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, 2021 (Unaudited)
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, 2021, the fleet consisted of eight owned vessels (four product/chemical tankers and four Suezmax tankers), two 50% joint venture interests, and three newbuilding contracts (one Suezmax and two VLCCs).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased by 22% ($7.3 million) primarily due to a reduction in the average number of vessels employed (6.8 in 2021 vs. 10.4 in 2020).
• Profitability Turnaround: The Company reported a Net Income of $1.7 million compared to a Net Loss of $2.9 million in the prior year. This improvement was driven by a 73% reduction in interest and finance costs ($7.7 million decrease) and the absence of a $4.1 million "other operating loss" recorded in 2020.
• Operating Expenses: Operating lease expenses increased by $5.4 million (100%) due to the commencement of bareboat charters for M/T Eco Bel Air and M/T Eco Beverly Hills in December 2020. Conversely, vessel depreciation and management fees decreased significantly due to the smaller fleet size.
• Impairment: A $1.2 million impairment charge was recorded for the M/T Nord Valiant, classified as held for sale.
• Debt Increase: Total debt increased by approximately $70 million, reflecting new financing for vessels delivered in 2021 (M/T Eco West Coast and M/T Eco Malibu) and newbuilding advances.

Guidance, Outlook, and Risks

Recent Developments & Outlook:

• VLCC Acquisition: On September 8, 2021, the Company acquired the remaining 65% interest in two VLCC newbuilding projects (Julius Caesar and Legio X Equestris) for $29.8 million, becoming the 100% owner.
• Financing: Received a commitment letter for a $107.7 million senior secured loan facility for the two VLCCs. The Company also has an option for a $41.6 million credit line from a related party.
• Vessel Sale: Sold M/T Nord Valiant on September 1, 2021, for $26.4 million, using proceeds to prepay the associated BoComm Leasing Facility.
• Liquidity: Despite a working capital deficit of $17.4 million, management believes it can finance obligations for the next 12 months via operational cash flow, vessel sales, and debt/equity issuances. Capital commitments are largely non-recourse, guaranteed by a related party.

Risks and Contingencies:

• COVID-19 Impact: Ongoing pandemic measures continue to cause crew rotation delays, increased off-hire days, and operational disruptions.
• Market Volatility: Exposure to fluctuations in charter rates, vessel values, and global economic conditions.
• SEC Investigation: The Company is cooperating with an ongoing SEC investigation regarding offerings made between February and August 2017; no provision for losses has been established.
• Related Party Transactions: Significant reliance on related parties for management, financing guarantees, and vessel acquisitions.

Investor Verification Checklist

• Capital Commitments: Verify the status of the $217.3 million in remaining contractual commitments for newbuildings and the finalization of the $107.7 million financing commitment.
• Related Party Dependence: Assess the terms and risks associated with the guarantees provided by Central Mare Inc. and the financing options from the CEO's affiliated entities.
• SEC Investigation Status: Monitor for any updates regarding the outcome of the SEC investigation initiated in 2017.
• Working Capital: Review the Company's ability to bridge the $17.4 million working capital deficit without dilutive equity issuances or asset sales.
• Charter Rates: Evaluate the impact of the new time charters on the VLCCs and Suezmax vessels on future revenue stability.