EX-99.2 3 brhc20053368_ex99-2.htm EXHIBIT 99.2
Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the financial condition and results of operations of Toro Corp. (“Toro”) for the three month periods ended March 31, 2022, and March 31, 2023. Unless otherwise specified herein, references to the “Company”, “we”, “our” and “us” or similar terms shall include Toro and its wholly owned subsidiaries. You should read the following discussion and analysis together with the unaudited interim condensed consolidated financial statements and related notes included elsewhere in this report. Amounts relating to percentage variations in period-on-period comparisons shown in this section are derived from those unaudited interim condensed consolidated financial statements. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. These forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control 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 more complete discussion of these risks and uncertainties, please read the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors” in our Annual Report for the year ended December 31, 2022 (the “2022 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 8, 2023. For additional information relating to our management’s discussion and analysis of financial conditions and results of operations, please see our 2022 Annual Report. Unless otherwise defined herein, capitalized terms and expressions used herein shall have the same meanings ascribed to them in the 2022 Annual Report.

Business Overview and Fleet Information

We are an independent, growth-oriented shipping company that was incorporated under the laws of the Republic of the Marshall Islands in July 2022 by Castor Maritime Inc. (“Castor”) to serve as the holding company of Castor’s former tanker owning subsidiaries and Elektra Shipping Co. (formerly owning the M/T Wonder Arcturus) in connection with the spin-off of Castor’s tanker business into an independent, publicly traded company (the “Spin-Off”). The Spin-Off was completed on March 7, 2023, on which date we began to trade as an independent publicly listed company. For further information regarding the Spin-Off, refer to the 2022 Annual Report.
We acquire, own, charter and operate oceangoing tanker vessels and provide worldwide seaborne transportation services for crude oil and refined petroleum products.

As of May 22, 2023, we operated eight tanker vessels that engage in the worldwide transportation of crude oil and refined petroleum products using our five Aframax/LR2 tankers and one Aframax tanker which transport crude oil, and two Handysize tankers, which transport refined petroleum products with an aggregate cargo carrying capacity of 0.7 million dwt and an average age of 18.0 years (together, our “Fleet”). As a result of the different characteristics of our Aframax/LR2 tanker vessels and Handysize tanker vessels and differences in the transportation of crude oil versus the transportation of crude oil and refined petroleum products in terms of trading routes and cargo handling, we have determined that we currently operate in two reportable segments: (i) the Aframax/LR2 tanker segment and (ii) the Handysize tanker segment.

The majority of vessels comprising our Fleet are currently contracted to operate in pools. Our commercial strategy primarily focuses on deploying our fleet under a mix of pools, voyage charters and time charters according to our assessment of market conditions. We adjust the mix of these charters to take advantage of the relatively stable cash flows and high utilization rates for our vessels associated with period time charters, to profit from attractive trip charter rates during periods of strong charter market conditions associated with voyage charters or to take advantage of high utilization rates for our vessels along with exposure to attractive charter rates during periods of strong charter market conditions when employing our vessels in pools.

Until June 30, 2022, our Fleet was technically managed by Pavimar S.A. (“Pavimar”), a related party controlled by the sister of Petros Panagiotidis, Ismini Panagiotidis, and commercially managed by Castor Ships S.A (“Castor Ships”), a company controlled by Mr. Petros Panagiotidis. Effective July 1, 2022, the technical management agreements entered into between Pavimar and the Company’s tanker vessel owning subsidiaries were terminated by mutual consent. With effect from July 1, 2022, Castor Ships provides ship management and chartering services to the vessels through subcontracting agreements with unrelated third-party managers.

1
The following table summarizes key information about our Fleet as of May 22, 2023:

Fleet vessels:

Vessel Name
  
Capacity
(dwt)
    
Year
Built
  
Country of
Construction
Type of
Charter
  
Gross Charter
Rate ($/day)
    
Estimated
Earliest Charter
Expiration
    
Estimated Latest
Charter
Expiration
  
Aframax/LR2 Segment(1)
                                  
M/T Wonder Polaris(2)
    
115,351
      
2005
  
S. Korea
Tanker Pool(3)
    
N/A
      
N/A
      
N/A
  
M/T Wonder Sirius
    
115,341
      
2005
  
S. Korea
Period Time Charter(4)
  
$
40,000
    
November 2023
    
June 2024
  
M/T Wonder Bellatrix(2)
    
115,341
      
2006
  
S. Korea
Tanker Pool(3)
    
N/A
      
N/A
      
N/A
  
M/T Wonder Musica
    
106,290
      
2004
  
S. Korea
Tanker Pool(3)
    
N/A
      
N/A
      
N/A
  
M/T Wonder Avior(5)
    
106,162
      
2004
  
S. Korea
Tanker Pool(3)
    
N/A
      
N/A
      
N/A
  
M/T Wonder Vega
    
106,062
      
2005
  
S. Korea
Tanker Pool(3)
    
N/A
      
N/A
      
N/A
  
                                             
Handysize Segment
                                            
M/T Wonder Mimosa
    
36,718
      
2006
  
S. Korea
Tanker Pool(6)
    
N/A
      
N/A
      
N/A
  
M/T Wonder Formosa
    
36,660
      
2006
  
S. Korea
Tanker Pool(6)
    
N/A
      
N/A
      
N/A
  

(1)
On May 9, 2022, we entered into an agreement with an unaffiliated third party for the sale of the M/T Wonder Arcturus for a gross sale price of $13.15 million. The vessel was delivered to its new owners on July 15, 2022.
 
(2)
On May 12 and May 18,2023, the Company entered into two separate agreements with a third party for the sale of the M/T Wonder Bellatrix, at a price of $37 million and M/T Wonder Polaris, at a price of $34.5 million. Both vessels are expected to be delivered to their new owner during the second quarter of 2023. The Company expects to record during the second quarter of 2023 a net gain on the sale of the M/T Wonder Bellatrix of approximately $20.5 million, excluding any transaction related costs and net gain on the sale of the M/T Wonder Polaris of approximately $22.4 million, excluding any transaction related costs.
 
(3)
The vessel is currently participating in the V8 Plus Pool, a pool operating Aframax tankers aged fifteen (15) years or more that is managed by V8 Plus Management Pte Ltd., a company in which our Chairman and Chief Executive Officer, Petros Panagiotidis has a minority equity interest.
 
(4)
In February 2023, the agreement relating to the M/T Wonder Sirius’s participation in the V8 Plus Pool was terminated and the vessel commenced a period time charter.
 
(5)
On April 28, 2023, the Company entered into an agreement with a third party for the sale of the M/T Wonder Avior, at a price of $30.10 million. The vessel is expected to be delivered to its new owner during the second quarter of 2023.The Company expects to record during the second quarter of 2023 a net gain on the sale of the M/T Wonder Avior of approximately $18.5 million, excluding any transaction related costs.
 
(6)
The vessel is currently participating in an unaffiliated tanker pool specializing in the employment of Handysize tanker vessels.
 
2
Recent Developments

Please refer to Note 16 to our unaudited interim condensed consolidated financial statements for developments that took place after March 31, 2023.

Operating Results

Principal factors impacting our business, results of operations and financial condition

Our results of operations are affected by numerous factors. The principal factors that have impacted the business during the fiscal periods presented in the following discussion and analysis and that are likely to continue to impact our business are the following:

•
The levels of demand and supply of seaborne cargoes and vessel tonnage in the tanker shipping industry and within our Aframax/LR2 and Handysize segments;

•
The cyclical nature of the shipping industry in general and its impact on charter and freight rates and vessel values;

•
The successful implementation of a growth business strategy, including the ability to obtain equity and debt financing at acceptable and attractive terms to fund future capital expenditures and/or to implement this business strategy;

•
The global economic growth outlook and trends;

•
Economic, regulatory, political and governmental conditions that affect shipping and the tanker shipping industry, including international conflict or war (or threatened war), such as between Russia and Ukraine;

•
The employment and operation of our fleet including the utilization rates of our vessels;

•
The ability to successfully employ our vessels at economically attractive rates and the strategic decisions regarding the employment mix of our fleet in the voyage, time charter and pool markets, as our charters expire or are otherwise terminated;

•
Management of the operational, financial, general and administrative elements involved in the conduct of our business and ownership of our fleet, including the effective and efficient management of our fleet by our manager and its sub-managers, and each of their suppliers;

•
The number of charterers and pool operators who use our services and the performance of their obligations under their agreements, including their ability to make timely payments to us;

•
The ability to maintain solid working relationships with our existing charterers and pool operators and our ability to increase the number of our charterers through the development of new working relationships;

•
The vetting approvals by oil majors of our manager and/or sub-managers for the management of our tanker vessels;

•
Dry-docking and special survey costs and duration, both expected and unexpected;

•
Our borrowing levels and the finance costs related to our outstanding debt as well as our compliance with our debt covenants;

•
Management of our financial resources, including banking relationships and of the relationships with our various stakeholders; and

•
Major outbreaks of diseases (such as COVID-19) and governmental responses thereto; and

•
The level of any distribution on all classes of our shares.

3
These factors are volatile and in certain cases may not be within our control. Accordingly, past performance is not necessarily indicative of future performance, and it is difficult to predict future performance with any degree of certainty. See also “Item 3. Key Information—D. Risk Factors” in our 2022 Annual Report. Because many of these factors are beyond our control and certain of these factors have historically been volatile, past performance is not necessarily indicative of future performance and it is difficult to predict future performance with any degree of certainty.

Employment and operation of our fleet

Another factor that impacts our profitability is the employment and operation of our fleet. The profitable employment of our fleet is highly dependent on the levels of demand and supply in the tanker shipping industry, our commercial strategy including the decisions regarding the employment mix of our fleet among time and voyage charters and pool arrangements, as well as our manager’s and sub-managers’ ability to leverage our relationships with existing or potential customers. As a new entrant to the tankers business, our customer base is currently concentrated to a small number of charterers and pool managers. In the three months ended March 31, 2023, 94% of our revenues were earned on pool arrangements entered into with two pool managers. The breadth of our customer base has and will continue to impact the profitability of our business. Further, the effective operation of our fleet mainly requires regular maintenance and repair, effective crew selection and training, ongoing supply of our fleet with the spares and the stores that it requires, contingency response planning, auditing of our vessels’ onboard safety procedures, arrangements for our vessels’ insurance, chartering of the vessels, training of onboard and on shore personnel with respect to the vessels’ security and security response plans (ISPS), obtaining of ISM certifications, compliance with environmental regulations and standards and performing the necessary audit for the vessels within the year of taking over a vessel and the ongoing performance monitoring of the vessels.

Financial, general and administrative management

The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires us to manage our financial resources, which includes managing banking relationships, administrating our bank accounts, managing our accounting system, records and financial reporting, monitoring and ensuring compliance with the legal and regulatory requirements affecting our business and assets and managing our relationships with our service providers and customers.

Important Measures and Definitions for Analyzing Results of Operations

Our management uses the following metrics to evaluate our operating results, including our operating results at the segment level, and to allocate capital accordingly:

Total vessel revenues. Total vessel revenues are generated from voyage charters, time charters and pool arrangements. Total vessel revenues are affected by the number of vessels in our fleet, hire and freight rates and the number of days a vessel operates which, in turn, are affected by several factors, including 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, and levels of supply and demand in the seaborne transportation market. Total vessel revenues are also affected by our commercial strategy related to the employment mix of our fleet between vessels on time charters, vessels operating on voyage charters and vessels in pools.
 
We measure revenues in each segment for three separate activities: (i) time charter revenues, (ii) voyage charter revenues, and (iii) pool revenues.

Voyage expenses. Our voyage expenses primarily consist of bunker expenses, port and canal expenses and brokerage commissions paid in connection with the chartering of our vessels. Voyage expenses are incurred primarily during voyage charters or when the vessel is repositioning or unemployed. Bunker expenses, port and canal dues increase in periods during which vessels are employed on voyage charters because these expenses are in this case borne by us. Under a time charter, the charterer pays substantially all the vessel voyage related expenses. Under pooling arrangements, voyage expenses are borne by the pool operator. Gain/loss on bunkers may also arise where the cost of the bunker fuel sold to the new charterer is greater or less than the cost of the bunker fuel acquired.
 
4
Operating expenses. We are responsible for vessel operating costs, which include crewing, expenses for repairs and maintenance, the cost of insurance, tonnage taxes, the cost of spares and consumable stores, lubricating oils costs, communication expenses, and ship management fees. Expenses for repairs and maintenance tend to fluctuate from period to period because most repairs and maintenance typically occur during periodic drydocking. Our ability to control our vessels’ operating expenses also affects our financial results. Daily vessel operating expenses are calculated by dividing fleet operating expenses by the Ownership days for the relevant period.

Off-hire. Off-hire is the period our fleet is unable to perform the services for which it is required under a charter for reasons such as scheduled repairs, vessel upgrades, dry-dockings or special or intermediate surveys or other unforeseen events.

Dry-docking/Special Surveys. We periodically dry-dock and/or perform special surveys on our fleet for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Our ability to control our dry-docking and special survey expenses and our ability to complete our scheduled dry-dockings and/or special surveys on time also affects our financial results. Dry-docking and special survey costs are accounted for under the deferral method whereby the actual costs incurred are deferred and are amortized on a straight-line basis over the period through the date the next survey is scheduled to become due.

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

Available Days. Available Days are the Ownership Days in a period less the aggregate number of days our vessels are off-hire due to scheduled repairs, dry-dockings or special or intermediate surveys. The shipping industry uses Available Days to measure the aggregate number of days in a period during which vessels are available to generate revenues. Our calculation of Available Days may not be comparable to that reported by other companies.

Operating Days. Operating Days are the Available Days in a period after subtracting unscheduled off-hire and idle days.

 
Fleet Utilization. Fleet Utilization is calculated by dividing the Operating Days during a period by the number of Available Days during that period. Fleet Utilization is used to measure a company’s ability to efficiently find suitable employment for its vessels and minimize the number of days that its vessels are off-hire for reasons such as major repairs, vessel upgrades, dry-dockings or special or intermediate surveys and other unforeseen events.
 
5
Results of Operations

Consolidated Results of Operations

Three months ended March 31, 2023, as compared to the three months ended March 31, 2022

   
Three months ended
March 31, 2022
    
Three months
ended
March 31, 2023
    
Change -
Amount
  
Total vessel revenues
  
$
16,830,448
    
$
31,154,154
    
$
14,323,706
  
Expenses:
                        
Voyage expenses (including commissions to related party)
    
(7,241,317
)
    
(518,797
)
    
6,722,520
  
Vessel operating expenses
    
(5,236,713
)
    
(5,116,521
)
    
120,192
  
Management fees to related parties
    
(688,500
)
    
(702,000
)
    
(13,500
)
Depreciation and amortization
    
(1,808,997
)
    
(2,055,646
)
    
(246,649
)
General and administrative expenses (including costs from related parties)
    
(286,444
)
    
(983,264
)
    
(696,820
)
Recovery of provision for doubtful accounts
    
—
      
266,732
      
266,732
  
Operating  income
    
1,568,477
      
22,044,658
      
20,476,181
  
Interest and finance costs, net(1)
    
(183,607
)
    
117,756
      
301,363
  
Foreign exchange gains/(losses)
    
22
      
(10,000
)
    
(10,022
)
US source income taxes
    
(151,761
)
    
(193,201
)
    
(41,440
)
Net income and comprehensive income
  
$
1,233,131
    
$
21,959,213
    
$
20,726,082
  
Dividend on Series A Preferred Shares
    
—
      
(97,222
 )    
(97,222
)
Deemed dividend on Series A Preferred Shares
    
—
      
(200,255
 )    
(200,255
)
Net income attributable to common shareholders
  
$
1,233,131
    
$
21,661,736
    
$
20,428,605
  
Earnings per common share, basic
    
0.13
      
2.29
          
Earnings per common share, diluted
    
0.02
      
0.35
          
Weighted average number of common shares, basic
    
9,461,009
      
9,461,009
          
Weighted average number of common shares, diluted
    
61,898,567
      
61,898,567
          

(1)
Includes interest and finance costs, net of interest income, if any.

Total vessel revenues

Total vessel revenues, net of charterers’ commissions, increased to $31.2 million in the three months ended March 31, 2023, from $16.8 million in the in the same period in 2022. This increase was largely driven by the improved Aframax/LR2 and Handysize tanker markets, as compared to the corresponding period in 2022 as during the three months ended March 31, 2023, our Fleet earned on average a Daily TCE Rate of $ 45,252, compared to an average Daily TCE Rate of $11,838 earned during the same period in 2022. Daily TCE Rate is not a recognized measure under U.S. GAAP. Please refer to Appendix A for the definition and reconciliation of this measure to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
 
6
Voyage expenses

Voyage expenses for our tanker fleet decreased by $6.7 million, to $0.5 million in the three months ended March 31, 2023, from $7.2 million in the same period of 2022. This decrease in voyage expenses is mainly associated with the decrease in (i) the Ownership Days of our tanker vessels, to 720 days in the three months ended March 31, 2023 from 810 days in the same period in 2022 due to the sale of M/T Wonder Arcturus on July 15, 2022, and (ii) expenses associated with our vessels’ commercial employment arrangements as during the three months ended March 31, 2023, seven of our eight vessels operated under pool agreements resulting in a substantial decrease in bunker consumption cost and port expenses, which were borne by our pool operators, as compared to the three months ended March 31, 2022, where our Aframax/LR2 segment operated predominantly under voyage charters.

Vessel Operating Expenses

The decrease in vessel operating expenses by $0.1 million, to $5.1 million in the three months ended March 31, 2023, from $5.2 million in the same period of 2022, mainly reflects the decrease in the Ownership Days of our fleet to 720 days in the three months ended March 31, 2023, from 810 days in the corresponding period in 2022, offset by increase in the daily vessel operating expenses to $7,106 in the three months ended March 31, 2023, from $6,465 in the same period in 2022, due to higher than anticipated operating costs incurred by our technical managers.

Management Fees

Management fees for our Fleet in the three months ended March 31, 2023, and March 31 2022 amounted to $0.7 million. There was no change in management fees as the decrease in the total number of Ownership Days of our Fleet, for which our managers charged us a daily management fee, was offset by increased management fees following our entry into the Amended and Restated Master Management Agreement with effect from July 1, 2022.

Depreciation and Amortization

Depreciation expenses for our Fleet decreased to $1.6 million in the three months ended March 31, 2023, from $1.7 million in the same period in 2022 as a result of the decrease in the Ownership Days of our fleet. Dry-dock and special survey amortization charges amounted to $0.5 million for the three months ended March 31, 2023, compared to a charge of $0.1 million in the three months ended March 31, 2022. This variation in dry-dock amortization charges primarily resulted from the increase in dry-dock amortization days from 90 days in the three months ended March 31, 2022, to 289 dry-dock amortization days in the three months ended March 31, 2023.

General and Administrative Expenses

General and administrative expenses in the three months ended March 31, 2023, amounted to $1.0 million, whereas, in the same period in 2022, general and administrative expenses totaled $0.3 million. This increase is mainly associated with (i) incurred legal and other corporate fees primarily related to the growth of our company and (ii) the flat management fee for the period March 7,2023 through March 31, 2023, amounting to $0.2 million. For the three months ended March 31, 2022, and for the period from January 1 through March 7, 2023 (completion of Spin-Off), General and administrative expenses reflect the expense allocations made to the Company by Castor based on the proportion of the number of Ownership Days of our Fleet vessels to the total Ownership Days of Castor’s full fleet.

Interest and finance costs, net

Interest and finance costs, net amounted to $(0.1) million in the three months ended March 31, 2023, whereas in the same period of 2022, interest and finance costs, net amounted to $0.2 million. This variation is mainly due to a substantial increase in interest income for the three months ended March 31, 2023 on our available cash, which more than offset an increase in the weighted average interest rate on our long-term debt from 3.4% in the three months ended March 31, 2022 to 7.2% in the same period of 2023.

7
Three months ended March 31, 2023, as compared to the three months ended March 31, 2022— Aframax/LR2 Tanker Segment

 
  
Three months ended
March 31, 2022
  
Three months ended
March 31, 2023
    
Change –
amount
  
Total vessel revenues
  
$
14,912,032
    $
​ 27,294,170
    
$
12,382,138
  
Expenses:
                      
Voyage expenses (including commissions to related party)
    
(7,204,148
)
    
(467,029
)
    
6,737,119
  
Vessel operating expenses
    
(4,208,099
)
    
(3,915,402
)
    
292,697
  
Management fees to related parties
    
(535,500
)
    
(526,500
)
    
9,000
  
Depreciation and amortization
    
(1,460,033
)
    
(1,689,735
)
    
(229,702
)
Recovery of provision for doubtful accounts
    
—
      
266,732
      
266,732
  
Segment operating income
  
$​
1,504,252
$
20,962,236
    
$
19,457,984
  

Total vessel revenues

Total vessel revenues, net of charterers’ commissions,  for our Aframax/LR2 tanker segment amounted to $27.3 million in the three months ended March 31, 2023, as compared to $14.9 million in the same period of 2022. This increase is mainly due to an improved Aframax/LR2 tanker market. During the three months ended March 31, 2023, our Aframax/LR2 tanker fleet earned on average a Daily TCE Rate of $ 49,680, compared to an average Daily TCE Rate of $ 12,235 earned in the same period of 2022. Daily TCE Rate is not a recognized measure under U.S. GAAP. Please refer to Appendix A for the definition and reconciliation of this measure to Total vessel revenues, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

Voyage Expenses

Voyage expenses for our Aframax/LR2 tanker segment amounted to $0.5 million and $7.2 million in the three months ended March 31, 2023, and the same period of 2022, respectively. This decrease is mainly associated with (i) our vessels operating mostly under pool agreements, in which our pool operators bear bunker consumption and port expenses during the three months ended March 31, 2023, whereas, in the corresponding period in 2022, our Aframax/LR2 tanker fleet operated mostly under voyage charters, under which we bear all voyage expenses, including bunkers and port expenses and (ii) the sale of M/T Wonder Arcturus on July 15, 2022

Vessel Operating Expenses

The decrease in Operating expenses by $0.3 million, to $3.9 million in the three months ended March 31, 2023, from $4.2 million in the same period in 2022, mainly reflects the decrease in the Ownership Days of our Aframax/LR2 vessels in our Fleet to 540 days in the three months ended March 31, 2023, from 630 days in the corresponding period in 2022, as the result of the sale of the M/T Wonder Arcturus, as offset in part by higher operating expenses per Ownership Day in the three months ended March 31, 2023 compared to the corresponding period in 2022.

Management Fees

Management fees for our Aframax/LR2 tanker segment in the three months ended March 31, 2023 and March 31, 2022, amounted to $0.5 million, respectively. There was no change in management fees because the decrease in the total number of Ownership Days of our Fleet for which our managers charged us a daily management fee, counterbalanced by increased management fees following our entry into the Amended and Restated Master Management Agreement with effect from July 1, 2022.

8
Depreciation and Amortization

Depreciation expenses for our Aframax/LR2 tanker segment decreased to $1.3 million in the three months ended March 31, 2023, from $1.5 million in the same period in 2022 as a result of the decrease in the Ownership Days of our Aframax/LR2 tanker fleet. Dry-dock and special survey amortization charges in the three months ended March 31, 2023 of $0.4 million relate to the amortization of the M/T Wonder Musica and M/T Wonder Avior in this period, as the vessels underwent their scheduled dry-docking repairs during the second quarter of 2022 and the fourth quarter of 2022, respectively. No such charges were incurred in the same period of 2022.

Three months ended March 31, 2023, as compared to the three months ended March 31, 2022— Handysize Tanker Segment

​
  
Three months ended
March 31, 2022
  
Three months ended
March 31, 2023
    
Change -
Amount
  
Total vessel revenues
  
$
1,918,416
  
$​
  
3,859,984
    
$
1,941,568
  
Expenses:
                        
Voyage expenses (including commissions to related party)
    
(37,169
)
    
(51,768
)
    
(14,599
)
Vessel operating expenses
    
(1,028,614
)
    
(1,201,119
)
    
(172,505
)
Management fees to related parties
    
(153,000
)
    
(175,500
)
    
(22,500
)
Depreciation and amortization
    
(348,964
)
    
(365,911
)
    
(16,947
)
Segment Operating income
  
$
350,669
  
$​
  
2,065,686
    
$
1,715,017
  

Total Vessel revenues

Total vessel revenues, net of charterers’ commissions for our Handysize tanker segment amounted to $3.9 million in the three months ended March 31, 2023, as compared to $1.9 million in the same period in 2022. The increase is mainly due to the improvement in the Handysize tanker market relative to the same period in 2022, reflected in the increase in the Handysize fleet average Daily TCE Rate to $27,797 in the three months ended March 31, 2023 from $10,451 in the same period in 2022. Daily TCE Rate is not a recognized measure under U.S. GAAP. Please refer to Appendix A for the definition and reconciliation of this measure to Total vessel revenues, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

Voyage Expenses

Voyage expenses for our Handysize tanker segment, which mainly relate to broker commissions, were stable at $0.1 million in the three months ended March 31, 2023, as compared to the same period in 2022.

Vessel Operating Expenses

The increase in operating expenses for our Handysize tanker segment by $0.2 million, to $1.2 million in the three months ended March 31, 2023, from $1.0 million in the corresponding period of 2022, mainly reflects the higher than anticipated operating expenses incurred by technical managers.

Management Fees

Management fees for our Handysize tanker segment in the three months ended March 31, 2023 and in the same period of 2022 amounted to $0.2 million, as there was no change in Ownership Days in both periods.

Depreciation and Amortization

 
Depreciation expenses amounted to $0.3 million for our Handysize tanker segment in the three months ended March 31, 2023 and in the same period in 2022, as there was no change in Ownership Days in both periods. Dry-dock amortization charges in the three months ended March 31, 2023 and the same period of 2022 amounted to $0.1 million in both periods.
 
9
Liquidity and Capital Resources

We operate in a capital-intensive industry, and we expect to finance the purchase of additional vessels and other capital expenditures through a combination of cash from operations, proceeds from equity offerings, and borrowings from debt transactions. Our liquidity requirements relate to servicing the principal and interest on our debt, funding capital expenditures and working capital (which includes maintaining the quality of our vessels and complying with international shipping standards and environmental laws and regulations) and maintaining cash reserves for the purpose of satisfying certain minimum liquidity restrictions contained in our credit facility. In accordance with our business strategy, other liquidity needs may relate to funding potential investments in new vessels and maintaining cash reserves against fluctuations in operating cash flows. Our funding and treasury activities are intended to maximize investment returns while maintaining appropriate liquidity.

As of March 31, 2023, and December 31, 2022, we had cash and cash equivalents of $67.2 million and $41.8 million, respectively, each of which excludes $0.7 million of  restricted cash in both periods under our debt agreements. Cash and cash equivalents are primarily held in U.S. dollars.

As of March 31, 2023, we had $12.6 million of gross indebtedness outstanding under our debt agreements, of which $2.7 million matures in the twelve-month period ending March 31, 2024. As of March 31, 2023, we were in compliance with all the financial and liquidity covenants contained in our debt agreements.

Working capital is equal to current assets minus current liabilities. As of March 31, 2023 and December 31, 2022, we had a working capital surplus of $70.2 million and $48.2 million, respectively.

We believe that our current sources of funds and those that we anticipate to internally generate for a period of at least the next twelve months from the date of this annual report, will be sufficient to fund the operations of our fleet, meet our normal working capital requirements and service the principal and interest on our debt for that period.

As of March 31, 2023, we were committed to install ballast water treatment system (“BWTS”) on two vessels in our Fleet which are expected to be concluded during 2024. As of March 31, 2023, it was estimated that the remaining contractual obligations related to these purchases, excluding installation costs, would be on aggregate approximately €1.2 million (or $1.3 million on the basis of a Euro/US Dollar exchange rate of €1.0000/$1.08757 as of March 31, 2023), all of which is due in 2024.
Our Borrowing Activities

 
Please refer to Note 6 to our unaudited interim condensed consolidated financial statements, included elsewhere herein, for information regarding our borrowing activities as of March 31, 2023.
 
Cash Flows

The following table summarizes our net cash flows provided by/(used in) operating, investing and financing activities for the three months ended March 31, 2023 and the three months ended March 31, 2022:

​
  
For the three
months
ended
    
For the three
months
ended
  
​
  
March 31,
2022
    
March 31,
2023
  
Net cash (used in)/provided by operating activities
    
(2,502,045
)
    
28,642,118
  
Net cash used in by investing activities
    
(327,792
)
    
(181,498
)
Net cash used in financing activities
    
(2,117,578
)
    
(3,033,481
)

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Operating Activities: Net cash provided by operating activities amounted to $28.6 million for the three months ended March 31, 2023, consisting of net income of $22.0 million, non-cash adjustments related to depreciation and amortization of $2.1 million and a net decrease of $5.8 million in working capital. For the three months ended March 31, 2022, net cash used in operating activities amounted to $2.5 million, consisting of net income of $1.2 million, non-cash adjustments related to depreciation and amortization of $1.8 million and a net increase of $5.6 million in working capital. The $31.1 million increase in net cash from operating activities in the three months ended March 31, 2023, as compared with the same period of 2022, reflects mainly the increase in net income which was largely driven by the improvement of the charter rates earned by our Fleet.

Investing Activities: Net cash used in investing activities in the three months ended March 31, 2023 and in the same period of 2022 amounted to $0.2 million and $0.3 million, respectively, and in each case mainly reflects the payments of initial vessel and BWTS installation expenses.

Financing Activities: Net cash used in financing activities during the three months ended March 31, 2023 amounting to $3.0 million and relates to (i) Spin-Off expenses incurred by Castor on our behalf, which were reimbursed by us amounting to $2.5 million, pursuant to the Contribution and Spin-Off Distribution Agreement entered into between us and Castor on February 24, 2023 (ii) $0.7 million of period scheduled principal repayments in connection with our $18.0 million term loan facility, and (iii) a net increase in former parent company investment amounting to $0.2 million. Net cash used in financing activities during the three months ended March 31, 2022 amounting to $2.1 million, relates to: (i) a net decrease in former parent company investment amounting to $1.3 million, and (ii) $0.8 million of period scheduled principal repayments in connection with our $18.0 million term loan facility.

Critical Accounting Estimates

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We prepare our financial statements in accordance with U.S. GAAP. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. For a description of our significant accounting policies, please read Note 2 to our unaudited interim condensed consolidated financial statements, “Item 18. Financial Statements” in our 2022 Annual Report and more precisely “Note 2. Summary of Significant Accounting Policies” of our Combined Carve-Out Financial Statements included in our 2022 Annual Report.

APPENDIX A

Non-GAAP Financial Information

Daily TCE Rate. The Daily Time Charter Equivalent Rate (“Daily TCE Rate”), is a measure of the average daily revenue performance of a vessel. The Daily TCE Rate is not a measure of financial performance under U.S. GAAP (i.e., it is a non-GAAP measure) and should not be considered as an alternative to any measure of financial performance presented in accordance with U.S. GAAP. We calculate Daily TCE Rate by dividing total revenues (time charter and/or voyage charter revenues, and/or pool revenues, net of charterers’ commissions), less voyage expenses, by the number of Available Days during that period. Under a time charter, the charterer pays substantially all the vessel voyage related expenses. However, we may incur voyage related expenses when positioning or repositioning vessels before or after the period of a time or other charter, during periods of commercial waiting time or while off-hire during dry-docking or due to other unforeseen circumstances. Under voyage charters, the majority of voyage expenses are generally borne by us whereas for vessels in a pool, such expenses are borne by the pool operator. The Daily TCE Rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a company’s performance and, management believes that the Daily TCE Rate provides meaningful information to our investors since it compares daily net earnings generated by our vessels irrespective of the mix of charter types (i.e., time charter, voyage charter or other) under which our vessels are employed between the periods while it further assists our management in making decisions regarding the deployment and use of our vessels and in evaluating our financial performance. Our calculation of the Daily TCE Rates may not be comparable to that reported by other companies. The following table reconciles the calculation of the Daily TCE Rate for our fleet to Total vessel revenues, the most directly comparable U.S. GAAP financial measure, for the periods presented (amounts in U.S. dollars, except for Available Days):

11
Reconciliation of Daily TCE Rate to Total vessel revenues

​
  
Three
months
ended
March 31,
    
Three
months
ended
March 31,
  
​
  
2022
    
2023
  
Total vessel revenues
  
$
16,830,448
    
$
31,154,154
  
Voyage expenses – including commissions from related party
    
(7,241,317
)
    
(518,797
)
TCE revenues
  
$
9,589,131
    
$
30,635,357
  
Available Days
    
810
      
677
  
Daily TCE Rate
  
$
11,838
    
$
45,252
  

Reconciliation of Daily TCE Rate to Total vessel revenues — Aframax/LR2 Tanker Segment

​
  
Three
months
ended
March 31,
    
Three
months
ended
March 31,
  
​
  
2022
    
2023
  
Total vessel revenues
  
$
14,912,032
    
$
27,294,170
  
Voyage expenses – including commissions from related party
    
(7,204,148
)
    
(467,029
)
TCE revenues
  
$
7,707,884
    
$
26,827,141
  
Available Days
    
630
      
540
  
Daily TCE Rate
  
$
12,235
    
$
49,680
  

Reconciliation of Daily TCE Rate to Total vessel revenues — Handysize Tanker Segment

​
  
Three
months
ended
March 31,
    
Three
months
ended
March 31,
  
​
  
2022
    
2023
  
Total vessel revenues
  
$
1,918,416
    
$
3,859,984
  
Voyage expenses – including commissions from related party
    
(37,169
)
    
(51,768
)
TCE revenues
  
$
1,881,247
    
$
3,808,216
  
Available Days
    
180
      
137
  
Daily TCE Rate
  
$
10,451
    
$
27,797
  


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