d904060_f-3.htm
Registration Statement No. 333
-
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM F-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
STAR BULK CARRIERS
CORP.
(Exact name of registrant as specified
in its charter)
Republic of the Marshall
Islands
(State or other jurisdiction
of
incorporation or
organization)
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N/A
(I.R.S.
Employer
Identification
No.)
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7,
Fragoklisias Street, 2nd
floor
Maroussi
151 25
Athens,
Greece
011-30-210-617-8400
(Address
and telephone number of
Registrant’s
principal executive
offices)
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Seward & Kissel
LLP
Attention:
Gary J. Wolfe,
Esq.
Robert Lustrin,
Esq.
One Battery Park
Plaza
New York, New York
10004
(212) 574-1200
(Name, address and telephone
number of agent for service)
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Copies to:
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Gary J. Wolfe,
Esq.
Robert Lustrin,
Esq.
Seward & Kissel
LLP
One Battery Park
Plaza
New York, New York
10004
(212)
574-1200
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Approximate date of commencement of
proposed sale to the public: From time to time after this
registration statement becomes effective as determined by market conditions and
other factors.
If only securities being registered on
the Form are being offered pursuant to dividend or interest reinvestment plans,
please check the following box.
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following
box. x
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same
offering.
If this form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective Registration Statement for the same
offering.
If delivery of the prospectus is
expected to be made pursuant to Rule 434, please check the following
box.
CALCULATION OF REGISTRATION
FEE
Title of Each Class of Securities
to be Registered
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Amount to be Registered
(1)
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Proposed
Maximum Aggregate Price Per Share(2)
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Proposed Maximum Aggregate
Offering Price(1)
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Amount of
Registration Fee
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Common Shares, par value $ 0.01
per share
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4,606,962
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$10.18
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$46,898,873.16
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$1,850
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(1)
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Includes 3,803,481 common shares
which are beneficially owned by F5 Capital and 803,481 common shares
reserved for issuance to TMT Co., Ltd. or its nominee pursuant to the
Master Agreement by and among TMT Co., Ltd., Star Bulk Carriers Corp. and
Star Maritime Acquisition Corp. Pursuant to Rule 416 under the
Securities Act of 1933, as amended, or the Securities Act, this
Registration Statement includes an indeterminate number of additional
shares as may be issuable upon any stock split, dividend or other
distribution, recapitalization or similar
event.
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(2)
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Estimated solely for the purpose
of calculating the registration fee pursuant to Rule
457 under the
Securities Act based
upon the average high and low prices of the registrant’s Common Shares on
August 26, 2008 on the NASDAQ Global
Market.
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The
Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section 8(a),
may determine.
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The
information in this prospectus is not complete and may be
changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not
permitted.
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Subject to completion,
dated September 2, 2008
4,606,962 Common
Shares
This prospectus relates to the offer and
resale by the selling
stockholder identified in
this prospectus of up to 4,606,962 shares of our common stock, or the
Common Shares.
The selling stockholder identified in this prospectus, may offer
these securities or interests therein from time to time through public or
private transactions at prevailing market prices, at prices related to
prevailing market prices or at privately negotiated prices.
Although we will incur expenses in
connection with the registration of the Common Shares, we will not receive any
of the proceeds from the sale of the Common Shares by the selling
stockholder.
Shares of our common stock and warrants to purchase shares of
our common stock are listed
on the NASDAQ Global Market under the symbols “SBLK” and “SBLKW,”
respectively.
An investment in these securities
involves risks. See the section of this prospectus entitled “Risk Factors” beginning on page
8.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus
is
, 2008
Table of
Contents
You
should only rely on the information in this prospectus. We have not
authorized any other person to provide you with additional or different
information or to make any representations other than those contained in this
prospectus. Do not rely upon any information or representations made
outside of this prospectus. This prospectus is not an offer to sell,
and it is not soliciting an offer to buy, (1) any securities other than our
Common Shares or (2) our Common Shares in any circumstances in which our offer
or solicitation is unlawful. The information contained in this
prospectus may change after the date of this prospectus. Do not
assume after the date of this prospectus that the information contained in this
prospectus is still correct.
PROSPECTUS
SUMMARY
This
section summarizes some of the key information that appears later in this
prospectus. You should review carefully the risk factors and the more
detailed information, the financial statements included in this registration
statement and the financial information that is derived from financial statements incorporated
by reference. Unless otherwise indicated, all references to
currency amounts in this prospectus are to U.S. dollars and financial information
presented in this prospectus and the financial information that is derived from
financial statements incorporated by reference is prepared in accordance with
accounting principles generally accepted in the United States. Unless the context
otherwise requires, when used in this registration statement, the terms “Star
Bulk,” the “Company,” “we,” “our” and “us” refer to Star Bulk Carriers Corp. and
its subsidiaries.
Our
Company
We were incorporated in the Marshall
Islands on December 13, 2006 as a wholly-owned subsidiary of Star
Maritime. Our
executive offices are located at 7, Fragoklisias Street, 2nd floor,
Maroussi 151 25, Athens, Greece and our telephone number is
011-30-210-617-8400. We merged with Star
Maritime Acquisition Corp., or Star Maritime, on November 30, 2007 and commenced
operations on December 3, 2007, which is the date we took delivery of our first
vessel.
Star Maritime was organized under the
laws of the State of Delaware on May 13, 2005 as a blank check
company formed to acquire, through a merger, capital stock exchange, asset
acquisition or similar business combination, one or more assets or target
businesses in the shipping industry. Star Maritime’s common stock and
warrants started trading on the American Stock Exchange under the symbols, SEA
and SEA.WS, respectively,
on December 21, 2005.
On November 27, 2007, Star Maritime
obtained shareholder approval for the acquisition of the initial fleet of eight
drybulk carriers and for effecting a redomiciliation merger whereby Star
Maritime merged with and into Star Bulk with Star Bulk as the surviving entity,
which we refer to throughout this prospectus as the Redomiciliation
Merger. The Redomiciliation Merger was completed
on November 30, 2007 as a result of which each outstanding share of Star
Maritime common stock was converted into the right to receive one share of Star
Bulk common stock and each outstanding warrant of Star Maritime was assumed by
Star Bulk with the same terms and restrictions except that each became
exercisable for common stock of Star Bulk. Star Bulk’s common stock and warrants
are listed on the NASDAQ Global Market under the symbols “SBLK” and
“SBLKW,” respectively.
As
of December 31, 2007, we paid no dividends to our shareholders. On
February 14, April 16, and July 29, 2008, the Company declared dividends
amounting to approximately $4.6 million ($0.10 per share, paid on February 28,
2008 to the stockholders of record on February 25, 2008), approximately $18.8
million ($0.35 per share, paid on May 23, 2008 to the shareholders of record on
May 16, 2008), and approximately $19.4 million ($0.35 per share, paid on August
18, 2008 to the shareholders of record on August 8, 2008),
respectively.
For
a more detailed summary of our dividend policy, we refer you to the section of
this prospectus entitled “Our Dividend Policy.”
Our
Fleet
As of August 21, 2008 we owned and operated a fleet of
12 vessels consisting of three Capesize, one Panamax, and eight Supramax drybulk
carriers with an average
age of 9.9 years and a
combined cargo carrying capacity of approximately 1.0 million dwt. Following the
expected delivery to us of the Star Ypsilon
and the delivery
of the Star
Iota to its purchaser in
September 2008, the average age of our fleet will be
approximately 9.3 years.
Our
fleet carries a variety of drybulk commodities including coal, iron ore, and
grains, or major bulks, as well as bauxite, phosphate, fertilizers and steel
products, or minor bulks. We charter all of our vessels pursuant to
medium- to long-term time charters with terms of approximately one to five
years.
The
following table represents a list of all of the vessels in our fleet as of
August 21, 2008:
Vessel
Name
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Vessel
Type
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Size
(dwt.)
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Year
Built
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Average
Daily
Hire
Rate
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Type/Remaining
Term
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Vessel
Delivery Date
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Star Alpha (ex A
Duckling)
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Capesize
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175,075
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1992
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$47,500
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Time
charter/0.9 years
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January 9,
2008
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Star Beta (ex B
Duckling)
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Capesize
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174,691
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1993
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$106,500
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Time
charter/1.5 years
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December 28,
2007
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Star Gamma (ex C
Duckling)
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Supramax
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53,098
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2002
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$28,500
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Time
charter/3.4 years
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January 4,
2008
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Star Delta (ex F
Duckling)
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Supramax
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52,434
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2000
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$25,800
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Time
charter/0.5 year
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January 2,
2008
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Star Epsilon (ex G
Duckling)
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Supramax
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52,402
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2001
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$25,550
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Time
charter/5.4 year
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December 3,
2007
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Star Zeta (ex I
Duckling)
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Supramax
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52,994
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2003
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$42,500
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Time
charter/2.6 years
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January 2,
2008
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Star Theta (ex J
Duckling)
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Supramax
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52,425
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2003
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$32,500
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Time
charter/0.6 year
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December 6,
2007
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Star Iota (ex Mommy
Duckling)(1)
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Panamax
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78,585
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1983
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$18,000
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Time
charter/0.1 year
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March 7,
2008
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Star Kappa (ex E
Duckling)
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Supramax
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52,055
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2001
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$47,800
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Time
charter/2.0 years
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December 14, 2007
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Star Sigma (ex
Sinfonia)
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Capesize
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184,403
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1991
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$100,000
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Time
charter/3.5 years
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April 15,
2008
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Star Omicron (ex Nord
Wave)
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Supramax
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53,489
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2005
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$43,000
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Time
charter/2.4 years
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April 17,
2008
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Star Cosmo (ex
Victoria)
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Supramax
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52,200
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2005
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$41,900
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Time
charter/2.5 years
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July 1, 2008
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Vessels To Be
Delivered
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Star Ypsilon (ex Falcon
Cape) (2)
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Capesize
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150,940
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1991
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$93,333
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2.9 from
delivery
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September
2008
(expected)
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(1)
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On April 24, 2008, we entered into
an agreement to sell Star Iota
for $18.4
million. We expect to deliver this vessel to its purchasers by
September 2008.
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(2)
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We expect the Star
Ypsilon to be
delivered to us by September
2008.
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We actively manage
the deployment of our fleet on time charters, which generally can last up to several
years. Currently, all of our vessels are
employed on medium to long-term time charters. A time charter is generally
a contract to charter a vessel for a fixed period of time at a set daily rate.
Under time charters, the charterer pays voyage expenses such as port,
canal and fuel costs. We pay for vessel operating expenses, which include
crew costs, provisions, deck and engine stores, lubricating oil, insurance,
maintenance and repairs, as well as for commissions. We are also
responsible for the drydocking costs relating to each
vessel.
Our vessels operate worldwide within the
trading limits imposed by our insurance terms and do not operate in areas where
United States, European Union or United Nations sanctions have been
imposed.
As of August 21, 2008, we had 20 employees.
Eighteen of our employees, through Star Bulk Management Inc., or Star Bulk
Management, are engaged in the day to day management of the vessels in our
fleet. Our wholly-owned subsidiary, Star Bulk Management performs
operational and technical management services for the vessels in our fleet.
Our Chief Executive Officer and our Chief Financial Officer are also the
senior management of Star Bulk Management. Star Bulk Management employs
such number of additional shore-based executives and employees designed to
ensure the efficient performance of its
activities.
We reimburse and/or advance funds as
necessary to Star Bulk Management in order for it to conduct its activities and
discharge its obligations, at cost. We also maintain working capital
reserves as may be agreed between Star Bulk and Star Bulk Management from time
to time.
Star Bulk Management is responsible for
the management of the vessels. Star Bulk Management’s responsibilities
include, inter alia, locating, purchasing, financing and selling vessels,
deciding on capital expenditures for the vessels, paying vessels’ taxes,
negotiating charters for the vessels, managing the mix of various types of
charters, developing and managing the relationships with charterers and the
operational and technical management of the vessels. Technical management includes
maintenance, drydocking, repairs, insurance, regulatory and classification
society compliance, arranging for and managing crews, appointing technical
consultants and providing technical support.
We do not intend to pay commissions to
our affiliates in connection with the chartering of vessels to or from any of
our affiliates or for the purchase of vessels from or sale to our affiliates.
Star Bulk Management subcontracts the
technical and crew management of our vessels to Combine Marine S.A., or
Combine, Bernhardt Schulte Shipmanagement Ltd.,
or Bernhardt, Union Commercial Inc, or Union and Univan Shipmanagement Ltd., or
Univan.
On June 18, 2008, we entered into an
agreement with Union for the technical management of the Star
Cosmo. Under the agreement, we pay a daily fee
of $450, which is reviewed
two months before the beginning of each calendar year. The agreement
continues indefinitely unless either party terminates the agreement after the
first voyage upon two months' written notice or a certain termination event
occurs.
On November 2 and December 5, 2007, we
entered into agreements with Bernhardt for the technical management of the
Star
Alpha, the Star
Beta, the Star Delta,
the Star
Epsilon and the Star Theta,
the Star Omicron
and the Star Kappa,
respectively. Under these agreements, we pay Bernhardt
an aggregate annual management fee of $110,000 per vessel. The agreements continue indefinitely
unless either party terminates the agreements upon three months' written notice
or a certain termination event occurs.
Under an agreement dated May 4, 2007, we
appointed Combine, a company affiliated with Mr. Tsirigakis, our Chief Executive
Officer, Mr. Pappas, the Chairman of our Board and one of our directors and Mr.
Christos Anagnostou, a former officer of Star Maritime, as interim manager of
the vessels in the initial fleet. Under the agreement, Combine provides
interim technical management and associated services, including legal
services, to the vessels in exchange for a flat fee of $10,000 per vessel
prior to delivery and at a daily fee of $450 U.S. dollars per vessel during the
term of the agreement until such time as the technical management of the vessel
is transferred to another technical management company. Combine is
entitled to be reimbursed at cost by us for any and all expenses incurred by
them in the management of the vessels, but shall provide us the full benefit of
all discounts and rebates enjoyed by them. The term of the agreement is
for one year from the date of delivery of each vessel. Either party may
terminate the agreement upon thirty days’ written notice. The Star
Gamma, the Star
Zeta and the Star
Sigma are currently managed
by Combine.
On July 4, 2007, we entered into an
agreement with Univan for the technical management of the Star
Iota. Under the agreement, we pay a monthly
management fee of $8,500, which is reviewed two months before the beginning of
each calendar year. The agreement continues indefinitely
unless either party terminates the agreement after one year upon three months'
written notice or a certain termination event occurs.
Certain
Risks
Our
business is dependant on our ability to manage a number of risks relating to our
industry and our operations. These risks include the
following:
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·
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Cyclical nature of charter
hire rates. The cyclical nature of the drybulk shipping
industry and the volatility in charter hire rates for our vessels may
affect our ability to successfully charter our vessels in the future or
renew existing charters at rates sufficient to allow us to meet our
obligations or to pay dividends. Charter rates are affected by,
among other factors, the supply of drybulk vessels in the global fleet,
which is expected to increase by approximately 20% by 2009 based on
current newbuilding orders (Source: Clarkson’s “Dry Bulk Trade
Outlook.” July 2008). Charter hire rates have risen
sharply and are currently at or near their historical highs and the value
of secondhand vessels is currently at record high
levels.
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·
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Our operations are subject to
international laws and regulations. Our business and the
operation of our vessels are materially affected by applicable government
regulation in the form of international conventions and national, state
and local laws and regulations. Because such conventions, laws,
and regulations are often revised, we cannot predict the ultimate cost of
complying with them or with additional regulations that may be applicable
to our operations that are adopted in the
future.
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·
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Servicing our current and
future debt limits funds available for other purposes, including the
payment of dividends. To finance our future fleet
expansion, we expect to incur additional secured debt. We must
dedicate a portion of our cash flow from operations to pay the principal
and interest on our debt. These payments limit funds otherwise
available for working capital, capital expenditures and other purposes and
may limit funds available for other purposes, including distributing cash
to our shareholders, and our inability to service debt could lead to
acceleration of our debt payments and foreclosure on our
fleet.
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Prospective
investors in our Common Shares should also carefully consider the factors set
forth in the section of this prospectus entitled “Risk Factors” beginning on
page 8.
Drybulk
Shipping Industry Trends
The
maritime shipping industry is fundamental to international trade with
ocean-going vessels representing the most efficient and often the only method of
transporting large volumes of many essential commodities, finished goods and
crude and refined petroleum products between the continents and across the
seas. It is a global industry whose performance is closely tied to
the level of economic activity in the world.
The
drybulk shipping industry involves the carriage of bulk
commodities. According to Drewry Shipping Consultants, Ltd., or
Drewry, since the fourth quarter of 2002, the drybulk shipping industry has
experienced the highest charter rates and vessel values in its modern history
due to the favorable imbalance between the supply of drybulk carriers and demand
for drybulk transportation service. Although charter hire rates have
been volatile since the start of 2008 and have fallen from the highs recorded in
2007, they remain at levels well above long term historical
averages.
Corporate
Structure
Star
Bulk is a holding company that owns its vessels through separate wholly-owned
subsidiaries. Star Bulk’s wholly-owned subsidiary, Star Bulk
Management, performs operational and technical management services for the
vessels in the initial fleet, including chartering, marketing, capital
expenditures, personnel, accounting, paying vessel taxes and maintaining
insurance.
Star Maritime Acquisition Corp., or Star
Maritime, was organized under the laws of the State of Delaware on May 13,
2005 as a blank check company formed to acquire, through a merger, capital
stock exchange, asset acquisition or similar business combination, one or more
assets or target businesses in the shipping industry. Following the
formation of Star Maritime, our officers and directors were the holders of
9,026,924 shares of common stock representing all of our then issued and
outstanding capital stock. On December 21, 2005, Star Maritime
consummated its initial public offering of 18,867,500 units, at a price of
$10.00 per unit, each unit consisting of one share of Star Maritime common stock
and one warrant to purchase one share of Star Maritime common stock at an
exercise price of $8.00 per share. In addition, Star Maritime completed
during December 2005 a private placement of an aggregate of 1,132,500 units, or
the Private Placement, each unit consisting
of one share of common stock and one warrant, to Messrs. Tsirigakis and
Syllantavos, our Chief Executive Officer and Chief Financial Officer,
respectively, and Messrs. Pappas and Erhardt, our Chairman of the Board and
one of our directors. The gross proceeds of the private placement of $11.3
million were used to pay all fees and expenses of the initial public offering
and as a result, the entire gross proceeds of the initial public offering
amounting to $188.7 million were deposited in a trust account maintained by
American Stock Transfer & Trust Company, or the Trust Account.
Star Maritime’s common stock and warrants started trading on the American
Stock Exchange under the symbols, SEA and SEA.WS, respectively on December 21,
2005.
On January 12, 2007, Star Maritime and
Star Bulk entered into definitive agreements to acquire a fleet of eight drybulk
carriers with a combined cargo-carrying capacity of approximately 692,000 dwt.
from certain subsidiaries of TMT Co. Ltd., or TMT, a shipping company
headquartered in Taiwan. These eight drybulk carriers are
referred to as the initial fleet, or initial vessels. The aggregate purchase price specified
in the Master Agreement by and among the Company, Star Maritime and TMT, or the
Master Agreement for the initial fleet was $224.5 million in cash and
12,537,645 shares of common stock of Star Bulk. As additional consideration for eight
vessels, we are obligated to issue 1,606,962 shares of common stock of Star
Bulk to TMT in two installments as follows: (i) 803,481 additional shares
of Star Bulk’s common stock, no more than 10 business days following Star Bulk’s
filing of its Annual Report on Form 20-F for the fiscal year ended
December 31, 2007, and (ii) 803,481 additional shares of Star Bulk’s
common stock, no more than 10 business days following Star Bulk’s filing of its
Annual Report on Form 20-F for the fiscal year ended December 31,
2008.
On
November 2, 2007, the U.S. Securities and Exchange Commission, or
SEC, declared effective our joint proxy/registration statement filed on
Forms F-1/F-4 and on November 27, 2007 we obtained shareholder approval for the
acquisition of the initial fleet and for effecting the Redomiciliation Merger as
a result of which Star Maritime merged into Star Bulk with Star Maritime
merging out of existence and Star Bulk being the surviving entity. Each
share of Star Maritime common stock was exchanged for one share of Star Bulk
common stock and each warrant of Star Maritime was assumed by Star Bulk with the
same terms and conditions except that each became exercisable for common stock
of Star Bulk. The Redomiciliation Merger became effective after stock
markets closed on Friday, November 30, 2007 and the common shares and warrants
of Star Maritime ceased trading on the American Stock Exchange under the symbols
SEA and SEAU, respectively. Star Bulk shares and warrants started trading
on the NASDAQ Global Market on Monday, December 3, 2007 under the ticker symbols
SBLK and SBLKW, respectively. Immediately following the effective
date of the Redomiciliation Merger, TMT and its affiliates owned 30.2% of Star
Bulk’s outstanding common stock.
We began operations on December 3,
2007 with the delivery of our first vessel the Star
Epsilon. Of the
initial fleet of eight
drybulk vessels Star Bulk agreed to acquire, three of such eight vessels were
delivered by the end of December 2007. Additionally, on December 3,
2007, we entered into an agreement to acquire an additional Supramax vessel, the
Star
Kappa from TMT, which was
not included in the initial fleet and was delivered to us on December 14,
2007. On July 17,
2008, we issued 803,481 additional shares to TMT as the first installment of
additional shares in accordance with the Master Agreement.
We
maintain our principal executive offices at 7, Fragoklisias Street, 2nd floor,
Maroussi 151 25, Athens, Greece. Our telephone number at that address
is 30-210-617-8400.
Our
Dividend Policy
Based
upon and subject to the assumptions contained in this section, we currently
intend to pay quarterly dividends to the holders of our common shares, in
February, May, August and November, in amounts that will allow us to retain a
portion of our cash flows to fund vessel or fleet acquisitions, and for debt
repayment and other corporate purposes, as determined by our management and
board of directors. The payment of dividends is not guaranteed or
assured and may be discontinued at the sole discretion of our board of directors
and may not be paid in the anticipated amounts and frequency set forth in this
prospectus. Our board of directors will continually review its
dividend policy and make adjustments that it believes appropriate.
The
timing and amount of dividend payments will be dependent upon our earnings,
financial condition, cash requirements and availability, fleet renewal and
expansion, restrictions in our credit facility, the provisions of Marshall
Islands law affecting the payment of distributions to stockholders and other
factors. Our ability to pay dividends will be limited by the amount
of cash we can generate from operations, primarily the charterhire, net of
commissions, received by the Company under the charters for our vessels during
the preceding calendar quarter, less expenses for that quarter, consisting
primarily of vessel operating expenses (including management fees), general and
administrative expenses, debt service, maintenance expenses and the
establishment of any reserves as well as additional factors unrelated to its
profitability. These reserves may cover, among other things, future
dry-docking, repairs, claims, liabilities and other obligations, interest
expense and debt amortization, acquisitions of additional assets and working
capital.
Because
we are a holding company with no material assets other than the shares of our
subsidiaries which directly own the vessels in our fleet, our ability to pay
dividends depends on the earnings and cash flow of our subsidiaries and their
ability to pay dividends to us. We cannot assure you that, after the
expiration or earlier termination of our charters, we will have any sources of
income from which dividends may be paid. If there is a substantial
decline in the charter market, this would negatively affect our earnings and
limit our ability to pay dividends. In particular, our ability to pay
dividends is subject to our ability to satisfy certain financial covenants that
are contained in our credit facility.
We
believe that, under current law, our dividend payments from earnings and profits
will constitute “qualified dividend income” and as such will generally be
subject to a 15% United States federal income tax rate with respect to
non-corporate individual stockholders. Distributions in excess of our
earnings and profits will be treated first as a non-taxable return of capital to
the extent of a United States stockholder’s tax basis in our common stock on a
dollar-for-dollar basis and thereafter as capital gain.
On
February 14, April 16, and July 29, 2008, the Company declared dividends
amounting to approximately $4.6 million ($0.10 per share, paid on February 28,
2008 to the stockholders of record on February 25, 2008), approximately $18.8
million ($0.35 per share, paid on May 23, 2008 to the shareholders of record on
May 16, 2008), and approximately $19.4 million ($0.35 per share, paid on
August 18, 2008 to the shareholders of record on August 8, 2008),
respectively.
The
Offering
This prospectus relates to the resale by
the selling stockholder of up to 4,606,962 shares of our common stock. Shares of our common stock
are traded on the NASDAQ
Global Market under the
symbol “SBLK.”
RISK
FACTORS
Some of the following risks relate
principally to the industry in which we operate and our business in
general. Other risks relate principally to the
securities market and ownership of our common stock. The occurrence of any of the events
described in this section could significantly and negatively affect our
business, financial condition, operating results or cash available for dividends
or the trading price of our common stock.
Industry
Specific Risk Factors
Charterhire
rates for drybulk carriers are volatile and may decrease in the future, which
would adversely affect our earnings
The
drybulk shipping industry is cyclical with attendant volatility in charterhire
rates and profitability. The degree of charterhire rate volatility
among different types of drybulk carriers varies widely. Charterhire
rates for Capesize, Panamax and Supramax drybulk carriers are at their
historically high levels. If the drybulk shipping market is depressed
in the future our earnings and available cash flow may decrease. Our
ability to re-charter our vessels on the expiration or termination of their
current time charters and the charter rates payable under any renewal or
replacement charters will depend upon, among other things, economic conditions
in the drybulk shipping market. Fluctuations in charter rates and
vessel values result from changes in the supply and demand for drybulk cargoes
carried internationally at sea, including coal, iron, ore, grains and
minerals.
The
factors affecting the supply and demand for vessel capacity are outside of our
control, and the nature, timing and degree of changes in industry conditions are
unpredictable.
The
factors that influence demand for vessel capacity include:
·
|
demand
for and production of drybulk
products;
|
·
|
global
and regional economic and political
conditions;
|
·
|
the
distance drybulk cargo is to be moved by sea;
and
|
·
|
changes
in seaborne and other transportation
patterns.
|
The
factors that influence the supply of vessel capacity include:
·
|
the
number of new building deliveries;
|
·
|
port
and canal congestion;
|
·
|
the
scrapping of older vessels;
|
·
|
the
number of vessels that are out of
service.
|
We
anticipate that the future demand for our drybulk carriers will be dependent
upon continued economic growth in the world’s economies, including China and
India, seasonal and regional changes in demand, changes in the capacity of the
global drybulk carrier fleet and the sources and supply of drybulk cargo to be
transported by sea. The capacity of the global drybulk carrier fleet
seems likely to increase and economic growth may not
continue. Adverse economic, political, social or other developments
could have a material adverse effect on our business and operating
results.
The
market values of our vessels may decrease, which could limit the amount of funds
that we can borrow or trigger certain financial covenants under our current or
future credit facilities and or we may incur a loss if we sell vessels following
a decline in their market value
The
fair market values of our vessels have generally experienced high
volatility. The market prices for secondhand Capesize, Panamax and
Supramax drybulk carriers are at historically high levels.
The
fair market value of our vessels may increase and decrease depending on a number
of factors including:
·
|
prevailing
level of charter rates;
|
·
|
general
economic and market conditions affecting the shipping
industry;
|
·
|
types
and sizes of vessels;
|
·
|
supply
and demand for vessels;
|
·
|
other
modes of transportation;
|
·
|
governmental
or other regulations; and
|
·
|
technological
advances.
|
In
addition, as vessels grow older, they generally decline in value. If
the fair market value of our vessels declines, we may not be in compliance with
certain provisions of our term loans and we may not be able to refinance our
debt or obtain additional financing. In addition, if we sell one or
more of our vessels at a time when vessel prices have fallen and before we have
recorded an impairment adjustment to our consolidated financial statements, the
sale may be less than the vessel’s carrying value on our consolidated financial
statements, resulting in a loss and a reduction in
earnings. Furthermore, if vessel values fall significantly we may
have to record an impairment adjustment in our financial statements which could
adversely affect our financial results.
World
events could affect our results of operations and financial
condition
Terrorist
attacks in New York on September 11, 2001 and in London on July 7, 2005 and the
continuing response of the United States and others to these attacks, as well as
the threat of future terrorist attacks in the United States or elsewhere,
continues to cause uncertainty in the world’s financial markets and may affect
our business, operating results and financial condition. The
continuing conflict in Iraq may lead to additional acts of terrorism and armed
conflict around the world, which may contribute to further economic instability
in the global financial markets. These uncertainties could also
adversely affect our ability to obtain additional financing on terms acceptable
to us or at all. In the past, political conflicts have also resulted
in attacks on vessels, mining of waterways and other efforts to disrupt
international shipping, particularly in the Arabian Gulf region. Acts
of terrorism and piracy have also affected vessels trading in regions such as
the South China Sea. Any of these occurrences could have a material
adverse impact on our operating results, revenues and costs.
Terrorist
attacks on vessels, such as the October 2002 attack on the M.V. Limburg, a very large crude
carrier not related to us, may in the future also negatively affect our
operations and financial condition and directly impact our vessels or our
customers. Future terrorist attacks could result in increased
volatility of the financial markets in the United States and globally and could
result in, or pooling, an economic recession affecting the United States or the
entire world. Any of these occurrences could have a material adverse
impact on our revenues and costs.
An
economic slowdown in the Asia Pacific region could materially reduce the amount
and/or profitability of our business
A
significant number of the port calls made by our vessels involve the loading or
discharging of raw materials and semi-finished products in ports in the Asia
Pacific region. As a result, a negative change in economic conditions
in any Asia Pacific country, particularly in China, may have an adverse effect
on our business, financial position and results of operations, as well as our
future prospects. In particular, in recent years, China has been one
of the world’s fastest growing economies in terms of gross domestic
product. Such growth may not be sustained and the Chinese economy may
experience contraction in the future. Moreover, any slowdown in the
economies of the United States of America, the European Union or certain Asian
countries may adversely effect economic growth in China and
elsewhere. Our business, financial position, results of operations,
and cash flows as well as our future prospects, will likely be materially and
adversely affected by an economic downturn in any of these
countries.
Changes
in the economic and political environment in China and policies adopted by the
government to regulate its economy may have a material adverse effect on our
business, financial condition and results of operations
The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in such respects
as structure, government involvement, level of development, growth rate, capital
reinvestment,
allocation of resources, rate of inflation and balance of payments
position. Prior to 1978, the Chinese economy was a planned
economy. Since 1978, increasing emphasis has been placed on the
utilization of market forces in the development of the Chinese
economy. Annual and five year State Plans are adopted by the Chinese
government in connection with the development of the
economy. Although state-owned enterprises still account for a
substantial portion of the Chinese industrial output, in general, the Chinese
government is reducing the level of direct control that it exercises over the
economy through State Plans and other measures. There is an
increasing level of freedom and autonomy in areas such as allocation of
resources, production, pricing and management and a gradual shift in emphasis to
a “market economy” and enterprise reform. Limited price reforms were
undertaken, with the result that prices for certain commodities are principally
determined by market forces. Many of the reforms are unprecedented or
experimental and may be subject to revision, change or abolition based upon the
outcome of such experiments. If the Chinese government does not
continue to pursue a policy of economic reform the level of imports to and
exports from China could be adversely affected by changes to these economic
reforms by the Chinese government, as well as by changes in political, economic
and social conditions or other relevant policies of the Chinese government, such
as changes in laws, regulations or export and import restrictions, all of which
could, adversely affect our business, operating results and financial
condition.
Charter
rates are subject to seasonal fluctuations, which may adversely affect our
financial condition and ability to pay dividends
As
of August 21, 2008, our fleet consisted of 12 drybulk carriers comprised of three Capesize, one
Panamax and eight Supramax drybulk carriers with an
average age of 9.9 years and a combined cargo carrying
capacity of approximately 1.0 million dwt. We have entered into an agreement to acquire one additional drybulk vessel for expected delivery to us by
September of 2008. We employ all of our
vessels on medium-to long-term time charters, however, we may in the future
employ certain of our vessels in the spot market. Demand for vessel
capacity has historically exhibited seasonal variations and, as a result, in
charter rates. This seasonality may result in quarter-to-quarter
volatility in our operating results for vessels trading in the spot
market. The drybulk sector is typically stronger in the fall and
winter months in anticipation of increased consumption of coal and other raw
materials in the northern hemisphere. As a result, our revenues from
our drybulk carriers may be weaker during the fiscal quarters ended June 30
and September 30, and, conversely, our revenues from our drybulk
carriers may be stronger in fiscal quarters ended December 31 and March
31. Seasonality in the sector in which we operate could materially
affect our operating results and cash available for dividends in the
future.
Rising
fuel prices may adversely affect our profits
Fuel
is a significant, if not the largest, expense in our shipping operations when
vessels are not under period charter. Changes in the price of fuel
may adversely affect our profitability. The price and supply of fuel
is unpredictable and fluctuates based on events outside our control, including
geopolitical developments, supply and demand for oil and gas, actions by OPEC
and other oil and gas producers, war and unrest in oil producing countries and
regions, regional production patterns and environmental
concerns. Further, fuel may become much more expensive in the future,
which may reduce the profitability and competitiveness of our business versus
other forms of transportation, such as truck or rail.
We
are subject to international safety regulations and the failure to comply with
these regulations may subject us to increased liability, may adversely affect
our insurance coverage and may result in a denial of access to, or detention in,
certain ports
Our
business and the operation of our vessels are materially affected by government
regulation in the form of international conventions, national, state and local
laws and regulations in force in the jurisdictions in which the vessels operate,
as well as in the country or countries of their registration. Because
such conventions, laws, and regulations are often revised, we cannot predict the
ultimate cost of complying with such conventions, laws and regulations or the
impact thereof on the resale prices or useful lives of our
vessels. Additional conventions, laws and regulations may be adopted
which could limit our ability to do business or increase the cost of our doing
business and which may materially adversely affect our operations. We
are required by various governmental and quasi-governmental agencies to obtain
certain permits, licenses, certificates, and financial assurances with respect
to our operations.
The
operation of our vessels is affected by the requirements set forth in the United
Nations’ International Maritime Organization’s International Management Code for
the Safe Operation of Ships and Pollution Prevention, or ISM
Code. The ISM Code requires shipowners, ship managers and bareboat
charterers to develop and maintain an extensive “Safety Management System” that
includes the adoption of a safety and environmental protection policy setting
forth instructions and procedures for safe operation and
describing
procedures for dealing with emergencies. The failure of a shipowner
or bareboat charterer to comply with the ISM Code may subject it to increased
liability, may invalidate existing insurance or decrease available insurance
coverage for the affected vessels and may result in a denial of access to, or
detention in, certain ports. If we are subject to increased liability
for noncompliance or if our insurance coverage is adversely impacted as a result
of noncompliance, we may have less cash available for distribution to our
stockholders as dividends. If any of our vessels are denied access
to, or are detained in, certain ports, this may decrease our
revenues.
Increased
inspection procedures and tighter import and export controls could increase
costs and disrupt our business
International
shipping is subject to various security and customs inspection and related
procedures in countries of origin and destination. Inspection
procedures may result in the seizure of contents of our vessels, delays in the
loading, offloading or delivery and the levying of customs duties, fines or
other penalties against us.
It
is possible that changes to inspection procedures could impose additional
financial and legal obligations on us. Changes to inspection
procedures could also impose additional costs and obligations on our customers
and may, in certain cases, render the shipment of certain types of cargo
uneconomical or impractical. Any such changes or developments may
have a material adverse effect on our business, financial condition and results
of operations.
Maritime
claimants could arrest one or more of our vessels, which could interrupt our
cash flow
Crew
members, suppliers of goods and services to a vessel, shippers of cargo and
other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a
claimant may seek to obtain security for its claim by arresting a vessel through
foreclosure proceedings. The arrest or attachment of one or more of
our vessels could interrupt our cash flow and require us to pay large sums of
money to have the arrest or attachment lifted. In addition, in some
jurisdictions, such as South Africa, under the “sister ship” theory of
liability, a claimant may arrest both the vessel which is subject to the
claimant’s maritime lien and any “associated” vessel, which is any vessel owned
or controlled by the same owner. Claimants could attempt to assert
“sister ship” liability against one vessel in our fleet for claims relating to
another of our vessels.
Governments
could requisition our vessels during a period of war or emergency, resulting in
a loss of earnings
A
government could requisition one or more of our vessels for title or for
hire. Requisition for title occurs when a government takes control of
a vessel and becomes her owner, while requisition for hire occurs when a
government takes control of a vessel and effectively becomes her charterer at
dictated charter rates. Generally, requisitions occur during periods
of war or emergency, although governments may elect to requisition vessels in
other circumstances. Although we would be entitled to compensation in
the event of a requisition of one or more of our vessels, the amount and timing
of payment would be uncertain. Government requisition of one or more
of our vessels may negatively impact our revenues and reduce the amount of cash
we have available for distribution as dividends to our
stockholders.
Company
Specific Risk Factors
Star
Bulk has a limited operating history and may not operate profitably in the
future
Star
Bulk was formed December 13, 2006 and in January 2007 entered into agreements to
acquire eight drybulk carriers. Star Bulk took delivery of its first
vessel in December 2007. Accordingly, the consolidated financial
statements do not provide a meaningful basis for you to evaluate its operations
and ability to be profitable in the future. Star Bulk may not be
profitable in the future.
We
are dependent on medium- to long-term time charters in a volatile shipping
industry and a decline in charterhire rates would affect our results of
operations and ability to pay dividends
We
charter all of our vessels pursuant to medium- to long-term time charters with
remaining terms of approximately one to five years. The time charter
market is highly competitive and spot market charterhire rates (which affect
time charter rates) may fluctuate significantly based upon available charters
and the supply of, and demand for, seaborne shipping capacity. Our
ability to re-charter our vessels on the expiration or termination of their
current time charters and the charter rates payable under any renewal or
replacement
charters
will depend upon, among other things, economic conditions in the drybulk
shipping market. The drybulk carrier charter market is volatile, and
in the past, time charter and spot market charter rates for drybulk carriers
have declined below operating costs of vessels. If future charterhire
rates are depressed, we may not be able to operate our vessels profitably or to
pay you dividends.
Our
earnings may be adversely affected if we are not able to take advantage of
favorable charter rates
We
charter our drybulk carriers to customers pursuant to medium- to long-term time
charters, which generally last from one to five years. We may in the
future extend the charter periods for the vessels in our fleet. Our
vessels that are committed to longer-term charters may not be available for
employment on short-term charters during periods of increasing short-term
charterhire rates when these charters may be more profitable than long-term
charters.
If
we fail to manage our planned growth properly, we may not be able to
successfully expand our fleet which would adversely affect our overall financial
position
We
intend to continue to expand our fleet. Our growth will depend
on:
·
|
locating
and acquiring suitable vessels;
|
·
|
identifying
and consummating acquisitions or joint
ventures;
|
·
|
integrating
any acquired vessels successfully with our existing
operations;
|
·
|
enhancing
our customer base;
|
·
|
managing
our expansion; and
|
·
|
obtaining
required financing.
|
Growing
any business by acquisition presents numerous risks such as undisclosed
liabilities and obligations, difficulty experienced in obtaining additional
qualified personnel and managing relationships with customers and suppliers and
integrating newly acquired operations into existing
infrastructures. We may not be successful in executing our growth
plans and may incur significant expenses and losses.
Our
loan agreements may contain restrictive covenants that may limit our liquidity
and corporate activities
Our
current term loan agreements with Commerzbank AG and Piraeus Bank A.E., and any
future loan agreements may impose operating and financial restrictions on
us. These restrictions may limit our ability to:
·
|
incur
additional indebtedness;
|
·
|
create
liens on our assets;
|
·
|
sell
capital stock of our subsidiaries;
|
·
|
engage
in mergers or acquisitions;
|
·
|
make
capital expenditures;
|
·
|
change
the management of our vessels or terminate or materially amend the
management agreement relating to each vessel;
and
|
Therefore,
we may need to seek permission from our lenders in order to engage in some
important corporate actions. The lenders’ interests may be different
from ours, and we cannot guarantee that we will be able to obtain the lenders’
permission when needed. This may prevent us from taking actions that
are in our best interest.
Servicing
debt will limit funds available for other purposes, including capital
expenditures and payment of dividends
As
of August 21, 2008, we had $120.0 million outstanding under our term loan
agreement with Commerzbank AG in connection with the purchase of the vessels in
our initial fleet and $116.0 million outstanding under our term loan agreements
with Piraeus Bank A.E. in connection with the purchase of three additional
vessels in our current fleet: the Star Omicron, the Star Sigma and the Star
Cosmo. In the second quarter of 2008, we entered into
an agreement to purchase a 1991 built Capesize drybulk carrier for the aggregate
purchase price of approximately $156.0 million which we expect to be delivery to
us by September of 2008. On, April 14, 2008, we entered into a
loan agreement of up to $170.0 million with Piraeus Bank A.E. in order to partly
finance the acquisition cost of vessels the Star Omicron and the Star Sigma and also to provide us with
additional liquidity. The Star
Alpha, the Star Beta, and the
Star Sigma were used as collateral for
this loan. The loan bears interest at LIBOR plus a margin and is
repayable in twenty-four quarterly installments through April
2014. As of August 21, 2008, we had outstanding borrowings in the
amount of $81.0 million under this loan. On July 1, 2008 the Company
entered into a loan agreement of up to $35.0 million with Piraeus Bank A.E. to
partially finance the acquisition of the Star
Cosmo. The loan bears interest at LIBOR plus a margin and is
repayable in twenty-four quarterly installments through July 2014. As
of August 21, 2008, we had outstanding borrowings in the amount of $35.0 million
under this loan facility.
We
may be required to dedicate a portion of our cash flow from operations to pay
the principal and interest on our debt. These payments limit funds
otherwise available for working capital expenditures and other purposes,
including payment of dividends. If we are unable to service our debt,
it may have a material adverse effect on our financial condition and results of
operations.
Default
by our charterers may lead to decreased revenues and a reduction in
earnings
We
have entered into a time charter with each of Worldlink Shipping Limited for the
Star Alpha, Industrial
Carriers Inc. for the Star
Beta, North China Shipping
Limited Bahamas for the Star
Epsilon, Essar for the Star Delta, Norden A/S for
the Star Zeta, Hyundai
Merchant Marine for the Star
Theta, TMT Co. Ltd., or TMT, for the Star Iota and Star Gamma, Ishaar Overseas
for the Star Kappa, Sun
God Navigation S.A. for the Star Sigma and GMI Ltd. for
the Star Omicron and
K. Line Corp. for the Star
Cosmo. Consistent with drybulk shipping industry practice, we
have not independently analyzed the creditworthiness of the charterers. Our
revenues may be dependent on the performance of our charterers and, as a result,
defaults by our charterers may materially adversely affect our
revenues.
In
the highly competitive international drybulk shipping industry, we may not be
able to compete for charters with new entrants or established companies with
greater resources which may adversely affect our results of
operations
We
employ our vessels in a highly competitive market that is capital intensive and
highly fragmented. Competition arises primarily from other vessel
owners, some of whom have substantially greater resources than
us. Competition for the transportation of drybulk cargoes can be
intense and depends on price, location, size, age, condition and the
acceptability of the vessel and its managers to the charterers. Due
in part to the highly fragmented market, competitors with greater resources
could operate larger fleets through consolidations or acquisitions and may be
able to offer more favorable terms.
We
may be unable to attract and retain key management personnel and other employees
in the shipping industry, which may negatively affect the effectiveness of our
management and our results of operations
Our
success depends to a significant extent upon the abilities and efforts of our
management team. As of August 21, 2008, we had 20
employees. Eighteen of our employees, through Star Bulk Management,
are engaged in the day to day management of the vessels in our
fleet. Our success depends upon our ability to retain key members of
our management team and the ability of Star Bulk Management to recruit and hire
suitable employees. The loss of any members of our senior management
team could adversely affect our business prospects and financial
condition. Difficulty in hiring and retaining personnel could
adversely affect our results of operations. We do not maintain
“key-man” life insurance on any of our officers or employees of Star Bulk
Management.
As
we expand our fleet, we will need to expand our operations and financial systems
and hire new shoreside staff and seafarers to staff our vessels; if we cannot
expand these systems or recruit suitable employees, our performance may be
adversely affected
Our
operating and financial systems may not be adequate as we expand our fleet, and
our attempts to implement those systems may be ineffective. In
addition, we rely on our wholly-owned subsidiary, Star Bulk Management, to
recruit shoreside administrative and management personnel. Shoreside
personnel are recruited by Star Bulk Management through referrals from other
shipping companies and traditional methods of securing personnel, such as
placing classified advertisements in shipping industry
periodicals. Star Bulk Management has sub-contracted crew management,
which includes the recruitment of seafarers, to Combine, Bernhardt, a major
international third-party technical management company, Union and Univan. Star
Bulk Management and its crewing agent may not be
able
to continue to hire suitable employees as Star Bulk expands its
fleet. If we are unable to operate our financial and operations
systems effectively, recruit suitable employees or if Star Bulk
Management’s unaffiliated crewing agent encounters business or financial
difficulties, our performance may be materially adversely
affected.
Risks
involved with operating ocean going vessels could affect our business and
reputation, which would adversely affect our revenues
The
operation of an ocean-going vessel carries inherent risks. These
risks include the possibility of:
·
|
crew
strikes and/or boycotts;
|
·
|
environmental
accidents;
|
·
|
cargo
and property losses or damage; and
|
·
|
business
interruptions caused by mechanical failure, human error, war, terrorism,
political action in various countries or adverse weather
conditions.
|
Any
of these circumstances or events could increase our costs or lower our
revenues.
Our
vessels may suffer damage and may face unexpected drydocking costs, which could
adversely affect our cash flow and financial condition
If
our vessels suffer damage, they may need to be repaired at a drydocking
facility. The costs of drydock repairs are unpredictable and can be
substantial. We may have to pay drydocking costs that our insurance
does not cover. The loss of earnings while these vessels are being
repaired and reconditioned, as well as the actual cost of these repairs, would
decrease our earnings.
Purchasing
and operating secondhand vessels may result in increased operating costs and
vessel off-hire, which could adversely affect our earnings
Our
inspection of secondhand vessels prior to purchase does not provide us with the
same knowledge about their condition and cost of any required or anticipated
repairs that we would have had if these vessels had been built for and operated
exclusively by us. We will not receive the benefit of warranties on
secondhand vessels.
Typically,
the costs to maintain a vessel in good operating condition increase with the age
of the vessel. Older vessels are typically less fuel efficient and
more costly to maintain than more recently constructed vessels. Cargo
insurance rates increase with the age of a vessel, making older vessels less
desirable to charterers.
Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
our vessels and may restrict the type of activities in which the vessels may
engage. As our vessels age, market conditions may not justify those
expenditures or enable us to operate our vessels profitably during the remainder
of their useful lives.
We
inspected the nine vessels that we acquired from TMT and the three vessels that
we acquired from third parties, considered the age and condition of the vessels
in budgeting for their operating, insurance and maintenance costs, and if we
acquire additional secondhand vessels in the future, we may encounter higher
operating and maintenance costs due to the age and condition of those additional
vessels.
We
may not have adequate insurance to compensate us for the loss of a vessel, which
may have a material adverse effect on our financial condition and results of
operation
We
have procured hull and machinery insurance, protection and indemnity insurance,
which includes environmental damage and pollution insurance coverage and war
risk insurance for our fleet. We do not maintain, for our vessels,
insurance against loss of hire,
which
covers business interruptions that result from the loss of use of a
vessel. We may not be adequately insured against all
risks. We may not be able to obtain adequate insurance coverage for
our fleet in the future. The insurers may not pay particular
claims. Our insurance policies may contain deductibles for which we
will be responsible and limitations and exclusions which may increase our costs
or lower our revenue. Moreover, insurers may default on claims
they are required to pay. If our insurance is not enough to cover
claims that may arise, the deficiency may have a material adverse effect on our
financial condition and results of operations.
We may not be able to pay
dividends
We
intend to pay a regular quarterly dividend however, we may incur other expenses
or liabilities that would reduce or eliminate the cash available for
distribution as dividends. Our loan agreements, including future
credit facilities we may enter into, may also prohibit or restrict the
declaration and payment of dividends under some circumstances.
In
addition, the declaration and payment of dividends will be subject at all times
to the discretion of our board of directors. The timing and amount of
dividends will depend on our earnings, financial condition, cash requirements
and availability, fleet renewal and expansion, restrictions in our loan
agreements, the provisions of Marshall Islands law affecting the payment of
dividends and other factors. Marshall Islands law generally prohibits
the payment of dividends other than from surplus or while a company is insolvent
or would be rendered insolvent upon the payment of such dividends, or if there
is no surplus, dividends may be declared or paid out of net profits for the
fiscal year in which the dividend is declared and for the preceding fiscal
year.
We
are a holding company, and depend on the ability of our subsidiaries to
distribute funds to us in order to satisfy our financial obligations or to make
dividend payments
We
are a holding company and our wholly-owned subsidiaries, conduct all of our
operations and own all of our operating assets. We will have no
significant assets other than the equity interests in our wholly-owned
subsidiaries. As a result, our ability to make dividend payments
depends on our subsidiaries and their ability to distribute funds to
us. If we are unable to obtain funds from our subsidiaries, our board
of directors may exercise its discretion not to pay dividends. We and
our subsidiaries will be permitted to pay dividends under our credit facilities
only for so long as we are in compliance with all applicable financial
covenants, terms and conditions.
We
depend on officers who may engage in other business activities in the
international shipping industry which may create conflicts of
interest
Prokopios
Tsirigakis, our Chief Executive Officer and a member of our board of directors,
and George Syllantavos, our Chief Financial Officer, Secretary and member of our
board of directors participate in business activities not associated with the
Company. As a result, Mr. Tsirigakis and Mr. Syllantavos
may devote less time to the Company than if they were not engaged in other
business activities and may owe fiduciary duties to the shareholders of both the
Company as well as shareholders of other companies which they may be affiliated,
which may create conflicts of interest in matters involving or affecting the
Company and its customers. It is not certain that any of these
conflicts of interest will be resolved in our favor.
In
accordance with Star Bulk’s Code of Ethics, all ongoing and future transactions
between Star Bulk and any of its officers and directors or their respective
affiliates, including loans by Star Bulk’s officers and directors, if any, will
be on terms believed by Star Bulk to be no less favorable than are available
from unaffiliated third parties, and such transactions or loans, including any
forgiveness of loans, will require prior approval, in each instance by a
majority of Star Bulk’s uninterested “independent” directors or the members of
Star Bulk’s board who do not have an interest in the transaction, in either case
who had access, at Star Bulk’s expense, to its attorneys or independent legal
counsel.
We
are incorporated in the Republic of the Marshall Islands, which does not have a
well-developed body of corporate law, which may negatively affect the ability of
public shareholders to protect their interests
We
are incorporated under the laws of the Republic of the Marshall Islands, and our
corporate affairs are governed by our Articles of Incorporation and bylaws and
by the Marshall Islands Business Corporations Act, or BCA. The
provisions of the BCA resemble provisions of the corporation laws of a number of
states in the United States. However, there have been few judicial
cases in the Republic of the Marshall Islands interpreting the
BCA. The rights and fiduciary responsibilities of directors under the
law of the Republic of the Marshall Islands are not as clearly established as
the rights and fiduciary responsibilities of directors under statutes or
judicial precedent in existence in certain United States
jurisdictions. Shareholder rights may differ as
well. While the BCA does specifically incorporate the non-statutory
law, or judicial case law, of the State of Delaware and other states with
substantially similar legislative provisions, public shareholders may have more
difficulty in protecting their interests in the face of actions by the
management, directors or controlling shareholders than would shareholders of a
corporation incorporated in a United States jurisdiction.
Our
directors and officers are non-U.S. residents, and although shareholders may
bring an original action in the courts of the Marshall Islands or obtain a
judgment against us, our directors or our management based on U.S. laws in the
event you believe your rights as a shareholder have been infringed, it may be
difficult to enforce judgments against us, our directors or our
management
All
of our assets are located outside of the United States. Our business
is operated primarily from our offices in Athens, Greece. In
addition, our directors and officers are non-residents of the United States, and
all or a substantial portion of the assets of these non-residents are located
outside the United States. As a result, it may be difficult or
impossible for you to bring an action against us or against these individuals in
the United States if you believe that your rights have been infringed under
securities laws or otherwise. Even if you are successful in bringing
an action of this kind, the laws of the Marshall Islands and of other
jurisdictions may prevent or restrict you from enforcing a judgment against our
assets or the assets of our directors and officers. Although you may
bring an original action against us, our officers and directors in the courts of
the Marshall Islands based on U.S. laws, and the courts of the Marshall Islands
may impose civil liability, including monetary damages, against us, our officers
or directors for a cause of action arising under Marshall Islands law, it may be
impracticable for you to do so given the geographic location of the Marshall
Islands.
There
is a risk that we could be treated as a U.S. domestic corporation for U.S.
federal income tax purposes after the merger of Star Maritime with and into Star
Bulk, with Star Bulk as the surviving corporation, or Redomiciliation Merger,
which would adversely affect our earnings
Section 7874(b)
of the U.S. Internal Revenue Code of 1986, or the Code, provides that, unless
certain requirements are satisfied, a corporation organized outside the United
States which acquires substantially all of the assets (through a plan or a
series of related transactions) of a corporation organized in the United States
will be treated as a U.S. domestic corporation for U.S. federal income tax
purposes if shareholders of the U.S. corporation whose assets are being acquired
own at least 80% of the non-U.S. acquiring corporation after the
acquisition. If Section 7874(b) of the Code were to apply to
Star Maritime and the Redomiciliation Merger, then, among other consequences,
the Company, as the surviving entity of the Redomiciliation Merger, would be
subject to U.S. federal income tax as a U.S. domestic corporation on its
worldwide income after the Redomiciliation Merger. Upon completion of
the Redomiciliation Merger and the concurrent issuance of stock to TMT under the
acquisition agreements, the stockholders of Star Maritime owned less than 80% of
the Company. Therefore, the Company believes that it should not be
subject to Section 7874(b) of the Code after the Redomiciliation
Merger. Star Maritime obtained an opinion of its counsel,
Seward & Kissel LLP, that Section 7874(b) should not apply to the
Redomiciliation Merger. However, there is no authority directly
addressing the application of Section 7874(b) to a transaction such as the
Redomiciliation Merger where shares in a foreign corporation such as the Company
are issued concurrently with (or shortly after) a merger. In
particular, since there is no authority directly applying the “series of related
transactions” or “plan” provisions to the post-acquisition stock ownership
requirements of Section 7874(b), the United States Internal Revenue
Service, or IRS, may not agree with Seward & Kissel’s opinion on this
matter. Moreover, Star Maritime has not sought a ruling from the IRS
on this point. Therefore, IRS may seek to assert that we are subject
to U.S. federal income tax for taxable on our worldwide income for taxable years
after the Redomiciliation Merger although Seward & Kissel is of the opinion
that such an assertion should not be successful.
We
may have to pay tax on United States source income, which would reduce our
earnings
Under
the Code, 50% of the gross shipping income of a vessel owning or chartering
corporation, such as the Company and its subsidiaries, that is attributable to
transportation that begins or ends, but that does not both begin and end, in the
United States is characterized as U.S. source shipping income and such income is
subject to a 4% U.S. federal income tax without allowance for deduction, unless
that corporation qualifies for exemption from tax under Section 883 of the
Code and the Treasury regulations promulgated thereunder.
We
expect that we will qualify for this statutory tax exemption and we intend to
take this position for U.S. federal income tax return reporting purposes for our
2007 taxable year. However, there are factual circumstances beyond
our control that could cause us to lose the benefit of this tax exemption and
thereby become subject to U.S. federal income tax on our U.S. source
income.
If
we are not entitled to this exemption under Section 883 for any taxable
year, we would be subject for those years to a 4% U.S. federal income tax on its
U.S.-source shipping income. The imposition of this taxation could
have a negative effect on our business and would result in decreased
earnings.
U.S.
tax authorities could treat us as a “passive foreign investment company,” which
could have adverse U.S. federal income tax consequences to U.S.
holders
We
will be treated as a “passive foreign investment company,” or PFIC, for U.S.
federal income tax purposes if either (1) at least 75% of its gross income
for any taxable year consists of certain types of “passive income” or
(2) at least 50% of the average value of its assets produce or are held for
the production of those types of “passive income.” For purposes of
these tests, “passive income”
includes
dividends, interest, and gains from the sale or exchange of investment property
and rents and royalties other than rents and royalties which are received from
unrelated parties in connection with the active conduct of a trade or
business. For purposes of these tests, income derived from the
performance of services does not constitute “passive income.” U.S. shareholders
of a PFIC may be subject to a disadvantageous U.S. federal income tax regime
with respect to the income derived by the PFIC, the distributions they receive
from the PFIC and the gain, if any, they derive from the sale or other
disposition of their shares in the PFIC.
Based
on our method of operation, we take the position for United States federal
income tax purposes we are not a PFIC with respect to any taxable
year. In this regard, we intend to treat the gross income we will
derive or will be deemed to derive from our time chartering activities as
services income, rather than rental income. Accordingly, we take the
position that our income from our time chartering activities does not constitute
“passive income,” and the assets that we will own and operate in connection with
the production of that income do not constitute passive assets.
There
is, however, no direct legal authority under the PFIC rules addressing our
method of operation. In addition, we have not received an opinion of
counsel with respect to this issue. Accordingly, the U.S. Internal
Revenue Service, or the IRS, or a court of law may not accept our position, and
there is a risk that the IRS or a court of law could determine that we are a
PFIC. Moreover, may constitute a PFIC for any future taxable year if
there were to be changes in the nature and extent of its
operations. For example, if we were treated as earning rental income
from our chartering activities rather than services income, we would be treated
as a PFIC.
If
the IRS were to find that we are or have been a PFIC for any taxable year, its
U.S. shareholders will face adverse U.S. tax consequences. Under the
PFIC rules, unless those shareholders make an election available under the Code
(which election could itself have adverse consequences for such shareholders),
such shareholders would be liable to pay U.S. federal income tax at the then
highest income tax rates on ordinary income plus interest upon excess
distributions and upon any gain from the disposition of our common shares, as if
the excess distribution or gain had been recognized ratably over the
shareholder’s holding period of our common shares.
Our
internal controls over financial reporting do not currently meet all of the
standards contemplated by Section 404 of the Sarbanes-Oxley Act of 2002, Section
404. Since we failed to achieve and maintain effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act, we may be unable to accurately report our consolidated
financial results or prevent fraud and could be required to restate our
historical financial statements, any of which could have a material adverse
effect on our business and the price of our common stock
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer have conducted an evaluation of the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of December 31, 2007. Based on this evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer concluded that, as
of December 31, 2007, the Company’s disclosure controls and procedures were not
effective because of the material weaknesses in internal control over financial
reporting described below. Management has assessed the effectiveness
of the Company’s internal control over financial reporting at December 31, 2007,
based on the framework established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on the aforementioned assessment, the
management concluded that internal control over financial reporting was not
effective due to material weaknesses identified in the Company’s internal
control over financial reporting.
Star
Bulk took delivery of its first vessel in December 2007 and as a result,
management began the process to replace the internal controls over financial
reporting which previously existed while the Company was a blank check company
with those of a company that owns and operates vessels. Although
progress was made, the Company did not have sufficient time to
complete designing and implementing a comprehensive system of internal controls
over financial reporting that would prevent or timely detect material
adjustments and identify financial statement disclosure
requirements. Consequently, adjustments and disclosures that were
material in the aggregate to the consolidated financial statements and necessary
to present the consolidated financial statements for the year ended
December 31, 2007 in accordance with U.S. GAAP were made by the Company
after being identified by the Company’s independent registered public accounting
firm. Specifically, we did not have in place adequate internal
controls over our financial close and reporting processes and we lacked
sufficient accounting personnel with the necessary level of US GAAP expertise
which resulted in the Company not being able to:
·
|
Properly
evaluate and account for non-routine or complex transactions, including
the determination of the purchase price of the vessels fair value of time
charter agreements acquired, the application of SFAS 123(R), the
classification of expenses related to the target acquisition process, and
the completeness of the accrual of general and administrative expenses;
and
|
·
|
Properly
identify all financial statement disclosure requirements in accordance
with U.S. GAAP including disclosure surrounding related party
transactions.
|
We
have determined that these adjustments were not prevented or detected due to
material weaknesses in our controls due to the absence of sufficient time
for management to (1) design and implement a comprehensive system of internal
controls and (2) hire sufficient accounting personnel with the requisite US GAAP
expertise that are required to support our operation as a shipping
company. However, management has made the necessary adjustments to
present the annual consolidated financial statements for the year ended December
31, 2007 in accordance with U.S. GAAP.
We
will continue to evaluate the effectiveness of our disclosure controls and
procedures and internal control over financial reporting on an ongoing basis,
including consideration of the material weaknesses identified above, or other
deficiencies we may identify. The Company has already and will
further implement actions as necessary in its continuing assessment of
disclosure controls and internal controls over financial reporting.
We
may be unable to successfully complete the procedures and attestation
requirements of Section 404 or our auditors may identify significant
deficiencies, as well as material weaknesses, in internal control over financial
reporting in future reporting periods. If we are not able to
implement the requirements of Section 404 in a timely manner or with adequate
compliance, our independent registered public accounting firm may not be able to
certify as to the adequacy of our internal controls over financial
reporting. Matters impacting our internal controls may cause us to be
unable to report our financial information on a timely basis and thereby subject
us to adverse regulatory consequences, including sanctions by the SEC or
violations of NASDAQ Global Market listing rules. There could also be
a negative reaction in the financial markets due to a loss of investor
confidence in us and the reliability of our consolidated financial
statements. Confidence in the reliability of our financial statements
could also suffer if our independent registered public accounting firm were to
report material weaknesses in our internal controls over financial
reporting. This could materially adversely affect us and lead to a
decline in the price of our common stock. We believe that the
out-of-pocket costs, the diversion of management’s attention from running our
day-to-day operations and operational changes caused by the need to comply with
the requirements of Section 404 will be significant. If the time and
costs associated with such compliance exceed our current expectations, our
profitability could be affected.
Risks
Relating to Our Common Stock
There
may be no continuing public market for you to resell our common
stock
Our
common shares commenced trading on the NASDAQ Global Market in December
2007. We cannot assure you that an active and liquid public market
for our common shares will continue. The price of our common stock
may be volatile and may fluctuate due to factors such as:
·
|
actual
or anticipated fluctuations in our quarterly and annual results and those
of other public companies in our
industry;
|
·
|
mergers
and strategic alliances in the drybulk shipping
industry;
|
·
|
market
conditions in the drybulk shipping industry and the general state of the
securities markets;
|
·
|
changes
in government regulation;
|
·
|
shortfalls
in our operating results from levels forecast by securities analysts;
and
|
·
|
announcements
concerning us or our competitors.
|
You
may not be able to sell your shares of our common stock in the future at the
price that you paid for them or at all.
Certain
stockholders hold registration rights, which if exercised, may have an adverse
effect on the market price of our common stock
Initial
Stockholders of Star Maritime who purchased common stock prior to Star
Maritime’s initial public offering are entitled to demand that we register the
resale of their shares at any time after the shares are released from escrow
which, except in limited
circumstances,
will not be before December 15, 2008. If such stockholders
exercise their registration rights with respect to all of their shares, there
will be an additional 9,026,924 shares of common stock eligible for trading in
the public market. In addition, certain of Star Maritime’s officers
and directors who purchased units in Star Maritime’s private placement in
December 2005 are entitled to demand the registration of the securities
underlying the 1,132,500 units, with each unit consisting of one share and one
warrant. If all of these stockholders exercise their registration
rights with respect to all of their shares of common stock and warrants, there
will be an additional 1,132,500 shares of common stock and 1,132,500 warrants
eligible for trading in the public market. The presence of these
additional shares and warrants may have an adverse effect on the market price of
our common stock and warrants.
Future
sales of our common stock or warrants could cause the market price of our common
stock or warrants to decline
Sales
of a substantial number of shares of our common stock or warrants in the public
market, or the perception that these sales could occur, may depress the market
price for our common stock. These sales could also impair our ability
to raise additional capital through the sale of our equity securities in the
future.
We
may issue additional shares of our common stock, warrants or other equity
securities or securities convertible into our equity securities in the future
and our stockholders may elect to sell large numbers of shares held by them from
time to time. Our amended and restated articles of incorporation
authorize us to issue 100,000,000 common shares with par value $0.01 per share
of which 42,516,433 shares and warrants to purchase 19,048,136 common shares
were outstanding as of December 31, 2007 and 55,352,400 shares and warrants to
purchase 5,916,150 common shares were outstanding as of August 21,
2008.
Anti-takeover
provisions in our organizational documents could make it difficult for our
stockholders to replace or remove our current board of directors or have the
effect of discouraging, delaying or preventing a merger or acquisition, which
could adversely affect the market price of our common stock
Several
provisions of our amended and restated articles of incorporation and bylaws
could make it difficult for our stockholders to change the composition of our
board of directors in any one year, preventing them from changing the
composition of management. In addition, the same provisions may
discourage, delay or prevent a merger or acquisition that stockholders may
consider favorable.
These
provisions include:
·
|
authorizing
our board of directors to issue “blank check” preferred stock without
stockholder approval;
|
·
|
providing
for a classified board of directors with staggered, three year
terms;
|
·
|
prohibiting
cumulative voting in the election of directors;
and
|
·
|
authorizing
the board to call a special meeting at any
time.
|
USE
OF PROCEEDS
All of the Common Shares offered hereby
are being sold by the selling stockholder. We will not receive any
proceeds from the sale of the Common Shares by the selling
stockholder.
SELLING
STOCKHOLDER
The
Common Shares being sold by F5 Capital were issued by us in a series of private
transactions to F5 Capital, as the nominee of TMT Co., Ltd. In
connection with those transactions, we granted certain registration rights to F5
Capital with respect to the resale or other disposal of the securities listed
below.
In
accordance with the registration rights granted to F5 Capital, we have filed
with the Commission a registration statement on Form F-3, of which this
prospectus forms a part, with respect to the resale or other disposal of the
shares listed below.
Selling
Securityholder
|
|
Total
Number
of
Shares
Owned
Prior
to This
Offering
|
|
Maximum
Number
of
Shares
Which
May
Be Sold in
This
Offering
|
|
Number
of
Shares
Owned
Following
This
Offering(1)(3)
|
|
Percentage
of
Outstanding
Shares
Owned
Following
This
Offering(1)(3)
|
F5
Capital(2)
|
|
3,803,481(3)
|
|
3,803,481(3)
|
|
-
|
|
0%
|
|
|
(1)
|
Assumes
that the selling stockholder will sell all of its common shares offered
pursuant to this prospectus.
|
(2)
|
Mr.
Nobu Su, one of our directors, may be deemed the beneficial
owner of F5 Capital and he exercises sole voting and dispositive power
over the common shares beneficially owned and held of record by F5
Capital.
|
(3)
|
Excludes
803,481 Common Shares reserved for issuance to TMT or its nominee in 2009
pursuant to the Master Agreement.
|
The
following table sets forth our consolidated capitalization as of June 30,
2008:
·
|
on
an actual basis; and
|
·
|
on
an adjusted basis to give effect to (i) the aggregate payment of
$19.4 million of dividends paid in August 18, 2008, (ii) the
additional borrowings of $35.0 million under the Piraeus Bank facility
dated July 1, 2008, and (iii) the issuance of 803,481 shares of Star
Bulk common stock, par value $0.01 per common
share.
|
|
Actual
|
|
As
adjusted
|
|
(in thousands of U.S.
dollars)
|
Current portion of long-term
debt
|
22,000
|
|
26,500
|
Total long-term debt, net of
current portion
|
|
|
|
Total debt
|
205,000
|
|
240,000
|
|
|
|
|
Preferred Stock; $0.01 par value,
authorized 25,000,000 shares; none issued or outstanding at June 30, 2008
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value,
100,000,000 shares authorized; 54,532,989 shares and 55,336,470 shares issued and outstanding at
June 30, 2008 on an
actual and as adjusted basis.
|
545
|
|
553
|
|
|
|
|
Additional paid-in
capital
|
477,472
|
|
477,472
|
Retained
earnings
|
|
|
|
Total shareholders’
equity
|
|
|
|
Total
capitalization
|
|
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following is a discussion of our financial condition and results of operations
of Star Bulk for the
six months ended June 30, 2008. You should read the following discussion
and analysis together with the financial statements and related notes included
elsewhere in this prospectus and documents incorporated by reference into the
Registration Statement of which this prospectus is a part. This
discussion includes forward-looking statements which, although based on
assumptions that we consider reasonable, are subject to risks and uncertainties
which could cause actual events or conditions to differ materially from those
currently anticipated and expressed or implied by such forward-looking
statements. For a discussion of some of those risks and uncertainties, see the
sections of this prospectus entitled “Forward-Looking Statements” and “Risk
Factors.”
Overview
We are an international company
providing worldwide transportation solutions in the drybulk sector through our
vessels-owning subsidiaries for a broad range of customers of major and minor
bulk cargoes including iron ore, coal, grain, cement, fertilizer, along
worldwide shipping routes. We were incorporated in the Marshall Islands on
December 13, 2006 as a wholly-owned subsidiary of Star Maritime. Our
executive offices are located at 7, Fragoklisias Street, 2nd floor,
Maroussi 151 25, Athens, Greece and our telephone number is
011-30-210-617-8400. We merged with Star
Maritime Acquisition Corp., or Star Maritime, on November 30, 2007 and commenced
operations on December 3, 2007, which is the date we took delivery of our first
vessel.
Star Maritime Acquisition Corp. or Star
Maritime was organized under the laws of the State of Delaware on May 13,
2005 as a blank check company formed to acquire, through a merger, capital stock
exchange, asset acquisition or similar business combination, one or more assets
or target businesses in the shipping industry. Following the formation of
Star Maritime, our officers and directors were the holders of 9,026,924 shares
of common stock representing all of our then issued and outstanding capital
stock. On December 21, 2005, Star Maritime consummated its initial
public offering of 18,867,500 units, at a price of $10.00 per unit, each unit
consisting of one share of Star Maritime common stock and one warrant to
purchase one share of Star Maritime common stock at an exercise price of $8.00
per share. In addition, Star Maritime completed during December 2005 a
private placement of an aggregate of 1,132,500 units, or Private Placement, each
unit consisting of one share of common stock and one warrant, to
Messrs. Tsirigakis and Syllantavos, our Chief Executive Officer and Chief
Financial Officer, respectively, and Messrs. Pappas and Erhardt, our
Chairman of the Board and one of our directors. The gross proceeds of the
private placement of $11.3 million were used to pay all fees and expenses of the
initial public offering and as a result, the entire gross proceeds of the
initial public offering amounting to $188.7 million were deposited in a trust
account maintained by American Stock Transfer & Trust Company, or the
Trust Account. Star Maritime’s common stock and warrants started trading
on the American Stock Exchange under the symbols, SEA and SEA.WS, respectively
on December 21, 2005.
On January 12, 2007, Star Maritime and
Star Bulk entered into definitive agreements to acquire a fleet of eight drybulk
carriers with a combined cargo-carrying capacity of approximately 692,000 dwt.
from certain subsidiaries of TMT Co. Ltd., or TMT, a shipping company
headquartered in Taiwan. These eight drybulk carriers are referred to as the
initial fleet, or initial vessels. The aggregate purchase price specified in the
Master Agreement by and among the Company, Star Maritime and TMT, or the Master
Agreement for the initial fleet was $224.5 million in cash and 12,537,645
shares of common stock. As additional consideration for eight vessels, we are
obligated to issue 1,606,962 shares of common stock of Star Bulk to TMT in
two installments as follows: (i) 803,481 additional shares of Star Bulk’s
common stock, no more than 10 business days following Star Bulk’s filing of its
Annual Report on Form 20-F for the fiscal year ended December 31,
2007, and (ii) 803,481 additional shares of Star Bulk’s common stock, no
more than 10 business days following Star Bulk’s filing of its Annual Report on
Form 20-F for the fiscal year ended December 31,
2008.
On November 2, 2007, the SEC declared
effective our joint proxy/registration statement filed on Forms F-1/F-4 and on
November 27, 2007 we obtained shareholder approval for the acquisition of the
initial fleet and for effecting the Redomiciliation Merger as a result of
which Star Maritime merged into Star Bulk with Star Maritime merging out of
existence and Star Bulk being the surviving entity. Each share of Star
Maritime common stock was exchanged for one share of Star Bulk common stock and
each warrant of Star Maritime was assumed by Star Bulk with the same terms and
conditions except that each became exercisable for common stock of Star
Bulk. The Redomiciliation Merger became effective after stock markets
closed on Friday, November 30, 2007 and the common shares and warrants of Star
Maritime ceased trading on the American Stock Exchange under the symbols SEA and
SEAU, respectively. Star Bulk shares and warrants started trading on the
NASDAQ Global Market on Monday, December 3, 2007 under the ticker symbols SBLK
and SBLKW, respectively. Immediately following the effective date of
the Redomiciliation Merger, TMT and its affiliates owned 30.2% of Star Bulk’s
outstanding common stock.
We began operations on December 3,
2007 with the delivery of our first vessel the Star
Epsilon. Of the
initial fleet of eight
drybulk vessels Star Bulk agreed to acquire, three of such eight vessels were
delivered by the end of December 2007. Additionally, on December 3,
2007, we entered into an agreement to acquire an additional Supramax vessel, the
Star
Kappa from TMT, which was
not included in the initial fleet and was delivered to us on December 14,
2007. On July 17,
2008, we issued the first 803,481 additional shares installment to TMT in
accordance with the Master Agreement.
We
maintain our principal executive offices at 7, Fragoklisias Street, 2nd floor,
Maroussi 151 25, Athens, Greece. Our telephone number at that address
is 30-210-617-8400.
Vessel
Management
We actively manage the deployment of our
fleet on time charters, which generally can last up to several
years. Currently, all of our vessels are employed on medium to
long-term time charters. A time charter is generally a contract to charter
a vessel for a fixed period of time at a set daily rate. Under time
charters, the charterer pays voyage expenses such as port, canal and fuel costs.
We pay for vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oil, insurance, maintenance and
repairs, as well as for commissions. We are also responsible for the
drydocking costs relating to each vessel.
Our vessels operate worldwide within the
trading limits imposed by our insurance terms and do not operate in areas where
United States, European Union or United Nations sanctions have been
imposed.
As of August 21, 2008, we had 20 employees.
Eighteen of our employees, through Star Bulk Management Inc., or Star Bulk
Management, are engaged in the day to day management of the vessels in our
fleet. Our wholly-owned subsidiary, Star Bulk Management performs
operational and technical management services for the vessels in our fleet.
Our Chief Executive Officer and our Chief Financial Officer are also the
senior management of Star Bulk Management. Star Bulk Management employs
such number of additional shore-based executives and employees designed to
ensure the efficient performance of its activities.
We reimburse and/or advance funds as
necessary to Star Bulk Management in order for it to conduct its activities and
discharge its obligations, at cost. We also maintain working capital
reserves as may be agreed between Star Bulk and Star Bulk Management from time
to time.
Star Bulk Management is responsible for
the management of the vessels. Star Bulk Management’s
responsibilities include, inter alia, locating, purchasing, financing and
selling vessels, deciding on capital expenditures for the vessels, paying
vessels’ taxes, negotiating charters for the vessels, managing the mix of
various types of charters, developing and managing the relationships with
charterers and the operational and technical management of the
vessels. Technical management includes maintenance, drydocking,
repairs, insurance, regulatory and classification society compliance, arranging
for and managing crews, appointing technical consultants and providing technical
support.
We do not intend to pay commissions to
our affiliates in connection with the chartering of vessels to or from any of
our affiliates or for the purchase of vessels from or sale to its
affiliates.
Star Bulk Management subcontracts the
technical and crew management of our vessels to Combine Marine S.A., or
Combine, Bernhardt Schulte Shipmanagement Ltd.,
or Bernhardt, Union Commercial Inc, or Union and Univan Shipmanagement Ltd., or
Univan.
On June 18, 2008, we entered into an
agreement with Union for the technical management of the Star
Cosmo. Under the
agreement, we pay a daily fee of $450, which is reviewed two months before the
beginning of each calendar year. The agreement continues indefinitely
unless either party terminates the agreement after the first voyage upon two
months' written notice or a certain termination event
occurs.
On November 2 and December 5, 2007, we
entered into agreements with Bernhardt for the technical management of the
Star
Alpha, the Star
Beta, the Star Delta,
the Star
Epsilon and the Star Theta,
the Star Omicron
and the Star Kappa,
respectively. Under these
agreements, we pay Bernhardt an aggregate annual management fee of $110,000 per
vessel. The agreements continue indefinitely unless either party
terminates the agreements upon three months' written notice or a certain
termination event occurs.
Under an agreement dated May 4, 2007, we
appointed Combine, a company affiliated with Mr. Tsirigakis, our Chief Executive
Officer, Mr. Pappas, the Chairman of our Board and one of our directors and Mr.
Christos Anagnostou, a former officer of Star Maritime, as interim manager of
the vessels in the initial fleet. Under the agreement, Combine provides
interim technical management and associated services, including legal
services, to the vessels in exchange for a flat fee of $10,000 per vessel
prior to delivery and at a daily fee of $450 U.S. dollars per vessel during the
term of the agreement until such time as the technical management of the vessel
is transferred to another technical management company. Combine is
entitled to be reimbursed at cost by us for any and all expenses incurred by
them in the management of the vessels, but shall provide us the full benefit of
all discounts and rebates enjoyed by them. The term of the agreement is
for one year from the date of delivery of each vessel. Either party may
terminate the agreement upon thirty days’ written notice. The Star
Gamma, the Star
Zeta and the Star
Sigma are currently managed
by Combine.
On July 4, 2007, we entered into an
agreement with Univan for the technical management of the Star
Iota. Under the
agreement, we pay a monthly management fee of $8,500, which is reviewed two
months before the beginning of each calendar year. The agreement
continues indefinitely unless either party terminates the agreement after one
year upon three months' written notice or a certain termination event
occurs.
Factors
Affecting Our Results of Operations
We
charter all of our vessels, primarily pursuant to medium- to long-term time
charters with terms of approximately one to five years. Under our time charters,
the charterer typically pays us a fixed daily charterhire rate and bears all
voyage expenses, including the cost of bunkers (fuel oil) and port and canal
charges. We remain responsible for paying the chartered vessel’s operating
expenses, including the cost of crewing, insuring, repairing and maintaining the
vessel, the costs of spares and consumable stores, tonnage taxes and other
miscellaneous expenses, and we also pay commissions to one or more unaffiliated
ship brokers and to in-house brokers associated with the charterer for the
arrangement of the relevant charter. Although the vessels in our fleet are
primarily employed on medium- to long-term time charters ranging from one to
five years, we may employ these and additional vessels under bareboat charters
or in drybulk carrier pools in the future.
Star Bulk believes that the important
measures for analyzing trends in the results of operations consist of the
following:
·
|
Average number
of vessels is the
number of vessels that constituted our fleet for the relevant period, as
measured by the sum of the number of days each vessel was a part of our
fleet during the period divided by the number of calendar days in that
period.
|
·
|
Ownership
days are the total
calendar days each vessel in the fleet was owned by Star Bulk for the
relevant period.
|
·
|
Available days
for the fleet are the
total calendar days the vessels were in possession for the relevant period
after subtracting for off-hire days with major repairs dry-docking or
special or intermediate surveys or transfer of
ownership.
|
·
|
Voyage
days are the total
days the vessels were in our possession for the relevant period after
subtracting all off-hire days incurred for any reason (including off-hire
for dry-docking, major repairs, special or intermediate
surveys).
|
·
|
Fleet
utilization is
calculated by dividing voyage days by ownership days for the relevant
period and takes into account the dry-docking
periods.
|
·
|
Time charter
equivalent rate, or TCE rate, is a measure of the average
daily revenue performance of a vessel on a per voyage basis. Our method of
calculating TCE rate is determined by dividing voyage revenues (net of
voyage expenses) or time charter equivalent revenue or TCE revenue by
voyage days for the relevant time period. Voyage expenses primarily
consist of port, canal and fuel costs that are unique to a particular
voyage, which would otherwise be paid by the charterer under a time
charter contract, as well as commissions. TCE rate is a standard shipping
industry performance measure used primarily to compare period-to-period
changes in a shipping company’s performance despite changes in the mix of
charter types (i.e., spot charters, time charters and bareboat charters)
under which the vessels may be employed between the
periods.
|
The
following table reflects our voyage days, calendar days, fleet utilization and
TCE rates for the six months ended June 30, 2008 and the year ended December 31,
2007.
|
|
Year
Ended
December
31, 2007
|
|
|
Six
Months ended
June
30, 2008
|
|
Average number of
vessels
|
|
|
0.21
|
|
|
|
9.4
|
|
Total voyage days for
fleet
|
|
|
69
|
|
|
|
1,543
|
|
Total ownership days for
fleet
|
|
|
78
|
|
|
|
1,702
|
|
Fleet
Utilization
|
|
|
88%
|
|
|
|
91%
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent
rate
|
|
$ |
52,029
|
|
|
$ |
64,378
|
|
Voyage
Revenues
Voyage revenues are driven primarily by
the number of vessels in our fleet, the number of voyage days and the amount of
daily charterhire, or time charter equivalent, that our vessels earn under
period charters, which, in turn, are affected by a number of factors, including
our decisions relating to vessel acquisitions and disposals, the amount of time
that we spend positioning our vessels, the amount of time that our vessels spend
in dry-dock undergoing repairs, maintenance and upgrade work, the age, condition
and specifications of our vessels, levels of supply and demand in the seaborne
transportation market and other factors affecting spot market charter rates for
vessels.
Vessels operating on time charters for
a certain period of time provide more predictable cash flows over that period of
time, but can yield lower profit margins than vessels operating in the spot
charter market during periods characterized by favorable market conditions.
Vessels operating in the spot charter market generate revenues that are less
predictable but may enable us to capture increased profit margins during periods
of improvements in charter rates although we are exposed to the risk of
declining vessel rates, which may have a materially adverse impact on our
financial performance. If we employ vessels on period time charters, future spot
market rates may be higher or lower than the rates at which we have employed our
vessels on period time charters.
Time
Charter Equivalent (TCE)
A standard maritime industry
performance measure used to evaluate performance is the daily time charter
equivalent, or daily TCE. Daily TCE revenues, a non-GAAP measure, are voyage
revenues minus voyage expenses divided by the number of voyage days during the
relevant time period. Voyage expenses primarily consist of port, canal and fuel
costs that are unique to a particular voyage, which would otherwise be paid by a
charterer under a time charter, as well as commissions. We believe that the
daily TCE neutralizes the variability created by unique costs associated with
particular voyages or the employment of vessels on time charter or on the spot
market and presents a more accurate representation of the revenues generated by
our vessels.
Vessel
Operating Expenses
Vessel operating expenses include crew
wages and related costs, the cost of insurance and vessel registry, expenses
relating to repairs and maintenance, the costs of spares and consumable stores,
tonnage taxes, regulatory fees, technical management fees and other
miscellaneous expenses. Other factors beyond Star Bulk’s control, some of which
may affect the shipping industry in general, including, for instance,
developments relating to market prices for crew wages and insurance, may also
cause these expenses to increase. Technical vessel managers established an
operating expense budget for each vessel and perform the day-to-day management
of the vessels. Star Bulk Management monitors the performance of each of the
technical vessel managers by comparing actual vessel operating expenses with the
operating expense budget for each vessel. Star Bulk is responsible for the costs
of any deviations from the budgeted amounts.
Depreciation
We depreciate our vessels on a
straight-line basis over their estimated useful lives determined to be 25 years
from the date of their initial delivery from the shipyard. Depreciation is based
on cost less the estimated residual value.
Management
Fees
Star Bulk Management subcontracts the
technical and crew management of our vessels to Combine Marine S.A., or Combine,
Bernhardt, Union Commercial Inc, or Union and Univan Shipmanagement Ltd., or
Univan.
Star
Under an agreement dated May 4, 2007, we appointed Combine, a company
affiliated with Mr. Tsirigakis, our Chief Executive Officer,
Mr. Pappas, the Chairman of our Board and one of our directors and
Mr. Christos Anagnostou, the former officer of Star Maritime as interim
manager of the vessels in the initial fleet. Under the agreement, Combine
provides interim technical management and associated services to the vessels in
exchange for a flat fee of $10,000 per vessel and at a daily fee of $450 per
vessel during the term of the agreement until such time as the technical
management of the vessel is transferred to another technical management company.
Combine is entitled to be reimbursed at cost by us for any and all expenses
incurred by them in the management of the vessels, but shall provide us the full
benefit of all discounts and rebates enjoyed by them. The term of the agreement
was for one year from the date of delivery of each vessel. Either party may
terminate the agreement upon thirty days’ written notice. The Star Gamma, the Star Zeta and the Star Sigma are currently
managed by Combine.
On
November 2 and December 5 2007, we entered into agreements with Bernhardt for
the technical management of the Star Alpha, the Star Beta, the Star Delta, the Star Epsilon and the Star Theta, Star Omicron
and the
Star Kappa,
respectively. Under these agreements, we pay Bernhardt an aggregate annual
management fee of $110,000, per vessel.
On
June 18, 2008, we entered into an agreement with Union for the technical
management of the Star
Cosmo. Under the agreement, we pay a daily fee of $450 dollars, which is
reviewed two months before the beginning of each calendar year. The agreement
continues indefinitely unless either party terminates the agreement after the
first voyage upon two months’ written notice or a certain termination event
occurs.
On
July 4, 2007, we entered into an agreement with Univan for the technical
management of the Star
Iota. Under the agreement, we pay a monthly management fee of $8,500,
which is reviewed two months before the beginning of each calendar
year.
General
and Administrative Expenses
We
incur general and administrative expenses, including our onshore personnel
related expenses, legal and accounting expenses.
Interest
and Finance Costs
We
defer financing fees and expenses incurred upon entering into our credit
facility and amortize them to interest and financing costs over the term of the
underlying obligation using the effective interest method. We also expect to
incur interest expenses and other financing fees under our new credit facilities
in connection with borrowings during 2008 to partially finance new vessel
acquisitions and to provide additional liquidity to the Company.
Interest
income
We
did not have any operations for the period from May 13, 2005 to December 3,
2007. During this period, all of our income was derived from interest income,
the majority of which was earned on funds held in the Trust Account which
consisted of the entire gross proceeds of the initial public offering in the
amount of $188.7 million. The gross proceeds of the private placement in the
amount of $11.3 million were used to pay all fees and expenses of the initial
public offering.
Inflation
Inflation
does not have a material effect on our expenses given current economic
conditions. In the event that significant global inflationary pressures appear,
these pressures would increase our operating, voyage, administrative and
financing costs.
Special
or Intermediate Survey and Drydocking Costs
We
have not incurred drydocking costs in 2007. Beginning with our first fiscal quarter
ended March 31, 2008, we elected to change our policy for accounting for vessel
drydocking costs from the deferral method, under which we deferred and amortized
our drydocking costs over the estimated period of benefit between drydockings,
to the direct expense method, under which we expense all drydocking costs as
incurred.
There have been no drydocking costs that
the Company has incurred prior to the first quarter of 2008, therefore, there
will be no impact on the Company’s prior consolidated financial statements as a
result of the adoption of this change in policy. The Company believes that the
new direct expensing method eliminates the significant amount of subjectivity
that is needed to determine which costs and activities related to drydocking
should be deferred. The first effect of this change in accounting policy,
appeared in the Company’s results for the
quarter ended March 31, 2008. The Company believes that this change in
accounting policy will not impact its dividend distributions per share, given
that the Company has a fixed dividend policy.
Lack
of Historical Operating Data for Vessels Before Their Acquisition By
Us
Consistent
with shipping industry practice, other than inspection of the physical condition
of the vessels and examinations of classification society records, there is no
historical financial due diligence process when we acquire vessels. Accordingly,
we do not obtain the historical operating data for the vessels from the sellers
because that information is not material to our decision to make vessel
acquisitions, nor do we believe it would be helpful to potential investors in
our stock in assessing our business or profitability. Most vessels are sold
under a standardized agreement, which, among other things, provides the buyer
with the right to inspect the vessel and the vessel’s classification society
records. The standard agreement does not give the buyer the right to inspect, or
receive copies of, the historical operating data of the vessel. Prior to the
delivery of a purchased vessel, the seller typically removes from the vessel all
records, including past financial records and accounts related to the vessel. In
addition, the technical management agreement between the seller’s technical
manager and the seller is automatically terminated and the vessel’s trading
certificates are revoked by its flag state following a change in
ownership.
Consistent
with shipping industry practice, we treat the acquisition of a vessel (whether
acquired with or without charter) as the acquisition of an asset rather than a
business, which we believe to be in accordance with applicable U.S. GAAP and SEC
rules. Where a vessel has been under a voyage charter, the vessel is delivered
to the buyer free of charter, and it is rare in the shipping industry for the
last charterer of the vessel in the hands of the seller to continue as the first
charterer of the vessel in the hands of the buyer. All of the vessels in our
current fleet have been acquired with time charters attached, with the exception
of the Star Beta. In
most cases, when a vessel is under time charter and the buyer wishes to assume
that charter, the vessel cannot be acquired without the charterer’s consent and
the buyer entering into a separate direct agreement (called a “novation
agreement”) with the charterer to assume the charter. The purchase of a vessel
itself does not transfer the charter because it is a separate service agreement
between the vessel owner and the charterer.
Where we identify any intangible assets
or liabilities associated with the acquisition of a vessel, we allocate the
purchase price of acquired tangible and intangible assets based on their
relative fair values. Where we have assumed an existing charter obligation or
entered into a time charter with the existing charterer in connection with the
purchase of a vessel with the time charter agreement at charter rates that are
less than market charter rates, we record a liability, based on the difference
between the assumed charter agreement rate and the market charter rate for an
equivalent charter agreement. Conversely, where we assume an existing
charter obligation or enter into a time charter with the existing charterer in
connection with the purchase of a vessel with the charter agreement at charter
rates that are above prevailing market charter rates, we record an asset, based
on the difference between the market charter rate and the assumed contracted
charter rate for an equivalent vessel. This determination is made at the time
the vessel is delivered to us, and such assets and liabilities are amortized to
revenue over the remaining period of the charter.
From
December 3, 2007 to June 30, 2008, we owned and operated a fleet of 12
vessels consisting of three Capesize, one Panamax, and eight Supramax drybulk
carriers with an average age of 9.8 years and a combined cargo carrying capacity
of approximately 1.0 million dwt. Following the expected delivery to
us of the Star Ypsilon
and the delivery of the
Star
Iota to its purchaser in
September 2008, the average age of our fleet will be
approximately 9.3 years.
Following the consummation of the
Redomiciliation Merger, Star Bulk took delivery from TMT, the vessels indicated
in Note 1 of our consolidated financial statements pursuant to the Master
Agreement (except from the Star Kappa which was acquired
from TMT separately). The aggregate purchase price paid to TMT consisted of both
cash and 12,537,645 of our common shares. The fair value of the common shares
issued to TMT was based on the closing share price of Star Bulk’s shares on the
delivery date of each vessel. The total consideration for the Star Epsilon, the Star Theta and the Star Beta, three vessels of
initial fleet delivered to us during
December
2007, was $166.8 million. In addition, on December 3, 2007, we
entered into an agreement to acquire the Star Kappa from TMT for $72.0
million, an additional vessel not included in the initial fleet, which was
delivered to us on December 14, 2007.
During 2007, we acquired three drybulk
carriers, the Star
Epsilon, the Star
Theta and the Star
Kappa, with attached time charter contracts, which we agreed to assume
through arrangements with the respective charterers. Upon delivery of the above
vessels, we evaluated the charter contract and assumed and recognized (a) an
asset of approximately $2.0 million for one of the vessels with a corresponding
decrease in the vessel’ purchase price and (b) a liability of approximately
$26.8 million for the other two vessels with a corresponding increase in the
vessels’ purchase price.
On January 22, 2008, we entered into an
agreement to acquire the Star
Sigma, a 1991 built Capesize drybulk carrier with a cargo carrying
capacity of approximately 184,403 dwt for a purchase price of $83.74 million.
This vessel was delivered to us in April 2008, following which the vessel will
be employed on a year time charter at a daily hire rate of $100,000. On March 6,
2008, the Star Sigma was committed to a further three year time charter
commencing in April 2009 with an average daily rate of $63,000.
On March 11, 2008, we entered into an
agreement to acquire, the Star
Omicron, a 2005 built Supramax drybulk carrier with a cargo carrying
capacity of 53,489 dwt for a purchase price of $72.0 million. Following the
delivery its delivery to us in April 2008, the Star Omicron was employed on
a three year time charter at a gross daily charterhire rate of
$43,000.
On May 22, 2008, we entered into an
agreement to acquire the Star
Cosmo, a 2005 built
Supramax drybulk carrier for the aggregate purchase price of $68.8 million with
a cargo carrying capacity of approximately 52,200
dwt. We entered into a three year time
charter agreement to employ this vessel at an average daily hire rate of $41,900
following its delivery to us on July 1, 2008.
On June
3, 2008, we entered into an agreement with a company affiliated with Oceanbulk
Maritime, S.A., or Oceanbulk, a company founded by our Chairman, Petros Pappas,
to acquire the Star
Ypsilon, a 1991 built Capsize drybulk carrier with a cargo carrying
capacity of approximately 150,940 dwt for the aggregate purchase price of $87.2
million. Oceanbulk, is selling the Star Ypsilon at the same
price it acquired the vessel from Dutch interests. We entered into a three
year time charter agreement, subject
to a related
novation agreement which has not yet been obtained, with a company
affiliated with TMT, a company controlled by our director, Mr. Nobu Su, to
employ the Star Ypsilon
at an average daily hire rate of $93,333 following its expected delivery to
us by September of 2008. No commissions are to be charged either on
the sale or the chartering of the Star Ypsilon.
When
we purchase a vessel and assume or renegotiate a related time charter, we must
take the following steps before the vessel will be ready to commence
operations:
·
|
obtain
the charterer’s consent to us as the new
owner;
|
·
|
obtain
the charterer’s consent to a new technical
manager;
|
·
|
in
some cases, obtain the charterer’s consent to a new flag for the
vessel;
|
·
|
arrange
for a new crew for the vessel, and where the vessel is on charter, in some
cases, the crew must be approved by the
charterer;
|
·
|
replace
all hired equipment on board, such as gas cylinders and communication
equipment;
|
·
|
negotiate
and enter into new insurance contracts for the vessel through our own
insurance brokers;
|
·
|
register
the vessel under a flag state and perform the related inspections in order
to obtain new trading certificates from the flag
state;
|
·
|
implement
a new planned maintenance program for the vessel;
and
|
·
|
ensure
that the new technical manager obtains new certificates for compliance
with the safety and vessel security regulations of the flag
state.
|
The
following discussion is intended to help you understand how acquisitions of
vessels affect our business and results of operations.
Our
business is comprised of the following main elements:
·
|
employment
and operation of our drybulk vessels;
and
|
·
|
management
of the financial, general and administrative elements involved in the
conduct of our business and ownership of our drybulk
vessels.
|
·
|
The
employment and operation of our vessels require the following main
components:
|
·
|
vessel
maintenance and repair;
|
·
|
crew
selection and training;
|
·
|
vessel
spares and stores supply;
|
·
|
contingency
response planning;
|
·
|
onboard
safety procedures auditing;
|
·
|
vessel
insurance arrangement;
|
·
|
vessel
security training and security response plans
(ISPS);
|
·
|
obtain
ISM certification and audit for each vessel within the six months of
taking over a vessel;
|
·
|
vessel
hire management;
|
·
|
vessel
performance monitoring.
|
The
management of financial, general and administrative elements involved in the
conduct of our business and ownership of our vessels requires the following main
components:
·
|
management
of our financial resources, including banking relationships (i.e.,
administration of bank loans and bank
accounts);
|
·
|
management
of our accounting system and records and financial
reporting;
|
·
|
administration
of the legal and regulatory requirements affecting our business and
assets; and
|
·
|
management
of the relationships with our service providers and customers. The
principal factors that affect our profitability, cash flows and
shareholders’ return on investment
include:
|
·
|
rates
and periods of charterhire;
|
·
|
levels
of vessel operating expenses;
|
·
|
depreciation
and amortization expenses;
|
·
|
fluctuations
in foreign exchange rates.
|
Star Maritime was organized under the
laws of the State of Delaware on May 13, 2005 as a blank check company formed to
acquire, through a merger, capital stock exchange, asset acquisition or similar
business combination, one or more assets or target businesses in the shipping
industry.
On November 27, 2007, the Company
obtained shareholder approval for the acquisition of the initial fleet of eight
drybulk carriers and for effecting the Redomiciliation Merger whereby Star
Maritime merged with and into Star Bulk with Star Bulk as the surviving entity.
The Redomiciliation Merger was completed on November 30, 2007. Our first vessel
was delivered on December 3, 2007. Thus, we can not present a meaningful
comparison of our results of operations for the period from December 3, 2007 to
December 31, 2007.
During
the period from the Company’s inception to the date it commenced operations, the
Company was a development stage enterprise in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 7 “Accounting and Reporting By
Development Stage Companies”.
Six
months ended June 30, 2008
We
began operations in December 2007 and therefore we cannot present a meaningful
comparison of our results of operations for the six month period ended June 30,
2008 with the same period in 2007. During the period from the
Company’s inception to the date it commenced operations, the Company was a
development stage enterprise in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 7 “Accounting and Reporting By Development
Stage Companies.”
Voyage
Revenues: Voyage revenues for the six months ended June 30, 2008 were
approximately $100.9 million. This amount includes the amortization
of the fair value of below/above market time charters in the amount of $34.9
million, associated with time charters attached to vessels acquired, which are
amortized over the remaining period of the time charter as increases to net
revenue and depreciation expense.
This
amount is offset by charterers commission amounting to $1.9 million. Consistent with
drybulk industry practice, charterer commissions ranging from 0% to 3.75% of the
total daily charter hire rate of each charter. All of our revenues
for six months ended June 30, 2008 were earned from time charters.
Voyage
Expenses: Voyage expenses, which mainly consist of commissions payable to
brokers, were approximately $1.6 million for the six months ended June 30, 2008.
Consistent with drybulk industry practice, we pay broker commissions ranging
from 1.0% to
2.5%
of the total daily charter hire rate of each charter to ship brokers associated
with the charterers, depending on the number of brokers involved with arranging
the charter.
Vessel Operating
Expenses: For the six months ended June 30, 2008, our vessel operating
expenses were approximately $10.3 million. Vessel operating expenses include
crew wages and related costs, the cost of insurance, expenses relating to
repairs and maintenance, the cost of spares and consumable stores, management
fees, tonnage taxes and other miscellaneous expenses. Other factors beyond our
control, some of which may affect the shipping industry in general, including,
for instance, developments relating to market prices for insurance, may also
cause these expenses to increase.
Drydocking
Expenses: For the six months ended June 30, 2008, our drydocking expenses
were $6.4 million. During this period three vessels undertook their periodic dry
docking survey.
Vessel Impairment
Loss: As of June 30, 2008, the vessel Star Iota was classified as
an asset held for sale and recorded at the lower of its carrying amount or
fair value less cost to sell. The resulting impairment loss of $4.6
million was recorded in the six months ended June 30, 2008.
General and
Administrative Expenses: For the six months ended June 30,
2008, we incurred approximately $5.4 million of general and administrative
expenses. Our general and administrative expenses include the salaries and other
related costs of the executive officers and other employees, our office rents,
legal and accounting costs, regulatory compliance costs and long-term
compensation costs.
Depreciation:
We depreciate our vessels based on a straight line basis over the expected
useful life of each vessel, which is 25 years from the date of their initial
delivery from the shipyard. Depreciation is based on the cost of the vessel less
its estimated residual value, which is estimated at $200 per lwt, at the date of
the vessel’s acquisition. Secondhand vessels are depreciated from the date of
their acquisition through their remaining estimated useful life. However, when
regulations place limitations over the ability of a vessel to trade on a
worldwide basis, its useful life is adjusted to end at the date such regulations
become effective. For six months ended June 30, 2008, we recorded approximately
$21.0 million of vessel depreciation charges.
Interest
Expense: For the six months ended June 30, 2008, our interest payments
under our term-loan facilities totaled approximately $3.2 million.
Interest
Income: Interest income was $0.7 million for the six months ended June
30, 2008.
Liquidity
and Capital Resources
Our
principal source of funds has been equity provided by our shareholders,
operating cash flow and long-term borrowing. Our principal use of funds has been
capital expenditures to establish and grow our fleet, maintain the quality of
our drybulk carriers, comply with international shipping standards and
environmental laws and regulations, fund working capital requirements, make
interest repayments on outstanding loan facilities, and pay dividends. We expect
to rely upon operating cash flow, long-term borrowing, and future equity
financing to implement our growth plan and meet our liquidity requirements going
forward. We believe that we will have sufficient liquidity to meet
all of our current working capital requirements.
We
believe that our current cash balance, as well as operating cash flow, is
sufficient to meet our current liquidity needs, assuming the charter market does
not deteriorate to the low-rate environment. If we do acquire additional
vessels, we may rely on new debt, proceeds from future offerings and revenue
from operations to meet our liquidity needs going forward.
Our
practice has been to acquire drybulk carriers using a combination of funds
received from equity investors and bank debt secured by mortgages on our drybulk
carriers. Our business is capital-intensive and its future success will depend
on our ability to maintain a high-quality fleet through the acquisition of newer
drybulk carriers and the selective sale of older drybulk carriers. These
acquisitions will be principally subject to management’s expectation of future
market conditions as well as our ability to acquire drybulk carriers on
favorable terms.
Our
short-term liquidity requirements relate to servicing our debt, payment of
operating costs, funding working capital requirements and maintaining cash
reserves against fluctuations in operating cash flows. Sources of short-term
liquidity include our revenues earned from our charters.
Our
medium and long-term liquidity requirements include funding the equity portion
of investments in new or additional vessels and repayment of long-term debt
balances. Sources of funding our long-term liquidity requirements
include new loans or equity issues or vessel sales.
As
of June 30, 2008 and December 31, 2007, we had cash and cash equivalents of
$49.1 million ($11.0 million of which restricted) and $19.0 million,
respectively. As of December 31, 2006 and 2005, Star Maritime had
cash and cash equivalents of $2.1 million and $0.6 million,
respectively
On
May 22, 2008, we entered into an agreement to acquire the Star Cosmo, a 2005 built
Supramax drybulk carrier for the aggregate purchase price of $68.8 million with
a cargo carry capacity of approximately 52,200 dwt. We finance the
purchase price through a combination of the proceeds received from the
conversion of our warrants and borrowings under our new Piraeus Bank A.E. term
loan facility dated July 1, 2008.
On
June 3, 2008, we entered into an agreement with a company affiliated with
Oceanbulk to acquire the Star
Ypsilon, a 1991 built Capsize drybulk carrier for the aggregate purchase
price of $87.2 million with a cargo carry capacity of approximately 150,940
dwt. We expect to finance the purchase price through a combination of
the proceeds received from the conversion of our warrants and borrowings under
our Piraeus Bank A.E. term loan facility.
As
of December 31, 2007, we paid no dividends to our
shareholders. On
February 14, April 16, and July 29, 2008, the Company declared dividends
amounting to approximately $4.6 million ($0.10 per share, paid on February 28,
2008 to the stockholders of record on February 25, 2008), approximately $18.8
million ($0.35 per share, paid on May 23, 2008 to the shareholders of record on
May 16, 2008), and approximately $19.4 million ($0.35 per share, paid on
August 18, 2008 to the shareholders of record on August 8, 2008),
respectively.
Cash
Flows
Six
months ended June 30, 2008
The following table presents cash flow
information for the six
months ended June 30, 2008.
The information was derived from the audited consolidated statements of cash
flows of Star Bulk and is expressed in thousands of U.S.
Dollars.
Net cash provided by operating
activities
|
$
|
47,647
|
|
Net cash used in investing
activities
|
|
(297,006
|
)
|
Net cash provided by financing
activities
|
|
268,417
|
|
Increase in cash and cash
equivalents
|
|
19,058
|
|
Cash and cash equivalents
beginning of period
|
|
18,985
|
|
Cash and cash equivalents end of
period
|
$
|
38,043
|
|
Cash from operating activities is mainly
composed of revenues generated under our time charters and interest
income.
Net cash used in investing activities was
$297.0 million of
which $270.4 million represented amounts paid for
our initial fleet. We also paid $15.611 million in advance for the
purchase of vessels the
Star
Ypsilon and the Star
Cosmo. Finally
$11.0 million was the increase in restricted cash due to loan
covenants.
Net cash provided by financing
activities was $268.4 million for the period ended June 30,
2008 representing $120.0 million from borrowings under our Commerzbank
AG loan facility, $85.0 million from borrowing under our Piraeus Bank A.E. term
loan facility and $94.0 million
received from the exercise
of warrants, offset mainly
by $23.4 million of cash dividends paid, $8.5 million of repayments under our
loan agreements and payments of $6.1 million in connection with the Company’s
repurchase of its common stock and warrants.
Senior
Secured Credit Facilities
As
of August 21, 2008, we had three senior secured credit facilities with a total
borrowing capacity of up to approximately $325.0 million.
Commerzbank
AG
On December 27, 2007, we entered into a
term loan agreement with Commerzbank AG in the amount of $120.0 million to
partially finance the Star
Gamma, the Star
Delta, the Star
Epsilon, the Star
Zeta, and the Star Theta,
which also provide the
security for this loan agreement. Upon signing the term loan facility
agreement we committed to paying a management fee of 0.5% of the loan amount and
a commitment fee of 0.35% per annum payable quarterly in arrears over the
committed but un-drawn portion of the loan.
Under the terms of this term loan
facility, the repayment of $120.0 million which is the maximum amount we are
able to borrow, is over a nine year term and divided into two
tranches. The first tranche incorporates up to the first $50.0
million that is borrowed and is repayable in twenty-eight consecutive quarterly
installments commencing twenty-seven months after our initial borrowings but no
later than March 31, 2010: (i) the first four installments amount to $2.25
million each, (ii) the next thirteen installments amount to $1.0 million each
and (iii) the remaining eleven installments amount to $1.3 million each and a
final balloon payment of $13.7 million payable together with the last
installment. The second tranche incorporates the balance of the loan
up to the full amount of $120.0 million. The balance of our
borrowings is repayable in twenty-eight consecutive quarterly installments
commencing twenty-seven months after draw down but no later than March 31,
2010: (i) the first four installments amount to $4.0 million each and
(ii) the remaining twenty-four installments amount to $1.75 million each and a
final balloon payment of $12.0 million payable together with the last
installment. Should any tranche not be drawn down with the maximum
amount specified above, the repayment installments are reduced in the inverse
order of maturity. Our term loan bears interest at LIBOR plus a
margin at a minimum of 0.8% to a maximum of 1.25% depending on whether our
aggregate drawdown ranges from 60% up to 75% of the aggregate market value of
our initial fleet.
As of August 21, 2008, we had outstanding borrowings
of $120.0 million, which is the maximum amount of borrowings permitted
under this facility.
Piraeus Bank A.E. Loan Facility dated
April 14, 2008
On April 14, 2008, we entered into a
term loan agreement with Piraeus Bank A.E. in the amount of $170.0 million to
partially finance the acquisition of the Star
Omicron and the
Star
Sigma and to provide
additional liquidity to the Company. This loan agreement is secured
by the Star
Alpha, the Star
Beta, and the Star
Sigma. Upon
signing the term loan facility agreement we committed to paying a management fee
of 0.35% of the loan amount and a commitment fee of 0.25% per annum payable
quarterly in arrears over the committed but un-drawn portion of the
loan.
Under the terms of this term loan
facility, the repayment of $170.0 million (a) begins three months after we draw
down $65.0 million under this facility to partially finance the Star
Sigma but no later than
July 2008 and (b) is divided into 24 consecutive quarterly installments: (i) the
first installment amounts to $8.0 million, (ii) the second through fourth
installments amount to $12.0 million each, (iii) the fifth to eighth
installments amount to $10.0 million each, (iv) the ninth through sixteenth
installments amount to $5.0 million each, (v) the seventeenth through twentieth
installments amount to $3.0 million each, (vi) the twenty-first through
twenty-fourth installments amount to $2.5 million each of and a final balloon
payment in the amount of $24.0 million provided that if this loan facility is
drawdown in less than the maximum available amount thereof, each repayment
installment, including the balloon installment shall be reduced pro-rata by an
amount in aggregate equal to such undrawn amount. The term of this
loan facility is six years. Our term loan bears interest at LIBOR
plus a margin of 1.25%.
As of August 21, 2008, we had outstanding borrowings of
$81.0 million under this loan
facility.
Piraeus Bank A.E. Loan Facility dated
July 1, 2008
On July 1, 2008, we entered into a term
loan agreement with Piraeus Bank A.E. in the amount of $35.0 million to
partially finance the acquisition of the Star
Cosmo. Upon
signing the term loan facility agreement we committed to pay a non refundable
arrangement fee of 0.4% of the facility amount.
Under the terms of this term loan
facility, the repayment of $35.0 million (a) begins three months after we draw
down the full amount but no later than July 30, 2008 and (b) is divided into 24
consecutive quarterly installments: (i) the first through fourth installments
amounts to $1.5 million, (ii) the fifth through eighth installments amount to
$1.3 million each, (iii) the ninth to twelfth installments amount to $0.9
million each, (iv) the thirteenth through twenty-fourth installments amount to
$0.5 million each of and a final balloon payment in the amount of $14.5
million. The term of this loan facility is six years. Our
term loan bears interest at LIBOR plus a margin of 1.325%.
Our term loan agreements with Piraeus
Bank A.E. contain financial covenants, including requirements to maintain (i) a
minimum liquidity of $0.5
million per vessel, (ii)
the total indebtedness of the borrower over the market value of all vessels
owned shall not be greater
than 0.6 to 1.0, and (iii)
the interest coverage
ratio shall not be less than 2.0 to
1.0.
As of August 21, 2008, we had outstanding borrowings of
$35.0 million under this loan facility.
Quantitative
and Qualitative Disclosure of Market Risk
Interest
Rate Risk
The international drybulk industry is a
capital intensive industry, requiring significant amounts of investment. Much of
this investment is provided in the form of long term debt. Our debt usually
contains interest rates that fluctuate with LIBOR. Increasing interest rates
could adversely impact future earnings.
During 2007, we had no outstanding
borrowings under our credit facility and did not make any interest payments.
Under our term loan with Commerzebank AG we pay an interest rate of LIBOR plus a
margin of up to 1.25%. Under our term loan with Piraeus Bank A.E. dated April
14, 2008, we pay an interest rate of LIBOR plus a margin of 1.25%. Under our
term loan with Piraeus Bank A.E. dated July 1, 2008, we pay an interest rate of
LIBOR plus a margin of 1.325%. As of August 21, 2008, we had $120.0 million outstanding
under our term loan with Commerzebank AG, and $116.0 million outstanding under our term
loans with Piraeus Bank A.E.
Our estimated interest expense for the
year ended December 31,
2008 is $7.8
million. Our interest expense estimate is based on the amount of our
outstanding borrowings under our term loan facilities as at August 21, 2008 and the average interest rate of
our term loan facilities for the six months ended June 30, 2008, in the amount of
3.9%.
Our interest expense is affected by
changes in the general level of interest rates. As an indication of the extent
of our sensitivity to interest rate changes, an increase of 100 basis points
will increase our income expense for the year ended December 31, 2008 by
$1.2 million assuming the
same debt profile throughout the year.
The
following table sets forth the sensitivity of loans in millions of U.S. dollars
to a 100 basis points increase in LIBOR during the next five years:
For the year
ended
December
31,
|
|
Estimated
amount
of interest
expense
|
|
|
Estimated
amount
of interest expense after an
increase of 100 basis points
|
|
|
Sensitivity
|
|
2008
|
|
|
7.8
|
|
|
|
9.0
|
|
|
|
1.2
|
|
2009
|
|
|
8.4
|
|
|
|
10.5
|
|
|
|
2.1
|
|
2010
|
|
|
7.1
|
|
|
|
8.9
|
|
|
|
1.8
|
|
2011
|
|
|
5.7
|
|
|
|
7.2
|
|
|
|
1.5
|
|
2012
|
|
|
4.8
|
|
|
|
6.1
|
|
|
|
1.3
|
|
|
|
|
33.8
|
|
|
|
41.7
|
|
|
|
7.9
|
|
Currency
and Exchange Rates
We generate all of our revenues in
dollars and there were no operating expenses in currencies other than the U.S.
dollar. However, 10% of our general and administrative expenses including
consulting fees, salaries and traveling expenses were incurred in Euros. For
accounting purposes, expenses incurred in Euros are converted into Dollars at
the exchange rate prevailing on the date of each transaction. Because a
significant portion of our expenses are incurred in currencies other than the
U.S. dollar, our expenses may from time to time increase relative to our
revenues as a result of fluctuations in exchange rates, particularly between the
U.S. dollar and the Euro, which could affect the amount of net income that we
report in future periods. As of December 31, 2007, the effect of a 1%
adverse
movement in U.S. dollar/Euro exchange rates would have resulted in an increase
of $7,756 in our general and administrative expense. While we historically have
not mitigated the risk associated with exchange rate fluctuations through the
use of financial derivatives, we may determine to employ such instruments from
time to time in the future in order to minimize this risk. Our use of financial
derivatives, including interest rate swaps, would involve certain risks,
including the risk that losses on a hedged position could exceed the nominal
amount invested in the instrument and the risk that the counterparty to the
derivative transaction may be unable or unwilling to satisfy its contractual
obligations, which could have an adverse effect on our results.
Recent Developments
On July
1, 2008, we entered into a term loan agreement with Piraeus Bank A.E. in the
amount of $35.0 million to partially finance the acquisition of the Star
Cosmo. Upon
signing the term loan facility agreement we committed to pay a non refundable
arrangement fee of 0.4% of the facility amount.
As
of July 17, 2008, 803,481 shares of common stock of Star Bulk were issued
to TMT pursuant to the Master Agreement.
As
of August 21, 2008, 12,721,350 warrants have been converted into shares of
common stock resulting in proceeds to the Company of $101,770,800. As
of November 30, 2007, the date of the Redomiciliation Merger, we had 41,564,569 shares of common stock and
20,000,000 warrants outstanding.
In August
2008, TMT Co. Ltd., an indirect shareholder of Star Bulk through its nominee (F5
Capital), alleged that it had suffered unspecified damages arising from an
alleged breach by Star Bulk of a purported obligation under the Master Agreement
to maintain a registration statement in effect so as to permit TMT to sell its
12,537,645 Star Bulk shares freely on the open market. Among other
things, TMT had demanded that Star Bulk repurchase approximately 3.8 million
shares from TMT at a share price of $14.04 per share, which was the closing
price of Star Bulk's common shares on the NASDAQ Global Market on June
2, 2008, which demand was withdrawn by TMT in connection with discussions
between Star Bulk and TMT. Star Bulk denies that it has any such
obligation under the Master Agreement and is currently discussing the matter
with TMT.
Related Party and Other Transactions
On June
3, 2008, we entered into an agreement with a company affiliated with Oceanbulk,
a company founded by our non-executive Chairman and director, Mr. Petros Pappas,
to acquire the Star
Ypsilon, a 1991 built Capsize drybulk carrier with a cargo carrying
capacity of approximately 150,940 dwt for the aggregate purchase price of $87.2
million. Oceanbulk, is selling the Star
Ypsilon at the same price it acquired the vessel from Dutch
interests. We entered into a three year time charter agreement, subject
to a related novation agreement which has not yet been
obtained, with a company affiliated with TMT, a company controlled
by our director, Mr. Nobu Su, to employ the Star
Ypsilon at an average daily hire rate of $93,333 following its expected
delivery to us by September of 2008. No commissions are to be charged
either on the sale or the chartering of the Star
Ypsilon.
According to an amended
Schedule 13D filed by F5 Capital with the SEC on July 29, 2008, on June 20,
2008, TMT and certain of its affiliates entered into a private agreement (the
“Agreement”) with Oceanbulk Shipping and Trading, or OBST, a company founded by
our non-executive Chairman and director, Mr. Petros Pappas, to transfer shares
of Star Bulk common stock to certain parties nominated by OBST in settlement of
certain commercial obligations of TMT (which obligations were and are unrelated
to Star Bulk and its business), and pursuant to the Agreement, on July 10, 2008,
F5 Capital, TMT’s nominee, transferred an aggregate of 9,537,645 shares of Star
Bulk common stock to Glassy Sea Navigation Limited (2,384,411 shares), Legion
Finance Inc. (2,384,412 shares), Marquis Shipholding Ltd (2,384,411 shares) and
Venere Shipholding S.A (2,384,411 shares). Mr. Nobu Su, the sole director and
shareholder of F5 Capital, is a member of the board of directors of Star Bulk.
Star Bulk was not a party to this transaction.
Inflation
Inflation had not
a material effect on our expenses given current economic conditions. In the
event that significant global inflationary pressures appear, these pressures
would increase our operating, voyage, administrative and financing
costs.
Off-Balance
Sheet Arrangements
As
of the date of this prospectus, we do not have any off-balance sheet
arrangements.
Critical
Accounting Policies
We make certain
estimates and judgments in connection with the preparation of our consolidated
financial statements, which are prepared in accordance with accounting
principles generally accepted in the United States, or U.S. GAAP, that affect
the reported amount of assets and liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities at the date of our consolidated
financial statements. Actual results may differ from these estimates under
different assumptions or conditions.
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 will be the most
critical accounting policies that involve a high degree of judgment and the
methods of their application.
Impairment
of long-lived assets. The Company follows
SFAS No. 144 “Accounting for the Impairment or Disposal of Long-lived Assets,”
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The standard requires that long-lived assets and
certain identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. When the estimate of
undiscounted cash flows, excluding interest charges, expected to be generated by
the use of the asset is less than its carrying amount, the Company should
evaluate the asset for an impairment loss. Measurement of the impairment loss is
based on the fair value. In this respect, management regularly reviews the
carrying amount of the vessels on vessel by vessel basis when events and
circumstances indicate that the carrying amount of the vessels might not be
recoverable. No impairment losses were recorded in any of the periods
presented.
Depreciation. Vessels are
stated at cost, which consists of the contract price and any material expenses
incurred upon acquisition, such as (initial repairs, improvements, delivery
expenses and other expenditures to prepare the vessel for its initial
voyage).
The cost of each of the
Company’s vessels is depreciated beginning when the vessel is ready for its
intended use, on a straight-line basis over the vessel’s remaining economic
useful life, after considering the estimated residual value (vessel’s residual
value is equal to the product of its lightweight tonnage and
estimated scrap rate per ton). Management estimates the useful life of the
Company’s vessels to be 25 years from the date of initial delivery from the
shipyard. When regulations place limitations over the ability of a vessel to
trade on a worldwide basis, its remaining useful life is adjusted at the date
such regulations are adopted. Depreciation expense is calculated based on cost
less the estimated residual scrap value. Scrap value is estimated by the Company
by taking the cost of steel times the weight of the ship noted in lightweight
ton, or lwt.
Certain vessels are purchased by
assuming existing time charter agreement. Such acquired time charter agreements
are recorded at fair value by separately measuring such intangible
assets acquired. Fair value of above or below market acquired time charters was
determined by comparing existing charter rates in the acquired time charter
agreements with the market rates for equivalent time charter agreements
prevailing at the time the foregoing vessels are delivered. The present values
representing the fair value of the above or below market time charters is
recorded as an intangible asset or liability, respectively.
Revenue
recognition. The Company
generates its revenues from time charterers for the charterhire of its vessels.
Vessels are chartered using time charters, where a contract is entered into for
the use of a vessel for a specific period of time and a specified daily
charterhire rate. All of the Company’s time charter agreements are classified as
operating leases. Revenues under operating lease arrangements are recognized
when a charter agreement exists, charter rate is fixed and determinable, the
vessel is made available to the lessee, and collection of the related revenue is
reasonably assured. Revenues are recognized ratably on a straight line basis
over the period of the respective time charter agreement in accordance with SFAS
No. 13 “Accounting for Leases.”
Deferred revenue includes cash received
prior to the consolidated balance sheet date and is related to revenue earned
after such date.
Voyage related and
vessel operating costs are expensed as incurred. Under time charter, specified voyage
costs, such as fuel and port charges are borne and paid by the charterer and
other non-specified voyage expenses, such as commission are paid by the Company.
Vessel operating costs including crews, maintenance and insurance are paid by
the Company.
Recent
Accounting Pronouncements
1.
|
In
September 2006 the FASB issued SFAS No. 157 “Fair Value Measurements”
(SFAS No. 157). SFAS No. 157 provides guidance for using fair value to
measure assets and liabilities. The standard applies whenever other
standards require (or permit) assets or liabilities to be measured at fair
value. Under the standard, fair value refers to the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the market in which the
reporting entity transacts. SFAS No. 157 clarifies the principle that fair
value should be based on the assumptions market participants would use
when pricing the asset or liability. In support of this principle, the
standard establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. The fair value hierarchy
gives the highest priority to quoted prices in active markets and the
lowest priority to unobservable data, for example, the reporting entity’s
own data. Under the standard, fair value measurements will be required to
be separately disclosed by level within the fair value hierarchy. SFAS No.
157 is effective for consolidated financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those
fiscal years. Early adoption is permitted. The Company will adopt this
pronouncement beginning in fiscal year 2008. The adoption of the standard
is not expected to have a material effect on the Company’s financial
position, results of operations or cash
flows.
|
2.
|
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS No. 159), which permits
the entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured
at fair value. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board’s long-term measurement
objectives for accounting for financial instruments. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related
assets and liabilities differently without having to apply complex hedge
accounting provisions. This statement also establishes presentation and
disclosure requirements designed to facilitate comparisons between
entities that choose different measurement attributes for similar types of
assets and liabilities. SFAS No. 159 is effective as of the beginning of
an entity’s first fiscal year that begins after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year on or before
November 15, 2007, provided the entity also elects to apply the provisions
of SFAS No. 157. This statement will be effective for the Company for the
fiscal year beginning on January 1, 2008. The Company has not opted to
fair value any of its financial assets
and liabilities.
|
THE
INTERNATIONAL DRY BULK SHIPPING INDUSTRY
The information and data in this
section relating to the international dry bulk shipping industry has been
provided by Drewry Shipping Consultants (Drewry), and is taken from Drewry
databases and other sources available in the public domain. Drewry
has advised us that it accurately describes the international dry bulk shipping
industry, subject to the availability and reliability of the data supporting the
statistical and graphical information presented. Drewry’s
methodologies for collecting information and data, and therefore the information
discussed in this section, may differ from those of other sources, and does not
reflect all or even necessarily a comprehensive set of the actual transactions
occurring in the dry bulk shipping industry. The source of all tables
and charts is Drewry unless otherwise indicated.
Introduction
The
marine industry is a vital link in international trade, with oceangoing vessels
representing the most efficient, and often the only means of transporting large
volumes of basic commodities and finished products. Seaborne cargo is
categorized as dry cargo or liquid cargo. Dry cargo includes dry bulk
cargo, container cargo and non container cargo. Container cargo is
shipped in 20 or 40 foot containers and includes a wide variety of finished
products. Non-container cargo includes other dry cargo that cannot be
shipped in a container due to size, weight or handling requirements, such as
large manufacturing equipment or large industrial vehicles. Liquid
cargo, includes crude oil, refined oil products, liquefied gases, chemicals and
associated products, all of which are shipped in tankers.
In
2007, approximately 5.1 billion tons of dry cargo was transported by sea, of
which dry bulk cargo accounted for 2.96 billion tons. The following
table presents the breakdown of the global trade by type of cargo in 2000 and
2007.
World
Seaborne Trade 2000 and 2007
|
Millions
of Tons
|
CAGR(1)
|
%
Total Seaborne Trade
|
|
2000
|
2007(p)
|
2000-2007
|
2000
|
2007
|
Drybulk
Cargo
|
|
|
|
|
|
Major
Bulks
|
1,249
|
1,809
|
5.4%
|
19.1%
|
20.2%
|
Coal
|
539
|
769
|
5.0%
|
8.2%
|
8.6%
|
Iron
Ore
|
489
|
812
|
7.5%
|
7.5%
|
9.1%
|
Grain
|
221
|
228
|
0.4%
|
3.4%
|
2.6%
|
Minor
Bulks
|
901
|
1,155
|
3.6%
|
13.8%
|
12.9%
|
Total
Drybulk
|
2,150
|
2,964
|
4.6%
|
|
|
Container
Cargo
|
620
|
1,272
|
10.8%
|
9.5%
|
14.2%
|
Non
Container/General Cargo
|
720
|
820
|
1.9%
|
11.0%
|
9.2%
|
Total
Dry Cargo
|
3,490
|
5,056
|
5.4%
|
53.4%
|
56.6%
|
|
|
|
|
|
|
Liquid
Cargo
|
3,051
|
3,881
|
3.5%
|
46.6%
|
43.4%
|
|
|
|
|
|
|
TOTAL
ALL CARGO
|
6,541
|
8,937
|
4.5%
|
100.0%
|
100.0%
|
(p) Provisional.
(1) Compound
annual growth rate.
Source:
Drewry
Dry
bulk cargo can be further defined as either major bulk cargo or minor bulk
cargo, all of which is shipped in bulk carriers. Major bulk cargo
includes, among other things, iron ore, coal and grain. Minor bulk
cargo includes agricultural products, mineral cargo (including metal
concentrates), cement, forest products and metal products. Dry bulk
cargo is normally shipped in large quantities and can be easily stowed in a
single hold with little risk of cargo damage.
Dry
Bulk Shipping
Drybulk
Carrier Demand
The
demand for drybulk carriers is determined by the volume and geographical
distribution of seaborne dry bulk trade, which in turn is influenced by trends
in the global economy. During the 1980s and 1990s seaborne dry bulk
trade increased by slightly more than 2% per annum. However, between
2000 and 2007, seaborne dry bulk trade increased at a CAGR of 4.7%.
The
following chart illustrates the changes in seaborne trade between the major and
minor bulks in the period 2000 to 2007.
Dry
Bulk Trade Development
(Millions
of Tons)
P=provisional
Source:
Drewry
Historically,
certain economies have acted as the “primary driver” of dry bulk
trade. In the 1990s Japan was the driving force, when buoyant
Japanese industrial production stimulated demand for imported bulk
commodities. More recently China has been the main driver behind the
recent increase in seaborne dry bulk trade as high levels of economic growth
have generated increased demand for imported raw materials. The
following table illustrates China’s gross domestic product growth rate compared
to that of the United States and the world during the periods
indicated.
Real
GDP Growth
(%
change previous period)
GNP
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007(p)
|
Global Economy
|
4.8
|
2.4
|
3.0
|
4.1
|
5.3
|
4.4
|
5.1
|
5.0
|
USA
|
3.8
|
0.3
|
1.6
|
2.7
|
3.9
|
3.1
|
2.9
|
2.2
|
Europe
|
3.4
|
1.7
|
1.1
|
1.1
|
2.1
|
1.8
|
3.0
|
2.7
|
Japan
|
2.8
|
0.4
|
-0.3
|
1.8
|
2.7
|
1.9
|
2.4
|
2.1
|
China
|
8.0
|
7.5
|
8.3
|
10.0
|
10.1
|
10.4
|
11.6
|
11.9
|
India
|
5.1
|
4.4
|
4.7
|
7.4
|
7.0
|
9.1
|
9.8
|
9.3
|
P
= provisional
Source:
Drewry
In
particular Chinese imports or iron ore alone increased from 70.0 million tons in
2000 to 384.0 million tons in 2007, which has generated much additional
employment for the larger vessels in the drybulk carrier fleet. In
addition to coal and iron ore, Chinese imports of steel products have also
increased sharply in the last five years, thereby creating additional demand for
drybulk carriers.
Chinese
Iron Ore Imports
(Millions
of Tons)
Year
|
Imports
|
%
of Change
|
2000
|
70.0
|
26.6
|
2001
|
92.5
|
32.1
|
2002
|
111.3
|
20.3
|
2003
|
148.2
|
33.2
|
2004
|
208.1
|
40.4
|
2005
|
275.2
|
32.2
|
2006
|
326.0
|
18.5
|
2007(p)
|
383.7
|
17.6
|
P
= provisional
Source:
Drewry
The
extent to which increases in dry bulk trade have affected demand for drybulk
carriers is shown in estimates of ton-mile demand. Ton-mile demand is
calculated by multiplying the volume of cargo moved on each route by the
distance of the voyage.
The following table and chart below
detail the changes in trade and ton-mile demand for the primary dry bulk
commodities.
Drybulk
Carrier Seaborne Trade: 2000-2007
(Millions
of Tons)
|
|
|
|
|
|
|
|
|
CAGR
|
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
2000/2007
%
|
Coal
|
539
|
587
|
590
|
619
|
650
|
675
|
709
|
761
|
5.0%
|
Iron
Ore
|
489
|
503
|
544
|
580
|
644
|
715
|
759
|
812
|
7.5%
|
Grain
|
221
|
213
|
210
|
211
|
208
|
212
|
221
|
228
|
0.4%
|
Minor
Bulks
|
901
|
890
|
900
|
957
|
1,025
|
1,049
|
1,103
|
1,155
|
3.6%
|
Total
|
2,151
|
2,193
|
2,244
|
2,367
|
2,526
|
2,651
|
2,793
|
2,956
|
4.6%
|
Annual
Change %
|
8.3
|
2.0
|
2.3
|
5.5
|
6.7
|
4.9
|
5.3
|
5.9
|
|
(1) Compound
annual growth rate.
Source:
Drewry
Ton
Mile Demand: 2000-2007
(Billion
Ton-Miles)
|
|
|
|
|
|
|
|
|
CAGR
|
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
2000/2007
%
|
Coal
|
2,831
|
3,082
|
3,098
|
3,250
|
3,412
|
3,544
|
3,547
|
3,845
|
4.5%
|
Iron
Ore
|
2,690
|
2,766
|
2,990
|
3,192
|
3,525
|
3,899
|
4,097
|
4,383
|
7.2%
|
Grain
|
1,161
|
1,118
|
1,103
|
1,108
|
1,089
|
1,112
|
1,161
|
1,196
|
0.4%
|
Minor
Bulks
|
4,457
|
4,404
|
4,452
|
4,724
|
5,059
|
5,172
|
5,431
|
5,697
|
3.6%
|
Total
|
11,139
|
11,370
|
11,643
|
12,274
|
13,085
|
13,727
|
14,236
|
15,121
|
4.5%
|
Source:
Drewry
Between
2000 and 2007, ton-mile demand in the dry bulk sector increased by a CAGR of
4.5%. This is however above the long term growth rate in ton mile
demand in the dry bulk sector and reflects the rise in long haul movements,
especially for commodities such as iron ore.
Drybulk
carriers are one of the most versatile elements of the global shipping fleet in
terms of employment alternatives. They seldom operate on round trip
voyages and the norm is often triangular or multi-leg voyages. Hence,
trade distances assume greater importance in the demand equation and increases
in long haul shipments will have greater impact on overall vessel
demand. The following map represents the major global dry bulk trade
routes.
Major
Dry Bulk Seaborne Trade Routes
Source:
Drewry
Demand
for drybulk carrier capacity is also affected by the operating efficiency of the
global fleet. In recent years the growth in trade has led to port
congestion, with ships at times being forced to wait outside port to either load
or discharge due to limited supply of berths at major ports. This
inefficiency has been a further factor contributing to the general tightness in
the market.
Seasonal
variations in the commodity markets, including iron ore, steam coal and grain,
can also have a further impact on demand for drybulk carriers. For
example, steam coal’s link to the energy and electricity markets results in
increased demand when power companies increase their stock in winter months and
when refrigeration and air conditioning increase electricity demand in summer
months.
Drybulk
Carrier Supply
The
world drybulk fleet is generally divided into six major categories, based on a
vessel’s cargo carrying capacity. These categories consist of: Very
Large Ore Carrier, Capesize, Post Panamax, Panamax, Handymax and
Handysize.
Category
|
Size Range -
Dwt
|
Handysize
|
10-39,999
|
Handymax
|
40-59,999
|
Panamax
|
60-79,999
|
Post
Panamax
|
80-109,999
|
Capesize
|
110-199,999
|
VLOC
|
200,000
+
|
·
|
Handysize. Handysize
vessels have a carrying capacity of up to 39,999 dwt. These
vessels almost exclusively carry minor bulk
cargo. Increasingly, ships of this type operate on regional
trading routes, and may serve as trans-shipment feeders for larger
vessels. Handysize vessels are well suited for small ports with
length and draft restrictions. Their cargo gear enables them to
service ports lacking the infrastructure for cargo loading and
unloading.
|
·
|
Handymax. Handymax
vessels have a carrying capacity of between 40,000 and 59,999
dwt. These vessels operate on a large number of geographically
dispersed global trade routes, carrying primarily grains and minor
bulks. Within the Handymax category there is also a sub-sector
known as Supramax. Supramax
bulk carriers are ships between 50,000 to 59,999 dwt, normally offering
cargo loading and unloading flexibility with on-board cranes, while at the
same time possessing the cargo carrying capability approaching
conventional Panamax bulk carriers. Hence, the earnings
potential of a Supramax drybulk carrier, when compared to a conventional
Handymax vessel of 45,000 dwt, is
greater.
|
·
|
Panamax. Panamax
vessels have a carrying capacity of between 60,000 and 79,999
dwt. These vessels carry coal, grains, and, to a lesser extent,
minor bulks, including steel products, forest products and
fertilizers. Panamax vessels are able to pass through the
Panama Canal, making them more versatile than larger
vessels.
|
·
|
Post
Panamax. Typically between 80,000 and 109,999 dwt, they
tend to be shallower and have a larger beam than a standard Panamax vessel
with a higher cubic capacity. They have been designed
specifically for loading high cubic cargoes from draught restricted
ports.
|
·
|
Capesize. Capesize
vessels have carrying capacities 110,000 and 199,999 dwt. Only
the largest ports around the world possess the infrastructure to
accommodate vessels of this size. Capesize vessels are mainly
used to transport iron ore or coal and, to a lesser extent, grains,
primarily on long-haul routes.
|
·
|
VLOC. Very
large ore carriers are in excess of 200,000 dwt and are a comparatively
new sector of the drybulk carrier fleet. VLOCs are built to
exploit economies of scale on long-haul iron ore. The following
table illustrates the size and breakdown of the global dry bulk fleet as
of June 2008.
|
Drybulk
Carrier Fleet – June 2008
Size Category
|
Deadweight Tonnes
|
Number
of Vessels
|
% of Total Fleet
(number)
|
Total Capacity (million
dwt)
|
% of Total Fleet
(dwt)
|
Handysize
|
10-39,999
|
2,964
|
42.9
|
79.2
|
19.6
|
Handymax
|
40-59,999
|
1,637
|
23.7
|
79.0
|
19.5
|
Panamax
|
60-79,999
|
1,349
|
19.5
|
96.6
|
23.9
|
Post
Panamax
|
80-109,999
|
182
|
2.6
|
15.9
|
3.9
|
Capesize
|
110-199,999
|
673
|
9.7
|
110.6
|
27.3
|
Vloc
|
200,000+
|
104
|
1.5
|
23.2
|
5.7
|
Total
|
|
6,909
|
100.0
|
404.4
|
100.0
|
Source:
Drewry
The
supply of drybulk carriers is dependent on the delivery of new vessels from the
orderbook and the removal of vessels from the global fleet, either through
scrapping or loss. As of June 2008, the global dry bulk orderbook
amounted to 250.6 million dwt, or 62.0% of the existing drybulk carrier
fleet.
Drybulk
Carrier Orderbook – June 2008
Size Category
|
Deadweight Tonnes
|
Number
of Vessels
|
Orderbook as % of Existing
Fleet (number)
|
Total Capacity (million
dwt)
|
Orderbook as % of
Existing Fleet
(dwt)
|
Handysize
|
10-39,999
|
717
|
10.4
|
22.5
|
28.0
|
Handymax
|
40-59,999
|
829
|
12.0
|
46.4
|
58.7
|
Panamax
|
60-79,999
|
194
|
2.8
|
14.2
|
14.7
|
Post
Panamax
|
80-109,999
|
427
|
6.2
|
37.0
|
233.2
|
Capesize
|
110-199,999
|
577
|
8.4
|
98.0
|
88.6
|
Vloc
|
200,000+
|
125
|
1.8
|
32.5
|
139.9
|
Total
|
|
2,869
|
41.5
|
250.6
|
62.0
|
Source:
Drewry
The
number of ships removed from the fleet in any period is dependent upon
prevailing market conditions, scrap prices in relation to current and
prospective charter market conditions and the age profile of the existing
fleet. Generally, as a vessel ages, its operational efficiency
declines due to rising maintenance requirements to the point where it becomes
unprofitable to keep the ship in operation. The following chart
illustrates the age profile of the global drybulk carrier fleet in June
2008.
Drybulk
Carrier Age Profile – June 2008
Source:
Drewry
The
average age at which a drybulk carrier has been scrapped over the last five
years has been 28 years. However, due to recent strength in the dry
bulk shipping industry, over the last two years the average age at which dry
bulk carriers have been scrapped has increased and a number of well-maintained
vessels have continued to operate past the age of 30.
Drybulk
Carrier Scrapping
Year
|
Handysize
|
Handymax
|
Panamax
|
Capesize
|
Total
|
%
of Fleet
|
No.
|
Dwt
|
No.
|
Dwt
|
No.
|
Dwt
|
No.
|
Dwt
|
No.
|
Dwt
|
Scrapped
|
2000
|
50
|
1,192,000
|
40
|
1,454,000
|
11
|
667,000
|
4
|
452,000
|
105
|
3,765,000
|
1.4
|
2001
|
62
|
1,408,000
|
40
|
1,492,000
|
28
|
1,870,000
|
3
|
401,000
|
133
|
5,171,000
|
1.9
|
2002
|
64
|
1,556,000
|
25
|
938,000
|
18
|
1,200,000
|
8
|
997,000
|
115
|
4,691,000
|
1.6
|
2003
|
25
|
597,000
|
29
|
1,103,000
|
7
|
465,000
|
2
|
248,000
|
63
|
2,413,000
|
0.8
|
2004
|
5
|
113,000
|
0
|
0
|
1
|
95,000
|
1
|
123,000
|
7
|
331,000
|
0.1
|
2005
|
4
|
109,000
|
4
|
165,000
|
3
|
202,000
|
2
|
247,000
|
13
|
723,000
|
0.2
|
2006
|
21
|
474,843
|
10
|
380,439
|
8
|
538,785
|
2
|
296,000
|
41
|
1,690,067
|
0.5
|
2007
|
9
|
198,792
|
1
|
33,527
|
2
|
141,346
|
0
|
0
|
12
|
373,665
|
0.1
|
*
Total fleet – end period
Source:
Drewry
Charter
Hire Rates
Drybulk carriers are employed in the
market through a number of different chartering options. The general
terms typically found in these types of contracts are described
below.
·
|
A
bareboat charter
involves the use of a vessel usually over longer periods of time ranging
up to several years. In this case, all voyage related costs,
including vessel fuel, or bunker, and port dues as well as all vessel
operating expenses, such as day-to-day operations, maintenance, crewing
and insurance, transfer to the charterer’s account. The owner
of the vessel receives monthly charter hire payments on a per day basis
and is responsible only for the payment of capital costs related to the
vessel.
|
·
|
A
time charter
involves the use of the vessel, either for a number of months or years or
for a trip between specific delivery and redelivery positions, known as a
trip charter. The charterer pays all voyage related
costs. The owner of the vessel receives semi-monthly charter
hire payments on a per day basis and is responsible for the payment of all
vessel operating expenses and capital costs of the
vessel.
|
·
|
A single or spot voyage charter involves
the carriage of a specific amount and type of cargo on a load-port to
discharge-port basis, subject to various cargo handling
terms. Most of these charters are of a single or spot voyage
nature, as trading patterns do not encourage round voyage
trading. The owner of the vessel receives one payment derived
by multiplying the tons of cargo loaded on board by the agreed upon
freight rate expressed on a per cargo ton basis. The owner is
responsible for the payment of all expenses including voyage, operating
and capital costs of the vessel.
|
·
|
A
contract of
affreightment, or COA, relates to the carriage of multiple cargoes
over the same route and enables the COA holder to nominate different ships
to perform individual voyages. Essentially, it constitutes a
number of voyage charters to carry a specified amount of cargo during the
term of the COA, which usually spans a number of years. All of
the ship’s operating, voyage and capital costs are borne by the ship
owner. The freight rate normally is agreed on a per cargo ton
basis.
|
Charter
hire rates fluctuate by varying degrees amongst the drybulk carrier size
categories. The volume and pattern of trade in a small number of
commodities (major bulks) affect demand for larger vessels. Because
demand for larger dry bulk vessels is affected by the volume and pattern of
trade in a relatively small number of commodities, charter hire rates (and
vessel values) of larger ships tend to be more volatile. Conversely,
trade in a greater number of commodities (minor bulks) drives demand for smaller
drybulk carriers. Accordingly, charter rates and vessel values for
those vessels are subject to less volatility.
Charter
hire rates paid for drybulk carriers are primarily a function of the underlying
balance between vessel supply and demand, although at times other factors, such
as sentiment may play a role. Furthermore, the pattern seen in
charter rates is broadly mirrored across the different charter types and between
the different drybulk carrier categories.
In
the time charter market, rates vary depending on the length of the charter
period and vessel specific factors such as age, speed and fuel
consumption.
In
the voyage charter market, rates are influenced by cargo size, commodity, port
dues and canal transit fees, as well as delivery and redelivery
regions. In general, a larger cargo size is quoted at a lower rate
per ton than a smaller cargo size. Routes with costly ports or canals
generally command higher rates than routes with low port dues and no canals to
transit. Voyages with a load port within a region that includes ports
where vessels usually discharge cargo or a discharge port within a region that
includes ports where vessels load cargo also are generally quoted at lower
rates. This is because such voyages generally increase vessel
utilization by reducing the unloaded portion (or ballast leg) that is included
in the calculation of the return charter to a loading area.
Within
the dry bulk shipping industry, the charter hire rate references most likely to
be monitored are the freight rate indices issued by the Baltic
Exchange. These references are based on actual charter hire rates
under charter entered into by market participants as well as daily assessments
provided to the Baltic Exchange by a panel of major shipbrokers. The
Baltic Panamax Index is the index with the longest history.
Baltic
Exchange Freight Indices
(Index
points)
The
BSI replaced the BHMI on 03.01.06, although the index has been calculated since
01.07.05
Source:
Baltic Exchange
The
following chart illustrates one-year time charter rates for Handysize, Handymax,
Panamax and Capesize drybulk carriers between 1996 and June 2008.
Time
Charter Rates – 1 Year
(US
Dollars per Day)
Source:
Drewry
In
2003 and 2004, rates for drybulk carriers of all sizes strengthened appreciably
in comparison to historical levels as vessel supply and demand were finely
balanced. The main driver of this dramatic upsurge in charter rates
was primarily the high level of demand for raw materials imported by
China.
During
2006, rates stabilized above historically high levels. In 2007, rates
rose to new highs, reflecting the very tight balance between vessel supply and
demand. In 2008, the rates have remained at comparatively high levels
but have been more volatile.
Vessel
Prices
Newbuilding
prices are determined by a number of factors, including the underlying balance
between shipyard output and capacity, raw material costs, freight markets and
sometimes exchange rates. In the last few years high
levels of new ordering were recorded across all sectors of
shipping. As a result, most of the major shipyards in Japan, South
Korea and China have full orderbooks until the end of 2010.
The
following charts indicates the change in newbuilding prices for drybulk carriers
in the period from 1996. As can be seen newbuilding prices have
increased significantly since 2003, due to tightness in shipyard capacity, high
levels of new ordering and stronger freight rates.
In
the secondhand market, the steep increase in newbuilding prices and the strength
of the charter market have also affected values, to the extent that prices rose
sharply in 2004/2005, before dipping in the early part of 2006, only to rise
thereafter to new highs in 2007 and 2008.
Drybulk
Carrier Newbuilding Prices
(Millions
of U.S. Dollars)
Source:
Drewry
Drybulk
Carrier Secondhand Prices – 5 Year Old Vessels
(Millions
U.S. Dollars)
Source:
Drewry
PLAN
OF DISTRIBUTION
The
selling stockholder and any of its pledgees, donees, transferees, assignees and
successors-in-interest may, from time to time, sell any or all of its Common
Shares on any stock
exchange, market or trading facility on which the Common Shares are traded or in
private transactions. The offering price of the Common Shares by the
selling stockholder will be based on prevailing market or privately negotiated
prices. The selling stockholder may use any one or more of the
following methods when selling Common Shares:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
|
·
|
block
trades in which the broker-dealer will attempt to sell the Common Shares
as agent but may position and resell a portion of the block as principal
to facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
to
cover short sales made after the date that this registration statement is
declared effective by the
Commission;
|
·
|
broker-dealers
may agree with the selling stockholder to sell a specified number of
Common Shares at a stipulated price per
share;
|
·
|
a
combination of any such methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholder may also sell shares of our common stock under Rule 144
under the Securities Act, if available, rather than under this
prospectus.
In
connection with sales of the Common Shares or otherwise, the selling stockholder
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of shares of our common stock in the course of hedging in
positions the selling stockholder assumes. The selling stockholder
may also sell its Common Shares short and deliver Common Shares covered by a
prospectus filed as part of a registration statement to close out short
positions and to return borrowed Common Shares in connection with such short
sales. The selling stockholder may also loan or pledge its Common
Shares to broker-dealers that in turn may sell such Common Shares.
Broker-dealers
engaged by the selling stockholder may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or
discounts from the selling stockholder (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholder does not expect these commissions
and discounts to exceed what is customary in the types of transactions
involved.
The
selling stockholder may from time to time pledge or grant a security interest in
some or all of the Common Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell Common Shares from time to time under this prospectus, or under
an amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act amending the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholder under this prospectus.
Upon
us being notified in writing by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of Common
Shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such selling stockholder
and of the participating broker-dealer(s), (ii) the number of Common Shares
involved, (iii) the price at which such Common Shares were sold,
(iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and (vi) other facts material to the
transaction. In addition, upon being notified in writing by a selling
stockholder that a donee or pledgee intends to sell more than 500 Common Shares,
a supplement to this prospectus will be filed if then required in accordance
with applicable securities law.
The
selling stockholder also may transfer Common Shares in other circumstances, in
which case the transferees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.
The
selling stockholder and any broker-dealers or agents that are involved in
selling the Common Shares may be deemed to be an “underwriter” within the
meaning of the Securities Act in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Discounts,
concessions, commissions and similar selling expenses, if any, that can be
attributed to the sale of Common Shares will be paid by the selling stockholder
and/or the purchasers.
We
have advised the selling stockholder that it may not use Common Shares
registered on this registration statement to cover short sales of Common Shares
made prior to the date on which this registration statement shall have been
declared effective by the Commission. If the selling stockholder uses
this prospectus for any sale of the Common Shares, it will be subject to the
prospectus delivery requirements of the Securities Act. The selling
stockholder will be responsible to comply with the applicable provisions of the
Securities Act and Exchange Act, and the rules and regulations thereunder
promulgated, including, without limitation, Regulation M, as applicable to such
selling stockholder in connection with sales of their respective Common Shares
under this registration statement.
We will
pay all fees and expenses incident to the registration of the Common Shares
covered by this Registration Statement, but we will not receive any proceeds
from the sale of the Common Shares. We have agreed to indemnify the
selling stockholder against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
At the time that any particular offering
of securities is made, to the extent required by the Securities Act, a
prospectus supplement will be distributed, setting forth the terms of the
offering, including the aggregate number of securities being offered, the
purchase price of the securities, the initial offering price of the securities,
the names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from us and any discounts, commissions or
concessions allowed or re-allowed or paid to
dealers.
Underwriters or agents could make sales
in privately negotiated transactions and/or any other method permitted by law,
including sales deemed to be an at-the-market offering as defined in Rule 415
promulgated under the Securities Act, which includes sales made directly on or
through the NASDAQ Global Market, the existing trading market for our common
stock, or sales made to or through a market maker other than on an
exchange.
We will bear costs relating to all of
the securities being registered under this Registration Statement except that
the selling stockholder shall be responsible for any fees, discounts or
commissions to any underwriter or any fees or disbursements of counsel for any
underwriter.
As a result of requirements of the
Financial Industry Regulatory Authority (FINRA), formerly the National
Association of Securities Dealers, Inc., or NASD, the maximum commission or
discount to be received by any FINRA member or independent broker/dealer may not
be greater than eight percent (8%) of the gross proceeds received by the
selling stockholder for the sale of any securities being registered
pursuant to SEC Rule 415 under the Securities Act.
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Our disclosure and analysis in this
prospectus concerning our operations, cash flows and financial condition,
including, in particular, the likelihood of our success in developing and
expanding our business, include forward-looking statements. Statements that are predictive in
nature, that depend upon or refer to future events or conditions, or that
include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”
“estimates,” “projects,” “forecasts,” “may,” “should,” and similar expressions
are forward-looking statements.
All statements in this prospectus that
are not statements of historical fact are forward-looking statements. Forward-looking statements include, but
are not limited to, such matters as:
·
|
our future operating or financial
results;
|
·
|
economic and political
conditions;
|
·
|
our pending acquisitions, our
business strategy and expected capital spending or operating expenses,
including dry-docking and insurance
costs;
|
·
|
competition in the seaborne
transportation industry;
|
·
|
statements about seaborne
transportation trends, including charter rates and factors affecting
supply and demand;
|
·
|
our financial condition and
liquidity, including our ability to obtain financing in the future to fund
capital expenditures, acquisitions and other general corporate activities;
and
|
·
|
our expectations of the
availability of vessels to purchase, the time that it may take to
construct new vessels, or vessels’ useful
lives.
|
Many of these statements are based on
our assumptions about factors that are beyond our ability to control or predict
and are subject to risks and uncertainties that are described more fully in the
“Risk Factors” section of this prospectus. Any of these factors or a combination of
these factors could materially affect future results of operations and the
ultimate accuracy of the forward-looking statements. Factors that might cause future results
to differ include, but are not limited to, the following:
·
|
changes in law, governmental rules
and regulations, or actions taken by regulatory
authorities;
|
·
|
changes in economic and
competitive conditions affecting our
business;
|
·
|
potential liability from future
litigation;
|
·
|
length and number of off-hire
periods and dependence on third-party managers;
and
|
·
|
other factors discussed in the
“Risk Factors” section of this
prospectus.
|
You should not place undue reliance on
forward-looking statements contained in this prospectus, because they are
statements about events that are not certain to occur as described or at
all. All forward-looking statements in this
prospectus are qualified in their entirety by the cautionary statements
contained in this prospectus. These forward-looking statements are not
guarantees of our future performance, and actual results and future developments
may vary materially from those projected in the forward-looking
statements.
Except to the extent required by
applicable law or regulation, we undertake no obligation to release publicly any
revisions to such forward-looking statements to reflect events or circumstances
after the date of this prospectus or to reflect the occurrence of unanticipated
events.
The following are the estimated expenses
of the issuance and distribution of the securities being registered under the
Registration Statement of which this prospectus forms a part, all of which will
be paid by us.
|
|
|
|
|
|
Blue sky fees and
expenses
|
|
|
|
|
Printing and engraving
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting fees and
expenses
|
|
175,000
|
|
|
Transfer agent and
registrar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,850
|
|
* To be provided by a prospectus
supplement or as an exhibit to Report on Form 6-K that is incorporated by
reference into this prospectus.
ENFORCEMENT OF CIVIL LIABILITIES
Star Bulk Carriers Corp. is a Marshall Islands company and our
executive offices are located outside of the U.S. in Athens, Greece. A majority of our directors, officers
and the experts named in the prospectus reside outside the U.S. In addition, a substantial portion of
our assets and the assets of our directors, officers and experts are located
outside of the U.S. As a result, you may have difficulty
serving legal process within the U.S. upon us or any of these
persons. You may also have difficulty enforcing,
both in and outside the U.S., judgments you may obtain in U.S. courts against us
or these persons in any action, including actions based upon the civil liability
provisions of U.S. federal or state securities laws.
Furthermore, there is substantial doubt
that the courts of the Marshall Islands or Greece would enter judgments in
original actions brought in those courts predicated on U.S. federal or state
securities laws.
LEGAL
MATTERS
The validity of the securities offered
by this prospectus will be passed upon for us by Seward & Kissel LLP, New
York, New York with respect to matters of U.S. and Marshall Islands
law.
EXPERTS
The
consolidated financial statements appearing in the Annual Report on Form 20-F
for the year ended December 31, 2007 of Star Bulk Carriers Corp. and
incorporated herein by reference have been audited as follows:
The historical financial information was
derived from the audited consolidated financial statements of Star Maritime and
its subsidiaries for the period from May 13, 2005 (date of Star
Maritime’s inception) through December 31,
2005, and for the fiscal
year ended December 31, 2006. The financial statements of Star
Maritime Acquisition Corp. included in the Annual Report were audited by
Goldstein Golub Kessler LLP, independent registered public accounting firm, to
the extent and for the period set forth in their
report. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
The
financial statements as of and for the year ended December 31, 2007 incorporated
in this prospectus by reference from Star Bulk’s Annual Report on Form 20-F
for the year ended December 31, 2007, and the effectiveness of Star Bulk’s
internal control over financial reporting have been audited by Deloitte
Hadjipavlou Sofianos & Cambanis S.A, an independent registered public
accounting firm, as stated in their reports, which reports express an
unqualified opinion on the financial statements and express an adverse opinion
on the effectiveness of internal control over financial reporting because of a
material weakness and are incorporated herein by reference. Such
financial statements have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and
auditing.
The
statements of revenue and direct operating expenses of: A Duckling Corporation,
F Duckling Corporation, G Duckling Corporation, I Duckling Corporation, and J
Duckling Corporation have been audited by Deloitte & Touche in Taipei,
Taiwan, the Republic of China, an independent registered public accounting firm,
as stated in their reports appearing herein (which reports express unqualified
opinions and include explanatory paragraphs relating to the basis of
presentation as discussed in Note 2). Such statements of revenue and direct
operating expenses have been so included in reliance upon the reports of such
firm given on their authority as experts in accounting and
auditing.
The
statements in section in this prospectus entitled ‘‘The International Dry Bulk
Shipping Industry’’ has been reviewed by Drewry Shipping Consultants Ltd.,
or Drewry, which has confirmed to us that they accurately describe the
international drybulk shipping market, subject to the availability and
reliability of the data supporting the statistical and graphical information
presented in this prospectus, as indicated in the consent of Drewry filed as an
exhibit to the registration statement on Form F-3 under the Securities Act
of which this prospectus is a part.
INDUSTRY
AND MARKET DATA
The
industry-related statistical and graphical information we use in this prospectus
has been compiled by Drewry, from its database. Some of the industry information
in this prospectus is based on estimates or subjective judgments in
circumstances where data for actual market transactions either does not exist or
is not publicly available, and consequently, Drewry cannot assure us that it
reflects actual industry and market experience. Drewry compiles and publishes
data for the benefit of its customers. Its methodologies for
collecting
data, and therefore the data collected, may differ from those of other sources,
and its data does not reflect all or even necessarily a comprehensive set of the
actual transactions occurring in the market. The published information of other
maritime data collection experts may differ from the data presented in this
prospectus.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
As
required by the Securities Act we filed a registration statement relating to the
securities offered by this prospectus with the Commission. This
prospectus is a part of that registration statement, which includes additional
information.
Additional
Information
We
are subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the Exchange Act), and therefore file annual, quarterly and
current reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information filed by us
may be inspected and copied at the Public reference section of the SEC at 100 F
Street, N.E., Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Our SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov.
Information
Provided by the Company
We
will furnish holders of our common stock with annual reports containing audited
financial statements and a report by our independent registered public
accounting firm. The audited financial statements will be prepared in
accordance with U.S. generally accepted accounting principles. As a
“foreign private issuer,” we are exempt from the rules under the Securities
Exchange Act prescribing the furnishing and content of proxy statements to
shareholders. While we furnish proxy statements to shareholders in
accordance with the rules of the NASDAQ Global Market, those proxy statements do
not conform to Schedule 14A of the proxy rules promulgated under the Securities
Exchange Act. In addition, as a “foreign private issuer,” our
officers and directors are exempt from the rules under the Securities Exchange
Act relating to short swing profit reporting and liability.
INCORPORATION
BY REFERENCE
The
SEC allows us to “incorporate by reference” certain information that we file
with it. This means that we can disclose important information to you
by referring you to those filed documents. The information
incorporated by reference is considered to be a part of this prospectus, and
information that we file later with the SEC prior to the termination of this
offering will also be considered to be part of this prospectus and will
automatically update and supersede previously filed information, including
information contained in this document.
We
incorporate by reference the documents listed below and any future filings made
with the Commission under Section 13(a), 13(c) or 15(d) of the Securities
Exchange Act of 1934:
●
|
Annual
Report on Form 20-F for the year ended December 31, 2007, filed with the
Commission on June 30, 2008, which contains audited consolidated financial
statements for the most recent fiscal year for which those statements have
been filed.
|
●
|
The
description of our securities contained in our Registration Statement on
Forms F-1/F-4, (File No. 333- 141296) as amended, originally filed with
the SEC on March 14, 2007 and any amendment or report filed for the
purpose of updating that
description.
|
We
are also incorporating by reference all subsequent annual reports on Form 20-F
that we file with the Commission and certain Reports on Form 6-K that we furnish
to the Commission after the date of this prospectus (if they state that they are
incorporated by reference into this prospectus) until we file a post-effective
amendment indicating that the offering of the securities made by this prospectus
has been terminated. In all cases, you should rely on the later
information over different information included in this prospectus or the
prospectus supplement.
You
should rely only on the information contained or incorporated by reference in
this prospectus and any accompanying prospectus supplement. We have
not, and any underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and
the underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should
assume that the information appearing in this prospectus and any accompanying
prospectus supplement as well as the information we previously filed with the
Commission and incorporated by reference, is accurate as of the dates on the
front cover of those documents only. Our business, financial
condition and results of operations and prospects may have changed since those
dates.
You
may request a free copy of the above mentioned filing or any subsequent filing
we incorporated by reference to this prospectus by writing or telephoning us at
the following address:
Star
Bulk Carriers Corp.
Attn:
Prokopios Tsirigakis
7,
Fragoklisias street, 2nd
floor,
Maroussi
151 25,
Athens,
Greece.
Telephone:
011-210-617-8400
Commission
Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
STAR
BULK CARRIERS CORP.
INDEX
TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
Unaudited
Interim Condensed Consolidated Balance Sheets as of December 31, 2007 and
June 30, 2008
|
|
F-2
|
|
|
|
Unaudited
Interim Condensed Consolidated Statements of Income for the six months
ended June 30, 2007 and 2008
|
|
F-3
|
|
|
|
Unaudited
Interim Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2007 and 2008
|
|
F-4
|
|
|
|
Notes
to Unaudited Interim Condensed Consolidated Financial
Statements
|
|
F-5
|
|
|
|
A Duckling
Corporation
|
|
|
Report of Independent Registered
Public Accounting Firm (Deloitte.)
|
|
F-21
|
Statement of Revenue and Direct
Operating Expense
|
|
F-22
|
Notes to Statement of Revenue and
Direct Operating Expense
|
|
F-23
|
|
|
|
E Duckling
Corporation
|
|
|
Report of Independent Registered
Public Accounting Firm (Deloitte.)
|
|
F-27
|
Statement of Revenue and Direct
Operating Expense
|
|
F-28
|
Notes to Statement of Revenue and
Direct Operating Expense
|
|
F-29
|
|
|
|
F Duckling
Corporation
|
|
|
Report of Independent Registered
Public Accounting Firm (Deloitte.)
|
|
F-33
|
Statement of Revenue and Direct
Operating Expense
|
|
F-34
|
Notes to Statement of Revenue and
Direct Operating Expense
|
|
F-35
|
|
|
|
G Duckling
Corporation
|
|
|
Report of Independent Registered
Public Accounting Firm (Deloitte.)
|
|
F-39
|
Statement of Revenue and Direct
Operating Expense
|
|
F-40
|
Notes to Statement of Revenue and
Direct Operating Expense
|
|
F-41
|
|
|
|
I Duckling
Corporation
|
|
|
Report of Independent Registered
Public Accounting Firm (Deloitte.)
|
|
F-45
|
Statement of Revenue and Direct
Operating Expense
|
|
F-46
|
Notes to Statement of Revenue and
Direct Operating Expense
|
|
F-47
|
|
|
|
J Duckling
Corporation
|
|
|
Report of Independent Registered
Public Accounting Firm (Deloitte.)
|
|
F-51
|
Statement of Revenue and Direct
Operating Expense
|
|
F-52
|
Notes to Statement of Revenue and
Direct Operating Expense
|
|
F-53
|
STAR
BULK CARRIERS CORP.
|
|
|
Unaudited
Interim Condensed Consolidated Balance Sheets
|
|
|
As
of December 31, 2007 and June 30, 2008
|
|
|
(Expressed
in thousands of U.S. dollars except for share and per share
data)
|
|
|
|
December
31,
|
|
June
30,
|
|
2007
|
|
2008
|
ASSETS
|
|
|
|
CURRENT
ASSETS
|
|
|
|
Cash
and cash equivalents
|
18,985
|
|
38,043
|
Trade
accounts receivable, net
|
-
|
|
40
|
Inventories
(Note 4)
|
598
|
|
804
|
Prepaid
expenses and other receivables
|
299
|
|
830
|
Due
from managers
|
-
|
|
1,045
|
Vessel
held-for-sale (Note 6)
|
-
|
|
15,562
|
Total
Current Assets
|
19,882
|
|
56,324
|
|
|
|
|
FIXED
ASSETS
|
|
|
|
Advances
for vessels to be acquired (Note 5)
|
118,242
|
|
15,611
|
Vessels
and other fixed assets, net (Note 6)
|
262,946
|
|
704,459
|
Total
Fixed Assets
|
381,188
|
|
720,070
|
|
|
|
|
OTHER
NON-CURRENT ASSETS
|
|
|
|
Deferred
finance charges (Note 7)
|
600
|
|
1,029
|
Due
from managers
|
120
|
|
180
|
Fair
value of above market acquired time charter agreements (Note
8)
|
1,952
|
|
1,585
|
Restricted
cash (Note 9)
|
-
|
|
11,010
|
TOTAL
ASSETS
|
403,742
|
|
790,198
|
|
|
|
|
LIABILITIES
& STOCKHOLDERS' EQUITY
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
Current
portion of long-term debt (Note 9)
|
-
|
|
22,000
|
Accounts
payable
|
168
|
|
1,636
|
Due
to related party (Note 3)
|
480
|
|
1,262
|
Accrued
liabilities
|
1,493
|
|
3,136
|
Due
to managers
|
-
|
|
168
|
Deferred
revenue
|
916
|
|
4,293
|
Total
Current Liabilities
|
3,057
|
|
32,495
|
|
|
|
|
NON-CURRENT
LIABILITIES
|
|
|
|
Long
term debt (Note 9)
|
-
|
|
183,000
|
Fair
value of below market acquired time charter agreements (Note
8)
|
25,307
|
|
65,264
|
Other
non-current liabilities
|
-
|
|
74
|
Total
Non-current Liabilities
|
25,307
|
|
248,338
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
Preferred
Stock; $0.01 par value, authorized 25,000,000 shares; none issued or
outstanding at December 31, 2007 and June 30, 2008 (Note
10)
|
-
|
|
-
|
Common
Stock, $0.01 par value, 100,000,000 shares authorized; 42,516,433 and
54,532,989 shares issued and outstanding at December 31, 2007 and June 30,
2008, respectively (Note 10)
|
425
|
|
545
|
Additional
paid in capital (Note 10)
|
368,454
|
|
477,472
|
Retained
earnings
|
6,499
|
|
31,348
|
Total
Stockholders' Equity
|
375,378
|
|
509,365
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
403,742
|
|
790,198
|
The
accompanying condensed notes are an integral part of these unaudited
interim condensed consolidated financial
statements
|
STAR
BULK CARRIERS CORP.
|
|
|
Unaudited
Interim Condensed Consolidated Statements of Income
|
|
|
For
the six months ended June 30, 2007 and 2008
|
|
|
(Expressed
in thousands of U.S. dollars except for share and per share
data)
|
|
|
|
|
Six
months ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
- |
|
|
|
100,921 |
|
|
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
- |
|
|
|
1,585 |
|
Vessel
operating expenses
|
|
|
- |
|
|
|
10,333 |
|
Drydocking
expenses
|
|
|
- |
|
|
|
6,392 |
|
Depreciation
(Note 5)
|
|
|
1 |
|
|
|
21,046 |
|
Management
fees
|
|
|
- |
|
|
|
382 |
|
Management
fees-related party
|
|
|
|
|
|
|
208 |
|
Vessel
impairment loss (Note 6)
|
|
|
- |
|
|
|
4,642 |
|
General
and administrative expenses
|
|
|
1,456 |
|
|
|
5,444 |
|
Operating
(loss) income
|
|
|
(1,457 |
) |
|
|
50,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and finance costs (Note 9)
|
|
|
- |
|
|
|
(3,242 |
) |
Interest
income
|
|
|
2,311 |
|
|
|
679 |
|
Other
|
|
|
- |
|
|
|
(33 |
) |
Total
other income (expenses), net
|
|
|
2,311 |
|
|
|
(2,596 |
) |
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
854 |
|
|
|
48,293 |
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
(Note 11)
|
|
|
0.03 |
|
|
|
1.01 |
|
Earnings per share, diluted
(Note 11)
|
|
|
0.03 |
|
|
|
0.91 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding, basic
|
|
|
29,026,924 |
|
|
|
47,855,865 |
|
Weighted average number of shares
outstanding, diluted
|
|
|
29,026,924 |
|
|
|
52,798,013 |
|
The
accompanying condensed notes are an integral part of these unaudited
interim condensed consolidated financial statements.
|
|
STAR
BULK CARRIERS CORP.
|
|
|
|
|
Unaudited
Interim Condensed Consolidated Statements of Cash Flows
|
For
the six months ended June 30, 2007 and 2008
|
|
|
(Expressed
in thousands of U.S. dollars)
|
|
|
|
|
Six
months ended June 30,
|
|
|
2007
|
|
|
2008
|
|
Cash Flows from Operating
Activities:
|
|
|
|
|
|
|
Net income
|
|
|
854 |
|
|
|
48,293 |
|
Adjustments to reconcile net
income to net cash provided by/(used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1 |
|
|
|
21,046 |
|
Amortization of fair value of
above market acquired time charter agreements
|
|
|
- |
|
|
|
367 |
|
Amortization of fair value of
below market acquired time
charter agreements
|
|
|
- |
|
|
|
(35,286 |
) |
Amortization of deferred finance
charges
|
|
|
- |
|
|
|
81 |
|
Vessel impairment
loss
|
|
|
- |
|
|
|
4,642 |
|
Stock – based compensation (Note
12)
|
|
|
- |
|
|
|
2,222 |
|
Other non
cash charges
|
|
|
- |
|
|
|
74 |
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
(Increase)/Decrease
in:
|
|
|
|
|
|
|
|
|
Value of trust
account
|
|
|
(3,169 |
) |
|
|
- |
|
Trade accounts
receivable
|
|
|
- |
|
|
|
(40 |
) |
Inventories
|
|
|
- |
|
|
|
(206 |
) |
Prepaid expenses and other
receivables
|
|
|
27 |
|
|
|
(531 |
) |
Due from
Managers
|
|
|
- |
|
|
|
(1,105 |
) |
Increase/(Decrease)
in:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(129 |
) |
|
|
1,468 |
|
Due
to related party
|
|
|
- |
|
|
|
782 |
|
Accrued
liabilities
|
|
|
- |
|
|
|
2,295 |
|
Due to
Managers
|
|
|
- |
|
|
|
168 |
|
Income taxes
payable
|
|
|
(207 |
) |
|
|
- |
|
Deferred
interest
|
|
|
1,129 |
|
|
|
- |
|
Deferred
revenue
|
|
|
- |
|
|
|
3,377 |
|
Net cash provided by/(used in)
Operating Activities
|
|
|
(1,495 |
) |
|
|
47,647 |
|
Cash Flows from Investing
Activities:
|
|
|
|
|
|
|
|
|
Advances for vessels to be
acquired
|
|
|
- |
|
|
|
(15,611 |
) |
Additions to vessel cost and
office equipment
|
|
|
(4 |
) |
|
|
(270,385 |
) |
Increase
in restricted cash
|
|
|
- |
|
|
|
(11,010 |
) |
Net cash used in Investing
Activities
|
|
|
(4 |
) |
|
|
(297,006 |
) |
Cash Flows from Financing
Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from bank loan
|
|
|
- |
|
|
|
213,500 |
|
Bank
loan repayment
|
|
|
- |
|
|
|
(8,500 |
) |
Proceeds
from exercise of warrants
|
|
|
- |
|
|
|
94,029 |
|
Repurchase
of shares and warrants
|
|
|
- |
|
|
|
(6,059 |
) |
Financing
costs paid
|
|
|
- |
|
|
|
(1,110 |
) |
Cash
dividend
|
|
|
- |
|
|
|
(23,443 |
) |
Net cash provided by Financing
Activities
|
|
|
- |
|
|
|
268,417 |
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash
and cash equivalents
|
|
|
(1,498 |
) |
|
|
19,058 |
|
Cash and cash equivalents at
beginning of period
|
|
|
2,118 |
|
|
|
18,985 |
|
Cash and cash equivalents at end
of period
|
|
|
620 |
|
|
|
38,043 |
|
SUPPLEMENTAL CASH FLOW
INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid during the period
for:
|
|
|
|
|
|
|
|
|
Interest
payments
|
|
|
- |
|
|
|
2,548 |
|
Non-cash
items:
|
|
|
|
|
|
|
|
|
Issue of common stock at fair
value for delivery of vessels
|
|
|
- |
|
|
|
18,946 |
|
Fair value of below market
acquired time charter agreements
|
|
|
- |
|
|
|
75,244 |
|
The
accompanying condensed notes are an integral part of these unaudited interim
condensed consolidated financial statements
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
1. Basis
of Presentation and General Information:
The
accompanying unaudited interim condensed consolidated financial statements
include the accounts of Star Bulk Carriers Corp. (“Star Bulk”) and its
subsidiaries (Star Bulk and its subsidiaries are hereinafter collectively
referred to as the “Company”) and have been prepared in accordance with U.S.
generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and
notes required by U.S. generally accepted accounting principles for complete
financial statements.
These
unaudited interim condensed consolidated financial statements have been prepared
on the same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which include only normal recurring
adjustments, considered necessary for a fair presentation of the Company’s
financial position, results of operations and cash flows for the periods
presented. Operating results for the six months ended June 30, 2008
are not necessarily indicative of the results that might be expected for the
fiscal year ended December 31, 2008.
The
unaudited interim condensed consolidated financial statements presented in this
report should be read in conjunction with the Company’s audited consolidated
financial statements and footnotes thereto as of and for the year ended December
31, 2007.
On
November 30, 2007, Star Maritime Acquisition Corp. (“Star Maritime”)
incorporated in the state of Delaware, merged into its wholly-owned subsidiary
at the time, Star Bulk, a company incorporated in Marshall Islands, with Star
Bulk being the surviving entity. This merger is referred to as
the “Redomiciliation Merger” or just the “Merger.”
The
accompanying unaudited interim condensed consolidated financial statements for
the period from January 1, 2007 to June 30, 2007 include the accounts of Star
Maritime and its wholly owned subsidiaries.
Star
Bulk was incorporated on December 13, 2006 under the laws of the Marshall
Islands and is the sole owner of all of the outstanding shares of Star Bulk
Management Inc. and the ship-owning subsidiaries as set forth
below.
Star
Maritime was organized on May 13, 2005 as a blank check
company. On December 21, 2005, Star Maritime consummated its
initial public offering of 18,867,500 units, at a price of $10.00 per unit, each
unit consisting of one share of Star Maritime common stock and one warrant to
purchase one share of Star Maritime common stock at an exercise price of $8.00
per share. The entire gross proceeds of the initial public offering
amounting to $188,675 were deposited in a trust account.
On
January 12, 2007, Star Maritime and Star Bulk entered into definitive agreements
(the “Master Agreement”) to acquire a fleet of eight drybulk carriers (the
“Transaction”) from certain subsidiaries of TMT Co. Ltd. (“TMT”), a shipping
company headquartered in Taiwan. These eight drybulk carriers are
referred to as the initial fleet, or initial vessels. The aggregate
purchase price specified in the Master Agreement for the initial fleet was
$224,500 in cash and 12,537,645 shares of common stock of Star
Bulk. As additional consideration for initial vessels,
1,606,962 shares of common stock of Star Bulk will be issued to TMT in two
installments as follows: (i) 803,481 additional shares of Star Bulk’s
common stock, no more than 10 business days following Star Bulk’s filing of its
Annual Report on Form 20-F for the fiscal year ended December 31,
2007, and (ii) 803,481 additional shares of Star Bulk’s common stock, no
more than 10 business days following the filing of Star Bulk’s Annual Report on
Form 20-F for the fiscal year ended December 31, 2008.
On
November 27, 2007 the Company obtained shareholder approval for the
acquisition of the initial fleet and for affecting the Redomiciliation Merger,
which became effective on November 30, 2007. The shares of Star
Maritime were exchanged on one-for-one basis with shares of Star Bulk and Star
Bulk assumed the outstanding warrants of Star Maritime. Subsequently,
Star Maritime shares ceased trading on Amex.
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
1. Basis
of Presentation and General Information (continued):
In
addition, upon completion of the Redomiciliation Merger, all Trust Account
proceeds were released to the Company to complete the Transaction in accordance
with the terms and conditions of the Master Agreement. Star Bulk
shares and warrants started trading on the NASDAQ Global Market on December 3,
2007 under the ticker symbols SBLK and SBLKW,
respectively. Immediately following the effective date of the
Redomiciliation Merger, TMT and its affiliates owned 30.2% of Star Bulk’s
outstanding common stock.
The
Company began operations on December 3, 2007. By the end of March
2008, Star Bulk took delivery of all eight vessels in its initial
fleet. Additionally, on December 3, 2007, the Company entered into an
agreement to acquire an additional Supramax vessel, the Star Kappa from TMT,
which was delivered to the Company on December 14, 2007.
Below
is the list of the Company’s wholly owned ship-owning subsidiaries as of June
30, 2008:
Wholly
Owned
|
Vessels
|
DWT
|
Date
|
Year
|
Subsidiaries
|
Acquired
|
Delivered
|
built
|
|
|
|
|
|
Star
Bulk Management Inc.
|
-
|
-
|
-
|
-
|
|
Vessels in operation
at June 30, 2008
|
Star
Epsilon LLC
|
Star
Epsilon*
|
52,402
|
December
3, 2007
|
2001
|
Star
Theta LLC
|
Star
Theta*
|
52,425
|
December
6, 2007
|
2003
|
Star
Kappa LLC
|
Star
Kappa
|
52,055
|
December
14, 2007
|
2001
|
Star
Beta LLC
|
Star
Beta*
|
174,691
|
December
28, 2007
|
1993
|
Star
Zeta LLC
|
Star
Zeta*
|
52,994
|
January
2, 2008
|
2003
|
Star
Delta LLC
|
Star
Delta*
|
52,434
|
January
2, 2008
|
2000
|
Star
Gamma LLC
|
Star
Gamma*
|
53,098
|
January
4, 2008
|
2002
|
Star
Alpha LLC
|
Star
Alpha*
|
175,075
|
January
9, 2008
|
1992
|
Star
Iota LLC
|
Star
Iota**
|
78,585
|
March
7, 2008
|
1983
|
Lamda
LLC
|
Star
Sigma
|
184,403
|
April
15, 2008
|
1991
|
Star
Omicron LLC
|
Star
Omicron
|
53,489
|
April
17, 2008
|
2005
|
|
Vessels delivered or
to be delivered after June 30, 2008
|
Star
Cosmo LLC
|
Star
Cosmo
|
52,247
|
July
1, 2008
|
2005
|
Star
Ypsilon LLC
|
Star
Ypsilon
|
150,940
|
Not
yet delivered
|
1991
|
*Initial
fleet or initial vessels
**On
April 24, 2008, the Company entered into an agreement to sell Star Iota for $18.4
million. Thus, the vessel as at June 30, 2008 is classified as held
for sale (Note 6).
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Adoption
of New Accounting Standards:
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS
159”). SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value, with changes in fair value
recognized in earnings. SFAS 159 is effective as of the beginning of
the first fiscal year that begins after November 15, 2007. The
adoption of SFAS 159 did not have a material impact on the Company’s financial
statements.
In
September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements"
(“SFAS 157”). This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. This statement
does not require any new fair value measurements, but applies under other
accounting pronouncements that require or permit fair value
measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal
years. The adoption of SFAS 157 did not have a material impact on the
Company’s financial statements.
3. Transactions
with Related Parties:
Transactions
and balances with related parties are analyzed as follows:
|
|
December
31, 2007
|
|
|
June
30, 2008
|
|
|
|
|
|
|
|
|
TMT
Co Ltd. (a)
|
|
$ |
480 |
|
|
|
1,073 |
|
Combine
Marine S.A. (b)
|
|
|
- |
|
|
|
84 |
|
Ocean
Bulk Maritime S.A. (c)
|
|
|
- |
|
|
|
100 |
|
Interchart
Shipping Inc. (d)
|
|
|
- |
|
|
|
5 |
|
|
|
|
- |
|
|
|
|
|
Totals
|
|
$ |
480 |
|
|
$ |
1,262 |
|
(a) TMT Co. Ltd., or
TMT: Under the Master Agreement (Note 1) the Company issued to
TMT 12,537,645 shares of Star Bulk’s common stock representing the stock
consideration portion of the aggregate purchase price of initial vessels and
agreed to issue to TMT the additional stock consideration of 1,606,962 common
shares of Star Bulk in 2008 and 2009. Under the Master Agreement, TMT
also had the right to require Star Bulk to make available shelf registration
statements permitting sales of shares into the market from time to time over an
extended period. In addition, TMT has the ability to exercise certain
piggyback registration rights.
Under
the Master Agreement, as of December 31, 2007, Star Bulk took delivery of three
vessels of its initial fleet as indicated in Note 1. During the six
months ended June 30, 2008, Star Bulk took delivery of the remaining five
vessels of its initial fleet as indicated in Note 1.
Star
Gamma LLC, a wholly-owned subsidiary of Star Bulk, entered into a time
charter agreement dated, February 23, 2007, with TMT for the Star Gamma .
The charter rate for the Star Gamma is $28.5 per day for a term of one year.
Star Iota LLC, a wholly-owned subsidiary of Star Bulk, entered into a time
charter agreement, dated February 26, 2007, with TMT for the Star Iota. The charter rate
for the Star Iota is
$18 per day for a term of one year.
As
of December 31, 2007, Star Bulk had an outstanding balance of $480
(liability) representing bunker and lubricants on board payable from the
company. As of June 30, 2008, Star Bulk had an outstanding balance of
$1,073 representing unpaid bunkers payable to TMT. For the six months
ended June 30, 2008 the Company earned $6,039 of net revenue under the time
charter party agreements with TMT.
(b) Combine Marine S.A.,
or Combine: Under an agreement dated May 4, 2007, Star
Bulk appointed Combine, a company affiliated with Messrs. Tsirigakis,
Pappas and Christos Anagnostou, as interim manager of the vessels in the initial
fleet. Under the agreement, Combine provides interim technical
management and associated services, including legal services, to the vessels
starting with their delivery to Star Bulk, and also provides such services and
shore personnel prior to and during vessel delivery to Star Bulk in exchange for
a flat fee of $10 per vessel prior to delivery and at a daily fee of $450 U.S.
dollars per vessel after vessel’s delivery and during the term of the
agreement. Combine is entitled to be reimbursed by Star Bulk for
out-of-pocket expenses incurred by Combine while managing the vessels and is
obligated to provide Star Bulk with the full benefit of all discounts and
rebates available to Combine. The term of the agreement is for one
year from the date of delivery of each vessel. Either party may
terminate the agreement upon thirty days’ notice.
As
of December 31, 2007 and June 30, 2008, Star Bulk had an outstanding
liability of $0 and $84 respectively, to Combine. During the six
months ended June 30, 2007 and 2008, Combine charged $7 and $1,460,
respectively, for technical management services.
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
3. Transactions
with Related Parties (continued):
(c) Oceanbulk Maritime, S.A., or
Oceanbulk: Mr. Petros Pappas, one of the Company’s
directors, is also the Honorary Chairman of Oceanbulk, a ship management company
of drybulk vessels. Star Bulk’s Chief Executive Officer,
Mr. Prokopios (Akis) Tsirigakis, as well as one of its officers
Mr. Christos Anagnostou had been employees of Oceanbulk until November 30,
2007.
On
June 3, 2008, the Company entered into an agreement for the acquisition of the
Capesize drybulk carrier vessel Falcon Cape (to be renamed Star Ypsilon) for
$87,180. The vessel will be acquired from a company affiliated with
Oceanbulk, which facilitated the transaction. There will be no costs
and/or commissions charged to the Company paid to Oceanbulk. The
vessel is scheduled to be delivered to the Company by September
2008. (Note 5)
As
of December 31, 2007 and June 30, 2008, Star Bulk had an
outstanding liability of $0 and $100, respectively, to
Oceanbulk. During the six months ended June 30, 2007 and 2008,
Oceanbulk charged $161 and $100 respectively for administrative
expenses.
(d) Interchart Shipping
Inc., or Interchart: Interchart, a company affiliated with
Oceanbulk, acted as the chartering broker of the Star Zeta and the Star
Omicron. As of December 31, 2007 and June 30, 2008, Star Bulk had an
outstanding liability of $0 and $5, respectively, to
Interchart. During the six months ended June 30, 2007 and 2008, the
brokerage commission of 1.25% on charter revenue charged by Interchart amounted
to $0 and $81, respectively.
(e) Consultancy
Agreements: On October 3, 2007, Star Bulk entered into
separate consulting agreements with companies owned and controlled by its Chief
Executive Officer and Chief Financial Officer, for the services provided by the
Chief Executive Officer and the Chief Financial Officer, respectively.
Each of these agreements is for a term of three years unless terminated earlier
in accordance with the terms and conditions of such agreements. Under
the consulting agreements, each company controlled by the Chief Executive
Officer and the Chief Financial Officer is expected to receive an annual
consulting fee of €370 (approx. $585) and €250 (approx. $395) respectively,
commencing on the date of the Merger on a pro-rata basis.
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
3. Transactions
with Related Parties (continued):
Additionally,
the Chief Executive Officer and the Chief Financial Officer are entitled to
receive benefits under each of their consultancy agreements, among others, each
is entitled to receive an annual discretionary bonus, to be determined by Star
Bulk’s board of directors in its sole discretion.
The
related expenses for the six months ended June 30, 2007 and 2008 were $0 and
$497, respectively, and are included in general and administrative
expenses.
4. Inventories:
The
amounts shown in the accompanying consolidated balance sheets are analyzed as
follows:
Lubricants
|
|
$ |
318
|
|
|
$ |
804 |
|
Bunkers
|
|
|
280 |
|
|
|
- |
|
Total
|
|
$ |
598 |
|
|
$ |
804 |
|
5. Advances
for vessels to be acquired:
Advances
for vessels to be acquired of $15,611 included in the unaudited
interim condensed consolidated balance sheet as at June 30, 2008 and unaudited
interim condensed consolidated statements of cash flows for the period ended
June 30, 2008 represent cash advances paid by the Company
for vessels Star Ypsilon and Star Cosmo. Star Cosmo was delivered to
the Company on July 1, 2008. Star Ypsilon is not yet
delivered.
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
6. Vessels
and other fixed assets, net:
The
amounts in the accompanying consolidated balance sheets are analyzed as
follows:
|
|
Vessel
Cost
|
|
|
Other
Fixed Asset Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$ |
263,585 |
|
|
|
106 |
|
|
|
(745 |
) |
|
$ |
262,946 |
|
-Vessel
held for sale
|
|
|
(20,204 |
) |
|
|
- |
|
|
|
- |
|
|
|
(20,204 |
) |
-Vessel
acquisitions
|
|
|
482,693 |
|
|
|
- |
|
|
|
- |
|
|
|
482,693 |
|
-Other
fixed assets acquisitions
|
|
|
- |
|
|
|
70 |
|
|
|
- |
|
|
|
70 |
|
-
Depreciation
|
|
|
- |
|
|
|
- |
|
|
|
(21,046 |
) |
|
|
(21,046 |
) |
Balance,
June 30, 2008
|
|
$ |
726,074 |
|
|
|
176 |
|
|
|
(21,791 |
) |
|
$ |
704,459 |
|
The
following table shows the vessels from the initial fleet (Note 1) that were
delivered to the Company in the first quarter of 2008 and the respective dates
that such deliveries took place:
Vessel
|
|
Date
of Delivery
|
|
|
|
Star
Zeta
|
|
January
2, 2008
|
Star
Delta
|
|
January
2, 2008
|
Star
Gamma
|
|
January
4, 2008
|
Star
Alpha
|
|
January
9, 2008
|
Star
Iota
|
|
March
7, 2008
|
In
addition to taking delivery of the remaining vessels in the initial fleet, the
Company entered into the following transactions to continue the expansion of the
fleet.
On
January 22, 2008 the Company entered into an agreement for the acquisition of
the Capesize drybulk carrier vessel Star Sigma, for $83,740. The
vessel was delivered to the Company on April 15, 2008.
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
6. Vessels
and other fixed assets, net (continued):
On
May 22, 2008, the Company entered into an agreement for the acquisition of the
Supramax drybulk carrier vessel Star Cosmo for $68,800. The vessel
was delivered to the Company on July 1, 2008.
On
June 3, 2008, the Company entered into an agreement for the acquisition of the
Capesize drybulk carrier vessel Falcon Cape (to be renamed Star Ypsilon) for
$87,180 (Note 3). As of June 30, 2008, the Company had advanced a
progress payment in the aggregate amount of $8,718 for the acquisition of the
Star Ypsilon (Note
5). The Company expects this vessel to be delivered in September
2008.
As
of June 30, 2008 the vessel Star Iota was classified as asset held for sale and
recorded at the lower of its carrying amount or fair value less cost to
sell. The resulting impairment loss of $4,642 was recorded in the six
months ended June 30, 2008.
7. Deferred
finance charges:
Deferred
charges comprise deferred financing costs, consisting of fees and commissions
associated with obtaining loan facilities and amortized to interest and finance
costs over the life of the related debt using the effective interest rate method
over the life of the related debt. On December 27, 2007 and April 14,
2008, the Company entered into loan agreements for up to an aggregate amount of
$290,000, resulting in the deferral of the associated loan management fees
amounting to $1,110. Amortization for the six months ended June 30,
2008, amounted to $81 and was included under interest and finance
costs.
8. Fair
value of below/above market acquired time charter agreements:
The
fair value of the time charter agreements acquired at below/above fair market
charter rates on the acquisition of the vessels is summarized
below. These amounts were amortized on a straight-line basis to the
end of each charter period. An amount of $34,919 was amortized to
voyage revenues for the six months ended June 30, 2008.
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
8. Fair
value of below/above market acquired time charter agreements
(continued):
Vessel
|
Charter
End
Date
|
|
Fair
value of acquired time charter
|
|
|
Balance
December 31, 2007
|
|
|
Amortization
for the Six months ending June 30, 2008
|
|
|
Balance
as at June 30, 2008
|
|
Fair
value of below market
acquired
time charter agreements
|
|
|
|
|
|
|
|
|
|
|
Star
Epsilon
|
March
15, 2009
|
|
|
14,375 |
|
|
|
13,487 |
|
|
|
5,578 |
|
|
|
7,908 |
|
Star
Theta
|
June
16, 2009
|
|
|
12,397 |
|
|
|
11,820 |
|
|
|
4,036 |
|
|
|
7,784 |
|
Star
Alpha
|
October
5, 2009
|
|
|
47,006 |
|
|
|
- |
|
|
|
12,775 |
|
|
|
34,231 |
|
Star
Delta
|
May
7, 2009
|
|
|
13,829 |
|
|
|
- |
|
|
|
5,059 |
|
|
|
8,770 |
|
Star
Gamma
|
February
14, 2009
|
|
|
11,662 |
|
|
|
- |
|
|
|
5,092 |
|
|
|
6,570 |
|
Star
Zeta
|
April
20, 2008
|
|
|
2,746 |
|
|
|
- |
|
|
|
2,746 |
|
|
|
0 |
|
Total
|
|
|
|
102,015 |
|
|
|
25,307 |
|
|
|
35,286 |
|
|
|
65,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of above market
acquired
time charter agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Star
Kappa
|
August
24, 2010
|
|
|
1,980 |
|
|
|
1,952 |
|
|
|
367 |
|
|
|
1,585 |
|
Total
|
|
|
|
1,980 |
|
|
|
1,952 |
|
|
|
367 |
|
|
|
1,585 |
|
9. Long-term
Debt:
On
December 27, 2007 the Company entered into a loan agreement of up to $120,000 in
order to partially finance the acquisition cost of the secondhand vessels, Star
Gamma, Star Delta, Star Epsilon, Star Zeta, and Star Theta. The loan
bears interest at LIBOR plus a margin and will be repaid in twenty-eight
quarterly installments through December 2016.
On,
April 14, 2008 (and as amended on April 17, 2008) the Company entered
into a loan agreement of up to $170,000 with Piraeus Bank A.E. in order to
partially finance the acquisition cost of vessels Star Omicron and Star Sigma
and to provide additional liquidity to the Company. The Star Alpha,
Star Beta, and Star Sigma were used as collateral to secure this
loan. The loan bears interest at LIBOR plus a margin and will be
repaid in twenty-four quarterly installments through April 2014.
The
above loans are secured by a first priority mortgage over the vessels, a
corporate guarantee, and a first assignment of all freights, earnings,
insurances and requisition compensation. The loan contains covenants
including restrictions as to changes in management and ownership of the vessels,
additional indebtedness and mortgaging of vessels without the bank’s prior
consent as well as certain financial covenants relating to the
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
9. Long-term
Debt (continued):
Company’s
financial position, operating performance and liquidity. In addition,
the Company must maintain minimum cash deposits, as defined in the respective
loan agreements, in the amount equal to $10,000 or $1,000 per vessel whichever
is greater.
The
Company was in compliance with its debt covenants as of June 30,
2008.
The
principal payments required to be made after June 30, 2008, are as
follows:
|
12
months ending
|
|
Amount
|
|
|
June
30, 2009
|
|
$ |
22,000 |
|
|
June
30, 2010
|
|
|
32,500 |
|
|
June
30, 2011
|
|
|
28,000 |
|
|
June
30, 2012
|
|
|
21,000 |
|
|
June
30, 2013
|
|
|
17,000 |
|
|
June
30, 2014 and thereafter
|
|
|
84,500 |
|
|
Total
|
|
$ |
205,000 |
|
Interest
expense for the six months ended June 30, 2008 amounting to $3,117, amortization
of deferred finance fees amounting to $81 and other finance fees amounting to
$44 are included under “Interest and finance costs” in the accompanying interim
condensed consolidated statements of income.
10. Preferred,
Common stock and Additional paid in capital:
Preferred Stock: Star
Bulk is authorized to issue up to 25,000,000 shares of preferred stock, $0.01
par value with such designations, as voting, and other rights and preferences,
as may be determined from time to time by the Board of Directors.
Common Stock: Star
Bulk is authorized to issue 100,000,000 shares of common stock, par value
$0.01.
On
December 31, 2007, and June 30, 2008 Star Bulk had outstanding 42,516,433 and
54,532,989 shares of its common stock, respectively.
Warrants: On the
date of consummation of the Redomiciliation Merger, Star Bulk had 20,000,000
shares of common stock reserved for issuance upon the exercise of the
warrants. Each outstanding Star Maritime warrant was assumed by Star
Bulk subject to the same terms and restrictions
except that each Star Maritime warrant would be exercisable for common stock of
Star Bulk. Following the effectiveness of the Redomiciliation Merger,
the warrants became exercisable and warrant holders exercised their right to
purchase shares of the Company’s common stock. Star Bulk as of
December 2007 and June 30, 2008 received a total of $7,534 and $94,029
respectively, representing 951,864 and 11,753,556 warrants respectively, at
$8.00 per warrant exercised. The Company issued 951,864 and
11,753,556 of common stock upon the exercise of the warrants. The
warrants will expire on December 16, 2009. There is no cash
settlement option for the Warrants.
Share and Warrant re-purchase
plan: Following the consummation of the Redomiciliation
Merger, during the six months ended June 30, 2008, the Company announced a
repurchase plan of up to an aggregate
of $50,000 shares and warrants. As at June 30, 2008, the Company had
repurchased 52,000 of its shares and 1,362,500 of its warrants. The
Company paid $586 for its common shares and $5,475 for its
warrants.
Transfer of Shares and Warrants from
Directors: On March 24, 2008, Mr. Tsirigakis, the President
and Chief Executive Officer, transferred in a private transaction, an aggregate
of 2,473,893 of his Star Bulk common shares and 300,000 of his Star Bulk
warrants to Mr. Petros Pappas, the Company’s Chairman.
On
March 24, 2008, Mr. George Syllantavos, the Chief Financial Officer and
Secretary transferred in a private transaction an aggregate of 981,524 of his
Star Bulk common shares and 102,500 of his Star Bulk warrants to Mr. Petros
Pappas, the Company’s Chairman.
Declaration of dividends: On
February 14, 2008, the Company declared dividends amounting to $4,599 or $0.10
per share paid on February 28, 2008 to the stockholders of record as of February
25, 2008. On April 16, 2008, the Company declared dividends amounting
to $18,844 or $0.35 per share paid on May 23, 2008 to the stockholders of record
as of May 16, 2008.
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
11. Earnings
per Share:
The
Company calculates basic and diluted earnings per share as
follows:
|
|
Six
months ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
Income:
|
|
|
|
|
|
|
Net
income
|
|
|
854 |
|
|
|
48,293 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
Weighted
average common
|
|
|
|
|
|
|
|
|
shares
outstanding, basic
|
|
|
29,026,924 |
|
|
|
47,855,865 |
|
Basic
earnings per share
|
|
|
0.03 |
|
|
|
1.01 |
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Dilutive
effect of dilutive securities
|
|
|
- |
|
|
|
4,942,148 |
|
Weighted
average common shares outstanding, diluted
|
|
|
29,026,924 |
|
|
|
52,798,013 |
|
Diluted
earnings per share
|
|
|
0.03 |
|
|
|
0.91 |
|
During
the six months ended June 30, 2008, 11,753,556 (Note 10) warrants were
exercised. At June 30, 2008, a total of 5,932,080 warrants were
outstanding at an exercise price of $8 per warrant. The exercise
price of warrants was below the average market price of the Company's shares
during the six months ended June 30, 2008. Consequently, the
Company’s warrants were dilutive and included in the computation of the
diluted weighted average common shares outstanding.
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
12. Equity
incentive plan:
The
following table summarizes the status of the Company’s unvested restricted stock
outstanding for the six months ended June 30, 2008:
|
|
Unvested
Restricted Stock
|
|
|
Grant
Date Fair Value
|
|
January
1, 2008
|
|
|
165,000 |
|
|
|
15.34 |
|
Granted
on March 31, 2008*
|
|
|
150,000 |
|
|
|
11.39 |
|
Vested
April 1, 2008
|
|
|
75,000 |
|
|
|
- |
|
June
30, 2007
|
|
|
240,000 |
|
|
|
- |
|
*On
March 31, 2008, the Company entered into an agreement with one of the Company's
directors Mr. Espig. Under this agreement, which is part of Company’s
Equity Incentive Plan, Mr. Espig received 150,000 restricted shares of Star Bulk
common stock, which will vest in two equal installments on April 1, 2008,
and April 1, 2009, respectively.
The
grant-date fair values of the restricted stock are determined by the closing
price of the Company’s common stock traded on the NASDAQ Global Market on the
grant date. Total compensation cost of $2,222 was recognized and
included in general and administrative expenses in the accompanying unaudited
interim condensed consolidated income statement for the six months ended June
30, 2008.
STAR
BULK CARRIERS CORP.
Notes
to Unaudited Interim Condensed Consolidated Financial Statements
June
30, 2008
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
12. Equity
incentive plan (continued):
As
of June 30, 2008, there was $1,833 of total unrecognized compensation cost
related to non-vested restricted stock awards, which is expected to be
recognized as compensation expense over a weighted average period of 0.72
years as follows:
|
|
Amount
|
|
July
1 to December 31, 2008
|
|
|
867 |
|
2009
|
|
|
803 |
|
2010
|
|
|
163 |
|
Total
|
|
|
1,833 |
|
13. Commitments
and Contingencies:
Various
claims, suits, and complaints, including those involving government regulations
and product liability, arise in the ordinary course of the shipping business. In
addition, losses may arise from disputes with charterers, agents, insurance and
other claims with suppliers relating to the operations of the Company’s vessels.
Currently, management is not aware of any such claims or contingent liabilities,
which should be disclosed, or for which a provision should be established in the
accompanying consolidated financial statements.
The
Company accrues for the cost of environmental liabilities when management
becomes aware that a liability is probable and is able to reasonably estimate
the probable exposure. Currently, management is not aware of any such claims or
contingent liabilities, which should be disclosed, or for which a provision
should be established in the accompanying consolidated
financial statements. Up to $1 billion of the liabilities associated
with the individual vessels’ actions, mainly for sea pollution, are covered by
the Protection and Indemnity (P&I) Club Insurance.
As
described in Notes 5 above, during the six month period ended June 30, 2008, the
Company entered into separate memoranda of agreement to acquire two second-hand
vessels. As of June 30, 2008, the unpaid balance of the purchase price for these
vessels was $140,000.
In
April 2008, the Company entered into a twelve-year cancelable operating lease
for its new office facilities that will be terminated in April 2020. Monthly
lease payment would be $22.7 U.S. dollars (14.5 Euros) for the first year.
Obligation’s calculation is adjusted annually to the inflation rate that it is
estimated 3%. The exchange rate of Euro/U.S. dollar used is the rate 1.57 as at
June 9, 2008.
Future rental
commitments were payable as follows:
|
12 months
ending |
|
Amount
|
|
|
June 30,
2009 |
$ |
292
|
|
|
June 30,
2010 |
|
295 |
|
|
June 30,
2011 |
|
304 |
|
|
June 30,
2012 |
|
313 |
|
|
June 30,
2013 |
|
323 |
|
|
June 30, 2014
and thereafter |
|
2,747 |
|
|
Total |
$ |
4,747
|
|
Future minimum
contractual charter revenue, based on vessels committed to noncancelable
longterm time charter contracts as of June 30, 2008 will be:
|
|
12 months
ending |
|
Amount
|
|
|
June 30,
2009 |
$ |
170,864
|
|
|
June 30,
2010 |
|
124,735
|
|
|
June 30,
2011 |
|
70,527
|
|
|
June 30,
2012 |
|
31,558
|
|
|
June 30,
2013 |
|
11,826
|
|
|
June 30,
2014 |
|
6,998
|
|
|
Total |
$ |
416,508
|
|
These amounts do not
include any assumed off-hire.
14. Subsequent
Events:
(a)
|
Declaration
of dividends: On July 29, 2008, the Company declared dividends
amounting to $19,371 or $0.35 per share paid on August 18, 2008, to the
stockholders of record as of August 8, 2008.
|
(b)
|
Purchase of
vessels – deliveries: On July 1, 2008, the Company took delivery of
the Supramax drybulk carrier vessel Star
Cosmo.
|
(c)
|
New
loan: On, July 1, 2008 the Company concluded a loan
agreement of up to $35,000 with Piraeus Bank A.E. in order to partly
finance the acquisition cost of vessel Star Cosmo. The full amount
of the loan was drawn down, on the same date. The loan bears
interest at Libor plus a margin and will be repaid in twenty-four
quarterly installments through July
2014.
|
(d)
|
Warrants
exercised: As of August 21, 2008, an additional 15,930
warrants had been exercised, generating additional net proceeds to the
Company of $127 and leaving 5,916,150 warrants
outstanding.
|
(e)
|
New shares
issuance: As of July 17, 2008 803,481 shares of common stock of
Star Bulk were issued to TMT Co Ltd as per Master Agreement (Note
1).
|
Report
of Independent Registered Public Accounting Firm
To
the Shareholder of A Duckling Corporation
We
have audited the accompanying statements of revenue and direct operating
expenses of A Duckling Corporation (the “Company”) for the periods from
January 1, 2008 to January 9, 2008 (date vessel was delivered to the Buyer),
January 1, 2007 to December 31, 2007, and August 5, 2006 (commencement date of a
time charter agreement to be assigned to the Buyer) to December 31, 2006. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the statement
is free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of this statement. We
believe that our audits provide a reasonable basis for our opinion.
The
accompanying statements were prepared for the purposes of complying with the
rules and regulations of the Securities and Exchange Commission in lieu of the
full financial statements required by Rule 3-05 of Regulation S-X, as
described in Note 2 to Statements of Revenue and Direct Operating Expenses
and are not intended to be a complete presentation of the financial position or
the results of operations of the Company.
In
our opinion, such statements presents fairly, in all material respects, the
revenue and direct operating expenses of the Company for the periods from
January 1, 2008 to January 9, 2008, January 1, 2007 to December 31, 2007, and
August 5, 2006 to December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte
& Touche
Taipei,
Taiwan
The
Republic of China
August
18, 2008
Statements
of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
|
|
From
January 1, 2008 to January 9, 2008
|
|
|
From
January 1, 2007
to
December
31, 2007
|
|
|
From
August 5, 2006
to
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
411,469 |
|
|
$ |
11,259,940 |
|
|
$ |
7,348,889 |
|
Direct
operating expenses
|
|
|
167,105 |
|
|
|
9,351,330 |
|
|
|
2,222,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
of revenue over direct operating expenses
|
|
$ |
244,364 |
|
|
$ |
1,908,610 |
|
|
$ |
5,126,768 |
|
See
notes to statements of revenue and direct operating expenses.
Notes
to Statements of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
1.
Business and Asset Purchase Agreement
On
January 12, 2007, Star Bulk Carriers Corp. (the “Buyer”), and A Duckling
Corporation (the “Seller,” the “Company,” or “A Duckling”), a Republic of Panama
company entered into an asset purchase agreement (the “Agreement”) for the Buyer
to acquire a marine vessel (the “Disposed Asset”) The total
purchase price amounted to $112,116,680 and included cash and
buyer’s share consideration. The Disposed Asset was delivered to the Buyer
on January 9, 2008. The Disposed Asset is a 175,075 dwt dry bulk vessel
which was built in 1992. In addition, the Buyer and TMT Co., Ltd., (“TMT”, a
Taiwan corporation and a related party to the Seller through a common
shareholder) entered into a master agreement on January 12, 2007 (the
“Master Agreement”). Pursuant to the Master Agreement, TMT had guaranteed to
assign an existing three-year time charter agreement to the Buyer at a minimum
daily time charter hire rate of $47,000. A Duckling acquired the Disposed Asset
on June 26, 2006.
2.
Basis of Presentation
Historically,
the Disposed Asset operated as an asset within A Duckling and on a consolidated
basis within TMT and had no separate legal status. Accordingly, the Statements
of Revenue and Direct Operating Expenses have been prepared pursuant to a
request from the Buyer and derived from the historical records of A
Duckling.
The
cost of the Disposed Asset as of January 9, 2008, December 31, 2007, and
December 31, 2006 and its related accumulated depreciation from the date it was
acquired by A Duckling, to January 9, 2008, December 31, 2007, and December 31,
2006, respectively, are as follows:
|
|
January
9, 2008
|
|
|
December
31, 2007
|
|
|
December
31, 2006
|
|
Marine
vessel
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$ |
34,875,000 |
|
|
$ |
34,875,000 |
|
|
$ |
34,875,000 |
|
Accumulated
depreciation
|
|
|
5,026,618 |
|
|
|
4,940,625 |
|
|
|
1,453,125 |
|
|
|
$ |
29,848,382 |
|
|
$ |
29,934,375 |
|
|
$ |
33,421,875 |
|
Operations
related to the Disposed Asset are reflected in the Statements of Revenue and
Direct Operating Expenses for the periods from January 1, 2008 to January 9,
2008, January 1, 2007 to December 31, 2007, and August 5, 2006 (commencement
date of a time charter agreement to be assigned to the Buyer) to December 31,
2006.
The
accompanying Statements of Revenue and Direct Operating Expenses for the periods
from January 1, 2008 to January 9, 2008, January 1, 2007 to December 31, 2007,
and August 5, 2006 to December 31, 2006 have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission.
The
accompanying statements were prepared from the books and records maintained by
TMT, of which the Disposed Asset represented only a portion. These statements
are therefore not intended to be a complete representation of the results of
operations for the Disposed Asset as a stand-alone going concern, nor is it
indicative of the results to be expected from future operations of the Disposed
Asset. The accompanying statements are also not intended to be a complete
presentation of the results of operations of A Duckling as of or for any period.
Further, these statements do not include any other adjustments or allocations of
purchase price that may be required in accordance with accounting principles
generally accepted in the United States of America subsequent to the date of
acquisition.
A
statement of stockholder’s equity is not presented, since the Agreement was
structured such that only the Disposed Asset was acquired by the Buyer.
A
statement of cash flows is not presented, since the Disposed Asset has
historically been managed as part of the operations of TMT and has not been
operated as a stand-alone entity.
Statements
of Revenue and Direct Operating Expenses
The
Statements of Revenue and Direct Operating Expenses include revenue and
operating expenses directly attributable to the Disposed Asset.
Directly
attributable expenses of the Disposed Asset include vessel operating expenses,
depreciation, and management fees that are specifically identifiable with the
Disposed Asset.
Certain
other expenses and income, such as TMT corporate overhead, interest income and
interest expense are not included in the accompanying Statements of Revenue and
Direct Operating Expenses, since they are not directly associated with the
operations of the Disposed Asset. Corporate overhead expenses include costs
incurred for administrative support, such as expenses for legal, professional
and executive management functions. The accompanying Statements of Revenue and
Direct Operating Expenses are not necessarily indicative of the future financial
position or results of the operations of the Disposed Asset due to the change in
ownership, and the exclusion of certain assets, liabilities and operating
expenses, as described herein.
3.
Summary of Significant Accounting Policies
Use
of estimates
Preparation
of these financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make certain
estimates and assumptions that affect the reported amounts of assets and the
disclosure of contingencies at the date of the statement of revenue and direct
operating expenses reported.
In
the preparation of these financial statements, estimates and assumptions have
been made by management including the selection of useful lives of tangible
assets. Actual results could differ from those estimates.
Property
and Equipment
Property
and equipment consists of the vessel and is recorded at cost. Depreciation is
recorded on a straight-line basis over nine years, the estimated remaining
useful life of the vessel from the date it was acquired by A Duckling, and with
an estimated $3,487,500 salvage value. Depreciation expense amounted to $85,993,
$3,487,500 and $1,453,125 for the periods from January 1, 2008 to January 9,
2008, January 1, 2007 to December 31, 2007, and August 5, 2006 to December 31,
2006, respectively.
Revenue
Recognition
A
Duckling generates its revenues from charterers for the charterhire of its
vessel. A vessel is chartered under time charter, where a contract is entered
into for the use of a vessel for a specific period of time and a specified daily
charterhire rate. As a charter agreement exists that includes fixed prices,
service is provided and collection of the related revenue is reasonably assured,
revenue is recognized as it is earned ratably over the duration of the period of
a time charter agreement as adjusted for off-hire days that the vessel spends
undergoing repairs, maintenance and upgrade work depending on the condition and
specifications of the vessel. On August 4, 2006, A Duckling entered into a
time charter agreement with its customer, which has
duration of 35 to 38 months and a daily charterhire rate of $47,500. A
Duckling reports its revenue net of commission discounts offered to its customer
in accordance with Emerging Issues Task Force Issue (“EITF”) No. 01-9,
“Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor’s Products).” In addition, A Duckling reports its revenue
on a gross basis with regard to the vessel fuel charged to its customer when
delivering the vessel to its customer in accordance with EITF No. 99-19,
“Reporting Revenue Gross as a Principal versus Net as an
Agent.”
Operating
Expenses
A
Duckling’s operating expenses consist of vessel operating expenses, depreciation
and management fees that are specifically identifiable with the Disposed Asset.
Vessel operating expenses represent all expenses relating to the operation of
the vessel, including crewing, insurance, repairs and maintenance, commissions,
stores, lubricants, spares and consumables. Vessel operating expenses and
management fees are recognized as incurred.
In
May 2007, the Disposed Asset collided with another ship. Repairs to the Disposed
Asset have been completed as of December 31, 2007 and total costs incurred by A
Duckling amounted to $567,681 and are included in operating expenses for the
period from January 1, 2007 to December 31, 2007. Recoveries of the repair costs
from insurance company and the other party, if any, are not recorded as amount
is not known at this time.
Income
Taxes
The
Company is a tax-exempt entity in accordance with the Income Tax Code of the
Republic of Panama.
4.
Significant Customers and Concentration of Credit Risk
One
customer accounted for 100% of the total revenue of the Disposed
Asset.
To
the Shareholder of E Duckling Corporation
We
have audited the accompanying statement of revenue and direct operating expenses
of E Duckling Corporation (the “Company”) for the period from October 8,
2007 (the commencement date of a time charter agreement to be assigned to the
Buyer) to December 14, 2007 (date vessel was delivered to the Buyer). This
financial statement is the responsibility of the Company’s management. Our
responsibility is to express an opinion on this statement based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the statement
is free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of this statement. We
believe that our audit provides a reasonable basis for our opinion.
The
accompanying statement was prepared for the purposes of complying with the rules
and regulations of the Securities and Exchange Commission in lieu of the full
financial statements required by Rule 3-05 of Regulation S-X, as
described in Note 2 to Statement of Revenue and Direct Operating Expenses
and is not intended to be a complete presentation of the financial position or
the results of operations of the Company.
In
our opinion, such statement presents fairly, in all material respects, the
revenue and direct operating expenses of the Company for the period from
October 8, 2007 to December 14, 2007, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte
& Touche
Taipei,
Taiwan
The
Republic of China
August
18, 2008
E
Duckling Corporation
Statement
of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
|
|
From
October 8, 2007
to
December 14, 2007
|
|
|
|
|
|
Revenue
|
|
$ |
3,140,117 |
|
Direct
operating expenses
|
|
|
698,376 |
|
Excess
of revenue over direct operating expenses
|
|
$ |
2,441,741 |
|
See
notes to statement of revenue and direct operating expenses.
E
Duckling Corporation
Notes
to Statement of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
1.
Business and Asset Purchase Agreement
On
December 3, 2007, Star Bulk Carriers Corp. (the “Buyer”), and E Duckling
Corporation (the “Seller,” the “Company,” or “E Duckling”), a Republic of Panama
company entered into an asset purchase agreement (the “Agreement”) for the Buyer
to acquire a marine vessel (the “Disposed Asset”) The total
purchase price amounted to $70,019,639 and included cash and
buyer’s share consideration. The Disposed Asset was delivered to the Buyer on
December 14, 2007. The Disposed Asset is a 52,055 dwt dry bulk vessel which
was built in 2001. In addition, the Buyer and TMT Co., Ltd., (“TMT”, a Taiwan
corporation and a related party to the Seller through a common shareholder)
entered into a master agreement on December 3, 2007 (the “Master Agreement”).
Pursuant to the Master Agreement, TMT had guaranteed to assign to the Buyer an
existing three-year time charter agreement at a minimum daily time charter hire
rate of $47,800. E Duckling acquired the Disposed Asset on June 20,
2006.
2.
Basis of Presentation
Historically,
the Disposed Asset operated as an asset within E Duckling and on a consolidated
basis within TMT and had no separate legal status. Accordingly, the Statement of
Revenue and Direct Operating Expenses has been prepared pursuant to a request
from the Buyer and derived from the historical records of E
Duckling.
The
cost of the Disposed Asset as of December 14, 2007 and its related
accumulated depreciation from the date it was acquired by E Duckling, to
December 14, 2007 is as follows:
|
|
December
14, 2007
|
|
Marine
vessel
|
|
|
|
Cost
|
|
$ |
30,185,000 |
|
Accumulated
depreciation
|
|
|
2,182,583 |
|
|
|
$ |
28,002,417 |
|
Operations
related to the Disposed Asset are reflected in the Statement of Revenue and
Direct Operating Expenses for the period from October 8, 2007 (commencement
date of a time charter agreement to be assigned to the Buyer) to
December 14, 2007.
The
accompanying Statement of Revenue and Direct Operating Expenses for the period
from October 8, 2007 to December 14, 2007 has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission.
The
accompanying statement was prepared from the books and records maintained by
TMT, of which the Disposed Asset represented only a portion. This statement is
therefore not intended to be a complete representation of the results of
operations for the Disposed Asset as a stand-alone going concern, nor is it
indicative of the results to be expected from future operations of the Disposed
Asset. The accompanying statement is also not intended to be a complete
presentation of the results of operations of E Duckling as of or for any period.
Further, this statement does not include any other adjustments or allocations of
purchase price that may be required in accordance with accounting principles
generally accepted in the United States of America subsequent to the date of
acquisition.
A
statement of stockholder’s equity is not presented, since the Agreement was
structured such that only the Disposed Asset was acquired by the
Buyer.
A
statement of cash flows is not presented, since the Disposed Asset has
historically been managed as part of the operations of TMT and has not been
operated as a stand-alone entity.
Statement
of Revenue and Direct Operating Expenses
The
Statement of Revenue and Direct Operating Expenses includes revenue and
operating expenses directly attributable to the Disposed Asset.
Directly
attributable expenses of the Disposed Asset include vessel operating expenses,
depreciation, and management fees that are specifically identifiable with the
Disposed Asset.
Certain
other expenses and income, such as TMT corporate overhead, interest income and
interest expense are not included in the accompanying Statement of Revenue and
Direct Operating Expenses, since they are not directly associated with the
operations of the Disposed Asset. Corporate overhead expenses include costs
incurred for administrative support, such as expenses for legal, professional
and executive management functions. The accompanying Statement of Revenue and
Direct Operating Expenses is not necessarily indicative of the future financial
position or results of the operations of the Disposed Asset due to the change in
ownership, and the exclusion of certain assets, liabilities and operating
expenses, as described herein.
3.
Summary of Significant Accounting Policies
Use
of estimates
Preparation
of this financial statement in conformity with accounting principles generally
accepted in the United States of America requires management to make certain
estimates and assumptions that affect the reported amounts of assets and the
disclosure of contingencies at the date of the statement of revenue and direct
operating expenses reported.
In
the preparation of this financial statement, estimates and assumptions have been
made by management including the selection of useful lives of tangible assets.
Actual results could differ from those estimates.
Property
and Equipment
Property
and equipment consists of the vessel and is recorded at cost. Depreciation is
recorded on a straight-line basis over twenty years, the estimated remaining
useful life of the vessel from the date it was acquired by E Duckling, and with
an estimated $1,437,381 salvage value. Depreciation expense amounted to
$266,075, for the period from October 8, 2007 to December 14,
2007.
Revenue
Recognition
E
Duckling generates its revenues from charterers for the charterhire of its
vessel. E vessel is chartered under time charter, where a contract is entered
into for the use of a vessel for a specific period of time and a specified daily
charterhire rate. As a charter agreement exists that includes fixed prices,
service is provided and collection of the related revenue is reasonably assured,
revenue is recognized as it is earned ratably over the duration of the period of
a time charter agreement as adjusted for off-hire days that the vessel spends
undergoing repairs, maintenance and upgrade work depending on the condition and
specifications of the vessel. On September 20, 2006, E Duckling entered
into a time charter agreement with its customer, which has duration of 35 to
37 months and a daily charterhire rate of $47,800. E Duckling reports its
revenue net of commission discounts offered to its customer in accordance with
Emerging Issues Task Force Issue (“EITF”) No. 01-9, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products).” In addition, E Duckling reports its revenue on a gross
basis with regard to the vessel fuel charged to its customer when delivering the
vessel to its customer in accordance with EITF No. 99-19, “Reporting
Revenue Gross as a Principal versus Net as an Agent.”
Operating
Expenses
E
Duckling’s operating expenses consist of vessel operating expenses, depreciation
and management fees that are specifically identifiable with the Disposed Asset.
Vessel operating expenses represent all expenses relating to the operation of
the vessel, including crewing, insurance, repairs and maintenance, commissions,
stores, lubricants, spares and consumables. Vessel operating expenses and
management fees are recognized as incurred.
Income
Taxes
The
Company is a tax-exempt entity in accordance with the Income Tax Code of the
Republic of Panama.
4.
Significant Customers and Concentration of Credit Risk
One
customer accounted for 100% of the total revenue of the Disposed
Asset.
Report
of Independent Registered Public Accounting Firm
To
the Shareholder of F Duckling Corporation
We
have audited the accompanying statements of revenue and direct operating
expenses of F Duckling Corporation (the “Company”) for the periods from
January 1, 2008 to January 2, 2008 (date vessel was delivered to the Buyer), and
May 7, 2007 (the commencement date of a time charter agreement to be assigned to
the Buyer) to December 31, 2007.These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the statement
is free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of this statement. We
believe that our audits provide a reasonable basis for our opinion.
The
accompanying statements were prepared for the purposes of complying with the
rules and regulations of the Securities and Exchange Commission in lieu of the
full financial statements required by Rule 3-05 of Regulation S-X, as
described in Note 2 to Statements of Revenue and Direct Operating Expenses
and are not intended to be a complete presentation of the financial position or
the results of operations of the Company.
In
our opinion, such statements present fairly, in all material respects, the
revenue and direct operating expenses of the Company for the periods from
January 1, 2008 to January 2, 2008, and May 7, 2007 to December 31,
2007 in conformity with accounting principles generally accepted in the United
States of America.
Deloitte
& Touche
Taipei,
Taiwan
The
Republic of China
F
Duckling Corporation
Statements
of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
|
|
From
January 1, 2008
to January
2, 2008
|
|
|
From
May 7, 2007
to December
31, 2007
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
0 |
|
|
$ |
5,949,947 |
|
Direct
operating expenses
|
|
|
55,181 |
|
|
|
2,482,003 |
|
|
|
|
|
|
|
|
|
|
Excess
of revenue over direct operating expenses
(
Excess of direct operating expenses over
revenue )
|
|
$ |
( 55,181 |
) |
|
$ |
3,467,944 |
|
See
notes to statements of revenue and direct operating expenses.
F
Duckling Corporation
Notes
to Statements of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
1.
Business and Asset Purchase Agreement
On
January 12, 2007, Star Bulk Carriers Corp. (the “Buyer,”) and F Duckling
Corporation (the “Seller,” the “Company,” or “F Duckling”), a Republic of Panama
company entered into an asset purchase agreement (the “Agreement”) for the Buyer
to acquire a marine vessel (the “Disposed Asset”) The total
purchase price amounted to $64,572,205 and included cash and
buyer’s share consideration. The Disposed Asset was delivered to the Buyer on
January 2, 2008. The Disposed Asset is a 52,434 dwt dry bulk vessel which was
built in 2000. In addition, the Buyer and TMT Co., Ltd., (“TMT”, a Taiwan
corporation and a related party to the Seller through a common shareholder)
entered into a master agreement on January 12, 2007 (the “Master
Agreement”). Pursuant to the Master Agreement, TMT had guaranteed to procure a
two-year time charter agreement at a minimum daily time charter hire rate of
$24,500. F Duckling acquired the Disposed Asset on May 5,
2006.
2.
Basis of Presentation
Historically,
the Disposed Asset operated as an asset within F Duckling and on a consolidated
basis within TMT and had no separate legal status. Accordingly, the Statements
of Revenue and Direct Operating Expenses have been prepared pursuant to a
request from the Buyer and derived from the historical records of F
Duckling.
The
cost of the Disposed Asset as of January 2, 2008 and December 31, 2007, and
its related accumulated depreciation from the date it was acquired by
F Duckling, to January 2, 2008 and December 30, 2007, respectively are
as follows:
|
|
January
2,
2008
|
|
|
December
31,
2007
|
|
|
|
|
|
|
|
|
Marine
vessel
|
|
|
|
|
|
|
Cost
|
|
$ |
28,447,000 |
|
|
$ |
28,447,000 |
|
Accumulated
depreciation
|
|
|
2,141,319 |
|
|
|
2,133,525 |
|
|
|
$ |
26,305,681 |
|
|
$ |
26,313,475 |
|
Operations
related to the Disposed Asset are reflected in the Statements of Revenue and
Direct Operating Expenses for the periods from January 1, 2008 to January 2,
2008, and May 7, 2007 (commencement date of a time charter agreement to be
assigned to the Buyer) to December 31, 2007.
The
accompanying Statements of Revenue and Direct Operating Expenses for the periods
from January 1, 2008 to January 2, 2008, and May 7, 2007 to
December 31, 2007 have been prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission.
The
accompanying statements were prepared from the books and records maintained by
TMT, of which the Disposed Asset represented only a portion. These statements
are therefore not intended to be a complete representation of the results of
operations for the Disposed Asset as a stand-alone going concern, nor is it
indicative of the results to be expected from future operations of the Disposed
Asset. The accompanying statements are also not intended to be a complete
presentation of the results of operations of F Duckling as of or for any period.
Further, these statements do not include any other adjustments or allocations of
purchase price that may be required in accordance with accounting principles
generally accepted in the United States of America subsequent to the date of
acquisition.
A
statement of stockholder’s equity is not presented, since the Agreement was
structured such that only the Disposed Asset was acquired by the
Buyer.
A
statement of cash flows is not presented, since the Disposed Asset has
historically been managed as part of the operations of TMT and has not been
operated as a stand-alone entity.
Statements
of Revenue and Direct Operating Expenses
The
Statements of Revenue and Direct Operating Expenses include revenue and
operating expenses directly attributable to the Disposed Asset.
Directly
attributable expenses of the Disposed Asset include vessel operating expenses,
depreciation and management fees that are specifically identifiable with the
Disposed Asset.
Certain
other expenses and income, such as TMT corporate overhead, interest income and
interest expense are not included in the accompanying Statements of Revenue and
Direct Operating Expenses, since they are not directly associated with the
operations of the Disposed Asset. Corporate overhead expenses include costs
incurred for administrative support, such as expenses for legal, professional
and executive management functions. The accompanying Statements of Revenue and
Direct Operating Expenses are not necessarily indicative of the future financial
position or results of the operations of the Disposed Asset due to the change in
ownership, and the exclusion of certain assets, liabilities and operating
expenses, as described herein.
3.
Summary of Significant Accounting Policies
Use
of estimates
Preparation
of these financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make certain
estimates and assumptions that affect the reported amounts of assets and the
disclosure of contingencies at the date of the statement of revenue and direct
operating expenses reported.
In
the preparation of these financial statements, estimates and assumptions have
been made by management including the selection of useful lives of tangible
assets. Actual results could differ from those estimates.
Property
and Equipment
Property
and equipment consists of the vessel and is recorded at cost. Depreciation is
recorded on a straight-line basis over nineteen years, the estimated remaining
useful life of the vessel from the date it was acquired by F Duckling, and
with an estimated $1,422,350 salvage value. Depreciation expense amounted to
$7,794 and $ 926,091 for the periods from January 1, 2008 to January 2, 2008,
and May 7, 2007 to December 31, 2007, respectively.
Revenue
Recognition
F
Duckling generates its revenues from charterers for the charterhire of its
vessel. A vessel is chartered under time charter, where a contract is entered
into for the use of a vessel for a specific period of time and a specified daily
charterhire rate. As a charter agreement exists that includes fixed prices,
service is provided and collection of the related revenue is reasonably assured,
revenue is recognized as it is earned ratably over the duration of the period of
a time charter agreement as adjusted for off-hire days that the vessel spends
undergoing repairs, maintenance and upgrade work depending on the condition and
specifications of the vessel. On February 14, 2007, F Duckling entered
into a time charter agreement with its customer, which has duration of 23 to
26 months and a daily charterhire rate of $25,800. F Duckling reports
its revenue on a gross basis with regard to the vessel fuel charged to its
customer when delivering the vessel to its customer in accordance with Emerging
Issues Task Force Issue No. 99-19, “Reporting Revenue Gross as a Principal
versus Net as an Agent.”
Operating
Expenses
F
Duckling’s operating expenses consist of vessel operating expenses, depreciation
and management fees that are specifically identifiable with the Disposed Asset.
Vessel operating expenses represent all expenses relating to the operation of
the vessels, including crewing, insurance, repairs and maintenance, commissions,
stores, lubricants, spares and consumables. Vessel operating expenses and
management fees are recognized as incurred.
Income
Taxes
The
Company is a tax-exempt entity in accordance with the Income Tax Code of the
Republic of Panama.
4.
Significant Customers and Concentration of Credit Risk
One
customer accounted for 100% of the total revenue of the Disposed
Asset.
5.
Related Party Transactions
The
Company has a management agreement with TMT, under which TMT provides management
services in exchange for a fixed monthly fee of $7,500 in 2008 and 2007. Total
management fees paid to TMT amounted to $500 and $58,548 during the periods from
January 1, 2008 to January 2, 2008, and May 7, 2007 to December 31,
2007, respectively.
To
the Shareholder of G Duckling Corporation
We
have audited the accompanying statement of revenue and direct operating expenses
of G Duckling Corporation (the “Company”) for the period from January 30,
2007(the commencement date of a time charter agreement to be assigned to the
Buyer) to December 3, 2007(date vessel was delivered to the Buyer). This
financial statement is the responsibility of the Company’s management. Our
responsibility is to express an opinion on this statement based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the statement
is free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of this statement. We
believe that our audit provides a reasonable basis for our opinion.
The
accompanying statement was prepared for the purposes of complying with the rules
and regulations of the Securities and Exchange Commission in lieu of the full
financial statements required by Rule 3-05 of Regulation S-X, as described in
Note 2 to Statement of Revenue and Direct Operating Expenses and is not intended
to be a complete presentation of the financial position or the results of
operations of the Company.
In
our opinion, such statement presents fairly, in all material respects, the
revenue and direct operating expenses of the Company for the period from January
30, 2007 to December 3, 2007, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte
& Touche
Taipei,
Taiwan
The
Republic of China
August
18, 2008
Statement
of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
|
|
From
January 30, 2007
to
December 3, 2007
|
|
|
|
|
|
Revenue
|
|
$ |
7,707,444 |
|
Direct
operating expenses
|
|
|
2,477,453 |
|
Excess
of revenue over direct operating expenses
|
|
$ |
5,229,991 |
|
See
notes to statement of revenue and direct operating expenses.
Notes
to Statement of Revenue and Direct Operating Expense
(In
U. S. Dollars)
1.
Business and Asset Purchase Agreement
On
January 12, 2007, Star Bulk Carriers Corp. (the “Buyer”), and G Duckling
Corporation (the “Seller,” the “Company,” or “G Duckling”) a Republic of Panama
company entered into an asset purchase agreement (the “Agreement”) for the Buyer
to acquire a marine vessel (the “Disposed Asset”) The total
purchase price amounted to $66,573,309 and included cash and
buyer’s share consideration. The Disposed Asset was delivered to the Buyer on
December 3, 2007. The Disposed Asset is a 52,402 dwt dry bulk vessel which
was built in 2001. In addition, the Buyer and TMT Co., Ltd., (“TMT”, a Taiwan
corporation and a related party to the Seller through a common shareholder)
entered into a master agreement on January 12, 2007 (the “Master
Agreement”). Pursuant to the Master Agreement, TMT had guaranteed to procure a
two-year time charter agreement at a minimum daily time charter hire rate of
$24,500. G Duckling acquired the Disposed Asset on July 12,
2006.
2.
Basis of Presentation
Historically,
the Disposed Asset operated as an asset within G Duckling and on a consolidated
basis within TMT and had no separate legal status. Accordingly, the Statement of
Revenue and Direct Operating Expenses has been prepared pursuant to a request
from the Buyer and derived from the historical records of G
Duckling.
The
cost of the Disposed Asset as of December 3, 2007 and its related accumulated
depreciation from the date it was acquired by G Duckling to December 3,
2007 is as follows:
|
|
December
3, 2007
|
|
Marine
vessel
|
|
|
|
Cost
|
|
$ |
29,800,000 |
|
Accumulated
depreciation
|
|
|
1,662,684 |
|
|
|
$ |
28,137,316 |
|
Operations
related to the Disposed Asset are reflected in the Statement of Revenue and
Direct Operating Expenses for the period from January 30, 2007
(commencement date of a time charter agreement to be assigned to the Buyer) to
December 3, 2007.
The
accompanying Statement of Revenue and Direct Operating Expenses for the period
from January 30, 2007 to December 3, 2007 has been prepared for the purpose
of complying with the rules and regulations of the Securities and Exchange
Commission.
The
accompanying statement was prepared from the books and records maintained by
TMT, of which the Disposed Asset represented only a portion. This statement is
therefore not intended to be a complete representation of the results of
operations for the Disposed Asset as a stand-alone going concern, nor is it
indicative of the results to be expected from future operations of the Disposed
Asset. The accompanying statement is also not intended to be a complete
presentation of the results of operations of G Duckling as of or for any period.
Further, this statement does not include any other adjustments or allocations of
purchase price that may be required in accordance with accounting principles
generally accepted in the United States of America subsequent to the date of
acquisition.
A
statement of stockholder’s equity is not presented, since the Agreement was
structured such that only the Disposed Asset was acquired by the Buyer.
A
statement of cash flows is not presented, since the Disposed Asset has
historically been managed as part of the operations of TMT and has not been
operated as a stand-alone entity.
Statement
of Revenue and Direct Operating Expenses
The
Statement of Revenue and Direct Operating Expenses includes revenue and
operating expenses directly attributable to the Disposed Asset.
Directly
attributable expenses of the Disposed Asset include vessel operating expenses
and depreciation that are specifically identifiable with the Disposed
Asset.
Certain
other expenses and income, such as TMT corporate overhead, interest income and
interest expense are not included in the accompanying Statement of Revenue and
Direct Operating Expenses, since they are not directly associated with the
operations of the Disposed Asset. Corporate overhead expenses include costs
incurred for administrative support, such as expenses for legal, professional
and executive management functions. The accompanying Statement of Revenue and
Direct Operating Expenses is not necessarily indicative of the future financial
position or results of the operations of the Disposed Asset due to the change in
ownership, and the exclusion of certain assets, liabilities and operating
expenses, as described herein.
3.
Summary of Significant Accounting Policies
Use
of estimates
Preparation
of this financial statement in conformity with accounting principles generally
accepted in the United States of America requires management to make certain
estimates and assumptions that affect the reported amounts of assets and the
disclosure of contingencies at the date of the statement of revenue and direct
operating expenses reported.
In
the preparation of this financial statement, estimates and assumptions have been
made by management including the selection of useful lives of tangible assets.
Actual results could differ from those estimates.
Property
and Equipment
Property
and equipment consists of the vessel and is recorded at cost. Depreciation is
recorded on a straight-line basis over twenty years the estimated remaining
useful life of the vessel from the date it was acquired by G Duckling and
with an estimated $1,419,048 salvage value. Depreciation expense amounted to
$1,189,668 during the period from January 30, 2007 to December 3,
2007.
Revenue
Recognition
G Duckling
generates its revenues from charters for the charterline of its vessel. A vessel
is chartered under time charter, where a contract is entered into for the use of
a vessel for a specific period of time and a specified daily charterhire rate.
As a charter agreement exists that includes fixed prices, service is provided
and collection of the related revenue is reasonably assured, revenue is
recognized as it is earned ratably over the duration of the period of a time
charter agreement as adjusted for off-hire days that the vessel spends
undergoing repairs, maintenance and upgrade work depending on the condition and specifications of the vessel. On
January 30, 2007, G Duckling entered into a time charter agreement with its
customer, which has duration of 23 to 25 months and a daily charterhire
rate of $25,550. G Duckling reports its revenue net of commission discounts
offered to its customer in accordance with Emerging Issues Task Force (“EITF”)
Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor’s Products).” In addition,
G Duckling reports its revenue on a gross basis with regard to the vessel
fuel charged to its customer when delivering the vessel to its customer in
accordance with EITF No. 99-19, “Reporting Revenue Gross as a Principal
versus Net as an Agent.”
Operating
Expenses
G Duckling’s
operating expenses consist of vessel operating expenses and depreciation that
are specifically identifiable with the Disposed Asset. Vessel operating expenses
represent all expenses relating to the operation of the vessel, including
crewing, insurance, repairs and maintenance, commissions, stores, lubricants,
spares and consumables. Vessel operating expenses are recognized as
incurred.
Income
Taxes
The
Company is a tax-exempt entity in accordance with the Income Tax Code of the
Republic of Panama.
4.
Significant Customers and Concentration of Credit Risk
One
customer accounted for 100% of the total revenue of the Disposed
Asset.
5.
Related Party Transactions
TMT
provides management services to the Company for no charge.
To
the Shareholder of I Duckling Corporation
We
have audited the accompanying statements of revenue and direct operating
expenses of I Duckling Corporation (the “Company”) for the periods from January
1, 2008 to January 2, 2008 (date vessel was delivered to the Buyer), and
February 13, 2007 (the commencement date of a time charter agreement to be
assigned to the Buyer) to December 31, 2007. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the statement
is free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of this statement. We
believe that our audits provide a reasonable basis for our opinion.
The
accompanying statements were prepared for the purposes of complying with the
rules and regulations of the Securities and Exchange Commission in lieu of the
full financial statements required by Rule 3-05 of Regulation S-X, as described
in Note 2 to Statements of Revenue and Direct Operating Expenses and are not
intended to be a complete presentation of the financial position or the results
of operations of the Company.
In
our opinion, such statements present fairly, in all material respects, the
revenue and direct operating expenses of the Company for the periods from
January 1, 2008 to January 2, 2008, and from February 13, 2007 to December 31,
2007, in conformity with accounting principles generally accepted in the United
States of America.
Deloitte
& Touche
Taipei,
Taiwan
The
Republic of China
I
Duckling Corporation
Statements
of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
|
|
From
January
1, 2008
to January
2, 2008
|
|
|
From
February 13, 2007
to December
31, 2007
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
0 |
|
|
$ |
9,507,290 |
|
Direct
operating expenses
|
|
|
29,823 |
|
|
|
3,087,107 |
|
|
|
|
|
|
|
|
|
|
Excess
of revenue over direct operating expenses
(
Excess of direct operating expenses over
revenue )
|
|
$ |
( 29,238 |
) |
|
$ |
6,420,183 |
|
See
notes to statements of revenue and direct operating expenses.
I
Duckling Corporation
Notes
to Statements of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
1.
Business and Asset Purchase Agreement
On
January 12, 2007, Star Bulk Carriers Corp. (the “Buyer”), and I Duckling
Corporation (the “Seller,” the “Company,” or “I Duckling”) a Republic of Panama
company entered into an asset purchase agreement (the “Agreement”) for the Buyer
to acquire a marine vessel (the “Disposed Asset”) The total
purchase price amounted to $57,853,675 and included cash and
buyer’s share consideration. The Disposed Asset was delivered to the
Buyer on January 2, 2008. The Disposed Asset is a 52,994 dwt dry bulk vessel
which was built in 2003. In addition, the Buyer and TMT Co., Ltd., (“TMT”, a
Taiwan corporation and a related party to the Seller through a common
shareholder) entered into a master agreement on January 12, 2007 (the ‘Master
Agreement’). Pursuant to the Master Agreement, TMT had guaranteed to procure a
three-year time charter agreement at a minimum daily time charter hire rate
$28,500. I Duckling acquired the Disposed Asset on May 6, 2006.
2.
Basis of Presentation
Historically,
the Disposed Asset operated as an asset within I Duckling and on a consolidated
basis within TMT and had no separate legal status. Accordingly, the Statements
of Revenue and Direct Operating Expenses have been prepared pursuant to a
request from the Buyer and derived from the historical records of I
Duckling.
The
cost of the Disposed Asset as of January 2, 2008 and, December 31, 2007 and its
related accumulated depreciation from the date it was acquired by I Duckling ,to
January 2, 2008 and, December 31, 2007, respectively are as
follows:
|
|
January
2,
2008
|
|
|
December
31,
2007
|
|
|
|
|
|
|
|
|
Marine
vessel
|
|
|
|
|
|
|
Cost
|
|
$ |
32,500,000 |
|
|
$ |
32,500,000 |
|
Accumulated
depreciation
|
|
|
2,347,110 |
|
|
|
2,339,015 |
|
|
|
$ |
30,152,890 |
|
|
$ |
30,160,985 |
|
Operations
related to the Disposed Asset are reflected in the Statements of Revenue and
Direct Operating Expenses for the periods from January 1, 2008 to January 2,
2008 and February 13, 2007 (commencement date of a time charter agreement to be
assigned to the Buyer) to December 31, 2007.
The
accompanying Statements of Revenue and Direct Operating Expenses for the periods
from January 1, 2008 to January 2, 2008 and February 13, 2007 to December
31, 2007 have been prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission.
The
accompanying statements were prepared from the books and records maintained by
TMT, of which the Disposed Asset represented only a portion. These statements
are therefore not intended to be a complete representation of the results of
operations for the Disposed Asset as a stand-alone going concern, nor is it
indicative of the results to be expected from future operations of the Disposed
Asset. The accompanying statements are also not intended to be a complete
presentation of the results of operations of I Duckling as of or for any period.
Further, these statements do not include any other adjustments or allocations of
purchase price that may be required in accordance with accounting principles
generally accepted in the United States of America subsequent to the date of
acquisition.
A
statement of stockholder’s equity is not presented, since the Agreement was
structured such that only the Disposed Asset was acquired by the Buyer.
A
statement of cash flows is not presented, since the Disposed Asset has
historically been managed as part of the operations of TMT and has not been
operated as a stand-alone entity.
Statements
of Revenue and Direct Operating Expenses
The
Statements of Revenue and Direct Operating Expenses include revenue and
operating expenses directly attributable to the Disposed Asset.
Directly
attributable expenses of the Disposed Asset include vessel operating expenses,
depreciation and management fees that are specifically identifiable with the
Disposed Asset.
Certain
other expenses and income, such as TMT corporate overhead, interest income and
interest expense are not included in the accompanying Statements of Revenue and
Direct Operating Expenses, since they are not directly associated with the
operations of the Disposed Asset. Corporate overhead expenses include costs
incurred for administrative support, such as expenses for legal, professional
and executive management functions. The accompanying Statements of Revenue and
Direct Operating Expenses are not necessarily indicative of the future financial
position or results of the operations of the Disposed Asset due to the change in
ownership, and the exclusion of certain assets, liabilities and operating
expenses, as described herein.
3.
Summary of Significant Accounting Policies
Use
of estimates
Preparation
of these financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make certain
estimates and assumptions that affect the reported amounts of assets and the
disclosure of contingencies at the date of the statement of revenue and direct
operating expenses reported.
In
the preparation of these financial statements, estimates and assumptions have
been made by management including the selection of useful lives of tangible
assets. Actual results could differ from those estimates.
Property
and Equipment
Property
and equipment consists of the vessel and is recorded at cost. Depreciation is
recorded on a straight-line basis over twenty-one years, the estimated remaining
useful life of the vessel from the date it was acquired by I Duckling, and with an estimated
$1,477,273 salvage value. Depreciation expense amounted to $8,095 and $1,297,011
during the periods from January 1, 2008 to January 2, 2008, and
February 13, 2007 to December 31, 2007, respectively.
Revenue
Recognition
I
Duckling generates its revenues from charterers for the charterhire of its
vessel. A vessel is chartered under time charter, where a contract is entered
into for the use of a vessel for a specific period of time and a specified daily
charterhire rate. As a charter agreement exists that includes fixed prices,
service is provided and collection of the related revenue is reasonably assured,
revenue is recognized as it is earned ratably over the duration of the period of
a time charter agreement as adjusted for the off-hire days that the vessel
spends undergoing repairs, maintenance and upgrade work depending on the condition and specifications of the vessel. On
January 31, 2007, I Duckling entered into a time charter agreement
with its customer, which has duration of 11 to 13 months and a daily
charterhire rate of $30,300. I Duckling reports its revenue net of commission
discounts offered to its customer in accordance with Emerging Issues Task Force
Issue (“EITF”) No. 01-9, “Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor’s Products).” In addition, I
Duckling reports its revenue on a gross basis with regard to the vessel fuel
charged to its customer when delivering the vessel to its customer in accordance
with EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an
Agent.”
Operating
Expenses
I
Duckling’s operating expenses consist of vessel operating expenses, depreciation
and management fees that are specifically identifiable with the Disposed Asset.
Vessel operating expenses represent all expenses relating to the operation of
the vessel, including crewing, insurance, repairs and maintenance, commissions,
stores, lubricants, spares and consumables. Vessel operating expenses and
management fees are recognized as incurred.
Income
Taxes
The
Company is a tax-exempt entity in accordance with the Income Tax Code of the
Republic of Panama.
4.
Significant Customers and Concentration of Credit Risk
One
customer accounted for 100% of the total revenue of the Disposed
Asset.
5.
Related Party Transactions
The
Company has a management agreement with TMT, under which TMT provides management
services in exchange for a fixed monthly fee of $7,500 in 2007 and 2008. Total
management fees paid to TMT amounted to $500 and $79,018 during the periods from
January 1, 2008 to January 2, 2008, and from February 13, 2007 to December 31,
2007, respectively.
To
the Shareholder of J Duckling Corporation
We
have audited the accompanying statement of revenue and direct operating expenses
of J Duckling Corporation (the “Company”) for the period from May 16,
2007 (the commencement date of a time charter agreement to be assigned to the
Buyer) to December 6, 2007(date vessel was delivered to the Buyer). This
financial statement is the responsibility of the Company’s management. Our
responsibility is to express an opinion on this statement based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the statement
is free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of this statement. We
believe that our audit provides a reasonable basis for our opinion.
The
accompanying statement was prepared for the purposes of complying with the rules
and regulations of the Securities and Exchange Commission in lieu of the full
financial statements required by Rule 3-05 of Regulation S-X, as
described in Note 2 to Statement of Revenue and Direct Operating Expenses
and is not intended to be a complete presentation of the financial position or
the results of operations of the Company.
In
our opinion, such statement presents fairly, in all material respects, the
revenue and direct operating expenses of the Company for the period from
May 16, 2007 to December 6, 2007, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte
& Touche
Taipei,
Taiwan
The
Republic of China
J
Duckling Corporation
Statement
of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
|
|
From
May 16, 2007 to December 6, 2007
|
|
|
|
|
|
Revenue
|
|
$ |
6,605,243 |
|
Direct
operating expenses
|
|
|
1,783,210 |
|
Excess
of revenue over direct operating expenses
|
|
$ |
4,822,033 |
|
See
notes to statement of revenue and direct operating expenses.
J
Duckling Corporation
Notes
to Statement of Revenue and Direct Operating Expenses
(In
U. S. Dollars)
1.
Business and Asset Purchase Agreement
On
January 12, 2007, Star Bulk Carriers Corp. (the “Buyer”), and J Duckling
Corporation (the “Seller,” the “Company,” or “J Duckling”), a Republic of Panama
company entered into an asset purchase agreement (the “Agreement”) for the Buyer
to acquire a marine vessel (the “Disposed Asset”) The total
purchase price amounted to $67,140,790 and included cash and
buyer’s share consideration. The Disposed Asset was delivered to the Buyer on
December 6, 2007. The Disposed Asset is a 52,425 dwt dry bulk vessel which was
built in 2003. J Duckling acquired the Disposed Asset on July 12,
2006.
2.
Basis of Presentation
Historically,
the Disposed Asset operated as an asset within J Duckling and on a consolidated
basis within TMT and had no separate legal status. Accordingly, the Statement of
Revenue and Direct Operating Expenses has been prepared pursuant to a request
from the Buyer and derived from the historical records of J
Duckling.
The
cost of the Disposed Asset as of December 6, 2007 and its related accumulated
depreciation from the date it was acquired by J Duckling to December 6,
2007 is as follows:
|
|
December
6, 2007
|
|
Marine
vessel
|
|
|
|
Cost
|
|
$ |
30,930,000 |
|
Accumulated
depreciation
|
|
|
1,591,018 |
|
|
|
$ |
29,338,982 |
|
Operations
related to the Disposed Asset are reflected in the Statement of Revenue and
Direct Operating Expenses for the period from May 16, 2007 (commencement
date of a time charter agreement to be assigned to the Buyer) to December 6,
2007.
The
accompanying Statement of Revenue and Direct Operating Expenses for the period
from May 16, 2007 to December 6, 2007 has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission.
The
accompanying statement was prepared from the books and records maintained by
TMT, of which the Disposed Asset represented only a portion. This statement is
therefore not intended to be a complete representation of the results of
operations for the Disposed Asset as a stand-alone going concern, nor is it
indicative of the results to be expected from future operations of the Disposed
Asset. The accompanying statement is also not intended to be a complete
presentation of the results of operations of J Duckling as of or for any period.
Further, this statement does not include any other adjustments or allocations of
purchase price that may be required in accordance with accounting principles
generally accepted in the United States of America subsequent to the date of
acquisition.
A
statement of stockholder’s equity is not presented, since the Agreement was
structured such that only the Disposed Asset was acquired by the
Buyer.
A
statement of cash flows is not presented, since the Disposed Asset has
historically been managed as part of the operations of TMT and has not been
operated as a stand-alone entity.
Statement
of Revenue and Direct Operating Expenses
The
Statement of Revenue and Direct Operating Expenses includes revenue and
operating expenses directly attributable to the Disposed Asset.
Directly
attributable expenses of the Disposed Asset include vessel operating expenses,
depreciation and management fees that are specifically identifiable with the
Disposed Asset.
Certain
other expenses and income, such as TMT corporate overhead, interest income and
interest expense are not included in the accompanying Statement of Revenue and
Direct Operating Expenses, since they are not directly associated with the
operations of the Disposed Asset. Corporate overhead expenses include costs
incurred for administrative support, such as expenses for legal, professional
and executive management functions. The accompanying Statement of Revenue and
Direct Operating Expenses is not necessarily indicative of the future financial
position or results of the operations of the Disposed Asset due to the change in
ownership, and the exclusion of certain assets, liabilities and operating
expenses, as described herein.
3.
Summary of Significant Accounting Policies
Use
of estimates
Preparation
of this financial statement in conformity with accounting principles generally
accepted in the United States of America requires management to make certain
estimates and assumptions that affect the reported amounts of assets and the
disclosure of contingencies at the date of the statement of revenue and direct
operating expenses reported.
In
the preparation of this financial statement, estimates and assumptions have been
made by management including the selection of useful lives of tangible assets.
Actual results could differ from those estimates.
Property
and Equipment
Property
and equipment consists of the vessel and is recorded at cost. Depreciation is
recorded on a straight-line basis over twenty-two years, the estimated remaining
useful life of the vessel from the date it was acquired by J Duckling, and
with an estimated $1,344,783 salvage value. Depreciation expense amounted to
$750,530, for the period from May 16, 2007 to December 6,
2007.
Revenue
Recognition
J Duckling
generates its revenues from charterers for the charterhire of its vessel. A
vessel is chartered under time charter, where a contract is entered into for the
use of a vessel for a specific period of time and a specified daily charterhire
rate. As a charter agreement exists that includes fixed prices, service is
provided and collection of the related revenue is reasonably assured, revenue is
recognized as it is earned ratably over the duration of the period of a time
charter agreement as adjusted for the off-hire days that the vessel spends
undergoing repairs, maintenance and upgrade work depending on the condition and
specifications of the vessel. On April 23, 2007, J Duckling entered
into a time charter agreement with its customer, which has duration of 23 to
25 months and a daily charterhire rate of $32,500. J Duckling reports its
revenue net of commission discounts offered to its customer in accordance with
Emerging Issues Task Force Issue (“EITF”) No. 01-9, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products).” In addition, J Duckling reports its revenue on a gross
basis with regard to the vessel fuel charged to its customer when delivering the
vessel to its customer in accordance with EITF No. 99-19, “Reporting
Revenue Gross as a Principal versus Net as an Agent.”
Revenue
related to a dispute over the charterhire rate from the previous time charter
arrangement is recognized when the dispute is resolved and money is received
from the customer and such revenue amounted to $130,880 during the period from
May 16, 2007 to December 6, 2007.
Operating
Expenses
J
Duckling’s operating expenses consist of vessel operating expenses, depreciation
and management fees that are specifically identifiable with the Disposed Asset.
Vessel operating expenses represent all expenses relating to the operation of
the vessel, including crewing, insurance, repairs and maintenance, commissions,
stores, lubricants, spares and consumables. Vessel operating expenses and
management fees are recognized as incurred.
Income
Taxes
The
Company is a tax-exempt entity in accordance with the Income Tax Code of the
Republic of Panama.
4.
Significant Customers and Concentration of Credit Risk
One
customer accounted for 100% of the total revenue of the Disposed
Asset.
PART II
INFORMATION NOT REQUIRED IN THE
PROSPECTUS
Item 8. Indemnification of
Directors and Officers.
Indemnification
of Directors and Officers and Limitation of Liability
I.
|
Article
VI of the Amended and Restated Bylaws of the of the Registrant provides as
follows:
|
|
1.
|
The
Company shall indemnify, to the full extent permitted by law, any person
who was or is a party, or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by
or in the right of the Company) by reason of the fact that he is or was a
director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company,
and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was
unlawful.
|
|
2.
|
The
Company shall indemnify, to the full extent permitted by law, any person
who was or is a party, or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the Company, or is or
was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys’ fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to
be liable to the Company unless and only to the extent that the court in
which such action or suit was properly brought shall determine upon
application that, despite the adjudication of liability, but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court having proper
jurisdiction shall deem proper.
|
|
3.
|
To
the extent that a director, officer, employee or agent of the Company has
been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in Sections 1 or 2 of this Article VI, or in
defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys’ fees) actually and reasonably
incurred by him or her in connection
therewith.
|
|
4.
|
Any
indemnification under Sections 1 or 2 of this Article VI (unless ordered
by a court having proper jurisdiction) shall be made by the Company only
as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct
set forth in such section. Such determination shall be
made:
|
a.
|
by
the Board by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding;
or
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b.
|
if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion; or
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|
5.
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Expenses
(including attorneys’ fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action,
suit or proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Company as authorized in this
Section.
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|
6.
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The
indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a
person.
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|
7.
|
The
Company shall have power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status
as such, whether or not the Company would have the power to indemnify him
against such liability under the provisions of this Article
VI.
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|
8.
|
For
purposes of this Article VI, references to the “Company” shall include, in
addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation
or merger which, if its separate existence had continued, would have had
power and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer employee or
agent of such constituent corporation, or is or was serving at the request
of such constituent corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this Article VI with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation of its separate existence had
continued.
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|
9.
|
For
purposes of this Article VI, references to “other enterprises” shall
include employee benefit plans; references to “fines” shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; and references to “serving at the request of the Company” shall
include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner “not opposed to the best interests of the Company” as
referred to in this Article VI.
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|
10.
|
The
indemnification and advancement of expenses provided by, or granted
pursuant to, the other sections of this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, vote
of shareholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while
holding such office.
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|
11.
|
No
director or officer of the Company shall be personally liable to the
Company or to any shareholder of the Company for monetary damages for
breach of fiduciary duty as a director or officer, provided that this
provision shall not limit the liability of a director or officer (i) for
any breach of the director’s or the officer’s duty of loyalty to the
Company or its shareholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, or
(iii) for any transaction from which the director or officer derived an
improper personal benefit.
|
II.
|
Section
60 of the Associations Law of the Republic of the Marshall Islands
provides as follows:
|
1.
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Actions
not by or in right of the corporation. A corporation shall have
power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of no contest, or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the bests interests of the corporation, and, with
respect to any criminal action or proceedings, had reasonable cause to
believe that his conduct was
unlawful.
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2.
|
Actions
by or in right of the corporation. A corporation shall have the
power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the
corporation, or is or was serving at the request of the corporation, or is
or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him or in connection with the defense or settlement
of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of
any claims, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the court shall deem
proper.
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3.
|
When
director or officer successful. To the extent that a director
or officer of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to
in subsections (1) or (2) of this section, or in the defense of a claim,
issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
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4.
|
Payment
of expenses in advance. Expenses incurred in defending a civil
or criminal action, suit or proceeding may be paid in advance of the final
disposition of such action, suit or proceeding as authorized by the board
of directors in the specific case upon receipt of an undertaking by or on
behalf of the director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this
section.
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5.
|
Indemnification
pursuant to other rights. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
this section shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such
office.
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6.
|
Continuation
of indemnification. The indemnification and advancement of
expenses provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
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7.
|
Insurance. A
corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director or officer against any liability asserted against him and
incurred by him in such capacity whether or not the corporation would have
the power to indemnify him against such liability under the provisions of
this section.
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Commission
Position on Indemnification for Securities Act Liabilities.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Item
9. Exhibits
A
list of exhibits included as part of this registration statement is set forth in
the Exhibit Index which immediately precedes such exhibits and is incorporated
herein by reference.
Item
10. Undertakings.
The
undersigned registrant hereby undertakes:
a.
|
Pursuant
to Rule 415 of the Securities Act,
|
1.
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement, unless the
information required to be included is to contained in reports filed with
or furnished to the Commission that are incorporated by reference in this
Registration Statement or is contained in a form of prospectus filed
pursuant to Rule 424(b) under the Securities Act that is part of this
Registration Statement,
|
i.
|
To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
|
ii.
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in
the effective registration
statement.
|
iii.
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
2.
|
That,
for the purpose of determining any liability under the Securities Act of
1933, as amended, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide
offering thereof.
|
3.
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
4.
|
To
file a post-effective amendment to the registration statement to include
any financial statements required by Item 8.A. of Form 20-F at
the start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided,
that the registrant includes in the prospectus, by means of a
post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with
respect to registration statements on Form F-3, a post-effective amendment
need not be filed to include financial statements and information required
by Section 10(a)(3) of the Securities Act of 1933 or Rule 3-19 under the
Securities Act of 1933 if such financial statements and information are
contained in periodic reports filed with or furnished to the Commission by
the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
|
5.
|
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of this Registration Statement as of the date the filed
prospectus was deemed part of and included in this Registration
Statement. Each prospectus required to be filed pursuant to
Rule 424(b)(2), (b)(5), or (b)(7) as part of this Registration Statement
for the purpose of providing the information required by section 10(a) of
the Securities Act of 1933 shall be deemed to be part of and included in
this Registration Statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of
the issuer and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering
thereof. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract
of sale prior to such effective date, supersede or modify any statement
that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior
to such effective date.
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6.
|
The
undersigned registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this Registration Statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by
means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell
such securities to such purchaser:
|
i.
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
ii.
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
iii.
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
iv.
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
b.
|
The
undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
registrant’s annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan’s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
|
e.
|
The
undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
|
f.
– l. Not Applicable.
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the Registrant certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form F-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Athens, Country of
Greece, on September
2,
2008.
|
|
STAR
BULK CARRIERS CORP.
|
|
|
By:
|
/s/ PROKOPIOS
(AKIS) TSIRIGAKIS
Name:
Prokopios (Akis) Tsirigakis
Title:
Chief Executive Officer and
President
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that
each person whose signature appears below constitutes and appoints each of
Prokopios
Tsirigakis, George Syllantavos, Gary J. Wolfe and Robert E. Lustrin
his true and lawful attorney-in-fact and agent, with full powers of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitute, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed below by the
following persons on September 2, 2008 in the capacities
indicated.
Signature
|
|
Title
|
/s/ PROKOPIOS
(AKIS) TSIRIGAKIS
Prokopios
(Akis) Tsirigakis
|
|
Chief
Executive Officer, President and Director
(Principal
Executive Officer)
|
/s/ GEORGE
SYLLANTAVOS
George
Syllantavos
|
|
Chief
Financial Officer, Secretary, Treasurer and Director
(Principal
Financial Officer and
Principal
Accounting Officer)
|
/s/ PETROS
PAPPAS
Petros
Pappas
|
|
Director;
Chairman of the Board of Directors
|
/s/ NOBU
SU
Nobu
Su
|
|
Director
|
/s/ PETER
ESPIG
Peter
Espig
|
|
Director
|
/s/ KOERT
ERHART
Koert
Erhardt
|
|
Director
|
/s/ TOM
SOFTELAND
Tom
Softland
|
|
Director
|
Authorized
Representative
Pursuant
to the requirement of the Securities Act of 1933, the undersigned, the duly
undersigned representative in the United States, has signed this registration
statement in the City of Newark, State of Delaware, on September 2,
2008.
PUGLISI
& ASSOCIATES
|
By:
|
|
/s/ DONALD
J. PUGLISI
Name:
Donald J. Puglisi
Title: Managing
Director
|
|
|
|
|
Exhibit
Index
Exhibit
Number
|
|
Description
|
5.1
|
|
Legality
opinion of Seward & Kissel LLP
|
10.23
|
|
Loan
Agreement with Piraeus Bank A.E. dated July 1, 2008
|
23.1
|
|
Consent
of Seward & Kissel LLP (included in Exhibit 5.1)
|
23.2
|
|
Consent
of Deloitte Hadjipavlou, Sofianos & Cambanis S.A.
|
23.3
|
|
Consent
of Goldstein Golub Kessler LLP
|
23.4
|
|
Consent
of Drewry Shipping Consultants Ltd.
|
23.5 |
|
Consent
of Deloitte & Touche in Taipei,
Taiwan |
SK 25767 0001 904060
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