Factors Affecting our Results of Operations Overview

 

We are an international provider of dry bulk marine transportation services. As of December 31, 2014, we did not own any operating vessels.

Over the past years, we have experienced significant losses, working capital deficiency and reduction in cash and cash equivalents, which has affected, and which we expect will continue to affect, our ability to satisfy our obligations.

Due to the economic conditions and operational difficulties, we had entered into restructuring discussions with each of the lenders under our loan facility agreements that were completed on March 11, 2014.

As a result, we had no vessels in operation or other revenue generating assets as of December 31, 2014. Cash and cash equivalents remaining after the disposal of the last vessel were not deemed to be sufficient to cover the Company's working capital needs.

On February 12, 2014, we entered into a delivery and settlement agreement with our remaining lender, Piraeus Bank, for the sale of our four remaining vessels, to a nominee of the lender, in exchange for a nominal cash consideration and full satisfaction of the underlying loan facilities. We provided a corporate guarantee for these facilities. The four vessels are the dry bulk carriers Bremen Max, Hamburg Max, Davakis G. and Delos Ranger. Following the closing of the transaction on March 11, 2014, approximately $146 million of outstanding debt and accrued interest, under both the Term Facility and the Revolving Facility, were discharged and the corporate guarantee provided by us was fully released.

On April 29, 2014 we announced the contribution of four Capesize vessels from certain of our major shareholders. Due to the significant deterioration of the dry bulk freight market conditions, it was deemed to reevaluate certain terms of the initial agreement of April 2014. The closing of the previously announced agreement for the contribution of four Capesize vessels has been extended to June 30, 2015. Continued discussions could lead to changes in the transaction which remains subject to certain conditions and sellers' third party consents.

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On December 23, 2014 we entered into an agreement for the purchase of a second hand Capesize vessel. On March 19, 2015, we acquired a 2001 Capesize, 171,199 DWT vessel, which was renamed M/V Leadership, from an unaffiliated third party. The acquisition of the vessel was financed by (i) a convertible promissory note dated March 12, 2015 of $4 million from an entity affiliated with one of our major shareholders, Jelco, (ii) a loan agreement dated March 06, 2015 of $8.75 million with Alpha Bank and (iii) a share purchase agreement dated March 12, 2015 of $4.5 million from Jelco in exchange for the issuance of 25,000,500 newly issuance shares of our common stock. The convertible promissory note is repayable in ten consecutive semi-annual repayment installments of $0.2 million, along with a balloon installment of $2 million payable on the final maturity date and bears interest of three months Libor plus a margin of 5% with quarterly interest payments. The Company has the right to defer up to three consecutive repayment installments to the balloon installment. At Jelco's option, our obligation to repay the repayment installments, or the balloon installment, or the principal amount under the convertible promissory note may be paid in common shares at a conversion price of $0.18 per share, as such conversion price may be adjusted pursuant to the terms of the convertible promissory note, or   by any other conversion price to be agreed in writing between the Company and Jelco. The Alpha Bank loan is repayable in twenty consecutive quarterly installments, the first four installments being $0.2 million each and the next sixteen quarterly installments being $0.25 million each, along with a balloon installment of $3.95 million payable on the final maturity date. The loan bears interest of Libor plus a margin of 3.75% with quarterly interest payments. If LIBOR is below zero, LIBOR shall be deemed to be zero.

 

Important Measures for Analyzing Results of Operations

 

We believe that the important non-GAAP measures and definitions for analyzing our results of operations consist of the following and are not included in the consolidated financial statements prepared under US GAAP:

 

Ownership days. Ownership days are the total number of calendar days in a period during which we owned each vessel in our fleet. Ownership days are an indicator of the size of the fleet over a period and affect both the amount of revenues and the amount of expenses recorded during that period.

 

Available days. Available days are the number of ownership days less the aggregate number of days that our vessels are off-hire due to major repairs, dry-dockings or special or intermediate surveys. The shipping industry uses available days to measure the number of ownership days in a period during which vessels should be capable of generating revenues.

 

Operating days. Operating days are the number of available days in a period less the aggregate number of days that vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.

 

Fleet utilization. Fleet utilization is determined by dividing the number of operating days during a period by the number of ownership 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 for any reason excluding scheduled repairs, vessel upgrades, dry-dockings or special or intermediate surveys.

 

Off-hire. The period a vessel is unable to perform the services for which it is required under a charter.

 

Time charter. A time charter is a contract for the use of a vessel for a specific period of time during which the charterer pays substantially all of the voyage expenses, including port costs, canal charges and fuel expenses. The vessel owner pays the vessel operating expenses, which include crew wages, insurance, technical maintenance costs, spares, stores and supplies and commissions on gross voyage revenues. Time charter rates are usually fixed during the term of the charter. Prevailing time charter rates do fluctuate on a seasonal and year-to-year basis and may be substantially higher or lower from a prior time charter agreement when the subject vessel is seeking to renew the time charter agreement with the existing charterer or enter into a new time charter agreement with another charterer. Fluctuations in time charter rates are influenced by changes in spot charter rates.

 

TCE. Time charter equivalent or TCE rates are defined as our time charter revenues less voyage expenses during a period divided by the number of our Operating days during the period, which is consistent with industry standards. Voyage expenses include port charges, bunker (fuel oil and diesel oil) expenses, canal charges and commissions.

Revenues

 

Our revenues were driven primarily by the number of vessels we operated, the number of operating days during which our vessels generated revenues, and the amount of daily charter hire that our vessels earned under charters. These, in turn, were affected by a number of factors, including the following:

 

·

the nature and duration of our charters;

·

the amount of time that we spent repositioning our vessels;

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·

the amount of time that our vessels spent in dry-dock undergoing repairs;

·

maintenance and upgrade work;

·

the age, condition and specifications of our vessels;

·

the levels of supply and demand in the dry bulk carrier transportation market; and

·

other factors affecting charter rates for dry bulk carriers under voyage charters.

A voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed-upon total amount. Under voyage charters, voyage expenses such as port, canal and fuel costs are paid by the vessel owner. A time charter voyage and a period time charter or period charter are generally contracts to charter a vessel for a fixed period of time at a set daily rate. Under time charters, the charterer pays voyage expenses. Under both types of charters, the vessel owners pay for vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs. The vessel owners are also responsible for each vessel's dry-docking and intermediate and special survey costs.

 

Vessels operating on period time charters and bareboat time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot charter market for single voyages during periods characterized by favorable market conditions.

 

Vessels operating in the spot charter market generate revenues that are less predictable, but can yield increased profit margins during periods of improvements in dry bulk rates. Spot charters also expose vessel owners to the risk of declining dry bulk rates and rising fuel costs. As of the date of this annual report, we have one vessel, the M/V Leadership. As of December 31, 2014, we had no vessels. As of December 31, 2013 all our vessels operated in the spot market. As of December 31, 2012 one of our vessels operated under long-term index-linked employment, three vessels were operating under fixed rate charters with profit sharing agreements, four vessels were on bareboat charters and four vessels were on time charters.

 

A standard maritime industry performance measure is the time charter equivalent, or TCE. TCE rates are defined as our time charter revenues less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. Voyage expenses include port charges, bunker (fuel oil and diesel oil) expenses, canal charges and commissions. Our average TCE rates for 2014, 2013 and 2012 were $5,014, $8,006 and $7,465, respectively.

 

 

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. Vessel operating expenses generally represent costs of a fixed nature. Some of these expenses are required, such as insurance costs and the cost of spares. Additionally, effective as of January 1, 2013, each foreign flagged vessel managed in Greece by Greek or foreign ship management companies is subject to Greek tonnage tax, under the laws of the Republic of Greece.

 

Principal Factors Affecting Our Business

 

The principal factors that affected our financial position, results of operations and cash flows included the following:

 

·

number of vessels owned and operated;

·

charter market rates and periods of charter hire;

·

vessel operating expenses and direct voyage costs, which were incurred in both U.S. dollars and other currencies, primarily Euros;

·

depreciation expenses, which are a function of vessel cost, any significant post-acquisition improvements, estimated useful lives, estimated residual scrap values, and fluctuations in the market value of our vessels;

·

financing costs related to indebtedness associated with the vessels; and

·

fluctuations in foreign exchange rates.

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(1)	Average number of vessels is the number of vessels that constituted the Company's fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of the Company's fleet during the relevant period divided by the number of calendar days in the relevant period.

(2)	Ownership days are the total number of days in a period during which the vessels in a fleet have been owned. Ownership days are an indicator of the size of the Company's fleet over a period and affect both the amount of revenues and the amount of expenses that the Company recorded during a period.

 

(3)

Available days are the number of ownership days less the aggregate number of days that vessels are off-hire due to major repairs, dry dockings or special or intermediate surveys. The shipping industry uses available days to measure the number of ownership days in a period during which vessels should be capable of generating revenues. During the year ended December 31, 2014, the Company did not incur any off-hire days for vessel surveys.

 

(4)

Operating days are the number of available days in a period less the aggregate number of days that vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.

 

(5)	Fleet utilization is the percentage of time that our vessels were generating revenue, and is determined by dividing operating days by ownership days for the relevant period.

 

(6)

Fleet utilization excluding drydocking off-hire days is calculated by dividing the number of the fleet's operating days during a period by the number of available days during that period. The shipping industry uses fleet utilization excluding drydocking off-hire days to measure a Company's efficiency in finding suitable employment for its vessels and excluding the amount of days that its vessels are off-hire for reasons such as scheduled repairs, vessel upgrades, or dry dockings or special or intermediate surveys.

 

(7)

TCE rates are defined as our net revenues less voyage expenses during a period divided by the number of our operating days during the period, which is consistent with industry standards. Voyage expenses include port charges, bunker (fuel oil and diesel oil) expenses, canal charges and other commissions:

 

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* Our TCE rate is calculated as the weighted average of the daily rate earned under time charter contracts and of the daily rate earned by bareboat agreements after deducting the relevant fixed operating expense allowance. Net revenue from vessels under bareboat agreements is net of operating expense allowance.

 

(8)

Average daily vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, are calculated by dividing vessel operating expenses by ownership days (including the ownership days of the vessels employed under bareboat charters) for the relevant time periods:

 

(9)	Daily management fees are calculated by dividing total management fees by ownership days for the relevant time period.

 

(10)	Total vessel operating expenses, or TVOE, is a measurement of total expenses associated with operating the vessels. TVOE is the sum of vessel operating expenses and management fees. Daily TVOE is calculated by dividing TVOE by fleet ownership days for the relevant time period.

Year ended December 31, 2014 as compared to year ended December 31, 2013

 

Vessel Revenue, Net – Vessel revenue was $2.1 million during the year ended December 31, 2014, compared to $23.8 million during the year ended December 31, 2013. Address commissions were $0.07 million during the year ended December 31, 2014, compared to $0.8 million during the year ended December 31, 2013. The decrease in vessel revenue is mainly attributable to the decrease in operating days as a result of the sale of our four remaining vessels in March 2014 in accordance to the financial restructuring plan. Seanergy owned an average of one vessel in 2014 as opposed to an average of 6.2 vessels in 2013.

 

Direct Voyage Expenses — Direct voyage expenses were $1.3 million during the year ended December 31, 2014, compared to $8.0 million during the year ended December 31, 2013. This decrease is mainly attributable to the reduction in voyage days for 2014 as a result of the sale of our four remaining vessels in March 2014 in accordance to the financial restructuring plan.

 

Vessel Operating Expenses — Vessel operating expenses were $1 million during the year ended December 31, 2014, compared to $11.1 million during the year ended December 31, 2013. This decrease is mainly attributable to the reduction in ownership days for 2014 as a result of the sale of our four remaining vessels in March 2014 in accordance to the financial restructuring plan.

 

Voyage Expenses — Related Party — Voyage expenses, related party, were $0.02 million during the year ended December 31, 2014, compared to $0.3 million during the year ended December 31, 2013. These expenses represent commissions charged in relation to the brokerage agreement we have with Safbulk, an affiliate, for the provision of chartering services. The chartering commissions represent a commission of 1.25% payable to Safbulk on the collected vessel revenue. The decrease reflects the reduction in our operating days as a result of the sale of our four remaining vessels in March 2014.

 

Management Fees — Related Party — Management fees, related party, were $0.1 million during the year ended December 31, 2014, compared to $0.7 million during the year ended December 31, 2013. Management fees relate to the management agreement we had with EST for the provision of operating and technical management services for the Seanergy fleet. The decrease is due to the reduction in ownership days as a result of the sale of our four remaining vessels in March 2014.

 

Management Fees — Management fees were $NIL during the year ended December 31, 2014, compared to $0.2 million during the year ended December 31, 2013. Management fees relate to the management agreements we had with M/S Fleet and Wallem for the provision of technical management services for the MCS fleet. In 2013, M/S Fleet and Wallem were entitled to receive an annual fee of $122,400 and $104,400 per vessel, respectively. Out of the remaining seven vessels in the MCS fleet four were sold on January 29, 2013 and three were sold on July 19, 2013.

 

General and Administration Expenses — General and administration expenses were $3 million during the year ended December 31, 2014, compared to $4 million during the year ended December 31, 2013. The decrease is mainly attributable to expense cutting efforts initiated during 2012, the cost savings resulting from the restructuring of our Hong Kong office and the increased costs in 2013 associated with the debt restructuring as compared to 2014.

 

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General and Administration Expenses — Related Party — General and administration expenses – related party were $0.3 million during the year ended December 31, 2014, compared to $0.4 million during the year ended December 31, 2013. Our related party general and administration expenses are primarily comprised of office rental expenses. The monthly lease payment was EUR 25,000 during the year ended December 31, 2013 and up to June 1, 2014, at which point it was amended to EUR 15,000 per month for the remainder of 2014.

 

Loss on bad debts — Loss on bad debts were $0.04 million during the year ended December 31, 2014, compared to $NIL during the year ended December 31, 2013 and represents uncollectible receivable write-offs.

 

Amortization of Deferred Dry-docking Costs — Amortization of deferred dry-docking costs were $NIL during the year ended December 31, 2014 compared to $0.2 million during the year ended December 31, 2013. Three vessels underwent dry-docking during 2013, for a total of $1 million. The greater part of the unamortized dry-docking balances of 2013 were classified as part of assets held for sale, and thus the amortization of deferred dry-docking costs were ceased.

 

Depreciation — Depreciation was $NIL million for the year ended December 31, 2014, compared to $1 million for the year ended December 31, 2014. During 2013 we had an average of 6.2 vessels, and as of June 30, 2013, the remaining assets were classified as held for sale and thus relative assets were no longer depreciated.

 

Impairment loss for vessels and deferred charges — Impairment loss for vessels and deferred charges were $NIL during the year ended December 31, 2014, compared to $3.6 million during the year ended December 31, 2013. During the year ended December 31, 2013, we recorded an impairment loss of $867 for the vessel African Oryx that was sold on April 10, 2013 and $10,697 for the vessels Davakis G. and Delos Ranger, which were measured at their fair values, upon classification of the vessels financed by the Piraeus Bank loan facilities to current assets as of June 30, 2013, as per the Company's restructuring plan. This was partially offset with the impairment re measurement of $1,000 relating to the UOB vessels, and the impairment re measurement $7,000 of Davakis G. and Delos Ranger as of December 31, 2013. The impairment loss was measured as the amount by which the carrying amount of the vessel exceeded its fair value less cost to sell, which was determined using the valuation derived from market data available at December 31, 2013.

Gain on disposal of subsidiaries — Gain on disposal of subsidiaries was $NIL for the year ended December 31, 2014, compared to $25.7 million for the year ended December 31, 2013. We recorded a gain of $25.7 million on the disposal of the seven MCS subsidiaries in 2013. On January 29, 2013, we recognized a gain from the sale of the four MCS subsidiaries under the facility agreement with DVB, of $5.5 million. On July 19, 2013, we recognized a gain from the sale of the three MCS subsidiaries under the facility agreement with UOB, of $20.2 million.

Gain on restructuring — Gain on restructuring was $85.6 million for the year ended December 31, 2014, compared to $NIL for the year ended December 31, 2013. In 2014, we recognized a gain of $85.6 million from the sale of the four remaining vessels under the facility agreements with Piraeus Bank.

 

Interest and Finance Costs — Interest and finance costs were $1.5 million during the year ended December 31, 2014, compared to $8.4 million during the year ended December 31, 2013. The decrease is mainly attributable to lower loan balances in 2014 compared to those in 2013 as a result of our restructuring plan. In 2014, we closed on the delivery and settlement agreement with our remaining lender, Piraeus Bank, for the sale of our four remaining vessels. In exchange for the sale, approximately $145.6 million of outstanding debt and accrued interest were discharged. In 2013 we sold seven vessel owning subsidiaries, and in exchange for the sale, $69.8 million of outstanding debt, accrued interest and swap liabilities were discharged.  In addition to this, proceeds from African Oryx sale on April 10, 2013 were used to reduce outstanding debt. Total debt outstanding was $134.9 million at the end of 2013 and was discharged in 2014. The weighted average interest rate on our outstanding debt for the years ended December 31, 2014 and 2013 was approximately 4.9% and 4.4%, respectively.

 

Interest Income — Interest income of $0.01 million for the years ended December 31, 2014 and 2013 represents interest earned on term deposits at annualized interest rates ranging from 0.50% to 0.70% during 2014 and 0.30% to 2.10% during 2013.

 

Loss on interest rate swaps — Loss on interest rate swaps was $NIL during the year ended December 31, 2014, compared to $0.01 million during the year ended December 31, 2013. All of the interest rate swaps expired in 2013.

 

Year ended December 31, 2013 as compared to year ended December 31, 2012

 

Vessel Revenue — Related Party, Net — Vessel revenue, related party, was $0 during the year ended December 31, 2013, compared to $8.2 million during the year ended December 31, 2012. Related party address commissions were $0 during the year ended December 31, 2013 compared to $0.3 million during the year ended December 31, 2012. All vessels employed by related parties were sold in 2012. As a result the company recorded no revenues from related parties in 2013.

 

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Vessel Revenue, Net – Vessel revenue was $23.8 million during the year ended December 31, 2013, compared to $49 million during the year ended December 31, 2012. Address commissions were $0.8 million during the year ended December 31, 2013, compared to $1.3 million during the year ended December 31, 2012. The decrease in vessel revenue is mainly attributable to a 67% decrease in operating days as a result of the eight vessels sold in 2013 in accordance to the financial restructuring plan. Seanergy owned an average of 6.2 vessels in 2013 as opposed to an average of 17.6 vessels in 2012.

 

Direct Voyage Expenses — Direct voyage expenses were $8.0 million during the year ended December 31, 2013, compared to $13.6 million during the year ended December 31, 2012. This decrease is mainly attributable to the reduction in voyage days for 2013 as a result of the eight vessels sold during the year in accordance to the financial restructuring plan.

 

Vessel Operating Expenses — Vessel operating expenses were $11.1 million during the year ended December 31, 2013, compared to $27 million during the year ended December 31, 2012. This decrease is mainly attributable to a 65% reduction in ownership days for 2013, to 2,275 from 6,442 as a result of the eight vessels sold in 2013 in accordance to the financial restructuring plan.

 

Voyage Expenses — Related Party — Voyage expenses, related party, were $0.3 million during the year ended December 31, 2013, compared to $0.5 million during the year ended December 31, 2012. These expenses represent commissions charged in relation to the brokerage agreement we have with Safbulk, an affiliate, for the provision of chartering services. The chartering commissions represent a commission of 1.25% payable to Safbulk on the collected vessel revenue. The decrease reflects the 67% reduction in our operating days from 5,559 in 2012 to 1,840 operating days in 2013.

 

Management Fees — Related Party — Management fees, related party, were $0.7 million during the year ended December 31, 2013, compared to $1.6 million during the year ended December 31, 2012. Management fees relate to the management agreement we have with EST for the provision of operating and technical management services for the Seanergy fleet and for the former subsidiary BET fleet. The decrease in 2013 is due to the reduction in ownership days for these fleets from 3,253 ownership days in 2012 to 1,559 ownership days in 2013.

Management Fees — Management fees were $0.2 million during the year ended December 31, 2013, compared to $0.6 million during the year ended December 31, 2012. Management fees relate to the management agreements we had with M/S Fleet and Wallem for the provision of technical management services for the MCS fleet. In 2013, M/S Fleet and Wallem were entitled to receive an annual fee of $122,400 and $104,400 per vessel, respectively. In 2012, M/S Fleet and Wallem were entitled to receive an annual fee of $120,000 and $102,000 per vessel, respectively. Two of the four vessels under M/S Fleet management were sold in the fourth quarter of 2012. Out of the remaining seven vessels in the MCS fleet four were sold on January 29, 2013 and three were sold on July 19, 2013. As a result, associated management fees for 2013 were significantly reduced.

 

General and Administration Expenses — General and administration expenses were $4 million during the year ended December 31, 2013, compared to $6.3 million during the year ended December 31, 2012. The decrease is mainly attributable to expense cutting efforts initiated during 2012 as well as the cost savings resulting from the restructuring of our Hong Kong office.

 

General and Administration Expenses — Related Party — General and administration expenses – related party were $0.4 million during the years ended December 31, 2013 and  2012 respectively. Our related party general and administration expenses are primarily comprised of office rental expenses. The monthly lease payment was EUR 25,000 during the years ended December 31, 2013 and 2012.

 

Loss on bad debts — Loss on bad debts of $0.3 million during the year ended December 31, 2012 represents uncollectible receivable write-offs.

 

Amortization of Deferred Dry-docking Costs — Amortization of deferred dry-docking costs were $0.2 million during the year ended December 31, 2013 compared to $3.6 million during the year ended December 31, 2012. Three vessels underwent dry-docking during 2013, for a total of $1 million as compared to three vessels in 2012, for a total of approximately $1.5 million. The decrease in amortization expense in 2013 is also due to the classification of unamortized dry-docking balances, as part of assets held for sale, and thus the amortization of deferred dry-docking costs were ceased.

 

Depreciation — Depreciation was $1 million for the year ended December 31, 2013, compared to $15.6 million for the year ended December 31, 2012. The decrease reflects the reduction in our fleet size from 17.6 vessels on average in 2012 to 6.2 vessels on average in 2013 and the classification of remaining  assets as held for sale as of June 30, 2013 and thus relative assets were no longer depreciated.

 

Loss on sale of vessels — Loss on sale of vessels of $15.6 million during the year ended December 31, 2012 is comprised of a loss of $2.4 million on the sale of African Zebra on February 15, 2012 and a loss of $13.2 million on the sale of BET Scouter on June 12, 2012.

 

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Impairment loss for vessels and deferred charges — We recorded $3.6 million of impairment losses on our vessels during 2013, as opposed to $147.1 million impairment losses, net on our vessels for the year ended December 31, 2012. During the year ended December 31, 2013, we recorded an impairment loss of $867 for the vessel African Oryx that was sold on April 10, 2013 and $10,697 for the vessels Davakis G. and Delos Ranger, which were measured at their fair values, upon classification of the vessels financed by the Piraeus Bank loan facilities to current assets as of June 30, 2013, as per the Company's restructuring plan. This was partially offset with the impairment re measurement of $1,000 relating to the UOB vessels, and the impairment re measurement $7,000 of Davakis G. and Delos Ranger as of December 31, 2013. The impairment loss was measured as the amount by which the carrying amount of the vessel exceeded its fair value less cost to sell, which was determined using the valuation derived from market data available at December 31, 2013. During the year ended December 31, 2012 the Company recorded an impairment loss of $54,611 for all of its vessels disposed except for the vessel African Zebra and the vessel BET Scouter. The impairment loss was measured as the amount by which the carrying amount of the vessels exceeded their fair value. Fair value was determined using the agreed sale price adjusted for selling costs. In addition, an impairment loss of $67,275 and $24,078 was recognized upon classification of the vessels financed by the DVB and UOB loan facilities as held for sale and as a result of the Company's impairment test exercise at December 31, 2012 for the remainder of its fleet, respectively. The impairment loss was measured as the amount by which the carrying amount of the vessels exceeded their fair value, which was determined using the valuation derived from market data available at December 31, 2012.

Gain from disposal of subsidiaries — We recorded a gain of $25.7 million on the disposal of the seven MCS subsidiaries in 2013. On January 29, 2013, we recognized a gain from the sale of the four MCS subsidiaries under the facility agreement with DVB, of $5.5 million. On July 19, 2013, we recognized a gain from the sale of the three MCS subsidiaries under the facility agreement with UOB, of $20.2 million.

 

Impairment loss for goodwill — We recorded goodwill impairment losses of $4.4 million during the year ended December 31, 2012. We tested our goodwill for potential impairment and concluded that indication of impairment existed as of September 30, 2012. The fair value for goodwill impairment testing was estimated by using the expected present value of future cash flows, applying judgments and assumptions that management believes were appropriate in the circumstances as well as by using the market capitalization approach. The future cash flows from operations were determined by considering the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the non-fixed days (based on a combination of 2-year forward freight agreements and the 10-year average historical charter rates available for each type of vessel). The weighted average cost of capital used was 7.42% for the nine month periods ended September 30, 2012.

 

Interest and Finance Costs — Interest and finance costs were $8.4 million during the year ended December 31, 2013, compared to $12.5 million during the year ended December 31, 2012. The decrease is mainly attributable to lower loan balances in 2013 compared to those in 2012 as a result of our restructuring plan under which we sold seven vessel owning subsidiaries, and in exchange for the sale, $69.8 million of outstanding debt, accrued interest and swap liabilities were discharged.  In addition to this, proceeds from African Oryx sale on April 10, 2013 were used to reduce outstanding debt. Total debt outstanding was $208.6 million at the end of 2012 and was reduced to $134.9 million at the end of 2013. The weighted average interest rate on our outstanding debt for the years ended December 31, 2013 and 2012 was approximately 4.4% and 3.9%, respectively.

 

Interest Income — Interest income of $0.01 million for the year ended December 31, 2013 compared to interest income of $0.06 million for the year ended December 31, 2012  represents interest earned on term deposits at annualized interest rates ranging from 0.30% to 2.10% during 2013 and 0.10% to 0.45% during 2012.

 

Loss on interest rate swaps — Loss on interest rate swaps was $0.01 million during the year ended December 31, 2013, compared to $0.2 million during the year ended December 31, 2012. The decrease is mainly attributable to the expiration of all interest rate swaps in 2013.

 

Income taxes — Income taxes for the years ended December 31, 2013 and 2012 amounted to income of $0.001 million and expense of $0.002 million, respectively, and related to MCS. Hong Kong profit tax has been provided at the rate of 16.5% on the estimated assessable profit for both years.

 

 

Recent Accounting Pronouncements

 

Refer to Note 2 of the consolidated financial statements included in this annual report.

 

Critical Accounting Policies and Estimates

 

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, because they generally involve a comparatively higher degree of judgment in their application.

 

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Business Dispositions

 

Sale of BET

 

On November 9, 2012, we entered into an agreement with IMI to sell our 100% ownership interest in BET for a nominal cash consideration of $1. In addition, we released BET from all of its obligations and liabilities towards us, which accrued to $3.5 million as of the date of sale. The transaction was consummated on December 30, 2012 upon finalization of all the required documentation. On December 18, 2012, at the direction of IMI, we sold the vessel BET Prince for gross proceeds of $8.3 million, which were used to repay part of the then outstanding debt.

 

IMI is ultimately controlled by members of the Restis family and is under common control with us. In connection with the sale of BET, our board of directors obtained a fairness opinion from an independent third party.

 

The sale of BET was treated as a transaction between entities under common control, and as such, asset and liability values were transferred at historical cost, with the resulting gains from the extinguishment of BET's net liabilities amounting to $5.2 million recognized as an equity transaction within Additional paid-in capital.

 

Sale of MCS subsidiaries

 

On January 29, 2013, MCS sold its 100% ownership interest in the four subsidiaries that owned the Handysize dry bulk carriers Fiesta, Pacific Fantasy, Pacific Fighter and Clipper Freeway. The buyer is a third-party nominee of the lenders under the senior secured credit facility with DVB, as agent. MCS had provided a guarantee under this facility, and in exchange for the sale, approximately $30.3 million of outstanding debt was discharged. In addition, the guarantee provided by MCS was fully released. In connection with the sale of the subsidiaries, our board of directors obtained a fairness opinion from an independent third party.

 

We recorded a gain in 2013 of $5.5 million from the sale of the four MCS subsidiaries, under the facility agreement with DVB.

 

On July 19, 2013, MCS sold its 100% ownership interest in the three subsidiaries that owned the Handysize dry bulk carriers African Joy, African Glory and Asian Grace. The buyer was a third-party nominee of the lenders under the senior and the subordinated credit facility with UOB. MCS had provided a guarantee under this facility, and in exchange for the sale, $39.5 million of outstanding debt, accrued interest and swap liabilities were discharged. In addition, the guarantee provided by MCS was fully released. In connection with the sale of the subsidiaries, MCS deposited $1 million on May 16, 2013, into an escrow account held with the escrow agent, which was released to UOB on the closing date. Our Board of Directors obtained a fairness opinion from an independent third party rendering the transaction fair from the financial point of view of the Seanergy's shareholders.

The estimated fair values of the assets and liabilities sold on the date of the sale were as follows:

We recognized a gain from the sale of the three MCS subsidiaries under the facility agreement with UOB, of $20.2 million.

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Impairment of long-lived assets

 

We review our long-lived assets for impairment whenever events or changes in circumstances, such as undiscounted projected operating cash flows, business plans to dispose a vessel earlier than the end of its useful life and prevailing market conditions, indicate that the carrying amount of the assets may not be recoverable. The current conditions in the dry bulk market with decreased charter rates and decreased vessel market values are conditions that we consider indicators of a potential impairment for our vessels. We determine undiscounted projected operating cash flows, for each vessel and compare it to the vessel's carrying value. When the undiscounted projected operating cash flows, excluding interest charges, expected to be generated by the use of the vessel and its eventual disposition are less than its carrying amount, we impair the carrying amount of the vessel. Measurement of the impairment loss is based on the fair value of the asset as determined by independent valuators. The undiscounted projected operating cash inflows are determined by considering the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the non-fixed days (based on a combination of 2-year forward freight agreements and the median of the trailing 10-year historical charter rates available for each type of vessel) adjusted for brokerage commissions and expected outflows for scheduled vessels' maintenance. The undiscounted projected operating cash outflows are determined by reference to our actual vessel operating expenses, assuming an average annual inflation rate of 2.5%. Effective fleet utilization is assumed to 98% in our exercise, assumptions in line with our historical performance. We recorded an impairment loss, net of $NIL, $3.6 million and $147.1 million for the years ended December 31, 2014, 2013 and 2012, respectively.

  Goodwill impairment

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net identifiable assets acquired in business combinations accounted for under the purchase method. Goodwill is reviewed for impairment at least annually in December. The goodwill impairment test is a two-step process. Under the first step, the fair value of the reporting unit is compared to the carrying value of the reporting unit (including goodwill). If the fair value of the reporting unit is less than the carrying value of the reporting unit, goodwill impairment may exist, and the second step of the test is performed. Under the second step, the implied fair value of the goodwill is compared to the carrying value of the goodwill and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the implied fair value of goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis and market capitalization analysis. If the fair value of the reporting unit exceeds it carrying value, step two does not have to be performed. We test our goodwill for potential impairment at year end or whenever there is an indication of impairment. The fair value for goodwill impairment testing is estimated using the expected present value of future cash flows, using judgments and assumptions that management believes are appropriate in the circumstances. The future cash flows from operations are determined by considering the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the non-fixed days (based on a combination of 2-year forward freight agreements and the median of the trailing 10-year historical charter rates available for each type of vessel). We had one reporting unit and tested its goodwill for potential impairment, and concluded that indication of impairment existed as of September 30, 2012. The fair value for goodwill impairment test was estimated using the expected present value of future cash flows, using judgments and assumptions that management believes were appropriate in the circumstances and using the market capitalization approach. The future cash flows from operations were determined by considering the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the non-fixed days (based on a combination of 2-year forward freight agreements and the median of the trailing 10-year historical charter rates available for each type of vessel. The weighted average cost of capital used was 7.42% for the nine month period ended September 30, 2012. As a result, an impairment loss for goodwill of $4.4 million was recorded, for the year ended December 31, 2012.

 

Vessel depreciation

 

Depreciation is computed using the straight-line method over the estimated useful life of the vessels, after considering the estimated salvage value. Management estimates the useful life of our vessels to be 30 years from the date of initial delivery from the shipyard. Salvage value is estimated by taking the cost of steel times the weight of the ship noted in lightweight ton (LWT). Salvage values are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons. Revisions of salvage values affect the depreciable amount of the vessels and affects depreciation expense in the period of the revision and future periods.

 

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The above four policies are considered to be critical accounting policies because assessments need to be made due to the shipping industry being highly cyclical experiencing volatility in profitability, and changes in vessel value and fluctuations in charter rates resulting from changes in the supply and demand for shipping capacity. In addition, there are significant assumptions used in applying these policies such as possible future new charters, future charter rates, future on-hire days, future market values and the time value of money. The estimates and assumptions regarding expected cash flows and the appropriate discount rates require considerable judgment and are based upon existing contracts, historical experience, financial forecasts and industry trends and conditions. Consequently, actual results could differ from these estimates and assumptions used and we may need to review such estimates and assumptions in future periods as underlying conditions, prices and other mentioned variables change. Our results of operations and financial position in future periods could be significantly affected upon revision of these estimates and assumptions or upon occurrence of events. Due to the different scenarios under which such changes could occur, it is not practical to quantify the range and possible effects of such future changes in our financial statements.

 

Our Fleet – Illustrative Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of Certain Vessels

 

In "Critical Accounting Policies and Estimates – Impairment of long-lived assets," we discuss our policy for impairing the carrying values of our vessels. During the past few years, the market values of vessels have experienced particularly high volatility, with 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, even though we would 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, 2014 and 2013, (ii) which of our vessels we believe had a basic market value below its carrying value, and (iii) the aggregate difference between carrying value and market value represented by such vessels. This aggregate difference represents the approximate analysis of the amount by which we believe we would have had to reduce our net income if we sold all of such vessels in the current environment, on industry standard terms, in cash transactions, and to a willing buyer where we are not under any compulsion to sell, and where the buyer is not under any compulsion to buy as of December 31, 2014 and 2013. For purposes of this calculation, we assumed that the vessels would be sold at a price that reflects our estimate of their charter-free market values as of December 31, 2014 and 2013.

 

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 notations of any kind. 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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*           Indicates that, as of December 31, 2013, the basic charter-free market value was higher than the vessel's carrying value by approximately $4.8 million.

 

We refer you to the risk factor entitled "The value of our vessels has fluctuated, and may continue to fluctuate significantly, due in large part to the sharp decline in the world economy and the charter market. A significant decline in vessel values could result in losses when we sell our vessels or could result in a requirement that we write down their carrying value, which would adversely affect our earnings. In addition, a decline in vessel values could adversely impact our ability to raise additional capital and would likely cause us to violate certain covenants in our loan agreements that relate to vessel value."

 

Survey costs

 

There are two methods that are primarily used by the shipping industry to account for dry-dockings; first, the deferral method, whereby specific costs associated with a dry-docking are capitalized when incurred and amortized on a straight-line basis over the period to the next scheduled dry-dock; and second, the direct expensing method, whereby dry-docking costs are expensed in the period incurred. We use the deferral method of accounting for dry-dock expenses. Under the deferral method, dry-dock expenses are capitalized and amortized on a straight-line basis until the date that the vessel is expected to undergo its next dry-dock. We believe the deferral method better matches costs with revenue. We use judgment when estimating the period between dry-docks performed, which can result in adjustments to the estimated amortization of dry-dock expense, the duration of which depends on the age of the vessel and the nature of dry-docking repairs the vessel will undergo. We expect that our vessels will be required to be dry-docked approximately every 2.5 years in accordance with class requirements for major repairs and maintenance. Costs capitalized as part of the dry-docking include actual costs incurred at the dry-dock yard and parts and supplies used in undertaking the work necessary to meet class requirements.

 

Variable interest entities

 

We evaluate our relationships with other entities to identify whether they are variable interest entities and to assess whether we are the primary beneficiary of such entities. If it is determined that we are the primary beneficiary, that entity is included in our consolidated financial statements. We do not participate in any variable interest entity.

 

Recent Developments

 

The Fleet

 

As discussed elsewhere in this annual report, we have had a significant reduction in the size of our fleet. As of the date of this annual report, we own one vessel, the M/V Leadership.

The closing of the previously announced agreement for the contribution of four Capesize vessels to Seanergy due to the significant deterioration of the dry bulk freight market conditions has been extended to June 30, 2015.

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On December 19, 2014, we had entered into a share purchase agreement under which we would sell 4,440,000 of our common shares to Jelco, for $1.1 million. The common shares were sold at a price of $0.25 per share. On December 30, 2014, we completed the equity injection plan with the abovementioned entity. The shares to the entity were issued on December 30, 2014.

On March 19, 2015, we acquired a 2001 Capesize, 171,199 DWT vessel, which was renamed M/V Leadership, from an unaffiliated third party. The acquisition of the vessel was financed by (i) a convertible promissory note dated March 12, 2015 of $4 million from an entity affiliated with one of our major shareholders, Jelco, (ii) a loan agreement dated March 06, 2015 of $8.75 million with Alpha Bank and (iii) a share purchase agreement dated March 12, 2015 of $4.5 million from Jelco in exchange for the issuance of 25,000,500 newly issuance shares of our common stock. The convertible promissory note is repayable in ten consecutive semi-annual repayment installments of $0.2 million, along with a balloon installment of $2 million payable on the final maturity date and bears interest of three months Libor plus a margin of 5% with quarterly interest payments. The Company has the right to defer up to three consecutive repayment installments to the balloon installment. At Jelco's option, our obligation to repay the repayment installments, or the balloon installment, or the principal amount under the convertible promissory note may be paid in common shares at a conversion price of $0.18 per share, as such conversion price may be adjusted pursuant to the terms of the convertible promissory note, or   by any other conversion price to be agreed in writing between the Company and Jelco. The Alpha Bank loan is repayable in twenty consecutive quarterly installments, the first four installments being $0.2 million each and the next sixteen quarterly installments being $0.25 million each, along with a balloon installment of $3.95 million payable on the final maturity date. The loan bears interest of Libor plus a margin of 3.75% with quarterly interest payments. If LIBOR is below zero, LIBOR shall be deemed to be zero.

 

Restructuring of Our Indebtedness

 

Due to the economic conditions and operational difficulties of the Company, we entered into restructuring discussions with each of the lenders under our loan facility agreements which have been successfully resolved as of the date of this annual report. See "Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources - Credit Facilities" for a discussion of our loan agreements.

 

Since the fourth quarter of 2012, we have been in default under our loan agreements in respect of certain covenants (including, in some cases, the failure to make amortization and interest payments, the failure to satisfy financial covenants and the triggering of cross default provisions) and events of default have occurred. Since January 1, 2012, and up to March 11, 2014, we have sold or otherwise disposed of all of our 20 vessels (or the ownership of certain of our vessel-owning subsidiaries) in connection with the restructuring, and any proceeds have been used to repay the related debt. The following sets forth the terms of the completed steps of the restructuring to date:

 

BET Syndicate Facility Agreement

 

On June 12, 2012, with the consent of the lenders under BET Syndicate facility with Citibank plc as agent, or the Citibank Facility, we completed the sale of the Bet Scouter with gross proceeds of approximately $12.1 million. On July 16, 2012, with the consent of the lenders under the Citibank Facility, we completed the sale of the Bet Fighter with gross proceeds of approximately $9.1million and on October 29, 2012, with the consent of the lenders under the Citibank Facility, we completed the sale of the Bet Intruder with gross proceeds of approximately $4.8 million. Citibank applied the gross proceeds towards repayment of part of the debt under the Citibank Facility.

 

On November 9, 2012, we entered into an agreement with IMI, a company controlled by members of the Restis family, to sell our 100% ownership interest in BET, for a nominal cash consideration of $1. In addition, we released BET from all of its obligations and liabilities towards us, which accrued to $3.5 million as of the date of sale. The transaction was consummated on December 30, 2012 with the consent of the majority lenders of the Citibank syndicate, upon finalization of all the required documentation. On December 18, 2012, at the direction of IMI, we sold the vessel BET Prince for gross proceeds of $8.3 million, which were used to repay part of the then outstanding debt. As a result of the transaction, our overall indebtedness was reduced by approximately $46.7 million.

 

HSBC Facility Agreement

 

On September 4, 2012 we entered into a waiver letter (as supplemented by an extension letter dated October 24, 2012) through MCS and our MCS subsidiaries under the facility agreement with Hong Kong and Shanghai Banking Corporation Limited, or HSBC, for the sale of the two vessels under the HSBC facility (the Clipper Grace and the Clipper Glory), whereby HSBC agreed to waive any default which had or would occur under the HSBC Facility until the sale of the two vessels. On October 15, 2012 and December 4, 2012, we sold the Clipper Grace and Clipper Glory with gross proceeds of approximately $22.5 million. Part of the sale proceeds of approximately $17.1 million were applied towards the full and final satisfaction of all liabilities owed to HSBC under the HSBC Facility and HSBC further released us from all our liabilities and obligations under this facility.

 

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DVB Facility Agreement

 

On January 25, 2013 we entered into a settlement agreement with, among others, DVB, MCS, the MCS subsidiaries under the under the facility agreement with DVB Bank AG, or DVB, (the "DVB Facility"), for the sale of the four MCS subsidiaries to a third party entity nominated by DVB. On January 29, 2013, we closed the sale of our 100% MCS ownership interest in the four subsidiaries that owned the Handysize dry bulk carriers Fiesta, Pacific Fantasy, Pacific Fighter and Clipper Freeway. The buyer was a third-party nominee of the lenders under the senior secured credit facility with DVB, as agent. MCS had provided a guarantee under this facility, and in exchange for the sale, approximately $30.3 million of outstanding debt was discharged. In addition, the guarantee provided by MCS was fully released. DVB has also released us from all our liabilities and obligations under the DVB Facility.

 

UOB Facility Agreement

 

On July 19, 2013, MCS sold its 100% ownership interest in the three subsidiaries that owned the Handysize dry bulk carriers African Joy, African Glory and Asian Grace. The buyer was a third-party nominee of the lenders under the senior and the subordinated credit facility with UOB. MCS had provided a guarantee under this facility, and in exchange for the sale, $39.5 million of outstanding debt, accrued interest and swap liabilities were discharged. In addition, the guarantee provided by MCS was fully released.

 

Piraeus Bank Facility Agreement

 

We had outstanding indebtedness and accrued interest of $144.4 million as of December 31, 2013, under two credit facilities with Piraeus Bank. We had obtained waivers of the breach of certain financial covenants under our credit facilities through December 31, 2013. However as of December 31, 2012, we were not current with loan interest payments. As a result, an event of default had occurred.

 

On February 12, 2014, we entered into a delivery and settlement agreement with our remaining lender, Piraeus Bank, for the sale of our four remaining vessels, to a nominee of the lender, in exchange for a nominal cash consideration and full satisfaction of the underlying loan facilities. We had provided a corporate guarantee for these facilities. The four vessels are the dry bulk carriers Bremen Max, Hamburg Max, Davakis G. and Delos Ranger. On March 11, 2014, following the closing of the transaction and the sale of the vessels, the outstanding debt and accrued interest, under both the Term Facility and the Revolving Facility, were discharged and the corporate guarantee provided by us was fully released.

 

For more information regarding our loan facilities, please see "Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources - Credit Facilities."

 

NASDAQ Notifications and Listing under the NASDAQ Capital Market

 

Our common stock was listed on the NASDAQ Global Market until December 20, 2012. Effective December 21, 2012, the Company transferred its stock listing to the Nasdaq Capital Market and the Company's common stock continues to trade under the symbol "SHIP". Our ability to retain our listing is contingent upon compliance with NASDAQ listing requirements. The listing standards of the NASDAQ Capital Market provide, among other things, that a company may be delisted if the bid price of its stock drops below $1.00 for a period of 30 consecutive business days.

 

On May 1, 2013, we received written notification from the NASDAQ Capital Market, indicating that we were not in compliance with the requirement to maintain a minimum of $2.5 million in stockholders' equity for continued listing on the Capital Market, pursuant to NASDAQ Listing Rule 5550(b)(1). We submitted a plan to NASDAQ to regain compliance with the continued listing standards of the Capital Market. On August 7, 2013, we received written notification from the NASDAQ Capital Market, granting us an extension of time until October 28, 2013 to regain compliance with the NASDAQ Listing Rule 5550(b)(1). 

On October 30, 2013, we received a Staff Delisting Determination letter from the NASDAQ Stock Market LLC notifying us that, due to non-compliance with the minimum $2.5 million in stockholders' equity requirement for continued listing set forth in NASDAQ Listing Rule 5550(b), trading of our common stock would be suspended unless the Company requested an appeal of this delisting determination by November 6, 2013.

In connection to the delisting determination we requested an appeal and were granted a hearing before the NASDAQ Hearings Panel. The request stayed the suspension of trading and delisting of our common shares from the NASDAQ Capital Market pending the Panel's decision.

On December 11, 2013, we presented to the Panel the status of our previously announced financial restructuring plan and our plan to establish compliance with the minimum $2.5 million in stockholders' equity requirement.

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On January 9, 2014, the Panel granted our request for extension on the continued listing on the NASDAQ Capital Market until April 28, 2014 in order for us to demonstrate compliance with the minimum $2.5 million in stockholders' equity requirement. These notifications have no effect on the listing status of our common stock at this time.

On January 28, 2015, we received written notification from the NASDAQ Stock Market, indicating that because the closing bid price of our common stock for 30 consecutive business days, from December 12, 2014 to January 27, 2015, was below the minimum $1.00 per share bid price requirement for continued listing on the Nasdaq Capital Market, we were not in compliance with Nasdaq Listing Rule 5550(a)(2). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the applicable grace period to regain compliance is 180 days, or until July 27, 2015.

We intend to monitor the closing bid price of its common stock between now and July 27, 2015 and are considering our options, including a reverse stock split, in order to regain compliance with the Nasdaq Capital Market minimum bid price requirement. We can cure this deficiency if the closing bid price of our common stock is $1.00 per share or higher for at least ten consecutive business days during the grace period. In the event we do not regain compliance within the 180-day grace period and we meet all other listing standards and requirements, we may be eligible for an additional 180-day grace period.

We intend to cure the deficiency within the prescribed grace period. During this time, our common stock will continue to be listed and trade on the Nasdaq Capital Market. Our business operations are not affected by the receipt of this notification.   

Annual Meeting of Shareholders

 

At the annual meeting of our shareholders held on September 16, 2014, our shareholders approved and adopted the following proposals: 1) the election of Ms. Christina Anagnostara, as Class B Director to serve until the 2017 Annual Meeting of Shareholders, 2) the appointment of Ernst & Young (Hellas) Certified Auditors Accountants S.A. as the Company's Independent Registered Public Accounting Firm for the fiscal year ending December 31, 2014, and 3) the approval of a reverse stock split of the Company's issued and outstanding common stock by a ratio of not less than one-for-two and not more than one-for-fifteen with the exact ratio to be set at a whole number within this range to be determined by the Company's Board of Directors in its discretion and the approval of the related amendment to the Company's Amended and Restated Articles of Incorporation. Following the approval the Board of Directors has the authority to effect the stock split at any time at any of the approved split ratios within the range.

 

Equity Incentive Plan

 

On January 12, 2011 our board of directors adopted the Seanergy Maritime Holdings Corp. 2011 Equity Incentive Plan, or the Plan. A total of 8,750,000 shares of our common stock were reserved for issuance under the Plan, which is administered by the Compensation Committee of our board of directors. In May 2012, the total number of shares originally reserved under the Plan was adjusted to 583,334 shares to reflect the Reverse Stock Split. Under the Plan, our officers, key employees, directors, consultants and service providers may be granted incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, and unrestricted stock at the discretion of our Compensation Committee. Any awards granted under the Plan that are subject to vesting are conditioned upon the recipient's continued service as an employee or a director of the Company, through the applicable vesting date.

 

On February 16, 2011, the Compensation Committee granted an aggregate of 3,332 restricted shares (as adjusted for the Reverse Stock Split) of our common stock, or the February 2011 Shares, pursuant to the Plan. 2,667 restricted shares of the February 2011 Shares were granted to our two executive directors, and the other 665 restricted shares of the February 2011 Shares were granted to certain of our other employees. All of the February 2011 Shares vest proportionally over a period of three years in equal installments, which commenced on January 10, 2012. The fair value of each February 2011 Share on the grant date was $0.89 and such shares were expensed over 3 years.

 

B.           Liquidity and Capital Resources

 

Our principal source of funds has been our operating cash flow, our borrowing facilities and equity provided by the capital markets and our shareholders. Our principal use of funds has primarily been capital expenditures to establish our fleet, maintain the quality of our dry bulk carriers, comply with international shipping standards and environmental laws and regulations, fund working capital requirements, and make principal repayments and interest payments on our outstanding loan facilities.

 

As of December 31, 2014, our liquidity reflected $2.9 million of total cash, compared to $3.1 million in total cash as of December 31, 2013.

 

As of December 31, 2014, we had total indebtedness of $NIL. As of December 31, 2013, we had total indebtedness of $134.9 million. The decrease in our total indebtedness was attributed to the discharge and repayment of the Piraeus Bank debt in March 2014.

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Our working capital as of December 31, 2014, consisting of currents assets amounting to $3.3 million and current liabilities amounting to $0.6 million, resulted in a surplus of $2.7 million compared to a working capital deficit of $90.6 million as of December 31, 2013. The variance is mainly attributed to the discharge and repayment of the Piraeus Bank debt in March 2014.

On June 24, 2014, we had entered into a share purchase agreement under which we sold 1,890,000 of our common shares to Plaza Shipholding Corp. and Comet Shipholding Inc., companies affiliated with the Restis family, for approximately $1.1 million. On June 27, 2014, we completed the equity injection plan with the two abovementioned entities. The shares to the two entities were issued on June 27, 2014.

On September 29, 2014, we had entered into a share purchase agreement under which we sold 1,600,000 of our common shares to Plaza Shipholding Corp. and Comet Shipholding Inc., companies affiliated with the Restis family, for approximately $1 million. On September 30, 2014, we completed the equity injection plan with the two abovementioned entities. The shares to the two entities were issued on September 30, 2014.

On December 19, 2014, we had entered into a share purchase agreement under which we sold 4,440,000 of our common shares to Jelco, for approximately $1.1 million. On December 30, 2014, we completed the equity injection plan with the abovementioned entity. The shares to the entity were issued on December 30, 2014.

As of the date of this annual report, we have one bank loan obligation of $8.75 million outstanding and one shareholder convertible note obligation of $4.0 million outstanding, entered into for the acquisition of the vessel M/V Leadership in March 6, 2015 and March 12, 2015, respectively.

As charter rates for bulkers have experienced a high degree of volatility, the newly acquired vessel will probably be employed for the first months of its operation at charter rates that may not be sufficient to cover its operating expenses. Currently, there can be no assurance as to whether the charter rates will improve within a short period of time and to what extent, and accordingly if the cash existing at the balance sheet date and expected to be generated from the vessel's operation will be sufficient to cover the Company's working capital needs for a reasonable period of time.

Derivatives

 

We had no interest swap agreement as of December 31, 2014. The market value of the interest swaps was a liability of $NIL, $ NIL and $0.5 million as of December 31, 2014, 2013 and 2012, respectively.

 

Cash Flows

 

Year ended December 31, 2014, as compared to year ended December 31, 2013

 

Operating Activities: Net cash used in operating activities was $14.9 million for the year ended December 31, 2014 as compared to net cash provided of $1 million for the year ended December 31, 2013. In determining net cash provided by operating activities, net income/(loss) is adjusted for the effects of certain items such as depreciation and amortization, impairment losses, gains and losses from sales of vessels and unrealized gains and losses on derivatives.

 

The cumulative effect of adjustments to reconcile net income to net cash provided by operating activities was a $85.8 million decrease for the year ended December 31, 2014 which consisted mainly of the following adjustments: $85.6 million gain from restructuring the final credit facility with Piraeus Bank; $0.2 million payments for dry-docking and special survey costs and $0.003 million of depreciation.

Furthermore, the cash outflow from operations of $9.4 million for the year ended December 31, 2014, resulted mainly from: a $0.9 million increase in operating expenses liabilities; a $1.2 million decrease in trade receivables and a $0.7 million decrease in other current assets. This was partially offset by: a $9.4 million decrease in accrued interest, a $1.9 million decrease in trade accounts and other payables, a $0.8 million decrease in accrued expenses and a $0.2 million decrease in deferred revenue.

 

Investing Activities: For the year ended December 31, 2014, net cash provided by investing activities was $105.9 million. This cash inflow resulted from the sale of the four remaining vessels in March 2014 in connection with the delivery and settlement agreement with Piraeus Bank to unwind our final credit facility .

 

Financing Activities : For the year ended December 31, 2014, our net cash used in financing activities was $91.2 million. This cash outflow resulted mainly from $94.4 million of principal repayments of our debt that was partially offset by $3.2 million in proceeds from issuance of our common stock.

 

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Year ended December 31, 2013, as compared to year ended December 31, 2012

 

Operating Activities: Net cash provided by operating activities was $1 million for the year ended December 31, 2013 as compared to $2.4 million for the year ended December 31, 2012. In determining net cash provided by operating activities, net income/(loss) is adjusted for the effects of certain items such as depreciation and amortization, impairment losses, gains and losses from sales of vessels and unrealized gains and losses on derivatives,

 

The cumulative effect of adjustments to reconcile net income to net cash provided by operating activities was a $20.6 million decrease for the year ended December 31, 2013 which consisted mainly of the following adjustments: $3.6 million of impairment losses on vessels and deferred charges; $1 million of depreciation; $0.2 million amortization charges; and $1.1 million from the amortization and write-off of deferred finance fees. These adjustments were partially offset by $25.7 million gain from disposal of subsidiaries and $0.8 million payments for dry-docking and special survey costs.

Furthermore, the cash inflow from operations of $10.7 million for the year ended December 31, 2013, resulted mainly from: a $2.9 million increase in operating expenses liabilities; a $6.8 million increase in accrued expenses; a $1.1 million decrease in other current assets; a $1 million decrease in trade receivables; and a $0.3 increase in deferred revenue. This was partially offset by: a $0.6 million decrease in accounts payable and a $1 million increase in inventories.

 

Investing Activities: For the year ended December 31, 2013, net cash provided by investing activities was $1 million. This cash inflow resulted from proceeds of $4 million from the disposal of a vessel, offset by $3 million of cash paid and disposed of upon the disposal of the vessel owning subsidiaries financed by the DVB and the UOB loan facilities.

 

Financing Activities : For the year ended December 31, 2013, our net cash used in financing activities was $3.2 million. The cash outflow in 2013 resulted from $5.2 million of principal repayments of our debt that was partially offset by the decrease of $2 million in restricted cash upon the disposal of the vessel owning subsidiaries financed by the DVB loan facility.

 

 

Credit Facilities

Alpha Bank Loan Facility

 

On March 06, 2015, we entered into an $8.75 million loan agreement with Alpha Bank to partly finance the acquisition price of the M/V Leadership. The loan is repayable in twenty consecutive quarterly installments, the first four installments being $0.2 million each and the next sixteen quarterly installments being $0.25 million each, along with a balloon installment of $3.95 million payable on the final maturity date. The loan bears interest of Libor plus a margin of 3.75% with quarterly interest payments. If LIBOR is below zero, LIBOR shall be deemed to be zero.

The facility is secured by the following:

(a)              a first priority mortgage duly registered over the vessel;

(b)              a general assignment of all earnings, insurances, requisition compensation and all lender's benefits and interests present and future;

(c)              a corporate guarantee by Seanergy;

(d)              an accounts pledge agreement; and

(f)              a manager's undertaking.

The facility includes covenants, among others, that require the borrowers and the corporate guarantor, Seanergy, to maintain vessel insurance value for an amount greater of (a) the vessel's market value and (b) 125% of the loan. The vessel's insurance value is required to include as a minimum coverage for hull and machinery, war risk and protection and indemnity insurance, $1 billion for oil pollution and for excess oil spillage and pollution liability insurance. In addition, mortgagee's interest insurance is required to be at least 110% of the amount of the loan.

In addition, if the vessel is sold or becomes a total loss or the mortgage on the vessel is discharged on its disposal, we are required to repay such part of the facility as is equal to the higher of the amount related to such vessel or the amount necessary to maintain the security clause margin.

Other covenants include the following:

 

·              not to borrow any money or permit such borrowings to continue or enter into any agreement for deferred terms, other than in any customary supplier's credit terms or any equipment lease or contract hire agreement other than in ordinary course of business;

 

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Financial covenants include the following:

·

Leverage : the corporate leverage ratio of the guarantor will not be, at the end of any accounting period or at any other time, higher than 0.75:1.0;

·

EBITDA : the consolidated interest cover ratio for the accounting period (EBITDA to Interest Expense) shall not be lower than 2:1;

·

Liquidity : the borrower and/or the guarantor shall maintain minimum free liquidity in an amount equal to borrower's debt service of the next semester as free deposits with the lender;

·

Liquidity : the guarantor shall maintain minimum free liquidity in an amount equal to guarantor's debt service of the next semester as free deposits.

·

The financial covenants listed above are to be tested at the end of each semester.

Piraeus Bank

 

A long term debt facility of up to $255 million was provided by Piraeus Bank, the special successor of former Cyprus Popular Bank Public Co Ltd, formerly known as Marfin Popular Bank Public Co Ltd, successor by way of cross-border merger of Marfin Egnatia Bank Societe Anonyme, available in two facilities as described below. This facility is guaranteed by Seanergy, as corporate guarantor.

 

 

Piraeus Bank Reducing Revolving Credit Facility

 

As of December 31, 2012, the reducing revolving credit facility amounted to $44.8 million. On April 10, 2013, we sold the vessel African Oryx for gross proceeds of $4.1 million, which was used to repay part of the outstanding amount under this facility. As of December 31, 2013, the reducing revolving credit facility amounted to $40.9 million.

 

As per the amended loan Addendum no. 4 dated January 31, 2012, the applicable margin was increased by 50 basis points to 4.50% starting from February 1, 2012, installment payments under the revolving credit facility were deferred to December 2018 and any surplus of funds greater than $5 million over requirements associated with the operation and maintenance of the vessels during each fiscal quarter would be applied to the prepayment of the revolving credit facility.

 

The revolving credit facility bore interest at USD LIBOR plus 4.50% and the weighted average interest rate on the revolving credit facility, including the spread, for the years ended December 31, 2014, 2013 and 2012, was approximately 5.41%, 5.04% and 4.92%, respectively. In the event of our failure to pay any amount on the date on which such amount was due and payable, we were obligated to pay default interest on such amount on demand from the date of such default up to the date of actual payment at the per annum rate which is the aggregate of 2% plus applicable margin and LIBOR.

 

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On February 12, 2014, we entered into a delivery and settlement agreement with Piraeus Bank for the sale of our four remaining vessels, to a nominee of the lender, in exchange for a nominal cash consideration and full satisfaction of the underlying loan facilities. We had provided a corporate guarantee for these facilities. The four vessels are the dry bulk carriers Bremen Max, Hamburg Max, Davakis G. and Delos Ranger. Following the closing of the transaction on March 11, 2014, the outstanding debt and accrued interest, under both the Term Facility and the Revolving Facility, was discharged and the corporate guarantee provided by us was fully released.

 

Piraeus Bank Term Facility

 

Certain vessel acquisitions were financed by Piraeus Bank by an amortizing term facility equal to $165 million, to partly finance the vessels' aggregate acquisition costs, excluding any amounts associated with an earn-out provision.

 

On January 31, 2012, we entered into an Addendum no. 4 for the amendment of certain terms of our Facility agreement with Piraeus Bank. In accordance with the Addendum 4 conditions precedent, we made a prepayment of $3.2 million related to the revolving credit facility. The amendments include (i) the extension of the Facility's maturity date from September 2015 to December 2018, (ii) principal installment payment holiday for 2012, and amendment of the amortization schedule for 2013 onwards, (iii) waiver of all financial covenants as of December 31, 2011 (iv) waiver of all financial covenants (including the security margin) for the period commencing from January 1, 2012 through December 31, 2013, and (v) amendment of the financial undertakings and the security margin to apply from 2014 onwards. Furthermore, with respect to the term loan, the applicable margin was increased by 50 basis points to 4.00% starting from February 1, 2012; and the repayment installments were due on June 25, 2013 and December 25, 2013, and thereafter each of the twenty dates falling at consecutive quarterly intervals.

 

The weighted average interest rate on the term facility, including the spread, for the years ended December 31, 2014, 2013 and 2012, was approximately 4.66%, 4.54% and 4.39%, respectively.

In the event of our failure to pay any amount on the date on which such amount was due and payable, we were obligated to pay default interest on such amount on demand from the date of such default up to the date of actual payment at the per annum rate which is the aggregate of 2% plus applicable margin and LIBOR.

 

On February 12, 2014, we entered into a delivery and settlement agreement with Piraeus Bank for the sale of our four remaining vessels, to a nominee of the lender, in exchange for a nominal cash consideration and full satisfaction of the underlying loan facilities. We had provided a corporate guarantee for these facilities. The four vessels are the dry bulk carriers Bremen Max, Hamburg Max, Davakis G. and Delos Ranger. Following the closing of the transaction on March 11, 2014, the outstanding debt and accrued interest, under both the Term Facility and the Revolving Facility, was discharged and the corporate guarantee provided by us was fully released.

 

Citibank Loan Facility

 

The vessels owned by BET had been financed with the proceeds of a loan facility from Citibank International plc ("Citibank"), as agent for a syndicate of banks and financial institutions.

 

The applicable margin was USD LIBOR plus 3.00% per annum as per Fifth Supplemental Agreement dated February 7, 2012. The weighted average interest rate on the Citibank loan facility, including the spread, for the period ended December 30, 2012 and for the years ended December 31, 2011 and 2010, was approximately 3.49%, 2.30% and 1.94%, respectively.

 

During the year ended December 31, 2012, the Company sold the vessel BET Scouter, BET Fighter, BET Intruder and BET Prince, the latter at IMI's initiative, for gross aggregate proceeds of $34.4 million. All the proceeds from the disposals were used to repay part of the outstanding amounts under this facility.

 

On December 30, 2012, the Company completed the sale of its 100% ownership interest in BET to IMI together with all its liabilities under the Citibank Facility.

 

MCS Loan Agreements

 

HSBC loan facility

 

The loan facility, with HSBC as agent, was used to partly finance the cost of acquisition of two vessels. Following a supplemental agreement dated May 21, 2010 and prepayment of $7.6 million, the remaining loan amounts were repayable in thirteen quarterly installments plus balloon payments through July 2013.

 

The applicable margin was USD LIBOR plus 3.25% per annum until July 21, 2012 and thereafter was USD LIBOR plus 2.75% per annum unless there was breach of the compliance of the security requirement or there was an event of default under the loan agreement.

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On September 4, 2012, MCS obtain a waiver letter for the period until December 31, 2012, whereby HSBC agreed to waive any default which had occurred or would occur under the HSBC Facility. On October 15, 2012 and December 4, 2012, we successfully sold the vessels Clipper Grace and Clipper Glory, respectively, with gross sale proceeds of $22.5 million. Part of the sale proceeds of $17.1 million were applied towards the full and final satisfaction of all liabilities owed to HSBC. HSBC has also released us from all the liabilities and obligations under the HSBC Facility.

 

DVB loan facility

 

The loan facility with DVB, as agent, was used to partly finance the cost of the acquisition of four vessels through one senior and one junior facility. The loan was repayable in sixteen quarterly installments plus balloon payment through October 2015. On January 2012, we prepaid the entire balloon of $6.8 million related to Maritime Freeway Shipping Limited and a portion of the balloon related to Maritime Fiesta Shipping Limited, an amount of $1.4 million.

 

The applicable margin was USD LIBOR plus 2.10% per annum on the senior loan and USD LIBOR plus 4.90% per annum on the junior loan.

As of December 31, 2012, we were in breach with the security value covenant under the DVB loan facility and on January 25, 2013, we entered into a settlement agreement with DVB, for the sale of the four vessel-owning subsidiaries to a third party entity nominated by DVB. We successfully closed the sale of the vessel owning subsidiaries on January 29, 2013 and the outstanding debt was discharged. DVB also released us from all the liabilities and obligations under the DVB Facility Agreement.

 

UOB loan facility

 

The loan facility, with UOB, was used to partly finance the cost of the acquisition of three vessels. The remaining balance of the subordinated debt as of December 31, 2012 of $10.8 million is repayable up to the final balloon payment date of the original UOB loan facility. The remaining loan amounts as of December 31, 2012 are repayable in quarterly installments plus balloon payments through May 2016.

 

The applicable margin was USD LIBOR plus 2.50% per annum in relation to the senior loan and USD LIBOR plus 3.50% per annum in relation to the subordinated loan.

 

On July 19, 2013, MCS sold its 100% ownership interest in the three subsidiaries that owned the Handysize dry bulk carriers African Joy, African Glory and Asian Grace. The buyer was a third-party nominee of the lenders under the senior and the subordinated credit facility with UOB. MCS had provided a guarantee under this facility, and in exchange for the sale, $39.5 million of outstanding debt, accrued interest and swap liabilities were discharged. In addition, the guarantee provided by MCS was fully released.

 

Debt Repayment and Terms

 

All of the outstanding debt of $134.9 million is classified as current as of December 31, 2013, for the reasons discussed above. Following the closing of the transaction with Piraeus Bank on March 11, 2014, the outstanding debt and accrued interest, under both the Term Facility and the Revolving Facility, was discharged and the corporate guarantee provided by us was fully released.

 

Capital Requirements

 

Capital expenditures relate to the routine drydocking of our vessels. Currently we have one vessel and its next scheduled maintenance will take place in 2016.

 

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

Not applicable.

 

D.              Trend Information

 

Our results of operations depend primarily on the charter hire rates that we are able to realize for our owned vessels, which depend on the demand and supply dynamics characterizing the dry bulk freight market at any given time.

 

After reaching historical highs in May 2008, the freight market reversed sharply in the fourth quarter of the same year. Since then, freight rates have been quite volatile yet they have remained at lower levels than those witnessed before 2009. For industry trends refer to industry disclosure under "Risk Factors" and "Item 4 – Business Overview." For company-specific trends refer to "Item 5. Operating and Financial Review and Prospects – Operating Results."

 

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E.              Off-balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

F.              Tabular Disclosure of Contractual Obligations

 

The following tables summarize our contractual obligations as of December 31, 2014, based on the contractual terms of the loan agreements and rental arrangements.

 

1.

The office rent reflects our agreement with Waterfront S.A. for the rent of our executive offices. The current lease term had an expiration date of December 31, 2014, which was extended for one month, and the monthly lease payment was EUR 25,000. The monthly payment due under the office rent in U.S. dollars has been computed by using the Euro/U.S. dollar exchange rate as of December 31, 2014, which was €1.00:$1.2141.

The office rent also reflects the rent for the office of MCS in Hong Kong. The monthly payment under the current tenancy agreement is HK$ 25,000 until the expiration of the extended agreement on March 16, 2015. The monthly payment due under the office rent in Hong Kong dollars has been computed by using the U.S. dollar/ HK dollar exchange rate as of December 31, 2014, which was $1.00:HK$ 7.7577.

G.              Safe Harbor

 

See the section titled "Cautionary Statement Regarding Forward-Looking Statements" at the beginning of this annual report.