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, 2018
Business Overview: Top Ships Inc. is an international owner and operator of medium range (MR) tanker vessels transporting crude oil, petroleum products, and bulk liquid chemicals. As of June 30, 2018, the fleet consisted of seven owned vessels, two bareboat chartered-in vessels, 50% interests in two vessels, and five newbuilding vessels under construction.
Key Financial Metrics
| Metric ($ in thousands) | Six Months Ended June 30, 2017 | Six Months Ended June 30, 2018 |
|---|---|---|
| Voyage Revenues | 18,982 | 19,683 |
| Operating Loss | (558) | (3,501) |
| Net Loss | (5,838) | (6,623) |
| Net Loss Attributable to Common Shareholders | (5,838) | (6,619) |
| Adjusted EBITDA | 7,296 | 3,448 |
| Operating Cash Flow | (1,206) | 597 |
| Total Debt (Gross) | 105,900 | 112,600 (excl. discounts/fees) |
| Cash and Cash Equivalents | 24,081 | 584 |
| Restricted Cash | 6,532 | 6,733 |
| Working Capital Deficit | (3,526) | (30,224) |
Note: Total debt figures for 2018 reflect the balance sheet total of $105.9 million plus unamortized financing fees and debt discounts, totaling approximately $112.6 million as stated in the text.
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenues increased by 3.7% ($0.7 million) to $19.7 million, driven by fleet utilization.
- Expense Increases:
- Management Fees (Related Parties): Increased 36.1% to $4.3 million, primarily due to a $1.0 million cash performance fee granted to Central Shipping Monaco SAM (CSM).
- General & Administrative Expenses: Increased 24.4% to $4.4 million, driven by higher bonuses and legal/consulting fees.
- Operating Expenses: Other vessel operating expenses rose 8.2% to $7.1 million.
- Interest Costs: Interest and finance costs decreased significantly by 55.1% to $3.4 million. This was largely due to the absence of $3.7 million in debt discount amortization related to Series C convertible preferred shares (present in 2017) and capitalization of interest on vessels under construction.
- Derivative Gains: Gains on financial instruments dropped 87.7% to $0.1 million, reflecting losses on warrant valuations offset by gains on interest rate swaps.
- Liquidity Position: Unrestricted cash plummeted from $1.6 million in 2017 to $0.6 million in 2018 due to heavy capital expenditures for newbuildings.
Outlook, Risks, and Contingencies
Capital Requirements and Financing: The company faces significant capital commitments of $189.3 million for newbuilding vessels, with $46.3 million due in 2018 and $143.1 million by June 2019. Management expects to finance these through operating cash flow, debt, equity issuances, or funds from the controlling shareholder. As of September 2018, available committed financing stood at $80.5 million.
Recent Developments:
- Secured a $10.1 million pre-delivery facility with Alpha Bank (July 2018).
- Obtained non-binding approval for up to $92.5 million in sale and leaseback financing for two Suezmax newbuildings (September 2018).
- Delivered M/T Eco Palm Desert in September 2018.
Risks and Contingencies:
- SEC Investigation: The company received additional subpoenas from the SEC in September and October 2018 regarding offerings made in 2017. The investigation is ongoing, and the company cannot predict the outcome or financial impact.
- Class Action Litigation: A consolidated securities class action complaint was filed in August 2017 alleging violations of the Securities Exchange Act. The company intends to vigorously defend against these claims.
- Going Concern: The company reported a working capital deficit of $30.2 million. While management believes it can meet obligations for the next 12 months, failure to secure financing for newbuildings could force the sale of vessels or contracts.
Key Facts for Investor Verification
- Cash Burn Rate: Verify the sustainability of operations given the drop in unrestricted cash to $0.6 million and a working capital deficit of $30.2 million.
- Related Party Transactions: Scrutinize the $4.3 million in management fees paid to related parties, including the $1.0 million performance fee to CSM.
- Financing Execution: Confirm the finalization of the $92.5 million sale and leaseback agreement for the Suezmax vessels and the ability to draw down the Alpha Bank facility.
- Legal Exposure: Monitor the status of the SEC investigation and the securities class action lawsuit for potential financial penalties or reputational damage.
- Debt Covenants: Review compliance with debt covenants, particularly the "minimum free liquidity" requirements tied to new credit facilities.