly equal in number as possible, 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 us. It could also delay shareholders who do not agree with the policies of our Board of Directors from removing a majority of our Board of Directors for two years.
Election and Removal of Directors
Our amended and restated articles of incorporation prohibit cumulative voting in the election of directors. Our bylaws, as amended, require parties other than the Board of Directors to give advance written notice of nominations for the election of directors. Our bylaws, as amended, also provide that our directors may be removed only for cause and by either action of the Board of Directors or the affirmative vote of the holders of 51% of the issued and outstanding voting shares of the Corporation. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Limited Actions by Shareholders
Our amended and restated articles of incorporation and our bylaws, as amended, provide that any action required or permitted to be taken by our shareholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent of our shareholders. Our amended and restated articles of incorporation and our bylaws, as amended, provide that, subject to certain exceptions, our Board of Directors, our Chairman of the Board or by the President and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly, a shareholder may not call a special meeting and shareholder consideration of a proposal may be delayed until the next annual meeting.
Advance Notice Requirements for Shareholder Proposals and Director Nominations
Our bylaws, as amended, provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder's notice must be received at our principal executive
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offices not less than 150 days nor more than 180 days prior to the one-year anniversary of the immediately preceding annual meeting of shareholders. Our bylaws, as amended, also specify requirements as to the form and content of a shareholder's notice. These provisions may impede shareholders' ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.
Certain Business Combinations
Our amended and restated articles of incorporation also prohibit us, subject to several exclusions, from engaging in any "business combination" with any interested shareholder for a period of three years following the date the shareholder became an interested shareholder.
Shareholders' Rights Plan
On May 10, 2019, we adopted a shareholder rights agreement effective as of May 27, 2019 and declared a dividend distribution of one preferred stock purchase right to purchase one one-thousandth of our Series C Participating Preferred Stock for each outstanding share of our common stock, to shareholders of record at the close of business on May 27, 2019. Each right entitles the registered holder, upon the occurrence of certain events, to purchase from us one one-thousandth of a share of Series C Participating Preferred Stock at an exercise price of $3.00, subject to adjustment. The rights will expire on the earliest of (i) May 31, 2029 or (ii) redemption or exchange of the rights. The shareholder rights agreement was designed to enable us to protect shareholder interests in the event that an unsolicited attempt is made for a business combination with or takeover of the Company. We believe that the shareholder rights agreement should enhance the board of directors' negotiating power on behalf of shareholders in the event of a coercive offer or proposal. We are not currently aware of any such offers or proposals and we adopted the plan as a matter of prudent corporate governance. This shareholder rights agreement replaced our existing, substantially similar shareholder rights agreement which expired on May 27, 2019.

C. | Material Contracts

We have a number of credit facilities with commercial banks and related party loans. For a discussion of our facilities, please see the section of this annual report entitled "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Financing", and Note 8 of our attached financial statements.
We are a party to a registration rights agreement with Friends. For a discussion of these agreements, please see the section of this annual report entitled "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions." Furthermore, we are a party to a registration rights agreement with Synergy Holdings Limited, TCP and a registration obligation agreement with two funds managed by TCP. For a discussion of these agreements, please see the section of this annual report entitled "Item 3—Key Information—D. Risk Factors—Company Risk Factors—Future sales of our stock could cause the market price of our common stock to decline."
We are also a party to an agreement with Synergy Holdings Limited which specifies that if the 12-month New ConTex index for a 4,250 TEU vessel (as published on https://www.vhbs.de/index or any successor website maintained by the Hamburg and Bremen Shipbrokers' Association) (the "Index Value") is higher on November 16, 2020 at 4:00 p.m. New York time than the Index Value on November 15, 2019 at 4:00 p.m. New York time, then, on November 16, 2020, we shall issue to Synergy Holdings Limited, $500,000 divided by the 20-day volume weighted average price of the Company's common shares calculated on November 16, 2020 at 4:00 p.m. New York time.
There are no other material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any of its subsidiaries is a party.

D. | Exchange Controls

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 shares.

E. | Taxation

The following is a discussion of the material Marshall Islands, Liberian and United States federal income tax considerations applicable to us and U.S. Holders and Non-U.S. Holders, each as discussed below, of our common stock.
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Marshall Islands Tax Considerations
We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to holders of our common stock that are not residents or domiciled or carrying any commercial activity in the Marshall Islands. The holders of our common stock will not be subject to Marshall Islands tax on the sale or other disposition of such common stock.
Liberian Tax Considerations
Certain of our subsidiaries are incorporated in the Republic of Liberia. Under the Consolidated Tax Amendments Act of 2010, our Liberian subsidiaries will be deemed non-resident Liberian corporations wholly exempted from Liberian taxation effective as of 1977, and distributions we make to our shareholders will be made free of any Liberian withholding tax.
United States Federal Income Tax
The following are the material United States federal income tax consequences to us of our activities and to U.S. Holders and Non-U.S. Holders, each as defined below, of our common stock. 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 Annual 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 our business as described in "Business" above and assumes that we conduct our business as described in that section. References in the following discussion to "we" and "us" are to Euroseas and its subsidiaries on a consolidated basis.
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, we will be exempt from United States federal income taxation on our U.S.-source shipping income if:

| • | we are organized in a foreign country, or our country of organization, that grants an "equivalent exemption" to corporations organized in the United States; and

either

| • | more than 50% of the value of our stock is owned, directly or indirectly, by "qualified shareholders," individuals who are "residents" of our country of organization or of another foreign country that grants an "equivalent exemption" to corporations organized in the United States, which we refer to as the "50% Ownership Test," or

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| • | our stock is "primarily and regularly traded on an established securities market" in our country of organization, in another 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, Liberia and Panama, the jurisdictions where we and our ship-owning subsidiaries were incorporated during 2019, each grants an "equivalent exemption" to United States corporations. Therefore, we will be exempt from United States federal income taxation with respect to our U.S.-source shipping income if we satisfy either the 50% Ownership Test or the Publicly-Traded Test.
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. Our common stock is "primarily traded" on the Nasdaq Capital Market, which is an established securities market for these purposes.
The Treasury Regulations also require that our stock be "regularly traded" on an established securities market. Under the Treasury Regulations, our common shares will be considered to be "regularly traded" on an established securities market if one or more classes of our stock representing more than 50% of our outstanding stock, by both total combined voting power of all classes of stock entitled to vote and total value, are listed on such market, to which we refer as the Listing Threshold. Our common stock, which is listed on the Nasdaq Capital Market and is our only class of publicly-traded stock, constituted more than 50% of our outstanding shares by value for most of the 2019 taxable year, and accordingly, we believe that we satisfied the listing threshold for the 2019 taxable year.
It is further required that with respect to each class of stock relied upon to meet the Listing Threshold, (i) such class of stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year, or the Trading Frequency Test; and (ii) the aggregate number of shares of such class of stock traded on such market during the taxable year 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, or the Trading Volume Test. The Company currently satisfies and anticipates that it will continue to satisfy the Trading Frequency Test and Trading Volume Test. Even if this were not the case, the Treasury Regulations provide that the Trading Frequency Test and Trading Volume Tests will be deemed satisfied if, as is the case with our common shares, such class of stock is traded on an established securities market in the United States and such class of stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of stock will not be considered to be "regularly traded" on an established securities market for any taxable year during which 50% or more of the vote and value of the outstanding shares of such class are 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 the vote and value of such class of outstanding shares, to which we refer as the "5% Override Rule."
For purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and value of our common shares, or 5% Shareholders, the Treasury Regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the United States Securities and Exchange Commission, or the SEC, as owning 5% or more of our common shares. The Treasury Regulations further provide that an investment company which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.
In the event the 5% Override Rule is triggered, the Treasury Regulations provide that the 5% Override Rule will nevertheless not apply if we can establish that within the group of 5% Shareholders, there are sufficient qualified shareholders for purposes of Section 883 to preclude non-qualified shareholders in such group from owning 50% or more of our common shares for more than half the number of days during the taxable year. In order to benefit from this exception to the 5% Override Rule, the Company must satisfy certain substantiation requirements in regards to the identity of its 5% Shareholders.
We believe that we were subject to the Five Percent Override Rule, but nonetheless satisfied the Publicly-Traded Test for the 2019 taxable year because our nonqualified 5% Shareholders did not own more than 50% of our common stock for more than half of the days during the taxable year. We intend to take this position on our 2019 U.S. federal income tax returns.
Taxation in Absence of Exemption
To the extent that the benefits of Section 883 are unavailable for any taxable year, our U.S.-source shipping income, to the extent not considered to be "effectively connected" with the conduct of a United States trade or business,
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as described below, was subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions which we refer to as the "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 our 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, we 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.
Our U.S.-source shipping income would be considered "effectively connected" with the conduct of a United States trade or business only if:

| • | We have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and

| • | substantially all of our 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.

We do not currently have, intend to have, or permit circumstances that would result in our having, any vessel sailing to or from the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, it is anticipated that none of our United States source shipping income will be "effectively connected" with the conduct of a United States trade or business for any taxable year.
United States Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we 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 us will be considered to occur outside of the United States.
United States Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of common stock 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.
This discussion does not purport to deal with the tax consequences of owning common stock to all categories of investors, some of which, such as dealers in securities, investors whose functional currency is not the United States dollar, persons required to recognize income for United States federal income tax purposes no later than when such income is reported on an "applicable financial statement" 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 the common stock 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 common stock. This discussion does not address the tax consequences of owning our preferred stock.
If a partnership holds our common stock, 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, you are encouraged to consult your tax advisor.
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Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common stock to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified dividend income" as described in more detail below, to the extent of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder's tax basis in his common stock on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, U.S. Holders that are corporations generally will not be entitled to claim a dividend received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common 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 our common stock to a U.S. Holder who is an individual, trust or estate, or a U.S. Individual Holder, will generally be treated as "qualified dividend income" that is taxable to such U.S. Individual Holders at preferential tax rates provided that (1) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been or will be), (2) our common stock is readily tradable on an established securities market in the United States (such as the Nasdaq Capital Market, on which our common stock is listed), (3) the U.S. Individual Holder has owned the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes 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 our common stock will be eligible for these preferential rates in the hands of a U.S. Individual Holder. Dividends paid on our stock prior to the date on which our common stock became listed on the Nasdaq Capital Market were not eligible for these preferential rates. Any dividends paid by us which 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" generally, a dividend paid by us in an amount which is equal to or in excess of ten percent of a shareholder's adjusted tax basis (or fair market value in certain circumstances) in a share of our common stock. If we pay an "extraordinary dividend" on our common 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 will be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or other Disposition of Common Stock
Assuming we do not constitute a passive foreign investment company for any taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common 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. Such capital gain or loss will generally be treated as U.S.-source income or loss, as applicable, for United States foreign tax credit purposes. A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
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 in a foreign corporation classified as a passive foreign investment company, or PFIC, for United States federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held our common stock, either:

| • | at least 75% of our 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 our 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 we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of the subsidiary's stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute
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"passive income" unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe that we are, nor do we expect to become, a PFIC with respect to any taxable year. Although there is no legal authority directly on point, and we are not relying upon an opinion of counsel on this issue, our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our 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 we are a PFIC. We believe there is substantial legal authority supporting our position consisting of case law and United States Internal Revenue Service, or 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 our position. In addition, although we intend to conduct our 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 our operations will not change in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year which included a U.S. Holder's holding period in our common stock, then such U.S. Holder would be subject to different United States federal income taxation rules depending on whether the U.S. Holder makes an election to treat us as a "qualified electing fund," which election we refer to as 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 our common stock, as discussed below. In addition, if we were to be treated as a PFIC, a U.S. Holder of our common stock would be required to file annual information returns with the IRS.
In addition, if a U.S. Holder owns our common stock and we are 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 our common stock, or an Electing Holder, would report for United States federal income tax purposes his pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder. Our net operating losses or net capital losses would not pass through to the Electing Holder and will not offset our 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). Distributions received from us by an Electing Holder are excluded from the Electing Holder's gross income to the extent of the Electing Holder's prior inclusions of our ordinary earnings and net capital gain. The Electing Holder's tax basis in his common 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 the common stock. An Electing Holder would generally recognize capital gain or loss on the sale or exchange of common stock.
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 our common 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 at the close of the taxable year over the U.S. Holder's then adjusted tax basis in the common stock. 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 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. A U.S. Holder's tax basis in his common 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; 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.
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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, which we refer to as a "Non-Electing Holder", would be subject 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 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), and (ii) any gain realized on the sale or other disposition of the common stock. 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; (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 the common stock, the Non-Electing Holder's successor would be ineligible to receive a step-up in the tax basis of that common stock.
United States Federal Income Taxation of "Non-U.S. Holders"
A beneficial owner of common 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
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on dividends received from us with respect to our common stock, unless that 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, that 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
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 our common stock, 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 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, including dividends and the gain from the sale, exchange or other disposition of the stock 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;

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| • | 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 shareholder sells our common stock 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 shareholder certifies that it is a non-U.S. person, under penalties of perjury, or the shareholder otherwise establishes an exemption. If a shareholder sells our common stock 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 shareholder sells our common stock 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 shareholder generally may obtain a refund of any amounts withheld under backup withholding rules that exceed the shareholder'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 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, our common stock, unless the common stock 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.
We encourage each shareholder to consult with his, her or its own tax advisor as to particular tax consequences to it of holding and disposing of our common stock, 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 file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, or from the SEC's website: http://www.sec.gov. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330 and you may obtain copies at prescribed rates.

I. | Subsidiary Information

Not Applicable.
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Item 11. | Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, we face risks that are non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk. Our operations may be affected from time to time in varying degrees by these risks but their overall effect on us is not predictable. We have identified the following market risks as those which may have the greatest impact upon our operations:
Interest Rate Fluctuation Risk
The international containership shipping industry is capital-intensive, requiring significant amounts of investment. Much of this investment is financed by long term debt. Our debt usually contains interest rates that fluctuate with LIBOR.
We are subject to market risks relating to changes in interest rates because we have floating rate debt outstanding, which is based on U.S. dollar LIBOR plus, in the case of each credit facility, a specified margin. Our objective is to manage the impact of interest rate changes on our earnings and cash flow in relation to our borrowings and to this effect, when we deem appropriate, we use derivative financial instruments. The notional principal amount of our interest rate swap as of December 31, 2019 and 2018 was nil and $10 million, respectively. The swap has specified rates and duration. Refer to the table in Note 14 of our financial statements included at the end of this annual report, which summarizes the interest rate swaps in place as of December 31, 2019 and December 31, 2018. Our swap contract expired in May 2019.
As at December 31, 2019, we had $85.21 million of floating rate debt outstanding with margins over LIBOR ranging from 2.95% to 3.90%. Our interest expense is affected by changes in the general level of interest rates. As an indication of the extent of our sensitivity to interest rate changes, an increase of 100 basis points would have increased our net loss and decreased our cash flows in the twelve-month period ended December 31, 2019 by approximately $482,074 assuming the same debt profile throughout the year.
The following table sets forth the sensitivity of our loans as of December 31, 2019 in U.S. dollars to a 100 basis points increase in LIBOR during the next five years. Specifically, the interest we will have to pay for our floating rate loans will increase.

Year Ended December 31, |  | Amount in $ (floating rate loans) |
2020 |  |  | 787,113 |
2021 |  |  | 648,945 |
2022 |  |  | 385,194 |
2023 |  |  | 200,938 |
2024 and thereafter |  |  | - |

Inflation Risk
The general rate of inflation has been relatively low in recent years and as such its associated impact on costs has been minimal. We do not believe that inflation has had, or is likely to have in the foreseeable future, a significant impact on expenses. Should inflation increase, it will increase our expenses and subsequently have a negative impact on our earnings.
Foreign Exchange Rate Risk
The international containership shipping industry's functional currency is the U.S. dollar. We generate all of our revenues in U.S. dollars, but incur approximately 25% of our vessel operating expenses and drydocking expenses (excluding depreciation and other operating income) in 2019 in currencies other than U.S. dollars. Comparatively, in 2018 approximately 25% of our vessel operating expenses and drydocking expenses (excluding depreciation and other operating income) were in currencies other than U.S. dollars. In addition, our vessel management fee is denominated in Euros and certain general and administrative expenses (about 6% in 2019) are mainly in Euros and some other currencies. As of December 31, 2019, approximately 33% of our outstanding trade accounts payable were denominated in currencies other than the U.S. dollar, mainly in Euros. We do not use currency exchange contracts to reduce the risk of adverse foreign currency movements but we believe that our exposure from market rate fluctuations is unlikely to be material. Net foreign exchange gain for the year ended December 31, 2019 was $2,024, and for the year ended December 31, 2018 we had a net foreign exchange gain of $13,963.
A hypothetical 10% immediate and uniform adverse move in all currency exchange rates from the rates in effect as of December 31, 2019, would have increased our operating expenses by approximately $0.68 million and the fair value of our outstanding trade accounts payable by approximately $0.1 million.
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Item 12. | Description of Securities Other than Equity Securities

Not Applicable.
PART II

Item 13. | Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds

On May 10, 2019, we adopted a shareholder rights agreement effective as of May 27, 2019 and declared a dividend distribution of one preferred stock purchase right to purchase one one-thousandth of our Series C Participating Preferred Stock for each outstanding share of our common stock, to shareholders of record at the close of business on May 27, 2019. Each right entitles the registered holder, upon the occurrence of certain events, to purchase from us one one-thousandth of a share of Series C Participating Preferred Stock at an exercise price of $3.00, subject to adjustment. The rights will expire on the earliest of (i) May 31, 2029 or (ii) redemption or exchange of the rights. The shareholder rights agreement was designed to enable us to protect shareholder interests in the event that an unsolicited attempt is made for a business combination with or takeover of the Company. We believe that the shareholder rights agreement should enhance the board of directors' negotiating power on behalf of shareholders in the event of a coercive offer or proposal. We are not currently aware of any such offers or proposals and we adopted the plan as a matter of prudent corporate governance. This shareholder rights agreement replaced our existing, substantially similar shareholder rights agreement which expired on May 27, 2019.

Item 15. | Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures
Pursuant to Rules 13a-15(e) or 15d-15(e) of the Exchange Act, the Company's management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of December 31, 2019. The term disclosure controls and procedures is defined under SEC rules as controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, 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 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 that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2019, our disclosure controls and procedures, which include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to the management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
(b) Management's Annual Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is identified in Exchange Act Rule 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's Board of Directors,
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management and other personnel, 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 and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorization of its management and directors; 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 its consolidated financial statements.
Our management, with the participation of Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2019. In making this assessment, the Company used the control criteria framework of the Committee of Sponsoring Organizations of the Treadway Commission, or COSO 2013, published in its report entitled 2013 Internal Control-Integrated Framework. As a result of its assessment, the Chief Executive Officer and Chief Financial Officer concluded that the Company's internal controls over financial reporting are effective as of December 31, 2019.
(c) Attestation Report of the Registered Public Accounting Firm
This annual report does not contain an attestation report of our registered public accounting firm regarding internal control over financial reporting as the Company is a non-accelerated filer and is exempt from this requirement.
(d) Changes in Internal Control over Financial Reporting
No change in the Company's internal control over financial reporting occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that all the members of our Audit Committee qualify as financial experts and they are all considered to be independent according to Nasdaq and SEC rules. Mr. Panos Kyriakopoulos serves as the Chairman of our Audit Committee and as the Audit Committee's financial expert with Mr. Apostolos Tamvakakis and Mr. George Taniskidis as members.
Item 16B. Code of Ethics
We have adopted a code of ethics that applies to officers and employees. Our code of ethics is posted in our website, http://www.euroseas.gr, under "Corporate Governance".
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Item 16C. Principal Accountant Fees and Services
Our principal auditors, Deloitte Certified Public Accountants, S.A. have charged us for audit, audit-related and non-audit services as follows:

|  | 2018 (dollars in thousands) |  |  | 2019 (dollars in thousands) |
Audit Fees |  | $ | 288 |  |  | $ | 197 |
Audit-Related Fees |  | _ |  |  | _ |
Tax Fees |  | _ |  |  | _ |
All Other Fes |  | _ |  |  | _ |
Total |  | $ | 288 |  |  | $ | 197 |

Audit fees relate to compensation for professional services rendered for the audit of the consolidated financial statements of the Company and for the review of the quarterly financial information as well as in connection with any other audit services required for SEC or other regulatory filings or offerings.
The Audit Committee is responsible for the appointment, replacement, compensation, evaluation and oversight of the work of the independent registered public accounting firm. As part of this responsibility, the Audit Committee pre-approves the audit and non-audit services performed by the independent registered public accounting firm in order to assure that they do not impair the auditor's independence from the Company. The Audit Committee has adopted a policy which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent registered public accounting firm may be pre-approved.
All services provided by Deloitte Certified Public Accountants, S.A., were pre-approved by the Audit Committee.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not Applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not Applicable.
Item 16F. Change in Registrant's Certifying Accountant
None.
Item 16G. Corporate Governance
Please see Item 6.C. Board Practices - Corporate Governance.
OTHER THAN AS NOTED IN THE SECTION ABOVE, WE ARE IN FULL COMPLIANCE WITH ALL OTHER APPLICABLE NASDAQ CORPORATE GOVERNANCE STANDARDS.
Item 16H. Mine Safety Disclosure
Not Applicable.
PART III
Item 17. Financial Statements
See Item 18.
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Item 18. | Financial Statements

The financial statements set forth on pages F-1 through F-60, together with the report of independent registered public accounting firm, are filed as part of this annual report.

Item 19. | Exhibits

1.1 |  | Amended and Restated Articles of Incorporation of Euroseas Ltd.(8)
1.2 |  | Bylaws of Euroseas Ltd.(7)
1.3 |  | Amendment to Bylaws of Euroseas Ltd.(7)
2.1 |  | Specimen Common Stock Certificate(5)
2.2 |  | Form of Securities Purchase Agreement(1)
2.3 |  | Form of Registration Rights Agreement(1)
2.4 |  | Form of Warrant(1)
2.5 |  | Registration Rights Agreement between Euroseas Ltd. and Friends Investment Company Inc., dated November 2, 2005(2)
2.7 |  | Form of Subscription Rights Certificate(9)
2.8 |  | Registration Obligation Agreement by and among Euroseas Ltd., Tennenbaum Opportunities Partners V, LP and Tennenbaum Opportunities Fund VI, LLC dated December 14, 2016 (previously filed as Exhibit 2.8 to the Company's Annual Report on Form 20-F (File No. 001-33283) on April 7, 2017 and incorporated by reference herein)
4.1 |  | Form of Lock-up Agreement(1)
4.2 |  | Form of Standard Ship Management Agreement(1)
4.3 |  | Agreement between Eurobulk Ltd. and Eurochart S.A., for the provision of exclusive brokerage services, dated December 20, 2004(1)
4.4 |  | Form of Current Time Charter(1)
4.5 |  | Amended and Restated Master Management Agreement between Euroseas Ltd. and Eurobulk Ltd. dated as of July 17, 2007, as amended February 7, 2008(4)
4.6 |  | Addendum No. 1 to Amended and Restated Master Management Agreement between Euroseas Ltd. and Eurobulk Ltd. dated as of February 7, 2009(6)
4.7 |  | Form of Right of First Refusal(3)
4.8 |  | Form of Advisory Agreement(3)
4.9 |  | Form of Senior Security Debt Indenture(5)
4.10 |  | Form of Subordinated Debt Security Indenture(5)
4.11 |  | Amendment to Registration Rights Agreement, dated as of March 14, 2014 to the Registration Rights Agreement, dated as of January 26, 2014, as amended by and among Euroseas Ltd., Tennenbaum Opportunities Fund VI, LLC, and Friends Investment Company, Inc. (previously filed as Exhibit 99.4 on Form 6-K (File No. 001-33283) on March 18, 2014 and incorporated by reference herein)
4.12 |  | Specimen Certificate for the Series B Preferred Shares (previously filed as Exhibit 99.3 on Form 6-K (File No. 001-33283) on January 29, 2014 and incorporated by reference herein)
4.13 |  | Form of Securities Purchase Agreement in connection with the sale of the Series B Preferred Shares (previously filed as Exhibit 99.4 on Form 6-K (File No. 001-33283) on January 29, 2014 and incorporated by reference herein)
4.14 |  | Form of Registration Rights Agreement in connection with the sale of the Series B Preferred Shares (previously filed as Exhibit 99.5 on Form 6-K (File No. 001-33283) on January 29, 2014 and incorporated by reference herein)
4.15 |  | Addendum No. 10 to Amended and Restated Master Management Agreement between Euroseas Ltd. and Eurobulk Ltd. dated as of November 15, 2019
4.16 |  | Loan Agreement between Euroseas Ltd., as borrower, and Eurobank Ergasias, S.A., as arranger, relating to a revolving credit facility of up to US$45,000,000 dated November 21, 2018(10)
4.17 |  | Supplemental Letter to the Facility Agreement of up to US$45,000,000 between Euroseas Ltd., as borrower, and Eurobank Ergasias, S.A., as the bank, dated May 30, 2019
4.18 |  | Loan Agreement between Diamantis Shipowners Ltd., as borrower, and Piraeus Bank S.A., as lender, for a term loan facility of up to US$4,000,000 dated July 29, 2019
4.19 |  | Secured Loan Agreement between Kea Shipowners Ltd., Spetses Shipowners Ltd. and Hydra Shipowners Ltd., as borrowers, and HSBC Bank PLC, as lender, for a secured loan of US$12,500,000 dated July 30, 2019

92

4.20 |  | Loan Agreement between Antwerp Shipping Ltd., Busan Shipping Ltd., Keelung Shipping Ltd. and Oakland Shipping Ltd., as borrowers, and Piraeus Bank S.A., as lender, for a term loan facility of up to US$32,000,000 dated November 8, 2019
4.21 |  | Letter Agreement between Euroseas Ltd. and Synergy Holdings Limited relating to the Synergy Vessel Acquisition dated November 7, 2019
4.22 |  | Loan Agreement between Euroseas Ltd., as borrower, and Colby Trading Ltd., as lender, for a term loan facility of up to US$2,500,000 dated September 30, 2019
4.23 |  | First Supplemental Agreement relating to a Loan Agreement between Euroseas Ltd., as borrower, and Colby Trading Ltd., as lender, for a term loan facility of up to US$2,500,000 dated December 20, 2019
4.24 |  | Second Supplemental Agreement relating to a Loan Agreement between Euroseas Ltd., as borrower, and Colby Trading Ltd., as lender, for a term loan facility of up to US$2,500,000 dated March 30, 2020
4.25 |  | Loan Agreement between Euroseas Ltd., as borrower, and Colby Trading Ltd., as lender, for a term loan facility of up to US$2,500,000 dated November 1, 2019
4.26 |  | Euroseas Ltd. 2018 Equity Incentive Plan(10)
4.27 |  | Form of Stockholders Rights Agreement dated May 27, 2019(11)
4.28 |  | Amended and Restated Statement of Designation of the Rights, Preferences and Privileges of Series B Convertible Perpetual Preferred Shares of Euroseas Ltd.(12)
4.29 |  | Registration Rights Agreement between Euroseas Ltd. and Synergy Holdings Limited dated November 7, 2019
4.30 |  | Equity Distribution Agreement between Euroseas Ltd. and Maxim Group LLC dated October 30, 2018
4.31 |  | Interest Rate Swap Agreement between Euroseas and Eurobank SA/Athens dated April 16, 2020
8.1 |  | Subsidiaries of the Registrant
12.1 |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
12.2 |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
13.1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1 |  | Consent of Deloitte Certified Public Accountants S.A.
101.INS* |  | XBRL Instance Document
101.SCH* |  | XBRL Taxonomy Extension Schema Document
101.CAL* |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE* |  | XBRL Taxonomy Extension Presentation Linkbase Document

____________

* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

(1) | Filed as an Exhibit to the Company's Registration Statement (File No. 333-129145) on October 20, 2005.
(2) | Filed as an Exhibit to the Company's Amendment No.1 to Registration Statement (File No. 333-129145) on December 5, 2005.
(3) | Filed as an Exhibit to the Company's Amendment No. 4 to Registration Statement (File No. 333-138780) on January 29, 2007.
(4) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on May 13, 2008.
(5) | Filed as an Exhibit to the Company's Registration Statement (File No. 333-152089) on July 2, 2008.
(6) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on May 18, 2009.
(7) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on May 28, 2010.
(8) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on May 27, 2011.
(9) | Filed as an Exhibit to the Company's Form 6-K (File No. 001-33283) on May 25, 2012.
(10) | Filed as an Exhibit to the Company's Annual Report on Form 20-F (File No. 001-33283) on April 25, 2019.
(11) | Filed as an Exhibit to the Company's Form 6-K (File No. 001-33283) on May 28, 2019.

(12) | Filed as an Exhibit to the Company's Form 6-K (File No. 001-33283) on March 5, 2020.

93

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 Amendment to its annual report on its behalf.

|  | EUROSEAS LTD. (Registrant)
|  | By: | /s/ Aristides J. Pittas
|  |  | Aristides J. Pittas
|  |  | Chairman, President and CEO

Date: April 30, 2020

E uroseas Ltd. and Subsidiaries
Consolidated financial statements

Index to consolidated financial statements

| Pages
Report of Independent Registered Public Accounting Firm | F-2
Consolidated Balance Sheets as of December 31, 2018 and 2019 | F-3
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2018 and 2019 | F-5
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2017, 2018 and 2019 | F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2018 and 2019 | F-7
Notes to the Consolidated Financial Statements | F-10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Euroseas Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Euroseas Ltd. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, shareholders' equity and cash flows, for each of the three years in the period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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 30, 2020
We have served as the Company's auditor since at least 2004, in connection with its initial public offering; however, an earlier year could not be reliably determined.
F-2

Euroseas Ltd. and Subsidiaries
Consolidated Balance Sheets
December 31, 2018 and 2019
(All amounts, except share data, expressed in U.S. Dollars)

|  | Notes |  |  | 2018 |  |  | 2019 |
Assets |  |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  |  | 6,960,258 |  |  |  | 985,418 |
Restricted cash |  |  | 8 |  |  |  | 117,063 |  |  |  | 610,376 |
Trade accounts receivable, net |  |  |  |  |  |  | 958,705 |  |  |  | 715,097 |
Other receivables |  |  |  |  |  |  | 2,031,415 |  |  |  | 1,570,506 |
Inventories |  |  | 3 |  |  |  | 1,704,391 |  |  |  | 1,889,164 |
Prepaid expenses |  |  |  |  |  |  | 222,336 |  |  |  | 526,531 |
Total current assets |  |  |  |  |  |  | 11,994,168 |  |  |  | 6,297,092 |
Long-term assets |  |  |  |  |  |  |  |  |  |  |  |
Vessels, net |  |  | 4 |  |  |  | 48,826,128 |  |  |  | 116,230,333 |
Restricted cash |  |  | 8 |  |  |  | 6,134,267 |  |  |  | 4,334,267 |
Total assets |  |  |  |  |  |  | 66,954,563 |  |  |  | 126,861,692 |
Liabilities, mezzanine equity and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |  |  |  |  |
Long-term bank loans, current portion |  |  | 8 |  |  |  | 4,870,241 |  |  |  | 12,295,320 |
Related party loan, current |  |  | 7, 8 |  |  |  | - |  |  |  | 5,000,000 |
Trade accounts payable |  |  |  |  |  |  | 2,288,525 |  |  |  | 3,899,967 |
Accrued expenses |  |  | 5 |  |  |  | 1,301,805 |  |  |  | 1,725,321 |
Accrued preferred dividends |  |  |  |  |  |  | - |  |  |  | 161,315 |
Deferred revenues |  |  |  |  |  |  | 417,634 |  |  |  | 973,774 |
Due to related company |  |  | 7 |  |  |  | 2,672,895 |  |  |  | 795,562 |
Derivatives |  |  | 14, 16 |  |  |  | 41,435 |  |  |  | - |
Total current liabilities |  |  |  |  |  |  | 11,592,535 |  |  |  | 24,851,259 |

(Consolidated balance sheets continue on the next page)
F-3

Euroseas Ltd. and Subsidiaries
Consolidated Balance Sheets
December 31, 2017 and 2018
(All amounts, except share data, expressed in U.S. Dollars)

(continued)

|  | Notes |  |  | December 31, 2018 |  |  | December 31, 2019 |
Long-term liabilities |  |  |  |  |  |  |  |  |
Long-term bank loans, net of current portion |  |  | 8 |  |  |  | 31,716,549 |  |  |  | 72,187,785 |
Vessel profit participation liability |  |  | 8 |  |  |  | 1,067,500 |  |  |  | - |
Fair value of below market time charters acquired |  |  | 6 |  |  |  | - |  |  |  | 1,714,370 |
Total long-term liabilities |  |  |  |  |  |  | 32,784,049 |  |  |  | 73,902,155 |
Total liabilities |  |  |  |  |  |  | 44,376,584 |  |  |  | 98,753,414 |
Commitments and contingencies |  |  | 10 |  |  |  |  |  |  |  |  |
Mezzanine Equity |  |  |  |  |  |  |  |  |  |  |  |
Preferred shares (par value $0.01, 20,000,000 shares authorized, 19,605 and 8,000 issued and outstanding, respectively) |  |  | 15 |  |  |  | 18,757,361 |  |  |  | 7,654,577 |
Shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Common stock (par value $0.03, 200,000,000 shares authorized, 1,564,456 and 5,600,259 issued and outstanding) |  |  | 18 |  |  |  | 46,934 |  |  |  | 168,008 |
Additional paid-in capital |  |  |  |  |  |  | 233,996,669 |  |  |  | 253,967,708 |
Accumulated deficit |  |  |  |  |  |  | (230,222,985 | ) |  |  | (233,682,015 | )
Total shareholders’ equity |  |  |  |  |  |  | 3,820,618 |  |  |  | 20,453,701 |
Total liabilities, mezzanine equity and shareholders’ equity |  |  |  |  |  |  | 66,954,563 |  |  |  | 126,861,692 |

The accompanying notes are an integral part of these consolidated financial statements.
F-4

Euroseas Ltd. and Subsidiaries
Consolidated statements of operations
Years ended December 31, 2017, 2018 and 2019
(All amounts, except for share data, expressed in U.S. Dollars)

|  | Notes |  |  | 2017 |  |  | 2018 |  |  | 2019 |
Revenues |  |  |  |  |  |  |  |  |  |  |  |
Time charter revenue |  |  |  |  |  | 24,278,048 |  |  |  | 36,062,202 |  |  |  | 41,769,278 |
Voyage charter revenue |  |  |  |  |  | 559,319 |  |  |  | 206,682 |  |  |  | - |
Related party management fee income |  |  |  |  |  | 240,000 |  |  |  | - |  |  |  | - |
Commissions (including $310,467, $453,361 and $493,341, respectively, to related party) |  |  | 7 |  |  |  | (1,318,248 | ) |  |  | (1,844,147 | ) |  |  | (1,745,599 | )
Net revenue, continuing operations |  |  |  |  |  |  | 23,759,119 |  |  |  | 34,424,737 |  |  |  | 40,023,679 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Voyage expenses |  |  | 13 |  |  |  | 1,564,489 |  |  |  | 1,261,088 |  |  |  | 1,055,408 |
Vessel operating expenses (including $190,723, $256,069 and $249,081, respectively, to related party) |  |  | 7, 13 |  |  |  | 15,019,342 |  |  |  | 19,986,170 |  |  |  | 23,983,282 |
Other operating income |  |  |  |  |  |  | (499,103 | ) |  |  | - |  |  |  | - |
Dry-docking expenses |  |  |  |  |  |  | 571,291 |  |  |  | 2,774,924 |  |  |  | 2,714,662 |
Vessel depreciation |  |  | 4 |  |  |  | 3,585,965 |  |  |  | 3,305,951 |  |  |  | 4,178,886 |
Related party management fees |  |  | 7 |  |  |  | 2,632,637 |  |  |  | 3,536,094 |  |  |  | 3,671,335 |
General and administrative expenses (including $1,306,476, $1,561,126 and $1,344,250, respectively, to related party) |  |  | 7, 11 |  |  |  | 2,502,203 |  |  |  | 2,565,502 |  |  |  | 2,444,495 |
Net gain on sale of vessels (including $70,640, $64,500 and $0, respectively, to related party) |  |  | 4, 7 |  |  |  | (803,811 | ) |  |  | (1,340,952 | ) |  |  | - |
Loss on write-down of vessels held for sale |  |  | 4, 7 |  |  |  | 4,595,819 |  |  |  | - |  |  |  | - |
Total operating expenses, continuing operations |  |  |  |  |  |  | 29,168,832 |  |  |  | 32,088,777 |  |  |  | 38,048,068 |
Operating (loss) / income, continuing operations |  |  |  |  |  |  | (5,409,713 | ) |  |  | 2,335,960 |  |  |  | 1,975,611 |
Other income/(expenses) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest and other financing costs (including $0, $0 and $84,444, respectively, to related party) |  |  | 7,8 |  |  |  | (1,554,695 | ) |  |  | (3,050,768 | ) |  |  | (3,424,969 | )
Loss on debt extinguishment |  |  | 8 |  |  |  | - |  |  |  | - |  |  |  | (328,291 | )
Gain / (loss) on derivatives, net |  |  | 14 |  |  |  | 12,389 |  |  |  | (44,343 | ) |  |  | (2,885 | )
Foreign exchange (loss) / gain |  |  |  |  |  |  | (30,214 | ) |  |  | 13,963 |  |  |  | 2,024 |
Interest income |  |  |  |  |  |  | 37,972 |  |  |  | 81,792 |  |  |  | 95,839 |
Other expenses, net, continuing operations |  |  |  |  |  |  | (1,534,548 | ) |  |  | (2,999,356 | ) |  |  | (3,658,282 | )
Net loss, continuing operations |  |  |  |  |  |  | (6,944,261 | ) |  |  | (663,396 | ) |  |  | (1,682,671 | )
Dividends to Series B preferred shares |  |  | 15 |  |  |  | (1,808,811 | ) |  |  | (1,335,733 | ) |  |  | (1,271,782 | )
Preferred deemed dividend |  |  |  |  |  |  | - |  |  |  | - |  |  |  | (504,577 | )
Net loss attributable to common shareholders, continuing operations |  |  |  |  |  |  | (8,753,072 | ) |  |  | (1,999,129 | ) |  |  | (3,459,030 | )
Net income attributable to common shareholders, discontinued operations |  |  | 17 |  |  |  | 849,701 |  |  |  | 554,506 |  |  |  | - |
Net loss attributable to common shareholders |  |  |  |  |  |  | (7,903,371 | ) |  |  | (1,444,623 | ) |  |  | (3,459,030 | )
Weighted average number of shares outstanding during the year, basic and diluted |  |  | 12 |  |  |  | 1,383,440 |  |  |  | 1,414,775 |  |  |  | 2,861,928 |
Loss per share attributable to common shareholders - basic and diluted, continuing operations |  |  | 12 |  |  |  | (6.33 | ) |  |  | (1.41 | ) |  |  | (1.21 | )
Earnings per share attributable to common shareholders - basic and diluted, discontinued operations |  |  |  |  |  |  | 0.61 |  |  |  | 0.39 |  |  |  | - |
Loss per share attributable to common shareholders - basic and diluted, |  |  | 12 |  |  |  | (5.72 | ) |  |  | (1.02 | ) |  |  | (1.21 | )

The accompanying notes are an integral part of these consolidated financial statements.
F-5

Euroseas Ltd. and Subsidiaries
Consolidated statements of shareholders’ equity
Years ended December 31, 2017, 2018 and 2019
(All amounts, except share data, expressed in U.S. Dollars)

|  | Number Of Shares Outstanding(*) |  |  | Common Stock Amount(*) |  |  | Additional Paid - in Capital(*) |  |  | Accumulated Deficit |  |  | Total |
Balance January 1, 2017 |  |  | 1,359,514 |  |  |  | 40,785 |  |  |  | 284,043,237 |  |  |  | (229,977,258 | ) |  |  | 54,106,764 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (6,094,560 | ) |  |  | (6,094,560 | )
Dividends to Series B preferred shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,808,811 | ) |  |  | (1,808,811 | )
Issuance of shares sold at the market (ATM), net of issuance costs |  |  | 37,723 |  |  |  | 1,133 |  |  |  | 373,110 |  |  |  | - |  |  |  | 374,243 |
Issuance of restricted shares for stock incentive award and share-based compensation |  |  | 12,534 |  |  |  | 376 |  |  |  | 116,186 |  |  |  | - |  |  |  | 116,562 |
Shares forfeited |  |  | (505 | ) |  |  | (15 | ) |  |  | 15 |  |  |  | - |  |  |  | - |
Balance December 31, 2017 |  |  | 1,409,266 |  |  |  | 42,279 |  |  |  | 284,532,548 |  |  |  | (237,880,629 | ) |  |  | 46,694,198 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (663,396 | ) |  |  | (663,396 | )
Dividends to Series B preferred shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,335,733 | ) |  |  | (1,335,733 | )
Spin-off of EuroDry Ltd. to stockholders |  |  | - |  |  |  | - |  |  |  | (52,520,821 | ) |  |  | 9,656,773 |  |  |  | (42,864,048 | )
Issuance of shares sold at the market (ATM), net of issuance costs |  |  | 139,509 |  |  |  | 4,185 |  |  |  | 1,860,925 |  |  |  | - |  |  |  | 1,865,110 |
Issuance of restricted shares for stock incentive award and share-based compensation |  |  | 15,681 |  |  |  | 470 |  |  |  | 124,017 |  |  |  | - |  |  |  | 124,487 |
Balance December 31, 2018 |  |  | 1,564,456 |  |  |  | 46,934 |  |  |  | 233,996,669 |  |  |  | (230,222,985 | ) |  |  | 3,820,618 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,682,671 | ) |  |  | (1,682,671 | )
Dividends to Series B preferred shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,271,782 | ) |  |  | (1,271,782 | )
Preferred deemed dividend |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (504,577 | ) |  |  | (504,577 | )
Issuance of shares sold at the market (ATM), net of issuance costs |  |  | 144,727 |  |  |  | 4,342 |  |  |  | 771,190 |  |  |  | - |  |  |  | 775,532 |
Issuance of restricted shares for stock incentive award and share-based compensation |  |  | 15,444 |  |  |  | 463 |  |  |  | 97,456 |  |  |  | - |  |  |  | 97,919 |
Shares issued in connection with acquisition of vessels |  |  | 2,816,901 |  |  |  | 84,507 |  |  |  | 13,134,155 |  |  |  | - |  |  |  | 13,218,662 |
Issuance of shares through private placement |  |  | 1,056,338 |  |  |  | 31,690 |  |  |  | 5,968,310 |  |  |  | - |  |  |  | 6,000,000 |
Rounding of stock split |  |  | 2,393 |  |  |  | 72 |  |  |  | (72 | ) |  |  | - |  |  |  | - |
Balance December 31, 2019 |  |  | 5,600,259 |  |  |  | 168,008 |  |  |  | 253,967,708 |  |  |  | (233,682,015 | ) |  |  | 20,453,701 |

(*) Adjusted to reflect the 1-for-8 reverse stock split effected at the close of trading on December 18, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
F-6

Euroseas Ltd. and Subsidiaries
Consolidated statements of cash flows
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

|  | 2017 |  |  | 2018 |  |  | 2019 |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |
Net loss |  |  | (6,944,261 | ) |  |  | (663,396 | ) |  |  | (1,682,671 | )
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Vessel depreciation |  |  | 3,585,965 |  |  |  | 3,305,951 |  |  |  | 4,178,886 |
Other operating income |  |  | (499,103 | ) |  |  | - |  |  |  | - |
Loss on write-down of vessels held for sale |  |  | 4,595,819 |  |  |  | - |  |  |  | - |
Amortization and write off of deferred charges |  |  | 113,244 |  |  |  | 321,181 |  |  |  | 205,590 |
Amortization of debt discount |  |  | 60,988 |  |  |  | 465,507 |  |  |  | 95,214 |
Net gain on sale of vessels |  |  | (803,811 | ) |  |  | (1,340,952 | ) |  |  | - |
Amortization of fair value of below market time charters acquired |  |  | - |  |  |  | - |  |  |  | (857,945 | )
Share-based compensation |  |  | 116,562 |  |  |  | 124,487 |  |  |  | 97,919 |
Change in the fair value of derivatives |  |  | 5,901 |  |  |  | (204,647 | ) |  |  | (41,435 | )
Loss on debt extinguishment |  |  | - |  |  |  | - |  |  |  | 328,291 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
(Increase) / decrease in: |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts receivable |  |  | (91,604 | ) |  |  | (73,210 | ) |  |  | 243,608 |
Prepaid expenses |  |  | (117,793 | ) |  |  | 24,703 |  |  |  | (304,195 | )
Other receivables |  |  | (210,741 | ) |  |  | (1,066,378 | ) |  |  | 460,909 |
Inventories |  |  | 329,244 |  |  |  | (511,373 | ) |  |  | (184,773 | )
Increase / (decrease) in: |  |  |  |  |  |  |  |  |  |  |  |
Due to related company |  |  | 4,314,415 |  |  |  | (2,732,256 | ) |  |  | (1,877,333 | )
Trade accounts payable |  |  | 197,782 |  |  |  | 766,052 |  |  |  | 1,539,553 |
Accrued expenses |  |  | 167,016 |  |  |  | 282,045 |  |  |  | 482,671 |
Deferred revenues |  |  | 233,402 |  |  |  | (172,544 | ) |  |  | 556,140 |
Net cash provided by / (used in) operating activities of continuing operations |  |  | 5,053,025 |  |  |  | (1,474,830 | ) |  |  | 3,240,429 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Cash paid for capitalized expenses and acquisition of vessels including attached time charter agreements |  |  | (30,063,480 | ) |  |  | (1,867 | ) |  |  | (55,720,226 | )
Cash released from other investment |  |  | 4,000,000 |  |  |  | - |  |  |  | - |
Proceeds from sale of vessels |  |  | 9,552,260 |  |  |  | 6,255,735 |  |  |  | - |
Net cash (used in) / provided by investing activities of continuing operations |  |  | (16,511,220 | ) |  |  | 6,253,868 |  |  |  | (55,720,226 | )

(Consolidated statements of cash flows continue on the next page)
F-7

Euroseas Ltd. and Subsidiaries
Consolidated statements of cash flows
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

(Continued)

|  | 2017 |  |  | 2018 |  |  | 2019 |
Cash flows from financing activities: |  |  |  |  |  |  |  |  |
Redemption of Series B preferred shares |  |  | - |  |  |  | - |  |  |  | (11,686,000 | )
Proceeds from issuance of common stock, net of commissions paid |  |  | 549,495 |  |  |  | 1,975,110 |  |  |  | 6,853,101 |
Investment in subsidiary spun-off |  |  | (915,525 | ) |  |  | (3,298,356 | ) |  |  | - |
Due from spun-off subsidiary |  |  | 639,312 |  |  |  | - |  |  |  | - |
Preferred dividends paid |  |  | - |  |  |  | - |  |  |  | (1,031,827 | )
Offering expenses paid |  |  | (341,072 | ) |  |  | (22,488 | ) |  |  | (136,724 | )
Loan arrangement fees paid |  |  | (187,637 | ) |  |  | (419,863 | ) |  |  | (566,500 | )
Proceeds from long-term bank loans |  |  | 22,250,000 |  |  |  | 34,250,000 |  |  |  | 60,167,680 |
Repayment of long-term bank loans and vessel profit participation liability |  |  | (7,243,915 | ) |  |  | (32,349,000 | ) |  |  | (13,401,460 | )
Proceeds from related party loan |  |  | - |  |  |  | - |  |  |  | 5,000,000 |
Repayment of related party loan |  |  | (2,000,000 | ) |  |  | - |  |  |  | - |
Net cash provided by financing activities of continuing operations |  |  | 12,750,658 |  |  |  | 135,403 |  |  |  | 45,198,270 |
Net increase / (decrease) in cash, cash equivalents and restricted cash |  |  | 1,292,463 |  |  |  | 4,914,441 |  |  |  | (7,281,527 | )
Cash, cash equivalents and restricted cash at beginning of year |  |  | 7,004,684 |  |  |  | 8,297,147 |  |  |  | 13,211,588 |
Cash, cash equivalents and restricted cash at end of year, continuing operations |  |  | 8,297,147 |  |  |  | 13,211,588 |  |  |  | 5,930,061 |
Cash breakdown |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | 2,858,927 |  |  |  | 6,960,258 |  |  |  | 985,418 |
Restricted cash, current |  |  | 1,103,953 |  |  |  | 117,063 |  |  |  | 610,376 |
Restricted cash, long term |  |  | 4,334,267 |  |  |  | 6,134,267 |  |  |  | 4,334,267 |
Total cash, cash equivalents and restricted cash shown in the statement of cash flows, continuing operations |  |  | 8,297,147 |  |  |  | 13,211,588 |  |  |  | 5,930,061 |
Discontinued operations: |  |  |  |  |  |  |  |  |  |  |  |
Net cash provided by operating activities of discontinued operations |  |  | 2,910,287 |  |  |  | 3,970,170 |  |  |  | - |
Net cash used in investing activities of discontinued operations |  |  | (9,635,504 | ) |  |  | (29,045,685 | ) |  |  | - |
Net cash provided by financing activities of discontinued operations |  |  | 9,283,359 |  |  |  | 27,928,885 |  |  |  | - |

(Consolidated statements of cash flows continue on the next page)
F-8

Euroseas Ltd. and Subsidiaries
Consolidated statements of cash flows
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

(Continued)

Supplemental cash flow information Cash paid for interest, net of capitalized expenses |  |  | 1,174,863 |  |  |  | 2,475,631 |  |  |  | 3,100,049 |
Financing, and investing activities fees: |  |  |  |  |  |  |  |  |  |  |  |
Loan arrangement fees accrued |  |  | 74,863 |  |  |  | - |  |  |  | - |
Offering expenses accrued |  |  | 12,488 |  |  |  | 100,000 |  |  |  | 40,846 |
Payment-in-kind dividends |  |  | 1,808,811 |  |  |  | 1,335,733 |  |  |  | 78,640 |
Capital expenditures included in liabilities |  |  | - |  |  |  | - |  |  |  | 71,890 |
Accrued preferred dividends |  |  | - |  |  |  | - |  |  |  | 161,315 |
Shares issued as consideration for acquisition of vessels |  |  | - |  |  |  | - |  |  |  | 13,218,662 |
Preferred shares distributed to EuroDry |  |  | - |  |  |  | 18,192,131 |  |  |  | - |

The accompanying notes are an integral part of these consolidated financial statements.
F-9

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

1. Basis of Presentation and General Information
Euroseas Ltd. (the “Company” or “Euroseas”) was formed on May 5, 2005 under the laws of the Republic of the Marshall Islands to consolidate the beneficial owners of certain ship-owning companies. On June 28, 2005, the beneficial owners exchanged all their shares in the ship-owning companies for shares in Friends Investment Company Inc., a newly formed Marshall Islands company. On June 29, 2005, Friends Investment Company Inc. then exchanged all the shares in the ship-owning companies for shares in Euroseas Ltd., thus becoming the sole shareholder of Euroseas Ltd at that time. In January 2007, the Company pursued a public offering and its common shares started trading on the Nasdaq Capital Market under the ticker symbol “ESEA” on January 31, 2007.
The operations of the vessels are managed by Eurobulk Ltd. (“Eurobulk” or “Management Company” or “Manager”), a corporation controlled by members of the Pittas family. Eurobulk has an office in Greece located at 4 Messogiou & Evropis Street, Maroussi, Greece. The Manager provides the Company with a wide range of shipping services such as technical support and maintenance, insurance consulting, chartering, financial and accounting services and executive management services, in consideration for fixed and variable fees (see Note 7).
The Pittas family is the controlling shareholder of Friends Investment Company Inc., Containers Shareholders Trinity Ltd., Eurobulk Marine Holdings Inc. and Diamantis Shareholders Ltd. which, in turn, collectively own 62% of the Company’s shares as of April 15, 2020.
Following the close of trading on the Nasdaq Capital Market on May 30, 2018, the Company completed the spin-off (the “Spin-off”) of its drybulk fleet (excluding M/V Monica P, a handymax drybulk carrier, which was agreed to be sold) to EuroDry Ltd ("EuroDry"). Shareholders of the Company received one EuroDry common share for every five common shares of the Company they owned as of May 23, 2018. Shares of EuroDry commenced trading on May 31, 2018 on the Nasdaq Capital Market under the symbol "EDRY." EuroDry operates in the dry cargo, drybulk shipping markets, owning and operating drybulk vessels previously owned and operated by Euroseas, and is now a separate publicly traded company. Euroseas continues to operate in the container shipping market and remains a publicly traded company. Accordingly, the results of operations of EuroDry have been presented in discontinued operations for all historical comparative periods presented.
In August 2019, the Company completed the acquisition of four feeder containerships, owned by affiliates of the Pittas family including the Company’s Chief Executive Officer, which had been announced in June 2019 for a consideration of $28.2 million that included a cash payment of $15 million and the issuance of 2,816,901 common shares to the sellers (the “Trinity/ Diamantis Vessel Acquisition”). The Company financed the cash portion of the acquisition price via the arrangement of two bank loans described below (refer Note 8-d and 8-e), drawing a total of $16,167,680 with the excess amount used for general corporate purposes. The cash portion of the acquisition price was used to repay the existing indebtedness of the vessels with the sellers receiving only payment in Euroseas common shares. The common shares issued to the sellers represented at that time approximately 64.3% of Euroseas’ outstanding common shares.
F-10

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

1. Basis of Presentation and General Information - continued
The vessels acquisition transactions were evaluated and approved by a special committee of independent members of the Board of Directors. The four vessels are the M/V EM Hydra and the M/V EM Spetses, both 1,740 teu feeder containership built in 2005 and 2007, respectively, the M/V EM Kea, a 3,100 teu feeder containership built in 2007, and the M/V Diamantis P, a 2,008 teu feeder containership vessel built in 1998. On August 2, 2019, the Company took delivery of M/V Diamantis P and M/V EM Hydra, and, on August 7, 2019, the Company took delivery of M/V EM Spetses and M/V EM Kea (refer Note 4).
In November 2019, the Company acquired and took delivery (from November 18, 2019 to November 21, 2019) of four container carrier vessels of intermediate size of 4,253 teu, all built in South Korea, three in 2009 and the other in 2008 (refer Note 4). The vessels were acquired from companies controlled by Synergy Holdings Limited, for approximately $40 million (the “Synergy Vessel Acquisition”). The acquisition of the four vessels (the “Synergy Vessels”) was financed by bank debt of $32 million described below (refer Note 8-f), a private placement of $6 million at a share price of $5.68 subscribed equally by an entity affiliated with the Company’s Chief Executive Officer and an entity controlled by the seller of the Synergy vessels and $2 million of existing funds. The Company also assumed the charters the vessels were under on the date of the transfer (refer Note 6). As part of the transaction, the Company has agreed that the Manager enters into an agreement with Synergy Marine Limited for the provision of certain management services by Synergy Marine Limited for the next three years (see Note 7). Mr. Andreas Papathomas, Chairman of Synergy Holdings Limited, was appointed to the Board of Directors of the Company. The Company has also agreed to issue an additional $0.5 million in shares of its common stock to Synergy Holdings Limited if certain conditions are fulfilled in one year from the acquisition date (see Note 10-b).
The Company effected a 8-for-1 reverse stock split of its issued and outstanding common shares, effective at the close of trading on December 18, 2019 (Note 18). All share and per share amounts disclosed in the consolidated financial statements give effect to this reverse stock split retroactively, for all periods presented.
The Company is engaged in the ocean transportation of containers through ownership and operation of container carrier ship-owning companies. Details of the Company’s wholly owned subsidiaries are set out below:

• | Allendale Investment S.A., incorporated in Panama on January 22, 2002, owner of the Panama flag 18,154 deadweight tons (“DWT”) / 1,169 twenty-foot equivalent (“TEU” – a measure of carrying capacity in containers) container carrier M/V “Kuo Hsiung”, which was built in 1993 and acquired on May 13, 2002.

• | Alterwall Business Inc., incorporated in Panama on January 15, 2001, owner of the Panama flag 18,253 DWT / 1,169 TEU container carrier M/V “Ninos” (previously named M/V “Quingdao I”) which was built in 1990 and acquired on February 16, 2001.

F-11

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

1. Basis of Presentation and General Information - continued

• | Prospero Maritime Inc., incorporated in the Republic of Marshall Islands on July 21, 2006, owner of the Marshall Islands flag 69,268 DWT dry bulk M/V “Aristides N.P.”, which was built in 1993 and acquired on September 21, 2006. The vessel was sold on January 15, 2016.

• | Manolis Shipping Ltd., incorporated in the Republic of Marshall Islands on March 16, 2007, owner of the Marshall Islands flag 20,346 DWT / 1,452 TEU container carrier M/V “Manolis P”, which was built in 1995 and acquired on April 12, 2007.

• | Noumea Shipping Ltd, incorporated in the Republic of Marshall Islands on May 14, 2008, owner of the Marshall Islands flag 34,677 DWT / 2,556 TEU container carrier M/V “Maersk Noumea”, renamed “Evridiki G”, which was built in 2001 and acquired on May 22, 2008.

• | Eleni Shipping Ltd., incorporated in the Republic of Liberia on February 11, 2009, owner of the Liberian flag 72,119 DWT bulk carrier M/V “Eleni P”, which was built in 1997, acquired on March 6, 2009 and sold on January 26, 2017.

• | Aggeliki Shipping Ltd., incorporated in the Republic of Liberia on May 21, 2010, owner of the Liberian flag 30,306 DWT / 2008 TEU container carrier M/V “Aggeliki P”, which was built in 1998, acquired on June 21, 2010 and sold on December 6, 2017.

• | Joanna Maritime Ltd., incorporated in Liberia on June 10, 2013, owner of the Liberian flag 22,301 DWT / 1,732 TEU container carrier M/V “Joanna”, which was built in 1999 and acquired on July 4, 2013. On January 8, 2016, the vessel was renamed M/V “Vento di Grecale”. On March 17, 2017 the vessel was again renamed M/V “Joanna”.

• | Jonathan John Shipping Ltd., incorporated in the Republic of the Marshall Islands on August 19, 2016, owner of the Panamanian flag 18,581 DWT / 1,439 TEU container carrier M/V “Aegean Express”, which was built in 1997 and acquired on September 29, 2016.

• | Gregos Shipping Ltd., incorporated in the Republic of Liberia on May 25, 2017, owner of the Liberian flag 35,600 DWT / 2,788 TEU container carrier M/V “EM Astoria”, which was built in 2004 and acquired on June 20, 2017.

• | Athens Shipping Ltd., incorporated in the Republic of the Marshall Islands on September 18, 2017, owner of the Marshall Islands flag 32,350 DWT / 2,506 TEU container carrier M/V “EM Athens”, which was built in 2000 and acquired on September 29, 2017.

F-12

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

1. Basis of Presentation and General Information - continued

• | Corfu Navigation Ltd., incorporated in the Republic of the Marshall Islands on September 18, 2017, owner of the Marshall Islands flag 34,654 DWT / 2,556 TEU container carrier M/V “EM Corfu”, which was built in 2001 and acquired on October 29, 2017.

• | Oinousses Navigation Ltd., incorporated in the Republic of the Marshall Islands on September 18, 2017, owner of the Marshall Islands flag 32,350 DWT / 2,506 TEU container carrier M/V “EM Oinousses”, which was built in 2000 and acquired on October 23, 2017.

• | Bridge Shipping Ltd., incorporated in the Republic of the Marshall Islands on September 18, 2017, owner of the Marshall Islands flag 71,366 DWT / 5,610 TEU container carrier M/V “Akinada Bridge”, which was built in 2001 and acquired on December 21, 2017.

• | Diamantis Shipowners Ltd., incorporated in the Republic of Liberia on June 3, 2019, owner of the Liberian flag 30,360 DWT / 2,008 TEU container carrier M/V “Diamantis P”, which was built in 1998 and acquired on August 2, 2019.

• | Hydra Shipowners Ltd., incorporated in the Republic of Liberia on June 3, 2019, owner of the Liberian flag 23,351 DWT / 1,740 TEU container carrier M/V “EM Hydra”, which was built in 2005 and acquired on August 2, 2019.

• | Spetses Shipowners Ltd., incorporated in the Republic of Liberia on June 3, 2019, owner of the Liberian flag 23,224 DWT / 1,740 TEU container carrier M/V “EM Spetses”, which was built in 2007 and acquired on August 7, 2019.

• | Kea Shipowners Ltd., incorporated in the Republic of Liberia on June 3, 2019, owner of the Liberian flag 42,165 DWT / 3,100 TEU container carrier M/V “EM Kea”, which was built in 2007 and acquired on August 7, 2019.

• | Antwerp Shipping Ltd., incorporated in the Republic of the Marshall Islands on November 1, 2019, owner of the Marshall Islands flag 50,726 DWT / 4,253 TEU container carrier M/V “Synergy Antwerp”, which was built in 2008 and acquired on November 19, 2019.

• | Keelung Shipping Ltd., incorporated in the Republic of the Marshall Islands on November 1, 2019, owner of the Cypriot flag 50,969 DWT / 4,253 TEU container carrier M/V “Synergy Keelung”, which was built in 2009 and acquired on November 18, 2019.

• | Oakland Shipping Ltd., incorporated in the Republic of the Marshall Islands on November 1, 2019, owner of the Cypriot flag 50,787 DWT / 4,253 TEU container carrier M/V “Synergy Oakland”, which was built in 2009 and acquired on November 19, 2019.

F-13

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

1. Basis of Presentation and General Information - continued

• | Busan Shipping Ltd., incorporated in the Republic of the Marshall Islands on November 1, 2019, owner of the Marshall Islands flag 50,726 DWT / 4,253 TEU container carrier M/V “Synergy Busan”, which was built in 2009 and acquired on November 21, 2019.

As of December 31, 2019, the Company had a working capital deficit of $18.6 million and has been incurring losses. For the year ended December 31, 2019, the Company generated net cash from operating activities of $3.2 million. The Company’s cash balance amounted to $1.0 million and cash in restricted retention accounts amounted to $4.9 million as of December 31, 2019. The holders of Series B Preferred Shares will receive a cash dividend at an annual dividend rate of 8% until January 2021, which will increase to 14% thereafter (Note 15). The Company intends to fund its working capital requirements and capital commitments via cash at hand and cash flows from operations, as well as via the cash proceeds expected to be generated through the sale of certain of the Company’s older vessels for scrap. In the event that these are not sufficient, the Company may also use funds from debt refinancing and equity offerings and convert to equity the related party loans, if required, among other options. The Company believes it will have adequate funding through the sources described above and, accordingly, it believes it has the ability to continue as a going concern and finance its obligations as they come due over the next twelve months following the date of the issuance of these financial statements. Consequently, the consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
During the years ended December 31, 2017, 2018 and 2019, the following charterers individually accounted for more than 10% of the Company’s revenues as follows:

|  | Year ended December 31, |
Charterer |  | 2017 |  |  | 2018 |  |  | 2019 |
CMA CGM, Marseille |  |  | 34 | % |  |  | 51 | % |  |  | 24 | %
New Golden Sea Shipping Pte. Ltd., Singapore |  |  | 31 | % |  |  | 33 | % |  |  | 21 | %
Hapag-Lloyd AG, Hamburg |  |  | - |  |  |  | - |  |  |  | 16 | %
MSC Geneva |  |  | 17 | % |  |  | 11 | % |  |  | 15 | %
Maersk Line A/S |  |  | - |  |  |  | - |  |  |  | 11 | %

F-14

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. Significant Accounting Policies
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America. The following are the significant accounting policies adopted by the Company:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of Euroseas Ltd. and its subsidiaries. Inter-company balances and transactions are eliminated on consolidation.
Use of estimates
The preparation of the accompanying consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the stated amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other comprehensive income / (loss)
The Company has no other comprehensive income / (loss) and accordingly comprehensive income / (loss) equals net income / (loss) for all periods presented. As such, no statement of comprehensive income / (loss) has been presented.
Foreign currency translation
The Company’s functional currency as well as the functional currency of all its subsidiaries is the U.S. dollar. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the balance sheet date. Income and expenses denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the date of the transaction. The resulting exchange gains and/or losses on settlement or translation are included in the accompanying consolidated statements of operations.
Cash equivalents
Cash equivalents are cash in bank accounts, time deposits or other certificates purchased with an original maturity of three months or less.
Restricted cash
Restricted cash reflects deposits with certain banks that can only be used to pay the current loan installments or are required to be maintained as a certain minimum cash balance per mortgaged vessel and amounts that are pledged, blocked or held as cash collateral.
F-15

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. Significant Accounting Policies - continued
Trade accounts receivable
The amount shown as trade accounts receivable, at each balance sheet date, includes estimated recoveries from each voyage or time charter. At each balance sheet date, the Company provides for doubtful accounts on the basis of specific identified doubtful receivables.
Inventories
Inventories are stated at the lower of cost and net realizable value, which is the estimated selling prices less reasonably predictable costs of disposal and transportation. Inventories are valued using the FIFO (First-In First-Out) method.
Vessels
Vessels are stated at cost, which comprises the vessel contract price, costs of major repairs and improvements upon acquisition, direct delivery and other acquisition expenses, less accumulated depreciation and impairment, if any. 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; otherwise these amounts are charged to expense as incurred. Vessels under construction are presented at cost, which includes shipyard installment payments and other vessel costs incurred during the construction period that are directly attributable to the construction of the vessels, including interest costs incurred during the construction period.
Expenditures for vessel repair and maintenance are charged against income in the period incurred.
Assets Held for Sale
The Company may dispose of certain of its vessels when suitable opportunities occur, including prior to the end of their useful lives. The Company classifies assets as being held for sale when the following criteria are met: (i) management is committed to sell the asset; (ii) the asset is available for immediate sale in its present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; (iv) the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale within one year; (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Long-lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less the cost to sell the asset. These assets are no longer depreciated once they meet the criteria of being held for sale.
F-16

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. Significant Accounting Policies - continued
Depreciation
Depreciation is calculated on a straight line basis over the estimated useful life of the vessel with reference to the cost of the vessel, and estimated scrap value. Remaining useful lives of vessels are periodically reviewed and revised to recognize changes in conditions and such revisions, if any, are recognized over current and future periods. The Company estimates that its vessels have a useful life of 25 years from the completion of their construction. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the date such regulations are adopted. The estimated salvage value of each vessel is $0.25 per light weight ton as of December 31, 2019 and 2018, which is based on the historical average demolition prices.
Insurance claims and insurance proceeds
Claims receivable are recorded on the accrual basis and represent the amounts to be received, net of deductibles incurred through each balance sheet date, for which recovery from insurance companies is probable and the claim is not subject to litigation. Any remaining costs to complete the claims are included in accrued liabilities. Insurance proceeds are recorded according to type of claim that gives rise to the proceeds in the consolidated statements of operations and the consolidated statements of cash flow.
Revenue and expense recognition
Revenues are generated from time charters and voyage charters. Under a time charter agreement a contract is entered into for the use of a vessel for a specific period of time and a specified daily charter hire rate. Under a voyage charter agreement, a contract is made in the spot market for the use of a vessel for a specific voyage to transport a specified agreed upon cargo at a specified freight rate per ton or occasionally a lump sum amount. Under a voyage charter agreement, the charter party generally has a minimum amount of cargo and the charterer is liable for any short loading of cargo or "dead" freight.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which amends the existing accounting standard for lease accounting and adds additional disclosures about leasing arrangements. ASC 842 requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by most leases, while lessor accounting remains largely unchanged. ASC 842, as amended, subject to certain transition relief options, allows a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, or allows entities to elect not to recast the comparative periods presented when transitioning to ASC 842 and to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASC 842 also provides a practical expedient to lessors by class of underlying asset, to not separate non lease components from the associated lease component, similar to the expedient provided for lessees, when the following criteria are met: i) the timing and pattern of transfer for the lease
F-17

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. Significant Accounting Policies - continued
component is the same as those for the non-lease component associated with that lease component and (ii) the lease component, if accounted for separately, would be classified as an operating lease. ASC 842 is effective for public entities with reporting periods beginning after December 15, 2018, including interim periods within those fiscal periods. The Company adopted ASC 842 for its reporting period commencing January 1, 2019 and has elected to use the optional new transition method that results in initial recognition of a cumulative effect adjustment to retained earnings in the year of adoption. As a result, prior periods as reported by the Company, have not been impacted by the adoption.
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. Time charter revenue is recognized when a charter agreement exists, the vessel is made available to the charterer and collection of the related revenue is reasonably assured. As of December 31, 2019, all of the Company’s vessels are employed under time charters with remaining terms ranging from less than one month to 12 months based on the minimum duration of the time charter contracts and certain time charter contracts include renewal options for terms ranging from 8 months to 23 months. A time charter generally provides typical warranties and owner protective restrictions. The Company’s time charter agreements are classified as operating leases pursuant to ASC 842, because (i) the vessel is an identifiable asset, (ii) the Company 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. In a time charter contract, the Company is responsible for all the costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance and lubes. The charterer bears the voyage related costs such as bunker expenses, port charges and canal tolls during the hire period.
As discussed above, the transition guidance associated with ASC 842 allows for certain practical expedients to lessors. The Company elected not to separate the lease and non-lease components included in the time charter revenue because the pattern of revenue recognition for the lease and non-lease components (included in the daily hire rate) is the same and the lease component, if accounted for separately, would be classified as an operating lease. The nature of the lease component and non-lease component that are combined as a result of applying the respective practical expedient are the hire rate for a bareboat charter as well as the compensation for expenses incurred running the vessel such as crewing expense, repairs, insurance, maintenance and lubricants, respectively. The lease component is the predominant component and the Company accounts for the combined component as an operating lease in accordance with Topic 842.
F-18

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. Significant Accounting Policies – continued
Both the lease component and non-lease component are earned by the passage of time. Since lessor accounting remains largely unchanged from previous U.S. GAAP, upon adoption of ASC 842, the timing and recognition of earnings from time charter contracts to which the Company is party did not change from prior policy, with the exception of ballast bonuses which were recognized during the ballast leg while they are now deferred and recognized over time during the charter period. The performance obligations in a time charter contract are recognized on a straight-line basis over the term of the respective time charter agreements, beginning when the vessel is delivered to the charterer until it is redelivered back to the Company, and is recorded in “Time charter revenue” in the consolidated statements of operations for the years ended December 31, 2017, 2018 and 2019.
Voyage charter agreements are considered service contracts that fall under the provisions of ASC 606, because the Company as the shipowner retains the control over the operation of the vessel such as directing the routes taken or the vessel speed. The Company considered the provisions of ASC 842 and determined that its voyage charter agreements do not contain a lease because the charterer under such contracts does not have the right to control the use of the vessel since the Company, as the ship-owner, retains control over the operations of the vessel, provided also that the terms are pre-determined and any change requires the Company’s consent. The Company accounts for a voyage charter when all the following criteria are met: (i) the parties to the contract have approved the contract in the form of a written charter agreement or fixture recap and are committed to perform their respective obligations, (ii) the Company can identify each party’s rights regarding the services to be transferred, (iii) the Company can identify the payment terms for the services to be transferred, (iv) the charter agreement has commercial substance (that is, the risk, timing, or amount of the future cash flows is expected to change as a result of the contract) and (v) 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 has determined that there is one single performance obligation for each of its voyage contracts, 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, revenue is recognized on a straight line basis over the voyage days from the loading of cargo to its discharge. The majority of revenue from voyage charter agreements is usually collected in advance.
Demurrage income is included in Voyage charter revenues, represents revenue earned from the charterer when loading or discharging time exceeded the stipulated time in the voyage charter agreement and is recognized when earned and collection is reasonably assured. Demurrage income for the years ended December 31, 2017, 2018 and 2019 was not material.
Charter fees received in advance are recorded as a liability (deferred revenue) until charter services are rendered.
F-19

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. Significant Accounting Policies - continued
Vessel operating expenses are comprised of all expenses relating to the operation of the vessels, including crewing, insurance, repairs and maintenance, stores, lubricants, spares and consumables, professional and legal fees and miscellaneous expenses. Vessel operating expenses are recognized as incurred; payments in advance of services or use are recorded as prepaid expenses. Under voyage charter agreements, voyage expenses relate to bunkers, port charges, canal tolls, and agency fees and are all paid by the Company. Costs incurred prior to loading which are directly related to the voyage are deferred by the Company if they meet certain conditions, and are amortized over the duration of the voyage from load port to discharge port. Costs incurred during the voyage are expensed as incurred. Under time charter agreements, voyage expenses which are also recognized as incurred by the Company include costs for draft surveys, holds cleaning, postage, extra war risk insurance and other minor miscellaneous expenses related to the voyage. The charterer is responsible for paying the cost of bunkers and other voyage expenses whilst the vessel is on time charter. Certain voyage expenses paid by the Company, such as extra war risk insurance and holds cleaning may be recovered from the charterer; such amounts recovered are recorded as other income within time charter revenue.
Commissions (address and brokerage), regardless of charter type, are always paid by the Company, are deferred and amortized over the related charter period and are presented as a separate line item in revenues to arrive at net revenues in the accompanying consolidated statements of operations.
Dry-docking and special survey expenses
Dry-docking and special survey expenses are expensed as incurred.
Pension and retirement benefit obligations – crew
The ship-owning companies contract the crews on board the vessels under short-term contracts (usually up to 9 months). Accordingly, they are not liable for any pension or post-retirement benefits.
F-20

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. | Significant Accounting Policies - continued

Financing costs
Loan arrangement fees are deferred and amortized to interest expense over the duration of the underlying loan using the effective interest method. Unamortized fees relating to loans repaid or refinanced are expensed in the period the repayment or refinancing occurs.
Offering expenses
Deferred offering expenses are charged against paid-in capital when financing is completed or expensed to “General and administrative expenses” in the consolidated statements of operations when the offering is aborted.
Fair value of above/below market time charters acquired
The Company records all identified tangible and intangible assets or any liabilities associated with the acquisition of a vessel at fair value. Where vessels are acquired with existing time charters, the Company determines the present value of the difference between: (i) the contractual charter rate and (ii) the prevailing market rate for a charter of equivalent duration. In discounting the charter rate differences in future periods, the Company uses its Weighted Average Cost of Capital (WACC) adjusted to account for the credit quality of the counterparties, as deemed necessary. The capitalized above-market (assets) and below-market (liabilities) charters are amortized as a reduction and increase, respectively, to time charter revenues over the remaining term of the assumed time charter.
Stock incentive plan awards
Share-based compensation represents vested and non-vested restricted shares granted to officers and directors as well as to non-employees and are included in “General and administrative expenses” in the consolidated statements of operations. In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (Topic 718). ASU 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Following the adoption of this ASU, the shares to employees and directors as well as to non-employees are measured at their fair value 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 expensed on the grant date. The shares that contain a time-based service vesting condition are considered non-vested shares on the grant date and the total fair value of such shares is recognized on a straight-line basis over the requisite service period. Prior to the adoption of this ASU, the fair value of the awards granted to non-employees was measured at the fair value at each reporting period until the non-vested shares vested and performance was complete.
F-21

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. | Significant Accounting Policies - continued

Impairment of long-lived assets
The Company reviews its long-lived assets held for use and their related intangible assets and liabilities for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If indicators of impairment are present, the Company performs an analysis of the future undiscounted net operating cash flows of the related long-lived assets. When the estimate of future undiscounted net operating cash flows, excluding interest charges, expected to be generated by the use and eventual disposition of the asset is less than its carrying amount, the Company evaluates the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset. In this respect, management regularly reviews the carrying amount of the vessels in connection with the estimated recoverable amount for each of the Company’s vessels.
Derivative financial instruments
Derivative instruments are recorded in the balance sheet as either an asset or liability measured at its fair value with changes in the instruments' fair value recognized as either a component in other comprehensive income if specific hedge accounting criteria are met in accordance with guidance relating to “Derivatives and Hedging” or in earnings if hedging criteria are not met.
Preferred shares
Preferred shares are recorded at the initial consideration received less offering expenses and adjusted by including the redemption value of dividends paid in-kind. The Company recognizes changes in the redemption value of the preferred shares immediately as they occur and adjusts the carrying amount of the preferred shares to equal the redemption value at the end of each reporting period to that effect.
Evaluation of purchase transactions
When the Company enters into an acquisition transaction, it determines whether the acquisition transaction was for the purchase of an asset or a business based on the facts and circumstances of the transaction. In accordance with ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, if substantially all of the fair value of the gross assets acquired in an acquisition transaction are concentrated in a single identifiable asset or group of similar identifiable assets, then the set is not a business. To be considered a business, a set must include an input and a substantive process that together significantly contributes to the ability to create an output. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. For asset acquisitions, the cost of the acquisition is allocated to individual assets and liabilities on a relative fair value basis. Acquisition costs associated with business combinations are expensed as incurred. Acquisition costs associated with asset acquisitions are capitalized.
F-22

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. | Significant Accounting Policies - continued

Earnings / (loss) per common share
Basic earnings / (loss) per share is computed by dividing net income / (loss) attributable to common shareholders, after the deduction of dividends paid (in cash or in-kind) to preferred shareholders, by the weighted-average number of common shares outstanding during the period. The weighted-average number of common shares outstanding does not include any potentially dilutive securities or any non-vested restricted shares of common stock. These non-vested restricted shares, although classified as issued and outstanding as of December 31, 2018 and 2019, are considered contingently returnable until the restrictions lapse and will not be included in the basic earnings / (loss) per share calculation until the shares are vested.
Diluted earnings / (loss) per share gives effect to all potentially dilutive securities to the extent that they are dilutive, using the treasury stock method. The Company uses the treasury stock method for non-vested restricted shares, while for the preferred shares issued the Company uses the if-converted method to assess the dilutive effect.
Segment reporting
The Company reports financial information and evaluates its operations by charter revenue and not by the type of ship employment for its customers, i.e. voyage or time charters. The Company does not use discrete financial information to evaluate the operating results for each such type of charter. Although revenue can be identified for these types of charters, management cannot and does not identify expenses, profitability or other financial information for these charters. 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 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.
F-23

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

2. | Significant Accounting Policies - continued

Recent accounting pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. In November 2018, FASB issued ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”. The amendments in this update clarify that operating lease receivables are not within the scope of ASC 326-20 and should instead be accounted for under the new leasing standard, ASC 842. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application is permitted. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements and accompanying notes.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the disclosure requirements for fair value measurement”. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements and accompanying notes.
F-24

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

3. | Inventories

Inventories consisted of the following:

|  | 2018 |  |  | 2019 |
Lubricants |  |  | 1,043,763 |  |  |  | 1,728,861 |
Victualing |  |  | 79,965 |  |  |  | 160,303 |
Bunkers |  |  | 580,663 |  |  |  | - |
Total |  |  | 1,704,391 |  |  |  | 1,889,164 |

F-25

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

4. | Vessels, net

The amounts in the accompanying consolidated balance sheets are as follows:

|  |  | Costs |  |  |  | Accumulated Depreciation |  |  |  | Net Book Value |
Balance, January 1, 2018 |  |  | 61,279,976 |  |  |  | (9,147,897 | ) |  |  | 52,132,079 |
- Depreciation for the year |  |  | - |  |  |  | (3,305,951 | ) |  |  | (3,305,951 | )
Balance, December 31, 2018 |  |  | 61,279,976 |  |  |  | (12,453,848 | ) |  |  | 48,826,128 |
- Depreciation for the year |  |  | - |  |  |  | (4,178,886 | ) |  |  | (4,178,886 | )
- Vessel acquisitions |  |  | 71,214,470 |  |  |  | - |  |  |  | 71,214,470 |
- Vessel improvements |  |  | 368,621 |  |  |  | - |  |  |  | 368,621 |
Balance, December 31, 2019 |  |  | 132,863,067 |  |  |  | (16,632,734 | ) |  |  | 116,230,333 |

Vessel improvements refer to the installation of Water Ballast Treatment (“WBT”) systems. As of December 31, 2019, only one vessel has completed the installation of the WBT system with a total cost of $0.37 million.
The Company considers the potential sale of its vessels, for scrap or further trading, depending on a vessel’s age, any additional capital expenditures required the expected revenues from continuing to own the vessel and the overall market prospects.
On January 13, 2017, the Company agreed to sell for scrap M/V “RT Dagr”, for a net price of $2.3 million. The vessel was delivered to its buyers on January 31, 2017. The Company recorded a gain on sale of approximately $0.5 million presented in the “Net gain on sale of vessels” line in the “Operating Expenses” section of the consolidated statements of operations.
F-26

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

4. | Vessels, net - continued

On September 30, 2017 the Company decided to sell for scrap M/V “Aggeliki P.” a 2,008 teu 1998-built container carrier and M/V “Monica P” a 46,667 dwt 1998-built drybulk carrier. Both vessels were written down to their fair market value, resulting in a non-cash loss of $4.6 million, or $3.36 loss per share basic and diluted. These amounts are presented in the "Loss on write-down of vessels held for sale" line in the "Operating Expenses" section of the consolidated statements of operations. The Company sold M/V “Aggeliki P.” on December 6, 2017 for net proceeds of approximately $4.4 million and recorded a gain on sale of approximately $0.3 million for the year ended December 31, 2017, presented in the “Net gain on sale of vessels” line in the "Operating Expenses" section of the consolidated statements of operations. M/V “Monica P” was sold on June 25, 2018. The sale resulted in a gain of $1.34 million for the year ended December 31, 2018, which is presented in the “Net gain on sale of vessels” line in the "Operating Expenses" section of the consolidated statements of operations.
On June 20, 2017 the Company acquired the feeder containership (2,788 teu, 2004-built) M/V “EM Astoria” for a purchase price of $4.75 million.
On September 29, 2017 the Company acquired the feeder containership (2,506 teu, 2000-built) M/V “EM Athens” for a purchase price of $4.24 million.
On October 23, 2017 the Company acquired the feeder containership (2,506 teu, 2000-built) M/V “EM Oinousses” for a purchase price of $4.25 million.
On October 29, 2017 the Company acquired the feeder containership (2,556 teu, 2001-built) M/V “EM Corfu” for a purchase price of $5.66 million.
On December 21, 2017 the Company acquired the intermediate containership (5,610 teu, 2001-built) M/V “Akinada Bridge” for a purchase price of $11.12 million.
On August 2, 2019 the Company acquired the feeder containership (1,740 teu, 2005-built) M/V “EM Hydra” and its attached time charter for a purchase price of $6.73 million.
On August 2, 2019 the Company acquired the feeder containership (2,008 teu, 1998-built) M/V “Diamantis P” for a purchase price of $5.22 million.
On August 7, 2019 the Company acquired the feeder containership (3,100 teu, 2007-built) M/V “EM Kea” and its attached time charter for a purchase price of $9.48 million.
F-27

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

4. | Vessels, net - continued

On August 7, 2019 the Company acquired the feeder containership (1,740 teu, 2007-built) M/V “EM Spetses” and its attached time charter for a purchase price of $7.57 million.
On November 19, 2019 the Company acquired the intermediate containership (4,253 teu, 2008-built) M/V “Synergy Antwerp” for a purchase price of $10.11 million.
On November 18, 2019 the Company acquired the intermediate containership (4,253 teu, 2009-built) M/V “Synergy Keelung” for a purchase price of $11.44 million.
On November 19, 2019 the Company acquired the intermediate containership (4,253 teu, 2009-built) M/V “Synergy Oakland” for a purchase price of $10.50 million.
On November 21, 2019 the Company acquired the intermediate containership (4,253 teu, 2009-built) M/V “Synergy Busan” for a purchase price of $10.17 million.
The Company performed the undiscounted cash flow test as of December 31, 2018 and 2019 for those operating vessels whose carrying values were above their respective market values and determined that the net book value of its vessels held for use was recoverable.
All the Company’s vessels have been mortgaged as security for the Company’s loans (refer Note 8).
F-28

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

5. Accrued Expenses
The accrued expenses consisted of:

|  | As of December 31, 2018 |  |  | As of December 31, 2019 |
Accrued payroll expenses |  |  | 93,404 |  |  |  | 231,093 |
Accrued interest expense |  |  | 565,623 |  |  |  | 590,216 |
Accrued general and administrative expenses |  |  | 348,761 |  |  |  | 111,720 |
Accrued commissions |  |  | 39,545 |  |  |  | 67,682 |
Other accrued expenses |  |  | 254,472 |  |  |  | 724,610 |
Total |  |  | 1,301,805 |  |  |  | 1,725,321 |

6. Fair Value of Below Market Time Charters Acquired
As part of the Trinity / Diamantis Vessel Acquisition in August 2019 and with respect to the vessels “EM Hydra”, “EM Kea” and “EM Spetses”, which were acquired by the Company with time charter agreements attached, the Company recognized a liability of $778,287, included in “Fair value of below market time charters acquired” in the consolidated balance sheets, since it was determined that the respective charter rates were below market rates on the date of the transfer (Level 2).
In addition, as part of the Synergy Vessel Acquisition in November 2019 and with respect to the vessels “Synergy Keelung”, “Synergy Oakland” and “Synergy Busan”, which were acquired by the Company with time charter agreements attached, the Company recognized a liability of $1,794,028, included in “Fair value of below market time charters acquired” in the consolidated balance sheets, since it was determined that the respective charter rates were below market rates on the date of the transfer (Level 2).
For the year ended December 31, 2019, the amortization of fair value of the below market acquired time charters was $857,945 and is included under “Time charter revenue” in the consolidated statement of operations.
The unamortized balance of this intangible liability as of December 31, 2019 of $1,714,370 is expected to be amortized within 2020.
F-29

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

7. | Related Party Transactions

The Company’s vessel owning companies are parties to management agreements with the Manager which is controlled by members of the Pittas family, whereby the Manager provides technical and commercial vessel management for a fixed daily fee of Euro 685 for each of 2017, 2018 and 2019, under the Company’s Master Management Agreement (“MMA”). An additional fixed management fee (see below) is paid to the Manager for the provision of other management services. Vessel management fees paid to the Manager amounted to $2,632,637, $3,536,094 and $3,671,335 in 2017, 2018 and 2019, respectively, and are recorded in “Related party management fees” in the consolidated statements of operations.
The Company’s MMA with Eurobulk provides for an annual adjustment of the daily management fee due to inflation to take effect January 1 of each year. The vessel management fee for laid-up vessels is half of the daily fee for the period they are laid-up. The MMA, as periodically amended and restated, will automatically be extended after the initial five-year period for an additional five-year period unless terminated on or before the 90th day preceding the initial termination date. Pursuant to the MMA, each ship owning company has signed – and each future ship owning company when a vessel is acquired will sign - with the Manager, a management agreement with the rate and term of these agreements set in the MMA effective at such time.
The MMA was amended and restated as of January 1, 2012 to provide for a 5% discount of the daily fixed vessel management fee for the period during which the number of the Euroseas-owned vessels (including vessels in which Euroseas is a part owner) managed by the Manager is greater than 20 (“volume discount”). The daily fixed vessel management fee was adjusted to Euro 720 per day per vessel in operation and Euro 360 per day per vessel in lay-up before the 5% discount. The Company was entitled to the 5% discount for each of these years. The fee remained unchanged for the subsequent years starting January 1, 2014, 2015, 2016, 2017. The MMA was renewed as of January 1, 2014 for a new five year term until January 1, 2019.
The MMA was further renewed on January 1, 2018 for an additional five year term until January 1, 2023 with the 5% volume discount permanently incorporated in the daily management fee and the daily fixed vessel management fee amounting to Euro 685 per day per vessel in operation and Euro 342.5 for day per vessel in lay-up. The daily fixed vessel management fee remained unchanged for the year 2019 and will be adjusted annually for inflation in the Eurozone. The fee remains unchanged for 2020.
F-30

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

7. | Related Party Transactions - Continued

In addition to the vessel management services, the Manager provides executive services to the Company. In 2017 and 2018 up to the Spin-off, compensation for such services to the Company as a public company was $2,000,000 per annum for the Company pre-Spin-off. The amount of such executive compensation allocated to the Company prior to the Spin-off was based on the proportion of the number of calendar days that related to Euroseas post Spin-off vessels to the number of days of the entire fleet of Euroseas. After the Spin-off, the annual compensation for such services was set at $1,250,000.
On November 15, 2019, the Company signed an addendum adjusting the fixed annual executive compensation to $2,000,000 to compensate the Manager for the increase in the fleet and certain management services provided by Synergy Marine Ltd., a company controlled by Andreas Papathomas and which became affiliated with the Company post-acquisition as a result of his appointment to the Board of Directors of the Company in November 2019. As a result, for the year 2019, the fixed cost was calculated at $1,250,000 pro-rated for the period of January 1, 2019 until November 15, 2019 and at $2,000,000 for the period of November 16, 2019 until December 31, 2019. The Company incurred costs of $1,306,476, $1,561,126 and $1,344,250 in 2017, 2018 and 2019, respectively, which are recorded in “General and administrative expenses” in the consolidated statements of operations.
Amounts due to or from related company represent net disbursements and collections made on behalf of the vessel-owning companies by the Management Company during the normal course of operations for which a right of off-set exists. As of December 31, 2018 and 2019, the amounts due to related company were $2,672,895 and $795,562, respectively. Based on the MMA between Euroseas Ltd. and Euroseas’ ship owning subsidiaries and the Manager an estimate of the quarter’s operating expenses, expected dry-dock expenses, vessel management fee and fee for management executive services are to be advanced by the Company’s ship-owning subsidiaries in the beginning of each quarter to the Manager.
On September 30, 2019, the Company reached an agreement with a related party, Colby Trading Ltd., a company controlled by the Pittas family and affiliated with the Company’s Chief Executive Officer, to draw a $2.5 million loan to finance the special survey and WBT system installation on M/V “Akinada Bridge”. The interest rate applied is 8% per annum. Interest on the loan is payable quarterly. For further details refer to Note 8-g.
On November 1, 2019, the Company entered into a second agreement with Colby Trading Ltd., to draw another $2.5 million loan to finance working capital needs. The interest rate applied is 8% per annum. Interest on the loan is payable quarterly. For further details refer to Note 8-g.
F-31

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

7. | Related Party Transactions - continued

The Company uses brokers for various services, as is industry practice. Eurochart S.A., an affiliated company controlled by certain members of the Pittas family, provides vessel sale and purchase services, and chartering services to the Company whereby the Company pays commission of 1% of the vessel sales price and 1.25% of charter revenues. Commissions to Eurochart S.A. for vessel sales were $70,640, $64,500 and nil in 2017, 2018 and 2019, respectively, recorded in “Net gain on sale of vessels” in the consolidated statements of operations. A commission of 1% of the purchase price is also paid to Eurochart S.A. by the seller of the vessel for the acquisitions the Company makes using Eurochart’s services. The Company withheld, on behalf of Eurochart, commissions of $118,526, nil and nil in 2017, 2018 and 2019, respectively, for vessels the Company acquired. Commissions to Eurochart S.A. for chartering services were, $310,467, $453,361 and $493,341 in 2017, 2018 and 2019, respectively, recorded in “Commissions” in the consolidated statements of operations.
Certain members of the Pittas family, together with another unrelated ship management company, have formed a joint venture with the insurance broker Sentinel Maritime Services Inc. (“Sentinel”); and with a crewing agent Technomar Crew Management Services Corp (“Technomar”). Technomar is a company owned by certain members of the Pittas family, together with two other unrelated ship management companies. Sentinel is paid a commission on insurance premiums not exceeding 5%; Technomar is paid a fee of about $50 per crew member per month. Total fees charged by Sentinel and Technomar were $89,329 and $101,394 in 2017, $118,684 and $137,385 in 2018, and $106,749 and $142,332 in 2019 respectively. These amounts are recorded in “Vessel operating expenses” in the consolidated statements of operations.
In August 2019, the Company completed the acquisition of the four feeder containerships, owned by affiliates of the Pittas family including the Company’s CEO (see Note 1), for a consideration of $28.2 million that included a cash payment of $15 million and the issuance of 2,816,901 common shares to the sellers. The vessels acquisition transactions were evaluated and approved by a special committee of independent members of the Board of Directors.
F-32

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

8. | Long-Term Bank Loans

This consists of bank loans of the ship-owning companies and is as follows:

Borrower |  |  | December 31, 2018 |  |  | December 31, 2019 |
Noumea Shipping Ltd. | (a) |  |  | 3,341,000 |  |  |  | - |
Gregos Shiping Ltd. | (b) |  |  | 4,150,000 |  |  |  | - |
Alterwall Business Inc. / Allendale Investments S.A. / Manolis Shipping Ltd. / Joanna Maritime Ltd. / Jonathan John Shipping Ltd. / Athens Shipping Ltd. / Oinousses Navigation Ltd. / Corfu Navigation Ltd. / Bridge Shipping Ltd. / Noumea Shipping Ltd. / Gregos Shiping Ltd. | (c) |  |  | 30,000,000 |  |  |  | 37,650,000 |
Diamantis Shipowners Ltd. | (d) |  |  | - |  |  |  | 3,507,220 |
Kea Shipowners Ltd. / Spetses Shipowners Ltd. / Hydra Shipowners Ltd. | (e) |  |  | - |  |  |  | 12,050,000 |
Antwerp Shipping Ltd. / Busan Shipping Ltd. / Keelung Shipping Ltd. / Oakland Shipping Ltd. | (f) |  |  | - |  |  |  | 32,000,000 |
|  |  |  | 37,491,000 |  |  |  | 85,207,220 |
Less: Current portion |  |  |  | (5,212,000 | ) |  |  | (12,541,840 | )
Long-term portion |  |  |  | 32,279,000 |  |  |  | 72,665,380 |
Deferred charges, current portion |  |  |  | 125,357 |  |  |  | 246,520 |
Deferred charges, long-term portion |  |  |  | 237,848 |  |  |  | 477,595 |
Debt discount, current portion |  |  |  | 216,402 |  |  |  | - |
Debt discount, long-term portion |  |  |  | 324,603 |  |  |  | - |
Long-term bank loans, current portion net of deferred charges and debt discount |  |  |  | 4,870,241 |  |  |  | 12,295,320 |
Long-term bank loans, long-term portion net of deferred charges and debt discount |  |  |  | 31,716,549 |  |  |  | 72,187,785 |
Loan from related party, current |  |  |  |  |  |  |  |  |
Euroseas Ltd. | (g) |  |  | - |  |  |  | 5,000,000 |

F-33

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

8. Long-Term Bank Loans - continued
The future annual loan repayments are as follows:

To December 31: |  |  |
2020 |  |  | 12,541,840 |
2021 |  |  | 29,941,840 |
2022 |  |  | 8,723,540 |
2023 |  |  | 34,000,000 |
Total |  |  | 85,207,220 |

| (a) | On December 22, 2016, the supplemental agreement between Credit Agricole and Noumea Shipping Ltd., owner of M/V “Evridiki G” was signed in order to refinance the final quarterly instalment of $720,000 and the balloon payment of $6,360,000 originally due in December 2016. The borrower and the lender agreed to amend the repayment profile in respect of the loan of which $7,080,000 remained outstanding as of the date of the supplemental agreement and to extend the final maturity date to January 2018. The loan will be repaid with three repayments of $720,000 each, due in December 2016, in July 2017 and in January 2018 together with the balloon payment of $4,920,000 due in January 2018. On February 27, 2018, the Company signed and drew a term loan facility of $4,250,000 with Credit Agricole in order to partly refinance the existing indebtedness of M/V “Evridiki G” with the bank. The loan was payable in thirteen consecutive quarterly instalments of $303,000 each and a final instalment in the amount of $311,000. The margin of the loan was 3.00% above LIBOR. The loan was secured with the following: (i) first priority mortgages over M/V “Evridiki G” and collateral vessel (M/V “EM Astoria”), (ii) first assignment of earnings and insurance and (iii) other covenants and guarantees similar to the remaining loans of the Company. The Company completed the refinancing of the specific loan using its revolving loan facility with Eurobank Ergasias S.A., as explained in note (c) below.

F-34

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

8. Long-Term Bank Loans - continued

| (b) | On June 15, 2017, the Company signed a term loan facility with Credit Agricole and on June 19, 2017 a loan of $4,750,000 was drawn by Gregos Shipping Ltd. to partly finance the acquisition of M/V “EM Astoria”. The loan was payable in twenty or sixteen consecutive equal quarterly installments of $100,000 plus a balloon amount of $2,750,000 or $3,150,000. The margin of the loan was 2.65% above LIBOR. The loan was secured with (i) first priority mortgage over M/V “EM Astoria”, (ii) first assignment of earnings and insurance of M/V “EM Astoria”, (iii) a corporate guarantee of Euroseas Ltd. and other covenants and guarantees similar to remaining loans of the Company. The Company paid a loan arrangement fee of $50,000 in 2017 for this loan. The Company had also entered into a profit sharing agreement with Credit Agricole whereby it would share with the bank, 35% of the excess of the fair market value of the vessel over the outstanding loan when the vessel was sold or when the loan matured. As a result of the lender's entitlement to participate in the appreciation of the market value of the mortgaged vessel, the Company recognized a participation liability of an amount of $1,067,500 as of December 31, 2018, presented in "Vessel profit participation liability" in the consolidated balance sheets, with a corresponding debit to a debt discount account, presented contra to the loan balance. In addition, 35% of the cash flow after debt service would be set aside and be used to repay the balloon payment with any excess funds to be paid to the bank. The Company completed the refinancing of the specific loan in June 2019 using its revolving loan facility with Eurobank Ergasias S.A., as explained in note (c) below, with the final participation liability paid amounting to $950,000 included in the “Repayment of long-term bank loans and vessel profit participation liability” in the consolidated statement of cash flows. The portion of debt discount remaining unamortized at the time of the refinancing was written-off and presented as “Loss on debt extinguishment” in the consolidated statement of operations, partly offset by the lower amount of $950,000 at which the vessel profit participation liability was finally settled as described above.

F-35

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

8. Long-Term Bank Loans - continued

| (c) | On November 21, 2018, the Company signed a reducing revolving credit facility with Eurobank Ergasias S.A (the “Lender”) for an amount of up to $45,000,000. A loan of $30,000,000 was drawn on November 21, 2018 by Alterwall Business Inc., Allendale Investments S.A., Manolis Shipping Ltd., Joanna Maritime Ltd., Jonathan John Shipping Ltd., Athens Shipping Ltd., Oinousses Navigation Ltd., Corfu Navigation Ltd. and Bridge Shipping Ltd. to fully refinance all of the Company’s existing facilities with this bank and provide working capital. The revolving tranche will be available for a period of 18 months from signing of the loan agreement for the purpose of partly financing new vessel acquisitions or providing working capital and can be renewed subject to the bank’s approval and a fee to be determined. The loan is payable in 12 equal consecutive quarterly principal installments of $900,000 and the balance will be repaid through balloon payment of $19,200,000 together with the last principal installment in November 2021. Each quarterly principal instalment paid is added to the revolving tranche and may be redrawn. The interest rate margin is 3.90% over LIBOR, reduced from 4.40% as described below. The loan is secured with (i) first priority mortgages over M/V “Ninos”, M/V “Kuo Hsiung”, M/V “Aegean Express”, M/V “Manolis P.” M/V “Joanna”, M/V “EM Athens”, M/V “EM Oinousses”, M/V “EM Corfu” and M/V “Akinada Bridge”, (ii) first assignment of earnings and insurance of the aforementioned vessels, (iii) a corporate guarantee of Euroseas Ltd. and other covenants and guarantees similar to the remaining loans of the Company. The Company has the option (at the Lender’s absolute discretion) to substitute a mortgaged vessel by notifying the Lender in writing at least one (1) month prior to the intended substitution date, provided that: a) the substitute vessel is of a similar type, of the same or younger age, having the same or enhanced characteristics (including, without limitation, deadweight, lightweight, shipyard pedigree and technical specifications) and will be 100% owned by a shipowning company, incorporated in a jurisdiction acceptable to the Lender and owned by a ship owning company owned by the Company (directly or indirectly) and b) the new shipowning company provides a first preferred mortgage over the new vessel and a corporate guarantee in favor of the Lender and executes any other security documentation as may be requested by the Lender at its discretion. The Company paid loan arrangement fees of $300,000 within 2018 for this tranche.

F-36

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

8. Long-Term Bank Loans – continued
On May 30, 2019, the Lender made available to the Company two new ship-related (M/V “EM Astoria” and M/V “Evridiki G”) advances totaling $12.0 million or 55% of the aggregate market value of the two aforementioned vessels, with a simultaneous reduction of the margin of the loan, from 4.40% to 3.90% per annum. The borrower also agreed, during the remaining facility period, to reduce the amount held as cash collateral from $5.0 million to $1.0 million and release the balance in favor of the borrower. The loan was used to refinance the existing facilities of Noumea Shipping Ltd. and Gregos Shiping Ltd. and to provide working capital. The loan is payable in 16 equal consecutive quarterly principal installments of $375,000 and the balance will be repaid through a balloon payment of $6,000,000 together with the last principal installment in May 2023. The loan is secured with (i) first priority mortgages over M/V “Evridiki G” and M/V “EM Astoria”, (ii) first assignment of earnings and insurance of the aforementioned vessels, (iii) a corporate guarantee of Euroseas Ltd. and other covenants and guarantees similar to the remaining loans of the Company. The Company paid a loan arrangement fee of $32,000 within 2019 for this tranche.
The security cover ratio covenant for the facility is set to 140%. The remaining $7,350,000 of the revolving facility, after including principal repayments up to December 31, 2019, remains available to the company in order to finance up to 55% of the market value of post 2001-built ships. The new tranches will be repaid through sixteen quarterly principal instalments with the amount of each such instalment being equal to such amount so that the balloon amount to be equal to 50% of the initially drawn relevant tranche. The undrawn amounts available under the revolving facility pay an annual commitment of 0.40% and any amount drawn will pay a 1% underwriting fee.

| (d) | On July 29, 2019, the Company signed a term loan facility with Piraeus Bank S.A. for an amount not exceeding the lesser between $4,000,000 and 90% of the scrap value of M/V “Diamantis P”. On July 31, 2019, a loan of $3,667,680 was drawn by Diamantis Shipping Ltd. to partly finance the acquisition of M/V “Diamantis P”. The loan is payable in twelve equal consecutive quarterly instalments of $160,460 plus a balloon amount of $1,742,160 paid together with the last instalment in July 2022. The margin of the loan is 3.50% over LIBOR. The loan is secured with (i) first priority mortgage over M/V “Diamantis P”, (ii) first assignment of earnings and insurance of M/V “Diamantis P”, (iii) a corporate guarantee of Euroseas Ltd. and other covenants and guarantees similar to remaining loans of the Company. The Company paid a loan arrangement fee of $32,000 within 2019 for this loan. The security cover ratio covenant for the facility is set to 110% until the first anniversary of the drawdown date and 120% thereafter.

F-37

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

8. Long-Term Bank Loans – continued

| (e) | On July 30, 2019, the Company signed a term loan facility with HSBC Bank plc. for an amount of $12,500,000. The loan was used to partly finance the acquisition of M/V “EM Hydra”, M/V “EM Kea” and M/V “EM Spetses”. The loan was drawn in tranches upon the delivery of each vessel to the Company with the last drawdown taking place on August 8, 2019.The loan is payable in fourteen consecutive equal quarterly installments of $450,000 and a balloon payment of $6,200,000 paid with the last instalment in February 2023. The loan bears interest at LIBOR plus a margin of 2.95%. The loan is secured with (i) first priority mortgages over M/V “EM Hydra”, M/V “EM Kea” and M/V “EM Spetses” (ii) first assignment of earnings and insurance of the abovementioned vessels, (iii) a corporate guarantee of Euroseas Ltd. and other covenants and guarantees similar to the remaining loans of the Company. The Company paid loan arrangement fees of $62,500 within 2019 for this loan. The security cover ratio covenant for the facility is set to 130%.

| (f) | On November 8, 2019, the Company signed a term loan facility with Piraeus Bank S.A. for an amount of $32,000,000. The loan was used to partly finance the acquisition of M/V “Synergy Antwerp”, M/V “Synergy Busan”, M/V “Synergy Keelung” and M/V “Synergy Oakland”. The loan was drawn in tranches upon the delivery of each vessel to the Company with the last drawdown taking place on November 18, 2019. The loan is payable in three consecutive equal quarterly instalments of $1,400,000 followed by thirteen consecutive equal quarterly instalments of $800,000 and a balloon payment of $17,400,000 paid with the last instalment. The loan bears interest at LIBOR plus a margin of 3.50%. The loan is secured with (i) first priority mortgages over M/V “Synergy Antwerp”, M/V “Synergy Busan”, M/V “Synergy Keelung” and M/V “Synergy Oakland” (ii) first assignment of earnings and insurance of the abovementioned vessels, (iii) a corporate guarantee of Euroseas Ltd. and other covenants and guarantees similar to the remaining loans of the Company. The Company paid loan arrangement fees of $352,000 within 2019 for this loan. The security cover ratio covenant for the facility is set to 125%.

| (g) | On September 30, 2019, Euroseas signed an agreement with Colby Trading Ltd., a company controlled by the Pittas family and affiliated with the Company’s Chief Executive Officer, as further supplemented on December 20, 2019 and March 30, 2020, to draw down a $2.5 million loan to finance the special survey and WBT system installation on M/V “Akinada Bridge”. Interest on the loan is 8% per annum and is payable quarterly. Euroseas will repay the loan in four repayment instalments of a principal amount of $625,000 each. The first repayment instalment will be due on May 15, 2020 and the remaining three instalments will be paid on a quarterly basis thereafter and the loan will be paid in full by November 2020. Under certain circumstances, the Company can pay principal in equity, and the loan is convertible in common stock of the Company at the option of the lender at certain times. The Company paid $51,111 in interest for this loan for the fiscal year 2019.

F-38

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

8. Long-Term Bank Loans – continued
On November 1, 2019, Euroseas signed a second agreement with Colby Trading Ltd. to draw another $2.5 million loan to finance working capital needs. Interest on the loan is 8% per annum and is payable quarterly. There are no principal repayments until December 31, 2020, when the loan matures. Under certain circumstances, the Company can pay principal in equity, and the loan is convertible in common stock of the Company at the option of the lender at certain times. The Company paid $33,333 in interest for this loan for the fiscal year 2019.
In addition to the terms specific to each loan described above, all the above loans are secured with a pledge of all the issued shares of each borrower.
The loan agreements also contain covenants such as minimum requirements regarding the hull ratio cover (the ratio of fair value of vessel to outstanding loan less cash in retention accounts ranging from 120% to 140%), restrictions as to changes in management and ownership of the ship-owning companies, distribution of profits or assets (i.e. not permitting dividend payment or other distributions in cases that an event of default has occurred), additional indebtedness and mortgage of vessels without the lender’s prior consent, sale of vessels, maximum fleet-wide leverage, sale of capital stock of our subsidiaries, ability to make investments and other capital expenditures, entering in mergers or acquisitions, minimum cash balance requirements and minimum cash retention accounts (restricted cash). The loan agreements also require the Company to make deposits in retention accounts with certain banks that can only be used to pay the current loan instalments. Minimum cash balance requirements are in addition to cash held in retention accounts. These cash deposits amounted to $5,717,063 and $4,410,376 as of December 31, 2018 and 2019, respectively, and are included in “Restricted cash” under “Current assets” and “Long-term assets” in the consolidated balance sheets. As of December 31, 2019, all the debt covenants are satisfied.
Interest expense for the years ended December 31, 2017, 2018 and 2019 amounted to $1,380,458, $2,703,845 and $3,219,471 respectively.
F-39

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

9. 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 “Vessel operating expenses” in the consolidated statements of operations.
Under the United States Internal Revenue Code of 1986, as amended (the "Code"), the U.S. source gross transportation income of a ship-owning or chartering corporation, such as the Company, is subject to a 4% U.S. Federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 50% of the gross shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.
Under the Code, a corporation will be exempt from U.S. federal income tax if its stock is primarily and regularly traded on an established securities market in its country of organization, in another country that grants an "equivalent exemption" to United States corporations, or in the United States, which is referred to as the “Publicly Traded Test”. Under IRS regulations, a Company’s shares will be considered to be regularly traded on an established securities market if (i) one or more classes of its shares representing 50% or more of its outstanding shares, by voting power of all classes of shares of the corporation entitled to vote and of the total value of the shares of the corporation, are listed on the market and (ii) (A) such class of share is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one sixth of the days in a short taxable year; and (B) the aggregate number of shares of such class of share traded on such market during the taxable year must be at least 10% of the average number of shares of such class of share outstanding during such year or as appropriately adjusted in the case of a short taxable year. Notwithstanding the foregoing, the treasury regulations provide, in pertinent part, that a class of the Company’s shares will not be considered to be “regularly traded” on an established securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class are owned, actually or constructively under specified share attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of such class of the Company’s outstanding shares (“5% Override Rule”).
For 2017 and 2018 the Company did not qualify for this exemption. The Company is subject to an effective 2% United States federal tax on the U.S. source shipping income that is attributable to the transport of cargoes to or from the United States which is not considered an income tax. The amount of this tax for the years ended December 31, 2017 and 2018 was $15,135 and $19,726, respectively. The amount of the 2017 tax was paid on September 17, 2018 and the amount of the 2018 tax was paid on June 15, 2019 and was recorded within "Vessel operating expenses" in the consolidated statements of operations when paid.
For the taxable years 2019 the Company believes that it was exempt from U.S. federal income tax of 4% on U.S. source shipping income, as it believes that it satisfies the Publicly Traded Test for this year, although it is subject to the 5% Override Rule, because the non-qualified 5% shareholders did not own more than 50% of the Company’s common stock for more than half of the days during the taxable year.
F-40

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

10. | Commitments and Contingencies

| (a) | As of December 31, 2019 a subsidiary of the Company, Alterwall Business Inc. owner of M/V “Ninos”, is involved in a dispute with a fuel oil supplier who claimed a maritime lien against the vessel after the company which had time-chartered the vessel from the Company went bankrupt in October 2009 and failed to pay certain invoices. The vessel was arrested in Karachi in November 2009 and released after a bank guarantee for an amount of $0.53 million was provided on behalf of the Company, for which the bank has restricted an equal amount of the Company's cash which is presented within “Restricted Cash” in the consolidated balance sheets. The legal proceedings are ongoing. Although the Company believes it will be successful in its claim, it made a provision of $0.15 million in 2016, for any costs that may be incurred.

| (b) | On November 7, 2019, Euroseas Ltd. and Synergy Holdings Limited, on the basis of the acquisition of the vessels M/V “Synergy Busan”, M/V “Synergy Keelung”, M/V “Synergy Oakland” and M/V “Synergy Antwerp” (refer Notes 1 and 4), have agreed that Euroseas will issue certain shares of its common stock to Synergy Holdings Limited under the following terms:

If the 12-month New ConTex index for a 4,250 TEU vessel (as published on https://www.vhbs.de/index or any successor website maintained by the Hamburg and Bremen Shipbrokers’ Association) (the “Index Value”) is higher on November 16, 2020 at 4:00 p.m. New York time than the Index Value on November 15, 2019 at 4:00 p.m. New York time, then, on November 16, 2020, Euroseas shall issue to Synergy Holdings Limited, $500,000 divided by the 20-day volume weighted average price of the Company’s common shares calculated on November 16, 2020 at 4:00 p.m. New York time.
The Company based on its assessment of future rates as of December 31, 2019, concluded that it is not probable that it will have to pay the specific contingent consideration.
F-41

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

10. | Commitments and Contingencies - continued

There are no other material legal proceedings to which the Company is a party or to which any of its properties are subject, other than routine litigation incidental to the Company’s business. In the opinion of the management, the disposition of these lawsuits should not have a material impact on the consolidated results of operations, financial position and cash flows.
As of December 31, 2019, future gross minimum revenues under non-cancellable time charter agreements total $17.2 million, all of which is due in the year ending December 31, 2020. This amount does not include the future gross minimum revenues upon collection of hire under non-cancellable time charter agreements of M/V “Synergy Antwerp” which is on index linked charters. In arriving at the future gross minimum revenues, the Company has deducted an estimated one off-hire day per quarter. Such off-hire estimate may not be reflective of the actual off-hire in the future. In addition, the actual revenues could be affected by early delivery of the vessel by the charterers or any exercise of the charterers’ options to extend the terms of the charters, which however cannot be estimated and hence not reflected above.
F-42

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

11. Stock Incentive Plan
On July 31, 2014, the Board of Directors approved the Company’s 2014 Stock Incentive Plan (the “2014 Plan”). On May 5, 2018, the Board of Directors approved a new equity incentive plan (the “2018 Plan”) to replace the 2014 Plan. The 2018 Plan is administered by the Board of Directors which can make awards totaling in aggregate up to 75,000 shares, over 10 years after the 2018 Plan’s adoption date. The persons eligible to receive awards under the 2018 Plan are officers, directors, and executive, managerial, administrative and professional employees of the Company or Eurobulk or Eurochart (collectively, “key persons”) as the Board, in its sole discretion, shall select based upon such factors as the Board shall deem relevant. Awards may be made under the 2018 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. Details of awards granted under the 2014 Plan and the 2018 Plan during the three year period ended December 31, 2019 are noted below.

| a) | On November 2, 2017 an award of 12,534 non-vested restricted shares, was made to 18 key persons of which 50% vested on July 1, 2018 and 50% vested on July 1, 2019; awards to officers and directors amounted to 7,213 shares and the remaining 5,321 shares were awarded to employees of Eurobulk.

| b) | On November 21, 2018 an award of 15,681 non-vested restricted shares, was made to 18 key persons of which 50% vested on November 16, 2019 and 50% will vest on November 16, 2020; awards to officers and directors amounted to 9,021 shares and the remaining 6,660 shares were awarded to employees of Eurobulk.

| c) | On November 4, 2019 an award of 15,444 non-vested restricted shares, was made to 17 key persons of which 50% will vest on July 1, 2020 and 50% will vest on July 1, 2021; awards to officers and directors amounted to 8,713 shares and the remaining 6,731 shares were awarded to employees of Eurobulk.

All non-vested restricted shares are conditional upon the grantee’s continued service as an employee of the Company, Eurobulk or as a director until the applicable vesting date. The grantee does not have the right to vote on such non-vested restricted shares until they vest or exercise any right as a shareholder of these shares, however, the non-vested shares will accrue dividends as declared and paid which will be retained by the Company until the shares vest at which time they are payable to the grantee. As non-vested restricted share grantees accrue dividends on awards that are expected to vest, such dividends are charged to retained earnings.
The Company accounts for restricted share awards forfeitures as they occur. During 2017, 538 shares were forfeited with a weighted-average grant-date fair value of $22.24 per share. No forfeitures occurred in the years ended December 31, 2018 and 2019.
F-43

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

11. Stock Incentive Plan - continued
The compensation cost that has been charged against income for awards was $116,562, $124,487 and $97,919, for the years ended December 31, 2017, 2018 and 2019, respectively and is included within “General and administrative expenses” in the consolidated statements of operations. The Company has used the straight-line method to recognize the cost of the awards.
A summary of the status of the Company’s non-vested shares as of December 31, 2019 and changes during the year ended December 31, 2019, are presented below:

Non-vested Shares |  | Shares |  |  | Weighted-Average Grant-Date Fair Value |
Non-vested on January 1, 2019 |  |  | 21,948 |  |  |  | 10.16 |
Granted |  |  | 15,444 |  |  |  | 5.84 |
Vested |  |  | (14,108 | ) |  |  | 11.01 |
Non-vested on December 31, 2019 |  |  | 23,284 |  |  |  | 6.77 |

As of December 31, 2019, there was $172,887 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2018 Plan and is expected to be recognized over a weighted-average period of 0.75 years. The total fair value at grant-date of shares granted during the year ended December 31, 2017, December 31, 2018, and December 31, 2019 was $176,475, $134,232 and $90,193 respectively.
F-44

Euroseas Ltd. and Subsidiaries
Notes to consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

12. | Loss Per Share

Basic and diluted loss per common share is computed as follows:

|  | 2017 |  |  | 2018 |  |  | 2019 |
Income: |  |  |  |  |  |  |  |  |
Net loss, continuing operations |  |  | (6,944,261 | ) |  |  | (663,396 | ) |  |  | (1,682,671 | )
Dividends to Series B preferred shares |  |  | (1,808,811 | ) |  |  | (1,335,733 | ) |  |  | (1,271,782 | )
Preferred deemed dividend |  |  | - |  |  |  | - |  |  |  | (504,577 | )
Net loss attributable to common shareholders, continuing operations |  |  | (8,753,072 | ) |  |  | (1,999,129 | ) |  |  | (3,459,030 | )
Weighted average common shares –outstanding , basic and diluted |  |  | 1,383,440 |  |  |  | 1,414,775 |  |  |  | 2,861,928 |
Basic and diluted loss per share, continuing operations |  |  | (6.33 | ) |  |  | (1.41 | ) |  |  | (1.21 | )
Net income attributable to common shareholders, discontinued operations |  |  | 849,701 |  |  |  | 554,506 |  |  |  | - |
Net loss attributable to common shareholders |  |  | (7,903,371 | ) |  |  | (1,444,623 | ) |  |  | (3,459,030 | )
Basic and diluted loss per share |  |  | (5.72 | ) |  |  | (1.02 | ) |  |  | (1.21 | )

During 2017, 2018 and 2019, the effect of the non-vested stock awards and of Series B Preferred Shares was anti-dilutive. The number of dilutive securities was nil shares in 2017, 2018 and 2019.
F-45

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

13. Voyage and Vessel Operating Expenses
These consisted of:

|  | Year ended December 31, |
|  | 2017 |  |  | 2018 |  |  | 2019 |
Voyage expenses |  |  |  |  |  |  |  |  |
Port charges and canal dues |  |  | 1,156,511 |  |  |  | 384,893 |  |  |  | 251,197 |
Bunkers |  |  | 407,978 |  |  |  | 876,195 |  |  |  | 804,211 |
Total |  |  | 1,564,489 |  |  |  | 1,261,088 |  |  |  | 1,055,408 |
Vessel operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Crew wages and related costs |  |  | 8,771,386 |  |  |  | 11,020,924 |  |  |  | 13,111,682 |
Insurance |  |  | 1,261,976 |  |  |  | 1,537,539 |  |  |  | 1,844,088 |
Repairs and maintenance |  |  | 643,788 |  |  |  | 1,043,632 |  |  |  | 1,110,995 |
Lubricants |  |  | 1,169,412 |  |  |  | 1,665,849 |  |  |  | 2,029,230 |
Spares and consumable stores |  |  | 2,391,420 |  |  |  | 3,445,422 |  |  |  | 4,758,290 |
Professional and legal fees |  |  | 10,037 |  |  |  | 252,156 |  |  |  | 259,311 |
Other |  |  | 771,323 |  |  |  | 1,020,648 |  |  |  | 869,686 |
Total |  |  | 15,019,342 |  |  |  | 19,986,170 |  |  |  | 23,983,282 |

14. Derivative Financial Instruments
Interest rate swaps
Effective October 17, 2014, the Company entered into one interest rate swap with Eurobank Ergasias S.A. (“Eurobank”) for a notional amount of $10.0 million, in order to manage interest costs and the risk associated with changing interest rates of the Company’s loans. Under the terms of the swap, Eurobank made a quarterly payment to the Company equal to the 3-month LIBOR while the Company paid an adjustable rate averaging 1.97% (more specifically, the Company paid the fixed rate of 0.50% until November 28, 2016 then 0.95% until November 28, 2017 and then 3.55% until May 28, 2019) based on the relevant notional amount.
F-46

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

14. Derivative Financial Instruments - continued
The interest rate swap contract did not qualify for hedge accounting as of December 31, 2018. As of December 31, 2019, the Company had no interest rate swaps open positions.

Derivatives not designated as hedging instruments | Balance Sheet Location | December 31, 2018 | December 31, 2019
Interest rate swap contract | Current liabilities – Derivatives | 41,435 | -
Total derivative liabilities |  | 41,435 | -

Derivatives not designated as hedging instruments | Location of gain (loss) recognized | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2019
Interest rate swap contract– Unrealized (loss) / gain | (Gain) / loss on derivatives, net | (5,901) | 204,647 | -
Interest rate swap contract - Realized gain / (loss) | Gain / (loss) on derivatives, net | 19,071 | (201,745) | (2,885)
Total net gain / (loss) on interest rate swap contract |  | 13,170 | 2,902 | (2,885)

Freight Forward Agreements (“FFA”)
In December 2017, the Company entered into three FFA contracts on the Baltic Panamax Index (“BPI”) for the first three calendar months of 2018, totaling 90 days at an average time charter equivalent rate of $11,000 per day. The contracts are settled on a monthly basis using the average of the BPI for the days of the month the BPI is published. The Company receives a payment if the average BPI for the month is below the contract rate equal to the difference of the contract rate less the average BPI for the month times the number of contract days sold; if the average BPI for the month is greater than the contract rate, the Company makes a payment equal to the difference of the average BPI for the month less the contract rate times the number of contract days sold. If the Company buys contracts previously sold (or the opposite) the Company receives or pays the difference of the two rates for the period covered by the contracts.
F-47

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

14. Derivative Financial Instruments - continued
The FFA contracts did not qualify for hedge accounting. The Company follows guidance relating to “Fair value measurements” to calculate the fair value of the FFA contracts (see Note 16).

FFA contracts not designated as hedging instruments | Location of gain (loss) recognized | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2019
FFA contracts – Unrealized loss | Gain / (loss) on derivatives, net | (781) | - | -
FFA contracts – Realized loss | Gain / (loss) on derivatives, net | - | (47,245) | -
Total loss on FFA contracts |  | (781) | (47,245) | -

F-48

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)
15. Preferred shares

|  | Number of Shares |  |  | Preferred Shares Amount |  |  | Dividends paid-in-kind |  |  | Total |
Balance, January 1, 2017 |  |  | 35,505 |  |  |  | 29,000,000 |  |  |  | 4,804,948 |  |  |  | 33,804,948 |
Dividends declared |  |  | 1,809 |  |  |  | - |  |  |  | 1,808,811 |  |  |  | 1,808,811 |
Balance, December 31, 2017 |  |  | 37,314 |  |  |  | 29,000,000 |  |  |  | 6,613,759 |  |  |  | 35,613,759 |
Dividends declared |  |  | 1,333 |  |  |  | - |  |  |  | 1,335,733 |  |  |  | 1,335,733 |
Shares distributed to EuroDry |  |  | (19,042 | ) |  |  | (14,500,000 | ) |  |  | (3,692,131 | ) |  |  | (18,192,131 | )
Balance, December 31, 2018 |  |  | 19,605 |  |  |  | 14,500,000 |  |  |  | 4,257,361 |  |  |  | 18,757,361 |
Dividends declared |  |  | 81 |  |  |  | - |  |  |  | 78,639 |  |  |  | 78,639 |
Redemption of shares |  |  | (11,686 | ) |  |  | (8,155,055 | ) |  |  | (3,530,945 | ) |  |  | (11,686,000 | )
Preferred deemed dividend |  |  | - |  |  |  | 504,577 |  |  |  | - |  |  |  | 504,577 |
Balance, December 31, 2019 |  |  | 8,000 |  |  |  | 6,849,522 |  |  |  | 805,055 |  |  |  | 7,654,577 |

On January 27, 2014, the Company entered into an agreement to sell 25,000 shares of its Series B Convertible Perpetual Preferred Shares ("Series B Preferred Shares") to a fund managed by Tennenbaum Capital Partners, LLC ("TCP") and 5,700 shares to Preferred Friends Investment Company Inc, an affiliate of the Company, for total net proceeds of approximately $29 million. The redemption amount of the Company’s Series B Preferred Shares is $1,000 per share. The Company used the proceeds for the acquisition of vessels and general corporate purposes. The Series B Preferred Shares paid dividends in-kind until January 29, 2019 at a rate of 5%.
F-49

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

15. Preferred shares - continued
The dividend rate increased to 12% for the two years following January 29, 2019 and to 14% thereafter and is payable only in cash. Cash dividends are declared at each quarter and actual payments are made within the following quarter. If a cash dividend is paid on the Company's common stock after January 29, 2019, the holders of Series B Preferred Shares shall receive an additional cash dividend in an amount equal to 40% of the common stock dividend it would have received on an as-converted basis. The Series B Preferred Shares can be converted at the option of their holders at any time, and at the option of the Company only if certain share price and liquidity milestones are met. Each Series B Preferred Share is convertible into common stock at a conversion price of $15.58 (as adjusted in September 2015 following the shareholders’ rights offering of the Company) subject to further adjustment for certain events. The Series B Preferred Shares are redeemable in cash by the Company at any time after the fifth anniversary of the original issue date. Holders of the Series B Preferred Shares may require the Company to redeem their shares only upon the occurrence of certain corporate events.
At the Spin-off date Euroseas distributed EuroDry Series B Preferred Shares to holders of Euroseas' Series B Preferred Shares in exchange for a number of such Euroseas Series B Preferred Shares, representing 50% of Euroseas Series B Preferred Stock, i.e. $14,500,000 of the initial preferred shares amount of the Company and $3,692,131 of dividends paid in kind. Euroseas contributed to EuroDry its interests in seven of its drybulk subsidiaries and related intercompany debts and obligations in exchange for approximately 2,254,830 of EuroDry common shares and 19,042 of EuroDry Series B Preferred Shares (representing all of the EuroDry's issued and outstanding stock as of that time). Euroseas made a special dividend of 100% of EuroDry's outstanding common shares to holders of Euroseas' common stock as of the record date of the special dividend. In addition, Euroseas distributed 100% of EuroDry Series B Preferred Shares to holders of Euroseas' Series B Preferred Shares as described above.
On June 10, 2019 the Company proceeded in the redemption of $11.7 million of value, or about 59.4%, of its outstanding Series B Preferred Shares with a simultaneous reduction of 4% of the dividend rate for the $8 million value of preferred shares remaining outstanding until January 2021. After that date the dividend rate will increase to 14%. The difference between (1) the fair value of the consideration transferred to the holders of the Series B Preferred Shares (comprising the cash payment offered) and (2) the carrying amount of the Series B Preferred Shares before the redemption (net of issuance costs) amounted to $504,577, and was recorded as a preferred deemed dividend.
For each of the years ended December 31, 2017 and 2018, the Company declared four consecutive dividends totaling $1.81 million and $1.34 million, respectively, all of which were paid in kind. For the year ended December 31, 2019 the Company declared dividends of $1.27 million, of which $0.08 million were paid in-kind, $1.03 million were paid in cash during 2019 and another $0.16 million were accrued as of December 31, 2019 and were paid in cash in the first quarter of 2020. The redemption liability as of December 31, 2019 is $8,000,000.
F-50

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

15. Preferred shares - continued
Subject to certain ownership thresholds, holders of Series B Preferred Shares have the right to appoint one director to the Company's board of directors and TCP also has consent rights over certain corporate actions. In addition, the holders of Series B Preferred Shares will vote as one class with the Company's common stock on all matters on which shareholders are entitled to vote, with each Series B Preferred Share having a number of votes equal to 50% of the numbers of shares of common stock of the Company into which such Series B Preferred Share would be convertible on the applicable record date.
16. Financial Instruments
The principal financial assets of the Company consist of cash and cash equivalents, restricted cash, trade accounts receivable and other receivables. The principal financial liabilities of the Company consist of long-term bank loans, derivatives, trade accounts payable, accrued expenses and amount due to related company.
Interest rate risk
From time to time, 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 bank loans. Under the terms of the interest rate swaps the Company and the bank agree to exchange, at specified intervals the difference between a paying fixed rate and receiving floating rate interest amount calculated by reference to the agreed principal amounts and maturities. Interest rate swaps allow the Company to convert long-term borrowings issued at floating rates into equivalent fixed rates. Even though, historically, the interest rate swaps were entered into for economic hedging purposes, as noted in Note 14 they did not qualify for hedge accounting, under the guidance relating to Derivatives and Hedging, as the Company did not have written contemporaneous documentation identifying the risk being hedged and, both on a prospective and retrospective basis, performing an effectiveness test to support that the hedging relationship is highly effective. Consequently, the Company recognized the change in fair value of these derivatives in the “Gain / (loss) on derivatives, net” in the consolidated statements of operations. As of December 31, 2018, the Company had one open swap contract for a notional amount of $10.0 million. As described above in Note 14, this contract matured at the end of May 2019 and as of December 31, 2019 the Company had no interest rate swaps open positions.
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 trade accounts receivable by performing ongoing credit evaluations of its customers’ financial condition and generally does not require collateral for its trade accounts receivable.
F-51

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)
16. Financial Instruments - continued
Fair value of financial instruments
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 investments in FFA contracts are determined based on quoted prices in active markets and therefore are considered Level 1 of the fair value hierarchy as defined in guidance relating to "Fair value measurements".
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.
F-52

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)
16. Financial Instruments - continued
Recurring Fair Value Measurements

|  | Fair Value Measurement as of December 31, 2018 |
|  | Total, |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contract, current portion |  | $ | 41,435 |  |  |  | - |  |  | $ | 41,435 |  |  |  | - |

F-53

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

16. Financial Instruments - continued
Asset Measured at Fair Value on a Non-recurring Basis
On June 15, 2017, the Company entered into a profit sharing agreement with Credit Agricole whereby it would share with the bank 35% of the excess of the fair market value of M/V “EM Astoria” over the outstanding loan when the vessel was sold or when the loan matured. As a result of the lender's entitlement to participate in the appreciation of the market value of the mortgaged vessel, the Company recognized a participation liability of amount $1,067,500 as of December 31, 2018, presented in "Vessel profit participation liability" in the consolidated balance sheets, with a corresponding debit to a debt discount account, presented contra to the loan balance. The fair value of this participation agreement is considered Level 2, as it directly depends on the fair value or expected fair value of M/V “EM Astoria”. The Company completed the refinancing of the specific loan in June 2019 using its revolving loan facility with Eurobank Ergasias S.A., as explained in Note 8-c above, with the final participation liability paid amounting to $950,000.
As of September 30, 2017 the vessel M/V “Monica P” with a carrying amount of $8.23 million, was classified as vessel held for sale and written down to its fair value of $5.0 million, less estimated costs to sell of $0.10 million, resulting in a loss of $3.33 million, which was included in the consolidated statements of operations under “Loss on write-down of vessels held for sale”. The fair value of M/V “Monica P” is considered Level 2.
As of September 30, 2017 the vessel M/V “Aggeliki P” with a carrying amount of $5.39 million, was classified as vessel held for sale and written down to its fair value of $4.3 million, less estimated costs to sell of $0.17 million, resulting in a loss of $1.26 million, which was included in the accompanying consolidated statements of operations under “Loss on write-down of vessels held for sale”. The fair value of M/V “Aggeliki P” is considered Level 2.
F-54

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

16. Financial Instruments - continued
Asset Measured at Fair Value on a Non-recurring Basis - continued
Nonrecurring Fair Value Measurements at Reporting Date

|  | December 31, 2017 |
|  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Loss 2017 |
Vessel profit participating liability |  | $ | 1,297,100 |  |  |  | - |  |  | $ | 1,297,100 |  |  |  | - |  |  |  | - |
Vessels held for sale |  | $ | 5,000,000 |  |  |  | - |  |  | $ | 5,000,000 |  |  |  | - |  |  | $ | 4,595,819 |
|  | December 31, 2018 |
|  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Loss 2018 |
Vessel profit participating liability |  | $ | 1,067,500 |  |  |  | - |  |  | $ | 1,067,500 |  |  |  | - |  |  |  | - |
|  | December 31, 2019 |
|  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Loss 2019 |
Vessel profit participating liability |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |

The estimated fair values of the Company’s financial instruments such as cash and cash equivalents and restricted cash approximate their individual carrying amounts as of December 31, 2018 and 2019, due to their short-term maturity. Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short-term maturities. The fair value of the Company’s total borrowings approximates $87.1 million as of December 31, 2019 or $3.1 million less than their carrying value of $90.2 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 values 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.
F-55

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

17. | Discontinued Operations

Following the close of trading on the Nasdaq Capital Market on May 30, 2018, the Company completed the spin-off of its drybulk fleet (excluding M/V Monica P, a handymax drybulk carrier, which was agreed to be sold) to EuroDry Ltd (Note 1). Accordingly, the results of operations and financial condition of EuroDry have been presented in discontinued operations for all historical comparative periods presented. The revenue and loss for the discontinued operations for the periods ended December 31, 2017, 2018 and 2019 are analyzed as follows:

|  |  |  |  | Year Ended December 31 (discontinued operations) |
|  | 2017 |  |  | 2018 |  |  | 2019 |
Statement of Operations Data |  |  |  |  |  |
Voyage revenue |  |  | 20,280,215 |  |  |  | 25,934,204 |  |  |  | - |
Commissions (including, $253,503, $324,178 and nil respectively, to related party) |  |  | (1,122,196 | ) |  |  | (1,411,333 | ) |  |  | - |
Voyage expenses |  |  | (2,396,318 | ) |  |  | (410,676 | ) |  |  | - |
Vessel operating expenses (including, $102,131, $115,026 and nil, respectively, to related party) |  |  | (6,892,388 | ) |  |  | (9,183,152 | ) |  |  | - |
Drydocking expenses |  |  | (127,509 | ) |  |  | (1,465,079 | ) |  |  | - |
Related party management fees |  |  | (1,409,716 | ) |  |  | (1,701,340 | ) |  |  | - |
Vessel depreciation |  |  | (4,786,272 | ) |  |  | (5,422,155 | ) |  |  | - |
General and administrative expenses (including $693,524, $731,456 and nil, respectively, to related party) |  |  | (917,160 | ) |  |  | (2,346,502 | ) |  |  | - |
Operating income |  |  | 2,628,656 |  |  |  | 3,993,967 |  |  |  | - |
Total other expenses, net |  |  | (1,778,955 | ) |  |  | (2,874,232 | ) |  |  | - |
Net income |  |  | 849,701 |  |  |  | 1,119,735 |  |  |  | - |
Dividend Series B Preferred Shares |  |  | - |  |  |  | (565,229 | ) |  |  | - |
Net income attributable to common shareholders |  |  | 849,701 |  |  |  | 554,506 |  |  |  | - |

F-56

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

17. | Discontinued Operations - continued

Euroseas contributed to EuroDry its interests in seven of its drybulk subsidiaries and related intercompany debts and obligations in exchange for 2,254,830 of EuroDry common shares and 19,042 of EuroDry Series B Preferred Shares (representing all of EuroDry's issued and outstanding stock as of May 30, 2018).
Up to the Spin-off date, Euroseas had contributed to EuroDry an amount of $52.52 million as equity in order to partly finance the acquisition of the vessels contributed to EuroDry (M/V Pantelis, M/V Eirini, M/V Xenia and M/V Ekaterini), other general and administrative expenses allocated from the Company to EuroDry as well as the amounts recognized as loss on termination and impairment of shipbuilding contracts described above. An amount of $9.66 million was also allocated to EuroDry from the Company’s accumulated deficit, comprising the accumulated deficit of the Subsidiaries. In total an amount of $42.86 million was allocated from the Company’s shareholders’ equity to EuroDry’s shareholders’ equity.
18. Common Stock
As per the Company’s Amended and Restated Articles of Incorporation, the Company is authorized to issue 200,000,000 shares of common stock, par value $0.03 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 shareholders. Subject to preferences that may be applicable to any outstanding preferred shares, 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 the Company’s 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 shares of our common stock when issued will be fully paid for and non-assessable. The rights, preferences and privileges of holders of common shares are subject to the rights of the holders of any preferred shares which the Company has issued or may issue in the future.
During January 2017, following the Company’s prospectus filed with the SEC on December 20, 2016, as further supplemented by the prospectus dated January 13, 2017, the Company issued and sold at-the-market (ATM) 37,723 shares of common stock for gross proceeds net of commissions of $0.6 million.
In addition, during the year ended December 31, 2017, the Company issued 12,534 common shares to the Company’s directors and officers and employees of the Manager in connection with its equity incentive plans (Note 11).
During November 2018, following the Company’s prospectus supplement filed with the SEC on December 20, 2016, as further supplemented by the prospectus dated January 13, 2017 and October 30, 2018, the Company issued and sold at-the-market (ATM) 139,509 shares of common stock for gross proceeds net of commissions of $2.0 million.
F-57

Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

18. Common Stock-continued
In addition, during the year ended December 31, 2018, the Company issued 15,681 common shares to the Company’s directors and officers and employees of the Manager in connection with its equity incentive plans (Note 11).
During October 2019, following the Company’s prospectus supplement filed with the SEC on December 20, 2016, as further supplemented by the prospectus dated January 13, 2017, October 30, 2018 and May 30, 2019, the Company issued and sold at-the-market (ATM) 144,727 shares of common stock for gross proceeds net of commissions of $0.9 million.
As further discussed in Note 1, during the year ended December 31, 2019, the Company issued 2,816,901 common shares and 1,056,338 common shares in connection with the Trinity/Diamantis Vessel Acquisition and the Synergy Vessel Acquisition.
In addition, during the year ended December 31, 2019, the Company issued 15,444 common shares to the Company’s directors and officers and employees of the Manager in connection with its equity incentive plans (Note 11).
On December 19, 2019, the Company announced that it has completed a 1-for- 8 reverse stock split, effective at the close of trading on December 18, 2019. The Company’s common shares began trading on a split-adjusted basis on December 19, 2019.
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Euroseas Ltd. and Subsidiaries
Notes to the consolidated financial statements
as of December 31, 2018 and 2019 and for the
Years ended December 31, 2017, 2018 and 2019
(All amounts expressed in U.S. Dollars)

19. Subsequent Events
The following events occurred after December 31, 2019:

| (a) | In January 2020, M/V EM Oinousses experienced an engine room fire while sailing off Mozambique carrying empty containers. The fire was extinguished without any injuries to the crew. The vessel is currently undergoing evaluation for the type of repairs required and is idle during the evaluations. It is expected that the Company’s insurance will cover the majority of the costs. It is possible that the vessel may be scrapped after the insurance process is complete.

| (b) | In February 2020, we entered into an agreement to sell the M/V Manolis P for scrap. The vessel reached her destination port on April 7, 2020, but so far has not been delivered to her new owners due to COVID-19 restrictions and port lockdowns in the territory of arrival (Alang, India). The scrap price has dropped since the date of the agreement to sell the M/V Manolis P, and the buyers are now seeking to terminate the agreement on the basis that timely delivery did not occur. The Company is in the process of seeking a settlement with the buyers.

| (c) | In April 2020, the Company entered into one interest rate swap with Eurobank for a notional amount of $30.0 million, in order to manage interest costs and the risk associated with changing interest rates of the Company’s loans. Under the terms of the swap, Eurobank makes a quarterly payment to the Company equal to the 3-month LIBOR while the Company pays a fixed rate of 0.78% based on the notional amount. The swap is effective from April 24, 2020 until April 24, 2025.

| (d) | Coronavirus Outbreak: On March 11, 2020, the World Health Organization declared the 2019 Novel Coronavirus (the “COVID-19”) outbreak a pandemic. In response to the outbreak, many countries, ports and organizations, including those where the Company conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have and will likely continue to cause severe trade disruptions. The extent to which COVID-19 will impact the Company’s results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and the actions to contain or treat its impact, among others. Accordingly, an estimate of the impact cannot be made at this time.

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