|Significant Accounting Policies
2. Significant Accounting Policies:
(a) Principles of Consolidation: The
accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. The consolidated financial statements
include the accounts of Pyxis and its wholly-owned subsidiaries (the Vessel-owning companies and Merger Sub). All intercompany balances
and transactions have been eliminated upon consolidation.
Pyxis, as the holding company, determines whether
it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable
interest entity. Under Accounting Standards Codification (“ASC”) 810 “Consolidation” a voting interest entity
is an entity in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides
the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make financial and operating
decisions. Pyxis consolidates voting interest entities in which it owns all, or at least a majority (generally, greater than 50%), of
the voting interest. Variable interest entities (“VIE”) are entities as defined under ASC 810-10, that in general either do
not have equity investors with voting rights or that have equity investors that do not provide sufficient financial resources for the
entity to support its activities. A controlling financial interest in a VIE is present when a company absorbs a majority of an entity’s
expected losses, receives a majority of an entity’s expected residual returns, or both. The company with a controlling financial
interest, known as the primary beneficiary, is required to consolidate the VIE. Pyxis evaluates all arrangements that may include a variable
interest in an entity to determine if it may be the primary beneficiary, and would be required to include assets, liabilities and operations
of a VIE in its consolidated financial statements. As of December 31, 2020, no such interest existed.
(b) Use of Estimates: The preparation
of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates.
(c) Comprehensive Income / (Loss): The
Company follows the provisions of ASC 220 “Comprehensive Income”, which requires separate presentation of certain transactions
which are recorded directly as components of equity. The Company had no transactions which affect comprehensive loss during the years
ended December 31, 2018, 2019 and 2020 and, accordingly, comprehensive loss was equal to net loss.
(d) Foreign Currency Translation: The
functional currency of the Company is the U.S. dollar as the Company’s vessels operate in international shipping markets and, therefore,
primarily transact business in U.S. dollars. The Company’s accounting records are maintained in U.S. dollars. Transactions involving
other currencies during the year are converted into U.S. dollars using the exchange rates in effect at the time of the transactions. At
the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies, are translated into U.S. dollars
at the exchange rates in effect at the balance sheet date. Resulting gains or losses are included in Vessel operating expenses in the
accompanying consolidated statements of comprehensive loss. All amounts in the financial statements are presented in thousand U.S. dollars
rounded to the nearest thousand.
(e) Commitments and Contingencies: Provisions
are recognized when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate of the amount of the obligation
can be made. Provisions are reviewed at each balance sheet date. Disclosure of a contingency is made if there is at least a reasonable
possibility that a change in the Company’s estimate of its probable liability could occur in the near future.
(f) Insurance Claims Receivable: The
Company records insurance claim recoveries for insured losses incurred on damage to fixed assets and for insured crew medical expenses.
Insurance claim recoveries are recorded, net of any deductible amounts, at the time the Company’s fixed assets suffer insured damages
or when crew medical expenses are incurred, recovery is probable under the related insurance policies and the claim is not subject to
litigation. The Company assessed the adoption of ASC 326 regarding the collectability of insurance claims recoveries and concluded that
there is no material impact in the Company’s financial statements as of the date of the adoption of ASC 326 on January 1, 2020 and
as of December 31, 2020 and thus no provision for credit losses was recorded as of those dates.
(g) Concentration of Credit Risk: Financial
instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash
equivalents and trade accounts receivable. The Company places its cash and cash equivalents, consisting mostly of deposits, with qualified
financial institutions with high creditworthiness. The Company performs periodic evaluations of the relative creditworthiness of those
financial institutions that are considered in the Company’s investment strategy. The Company limits its credit risk with accounts
receivable by performing ongoing credit evaluations of its customers’ financial condition and generally does not require collateral
for its accounts receivable.
(h) Cash and Cash Equivalents and Restricted
Cash: The Company considers highly liquid investments such as time deposits and certificates of deposit with an original maturity
of three months or less to be cash equivalents. Restricted cash is associated with pledged retention accounts in connection with the loan
repayments and minimum liquidity requirements under the loan agreements discussed in Note 7 and is presented separately in the accompanying
consolidated balance sheets. The Company assessed the adoption of ASC 326 for cash equivalents and restricted cash and concluded that
there is no impact in the Company’s financial statements as of the date of the adoption of ASC 326 on January 1, 2020 and as of
December 31, 2020 and thus no provision for credit losses was recorded as of those dates.
(i) Income Taxation: Under the laws
of the Republic of the Marshall Islands, the country of incorporation of certain of the Company’s vessel-owning companies, and/or
the vessels’ registration, the vessel-owning companies are not liable for any income tax on their income derived from shipping operations.
Instead, a tax is levied depending on the countries where the vessels trade based on their tonnage, which is included in Vessel operating
expenses in the accompanying consolidated statements of comprehensive loss. The vessel-owning companies with vessels that have called
on the United States during the relevant year of operation are obliged to file tax returns with the Internal Revenue Service. The applicable
tax is 50% of 4% of U.S. related gross transportation income unless an exemption applies. The Company believes that based on current legislation
the relevant vessel-owning companies are entitled to an exemption because they satisfy the relevant requirements, namely that (i) the
related vessel-owning companies are incorporated in a jurisdiction granting an equivalent exemption to U.S. corporations and (ii) over
50% of the ultimate stockholders of the vessel-owning companies are residents of a country granting an equivalent exemption to U.S. persons.
Under the laws of the Republic of Malta, the country
of incorporation of certain of the Company’s vessel-owning companies, and/or the vessels’ registration, these vessel-owning
companies are not liable for any income tax on their income derived from shipping operations. The Republic of Malta is a country that
has an income tax treaty with the United States. Accordingly, income earned by vessel-owning companies organized under the laws of the
Republic of Malta may qualify for a treaty-based exemption. Specifically, Article 8 (Shipping and Air Transport) of the treaty sets out
the relevant rule to the effect that profits of an enterprise of a Contracting State from the operation of ships in international traffic
shall be taxable only in that State.
(j) Inventories: Inventories consist
of lubricants and bunkers (where applicable) on board the vessels, which are stated at the lower of cost and net realizable value. Cost
is determined by the first-in, first-out (“FIFO”) method.
(k) Trade Accounts Receivable,
Net: Under spot charters, the Company normally issues its invoices to charterers at the completion of the voyage. Invoices
are due upon issuance of the invoice. Since the Company satisfies its performance obligation over the time of the spot charter, the
Company recognizes its unconditional right to consideration in trade accounts receivable, net of a provision for doubtful accounts,
if any. Trade accounts receivable from spot charters as of December 31, 2019 and 2020, amounted to $743 and $672, respectively. The
allowance for doubtful accounts at December 31, 2019 was zero. The allowance for expected credit losses at December 31, 2020 was $9
(Note 2(aa)). Under time charter contracts, the Company normally issues invoices on a monthly basis 30 days in advance of providing
its services. Trade accounts receivable from time charters as of December 31, 2019 and 2020, amounted to $500 and $1,
respectively. Hire collected in advance includes cash received in advance of performance under the contract prior to the balance
sheet date and is realized when the associated revenue is recognized under the contract in periods after such date. The hire
collected in advance as of December 31, 2019 and 2020 was $1,415 and $ 706 respectively and concerns hire received in advance from
(l) Vessels, Net: Vessels are stated
at cost, which consists of the contract price and any material expenses incurred in connection with the acquisition (initial repairs,
improvements, delivery expenses and other expenditures to prepare the vessel for her initial voyage, as well as professional fees directly
associated with the vessel acquisition). Subsequent expenditures for major improvements are also capitalized when they appreciably extend
the life, increase the earning capacity or improve the efficiency or safety of the vessels; otherwise, these amounts are expensed as incurred.
The cost of each of the Company’s vessels is
depreciated from the date of acquisition on a straight-line basis over the vessels’ remaining estimated economic useful life, after
considering the estimated residual value. A vessel’s residual value is equal to the product of its lightweight tonnage and estimated
scrap rate of $0.300 per ton. The Company estimates the useful life of the Company’s vessels to be 25 years from the date of initial
delivery from the shipyard. In the event that future regulations place limitations over the ability of a vessel to trade on a worldwide
basis, its remaining useful life will be adjusted at the date such regulations are adopted.
(m) Impairment of Long Lived Assets:
The Company reviews its long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
plus the unamortized dry-dock and survey balances of these assets may not be recoverable.
In developing estimates of future undiscounted cash
flows, the Company makes assumptions and estimates about the vessels’ future performance, relating to time charter equivalent rates
by vessel type, vessels’ operating expenses, management fees, vessels’ capital expenditures, vessels’ residual value,
fleet utilization and the estimated remaining useful life of each vessel. The assumptions used to develop estimates of future undiscounted
cash flows are based on historical trends as well as future expectations.
To the extent impairment indicators are present, the
projected net operating cash flows are determined by considering the charter revenues from existing time charters for the fixed days and
an estimated daily time charter rate for the unfixed days (based on the most recent seven year historical average rates over the remaining
estimated useful life of the vessels), expected outflows for vessels’ operating expenses, planned dry-docking and special survey
expenditures, management fees expenditures which are adjusted every year, pursuant to the Company’s existing group management agreement,
and fleet utilization of 75.0% to 98.6% (depending on the type of the vessel) for the first year and 78% to 93.0%, including scheduled
off-hire days for planned dry-dockings and vessel surveys, based on historical experience. The residual value used in the impairment test
is estimated to be approximately $0.3 per lightweight ton in accordance with the vessels’ depreciation policy.
Should the carrying value plus the unamortized dry-dock
and survey balance of the vessel exceed its estimated future undiscounted net operating cash flows, impairment is measured based on the
excess of the carrying amount over the fair market value of the asset. The Company determines the fair value of its vessels based on management
estimates and assumptions and by making use of available market data and taking into consideration third party valuations.
The review of the carrying amounts plus the unamortized
dry-dock and survey balances in connection with the estimated recoverable amount for certain of the Company’s as of December 31,
2018 indicated an impairment charge of $2,282. No impairment charge for the Company’s vessels was recorded as of December 31, 2019
and 2020 respectively.
(n) Long-lived Assets Classified as Held for
Sale: The Company classifies long-lived assets and disposal groups as being held-for-sale in accordance with ASC 360, “Property,
Plant and Equipment”, when: (i) management, having the authority to approve the action, commits to a plan to sell the asset; (ii)
the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such
assets; (iii) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated;
(iv) the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one
year; (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and (vi) actions
required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be
withdrawn. Long-lived assets classified as held-for-sale are measured at the lower of their carrying amount or fair value less costs to
sell. According to ASC 360-10-35, the fair value less costs to sell of the long-lived asset (disposal group) should be assessed at each
reporting period it remains classified as held-for-sale. Subsequent changes in the long-lived asset’s fair value less costs to sell
(increase or decrease) would be reported as an adjustment to its carrying amount, not exceeding the carrying amount of the long-lived
asset at the time it was initially classified as held-for-sale. These long-lived assets are not depreciated once they meet the criteria
to be classified as held-for-sale and are classified in current assets on the consolidated balance sheet (Notes 5 and 6).
(o) Financial Derivative Instruments: The
Company enters into interest rate derivatives to manage its exposure to fluctuations of interest rate risk associated with its borrowings.
All derivatives are recognized in the consolidated financial statements at their fair value. The fair value of the interest rate derivatives
is based on a discounted cash flow analysis. When such derivatives do not qualify for hedge accounting, the Company recognizes their fair
value changes in current period earnings. When the derivatives qualify for hedge accounting, the Company recognizes the effective portion
of the gain or loss on the hedging instrument directly in other comprehensive income / (loss), while the ineffective portion, if any,
is recognized immediately in current period earnings. The Company, at the inception of the transaction, documents the relationship between
the hedged item and the hedging instrument, as well as its risk management objective and the strategy of undertaking various hedging transactions.
The Company also assesses at hedge inception whether the hedging instruments are highly effective in offsetting changes in the cash flows
of the hedged items.
The Company discontinues cash flow hedge accounting
if the hedging instrument expires and it no longer meets the criteria for hedge accounting or its designation is revoked by the Company.
At that time, any cumulative gain or loss on the hedging instrument recognized in equity is kept in equity until the forecasted transaction
occurs. When the forecasted transaction occurs, any cumulative gain or loss on the hedging instrument is recognized in the consolidated
statement of comprehensive loss. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in
equity is transferred to the current period’s consolidated statement of comprehensive loss as financial income or expense.
(p) Accounting for Special Survey and Dry-docking
Costs: The Company follows the deferral method of accounting for special survey and dry-docking costs, whereby actual costs incurred
at the yard and parts used in the dry-docking or special survey, are deferred and are amortized on a straight-line basis over the period
through the date the next survey is scheduled to become due. Costs deferred are limited to actual costs incurred at the shipyard and costs
incurred in the dry-docking or special survey. If a dry-dock or a survey is performed prior to the scheduled date, any remaining unamortized
balances of the previous dry-dock and survey are immediately written-off. Unamortized dry-dock and survey balances of vessels that are
sold are written-off and included in the calculation of the resulting gain or loss in the period of the vessel’s sale.
Furthermore, unamortized dry-docking and special survey
balances of vessels that are classified as Assets held-for-sale and are not recoverable as of the date of such classification are immediately
written-off and included in the resulting loss on vessel held-for-sale.
(q) Financing Costs: Costs associated
with new loans or refinancing of existing loans, including fees paid to lenders or required to be paid to third parties on the lender’s
behalf for obtaining new loans or refinancing existing loans, are recorded as a direct deduction from the carrying amount of the debt
liability. Such costs are deferred and amortized to Interest and finance costs in the consolidated statements of comprehensive loss during
the life of the related debt using the effective interest method. Unamortized costs relating to loans repaid or refinanced, meeting the
criteria of debt extinguishment, are expensed in the period the repayment or refinancing is made. Commitment fees relating to undrawn
loan principal are expensed as incurred.
(r) Fair Value Measurements: The Company
follows the provisions of Accounting Standard Update (“ASU”) 2015-07 “Fair Value Measurements and Disclosures”,
Topic 820, which defines and provides guidance as to the measurement of fair value. This standard creates a hierarchy of measurement and
indicates that, when possible, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets
and the lowest priority (Level 3) to unobservable data, for example, the reporting entity’s own data. Under the standard, fair value
measurements are separately disclosed by level within the fair value hierarchy (Note 10).
(s) Segment Reporting: The Company reports
financial information and evaluates its operations by charter revenues and not by the length of ship employment for its customers, i.e.,
spot or time charters. The Company does not use discrete financial information to evaluate the operating results for each such type of
charter. Although revenue can be identified for these types of charters, management cannot and does not identify expenses, profitability
or other financial information for these charters. Furthermore, when the Company charters a vessel to a charterer, the charterer is free
to trade the vessel worldwide (subject to certain agreed exclusions) and, as a result, the disclosure of geographic information is impracticable.
As a result, management, reviews operating results solely by revenue per day and operating results of the fleet and thus the Company has
determined that it operates under one reportable segment.
(t) Income/(Loss) per Share: Basic income/(loss)
per share is computed by dividing the net income/(loss) attributable to common shareholders by the weighted average number of common shares
outstanding during the period.
The computation of diluted income/(loss) per share
reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted at
the beginning of the periods presented, or issuance date, if later. The treasury stock method is used to compute the dilutive effect of
warrants and, shares issued under the equity incentive plan and the promissory note. The if-converted method is used to compute the dilutive
effect of shares which could be issued upon conversion of the Series A Convertible Preferred Shares into common shares. Potential common
shares that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the
calculation of diluted earnings per share. As the Company reported losses for the years ended December 31, 2018, 2019 and 2020, the effect
of any incremental shares would be antidilutive and thus excluded from the computation of loss per share.
(u) Going Concern: The Company performs
cash flow projections on a regular basis to evaluate whether it will be in a position to cover its liquidity needs for the next 12-month
period and in compliance with the financial and security collateral cover ratio covenants under its existing debt agreements. In developing
estimates of future cash flows, the Company makes assumptions about the vessels’ future performance, with significant assumptions
relating to time charter equivalent rates by vessel type, vessels’ operating expenses, vessels’ capital expenditures, fleet
utilization, the Company’s management fees and general and administrative expenses, and cash flow requirements for debt servicing.
The assumptions used to develop estimates of future cash flows are based on historical trends as well as future expectations.
As of December 31, 2020, the Company had a working
capital deficit of $2,895, defined as current assets minus current liabilities. The Company considered such deficit in conjunction with
the future market prospects and potential future financings. As of the filing date of these consolidated financial statements, the Company
believes that it will be in a position to cover its liquidity needs for the next 12-month period through the recent Private Placement
of Equity, the contemplated debt refinancing of the Entrust Loan (Note 13) and cash generated from the vessels’ operations and
possible asset sales. The Company believes that will be in compliance with the financial and security collateral cover ratio covenants
under its existing debt agreements for the next 12-month period.
(v) Revenues, net: The Company generates
its revenues from charterers. The vessels are chartered using either spot charters, where a contract is made in the spot market for the
use of a vessel for a specific voyage for a specified charter rate, or time charters, where a contract is entered into for the use of
a vessel for a specific period of time and a specified daily charter hire rate.
The following table presents the Company’s revenue
disaggregated by revenue source, net of commissions, for the years ended December 31, 2018, 2019 and 2020:
|Revenues derived from spot charters, net
|Revenues derived from time charters, net
Revenue from customers (ASC 606): As
of January 1, 2018, the Company adopted Accounting Standard Update (“ASU”) 2014-09 “Revenue from Contracts with Customers
(Topic 606)”. The core principle is that a company should recognize revenue when promised goods or services are transferred
to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The Company
analyzed its contracts with charterers at the adoption date and has determined that its spot charters fall under the provisions of ASC
606, while its time charter agreements are lease agreements that fall under the provisions of ASC 842 and that contain certain non-lease
components. The Company elected to adopt ASC 606 by applying the modified retrospective transition method, recognizing the cumulative
effect of adopting this guidance as an adjustment to the 2018 opening balance of accumulated deficit. As of December 31, 2017, there were
no vessels employed under spot charters and as a result, the Company has not included any adjustments to the 2018 opening balance of accumulated
deficit and prior periods were not retrospectively adjusted.
The Company assessed its contracts with charterers
for spot charters and concluded that there is one single performance obligation for its spot charter, which is to provide the charterer
with a transportation service within a specified time period. In addition, the Company has concluded that a spot charter meets the criteria
to recognize revenue over time as the charterer simultaneously receives and consumes the benefits of the Company’s performance.
The adoption of this standard resulted in a change whereby the Company’s method of revenue recognition changed from discharge-to-discharge
(assuming a new charter has been agreed before the completion of the previous spot charter) to load-to-discharge. This resulted in no
revenue being recognized from discharge of the prior spot charter to loading of the current spot charter and all revenue being recognized
from loading of the current spot charter to discharge of the current spot charter. This change results in revenue being recognized later
in the voyage, which may cause additional volatility in revenues and earnings between periods. Demurrage income represents payments by
a charterer to a vessel owner when loading or discharging time exceeds the stipulated time in the spot charter. The Company has determined
that demurrage represents a variable consideration and estimates demurrage at contract inception. Demurrage income estimated, net of address
commission, is recognized over the time of the charter as the performance obligation is satisfied.
Under a spot charter, the Company incurs and pays
for certain voyage expenses, primarily consisting of brokerage commissions, port and canal costs and bunker consumption, during the spot
charter (load-to-discharge) and during the ballast voyage (date of previous discharge to loading, assuming a new charter has been agreed
before the completion of the previous spot charter). Before the adoption of ASC 606, all voyage expenses were expensed as incurred, except
for brokerage commissions. Brokerage commissions are deferred and amortized over the related voyage period in a charter to the extent
revenue has been deferred since commissions are earned as the Company’s revenues are earned. Under ASC 606 and after the implementation
of ASC 340-40 “Other assets and deferred costs” for contract costs, incremental costs of obtaining a contract with
a customer and contract fulfillment costs, should be capitalized and amortized as the performance obligation is satisfied, if certain
criteria are met. The Company assessed the new guidance and concluded that voyage costs during the ballast voyage represented costs to
fulfil a contract which give rise to an asset and should be capitalized and amortized over the spot charter, consistent with the recognition
of voyage revenues from spot charter from load-to-discharge, while voyage costs incurred during the spot charter should be expensed as
incurred. With respect to incremental costs, the Company has selected to adopt the practical expedient in the guidance and any costs to
obtain a contract will be expensed as incurred, for the Company’s spot charters that do not exceed one year. Vessel operating expenses
are expensed as incurred.
In addition, pursuant to this standard and the new
Leases standard (discussed below), as of January 1, 2018, the Company elected to present Revenues net of address commissions. Address
commissions represent a discount provided directly to the charterers based on a fixed percentage of the agreed upon charter. Since address
commissions represent a discount (sales incentive) on services rendered by the Company and no identifiable benefit is received in exchange
for the consideration provided to the charterer, these commissions are presented as a reduction of revenue in the accompanying consolidated
statements of comprehensive loss.
The Company does not disclose the value of unsatisfied
performance obligations for contracts with an original expected length of one year or less, in accordance with the optional exception
in ASC 606.
Leases: The Company elected to
early adopt the new lease standard “Leases” ASC 842 as of September 30, 2018 with adoption reflected as of January 1, 2018. The
Company adopted the standard by using the modified retrospective method and selected the additional optional transition method.
Also, the Company elected to apply a package of practical expedients under ASC 842, which allowed the Company, not to reassess (i)
whether any existing contracts, on the date of adoption, contained a lease, (ii) lease classification of existing leases classified
as operating leases in accordance with ASC 840 and (iii) initial direct costs for any existing leases. In this respect no cumulative-effect
adjustment was recognized to the 2018 opening balance of accumulated deficit. The
Company assessed its new time charter contracts at the adoption date under the new guidance and concluded that these contracts
contain a lease with the related executory costs (insurance), as well as non-lease components to provide other services related to
the operation of the vessel, with the most substantial service being the crew cost to operate the vessel. The Company concluded that
the criteria for not separating the lease and non-lease components of its time charter contracts are met, since (i) the time pattern
of recognizing revenues for crew and other services for the operation of the vessels, is similar to the time pattern of recognizing
rental income, (ii) the lease component of the time charter contracts, if accounted for
separately, would be classified as an operating lease, and (iii) the predominant component in its time charter agreements is
the lease component. After the lease commencement date, the Company evaluates lease modifications, if any, that could result in a
change in the accounting for leases. For a lease modification, an evaluation is performed to determine if it should be treated as
either a separate lease or a change in the accounting of an existing lease. Brokerage and address commissions on time charter
revenues are deferred and amortized over the related voyage period, to the extent revenue has been deferred, since commissions are
earned as revenues earned, and are presented in voyage expenses and as a reduction to voyage revenues (see above), respectively.
Vessel operating expenses are expensed as incurred. By taking the practical expedients, existing time charters at January 1, 2018,
continued to be accounted for under ASC 840 while new time charters commencing in 2018 and onwards are accounted for under ASC 842.
The adoption of ASC 842 had no effect on the Company’s consolidated financial position and results of operations for the year
ended December 31, 2018 and 2019. Upon adoption of ASC 842, the Company made an accounting
policy election to not recognize contract fulfillment costs for time charters under ASC 340-40.
Revenues for the years ended December 31, 2018, 2019
and 2020, deriving from significant charterers individually accounting for 10% or more of revenues (in percentages of total revenues),
were as follows:
(w) Restricted Cash: As of January 1,
2018, the Company adopted the ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash”, which requires that
the statement of cash flows explain the change in the total of cash and cash equivalents and restricted cash. Restricted cash of $3,659,
$3,735 and $2,417 as at December 31, 2018, 2019 and 2020, respectively, has been aggregated with cash and cash equivalents in both the
beginning-of-year and end-of-year line items of the consolidated statements of cash flows for each of the periods presented. The implementation
of this update has no impact on the Company’s consolidated balance sheet and consolidated statement of comprehensive loss.
The following table provides a reconciliation of cash
and cash equivalents and restricted cash reported within the accompanying consolidated balance sheets that are presented in the accompanying
consolidated statement of cash flows for the years ended December 31, 2018, 2019 and 2020.
|Cash and cash equivalents
|Restricted cash, current portion
|Restricted cash, net of current portion
|Total cash and cash equivalents and restricted cash
(x) Business combinations: As of January
1, 2018, the Company adopted the ASU No. 2017-01, “Business Combinations” (Topic 805) which clarifies the definition of a
business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition
(or disposals) of assets or businesses. Under current implementation guidance, the existence of an integrated set of acquired activities
(inputs and processes that generate outputs) constitutes an acquisition of business. This ASU provides a screen to determine when a set
of assets and activities does not constitute a business. The implementation of this update had no effect on the Company’s consolidated
financial position and results of operations for the year ended December 31, 2018.
(y) Debt Modifications and Extinguishments:
The Company follows the provisions of ASC 470-50, Modifications and Extinguishments, to account for all modifications or extinguishments
of debt instruments, except debt that is extinguished through a troubled debt restructuring or a conversion of debt to equity securities
of the debtor pursuant to conversion privileges provided in terms of the debt at issuance. This standard also provides guidance on whether
an exchange of debt instruments with the same creditor constitutes an extinguishment and whether a modification of a debt instrument should
be accounted for in the same manner as an extinguishment. In circumstances where an exchange of debt instruments or a modification of
a debt instrument does not result in extinguishment accounting, this standard provides guidance on the appropriate accounting treatment.
On July 8, 2020, Seventhone entered into a $15,250
secured loan agreement with the new lender, for the purpose of refinancing the outstanding indebtedness of $11,293 under the previous
loan facility, which was fully settled on the same day. The Company considered the guidance under ASC 470-50 “Debt Modifications
and Extinguishments” and concluded that the transaction should be accounted for as debt extinguishment (Note 7).
(z) Distinguishing Liabilities from Equity:
The Company follows the provisions of ASC 480 “Distinguishing liabilities from equity” to determine the classification of
certain freestanding financial instruments as either liabilities or equity. The Company in its assessment for the accounting of the Series
A Convertible Preferred Shares and detachable warrants issued in connection with the October 13, 2020 public offering has taken into consideration
ASC 480 “Distinguishing liabilities from equity” and determined that the Series A Convertible Preferred Shares and detachable
warrants should be classified as equity instead of liability (Note 8). The Company further analyzed key features of the Series A Convertible
Preferred Shares and detachable warrants to determine whether these are more akin to equity or to debt and concluded that the Series A
Convertible Preferred Shares and detachable warrants are equity-like. In its assessment, the Company identified certain embedded features,
examined whether these fall under the definition of a derivative according to ASC 815 applicable guidance or whether certain of these
features affected the classification. Derivative accounting was deemed inappropriate and thus no bifurcation of these features was performed.
(aa) New Accounting Pronouncements – Adopted
Expected credit losses: In June 2016, the FASB
issued ASU No. 2016-13—Financial Instruments—Credit Losses (Topic 326) —Measurement of Credit Losses on Financial Instruments.
ASU No. 2016-13 amended guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.
In May 2019, the FASB issued ASU 2019-05, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Financial
Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments”, the amendments of which
provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured
at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall,
applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The amendments clarify that receivables
arising from operating leases are outside of the scope of Subtopic 326-20. Accordingly, any impairment of receivables arising from operating
leases i.e. time charters, should be accounted for in accordance with Topic 842, Leases, and not in accordance with Topic 326. Impairment
of receivables arising from voyage charters, which are accounted for in accordance with Topic 606, Revenues from Contracts with Customers,
are within the scope of Subtopic 326 and must therefore be assessed for expected credit losses.
As of January 1, 2020, the Company adopted ASU 2016-13—Financial
Instruments—Credit Losses (Topic 326). The accounting standard amends the current financial instrument impairment model by requiring
entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments,
including trade receivables. Under the new guidance, an entity recognizes as an allowance its estimate of lifetime expected credit losses
which will result in more timely recognition of such losses. The Company adopted the accounting standard using the prospective transition
approach as of January 1, 2020, which resulted in a cumulative adjustment of $(9), in the opening balance of accumulated deficit for the
fiscal year of 2020. The Company maintains an allowance for credit losses for expected uncollectable accounts receivable, which is recorded
as an offset to trade accounts receivable and changes in such, if any, are classified as Bad debt provisions in the Consolidated Statements
of Comprehensive Loss.
The adoption of ASC 326 primarily impacted trade receivables
recorded on Consolidated Balance Sheet. The Company assessed collectability by reviewing accounts receivable on a collective basis where
similar characteristics exist and on an individual basis when the Company identifies specific customers with known disputes or collectability
issues. In determining the amount of the allowance for credit losses, the Company considered historical collectability based on past due
status. The Company also considered customer-specific information, current market conditions and reasonable and supportable forecasts
of future economic conditions to inform adjustments to historical loss data.
As of January 1, 2020 and December 31, 2020, the Company concluded on an
expected credit loss rate of 0.05% on the total outstanding receivables arising from voyage charters and 2.4% on outstanding receivables
from demurrages. Management monitors its trade receivables on a daily and on a charter-by charterer basis in order to determine if adjustments
are necessary in the expected credit loss rate. No additional allowance was warranted for the year ended December 31, 2020.
Fair Value measurement: On January 1, 2020,
the Company adopted ASU 2018-13, “Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement”, which improves the effectiveness of fair value measurement disclosures. In particular,
the amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based
on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements,
including the consideration of costs and benefits. The amendments in the Update apply to all entities that are required under existing
GAAP to make disclosures about recurring and non-recurring fair value measurements. The amendments on changes in unrealized gains and
losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative
description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in
the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective
date. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements
and related disclosures.
Variable Interest Entities: On January 1, 2020,
the Company adopted ASU 2018-17, “Consolidation (Topic 810) – Targeted Improvements to Related Party Guidance for Variable
Interest Entities”, which improves the accounting for the following areas: (i) applying the variable interest entity (VIE) guidance
to private companies under common control and (ii) considering indirect interests held through related parties under common control for
determining whether fees paid to decision makers and service providers are variable interests, thereby improving general purpose financial
reporting. The Company applied the amendments in this Update retrospectively, as required. The adoption of this new accounting guidance
did not have a material effect on the Company’s consolidated financial statements and related disclosures.
(ab) New Accounting Pronouncements – Not
In March 2020, the FASB issued ASU 2020-04, Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients
and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. ASU 2020-04
applies to contracts that reference LIBOR or another reference rate expected to be terminated because of reference rate reform. In January
2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The amendments in this Update clarify that certain optional expedients
and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate
for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in this Update
to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing
guidance to derivative instruments affected by the discounting transition. The amendments in this Update apply to all entities that elect
to apply the optional guidance in Topic 848. ASU 2020-04 and ASU 2021-10 can be adopted as of March 12, 2020 through December 31, 2022.
As of December 31, 2020, the Company has not yet elected any optional expedients provided in the standard. The Company will apply the
accounting relief as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition
period. The Company does not expect the standard to have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt
- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU reduces the number of accounting
models for convertible debt instruments by eliminating the cash conversion model. As compared with current U.S. GAAP, more convertible
debt instruments will be reported as a single liability instrument and the interest rate of more convertible debt instruments will be
closer to the coupon interest rate. The ASU also aligns the consistency of diluted Earnings Per Share (“EPS”) calculations
for convertible instruments by requiring that (1) an entity use the if-converted method and (2) share settlement be included in the diluted
EPS calculation for both convertible instruments and equity contracts when those contracts include an option of cash settlement or share
settlement. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those
fiscal years. The FASB has specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company
is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.