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, 2017 (Unaudited)
Submission Date: August 2, 2017
Business Overview: The Company 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, 2017, the fleet consisted of seven operating vessels (two chartered-in, five owned) and interests in three newbuilding vessels scheduled for delivery in 2018.
Key Financial Metrics
| Metric ($ in thousands) | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2017 |
|---|---|---|
| Voyage Revenues | 11,627 | 18,982 |
| Operating Loss | (149) | (558) |
| Net Income/(Loss) | 290 | (5,838) |
| Adjusted EBITDA | 4,993 | 7,296 |
| Total Debt (Gross) | 80,454 | 112,200 |
| Cash and Cash Equivalents | 1,384 | 8,000 |
| Working Capital Deficit | (15,492) | (14,002) |
Note: Total Debt for 2017 includes $105.2 million in indebtedness plus unamortized financing fees and debt discounts totaling $112.2 million. Cash includes $6.4 million in restricted cash.
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenues increased by 63% ($7.4 million) to $18.98 million, driven by the full employment of the M/T Stenaweco Excellence, M/T Eco Revolution, and M/T Stenaweco Elegance, as well as the addition of M/T Nord Valiant.
- Net Loss: The Company reported a net loss of $5.84 million compared to a net income of $0.29 million in the prior period. This deterioration was primarily due to a massive increase in interest and finance costs.
- Interest Costs: Interest and finance costs surged 863% to $7.46 million. This was caused by the amortization of debt discounts related to Series C convertible preferred shares ($3.0 million), increased loan interest on expanded facilities, and non-cash debt conversion expenses.
- Operating Expenses: Other vessel operating expenses rose 48% ($2.15 million) and management fees to related parties increased 309% ($2.36 million), largely due to a $1.3 million performance fee and $0.7 million in acquisition commissions paid to related parties.
- Depreciation: Vessel depreciation increased 127% ($1.56 million) due to the addition of new vessels to the fleet.
Outlook, Risks, and Unusual Items
Recent Developments and Capital Resources
- Debt Facilities: In July 2017, the Company signed commitment letters with Amsterdam Trade Bank of Holland for a $23.5 million Senior Facility and a $9.0 million Pre-delivery Facility to fund the delivery of Hull No 2648.
- Short-term Notes: Issued a $3.1 million unsecured promissory note to Xanthe Holdings Ltd. in July 2017, due November 2017.
- Reverse Stock Splits: Effected 1-for-20 and 1-for-15 reverse stock splits in May and June 2017.
- Liquidity Strategy: The Company expects to fund capital requirements through drawdowns on existing credit lines (Family Trading, Kalani), new debt facilities, and cash from operations.
Risks and Contingencies
- Going Concern: The Company has a working capital deficit of $14.0 million and significant capital commitments ($12.0 million in 2017, $48.2 million in 2018). Financial statements are prepared on a going concern basis contingent on securing future financing.
- Covenant Compliance: The Company previously breached covenants with ABN Amro and NORD/LB regarding minimum family ownership percentages. These were addressed via the issuance of Series D preferred shares and subsequent covenant amendments/waivers.
- Market Risks: Exposure to fluctuations in charter rates, vessel values, interest rates (managed partially via swaps), and creditworthiness of charterers.
Unusual Items
- Debt Forgiveness: Recognized $1.12 million in debt forgiveness income related to the settlement of short-term notes.
- Write-off: Recorded a $0.9 million gain from writing off accrued liabilities related to old charter parties of sold vessels as time-barred.
Investor Verification Checklist
- Debt Covenants: Verify the status of covenants with ABN Amro and NORD/LB following the issuance of Series D preferred shares and recent amendments.
- Liquidity Runway: Assess the certainty of closing the $23.5 million Senior Facility and $9.0 million Pre-delivery Facility with AT Bank to cover the $12 million in 2017 capital commitments.
- Related Party Transactions: Review the $3.1 million in management fees and commissions paid to Central Shipping Monaco SAM (CSM) and Central Mare for reasonableness and impact on cash flow.
- Convertible Securities: Analyze the dilution impact of Series C convertible preferred shares and the Family Trading facility, which can be converted into common stock at a "floor price" of $0.60.
- Charter Rates: Confirm the employment status and charter rates of the newbuildings (Hull No 2648, S-443, S-444) upon delivery to ensure revenue projections are met.