Globus Maritime Limited, a dry bulk shipping company, reported its unaudited consolidated operating and financial results for the quarter ended March 31, 2020.
Current Fleet Deployment
All our vessels are currently operating on short term time charters (“on spot”).
Management Discussion and Analysis of the Results of Operations
First Quarter of the Year 2020 compared to the First Quarter of the Year 2019
Total comprehensive loss for the first quarter of the year 2020 amounted to $9 million or $1.55 basic and diluted loss per share based on 5,816,904 weighted average number of shares, compared to total comprehensive loss of $0.3 million for the same period last year or $0.08 basic and diluted loss per share based on 3,209,604 weighted average number of shares.
During the three-month period ended March 31, 2020 and 2019, our Voyage revenues reached $2.3 million and $3.5 million respectively. The 35% decrease in Voyage revenues was mainly attributed to the decrease in the average time charter rates achieved by our vessels during the first quarter of 2020 compared to the same period in 2019. Daily Time Charter Equivalent rate (TCE) for the first quarter of 2020 was $2,173 per vessel per day against $6,736 per vessel per day during the same period in 2019 corresponding to a decrease of 68%, which is attributed to the outbreak of COVID-19 virus.
Voyage expenses reached $1.4 million during the first quarter of 2020 compared to $0.5 million during the same period last year. Voyage expenses include commissions on revenues, port and other voyage expenses and bunker expenses. Bunker expenses mainly refer to the cost of bunkers consumed during periods that our vessels are travelling seeking employment.
Average daily operating expenses during the three-month periods ended March 31, 2020 and 2019 were $4,521 per vessel per day and $4,634 per vessel per day respectively, corresponding to a decrease of 2%.
Depreciation charge during the first quarter of 2020 reached $0.6 million compared to $1.2 million during the same period in 2019. This is mainly attributed to the impairment loss of $29.9 million we recognized in 2019 as the recoverable amounts of the vessels were lower than their carrying amounts.
As of March 31, 2020, the Company concluded that the recoverable amounts of the vessels were lower than their carrying amounts and recognized an impairment loss of $4.6 million.
Interest expense and finance costs
Interest expense and finance costs reached $1.1 million during the first quarter of 2020 compared to $0.7 million in 2019.
Gain/(Loss) on derivative financial instruments
The loss on the derivative financial instruments is mainly attributed to the valuation of the “Convertible Note”. Further to the conversion clause included into the Convertible Note for the period ended March 31, 2020 a total amount of approximately $1,168, principal and accrued interest, was converted to share capital with the conversion price of $1 per share and a total number of 1,167,767 new shares issued in name of the holder of the Convertible Note. These conversions resulted to a loss of approximately $0.3 million recognized in the consolidated statement of comprehensive loss.
Liquidity and capital resources
As of March 31, 2020 and 2019, our cash and bank balances and bank deposits (including restricted cash) were $2.4 and $4.5 million respectively.
Net cash used in operating activities for the three month period ended March 31, 2020 was $2 million compared to $1.1 million during the respective period in 2019. The increase in our cash used in operating activities was mainly attributed to the decrease in our adjusted EBITDA from $0.3 million during the first quarter of 2019 to negative $1.6 million during the three month period under consideration.
As of March 31, 2020 and 2019 we and our vessel-owning subsidiaries had outstanding borrowings under our Loan agreements of an aggregate of $40 million and of $42.6 million respectively gross of unamortized debt discount.
On March 13, 2020, Company and the holder of the Convertible Note entered into a waiver regarding the Convertible Note (the “Waiver”). The Waiver waives the Company’s obligation to repay the Convertible Note on the existing maturity date of March 13, 2020 and does not require the Company to repay the Convertible Note until March 13, 2021.
Firment Shipping Inc.
On May 8, 2020, the Company and Firment Shipping Inc. agreed to enter an amended and restated agreement. The final maturity of the Firment Shipping Credit Facility was extended to October 31, 2021 and the available amount to be drawn under this Facility increased to $14.2 million.
Receipt of Nasdaq Notice of Deficiency
On March 6, 2020, the Company received written notification from The Nasdaq Stock Market dated March 2, 2020, indicating that because the closing bid price of our common stock for the last 30 consecutive business days was below $1.00 per share, we no longer meet the minimum bid price continued listing requirement for the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5450(a)(1). Pursuant to Nasdaq Listing Rules, the applicable grace period to regain compliance was 180 days, or until August 31, 2020, but citing extraordinary market conditions, Nasdaq filed an immediately effective rule change with the Securities and Exchange Commission which, with effect from April 16, 2020, tolled the listing process until July 1, 2020. Consequently, the Company’s compliance period has effectively been extended until November 12, 2020. The Company intends to monitor the closing bid price of its common stock between now and November 12, 2020 and is considering its options, including a potential reverse stock split, in order to regain compliance with the Nasdaq Capital Market minimum bid price requirement. The Company can cure this deficiency if the closing bid price of its common stock is $1.00 per share or higher for at least ten consecutive business days during the grace period. In the event the Company does not regain compliance within the 180-day grace period, and it meets all other listing standards and requirements it may be eligible for an additional 180-day grace period. The Company intends to cure the deficiency within the prescribed grace period. During this time, the Company’s common stock will continue to be listed and trade on the Nasdaq Capital Market.
Issuance of the Series B preferred shares
On June 12, 2020, the Company entered into a stock purchase agreement and issued 5,000 of our newly-designated Series B Preferred Shares, par value $0.001 per share, to Goldenmare Limited, a company controlled by our Chief Executive Officer, Athanasios Feidakis, in return for $150,000, which amount was paid by reducing, on a dollar for dollar basis, the amount payable as executive compensation by the Company to Goldenmare Limited pursuant to a consultancy agreement.
The issuance of the Series B preferred shares to Goldenmare Limited was approved by an independent committee of the Board of Directors of the Company, which received a fairness opinion from an independent financial advisor that the transaction was for a fair value.
Impact of COVID-19 on the Company’s Business
The spread of the COVID-19 virus, which has been declared a pandemic by the World Health Organization, in 2020 has caused substantial disruptions in the global economy and the shipping industry, as well as significant volatility in the financial markets, the severity and duration of which remains uncertain.
The measures taken by governments worldwide in response to the outbreak, which included numerous factory closures, self-quarantining, and restrictions on travel, as well as potential labor shortages resulting from the outbreak, are expected to slow down production of goods worldwide and decrease the amount of goods exported and imported worldwide. Some experts fear that the economic consequences of the coronavirus could cause a recession that outlives the pandemic.
Besides reducing demand for cargo, coronavirus may functionally limit the amount of cargo that the Company and its competitors are able to move because countries worldwide have imposed quarantine checks on arriving vessels, which have caused delays in loading and delivery of cargoes. It is possible that charterers may try to invoke force majeure clauses as a result.
The pandemic has already added, and could continue to add, pressure to shipping freight rates. The impact of the COVID-19 pandemic continues to unfold and may continue to have negative effect on the Company’s business, financial performance and the results of its operations, including due to decreased demand for global seaborne dry bulk trade and dry bulk charter rates, the extent of which will depend largely on future developments. As a result, many of the Company’s estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company’s estimates may change in future periods.
Crewing and Crew management operations.
Due to Covid-19 there are restrictions on travelling on many jurisdictions. We may face problems in the embarkation and disembarkation our crew members. Many airports around the world as well as many countries impose heavy travel restrictions including complete lockdowns and quarantine periods for incoming and outgoing travelers. By extent it is increasingly hard, if not restrictive, for our crews to be relieved by new crew members. We continue to monitor the situation with respect and utmost care for our seafarers, always communicating with the relevant authorities in order to assist them as much as we can in these unprecedented times.
Disruption in operations in case crew members get infected.
In case one of our crew members is found to be infected by Covid-19 this may lead to delays in cargo operations. It may also need to a detention and quarantine of the ship for an unspecified amount of time. Relevant authorities may require us to perform disinfection and fumigation operations if a crew member gets infected by Covid-19. Crew members may be quarantined if a member is found to be infected. The above may lead to increased costs and lower utilization of our fleet.
Dry docking and Repairs.
Repair yards and dry docks in the far east, usually selected for the scheduled maintenance of our vessels, may be affected by the closures and travel restrictions in their countries. Shipyard staff and third party experts as well as spare parts may be harder to procure and provide making the maintenance process potentially lengthier, costlier or unfeasible. Spare parts and supplies may be harder to produce and deliver to a shipyard where they would be utilized for a scheduled maintenance. In addition to the above, and always relating to Covid-19 travel restrictions, it will be tough for our in-house technical teams to travel to the shipyards in order to monitor the maintenance process, so they may have to be postponed or 3rd party monitoring technical crews will be hired. Last but not least classification society surveyor attendance may be restricted thus not only affecting the time spent within a repair facility but also causing scheduled survey work to be postponed as far as this is permissible.
Effect on the following technical department activities yet not limited to:
Logistics and supply of spares and expert services may incur increased costs and disruption in Planned Maintenance and consequently lead to increased failures / incidents.
Office Personnel attendance is disrupted or impossible, which can have as a result inadequate supervision and lead to increased incidents in third party inspection and reduced maintenance quality.
Long Term planned maintenance (dry docking) unsupervised by company personnel, that can result to lower quality and increased costs.
Delays in class surveys, which can lead to postponements.
The above ultimately are translated to possible increased costs and reduced maintenance quality which in the long term shall spiral to cost increases again as the aftermath shall have to be dealt with. However, there are presently insufficient statistics to reach to prediction model as regards to the actual increase in costs due to the above disruptions.
The Company has evaluated the impact of current economic situation on the recoverability of the carrying amount of its vessels. As of March 31, 2020, the Company concluded that events and circumstances triggered the existence of potential impairment of its vessels. These indicators included volatility in the charter market as well as the potential impact the current marketplace may have on the future operations. As a result, the Company performed an impairment assessment of the Company’s vessels by comparing the discounted projected net operating cash flows for each vessel to its carrying values. As of March 31, 2020, the Company concluded that the recoverable amounts of the vessels were lower than their carrying amounts and an impairment loss of $4.6 million was recorded (see also Note 5).
The pandemic had a negative impact on the Voyage Revenues of the Company for the three-month period ended March 31, 2020, which reached $2.3 million, compared to $3.5 million to the same period in 2019. The 35% decrease in Voyage revenues is attributed to the low freight rates achieved in the first quarter of 2020 due to the outbreak of COVID-19 virus.