Paragon Shipping Q2 & Six Month Report

Paragon Shipping Inc. (NYSE: PRGN), a global shipping transportation company specializing in drybulk cargoes and containers, announced its results for the second quarter and six months ended June 30, 2010.

Commenting on the results, Michael Bodouroglou, Chairman and Chief Executive Officer of Paragon Shipping, stated, “We are pleased to announce another set of profitable quarterly results. The successful execution of our chartering and operating strategy, coupled with a disciplined approach to control costs has allowed Paragon to deliver strong financial results despite the continued challenging market conditions.”

Bodouroglou concluded, “In the first half of 2010, a particularly active period for Paragon, we have
consistently implemented our business strategy for growth, fleet renewal and diversification. Specifically we entered into contracts to build four Handysize and three Kamsarmax drybulk carriers and acquired a 2009 built Panamax drybulk carrier. We also initiated our fleet diversification into the containership sector with the negotiations for the acquisition of two high specification 2010 built 3,400 TEU vessels. At the same time we entered into a number of fixed rate period time charter contracts, which resulted in securing a substantial portion of our fleet capacity for the next twenty four months and beyond. As a result, we believe Paragon is well positioned, both operationally and financially, to create value for our shareholders and continue paying dividend.”

Second Quarter 2010 Financial Results:
Time charter revenue for the second quarter of 2010 was $29.5 million, compared to $42.3 million for the second quarter of 2009. The company reported net income of $7.3 million, or $0.14 per basic and diluted share for the second quarter of 2010, calculated on 49,481,540 weighted average number of basic and diluted shares outstanding for the period and reflecting the impact of the non-cash items discussed below. For the second quarter of 2009, the company reported net income of $15.8 million, or $0.48 per basic and diluted share, calculated on 32,816,789 weighted average number of basic and diluted shares. Excluding all non-cash items described below, adjusted net income for the second quarter of 2010 was $6.7 million, or $0.13 per basic and diluted share. This compares to adjusted net income of $16.6 million, or $0.50 and $0.51 per basic and diluted share respectively, for the second quarter of 2009. Please refer to the table at the back of this press release for reconciliations of GAAP net income to non-GAAP adjusted net income and GAAP earnings per share to non-GAAP adjusted earnings per share.

EBITDA was $17.5 million for the second quarter of 2010, compared to $27.2 million for the second quarter of 2009. This was calculated by adding to net income of $7.3 million for the second quarter of 2010, net interest expense and depreciation that in the aggregate amounted to $10.2 million for the second quarter of 2010. Adjusted EBITDA, excluding all non-cash items described below, was $16.2 million for the second quarter of 2010, compared to $27.3 million for the second quarter of 2009. Please see the table at the back of this release for a reconciliation of EBITDA and Adjusted EBITDA to net income.

The company operated an average of 11.0 vessels during the second quarter of 2010, earning an average time charter equivalent rate, or TCE rate, of $29,054 per day, compared to an average of 12.0 vessels during the second quarter of 2009, earning an average TCE rate of $36,833 per day. Please see the table at the back of this release for a reconciliation of TCE rates to time charter revenue.

Total adjusted operating expenses for the second quarter of 2010 were $7.6 million, or approximately $7,618 per day, including vessel operating expenses, management fees, general and administrative expenses and drydocking costs, but excluding $2.4 million of share-based compensation for the period. For the second quarter of 2009, total adjusted operating expenses were $6.6 million, or approximately $6,005 per day, including vessel operating expenses, management fees, general and administrative expenses and drydocking costs, but excluding $0.2 million of share-based compensation.

Second Quarter 2010 Non-cash Items
The company’s results for the three months ended June 30, 2010 included the following non-cash items:
􀂃 Non-cash revenue of $2.4 million and depreciation expense of $0.7 million associated with below market time charters attached to vessels acquired, which increases net revenue (amortized over the remaining period of the time charter) and increases depreciation expense (amortized over the remaining useful life of the vessel). These non-cash items contributed an aggregate of $1.7 million to net income, or $0.03 to basic and diluted earnings per share, for the three months ended June 30, 2010.

􀂃 An unrealized gain from interest rate swaps of $1.4 million, or $0.03 per basic and diluted share, for the three months ended June 30, 2010.

􀂃 Non-cash expenses of $2.4 million, or $0.05 per basic and diluted share, relating to the amortization for the three months ended June 30, 2010, of the compensation cost recognized for non-vested share awards issued to executive officers, directors and employees.

In the aggregate, these non-cash items increased net income by $0.6 million, or $0.01 to earnings per basic and diluted share, for the three months ended June 30, 2010.

Dividend Declared
The company’s Board of Directors declared a quarterly dividend of $0.05 per share with respect to the second quarter of 2010, payable on or about August 30, 2010 to shareholders of record as of the close of business on August 16, 2010.

Recent Fleet Developments
The Company entered into agreements to acquire two 3,400 TEU newly built containerships from their builder Howaldtswerke-Deutsche Werft GmbH, Germany at a price of €40.0 million per vessel. On July 30, 2010, the company took delivery of the Box Voyager. The second containership will be named “Box Trader” and is expected to be delivered to the company within August 2010. Both vessels have been contracted on a fixed rate period time charter term of 24 months (plus / minus 45 days) with CSAV Valparaiso Chile at a gross daily charter rate of $20,000 per vessel, with delivery dates starting from the middle of August and through the first week of September 2010.

On July 5, 2010, the Company entered into a Memorandum of Agreement for the sale of the M/V Clean Seas to an
unrelated third party for $23.5 million less 3.5% commission. Under the terms of the Memorandum of Agreement the vessel is to be delivered to its new owner between September 1, 2010 and October 31, 2010. The exact delivery date is to be determined by the Seller. The M/V Clean Seas has a carrying value of $22.5 million as of June 30, 2010.

On July 8, 2010, the Company took delivery of the M/V Dream Seas, a 75,151 dwt 2009-built Panamax bulk carrier. The M/V Dream Seas has been time chartered to Intermare Transport GMBH, a leading German based commodities trading house, for a minimum 35 months and maximum 37 months at a gross daily time charter rate of $20,000. The time charter was commenced on July 9, 2010 and will expire between May and August 2013.

Time Charter Coverage Update
Pursuant to its time chartering strategy, Paragon Shipping Inc. mainly employs vessels under fixed rate time charters for periods ranging from one to five years. Assuming all charter options are exercised, after taking into consideration the sale of M/V Clean Seas and the acquisition of the Box Voyager and the Box Trader but excluding the newbuilding vessels which are under construction, the company has secured under such contracts 100%, 98% and 56% of its fleet capacity in the remainder of 2010, in 2011 and in 2012, respectively.

Cash Flows
For the six months ended June 30, 2010, the Company generated net cash from operating activities of $28.7 million, compared to $43.5 million for the six months ended June 30, 2009. For the six months ended June 30, 2010, net cash used in investing activities was $38.4 million and net cash used in financing activities was $50.6 million. For the six months ended June 30, 2009, net cash used in investing activities was $40.0 million and net cash used in financing activities was $33.3 million.

Six months ended June 30, 2010 Financial Results:
Time charter revenue for the six months ended June 30, 2010 was $60.9 million, compared to $83.9 million for the six months ended June 30, 2009. The Company reported net income of $16.5 million, or $0.32 per basic and diluted share for the six months ended June 30, 2010, calculated on 49,481,532 weighted average number of basic and diluted shares outstanding for the period and reflecting the impact of the non-cash items discussed below. For the six months ended June 30, 2009, the Company reported net income of $35.0 million, or $1.17 per basic and diluted share, calculated on 29,962,927 weighted average number of basic and diluted shares.

Excluding all non-cash items described below, adjusted net income for the six months ended June 30, 2010 was $14.8 million, or $0.29 per basic and diluted share. This compares to adjusted net income of $31.3 million, or $1.04 per basic and diluted share for the six months ended June 30, 2009. Please refer to the table at the back of this press release for reconciliations of GAAP net income to non-GAAP adjusted net income and GAAP earnings per share to non-GAAP adjusted earnings per share.

EBITDA was $37.1 million for the six months ended June 30, 2010, compared to $59.0 million for the six months ended June 30, 2009. This was calculated by adding to net income of $16.5 million for the six months ended June 30, 2010, net interest expense and depreciation that in the aggregate amounted to $20.6 million for the six months ended June 30, 2010. Adjusted EBITDA, excluding all non-cash items described below, was $34.0 million for the six months ended June 30, 2010, compared to $54.0 million for the six months ended June 30, 2009.

The company operated 11.1 vessels during the six months ended June 30, 2010, earning an average time charter equivalent rate, or TCE rate, of $29,475 per day, compared to an average of 12.0 vessels during the six months ended June 30, 2009, earning an average time charter equivalent rate of $37,004 per day.

Total adjusted operating expenses for the six months ended June 30, 2010 were $14.5 million, or approximately $7,251 per day, including vessel operating expenses, management fees, general and administrative expenses and dry-docking costs, but excluding $4.8 million of share-based compensation for the period. For the six months ended June 30, 2009, total adjusted operating expenses were $13.6 million, or approximately $6,284 per day, including vessel operating expenses, management fees and general and administrative expenses and drydocking costs, but excluding $0.3 million of share-based compensation.

Six months ended June 30, 2010 Non-cash Items
The company’s results for the six months ended June 30, 2010 included the following non-cash items:
􀂃 Non-cash revenue of $5.3 million and depreciation expense of $1.4 million associated with below market time charters attached to vessels acquired, which increases net revenue (amortized over the remaining period of the time charter) and increases depreciation expense (amortized over the remaining useful life of the vessel). These non-cash items contributed an aggregate of $3.9 million to net income, or $0.08 to basic and diluted earnings per share, for the six months ended June 30, 2010.

􀂃 Profit on sale of MV Blue Seas of $0.3 million, or $0.01 per basic and diluted share.

􀂃 An unrealized gain from interest rate swaps of $2.4 million, or $0.05 per basic and diluted share,
respectively, for the six months ended June 30, 2010.

􀂃 Non-cash expenses of $4.8 million, or $0.10 per basic and diluted share, relating to the amortization for the six months ended June 30, 2010, of the compensation cost recognized for restricted common shares issued to executive officers, directors and employees.

In the aggregate, these non-cash items contributed $1.7 million to net income, or $0.04 to earnings per basic and diluted share, for the six months ended June 30, 2010.