TOP Ships (TOPS) - 2022 Q2 - Quarterly Report

FORM 6-K Filing Information This section details the Form 6-K filing by TOP SHIPS INC. for September 2022, identifying it as a foreign private issuer Filing Details This document is a Form 6-K report filed by TOP SHIPS INC. for September 2022, indicating it is a foreign private issuer filing under Form 20-F * TOP SHIPS INC. filed a Form 6-K report for September 2022[1] * The registrant is a foreign private issuer, filing annual reports under Form 20-F[1] Information Contained in Report This section outlines the report's content, including financial statements and management's discussion, which are incorporated by reference into the Company's Form F-3 registration statement Report Content and Incorporation by Reference This Form 6-K report includes Management's Discussion and Analysis of Financial Condition and Results of Operations, along with unaudited interim condensed consolidated financial statements for the six months ended June 30, 2022. This information is incorporated by reference into the Company's Form F-3 registration statement * The report includes Management's Discussion and Analysis of Financial Condition and Results of Operations and unaudited interim condensed consolidated financial statements for the six months ended June 30, 2022[6] * The information is incorporated by reference into the Company's registration statement on Form F-3 (File No. 333-267170), effective September 13, 2022[7] Cautionary Statement Regarding Forward-Looking Statements This section provides a cautionary statement on forward-looking information, highlighting various risk factors that could cause actual results to differ materially Forward-Looking Statements and Risk Factors This section provides a cautionary statement regarding forward-looking statements, emphasizing that actual results may differ materially due to various factors. Key risks include maintaining customer relationships, future operating results, vessel acquisitions, financial condition, industry trends, vessel aging, creditworthiness of charterers, regulatory changes, and geopolitical events * The report contains forward-looking statements protected by the Private Securities Litigation Reform Act of 1995 (PSLRA)[9][10] * Important factors that could cause actual results to differ materially include: ability to maintain customer relationships, future operating and financial results, vessel acquisitions, financial condition and liquidity, oil and chemical tanker industry trends, vessel aging and costs, creditworthiness of charterers, governmental regulations, general economic and political conditions, and global events like the war in Ukraine[12][14] * The Company undertakes no obligation to update forward-looking statements beyond the report date, except as required by law[13] Signatures This section confirms the official signing of the report by TOP SHIPS INC.'s Chief Executive Officer on September 27, 2022 Report Authorization The report was duly signed on behalf of TOP SHIPS INC. by Evangelos J. Pistiolis, Chief Executive Officer, on September 27, 2022 * The report was signed by Evangelos J. Pistiolis, Chief Executive Officer of TOP SHIPS INC., on September 27, 2022[15] Management's Discussion and Analysis This section provides an in-depth analysis of the Company's financial condition and operating results for the six months ended June 30, 2021 and 2022 Overview TOP SHIPS INC. operates a fleet of modern eco tanker vessels for crude oil, petroleum products, and chemicals, with a strategic focus on accretive fleet expansion * TOP SHIPS INC. is an international owner and operator of modern, fuel-efficient eco tanker vessels for crude oil, petroleum products, and bulk liquid chemicals[18] * As of June 30, 2022, the fleet included one 50,000 dwt product/chemical tanker, five 159,000 dwt Suezmax tankers, two 300,000 dwt VLCC tankers, and 50% interests in two 50,000 dwt product/chemical tankers[18] * The company intends to continue reviewing the market for potential accretive acquisition targets[19] Non-US GAAP Measures This section defines Adjusted EBITDA as a non-U.S. GAAP measure used to assess financial performance by excluding specific non-core items, emphasizing it is not a substitute for U.S. GAAP * Adjusted EBITDA is a non-U.S. GAAP measure defined as earnings before interest, taxes, depreciation and amortization, other operating loss, operating lease expenses, vessel impairments, gains on sale of vessels, and gains/losses on derivative financial instruments[21] * Adjusted EBITDA is used by management and investors to increase comparability of performance by excluding disparate effects of financing methods, capital structure, and historical cost basis[22] * This measure should not be considered in isolation from, as a substitute for, or superior to financial measures prepared in accordance with U.S. GAAP[23] Reconciliation of Net (Loss) / Income to Adjusted EBITDA (Six months ended June 30) | (Expressed in thousands of U.S. Dollars) | 2021 | 2022 | | :--------------------------------------- | :--- | :--- | | Net (Loss) / Income | 1,682 | 8,605 | | Add: Operating lease expenses | 5,378 | 5,378 | | Add: Vessel depreciation | 3,339 | 6,114 | | Add: Impairment on vessels | 1,160 | - | | Add: Interest and finance costs | 2,837 | 6,927 | | Add: Loss / (Gain) on financial instruments | (66) | - | | Less: Gain on sale of vessels | - | (78) | | Adjusted EBITDA | 14,330 | 26,946 | Operating Results The Company experienced significant growth in operating results for the six months ended June 30, 2022, driven by fleet expansion and increased revenues, despite higher finance costs Results of Operations (Six Month Period Ended June 30) | ($ in thousands) | 2021 | 2022 | Change ($) | Change (%) | | :------------------------------- | :--- | :--- | :--------- | :--------- | | Revenues | 25,310 | 38,846 | 13,536 | 53% | | Voyage expenses | 608 | 875 | 267 | 44% | | Operating lease expenses | 5,378 | 5,378 | - | 0% | | Other vessel operating expenses | 7,919 | 9,705 | 1,786 | 23% | | Vessel depreciation | 3,339 | 6,114 | 2,775 | 83% | | Management fees-related parties | 1,661 | 1,030 | (631) | -38% | | Dry-docking costs | 26 | - | (26) | -100% | | General and administrative expenses | 963 | 691 | (272) | -28% | | (Gain) on sale of vessels | - | (78) | (78) | 100% | | Impairment on vessels | 1,160 | - | (1,160) | 100% | | Operating income | 4,256 | 15,131 | 10,875 | 256% | | Interest and finance costs | (2,837) | (6,927) | (4,090) | 144% | | Gain on financial instruments | 66 | - | (66) | -100% | | Equity gains in unconsolidated joint ventures | 197 | 401 | 204 | 104% | | Total other expenses, net | (2,574) | (6,526) | (3,952) | 154% | | Net income | 1,682 | 8,605 | 6,923 | 412% | * Revenues, voyage expenses, depreciation, and other vessel operating expenses increased due to a 16% increase in the average number of vessels employed (from 6.8 to 7.9) and a 100% increase in deadweight tonnage, driven by the delivery of three large crude carriers[29] * Management fees to related parties decreased by $0.6 million (38%) primarily due to a decrease in sale & purchase commissions, partially offset by an increase in management fees related to fleet expansion[30] * Interest and finance costs increased by $4.1 million (144%) mainly due to accelerated amortization of deferred financing fees, a decrease in capitalized interest (newbuilding program completion), and an increase in weighted average debt outstanding[31][34] * General and administrative expenses decreased by $0.3 million (28%) due to lower legal and consulting fees, directors and officers insurance, and auditor fees[31] Recent Developments Post-period events include the redemption of Series F Shares, exercise of pre-funded warrants, and a 1-for-20 reverse stock split, retroactively adjusted * On July 5, 2022, the Company redeemed 865,558 Series F Shares, paying $10.4 million to Africanus Inc.[32] * In July and September 2022, a total of 9,603,000 pre-funded warrants were exercised for 480,150 common shares[32] * On September 23, 2022, a 1-for-20 reverse stock split of common stock was effected, with all related share and EPS amounts retroactively adjusted[33] Liquidity and Capital Resources The Company's liquidity is primarily supported by equity offerings, operating cash flow, and borrowings, with management expecting to finance operations for the next 12 months despite a working capital deficit * Principal funding sources include equity offerings, operating cash flow, and long/short-term borrowings, primarily used for fleet growth and maintenance[35] * As of June 30, 2022, total indebtedness was $244.5 million, and cash and cash equivalents were $18.3 million (including $4.0 million restricted cash)[37] * The Company had a working capital deficit of $18.4 million as of June 30, 2022[38] * Management expects to finance the working capital deficit and obligations for the next 12 months with cash on hand and operational cash flow[40] Cash Flow Information (Six months ended June 30) | Cash Flow Category | 2021 ($ thousands) | 2022 ($ thousands) | | :--------------------------------- | :----------------- | :----------------- | | Net Cash provided by Operating Activities | 9,347 | 13,947 | | Net Cash used in Investing Activities | (90,830) | (143,050) | | Net Cash provided by Financing Activities | 70,548 | 141,000 | | Net (decrease)/increase in cash and cash equivalents and restricted cash | (10,935) | 11,897 | | Cash and cash equivalents and restricted cash at end of the period | 12,393 | 18,267 | Index to Condensed Consolidated Financial Statements This section provides an index to the unaudited interim condensed consolidated financial statements, including balance sheets, income statements, equity statements, cash flows, and notes Financial Statement Listing This section provides an index to the unaudited interim condensed consolidated financial statements, including the Balance Sheets, Statements of Comprehensive Income/(Loss), Statements of Mezzanine and Stockholders' Equity, Statements of Cash Flows, and accompanying Notes * The index lists the Unaudited Interim Condensed Consolidated Balance Sheets, Statements of Comprehensive Income/(Loss), Statements of Mezzanine and Stockholders' Equity, Statements of Cash Flows, and Notes to Unaudited Interim Condensed Consolidated Financial Statements[48] Unaudited Interim Condensed Consolidated Financial Statements This section presents the Company's unaudited interim condensed consolidated financial statements, offering a snapshot of its financial position, performance, and cash flows Unaudited Interim Condensed Consolidated Balance Sheets The balance sheet shows a significant increase in total assets from $330.8 million at December 31, 2021, to $475.4 million at June 30, 2022, primarily driven by an increase in vessels, net. Total liabilities also increased from $221.4 million to $284.3 million, while total stockholders' equity decreased from $93.2 million to $88.6 million Key Balance Sheet Data (as of December 31, 2021 and June 30, 2022) | Category | December 31, 2021 ($ thousands) | June 30, 2022 ($ thousands) | | :------------------------ | :------------------------------ | :-------------------------- | | Total current assets | 75,334 | 16,557 | | Total fixed assets | 224,977 | 429,822 | | Total non-current assets | 30,477 | 29,027 | | Total assets | 330,788 | 475,406 | | Total current liabilities | 107,088 | 34,946 | | Total non-current liabilities | 114,336 | 249,326 | | Total liabilities | 221,424 | 284,272 | | Total mezzanine equity | 16,142 | 102,542 | | Total stockholders' equity | 93,222 | 88,592 | * Vessels, net increased significantly from $156.6 million to $396.2 million, reflecting new vessel deliveries[49] * Cash and cash equivalents increased from $2.4 million to $14.3 million[49] Unaudited Interim Condensed Consolidated Statements of Comprehensive Income/(Loss) The Company reported a substantial increase in total revenues to $38.8 million for the six months ended June 30, 2022, up from $25.3 million in the prior year. Net income also significantly improved to $8.6 million from $1.7 million. However, due to deemed dividend equivalents on Series F Shares and preferred share dividends, net income attributable to common shareholders resulted in a loss of $13.1 million, leading to a basic and diluted loss per common share of $6.15 Key Comprehensive Income Data (Six Months Ended June 30) | Category | 2021 ($ thousands) | 2022 ($ thousands) | | :---------------------------------------------- | :----------------- | :----------------- | | Total revenues | 25,310 | 38,846 | | Operating income | 4,256 | 15,131 | | Net income and comprehensive income | 1,682 | 8,605 | | Less: Deemed dividend equivalents on Series F Shares related to redemption value | - | (14,400) | | Less: Dividends of preferred shares | (915) | (7,322) | | Net income/(loss) and comprehensive income/(loss) attributable to common shareholders | 767 | (13,117) | | Earnings/(Loss) per common share, basic and diluted | 0.39 | (6.15) | | Weighted average common shares outstanding, basic and diluted | 1,991,598 | 2,132,179 | * Total revenues increased by 53.5% year-over-year, from $25.3 million in 2021 to $38.8 million in 2022[50] * Operating income increased by 255.5% year-over-year, from $4.3 million in 2021 to $15.1 million in 2022[50] * Net income attributable to common shareholders turned into a loss of $13.1 million in 2022, primarily due to $14.4 million in deemed dividend equivalents on Series F Shares and $7.3 million in preferred share dividends[50] Unaudited Interim Condensed Consolidated Statements of Mezzanine and Stockholders' Equity The statement shows changes in mezzanine and stockholders' equity, with total mezzanine equity increasing significantly from $16.1 million at December 31, 2021, to $102.5 million at June 30, 2022, mainly due to the issuance of Series F Shares. Total stockholders' equity decreased from $93.2 million to $88.6 million, impacted by net income, equity offerings, and preferred share dividends * Total mezzanine equity increased from $16.1 million at December 31, 2021, to $102.5 million at June 30, 2022, driven by the issuance of 7,200,000 Series F Shares[51] * Total stockholders' equity decreased from $93.2 million to $88.6 million, reflecting net income, issuance of common stock and pre-funded warrants, and dividends to preferred shares[51] * Deemed dividend equivalents on Series F Shares related to redemption value amounted to $14.4 million for the six months ended June 30, 2022[51] Unaudited Interim Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $13.9 million for the six months ended June 30, 2022, from $9.3 million in the prior year. Investing activities used $143.1 million, primarily for vessel construction advances, partially offset by vessel sales proceeds. Financing activities provided $141.0 million, mainly from long-term debt proceeds and Series F preferred stock issuance, leading to a net increase in cash and cash equivalents and restricted cash of $11.9 million Key Cash Flow Data (Six months ended June 30) | Cash Flow Category | 2021 ($ thousands) | 2022 ($ thousands) | | :----------------------------------------------- | :----------------- | :----------------- | | Net Cash provided by Operating Activities | 9,347 | 13,947 | | Net Cash used in Investing Activities | (90,830) | (143,050) | | Net Cash provided by Financing Activities | 70,548 | 141,000 | | Net (decrease)/increase in cash and cash equivalents and restricted cash | (10,935) | 11,897 | | Cash and cash equivalents and restricted cash at end of the period | 12,393 | 18,267 | * Cash used in investing activities increased from $90.8 million in 2021 to $143.1 million in 2022, primarily due to $216.6 million in advances for vessels under construction, partially offset by $72.1 million from vessel sales[43][52] * Cash provided by financing activities increased from $70.5 million in 2021 to $141.0 million in 2022, driven by $156.2 million from long-term debt and $47.6 million from Series F preferred stock issuance[44][52] Notes to Unaudited Interim Condensed Consolidated Financial Statements This section provides detailed notes explaining the basis of presentation, significant accounting policies, going concern assessment, and specifics of financial statement line items 1. Basis of Presentation and General Information This note outlines the Company's business, confirms U.S. GAAP compliance for interim statements, details a retroactive stock split, and addresses the Russia-Ukraine war's potential impact * TOP SHIPS INC. is an international provider of worldwide oil, petroleum products, and bulk liquid chemicals transportation services[54] * The financial statements are prepared in accordance with U.S. GAAP for interim financial information and should be read in conjunction with the Company's Annual Report on Form 20-F for 2021[58] * A 1-for-20 reverse stock split of common stock was effected on September 23, 2022, with all common share and EPS amounts retroactively adjusted[62] * The Company has not identified any apparent consequences on its business from the Russia-Ukraine war and related sanctions to date, but acknowledges potential adverse effects in the future[61] 2. Significant Accounting Policies This note confirms no changes to significant accounting policies for the period and the adoption of ASU 2020-06 with no material effect on interim financial statements * No changes to significant accounting policies occurred in the six months ended June 30, 2022[63] * The Company adopted ASU 2020-06 on January 1, 2022, using the modified retrospective approach, with no effect on the interim financial statements[64] 3. Going Concern Despite a working capital deficit, management believes the Company can finance its obligations for the next 12 months through cash on hand and operational cash flow, supporting a going concern basis * At June 30, 2022, the Company had a working capital deficit of $18.4 million[65] * For the six months ended June 30, 2022, the Company realized a net income of $8.6 million and generated cash flow from operations of $13.9 million[65] * Management believes it has the ability to continue as a going concern and finance its obligations over the next twelve months using cash on hand and operational cash flow[66] 4(a). Vessels, net The net book value of vessels significantly increased due to new vessel deliveries, with two vessels previously held for sale being sold for a gain Vessels, net (Balances) | | Vessel Cost ($ thousands) | Accumulated Depreciation ($ thousands) | Net Book Value ($ thousands) | | :--------------------------------------- | :------------------------ | :----------------------------- | :--------------------------- | | Balance, December 31, 2021 | 163,501 | (6,916) | 156,585 | | — Transferred from advances for vessels under construction | 245,763 | - | 245,763 | | — Depreciation | - | (6,114) | (6,114) | | Balance, June 30, 2022 | 409,264 | (13,030) | 396,234 | * Two vessels (M/T's Eco Los Angeles and Eco City of Angels) held for sale were sold in February and March 2022, resulting in a gain of $78 thousand[68] * Vessel titles are transferred to financing banks or mortgaged as security under loan facilities[69] 4(b). Advances for vessels acquisitions / under construction Advances for vessels acquisitions/under construction decreased from $30.6 million at December 31, 2021, to zero at June 30, 2022. This change reflects $213.4 million in new advances paid and $1.8 million in capitalized expenses, offset by $245.8 million transferred to 'Vessels, net' upon the delivery of M/T Julius Caesar, M/T Legio X Equestris, and M/T Eco Oceano Ca in Q1 2022 Advances for vessels acquisitions / under construction (Balances) | | Advances for vessels acquisitions/under construction ($ thousands) | | :--------------------------------------- | :------------------------------------------------- | | Balance, December 31, 2021 | 30,579 | | — Advances paid | 213,429 | | — Capitalized expenses | 1,755 | | — Transferred to Vessels, net | (245,763) | | Balance, June 30, 2022 | - | * The Company took delivery of M/T Julius Caesar, M/T Legio X Equestris, and M/T Eco Oceano Ca in January and March 2022, leading to the transfer of related advances to 'Vessels, net'[70] 5. Transactions with Related Parties The Company engages in various transactions with related parties, including Central Mare for executive officers and administrative employees, Central Shipping Inc. (CSI) for fleet management services, Family Trading Inc. for Series E Share dividends, Africanus Inc. for Series F Share issuance and dividends, and Central Tankers Chartering Inc. (CTC) for time charters. These transactions involve management fees, commissions, dividends, and a short-term bridge loan, with some agreements amended to reflect current market conditions and fleet changes * Central Mare provides executive officers and administrative employees, with expenses of $163 thousand in 2021 and $164 thousand in 2022[71] * CSI provides fleet management services, with total fees and expenses of $3.2 million in 2021 and $3.2 million in 2022, including management fees, supervision services, accounting costs, and commissions[72] * Dividends declared to Family Trading Inc. for Series E Shares were $1,015 thousand for the six months ended June 30, 2022[73] * Dividends declared to Africanus Inc. for Series F Shares were $6,307 thousand for the period January 17, 2022, through June 30, 2022[73] * A time charter agreement with CTC for M/T Eco Oceano Ca was amended in February 2022, extending the firm period to 15 years and reducing the daily rate from $32,450 to $24,500, generating $2.8 million in revenue for the six months ended June 30, 2022[73] * The Central Mare Bridge Loan, an unsecured credit facility for up to $20 million, was entered into on January 5, 2022, drawn down by $9 million, and subsequently prepaid and terminated on March 4, 2022[73] 6. Leases This note details future minimum operating lease payments for chartered-in vessels and future minimum time-charter receipts as a lessor, outlining the Company's lease obligations and revenues Future Minimum Operating Lease Payments (after June 30, 2022) | Year ending December 31, | Bareboat charter lease payments ($ thousands) | | :----------------------- | :-------------------------------------------- | | 2022 (remainder) | 6,021 | | 2023 | 10,220 | | 2024 | 10,038 | | 2025 | 6,777 | | Total | 33,056 | | Less imputed interest | (4,201) | | Total Lease Liability| 28,855 | | Presented as: Short-term lease liability | 9,213 | | Presented as: Long-term lease liability | 19,642 | * The average remaining lease term for chartered-in contracts greater than 12 months is 41.2 months[75] * Bareboat chartered-in vessels generated $8.8 million in revenue for the six months ended June 30, 2022[75] Future Minimum Time-Charter Receipts (as of June 30, 2022) | Year ending December 31, | Time Charter receipts ($ thousands) | | :----------------------- | :---------------------------------- | | 2022 (remaining) | 41,814 | | 2023 | 81,772 | | 2024 | 44,525 | | 2025 | 11,879 | | 2026 to 2037 | 98,545 | | Total | 278,535 | 7. Debt Total long-term debt significantly increased due to new facilities for vessel acquisitions, with the Company remaining in compliance with all debt covenants Total Long Term Debt Net of Deferred Finance Fees | Category | December 31, 2021 ($ thousands) | June 30, 2022 ($ thousands) | | :-------------------------------------- | :------------------------------ | :-------------------------- | | Total long term debt | 98,650 | 248,432 | | Less: Deferred finance fees | (1,282) | (3,974) | | Total long term debt net of deferred finance fees | 97,368 | 244,458 | | Debt related to Vessels held for sale net of deferred finance fees | 53,202 | - | | Total Debt net of deferred finance fees | 150,570 | 244,458 | * The Company was in compliance with all debt covenants as of June 30, 2022[81] * A $48.2 million 2nd AVIC Sale and Leaseback Facility was entered into on March 2, 2022, for M/T Eco Oceano Ca, accounted for as a financing transaction[82][85] * The 2nd AVIC Facility includes customary covenants, cross-default provisions, and performance requirements such as an asset cover ratio of 120% and minimum free liquidity of $500 per vessel[86] * The Central Mare Bridge Loan, an unsecured credit facility of up to $20 million, was prepaid and terminated on March 4, 2022[87] 8. Commitments and Contingencies The Company is subject to routine claims and suits in its shipping business but is not involved in any material litigation or aware of significant environmental liabilities * The Company is subject to various claims, suits, and complaints, including those involving government regulations and product liability, arising in the ordinary course of business[88] * The Company is not a party to any material litigation where claims or counterclaims have been filed against it, other than routine legal proceedings[89] * Management is not aware of any environmental liabilities that should be disclosed or for which a provision should be established[90] 9. Common Stock, Additional Paid-In Capital and Dividends This note details the issuance of Series F Preferred Shares, ATM offerings, and a Registered Direct Offering, impacting common stock and paid-in capital, with no common stock dividends paid * 7,200,000 Series F Preferred Shares were issued to Africanus Inc. for $47.6 million in shipbuilding costs and $24.4 million in settlement of Due to related parties[93] * Series F Preferred Shares holders are entitled to ten common share votes per share, semi-annual cash dividends at 13.5% per year, and a one-time 4.0% cash dividend upon issuance[93] * The Company entered into an At-The-Market (ATM) offering agreement with Maxim Group LLC, selling common stock and receiving $2.0 million in net proceeds as of June 30, 2022[94] * A June 2022 Registered Direct Offering resulted in the sale of 235,000 common shares and the issuance of 9,603,000 pre-funded warrants and 14,303,000 private placement warrants[95] * Pre-Funded Warrants are equity-classified, immediately exercisable for a negligible cash consideration, and were included in the weighted average common shares outstanding for EPS calculation[100][103] * June 2022 Private Placement Warrants were equity-classified and initially measured at fair value using the Black-Scholes methodology (Level 3 fair value hierarchy)[97][98] * No dividends were paid to common stock holders in the six months ended June 30, 2021 and 2022[101] 10. Earnings / (Loss) Per Common Share For the six months ended June 30, 2022, the Company reported a basic and diluted loss per common share of $6.15, compared to earnings of $0.39 in the prior year. This shift was primarily due to $14.4 million in deemed dividend equivalents on Series F Shares and $7.3 million in preferred share dividends, which resulted in a net loss attributable to common shareholders of $13.1 million. Certain securities, including June 2022 Private Placement Warrants and Series E Shares, were excluded from diluted EPS calculation as their inclusion would have been antidilutive Earnings / (Loss) Per Common Share (Six months ended June 30) | Category | 2021 ($ thousands) | 2022 ($ thousands) | | :---------------------------------------------- | :----------------- | :----------------- | | Net Income | 1,682 | 8,605 | | Less: Dividends of Preferred shares | (915) | (7,322) | | Less: Deemed dividend equivalents on Series F Shares related to redemption value | - | (14,400) | | Gain / (loss) attributable to common shareholders | 767 | (13,117) | | Weighted average common shares outstanding, basic | 1,991,598 | 2,132,179 | | Earnings / (loss) per share, basic and diluted | 0.39 | (6.15) | * The weighted average number of common shares outstanding for basic and diluted EPS in 2022 includes Pre-Funded Warrants due to their immediate exercisability for negligible cash[103] Potentially Dilutive Securities Excluded from EPS Calculation (Six months ended June 30) | Security | 2021 | 2022 | | :-------------------------------------- | :--- | :--- | | June 2022 Private Placement Warrants | - | 282,740 | | Series E Shares | 599,148 | 974,782 | | Potentially dilutive securities | 599,148 | 1,257,522 | 11. Fair value of Financial Instruments and derivative instruments This note describes the fair value classification of financial instruments, interest rate risk on floating-rate debt, and credit risk management practices * Principal financial assets include cash, restricted cash, deposit assets, and receivables; principal financial liabilities include long-term loans, accounts payable, and amounts due to related parties[107] * Cash and cash equivalents and restricted cash are considered Level 1 items in the fair value hierarchy[108] * The fair value of variable interest long-term debt approximates recorded values, while fixed interest debt is estimated using prevailing market rates, classifying it as Level 2[109] * The Company is subject to interest rate risk on its floating-rate debt (LIBOR plus margin) but has not entered into rate swap agreements as of June 30, 2022[113] * Credit risk is managed by placing temporary cash investments with high-credit-qualified financial institutions[113] 12. Mezzanine Equity This note details the Company's mezzanine equity, comprising Series E and Series F Shares. No Series E Shares were issued or redeemed during the period, with 13,452 shares outstanding. 7,200,000 Series F Preferred Shares were issued to Africanus Inc., classified as mezzanine equity due to their equity-like nature. The carrying value of Series F Shares was adjusted to their maximum redemption amount, resulting in a $14.4 million deemed dividend * As of June 30, 2022, 13,452 Series E Shares were outstanding, convertible into 1,121,000 common shares at a conversion price of $12.00[111] * The Company declared $1,015 thousand in dividends to Series E Shares holders for the six months ended June 30, 2022[111] * 7,200,000 Series F Preferred Shares were issued to Africanus Inc., classified as mezzanine equity, not subject to holder redemption or conversion[112] * The carrying value of Series F Shares was adjusted to the maximum redemption amount ($86.4 million), resulting in a $14.4 million deemed dividend[112] 13. Subsequent Events Subsequent to June 30, 2022, the Company redeemed 865,558 Series F Shares for $10.4 million, including a $1.7 million redemption premium classified as a deemed dividend. Additionally, 9,603,000 pre-funded warrants were exercised in July and September 2022, resulting in the issuance of 480,150 common shares * On July 5, 2022, the Company redeemed 865,558 Series F Shares, paying $10.4 million to Africanus Inc., which included a $1.7 million redemption premium classified as a deemed dividend[114] * In July and September 2022, 9,603,000 pre-funded warrants were exercised for a total of 480,150 common shares[115]