|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, 2019, 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
(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, 2017, 2018 and 2019 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.
(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.
(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.
(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, 2018 and 2019, amounted to $2,581 and $743, respectively.
The allowance for doubtful accounts at December 31, 2018 and 2019, was nil and $26, respectively. 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, 2018 and 2019, amounted to $4 and $500, 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, 2018 and
2019 was $422 and $1,415 respectively and concerns hire received in advance from time charters.
(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 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, with the significant assumptions
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) or 70% 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
As of December 31, 2017, the Company obtained
market valuations for all its vessels from reputable marine appraisers. Based on these valuations, the Company identified impairment
indications for certain of its vessels. More specifically, the market values of these vessels were, in aggregate, $8,299 lower
than their carrying values, including any unamortized deferred charges relating to special survey costs, as of that date. In this
respect, the Company performed an impairment analysis to estimate the future undiscounted cash flows for each of these vessels.
The analysis resulted in higher undiscounted cash flows than each vessel’s carrying value as of December 31, 2017 and, accordingly,
no adjustment to the vessels’ carrying values was required.
As of December 31, 2018, the Company obtained
market valuations for all its vessels from reputable marine appraisers. Based on these valuations, the Company identified impairment
indications for all of its vessels, except for the Pyxis Epsilon. More specifically, the market values of these vessels
were, in aggregate, $9,987 lower than their carrying values, including any unamortized deferred charges relating to special survey
costs, as of that date. In this respect, the Company performed an impairment analysis to estimate the future undiscounted cash
flows for each of these vessels. The analysis resulted in higher undiscounted cash flows than each vessel’s carrying value
as of December 31, 2018, except for the Northsea Alpha and the Northsea Beta, for which a total Vessel impairment
charge of $2,282 was recorded as of December 31, 2018, against Vessels, net (Notes 5, 6 and 10).
As of December 31, 2019, the Company obtained
market valuations for all its vessels from reputable marine appraisers. Based on these valuations, the Company identified impairment
indications for two of its vessels. More specifically, the market values of these vessels were, in aggregate, $3,354 lower than
their carrying values, including any unamortized deferred charges relating to special survey costs, as of that date. In this respect,
the Company performed an impairment analysis to estimate the future undiscounted cash flows for each of these vessels. The analysis
resulted in higher undiscounted cash flows than each vessel’s carrying value as of December 31, 2019, and, accordingly, no
adjustment to the vessels’ carrying values was required.
(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, 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 in the consolidated statement of comprehensive loss.
(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) Earnings / (loss) per Share:
Basic earnings / (loss) per share are computed by dividing net income / (loss) attributable to common equity holders by the weighted
average number of shares of common stock outstanding.
The computation of diluted earnings / (loss)
per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised
and is performed using the treasury stock method. The Company had no dilutive securities outstanding during the three-year period
ended December 31, 2019.
(u) Stock Compensation: The Company
has a stock based incentive plan that covers directors and officers of the Company and its affiliates and its consultants and service
providers. Awards granted are valued at fair value and compensation cost is recognized on a straight-line basis, net of estimated
forfeitures, over the requisite service period of each award. The fair value of restricted stock awarded at the grant date is equal
to the closing stock price on that date and is amortized over the applicable vesting period using the straight-line method.
(v) 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, 2019, the Company had a
working capital deficit of $5,301, 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
operating cash flows, management of working capital, sale of assets, refinancing indebtedness or raising additional equity capital,
or a combination thereof. 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.
(w) 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, 2017, 2018 and 2019:
|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. In this respect, for the year ended December 31, 2017, Revenues,
net and Voyage related costs and commissions each decreased by $247. This reclassification has no impact on the Company’s
consolidated financial position and results of operations for any of the periods presented.
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.
Revenues for the years ended December 31, 2017,
2018 and 2019, deriving from significant charterers individually accounting for 10% or more of revenues (in percentages of total
revenues), were as follows:
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. 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.
(x) 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. ASU 2016-18
was adopted retrospectively for the years ended December 31, 2017, 2018 and 2019, and restricted cash of $5,000, $3,659 and $3,735,
respectively, has been aggregated with cash and cash equivalents in both the beginning-of-period and end-of-period 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, 2017, 2018 and 2019.
||December 31, 2019
|Cash and cash equivalents
|Restricted cash, current portion
|Restricted cash, net of current portion
|Total cash and cash equivalents and restricted cash
(y) 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
(z) New Accounting Pronouncements –
In July 2017, the FASB issued ASU No. 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): Part
I. Accounting for Certain Financial Instruments with Down Round Features; Part II. Replacement of the Indefinite Deferral for Mandatorily
Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with
a Scope Exception, (ASU No. 2017-11). Part I of this Update addresses the complexity of accounting for certain financial instruments
with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result
in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost
and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features
that require fair value measurement of the entire instrument or conversion option. Part II of this Update addresses the difficulty
of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB
Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about
mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests.
The amendments in Part II of this Update do not have an accounting effect. This ASU is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2018. 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, 2019.
In August 2017, the FASB issued ASU No. 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU No. 2017-12), which amends
and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management
activities in the financial statements. This ASU is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2018. Furthermore, in October 2018, the FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815)—Inclusion
of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting
Purposes”, which permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes
under Topic 815 in addition to the UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the SIFMA Municipal
Swap Rate. The amendments in this Update apply to all entities that elect to apply hedge accounting to benchmark interest rate
hedges under Topic 815. For entities that have not already adopted Update 2017-12, the amendments in this Update are required to
be adopted concurrently with the amendments in Update 2017-12. Early adoption is permitted in any interim period upon issuance
of this Update if an entity already has adopted Update 2017-12. The amendments should be adopted on a prospective basis for qualifying
new or redesignated hedging relationships entered into on or after the date of adoption. 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, 2019.
In June 2018, the FASB issued ASU No. 2018-07,
Improvements to Non-Employee Share-Based Payment Accounting (Topic 718): ASU No. 2018-07 simplifies the accounting for share-based
payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. For
public business entities, the amendments in ASU No. 2018-07 are effective for annual periods beginning after December 15, 2018,
and interim periods within those annual periods. 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, 2019.
(aa) New Accounting Pronouncements –
Not Yet Adopted:
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. For public
entities, the amendments of this Update are effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. Early application is permitted. Furthermore, in November 2018, the FASB issued ASU 2018-19, “Codification
Improvements to Topic 326, Financial Instruments—Credit Losses”. The amendments clarify that receivables arising from
operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases
should be accounted for in accordance with Topic 842, Leases. In addition, in April 2019, the FASB issued ASU 2019-04, “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 clarify the modification of accounting for available
for sale debt securities excluding applicable accrued interest, which must be individually assessed for credit losses when fair
value is less than the amortized cost basis. 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 fair value option election does not apply to held-to-maturity debt securities.
An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall,
and 825-10. The effective date and transition requirements for the amendments in these Updates are the same as the effective dates
and transition requirements in Update 2016-13, as amended by these Updates. The Company has assessed all the expected credit losses
of its financial assets and the adoption of this ASU does not have a material impact on the Company’s consolidated financial
In August 2018, the FASB issued ASU 2018-13,
“Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value
Measurement”, 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. ASU 2018-13 is effective for annual periods, including
interim periods within those annual periods, beginning after December 15, 2019. The amendments on changes in unrealized gains and
losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the
narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period
presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented
upon their effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any
removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective
date. The Company has assessed the impact of this new accounting guidance and the adoption of this ASU does not have a material
impact on its consolidated financial statements and related disclosures.
In October 2018, the FASB issued ASU 2018-17,
“Consolidation (Topic 810)—Targeted Improvements to Related Party Guidance for Variable Interest Entities”.
The FASB is issuing this Update in response to stakeholders’ observations that Topic 810, Consolidation, could be improved
in 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. The amendments in this Update improve the accounting for those areas, thereby
improving general purpose financial reporting. ASU 2018-17 is effective for annual periods, including interim periods within those
annual periods, beginning after December 15, 2019. All entities are required to apply the amendments in this update retrospectively
with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. Early adoption is
permitted. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated
financial statements and related disclosures.