Notes
to
Condensed Consolidated Financial Statements (unaudited)
September
30, 2007
NOTE
A-ORGANIZATION AND BUSINESS OPERATIONS
Star
Maritime Acquisition Corp. ("Star”) was incorporated in Delaware on May 13,
2005. Star was formed to serve as a vehicle for the acquisition through a
merger, capital stock exchange, asset acquisition, or other similar business
combination (“Business Combination”) with one or more businesses in the shipping
industry. The company has not acquired an entity as of September 30, 2007.
The
Company has selected December 31 as its fiscal year end. Star is considered
to be in the development stage and is subject to the risks associated with
activities of development stage companies.
On
December 13, 2006, Star created a wholly-owned subsidiary, Star Bulk Carriers
Corp. (“Star Bulk”) registered in the Marshall Islands.
The
accompanying condensed consolidated financial statements include the accounts
of
Star and its wholly owned subsidiary Star Bulk (collectively "The
Company"). All intercompany accounts and transactions have been eliminated
in consolidation.
On
January 12, 2007, the Company, through Star Bulk, agreed to purchase eight
drybulk carriers (the "Vessels") from certain wholly-owned subsidiaries of
TMT
Co., Ltd., a Taiwan corporation (TMT Co., Ltd. and such wholly-owned
subsidiaries, collectively, "TMT"), pursuant to separate definitive Memoranda
of
Agreement by and between the Star Bulk and TMT (collectively, the "MOAs"),
as
supplemented by a Supplemental Agreement by and among the Company, Star Bulk
and
TMT (the "Supplemental Agreement") and a Master Agreement by and among the
Company, Star Bulk and TMT (the "Master Agreement" and collectively with the
MOAs and the Supplemental Agreement, the "Acquisition Agreements") which
transaction is also referred to as the "Asset Acquisition". As required under
its Certificate of Incorporation, the Company will hold a special meeting of
its
stockholders to vote on the Asset Acquisition and a proposed merger of the
Company into Star Bulk in which Star Bulk will be the surviving entity (the
"Redomiciliation Merger" and together with the Asset Acquisition, the "Business
Combination"). The Redomiciliation Merger shall occur at the time of approval
by
the Company's stockholders of the Business Combination.
Star
Bulk
will acquire the vessels in its initial fleet from wholly-owned subsidiaries
of
TMT for an aggregate purchase price of $345,237,520, consisting of $224,500,000
in cash and 12,537,645 shares of common stock of Star Bulk to be issued at
the
time of the Redomiciliation Merger and an additional 1,606,962 shares of common
stock of Star Bulk to be issued in two installments. As of September 30, 2007
approximately $785,071 of legal and accounting fees related to this transaction
have been recorded to deferred costs.
On
February 7, 2007, Star Bulk formed the following wholly-owned subsidiaries
registered in the Marshall Islands. The share capital of each of the
subsidiaries consists of 500 authorized and issued shares without par value.
The
names of these subsidiaries are Star Alpha Inc, Star Beta Inc, Star Gamma Inc,
Star Epsilon Inc, Star Iota Inc, Star Theta Inc and Star Bulk Management
Inc.
Star
Gamma Inc., a wholly-owned subsidiary of Star Bulk, entered into a time charter
agreement dated, February 23, 2007, with TMT for the C Duckling ( to be renamed
the Star Gamma). The charter rate for the Star Gamma will be $28,500 per day
for
a term of one year. Star Iota Inc., a wholly-owned subsidiary of Star-Bulk,
entered into a time charter agreement, dated February 26, 2007, with TMT for
the
Mommy Duckling (to be renamed the Star Iota). The charter for the Star Iota
will
be $18,000 per day for a term of one year. Each charter will commence as of
the
date the vessel is delivered to the purchaser. Pursuant to the Supplemental
Agreement, these time charters will be null and void if the Redomiciliation
Merger is not consummated.
NOTE
A-ORGANIZATION AND BUSINESS OPERATIONS (continued)
On
March
14, 2007, the Company entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Star Bulk regarding the Redomiciliation Merger, whereby the
Company will merge with and into Star Bulk, with Star Bulk as the surviving
corporation.
Subject
to the terms and conditions of the Merger Agreement, which has been unanimously
approved by the board of directors of the Company, following the Redomiciliation
Merger: (i) the separate corporate existence of Star will cease; (ii) each
share of Star Maritime common stock, par value $0.0001 per share, will be
converted into the right to receive one share of Star Bulk common stock, par
value $0.01 per share; and (iii) each outstanding warrant of the Company will
be
assumed by Star Bulk with the same terms and restrictions, except that each
will
be exercisable for common stock of Star Bulk. As provided in Star’s Certificate
of Incorporation, holders of Star Maritime common stock have the right to redeem
their shares for cash if such stockholder votes against the Redomiciliation
Merger, elects to exercise redemption rights and the Redomiciliation Merger
is
approved and completed.
The
Company cannot complete the Redomiciliation Merger unless (1) the holders of
at
least a majority of the issued and outstanding shares of Star Maritime entitled
to vote at the special meeting vote in favor of the Redomiciliation Merger;
(2)
holders of at least a majority of the shares issued in the initial public
offering and private placement vote in favor of the Redomiciliation Merger;
and
(3) holders of less than 6,600,000 shares of common stock, such number
representing 33.0% of the 20,000,000 shares of Star Maritime common stock issued
in the initial public offering and private placement, vote against the
Redomiciliation Merger and exercise their redemption rights to have their shares
redeemed for cash.
Messrs.
Tsirigakis and Syllantavos, the Company’s senior executive officers, and Messrs.
Pappas and Erhardt, two of the Company’s directors, have agreed to vote an
aggregate of 1,132,500 shares, or 3.9% of Star Maritime’s outstanding common
stock, acquired by them in the private placement and any shares of Star Maritime
common stock they may acquire in the future in favor of the Redomiciliation
Merger and thereby waive redemption rights with respect to such shares. All
of
the Company’s officers and directors have agreed to vote an aggregate of
9,026,924 shares, or 31.1% of Star Maritime’s outstanding common stock, issued
to them prior to the initial public offering and private placement in accordance
with the vote of the holders of a majority of the shares issued in the initial
public offering and private placement.
On
March
14, 2007, the Company filed with the Securities and Exchange Commission a
preliminary joint proxy statement/prospectus under cover of Schedule 14A
relating to the Company’s special meeting of stockholders. The Company expects
to consummate the Redomiciliation Merger during the fourth quarter of 2007,
assuming the requisite stockholder approval is obtained.
The
financial statements at September 30, 2007 and for the period from May 13,
2005
(inception) to September 30, 2007 and for the three and nine months ended
September 30, 2007 and 2006 are unaudited. In the opinion of management, all
adjustments (consisting of normal adjustments) have been made that are necessary
to present fairly the financial position of the Company as of September 30,
2007, the results of its operations and cash flows for the three and nine months
ended September 30, 2007 and September 30, 2006 and for the period May 13,
2005
(inception) through September 30, 2007. Operating results for the interim period
presented are not necessarily indicative of the results to be expected for
a
full year. The condensed balance sheet at December 31, 2006 has been derived
from the audited financial statements.
NOTE
A-ORGANIZATION AND BUSINESS OPERATIONS (continued)
The
accompanying unaudited condensed financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 2006. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in
the
United States of America have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission (“SEC”).
The
registration statement for the Star’s initial public offering (the “Public
Offering”) was declared effective on December 15, 2005. Star's completed a
private placement (the “Private Placement”) on such date and received net
proceeds of $10,532,250. Star consummated the Public Offering on December 21,
2005 and received net proceeds of $174,567,370. The Company’s management has
broad discretion with respect to the specific application of the net proceeds
of
the Private Placement and the Public Offering (collectively the “Offerings”),
although substantially all of the net proceeds of the Offerings are intended
to
be generally applied toward consummating a business combination. As used herein,
a “business combination” shall mean the acquisition by the Company of a target
business.
Of
the
proceeds of the Offerings, $188,675,000 is being held in a trust account (“Trust
Account”) and invested until the earlier of (i) the consummation of the first
business combination or (ii) the distribution of the Trust Account as described
below. The amount in the Trust Account includes $3,773,500 of contingent
underwriting compensation and $226,500 of contingent private placement fees
(collectively, the “Discount”) which will be paid to the underwriters if a
business combination is consummated, but which will be forfeited in part if
public stockholders elect to have their shares redeemed for cash if a business
combination is consummated. The remaining proceeds may be used to pay for
business, legal and accounting due diligence on prospective acquisitions and
continuing general and administrative expenses.
The
Company, after signing a definitive agreement for the acquisition of a target
business, will submit such transaction for stockholder approval. In the event
that public stockholders owning 33% or more of the outstanding stock sold in
the
Public Offering and Private Placement vote against the business combination
and
elect to have the Company redeem their shares for cash, the business combination
will not be consummated. All of the Company’s stockholders prior to the Public
Offering, including all of the officers and directors of the Company (“Initial
Stockholders”), have agreed to vote their 9,026,924 founding shares of common
stock in accordance with the vote of the majority in interest of all other
stockholders of the Company with respect to any business combination and to
vote
the shares they acquired in the Private Placement or in the aftermarket in
favor
of the business combination. After consummation of the Company’s first business
combination, all of these voting safeguards will no longer be
applicable.
With
respect to the first business combination which is approved and consummated,
any
holder of shares sold in the Public Offering, other than the Initial
Stockholders and their nominees (the “Public Stockholders”) who voted against
the business combination may demand that the Company redeem his or her shares.
The per share redemption price will equal $10.00 per share, which amount
represents $9.80 per share plus their pro rata share of any accrued interest
earned on the trust account (net of taxes payable) not previously distributed
to
us and $0.20 per share plus interest thereon (net of taxes payable) of
contingent underwriting compensation which the underwriters have agreed to
forfeit to pay redeeming stockholders. Accordingly, Public Stockholders holding
32.99% of the aggregate number of shares sold in the Proposed Offerings may
seek
redemption of their shares in the event of a business combination.
The
accompanying financial statements have been prepared assuming that The
Company will continue as a going concern. The Company’s Certificate of
Incorporation provides for mandatory liquidation of the Company by
NOTE
A-ORGANIZATION AND BUSINESS OPERATIONS (continued)
December
21, 2007, without stockholder approval, in the event that the Company does
not
consummate a business combination within 18 months from the date of consummation
of the Public Offering, or 24 months from the consummation of the Public
Offering if certain extension criteria have been satisfied. The Initial
Stockholders have agreed to waive their rights to participate in any liquidation
distribution occurring upon its failure to consummate a business combination
with respect to those shares of common stock acquired by them prior to the
Public Offering and with respect to the shares included in the 1,132,500 units
purchased in the private placement. In addition, the underwriters have agreed
to
waive their rights to the $3,773,500 of contingent compensation and $226,500
of
placement fees deposited in the trust account for their benefit. Accordingly,
in
the event of liquidation, the public stockholders will receive $10.00 per share
plus interest (net of taxes payable and that portion of the earned interest
previously released to the Company). The Company will pay the costs of
liquidation and dissolution from remaining assets outside of the trust account.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
NOTE
B-RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In
June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes-an Interpretation of SFAS No. 109” (“FIN 48”). FIN 48 clarifies the
accounting for uncertainty in tax positions recognized in a company’s financial
statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN
48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of the tax position taken or
expected to be taken in a tax return. The Company adopted FIN 48 effective
January 1, 2007. The adoption of FIN 48 did not have any impact on the
accompanying financial statements since we have not identified any uncertain
tax
positions as defined by FIN 48.
We
recognize interest and penalties related to uncertain tax positions in income
tax expense. The tax years 2005 and 2006 remain open to examination by the
major
taxing jurisdictions to which it is subject.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
NOTE
C-COMMITMENTS
On
October 4, 2006, the Company entered into an agreement with Bongard Shipbrokers
S.A., or Bongard, for purposes of engaging Bongard in connection with sourcing,
developing contacts and making referrals for potential target businesses and
providing evaluations of such potential target businesses. In exchange for
such
services, the Company is obligated to pay a fee of $800,000 within thirty days
of the closing of a business combination transaction. In the event that the
Company does not consummate a business combination transaction, no fees are
payable to Bongard pursuant to the agreement.
On
December 19, 2006, the Company entered into a Sublease and Administrative
Services Agreement with Blue Diamond Realty, LLC, a Delaware limited liability
company ("Blue Diamond"). Effective as of December 1, 2006, Blue Diamond agreed
to sublet offices to the Company located at 103 Foulk Road, Wilmington,
Delaware. and provide the Company with such office space and equipment,
including a conference room, as well as administrative support necessary for
the
Company's business. The Agreement is effective December 1, 2006 through December
31, 2007, with an automatic renewal each year for an additional one year period,
unless either party gives the other party at least 90 days written notice of
its
intent to terminate the Agreement. The Company shall pay Blue Diamond annual
base rent and administrative services fees in the aggregate of $4,000 payable
on
January 1 each year.
NOTE
C-COMMITMENTS (continued)
On
December 20, 2006, the Company entered into an agreement with Cantor Fitzgerald
& Co., or CF&Co., for purposes of engaging CF&Co. as financial
advisor in connection with a possible business combination transaction. Pursuant
to the agreement, CF & Co. was engaged to provide such services as creating
financial models, advising on the structure of a possible transaction with
a
target business, negotiating agreements on behalf of and in conjunction with
management and assisting management with the preparation of marketing and
roadshow materials. In exchange for such services, the Company is obligated
to
pay a fee of $1,250,000, plus expenses of up to $60,000, within thirty days
of
the closing of a business combination transaction if such transaction is
consummated by December 31, 2007.
On
December 22, 2006, the Company entered into an agreement with Maxim Group LLC,
or Maxim, for purposes of engaging Maxim as co-lead financial advisor in
connection with a possible business combination transaction. Pursuant to the
agreement, Maxim was engaged to provide such services as creating financial
models, advising on the structure of a possible transaction with a target
business and assisting in the preparation of term sheets or letters of intent.
In exchange for such services, the Company is obligated to pay a fee of $800,000
for any business combination transaction consummated during the term of the
agreement (or within six months of the termination date). The agreement
terminates on October 31, 2007, unless terminated earlier by either the Company
or Maxim upon thirty days’ written notice, or extended by mutual
agreement.
On
July 10, 2007, Star Bulk Management Inc., a wholly owned subsidiary of the
Company, entered into employment agreements with Messrs. P. Tsirigakis
and G. Syllantavos for work performed within Greece as Chief Executive
Officer and Chief Financial Officer, respectively. On July 10, 2007 Star
Bulk also entered into consultancy agreements with companies controlled by
Messrs. P. Tsirigakis and G. Syllantavos, respectively, for
services rendered outside Greece. These agreements will be effective only
upon the approval and completion of the Business Combination.
The
Initial Stockholders have agreed to surrender up to an aggregate of 200,000
of
their shares of common stock to the Company for cancellation upon consummation
of a business combination in the event public stockholders exercise their right
to have the Company redeem their shares for cash. The number of shares that
the
Initial Stockholders will surrender will be determined by calculating the dollar
amount of the Trust Account (exclusive of interest) paid to redeeming
stockholders above the amount attributable to such stockholders ($9.23 per
share) and the Discount ($.20 per share) and dividing it by $10.00 (the value
attributed to the shares for purposes of this calculation). Accordingly, for
each 1,000 shares redeemed up to 3,508,772 shares, the Initial Stockholders
will
surrender 57 shares for cancellation.
The
Company has engaged the representative of the underwriters, on a non-exclusive
basis, as its agent for the solicitation of the exercise of the warrants. To
the
extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Securities and Exchange Commission, the Company has agreed
to
pay the representative for bona fide services rendered a commission equal to
5%
of the exercise price for each warrant exercised more than one year after the
date of the prospectus if the exercise was solicited by the underwriters. In
addition to soliciting, either orally or in writing, the exercise of the
warrants, the representative’s services may also include disseminating
information, either orally or in writing, to warrant holders about the Company
or the market for the Company’s securities, and assisting in the processing of
the exercise of the warrants. No compensation will be paid to the representative
upon the exercise of the warrants if:
|
·
|
the
market price of the underlying shares of common stock is lower than
the
exercise price;
|
|
·
|
the
holder of the warrants has not confirmed in writing that the
representative solicited the
exercise;
|
NOTE
C-COMMITMENTS (continued)
|
·
|
the
warrants are held in a discretionary
account;
|
|
·
|
the
warrants are exercised in an unsolicited transaction;
or
|
|
·
|
the
arrangements to pay the commission are not disclosed in the prospectus
provided to warrant holders at the time of
exercise.
|
NOTE
D-RELATED PARTY TRANSACTIONS
Oceanbulk
Maritime, S.A., a related party, has paid for certain expenses of behalf of
the
Company. The Company's Director Mr. Petros Pappas is Honorary Chairman of
Oceanbulk Maritime S.A. The Company's Chairman, President and Chief Executive
Officer, Mr Prokopios (Akis) Tsirigakis as well as its officer Mr. Christo
Anagnostou are employees of Oceanbulk Maritime S.A.. As of September 30, 2007
the Company owed approximately $161,000 to Oceanbulk Maritime S.A., for
reimbursements of vessel inspection expenses incurred by Oceanbulk
Maritime S.A. on behalf of the Company as well as for certain support services
including legal and office support provided by Oceanbulk Maritime S.A. to the
Company. This amount is included in the Company’s accrued expenses and accounts
payable section in the accompanying balance sheet.
The
Company has used the services of Combine Marine S.A. to conduct certain vessel
inspection services of the fleet of eight dry bulk carriers that Star Bulk
Carriers has agreed to acquire. On May 4, 2007, Star entered into a
Management Agreement with Combine Marine Inc. ("Combine") under which
Combine will provide interim technical management and associated services for
the vessels in the initial fleet. Such services will be provided at a lump-sum
fee of $10,000 per vessel for services leading to and including taking delivery
of each vessel and at a daily fee of $450 per vessel from the delivery of each
vessel onwards during the term of the agreement. The term of the agreement
is
for one (1) year from the date of delivery of each vessel. Either party may
terminate the agreement upon thirty days' notice. This agreement will be
effective only upon the approval and completion of the Business Combination.
The
Company’s Chairman, President and Chief Executive Officer, Mr Prokopios (Akis)
Tsirigakis is the Managing Director of Combine Marine S.A.
NOTE
E - INCOME TAXES
The
provision for income taxes differs from the statutory federal income tax rate
of
34% principally, due to interest income that is not taxable for federal tax
purposes.
NOTE
F - COMMON STOCK RESERVED FOR ISSUANCE
At
September 30, 2007 20,000,000 shares of common stock were reserved for issuance
upon exercise of redeemable warrants.
NOTE
G - PREFERRED STOCK
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting, and other rights and preferences, as maybe determined
from
time to time by the Board of Directors.
NOTE
H - SUBSEQUENT EVENTS
On
October 3, 2007, Star Bulk entered into amended consultancy agreements with
companies controlled by Messrs. P. Tsirigakis and G. Syllantavos, respectively,
for services rendered outside of Greece. These agreements will be effective
only
upon the approval and completion of the Business Combination.
On
October 3, 2007, the Company and TMT entered into an amendment to the Master
Agreement to adjust the terms of the issuance of an additional 1,606,962 shares
of Star Bulk stock to TMT.
On
November 2, 2007, the Securities and Exchange Commission declared the Company’s
joint proxy statement/prospectus on Schedule 14A effective. The Schedule 14A
contains the information that will presented at a special meeting of
stockholders to conduct a stockholder vote on the Business Combination. The
special meeting has been scheduled for November 27, 2007, and owners of record
of our stock as of November 5, 2007, will be entitled to vote at that meeting.
Additional
information regarding the proposals on which our stockholders are being asked
to
vote is available from our definitive proxy materials filed with the Commission
on Form DEF 14 A on November 2, 2007.