TOPS

Business Context and Reporting Period

Company: TOP SHIPS INC.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2022
Business Overview: An international owner and operator of modern, fuel-efficient eco tanker vessels transporting crude oil, petroleum products, and bulk liquid chemicals. As of June 30, 2022, the fleet consisted of 8 owned vessels (1 product/chemical tanker, 5 Suezmax tankers, 2 VLCCs) and 50% interests in 2 product/chemical tankers.

Key Financial Metrics

Note: Net income attributable to common shareholders for 2022 reflects a loss due to significant preferred dividend obligations and deemed dividends on Series F Shares.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 53% to $38.8 million, driven by an increase in the average number of vessels employed (from 6.8 to 7.9) and a 100% increase in deadweight tonnage due to the delivery of three large crude carriers (two VLCCs and one Suezmax) in Q1 2022.
• Profitability: Operating income surged 256% to $15.1 million. This was aided by the absence of vessel impairments ($1.16 million in 2021) and a gain on the sale of two vessels ($78,000).
• Expense Increases: Interest and finance costs rose 144% to $6.9 million, primarily due to higher weighted average debt outstanding ($239.2 million vs. $137.5 million) and accelerated amortization of deferred financing fees on sold vessels. Vessel depreciation increased 83% due to the expanded fleet.
• Cost Reductions: Management fees to related parties decreased 38% due to lower sale & purchase commissions, and General and Administrative expenses dropped 28% due to reduced legal, insurance, and auditor fees.

Guidance, Outlook, and Risks

Management Commentary & Liquidity: Management expects operating cash flow for the remainder of 2022 to increase compared to 2021, driven by the contribution of the new VLCCs and Suezmax. Despite a working capital deficit of $18.4 million, the Company believes it can finance this deficit over the next 12 months using cash on hand ($18.3 million total, including restricted cash) and operational cash flow.

Recent Developments:

• Redeemed 865,558 Series F Shares on July 5, 2022, paying $10.4 million.
• Effected a 1-for-20 reverse stock split on September 23, 2022.
• Exercised pre-funded warrants in July and September 2022.

Risks and Contingencies:

• Geopolitical: Potential adverse effects from the war in Ukraine, including sanctions, trade wars, and disruption of shipping routes.
• Market: Fluctuations in charter rates, vessel values, and bunker costs.
• Operational: Aging vessels, dry-docking costs, and the ability to obtain financing for capital expenditures.
• Financial: Creditworthiness of charterers and the ability to repay outstanding indebtedness.

Investor Verification Checklist

• Preferred Dividend Impact: Verify the impact of the $14.4 million "deemed dividend" on Series F Shares and $7.3 million in preferred dividends on the net loss attributable to common shareholders.
• Debt Structure: Review the terms of the new $106.6 million CMBFL facility and the $46.8 million AVIC sale and leaseback facility for the M/T Eco Oceano Ca.
• Related Party Transactions: Confirm the terms of the amended 15-year time charter with Central Tankers Chartering Inc (CTC) and the reduction in daily rates.
• Capital Expenditures: Assess the $216.6 million in cash paid for advances on vessels under construction and the timeline for future deliveries.
• Reverse Stock Split: Ensure all share counts and per-share data are adjusted for the 1-for-20 reverse split effective September 23, 2022.