Share Dilution

Shipping is hot, top ships are always worthless casino stock

bfk92/E+ via Getty Images

If there was already a stock symbol that needed a Buyer Beware or other warning label in its description, Top Ships (NASDAQ: TOPS) would do the trick. There are few companies where investors have lost 90% of their value in a single twelve month period in the past seven years. Most companies would eliminate their shareholders once in a bankruptcy filing. TOPS has repeatedly destroyed its shareholders through relentless dilutive financing and insider trading that transfers shareholder value into the pockets of its management team, namely CEO and majority shareholder Evangelios Pistiolis. Given the momentum of shipping stocks given the current geopolitical environment, it is easy for investors to lump TOPS into this group and buy the stocks. However, as we will describe here, TOPS is a unique shipping company that is a death trap for any investor whose time horizon extends beyond the short term. Given the company’s history of insider trading and its penchant for death spiral funding, we caution investors to learn from our mistakes and NOT buy this stock. Our guess is that most, if not all, of the volume in the stock is from traders looking to scalp pennies. Well, for those traders, we think a casino would be more exciting. For anyone with a longer investment horizon, please BUYER BEWARE!!!

We first wrote about TOPS in August 2014 with a follow-up article in June 2015. Our view at the time was based on the steep net asset value (NAV) discount that existed. While we knew management was inclined to raise more capital over time, we mistakenly assumed we could influence them positively. In fact, in late 2015, when it became apparent that TOPS needed to raise capital to fund its backlog, we approached management about various shareholder-friendly financing options, including a sustained rights offering. by our fund or a convertible note at a substantial premium to the prevailing market. the price. We later discovered that we were not the only shareholder discussing financing initiatives with the Company. We, along with other shareholders, were summarily dismissed and shocked when the Company chose to finalize an agreement with its CEO on terms much less attractive to our proposal. When we approached management with our grievances, “Explain to me how the company’s deal with the CEO is superior to all shareholders than the various proposals I’ve put forward?” In my opinion, you have exploited the rest of the shareholders for the benefit of the majority shareholder,” they responded with the form letter:

“The transaction approved by the independent committee of the board of directors consisted of a revolving credit facility of 15 million and an assumption of liabilities of 3.8 million.

With respect to your “qualitative” comments on the recently announced transaction, the Board of Directors is satisfied that it has fulfilled its fiduciary obligations to the Company and its shareholders, both procedurally and substantively.

Thank you for your interest in the Company. We are always open to talking with our shareholders and hearing their views.

From our perspective, the Company’s stock has historically enriched insiders, particularly the CEO, at the expense of its shareholders. Since the 2015 financing, TOPS has conducted multiple “death spiral” financings designed to raise capital through convertible notes which are then converted into equity/stock at deep discounts. As the history of TOPS shows, these holders continually converted their notes in small increments and sold the shares on the open market. These actions pushed the stock into an endless downward spiral as the company usually used these “death spiral” fundings to raise funds and buy more ships. This has benefited Evangelios Pistiolis (both directly and through affiliates) who levy significant management fees and commissions on each vessel added to the fleet. In 2014, management fees collected were $703,000 before peaking in 2018 at $7.8 million as the company’s vessel portfolio expanded. During this time, the Company executed the following reverse splits to maintain its Nasdaq listing above $1.00 per share:

Dated To divide
02/22/2016 10 for 1
05/11/2017 20 to 1
06/23/2017 15 to 1
03/08/2017 30 to 1
06/10/2017 2 for 1
03/26/2018 10 for 1
08/22/2019 20 to 1
08/10/2020 25 to 1

Essentially, a $1.00 per share in 2015 would be considered $900,000,000.00 today. Today’s price is slightly above $1.00 per share. Quite remarkable. For illustrative purposes, if you purchased TOPS at any time on the following dates, this would be your 12 month performance:

12 months
Dated Price Performance
31/12/2014 954000000 -69.8%
06/30/2015 927000000 -83.6%
31/12/2015 288000000 -29.7%
06/30/2016 152100000 -99.9%
30/12/2016 202500000 -99.9%
06/30/2017 126000 -99.6%
29/12/2017 1250 -67.2%
06/29/2018 475 -52.6%
31/12/2018 410 -95.1%
06/28/2019 225 -98.4%
31/12/2019 20 -94.0%
06/30/2020 3.5 -54.3%
31/12/2020 1.21 -30.6%
06/30/2021 1.6 ???
31/12/2021 0.84 ???

Despite the relentless dilutive capital increases to expand Evangelios Pistiolis’ empire, his stakes in the company were preserved by the anti-dilutive protections of his preferred stakes. It was a brilliant move made early on by the company that we didn’t like in 2014. Unfortunately, we didn’t have the imagination to foresee the company’s plans to use its public vehicle to raise funds. unattractive capital. The setup with preference granted Pistiolis the ability to continuously and repeatedly dilute shareholders while still maintaining/preserving its control and interests. In the meantime, to add insult to injury to shareholders, as the company increased its operations with each successive year, the management fees owed to Pistiolis increased measurably while the stock price plunged.

Comical, August 17, 2020, TOPS authorized a buyback program of up to $5.1 million of the company’s common stock, but ended the program three months later without buying a single share. You must be wondering, what’s the point? Three days later August 20, 2020, TOPS announced various “shareholder friendly measures” as well as an inconsequential open market purchase by Pistiolis. The measures included the following for a period of 12 months:

  1. it will not make any share offerings, public or private;
  2. it will not carry out any share consolidation;
  3. it will not pay any bonus to its executive management; and
  4. it will enter into a standstill agreement with Family Trading Inc., the holder of all of the Company’s outstanding Series E Preferred Shares and an affiliate of its Chief Executive Officer, pursuant to which Family Trading will undertake not to convert any of its Series E preferred shares into common shares, except in connection with a change of control of the Company.
  5. The CEO and its affiliates will not sell any shares.

WHAT?!?!? We have not seen a company issue a press release with the expressed intention of relaying that the company is seeking to STOP behaviors that previously harmed its shareholders. At least for a period of 12 months. Well, that 12 month period has passed and we are confident that the dilution will likely start again in the near future.

Ultimately, there is an inherent conflict of interest between the management team and its minority shareholders. Because the company is domiciled in the Marshall Islands, shareholder remedies against any perceived abuse are limited. As such, it is one of the few shipping companies where fundamentals, net asset values, spot rates, etc. have no bearing on stock performance when the company is committed to endless dilution of its common stock.. Yes, income does not matter in this situation. The company is trading at a significant discount to NAV for a reason. Anyone who has done a modicum of research on this company should know what we didn’t know seven years ago, an investment here is doomed. But if you are looking for a scalp trade, visit your local casino, the chances of success are better and more entertaining.