TOP SHIPS INC. — FY 2015 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter filing; the provided filing text does not give separate Q4 results. Financial statements are prepared under U.S. GAAP and audited by Deloitte, which issued an unqualified opinion.
Business context
Top Ships owns and operates medium-range product and chemical tankers. At year-end 2015, it had two vessels leased back under bareboat arrangements and one owned operating vessel; two additional newbuildings were delivered after year-end, and two further vessels remained scheduled for delivery in 2016. During 2015, 97% of revenue came from two charterers: Stena Weco (78%) and BP Shipping (19%).
Key financial metrics
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $13.075 million | $3.602 million |
| Operating income/(loss) | $(7.416) million | $(0.588) million |
| Net income/(loss) | $(8.507) million | $2.896 million |
| Basic and diluted EPS | $(4.21) | $2.23 basic; $1.84 diluted |
| Net cash from/(used in) operations | $(1.387) million | $(2.803) million |
| Net cash from/(used in) investing | $(0.850) million | $(44.450) million |
| Net cash from/(used in) financing | $4.905 million | $37.547 million |
| Total assets | $75.330 million | $75.575 million |
| Total debt | $25.550 million | $19.419 million |
| Stockholders’ equity | $34.153 million | $42.529 million |
Year-end unrestricted cash and cash equivalents were $2.668 million; total cash including $1.750 million of restricted cash was $4.418 million. Current assets were $5.269 million versus current liabilities of $18.274 million, a $13.0 million working-capital deficit. Average daily TCE was $15,961, down 10.8% from $17,892; fleet utilization was 98.91%.
Changes versus FY 2014
- Revenue increased $9.473 million, or 263%, mainly because more vessels were employed for more of the year. Average vessels rose from 0.5 to 2.2.
- Despite higher revenue, the company moved from net income of $2.896 million to a net loss of $8.507 million. Expenses rose substantially as the fleet expanded, and 2015 included a $3.081 million vessel impairment charge.
- Operating cash use narrowed to $1.387 million from $2.803 million, but the company still did not generate positive operating cash flow.
- Debt increased to $25.550 million, while equity declined to $34.153 million.
Liquidity, commitments and outlook
At December 31, 2015, the company reported $69.5 million of remaining newbuilding commitments due within the following 12 months, in addition to other upcoming debt, lease and operating obligations. It estimated total material capital requirements of $88.7 million over that period and described a cash deficit after those requirements of approximately $101.7 million. The filing states the financial statements were prepared on a going-concern basis.
Management expected 2016 operating cash flow to improve as vessels operated for more of the year and newbuildings entered service. Planned funding sources included a $22.2 million ABN facility draw for Eco Revolution, an expected Nord LB facility of up to $23.2 million for a newbuilding, up to $11.15 million undrawn under the related-party Family Trading revolver, operating cash flow, and potential vessel sales or other funding. The Nord LB commitment remained subject to final documentation, and management said it believed financing could be obtained for the remaining newbuilding.
The ABN facility carried interest at LIBOR plus 3.90% and included leverage, asset-cover and minimum-liquidity covenants. The company reported covenant compliance at year-end. A one-percentage-point increase in three-month LIBOR was estimated to raise annualized 2016 interest expense by approximately $0.2 million. No dividends were paid in 2013–2015, and future dividends remained at the board’s discretion and subject to financing restrictions.
Management commentary, risks and unusual items
- Two vessels were sold and leased back in 2015 for gross proceeds of $57 million, with seven-year bareboat lease payments. The transactions generated $11.6 million of deferred losses, of which $1.431 million was amortized in 2015; future minimum lease payments totaled $38.8 million.
- The $3.081 million impairment related to Stenaweco Energy in connection with its sale-and-leaseback transaction. The company also recorded a $0.617 million year-end fair-value loss on warrant liabilities; the total 2015 derivative loss was $0.392 million.
- The $3.8 million Delos termination-fee balance had been made immediately due after delayed installments. In January 2016, Family Trading assumed the liability in exchange for 1,355,816 common shares; the company retained a right to repurchase up to 60% of those shares.
- Family Trading is affiliated with the CEO’s family. The filing also describes related-party fleet management, executive-services and vessel-acquisition arrangements. Related-party transactions and fees merit review.
- Key risks include tanker-rate and vessel-value volatility, limited customer concentration, dependence on financing and newbuilding delivery, restrictive debt and lease covenants, and potential counterparty, regulatory, environmental and operational exposures. The company also disclosed that it believed it was a passive foreign investment company in 2013, but not in 2014 or 2015; its tax position depends on legal interpretations and is not assured.
- Following Nasdaq listing deficiencies, the company effected a one-for-ten reverse stock split on February 22, 2016 and reported regaining bid-price compliance. Share and per-share figures in the filing are retroactively adjusted for the split.
Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2015; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether committed and final financing was secured for each remaining newbuilding, and whether delivery installments were paid on schedule.
- Current unrestricted liquidity, near-term debt service, lease payments and compliance with all financial covenants.
- Charter performance and counterparty credit quality, given the 97% 2015 revenue concentration in Stena Weco and BP Shipping.
- The accounting and cash-flow implications of sale-and-leaseback arrangements, deferred losses, warrant liabilities and the Family Trading share issuance and liability assumption.
- Potential dilution from outstanding warrants and subsequent share issuances, and the company’s post-reverse-split share count.
- Whether the company’s 2015 tax and non-PFIC conclusions remain supportable, and how prior PFIC status may affect individual U.S. shareholders.