TOPS

Business Context and Reporting Period

Company: TOP Ships Inc.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter ended March 31, 2010
Business Overview: TOP Ships operates a combined fleet of eight Handymax tankers and five drybulk vessels. The company provides seaborne crude oil, petroleum products, and drybulk transportation services. As of the reporting date, the fleet consists of 13 vessels with a total carrying capacity of approximately 716,782 dwt.

Key Financial Metrics

Fleet Utilization: 99.93% for Q1 2010 (compared to 98.50% in Q1 2009).

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased by approximately 22% year-over-year, primarily due to the absence of charter hire expense and amortization of deferred gains on sale and leaseback transactions that impacted the prior period's revenue recognition structure.
• Operating Income Increase: Despite lower revenues, operating income more than doubled to $5.5 million. This was driven by significant cost reductions, including the elimination of charter hire expenses ($5.8 million in Q1 2009 vs. $0 in Q1 2010) and lower voyage and operating expenses.
• Net Income Decline: Net income fell to $0.9 million from $1.4 million. This decrease was largely attributed to a loss on financial instruments of $1.4 million in Q1 2010, compared to a gain of $1.2 million in the prior year, alongside higher interest and finance costs.
• Liquidity Position: The company reported zero non-restricted cash as of March 31, 2010, a significant change from the $13.3 million held at the end of Q1 2009.

Guidance, Outlook, and Risks

Management Commentary and Outlook

Management highlighted a profitable quarter resulting from charters signed in 2008 and cost-cutting efforts. Key forward-looking indicators include:

• Employment Profile: Nearly 100% of remaining 2010 operating days are under fixed employment. Approximately 83% of 2011 and 60% of 2012 operating days are also fixed.
• Contracted Revenue: Total gross contracted revenue from fixed-rate contracts amounts to $345 million through the end of 2019.
• New Fixture: The M/T Dauntless was fixed on a two-year time charter at a base rate of $10,500 per day plus a 50/50 profit-sharing arrangement.

Risks and Contingencies

• Covenant Breaches: As of March 31, 2010, the company was in breach of loan covenants regarding EBITDA, liquidity, adjusted net worth, and asset cover. Consequently, all debt ($339.8 million) and financial instruments ($9.8 million) were reclassified as current liabilities.
• Bank Discussions: The company is in active discussions with lenders regarding waivers for these breaches. A bridge loan with DVB America N.V. is due for repayment on July 30, 2010.
• Charterer Dispute: A bareboat charterer for the M/T Ionian Wave and M/T Tyrrhenian Wave unilaterally reduced the hire rate from $14,300 to $10,000 per day. The company intends to take legal steps to recover the owed amounts.
• Related Party Transaction: The company has outsourced vessel commercial and technical management to Central Mare Inc., a related party controlled by the CEO's family.

Investor Verification Checklist

• Covenant Waivers: Verify the status of discussions with banks regarding the waiver of EBITDA and liquidity covenants to prevent immediate debt acceleration.
• Liquidity Runway: Assess the company's ability to meet the July 30, 2010, bridge loan repayment given the zero non-restricted cash balance.
• Charterer Recovery: Monitor the legal proceedings regarding the unilateral rate reduction by the bareboat charterer of the Ionian Wave and Tyrrhenian Wave.
• Debt Classification: Confirm if the reclassification of long-term debt to current liabilities persists in subsequent filings or if waivers have been secured.
• Related Party Terms: Review the specific terms of the management agreement with Central Mare Inc. to ensure alignment with market rates.