Paragon Shipping - A Company Without Any Assets And A Lot Of Debt

| About: Paragon Shipping (PRGNF)

Summary

Paragon Shipping Inc. had a huge run up the last couple of days. There is absolutely not a single fundamental reason that would justify such a move.

Although it used to be a ship owning company, now it does not own any ships at all.

The management openly admitted that they have no cash and no ships.

At the same time, the company has a lot of debt and a lot of shares to be issued.

For the last couple of days, Paragon Shipping (PRGN) stock had unbelievable performance. It is up almost 1000%. It is very interesting to explore fundamentals of such an outstanding company.

According to the last annual report, Paragon Shipping is a global provider of shipping transportation services, which specializes in transporting dry bulk cargoes, including such commodities as iron ore, coal, grain and other materials, along worldwide shipping routes.

As it turns out, at this moment, this company does not own any ships at all and has no operating business. According to the Q2/2015 report, as of September 1, 2015, the company had 12 vessels on the water and 5 new building contracts. The report can be found here.

On 1/26/2016, the company issued Q3/2015 report, which could be found here.

According to that report, 6 out of 12 vessels were sold and all of the proceeds from the sale of these vessels went to banks to partially repay loans.

On 3/9/2016, the company issued another press release, according to which, the company sold other 6 vessels in exchange for the settlement of the corresponding credit facility. The press release can be seen here.

It means that all 12 of operating ships were sold and all proceeds from these sales were used to retire the debt.

In the same press release, it was disclosed that the company canceled 2 of new buildings. The cancellation was unilateral and Paragon Shipping was sued by the shipbuilder.

It means, that the only shipping assets that the company has is another new building contract for 3 more ships.

However, in the same press release, it was disclosed there that: "The balance due to Yangzijiang for the delivery of the three Kamsarmax new buildings is currently higher than the estimated market value of these vessels."

Such an asset could hardly be called an asset. It looks like a liability.

On 3/15/2016, the company hosted a conference call, which can be listened to here.

In this conference call, the CEO openly admitted that the company has no ships, no cash, unpaid debt from operations and outstanding bonds. He also confirmed that the contract for 3 new building ships has a negative value of $12 mln.

The main reason for the recent volatility is the low flow of shares. Most of the financial websites show the number of outstanding shares of only 685,110 shares. In reality, the number of outstanding shares is much higher.

On 3/21/2016, the company issued a press release.

According to it, 184,721 notes were exchanged into 184,721x4 = 738,884 shares.

In addition to it, the company made several specific agreements to exchange debt into equity.

According to these agreements, the debt can be exchanged into equity based on 65%-75% of the average trading price of PRGN for the last 21 trading days. After the huge spike in stock, it will be extremely profitable to get shares for those, who signed these agreements. In 3-4 trading days, they will be able to sell these shares in open market.

Conclusion:

Fundamentally, the fair value of the company without assets and significant liabilities can hardly be much different from zero. The market price of a low flow stock can temporarily be extremely volatile. However, in the case of PRGN such volatility can hardly prolong for a long time. The strategy of the management is to exchange all of the debt into equity to get a clean shell public company. A huge spike in the stock like now, will just help them to move into this direction.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is about Paragon Shipping Inc., ticker: PRGN

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.