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, 2020
Business Overview: An international owner and operator of modern, fuel-efficient medium range (MR) and Suezmax tanker vessels transporting crude oil, petroleum products, and bulk liquid chemicals. As of June 30, 2020, the fleet consisted of 10 wholly-owned vessels and 50% interests in two additional vessels, with five newbuilding contracts in progress.
Key Financial Metrics
| Metric ($ in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2020 |
|---|---|---|
| Revenues | 29,786 | 32,594 |
| Operating Income | 5,340 | 8,335 |
| Net Loss | (628) | (2,868) |
| Adjusted EBITDA | 15,014 | 14,434 |
| Cash and Cash Equivalents | 4,412 | 5,611 |
| Total Debt (net of deferred fees) | 309,007 | 278,653 |
| Working Capital | (24,675) | (20,584) |
Note: Working Capital is calculated as Current Assets less Current Liabilities. The filing explicitly states a working capital deficit of $20.6 million as of June 30, 2020.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by 9% ($2.8 million) primarily due to the addition of new vessels (M/T Eco Los Angeles, M/T Eco City of Angels) and continued operation of vessels delivered in 2019. This was partially offset by the sale of four vessels in early 2020.
- Net Loss Expansion: Net loss increased by 357% to $2.9 million. Despite higher operating income, the loss was driven by increased interest costs, losses on derivative financial instruments, and one-time charges related to vessel sales.
- Operating Expenses:
- Management Fees: Increased 306% to $4.6 million due to $3.4 million in sale and purchase commissions paid to a related party (Central Shipping Inc).
- Depreciation: Increased 35% to $7.2 million due to the addition of new vessels to the fleet.
- Voyage Expenses: Decreased 45% to $1.2 million, largely due to the absence of spot employment for sold vessels in the current period.
- One-Time Items:
- Gain on Sale of Vessels: Recognized a $5.3 million gain from the sale of four vessels (M/T Eco Revolution, M/T Eco Fleet, M/T Stenaweco Elegance, M/T Eco Palm Desert).
- Other Operating Loss: Incurred a $4.1 million loss due to time charter termination fees associated with the sold vessels.
Guidance, Outlook, Risks, and Unusual Items
- Liquidity and Capital Resources: The company reported a working capital deficit of $20.6 million and negative operating cash flow of $0.3 million for the period. Management expects to finance future obligations through cash on hand, operating cash flow, and potential debt or equity issuances. If financing is unavailable, the company may consider selling operating vessels or shipbuilding contracts.
- Capital Commitments: The company has significant contractual commitments for newbuilding vessels totaling approximately $210 million ($39 million payable in 2020 and $171 million in 2021). These commitments are non-recourse to the parent company, guaranteed by a related party.
- Equity Financing: During the period, the company raised approximately $130 million through At-The-Market (ATM) offerings and registered direct offerings to fund operations and capital expenditures.
- Reverse Stock Split: Announced a 1-for-25 reverse stock split effective August 10, 2020, to regain compliance with Nasdaq minimum bid price requirements.
- Risk Factors:
- COVID-19: The pandemic has caused trade disruptions; the full impact on operations and potential vessel impairments remains uncertain.
- Regulatory/Legal: An ongoing SEC investigation regarding offerings made in 2017 remains open. A securities class action lawsuit was dismissed by the Second Circuit Court of Appeals in April 2020, though the deadline for a Supreme Court cert petition remains open.
- Market Conditions: Exposure to fluctuations in charter rates, vessel values, and fuel prices.
Investor Verification Checklist
- Going Concern Status: Verify the company's ability to meet the $210 million in newbuilding commitments given the current working capital deficit and lack of undrawn credit facilities.
- Related Party Transactions: Review the $3.4 million in management fees and the acquisition of newbuilding contracts from entities affiliated with the CEO for fairness and valuation.
- Debt Covenants: Confirm continued compliance with debt covenants, particularly regarding vessel market value ratios, given the volatility in shipping markets.
- SEC Investigation: Monitor the status of the ongoing SEC investigation regarding 2017 offerings for potential financial or reputational impact.
- Equity Dilution: Assess the impact of the significant equity issuances ($130 million raised) and the reverse stock split on shareholder value and future dilution.