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

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

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

December 31, 2019.

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.

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

-d and

-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.

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

1,700

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.

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

November 2019,

the Company acquired and took delivery (from

November 18, 2019

November 21, 2019)

four

container carrier vessels of intermediate size of

4,253

teu, all built in South Korea,

three

2009

and the other in

2008

(refer Note

). 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

-f), a private placement of

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

million of existing funds. The Company also assumed the charters the vessels were under on the date of the transfer (refer Note

). 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

). 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

-b).

The Company effected a

-for-

reverse stock split of its issued and outstanding common shares, effective at the close of trading on

December 18, 2019 (

Note

). 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.

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.

January 8, 2016,

the vessel has been 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.

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.

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

$3.1

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

until

January 2021,

which will increase to

14%

thereafter (Note

). 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	%