Company Quick10K Filing
Pangaea Logistics Solutions
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 44 $154
10-Q 2019-11-07 Quarter: 2019-09-30
10-Q 2019-08-12 Quarter: 2019-06-30
10-Q 2019-05-15 Quarter: 2019-03-31
10-K 2019-03-20 Annual: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-Q 2018-08-07 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-21 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-14 Quarter: 2017-06-30
10-Q 2017-05-10 Quarter: 2017-03-31
10-K 2017-03-23 Annual: 2016-12-31
10-Q 2016-11-10 Quarter: 2016-09-30
10-Q 2016-08-15 Quarter: 2016-06-30
10-Q 2016-05-11 Quarter: 2016-03-31
10-K 2016-03-23 Annual: 2015-12-31
10-Q 2015-11-12 Quarter: 2015-09-30
10-Q 2015-08-13 Quarter: 2015-06-30
10-Q 2015-05-15 Quarter: 2015-03-31
10-K 2015-03-31 Annual: 2014-12-31
10-Q 2014-11-14 Quarter: 2014-09-30
8-K 2019-11-07 Other Events, Exhibits
8-K 2019-11-07 Earnings, Exhibits
8-K 2019-10-01 Regulation FD, Exhibits
8-K 2019-08-12 Other Events, Exhibits
8-K 2019-08-12 Shareholder Vote
8-K 2019-08-12 Earnings, Regulation FD, Exhibits
8-K 2019-07-22 Regulation FD, Exhibits
8-K 2019-05-20 Other Events, Exhibits
8-K 2019-05-15 Earnings, Regulation FD, Exhibits
8-K 2019-05-06 Regulation FD, Exhibits
8-K 2019-03-20 Earnings, Regulation FD, Exhibits
8-K 2018-11-27 Regulation FD, Exhibits
8-K 2018-11-08 Earnings, Regulation FD, Exhibits
8-K 2018-10-29 Regulation FD, Exhibits
8-K 2018-08-09 Shareholder Vote
8-K 2018-08-07 Earnings, Regulation FD, Exhibits
8-K 2018-05-10 Earnings, Regulation FD, Exhibits
8-K 2018-04-17 Regulation FD, Exhibits
8-K 2018-03-21 M&A, Regulation FD, Exhibits
8-K 2018-02-14 Regulation FD, Exhibits
PANL 2019-09-30
Note 1 - General Information
Note 2 - Basis of Presentation and Significant Accounting Policies
Note 3 - Fixed Assets
Note 4 - Debt
Note 5 - Derivative Instruments and Fair Value Measurements
Note 6 - Related Party Transactions
Note 7 - Commitments and Contingencies
Note 8 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities
Item 4 - Mine Safety Disclosures
Item 5 - Other Information
Item 6 - Exhibits
EX-10.46 bulkfriendshipbbcp.htm
EX-31.1 panl-9302019xex311.htm
EX-31.2 panl-9302019xex312.htm
EX-32.1 panl-9302019xex321.htm
EX-32.2 panl-9302019xex322.htm

Pangaea Logistics Solutions Earnings 2019-09-30

PANL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
TNK 252 2,161 1,214 0 0 0 0 934 0%
TNP 230 3,205 1,710 0 0 0 0 1,617 0%
SB 181 1,076 593 0 0 0 0 698 0%
ASC 161 845 498 0 0 0 0 336 0%
OSG 158 1,057 724 346 0 8 68 437 0% 6.4 1%
PANL 154 459 290 258 0 19 46 230 0% 5.0 4%
DAC 149 2,680 1,989 0 0 0 0 1,694 0%
GASS 113 1,037 475 0 0 0 0 479 0%
NMCI 100 414 231 0 0 0 0 265 0%
STNG 95 4,784 2,945 0 0 0 0 83 0%

10-Q 1 panl-9302019x10q.htm 10-Q Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 

FORM 10-Q 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2019
 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
 
 
Commission File Number: 001-36139

PANGAEA LOGISTICS SOLUTIONS LTD. 
(Exact name of Registrant as specified in its charter)
Bermuda
 
98-1205464
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
c/o Phoenix Bulk Carriers (US) LLC
109 Long Wharf
Newport, RI 02840 
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code: (401) 846-7790

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES    x                 NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  x         NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated Filer  ¨ 
 
Accelerated Filer ¨ 
Non-accelerated Filer x
 
Smaller reporting company x
 
 
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES       ¨         NO     x

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
PANL
NASDAQ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, par value $0.01 per share, 44,451,940 shares outstanding as of November 7, 2019.





TABLE OF CONTENTS
 
 
 
Page
PART I
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Signatures


2






Pangaea Logistics Solutions Ltd.

Consolidated Balance Sheets

September 30, 2019

December 31, 2018

(unaudited)

 
Assets
 

 
Current assets
 


 

Cash and cash equivalents
$
34,171,062


$
53,614,735

Accounts receivable (net of allowance of $1,823,293 at
September 30, 2019 and $2,357,130 at December 31, 2018)
29,221,444


28,481,787

Bunker inventory
17,002,101


19,222,087

Advance hire, prepaid expenses and other current assets
27,998,143


12,187,551

Total current assets
108,392,750


113,506,160





 
Restricted cash
2,500,000

 
2,500,000

Fixed assets, net
311,728,339


281,355,366

Investment in newbuildings in-process
7,691,522

 

Finance lease right of use assets, net
54,239,752

 
56,113,096

Total assets
$
484,552,363


$
453,474,622





 
Liabilities and stockholders' equity
 


 

Current liabilities
 

 
Accounts payable, accrued expenses and other current liabilities
$
35,975,324


$
31,897,507

Related party debt
1,196,683


2,877,746

Deferred revenue
14,297,237


14,717,072

Current portion of secured long-term debt
23,740,674


20,127,742

Current portion of finance lease liabilities
7,568,888

 
5,364,963

Dividend payable
1,921,622


4,063,598

Total current liabilities
84,700,428


79,048,628





 
Secured long-term debt, net
88,561,552

 
95,374,270

Finance lease liabilities
64,402,040

 
45,684,727





 
Commitments and contingencies (Note 7)









 
Stockholders' equity:
 


 

Preferred stock, $0.0001 par value, 1,000,000 shares authorized and no shares issued or outstanding

 

Common stock, $0.0001 par value, 100,000,000 shares authorized; 44,451,940 shares issued and outstanding at September 30, 2019; 43,998,560 shares issued and outstanding at December 31, 2018
4,445

 
4,400

Additional paid-in capital
157,176,223

 
155,946,452

Retained earnings
18,693,177

 
5,737,199

Total Pangaea Logistics Solutions Ltd. equity
175,873,845

 
161,688,051

Non-controlling interests
71,014,498

 
71,678,946

Total stockholders' equity
246,888,343

 
233,366,997

Total liabilities and stockholders' equity
$
484,552,363

 
$
453,474,622

 
The accompanying notes are an integral part of these consolidated financial statements

3




Pangaea Logistics Solutions Ltd.
Consolidated Statements of Income
(unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Voyage revenue
$
103,806,391

 
$
81,812,543

 
$
247,087,805

 
$
233,979,386

Charter revenue
15,079,005

 
13,532,296

 
34,632,391

 
37,161,948

 
118,885,396

 
95,344,839

 
281,720,196

 
271,141,334

Expenses:
 
 
 
 
 
 
 
Voyage expense
45,102,602

 
36,684,994

 
114,501,121

 
104,880,511

Charter hire expense
41,980,065

 
28,532,774

 
85,244,779

 
81,912,601

Vessel operating expense
11,331,770

 
9,863,944

 
32,160,692

 
29,759,818

General and administrative
2,768,253

 
3,704,360

 
12,160,924

 
12,211,329

Depreciation and amortization
4,652,563

 
4,410,977

 
13,521,078

 
13,140,234

Loss on sale and leaseback of vessels

 

 

 
860,426

Total expenses
105,835,253

 
83,197,049

 
257,588,594

 
242,764,919


 
 
 
 
 
 
 
Income from operations
13,050,143

 
12,147,790

 
24,131,602

 
28,376,415


 
 
 
 
 
 
 
Other (expense)/income:
 
 
 

 
 
 
 
Interest expense, net
(2,499,617
)
 
(2,231,589
)
 
(6,807,837
)
 
(6,384,314
)
Interest expense on related party debt
(10,902
)
 
(43,961
)
 
(48,938
)
 
(161,334
)
Unrealized (loss)/gain on derivative instruments, net
(301,058
)
 
486,412

 
2,203,899

 
477,508

Other income
180,194

 
38,481

 
580,106

 
496,813

Total other expense, net
(2,631,383
)
 
(1,750,657
)
 
(4,072,770
)
 
(5,571,327
)

 
 
 
 
 
 
 
Net income
10,418,760

 
10,397,133

 
20,058,832

 
22,805,088

Income attributable to non-controlling interests
(2,097,200
)
 
(2,120,182
)
 
(4,002,217
)
 
(4,430,120
)
Net income attributable to Pangaea Logistics Solutions Ltd.
$
8,321,560

 
$
8,276,951

 
$
16,056,615

 
$
18,374,968


 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.19

 
$
0.20

 
$
0.38

 
$
0.44

Diluted
$
0.19

 
$
0.19

 
$
0.37

 
$
0.43


 
 
 
 
 
 
 
Weighted average shares used to compute earnings per common share:
 
 
 
 
 
 
 
Basic
42,817,933

 
42,348,175

 
42,729,775

 
42,208,038

Diluted
43,354,742

 
42,878,449

 
43,247,417

 
42,727,481

 
The accompanying notes are an integral part of these consolidated financial statements
 


4




Pangaea Logistics Solutions Ltd.
Consolidated Statements of Stockholders' Equity
(unaudited)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Total Pangaea Logistics  Solutions Ltd. Equity
 
Non-Controlling Interest
 
Total  Stockholders' Equity
 
Shares
 
Amount
 
Balance at June 30, 2019
44,451,940

 
$
4,445

 
$
156,855,761

 
$
11,916,436

 
$
168,776,642

 
$
68,917,298

 
$
237,693,940

Recognized cost for restricted stock issued as compensation

 

 
320,462

 

 
320,462

 

 
320,462

Common Stock Dividend

 

 

 
(1,544,819
)
 
(1,544,819
)
 

 
(1,544,819
)
Net Income

 

 

 
8,321,560

 
8,321,560

 
2,097,200

 
10,418,760

Balance at September 30, 2019
44,451,940

 
$
4,445

 
$
157,176,223

 
$
18,693,177

 
$
175,873,845

 
$
71,014,498

 
$
246,888,343

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
43,998,560

 
$
4,400

 
$
155,946,452

 
$
5,737,199

 
$
161,688,051

 
$
71,678,946

 
$
233,366,997

Recognized cost for restricted stock issued as compensation
 
 
 
 
1,365,969

 
 
 
1,365,969

 
 
 
1,365,969

Issuance of restricted shares, net of forfeitures
453,380

 
45

 
(136,198
)
 

 
(136,153
)
 

 
(136,153
)
Distribution to Non-Controlling Interests

 

 

 

 

 
(4,666,665
)
 
(4,666,665
)
Common Stock Dividend

 

 

 
(3,100,637
)
 
(3,100,637
)
 

 
(3,100,637
)
Net Income
 
 
 
 
 
 
16,056,615

 
16,056,615

 
4,002,217

 
20,058,832

Balance at September 30, 2019
44,451,940

 
$
4,445

 
$
157,176,223

 
$
18,693,177

 
$
175,873,845

 
$
71,014,498

 
$
246,888,343

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings/(Accumulated Deficit)
 
Total Pangaea Logistics  Solutions Ltd. Equity
 
Non-Controlling Interest
 
Total  Stockholders' Equity
 
Shares
 
Amount
 
Balance at June 30, 2018
44,063,986

 
$
4,406

 
$
155,631,206

 
$
(1,921,804
)
 
$
153,713,808

 
$
67,614,258

 
$
221,328,066

Recognized cost for restricted stock issued as compensation

 


225,124




225,124




225,124

Issuance of restricted shares, net of forfeitures
(15,445
)
 
(1
)

 



(1
)



(1
)
Net income

 




8,276,951


8,276,951


2,120,182


10,397,133

Balance at September 30, 2018
44,048,541

 
$
4,405

 
$
155,856,330

 
$
6,355,147

 
$
162,215,882

 
$
69,734,440

 
$
231,950,322

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
43,794,526

 
$
4,379

 
$
154,943,728

 
$
(9,596,785
)
 
$
145,351,322

 
$
65,304,320

 
$
210,655,642

Recognized cost for restricted stock issued as compensation

 

 
1,064,520

 

 
1,064,520

 

 
1,064,520

Issuance of restricted shares, net of forfeitures
254,015

 
26

 
(101,106
)
 

 
(101,080
)
 

 
(101,080
)
Change in accounting pronouncement

 

 

 
(2,423,036
)
 
(2,423,036
)
 

 
(2,423,036
)
Fees incurred for issuance of common shares

 

 
(50,812
)
 

 
(50,812
)
 

 
(50,812
)
Net income
 
 
 
 
 
 
18,374,968

 
18,374,968

 
4,430,120

 
22,805,088

Balance at September 30, 2018
44,048,541

 
$
4,405

 
$
155,856,330

 
$
6,355,147

 
$
162,215,882

 
$
69,734,440

 
$
231,950,322


The accompanying notes are an integral part of these consolidated financial statements


5

Pangaea Logistics Solutions, Ltd.
Consolidated Statements of Cash Flows
(unaudited)

 
Nine Months Ended September 30,
 
2019
 
2018
Operating activities
 
 
 
Net income
$
20,058,832

 
$
22,805,088

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
Depreciation and amortization expense
13,521,078

 
13,140,234

Amortization of deferred financing costs
538,427

 
517,085

Amortization of prepaid rent
88,948

 
91,453

Unrealized gain on derivative instruments
(2,203,899
)
 
(477,508
)
Gain from equity method investee
(416,435
)
 
(90,000
)
Provision for doubtful accounts
(47,351
)
 
(104,288
)
Loss on sale of vessel

 
860,426

Drydocking costs
(1,561,689
)
 
(1,497,979
)
Recognized cost for restricted stock issued as compensation
1,365,968

 
1,064,520

Change in operating assets and liabilities:
 
 
 
Accounts receivable
(692,306
)
 
(5,632,597
)
Bunker inventory
2,219,986

 
(5,506,843
)
Advance hire, prepaid expenses and other current assets
(15,220,967
)
 
713,646

Accounts payable, accrued expenses and other current liabilities
6,171,148

 
873,337

Deferred revenue
(419,835
)
 
468,333

Net cash provided by operating activities
23,401,905

 
27,224,907

 
 
 
 
Investing activities


 
 
Purchase of vessels and vessel improvements
(40,201,356
)
 
(14,695,391
)
Investment in newbuildings in-process
(7,691,522
)
 

Purchase of fixed assets and equipment
(293,385
)
 
(341,439
)
Proceeds from sale of equipment

 
31,594

Net cash used in investing activities
(48,186,263
)
 
(15,005,236
)
 
 
 
 
Financing activities
 
 
 
Proceeds from long-term debt
14,000,000

 

Payments of related party debt
(1,681,063
)
 
(3,308,265
)
Payments of financing fees and issuance costs
(646,538
)
 
(702,666
)
Payments of long-term debt
(17,343,675
)
 
(16,855,738
)
Proceeds from finance leases
25,600,000

 
27,750,000

Dividends paid to non-controlling interests
(4,666,665
)
 
(904,803
)
Payments of finance lease obligations
(4,678,761
)
 
(2,177,959
)
Accrued common stock dividends paid
(5,242,613
)
 
(1,135,000
)
Cash paid for incentive compensation shares relinquished

 
(101,075
)
Proceeds from private placement of common stock, net of issuance costs

 
(50,812
)
Net cash provided by financing activities
5,340,685

 
2,513,682

 
 
 
 
Net (decrease) increase in cash, cash equivalents and restricted cash
(19,443,673
)
 
14,733,353

Cash, cash equivalents and restricted cash at beginning of period
56,114,735

 
38,531,812

Cash, cash equivalents and restricted cash at end of period
$
36,671,062

 
$
53,265,165

 
 
 
 
Supplemental cash flow information
 
 
 
Cash and cash equivalents
$
34,171,062

 
$
50,765,165

Restricted cash
2,500,000

 
2,500,000

 
$
36,671,062

 
$
53,265,165


The accompanying notes are an integral part of these consolidated financial statements

6



NOTE 1 - GENERAL INFORMATION

The accompanying consolidated financial statements include the accounts of Pangaea Logistics Solutions Ltd. and its consolidated subsidiaries (collectively, the “Company”, “we” or “our”). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership, chartering and operation of drybulk vessels. The Company is a holding company incorporated under the laws of Bermuda as an exempted company on April 29, 2014.

The Company owns three Panamax, two Ultramax Ice Class 1C, nine Supramax, and two Handymax Ice Class 1A drybulk vessels. The Company also owns one-third of Nordic Bulk Holding Company Ltd. (“NBHC”), a consolidated joint venture with a fleet of six Panamax Ice Class 1A drybulk vessels and has a 50% interest in the owner of a deck barge.

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q. Accordingly, these interim financial statements do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements. The accompanying financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the interim period results. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018. The results for three and nine months ended September 30, 2019 and 2018 are not necessarily indicative of the results for the year ending December 31, 2019 or for any other interim period or future years.
 
 The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are the estimated future cash flows used in its impairment analysis, the estimated salvage value used in determining depreciation expense and the allowances for doubtful accounts.

Voyage revenues represent revenues earned by the Company, principally from providing transportation services under voyage charters. A voyage charter involves the carriage of a specific amount and type of cargo on a load port to discharge port basis, subject to various cargo handling terms. Under a voyage charter, the service revenues are earned and recognized ratably over the duration of the voyage. A contract is accounted for when it has approval and commitment from both parties, the rights and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Estimated losses under a voyage charter are provided for in full at the time such losses become probable. Demurrage, which is included in voyage revenues, represents payments by the charterer to the vessel owner when loading and discharging time exceed the stipulated time in the voyage charter. Demurrage is measured in accordance with the provisions of the respective charter agreements and the circumstances under which demurrage revenues arise. At the time demurrage revenue can be estimated, it is included in the calculation of voyage revenue and recognized ratably over the duration of the voyage to which it pertains. Voyage revenue recognized is presented net of address commissions.

Charter revenues relate to a time charter arrangement under which the Company is paid to provide transportation services on a per day basis for a specified period of time. Revenues from time charters are earned and recognized on a straight-line basis over the term of the charter, as the vessel operates under the charter. Revenue is not earned when vessels are offhire.


7


Cash and cash equivalents include short-term deposits with an original maturity of less than three months. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:
 
 
September 30, 2019
 
December 31, 2018
 
(unaudited)
 
 
Money market accounts – cash equivalents
$
11,183,241

 
$
13,819,043

Cash (1)
22,987,821

 
39,795,692

Total cash and cash equivalents
$
34,171,062

 
$
53,614,735

Restricted cash
2,500,000

 
2,500,000

Total cash, cash equivalents and restricted cash
$
36,671,062

 
$
56,114,735


(1) Consists of cash deposits at various major banks.
 
Restricted cash at September 30, 2019 and December 31, 2018 consists of $2.5 million held by the facility agent as required by the Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. and Bulk Nordic Oshima Ltd. – Dated September 28, 2015 - Amended and Restated Loan Agreement (See NOTE 4).

Advance hire, prepaid expenses and other current assets were comprised of the following:  
 
 
September 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Advance hire
 
$
6,254,555

 
$
5,851,070

Prepaid expenses
 
4,443,081

 
1,276,901

Accrued receivables
 
12,356,249

 
2,479,800

Margin deposit
 
741,378

 
1,820,656

Other current assets
 
4,202,880

 
759,124

 
 
$
27,998,143

 
$
12,187,551

 
Accounts payable, accrued expenses and other current liabilities were comprised of the following:

 
 
September 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Accounts payable
 
$
22,881,529

 
$
19,892,511

Accrued expenses
 
10,338,546

 
7,424,286

Accrued interest
 
460,758

 
540,886

Derivative liabilities
 
1,195,198

 
3,225,907

Other accrued liabilities
 
1,099,293

 
813,917

 
 
$
35,975,324

 
$
31,897,507


Recently Issued Accounting Pronouncements
    
In February 2016, the FASB issued an ASU 2016-02, Accounting Standards Update for Leases. The update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. In determining the estimated value of right-of-use assets and lease liabilities, the Company considers the non-cancelable period of the lease as well as periods for which it is reasonably certain that renewal options will be exercised. The Company discounts any estimated lease liability using the portfolio approach, the composition of which is its secured long-term debt facilities.


8


Time charter out contracts

Charter revenue is earned when the Company lets a vessel it owns or operates to a charterer for a specified period of time. Charter revenue is based on the agreed rate per day. The charterer has the power to direct the use and receives substantially all of the economic benefits from the use of the vessel. The Company determined that all time charter contracts are considered operating leases and therefore fall under the scope of ASC 842 because: (i) the vessel is an identifiable asset; (ii) the Company does not have substantive substitution rights; and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives the economic benefits from such use.

Time charter in contracts

The Company charters in vessels to supplement its owned fleet to support its voyage charter operations. The Company hires vessels under time charters with third party vessel owners, and recognizes the charter hire payments as an expense on a straight-line basis over the term of the charter. Charter hire payments are typically made in advance, and the unrecognized portion is reflected as advance hire in the accompanying consolidated balance sheets. Under the time charters, the vessel owner is responsible for the vessel operating costs such as crews, maintenance and repairs, insurance, and stores. As allowed by a practical expedient under ASC 842, the Company made an accounting policy election by class of underlying asset for leases with a term of 12 months or less, to forego recognizing a right-of-use asset and lease liability on its balance sheet. For the quarter ending September 30, 2019, the Company did not have any time charter in contracts with terms greater than 12 months, as such charter hire expense presented on the consolidated statements of income are lease expenses for chartered in contracts less than 12 months.

Adoption of ASC 842

The Company adopted ASC 842 on January 1, 2019. The Company elected the "package of practical expedients" in the new standard, under which we are not required to reassess our prior conclusions regarding lease identification, classification and initial direct costs. We did not elect the use-of-hindsight practical expedient; and the practical expedient pertaining to land easements does not apply to the Company.

In July 2018, the Financial Accounting Standards Board issued ASU 2018-11 to amend ASU 2016-02 and provided an additional (and optional) transition method to adopt the new lease standard. This transition method allows entities to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption instead of using the original modified retrospective transition method of adoption which required the restatement of all prior period financial statements. Under this new transition method, the comparative periods presented in the financial statements will continue to be in accordance with ASC Topic 840, Leases. The Company adopted the new lease standard effective January 1, 2019 using this new transition method.

The amendments in this Update also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met:

1. The timing and pattern of transfer of the non-lease component(s) and associated lease component are the same.
2. The lease component, if accounted for separately, would be classified as an operating lease.

The Company elected to use this practical expedient when it adopted the lessor provisions of this Update. As a result, the operating lease component and the vessel operating expense non-lease component in a time charter are reported as a single component.

At September 30, 2019, the Company had nine vessels chartered to customers under time charters that contain leases. These nine leases varied in original length from 22 days to 99 days. At September 30, 2019, lease payments due under these arrangements totaled approximately $4,257,000 and each of the time charters were due to be completed in ninety-nine days or less. The Company does not have any sales-type or direct financing leases.

        Adoption of the lessee provisions of this guidance did not have a material impact on the Company's consolidated financial statements because the Company does not have any vessels chartered in (operating leases) for longer than one year and the practical expedient relating to leases with terms of 12 months or less was elected. Furthermore, the Company's finance lease right of use assets and finance lease liabilities were referred to as "assets under capital lease" and "obligations under capital leases" in prior period financial statements, but no other changes resulted from adoption of the standard. In addition, the Company has two non-cancelable office leases and non-cancelable office equipment leases and the lease assets and liabilities are not material.

9



In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses.  The new standard is effective for the Company at the beginning of 2023. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is evaluating the impact of the standard on its consolidated financial statements.

NOTE 3 - FIXED ASSETS

At September 30, 2019, the Company owned twenty-two dry bulk vessels including six financed under finance leases; and one barge. The carrying amounts of these vessels, including unamortized drydocking costs, are as follows: 
 
September 30,
 
December 31,
 
2019
 
2018
Owned vessels
(unaudited)
 
 
m/v BULK PANGAEA
$
15,217,154

 
$
15,231,305

m/v BULK PATRIOT
9,424,690

 
10,130,797

m/v BULK JULIANA
10,189,206

 
10,651,029

m/v NORDIC ODYSSEY
23,243,646

 
24,283,497

m/v NORDIC ORION
24,040,476

 
25,095,469

m/v BULK NEWPORT
13,223,098

 
13,956,092

m/v NORDIC BARENTS
4,006,193

 
4,370,817

m/v NORDIC BOTHNIA
3,962,577

 
4,322,490

m/v NORDIC OSHIMA
28,633,822

 
28,897,931

m/v NORDIC ODIN
28,401,473

 
29,151,529

m/v NORDIC OLYMPIC
28,236,711

 
29,321,599

m/v NORDIC OASIS
29,497,364

 
30,416,651

m/v BULK ENDURANCE
25,283,457

 
26,020,505

m/v BULK FREEDOM
8,300,171

 
8,467,058

m/v BULK PRIDE
13,130,123

 
13,531,561

m/v BULK SPIRIT
12,977,466

 
1,950,000

m/v BULK INDEPENDENCE
14,073,766

 

m/v BULK FRIENDSHIP (1)
14,332,515

 

MISS NORA G PEARL
2,925,285

 
2,995,144

 
309,099,193

 
278,793,474

Other fixed assets, net
2,629,146

 
2,561,892

Total fixed assets, net
$
311,728,339

 
$
281,355,366

 
 
 
 
Right of Use Assets
 
 
 
m/v BULK DESTINY
$
21,690,475

 
$
22,307,701

m/v BULK BEOTHUK
6,708,478

 
7,065,300

m/v BULK TRIDENT
12,238,021

 
12,664,906

m/v BULK PODS
$
13,602,778

 
14,075,189

 
$
54,239,752

 
$
56,113,096


(1) The Company acquired the 2011 built Supramax (m/v Bulk Friendship) on September 24, 2019.
Long-lived Assets Impairment Considerations. The carrying values of the Company’s vessels may not represent their fair market value or the amount that could be obtained by selling the vessel at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the pricing of new vessels, which tend to be cyclical. The carrying value of each group of vessels classified as held and used are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of a particular group may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the group and its eventual

10


disposition is less than its carrying value. This assessment is made at the group level, which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size and major characteristic or trade.

The significant factors and assumptions used in the undiscounted projected net operating cash flow analysis include the Company’s estimate of future time charter equivalent "TCE" rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and address commissions and assume no revenue on scheduled offhire days. The Company uses the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying value of the asset group, an impairment charge would be recognized.

    The Company did not identify any potential triggering events for the three and nine month periods ended September 30, 2019.

The Company identified potential triggering events that resulted from sale and leaseback financing arrangements transacted during the nine months ended September 30, 2018. As a result, the Company evaluated each asset group for impairment by estimating the total undiscounted cash flows expected to result from the use of the asset group and its eventual disposal. The estimated undiscounted future cash flows were higher than the carrying amount of the vessels in the Company's fleet and as such, no loss on impairment was recognized.

The Company did not identify any potential triggering events for the three months ended September 30, 2018.

NOTE 4 - DEBT

Long-term debt consists of the following: 
 
 
September 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Bulk Phoenix Secured Note (1)
 
$

 
$
2,702,374

Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. and Bulk Nordic Oshima Ltd. Amended and Restated Loan Agreement (2)
 
56,700,000

 
62,325,000

Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.)
 

 
4,489,100

Bulk Nordic Oasis Ltd. Loan Agreement
 
15,875,000

 
17,000,000

The Amended Senior Facility - Dated May 13, 2019 (formerly The Amended Senior Facility - Dated December 21, 2017) (3)
 
36,806,664

 
25,626,665

Bulk Freedom Loan Agreement
 
3,950,000

 
4,450,000

109 Long Wharf Commercial Term Loan
 
730,666

 
812,867

Total
 
$
114,062,330

 
$
117,406,006

Less: unamortized bank fees
 
(1,760,104
)
 
(1,903,994
)
 
 
$
112,302,226

 
$
115,502,012

Less: current portion
 
(23,740,674
)
 
(20,127,742
)
Secured long-term debt, net
 
$
88,561,552

 
$
95,374,270


(1) 
See Senior Secured Post-Delivery Term Loan Facility below.
(2) 
The borrower under this facility is NBHC, of which the Company and its joint venture partners, STST and ASO2020, each own one-third. NBHC is consolidated in accordance with ASC 810-10 and as such, amounts pertaining to the non-controlling ownership held by these third parties in the financial position of NBHC are reported as non-controlling interest in the accompanying balance sheets.

11


(3) 
This facility is cross-collateralized by the vessels m/v Bulk Endurance, m/v Bulk Pride, and m/v Bulk Independence and is guaranteed by the Company.

The Senior Secured Post-Delivery Term Loan Facility
 
On April 14, 2017, the Company, through its wholly owned subsidiaries, Bulk Pangaea, Bulk Patriot, Bulk Juliana, Bulk Trident and Bulk Phoenix, entered into the Fourth Amendatory Agreement, (the "Fourth Amendment"), amending and supplementing the Loan Agreement dated April 15, 2013, as amended by a First Amendatory Agreement dated May 16, 2013, the Second Amendatory Agreement dated August 28, 2013 and the Third Amendatory Agreement dated July 14, 2016. The Fourth Amendment advanced the final repayment dates for Bulk Pangaea and Bulk Patriot, which have since been repaid. Final payment on the Bulk Juliana Secured Note was made on July 19, 2018. The Bulk Trident Secured Note was repaid on June 7, 2018 in conjunction with the sale and leaseback of the vessel (NOTE - 7).

Bulk Phoenix Secured Note

Initial amount of $10,000,000, entered into in May 2013, for the acquisition of m/v Bulk Newport. The Fourth Amendment did not change this tranche, the balance of which was payable in two installments of $700,000 and seven installments of $442,858. The final balloon payment of $1,816,659 was paid on July 19, 2019. The interest rate was fixed at 5.09%.

Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. And Bulk Nordic Oshima Ltd. – Dated September 28, 2015 - Amended and Restated Loan Agreement
 
The amended agreement advanced $21,750,000 in respect of each the m/v Nordic Odin and the m/v Nordic Olympic; $13,500,000 in respect of each the m/v Nordic Odyssey and the m/v Nordic Orion, and $21,000,000 in respect of the m/v Nordic Oshima.

The agreement requires repayment of the advances as follows:

In respect of the Odin and Olympic advances, repayment to be made in 28 equal quarterly installments of $375,000 per borrower (one of which was paid prior to the amendment by each borrower) and balloon payments of $11,233,150 due with each of the final installments in January 2022.

In respect of the Odyssey and Orion advances, repayment to be made in 20 quarterly installments of $375,000 per borrower and balloon payments of $5,677,203 due with each of the final installments in September 2020.

In respect of the Oshima advance, repayment to be made in 28 equal quarterly installments of $375,000 and a balloon payment of $11,254,295 due with the final installment in September 2021.
 
Interest on 50% of the advances to Odyssey and Orion was fixed at 4.24% in March 2017. Interest on the remaining advances to Odyssey and Orion is floating at LIBOR plus 2.40% (4.73% at September 30, 2019). Interest on 50% of the advances to Odin and Olympic was fixed at 3.95% in January 2017. Interest on the remaining advances to Odin and Olympic was floating at LIBOR plus 2.0% and was fixed at 4.07% on April 27, 2017. Interest on 50% of the advance to Oshima was fixed at 4.16% in January 2017. Interest on the remaining advance to Oshima is floating at LIBOR plus 2.25% (4.40% at September 30, 2019).

The amended loan is secured by first preferred mortgages on the m/v Nordic Odin, m/v Nordic Olympic, m/v Nordic Odyssey, m/v Nordic Orion and m/v Nordic Oshima, the assignment of earnings, insurances and requisite compensation of the five entities, and by guarantees of their shareholders.

The amended agreement contains one financial covenant that requires the Company to maintain minimum liquidity and a collateral maintenance ratio clause, which requires the aggregate fair market value of the vessels plus the net realizable value of any additional collateral provided, to remain above defined ratios. At September 30, 2019 and December 31, 2018, the Company was in compliance with this covenant.

The Bulk Nordic Oasis Ltd. - Loan Agreement - Dated December 11, 2015

The agreement advanced $21,500,000 in respect of the m/v Nordic Oasis. The agreement requires repayment of the advance in 24 equal quarterly installments of $375,000 beginning on March 28, 2016 and a balloon payment of $12,500,000 due with the final installment in March 2022. Interest on this advance is fixed at 4.30%.

12



The loan is secured by a first preferred mortgage on the m/v Nordic Oasis, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. As of September 30, 2019 and December 31, 2018, the Company was in compliance with this covenant.
 
Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.)
 
Barents and Bothnia entered into a secured Term Loan Facility of $13,000,000 in two tranches of $6,500,000 which were drawn in conjunction with the delivery of the m/v Bulk Bothnia on January 23, 2014 and the m/v Bulk Barents on March 7, 2014. The loan is secured by mortgages on the m/v Nordic Bulk Barents and m/v Nordic Bulk Bothnia and is guaranteed by the Company.
 
The loan requires repayment in 22 equal quarterly installments of $163,045 (per borrower) beginning in June 2014, one installment of $163,010 (per borrower) and a balloon payment of $1,755,415 (per borrower) due in December 2019. The term loan was fully repaid on June 26, 2019. The interest rate was floating at LIBOR plus 2.5% since inception.

The Amended Senior Facility - Dated May 13, 2019 (previously identified as The Amended Senior Facility - Dated December 21, 2017)

On May 13, 2019, the Company, through its wholly owned subsidiaries, Bulk Endurance, Bulk Pride and Bulk Independence entered into the Second Amendatory Agreement, (the "Second Amendment"), amending and supplementing the First Amendatory Agreement dated December 17, 2017. The Second Amendment advanced $14,000,000 under Tranche E in respect to the m/v Bulk Independence, extended maturity dates on Tranche A, B, and C to May 2024, and reduced applicable interest rate margin on Tranche A, B, and C to 1.70% for the first eight quarters following the drawdown of Tranche E, and 2.40% thereafter.

Bulk Endurance Tranche A and B

The amended agreement advanced $19,500,000 in respect of the m/v Bulk Endurance on January 7, 2017, in two tranches. The agreement requires repayment of Tranche A, totaling $16,000,000, in three equal quarterly installments of $100,000 beginning on April 7, 2017 and 27 equal quarterly installments of $266,667. A balloon payment of $8,499,991 is due with the final installment in May 2024. Interest on this advance was fixed at 3.69% through March 2021, fixed at 4.16% through December 2021, and thereafter floating at Libor plus 2.40%. The agreement also advanced $3,500,000 under Tranche B, which is payable in 28 equal quarterly installments of $65,000 beginning on September 27, 2017, and a balloon payment of $1,680,000 due with the final installment in May 2024. Interest on this advance is floating at LIBOR plus 1.70% (4.01% at September 30, 2019) through March 2021, and thereafter at Libor plus 2.4%.

Bulk Pride Tranche C and D

The amended agreement advanced $10,000,000 in respect of the m/v Bulk Pride on December 21, 2017, in two tranches. The agreement requires repayment of Tranche C, totaling $8,500,000, in 26 equal quarterly installments of $275,000 beginning in March 2018 and a balloon payment of $1,350,000 due with the final installment in May 2024. Interest on this advance is floating at LIBOR plus 1.70% (4.69% at September 30, 2019) through March 2021, and thereafter at Libor plus 2.4% . The agreement also advanced $1,500,000 under Tranche D, which is payable in 4 equal quarterly installments of $375,000 beginning in September 2018. Tranche D was fully repaid in June 2019.

Bulk Independence Tranche E

The amended agreement advanced $14,000,000 under Tranche E in respect of the m/v Bulk Independence on May 13, 2019, which requires repayment of 20 equal quarterly installments of $250,000 beginning in September 2019 and a balloon payment of $9,000,000 due with the final installment in May 2024. Interest on this advance is floating at LIBOR plus 1.70% (4.01% at September 30, 2019) during first eight quarters, and at LIBOR plus 2.40% thereafter.

The loan is secured by first preferred mortgages on the m/v Bulk Endurance, the m/v Bulk Pride and the m/v Bulk Independence, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a minimum liquidity requirement, positive working capital of the borrower and a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional

13


collateral previously provided, to remain above defined ratios. At September 30, 2019 and December 31, 2018, the Company was in compliance with these covenants.

The Bulk Freedom Corp. Loan Agreement -- Dated June 14, 2017

The agreement advanced $5,500,000 in respect of the m/v Bulk Freedom on June 14, 2017. The agreement requires repayment of the loan in 8 quarterly installments of $175,000 and 12 quarterly installments of $150,000 beginning on September 14, 2017. A balloon payment of $2,300,000 is due with the final installment. The facility bears interest at LIBOR plus a margin of 3.75% (5.78% at September 30, 2019).

The loan is secured by a first preferred mortgage on the m/v Bulk Freedom, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. At September 30, 2019 and December 31, 2018, the Company was in compliance with this covenant.

109 Long Wharf Commercial Term Loan
 
Initial amount of $1,096,000 entered into on May 27, 2016. The Long Wharf Construction to Term Loan was repaid from the proceeds of this new facility. The loan is payable in 120 equal monthly installments of $9,133. Interest is floating at the 30 day LIBOR plus 2.0% (4.14% at September 30, 2019). The loan is collateralized by all real estate located at 109 Long Wharf, Newport, RI, and a corporate guarantee of the Company. The loan contains a maximum loan to value covenant and a debt service coverage ratio. At September 30, 2019 and December 31, 2018, the Company was in compliance with these covenants.

The future minimum annual payments (excluding unamortized bank fees) under the debt agreements are as follows: 
Year ending December 31,
 
 
(unaudited)

Remainder of 2019
$
3,284,067

2020
22,990,674

2021
20,640,563

2022
41,102,568

2023
3,536,268

Thereafter
22,508,190

 
$
114,062,330


NOTE 5 - DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Forward freight agreements

The Company assesses risk associated with fluctuating future freight rates and, when appropriate, hedges identified economic risk with appropriate derivative instruments, specifically forward freight agreements (FFAs). These economic hedges do not usually qualify for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of FFAs at September 30, 2019 and December 31, 2018 were assets and liabilities of approximately $173,000 and $60,000, respectively, which are included in other current assets and other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the three months ended September 30, 2019 and 2018 are a gain of approximately $116,000 and a loss of approximately $9,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of income. The change in the aggregate fair value of the FFAs during the nine months ended September 30, 2019 and 2018 are a gain of approximately $233,000 and a loss of approximately $263,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of income.


14


Fuel Swap Contracts

The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker hedging program. The Company enters into fuel swap contracts that are not designated for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of these fuel swaps at September 30, 2019 and December 31, 2018 are liabilities of approximately $1,195,000 and $3,166,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the fuel swaps during the three months ended September 30, 2019 and 2018 are a loss of approximately $417,000 and a gain of approximately $495,000, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of income. The change in the aggregate fair value of the fuel swaps during the nine months ended September 30, 2019 and 2018 are gains of approximately $1,971,000 and $740,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of income.

The three levels of the fair value hierarchy established by ASC 820, Fair Value Measurements and Disclosures, in order of priority are as follows:
 
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 fair value measurements include cash, money-market accounts and restricted cash accounts.
 
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.
 
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions). 

The following table summarizes assets and liabilities measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018:
 
Balance at
 
 
 
 
 
 
 
September 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
(unaudited)
 
 
 
 
 
 
Margin accounts
$
741,378

 
$
741,378

 
$

 
$

Fuel swaps
$
(1,195,198
)
 
$

 
$
(1,195,198
)
 
$

Freight forward agreements
$
173,190

 
$

 
$
173,190

 
$

 
 
Balance at
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
Margin accounts
$
1,820,657

 
$
1,820,657

 
$

 
$

Fuel swaps
$
(3,165,967
)
 
$

 
$
(3,165,967
)
 
$

Freight forward agreements
$
(59,940
)
 
$

 
$
(59,940
)
 
$

 
The estimated fair values of the Company’s forward freight agreements and fuel swap contracts are based on market prices obtained from an independent third-party valuation specialist based on published indices. Such quotes represent the estimated amounts the Company would receive or pay to terminate the contracts.


15


NOTE 6 - RELATED PARTY TRANSACTIONS

Amounts and notes payable to related parties consist of the following:
 
December 31, 2018
 
Activity
 
September 30, 2019
 
 
 
 
 
(unaudited)
Included in trade accounts receivable and voyage revenue on the consolidated balance sheets and statements of income, respectively:
 
 
 
 
 
Trade receivables due from King George Slag (i)
$
627,629

 
$
(119,999
)
 
$
507,630

 
 
 
 
 
 
Included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets:
 

 
 

 
 

Affiliated companies (trade payables) (ii)
1,971,935

 
951,003

 
2,922,938

 
 
 
 
 
 
Included in current related party debt on the consolidated balance sheets:
 

 
 

 
 

Loan payable – 2011 Founders Note
$
2,595,000

 
(1,730,000
)
 
$
865,000

Interest payable - 2011 Founders Note
282,746

 
48,937

 
331,683

Total current related party debt
$
2,877,746

 
$
(1,681,063
)
 
$
1,196,683


i.
King George Slag LLC is a joint venture of which the Company owns 25%
ii.
Seamar Management S.A. ("Seamar")



On October 1, 2011, the Company entered into a $10,000,000 loan agreement with the Founders, which was payable on demand at the request of the lenders (the 2011 Founders Note). The note bears interest at a rate of 5%. The balance of the 2011 Founders Note were $865,000 and $2,595,000 at September 30, 2019 and December 31, 2018, respectively.

Under the terms of a technical management agreement between the Company and Seamar Management S.A. (“Seamar”), an equity method investee, Seamar is responsible for the day-to-day operations for certain of the Company’s owned vessels. During the three months ended September 30, 2019 and 2018, the Company incurred technical management fees of approximately $832,200 and $777,600, respectively, under this arrangement. The total amounts payable to Seamar at September 30, 2019 and December 31, 2018 were approximately $2,923,000 and $1,972,000, respectively.
    
Dividends payable to related parties consist of the following:
 
 
2013 common stock dividend
Balance at December 31, 2018
 
$
4,063,598

Payments
 
(2,256,357
)
Balance at September 30, 2019
 
$
1,807,241



NOTE 7 - COMMITMENTS AND CONTINGENCIES

Vessel Sales and Leasebacks Accounted for as Capital Leases (in accordance with prior accounting guidance - ASC 840)

The Company's fleet includes six vessels financed under sale and leaseback financing arrangements accounted for as capital leases. These leases are secured by the assignment of earnings and insurances and by guarantees of the Company.


16


The selling price of the m/v Bulk Destiny to the new owner (lessor) was $21.0 million and the fair value of the vessel at the inception of the lease was $24.0 million. The difference between the selling price and the fair value of the vessel was recorded as prepaid rent and is being amortized over the 25 year estimated useful life of the vessel. Prepaid rent is included in finance lease right of use assets (previously "vessels under capital lease") on the consolidated balance sheet at September 30, 2019. Minimum lease payments fluctuate based on three-month LIBOR and are payable quarterly over the seven year lease term, with a purchase obligation of $11,200,000 due with the final lease payment in January 2024. Interest is floating at LIBOR plus 2.75% (5.05% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term. The lease contains a minimum liquidity requirement, positive working capital of the leasee and a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. At September 30, 2019 and December 31, 2018, the Company was in compliance with these covenants.

The selling price of the m/v Bulk Beothuk was $7,000,000 and the fair value was estimated to be the same. The lease is payable at $3,500 per day every fifteen days over the five year lease term, and a balloon payment of $4,000,000 is due with the final lease payment in June 2022. The implied interest rate at inception was 11.83%. The Company will own this vessel at the end of the lease term.

The selling price of the m/v Bulk Trident was $13,000,000 and the fair value was estimated to be the same. The Company simultaneously leased the vessel back from the buyer. The minimum lease payments fluctuate based on three-month LIBOR and are payable monthly over the eight-year lease term. The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. Interest is floating at LIBOR plus 1.7% (3.79% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term.

The selling price of the m/v Bulk PODS was $14,750,000 and the fair value was estimated to be the same. The Company simultaneously leased the vessel back from the buyer. The minimum lease payments fluctuate based on three-month LIBOR and are payable monthly over the eight-year lease term. The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. Interest is floating at LIBOR plus 1.7% (3.63% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term.    

Vessel Acquisition Accounted for as a Finance Lease (in accordance with new accounting guidance - ASC 842)
    
In February 2019, the Company acquired the m/v Bulk Spirit for $13,000,000, which is the estimated fair value and simultaneously entered into a failed sale and leaseback of the vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606, because control of the vessel was not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease transfers ownership of the vessel to the Company by the end of the lease term. The minimum lease payments include interest at 5.10% for the first five years. Interest fluctuates based on the three-month LIBOR for the remaining three years of the eight-year lease term. The Company has the option to purchase the vessel at the end of the second year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. The Company is obligated to repurchase the vessel at the end of the lease term. A balloon payment of $3,875,000 is due with the final lease payment in March 2027. This lease is secured by the assignment of earnings and insurances and by a guarantee of the Company.

In September 2019, the Company acquired the m/v Bulk Friendship for $14,100,000, which is the estimated fair value and simultaneously entered into a failed sale and leaseback of the vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606, because control of the vessel was not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease includes a fixed price purchase option, which the Company expects to exercise at the end of the lease term. The minimum lease payments include imputed interest at 5.29%. The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. In the event the Company has not exercised any of the purchase options during the term of the charter then the Company shall have a final purchase option to purchase the vessel at the end of the fifth year at a fixed price of $7,780,000. This lease is secured by the assignment of earnings and insurances and by a guarantee of the Company.

Long-term Contracts Accounted for as Operating Leases

The Company leases office space for its Copenhagen operations. Since December 31, 2018, this lease continues on a month to month basis. The non-cancelable period is six months.

The Company leases office space for its Singapore operations. At September 30, 2019, the remaining obligation under this lease is approximately $115,000.

17



For the three and nine months ended September 30, 2019, the Company recognized approximately $52,000 and $155,000, respectively, as lease expense for office leases in General and Administrative Expenses.

Future minimum lease payments under finance leases with initial or remaining terms in excess of one year at September 30, 2019 were:
Year ending December 31,
 
Remainder of 2019
$
3,053,273

2020
11,592,392

2021
11,304,976

2022
14,303,933

2023
21,362,721

Thereafter
27,711,516

Total minimum lease payments
$
89,328,811

Less imputed interest
17,357,883

Present value of minimum lease payments
71,970,928

Less current portion
7,568,888

Long-term portion
$
64,402,040


Other

On April 30, 2019, the Company entered into a vessel newbuilding contract to build two new high ice class post-panamax 95,000 dwt dry bulk vessels. At that time, the Company held options to build two more similar vessels. The new vessels, with a building cost of approximately $38.3 million each, are expected to be delivered in the first half of 2021. As of September 30, 2019, the Company has made deposits of $7.7 million for the two new vessels. The second installments of 20% are due and payable upon launching of the vessels and the final payments are due upon delivery of the vessels.

On September 29, 2019, the Company declared its options to build the additional optional two new post-panamax 95,000 dwt dry bulk vessels. The new vessels, with a building cost of approximately $37.7 million each, are expected to be delivered in November 2021. The first installments of 10% are expected to be made in November 2019, the second installments of 20% are due and payable upon launching of the vessels and the final payments are due upon delivery of the vessels.    

Coincident with the declaration of the options, the Company entered into a series of transactions to finance its four new post-panamax dry bulk vessels, to be delivered in 2021, under sale and leaseback transactions. The agreements obligate the Company to sell the vessels upon completion of construction at the lesser of approximately $32 million or 85% of fair market value at closing. Following the sale, the Company is obligated to charter the vessels from the buyer under a bareboat charter for a period of 15 years with a purchase obligation of $2.5 million at the end of year 15. The Company has options to purchase the vessels at designated prices starting the sixth year after delivery of each vessel. The Company expects to account for these transactions as failed sale and leaseback transactions and classify the leases as finance leases.

The Company is subject to certain asserted claims arising in the ordinary course of business. The Company intends to vigorously assert its rights and defend itself in any litigation that may arise from such claims. While the ultimate outcome of these matters could affect the results of operations of any one year, and while there can be no assurance with respect thereto, management believes that after final disposition, any financial impact to the Company would not be material to its consolidated financial position, results of operations, or cash flows.    


18


NOTE 8 - SUBSEQUENT EVENTS
    
In October 2019, the Company, through its wholly-owned subsidiary, entered into a Memorandum of Agreement to sell to an unaffiliated third party, the 2001-built vessel Bulk Juliana for a sale price of $6.5 million before commissions. The loss on sale of the vessel upon completion of the transaction will be approximately $3.7 million. The Company expects to deliver the vessel to the new owner in late November 2019.    

In October 2019, the Company, through its wholly-owned subsidiary, entered into a Memorandum of Agreement to sell to an unaffiliated third party, the 1996-built vessel Bulk Patriot for a sale price of $4.5 million before commissions. The loss on sale of the vessel upon completion of the transaction will be approximately $4.9 million. The Company expects to deliver the vessel to the new owner in December 2019.

On November 7, 2019, the Company declared a quarterly cash dividend of $0.035 per common share.
    

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with our consolidated financial statements and footnotes thereto contained in this report.

Forward Looking Statements

All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward looking statements as a result of the risk factors and other factors detailed in our filings with the Securities and Exchange Commission. All subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

Important Financial and Operational Terms and Concepts

The Company uses a variety of financial and operational terms and concepts when analyzing its performance.

These include revenue recognition, deferred revenue, allowance for doubtful accounts, vessels and depreciation and long-lived assets impairment considerations, as defined above as well as the following:

Voyage Revenue. Voyage revenue is derived from voyage charters which involve the carriage of cargo from a load port to a discharge port, which is predetermined in each voyage contract. Gross revenue is calculated by multiplying the agreed rate per ton of cargo by the number of tons loaded. The Company directs how and for what purpose the vessel is used and therefore, these voyage contracts do not contain leases.

Charter Revenue. Charter revenue is earned when the Company lets a vessel it owns or operates to a charterer for a specified period of time. Charter revenue is based on the agreed rate per day. These time-charter arrangements contain leases because the lessee has the power to direct the use and receives substantially all of the economic benefits from the use of the vessel. The operating lease component and the vessel operating expense non-lease component of a time-charter contract are reported as a single component.

Voyage Expenses. The Company incurs expenses for voyage charters, including bunkers (fuel), port charges, canal tolls, brokerage commissions and cargo handling operations, which are expensed as incurred.

Charter Expenses. The Company charters in vessels to supplement its owned fleet to support its voyage charter operations. The Company hires vessels under time charters with third party vessel owners, and recognizes the charter hire payments as an expense on a straight-line basis over the term of the charter. Charter hire payments are typically made in advance, and the unrecognized portion is reflected as advance hire in the accompanying consolidated balance sheets. Under the time charters, the vessel owner is responsible for the vessel operating costs such as crews, maintenance and repairs, insurance, and stores. The Company does not record a right-of-use asset or lease liability for any arrangement less than one year.

19





Vessel Operating Expenses. Vessel operating expenses represent the cost to operate the Company’s owned vessels. Vessel operating expenses include crew hire and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes, other miscellaneous expenses, and technical management fees. These expenses are recognized as incurred. Technical management services include day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, arranging the hire of crew, and purchasing stores, supplies, and spare parts.

Net Revenue. Net revenue represents total revenue less the total direct costs of transportation and services, which includes charter hire, voyage and vessel operating expenses. Refer to Selected Financial Information, "Net revenue" for additional discussion.

Fleet Data. The Company believes that the measures for analyzing future trends in its results of operations consist of the following:

Shipping days. The Company defines shipping days as the aggregate number of days in a period during which its owned or chartered-in vessels are performing either a voyage charter (voyage days) or a time charter (time charter days).

Daily vessel operating expenses. The Company defines daily vessel operating expenses as vessel operating expenses divided by ownership days for the period. Vessel operating expenses include crew hire and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes, other miscellaneous expenses, and technical management fees.

Chartered in days. The Company defines chartered in days as the aggregate number of days in a period during which it chartered in vessels from third party vessel owners.

Time Charter Equivalent ‘‘TCE’’ rates. The Company defines TCE rates as total revenues less voyage expenses divided by the length of the voyage, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because rates for vessels on voyage charters are generally not expressed in per-day amounts while rates for vessels on time charters generally are expressed in per-day amounts.

20




Selected Financial Information

(in thousands, except shipping days data)
(figures may not foot due to rounding)
 
As of and for the
three months ended September 30,
 
As of and for the
nine months ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Selected Data from the Consolidated Statements of Income
 
 
 
 
Voyage revenue
 
$
103,806

 
$
81,813

 
$
247,088

 
$
233,979

Charter revenue
 
15,079

 
13,532

 
34,632

 
37,162

Total revenue
 
118,885

 
95,345

 
281,720

 
271,141

Voyage expense
 
45,103

 
36,685

 
114,501

 
104,881

Charter expense
 
41,980

 
28,533

 
85,245

 
81,913

Vessel operating expenses
 
11,332

 
9,864

 
32,161

 
29,760

Total cost of transportation and service revenue
 
98,414

 
75,082

 
231,907

 
216,553

Net revenue (1)
 
20,471

 
20,263

 
49,814

 
54,588

Other operating expenses
 
7,421

 
8,115

 
25,682

 
25,352

Loss on sale and leaseback of vessels
 

 

 

 
860

Income from operations
 
13,050

 
12,148

 
24,132

 
28,376

Total other expense, net
 
(2,631
)
 
(1,751
)
 
(4,073
)
 
(5,571
)
Net income
 
10,419

 
10,397

 
20,059

 
22,805

Income attributable to non-controlling interests
 
(2,097
)
 
(2,120
)
 
(4,002
)
 
(4,430
)
Net income attributable to Pangaea Logistics Solutions Ltd.
 
$
8,322

 
$
8,277

 
$
16,057

 
$
18,375

 
 
 
 
 
 
 
 
 
Adjusted EBITDA (2)
 
17,703

 
16,559

 
37,653

 
42,377

 
 
 
 
 
 
 
 
 
Shipping Days (3)
 
 

 
 

 
 
 
 
Voyage days
 
3,712

 
3,193

 
9,670

 
9,366

Time charter days
 
924

 
964

 
2,466

 
2,598

Total shipping days
 
4,636

 
4,157

 
12,136

 
11,964

 
 
 
 
 
 
 
 
 
TCE Rates ($/day) (4)
 
$
15,915

 
$
14,111

 
$
13,779

 
$
13,897


 
 
September 30, 2019
 
December 31, 2018
Selected Data from the Consolidated Balance Sheets
 
 

 
 

Cash, restricted cash and cash equivalents
 
$
36,671

 
$
56,115

Total assets
 
$
484,552

 
$
453,475

Total secured debt, including finance leases liabilities
 
$
184,273

 
$
166,552

Total liabilities and stockholders' equity
 
$
484,552

 
$
453,475

 
 
 
 
 
 
 
For the nine months ended September 30,
 
 
2019
 
2018
Selected Data from the Consolidated Statements of Cash Flows
 
 
 
 
Net cash provided by operating activities
 
$
23,402

 
$
27,225

Net cash used in investing activities
 
$
(48,186
)
 
$
(15,005
)
Net cash provided by financing activities
 
$
5,341

 
$
2,514


21




(1)
Net revenue represents total revenue less the total direct costs of transportation and services, which includes charter hire, voyage and vessel operating expenses. Net revenue is included because it is used by management and certain investors to measure performance by comparison to other logistic service providers. Net revenue is not an item recognized by the generally accepted accounting principles in the United States of America, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other indicator of a company's operating performance required by U.S. GAAP. Pangaea’s definition of net revenue used here may not be comparable to an operating measure used by other companies.

(2)
Adjusted EBITDA represents operating earnings before interest expense, income taxes, depreciation and amortization, loss on sale and leaseback of vessels and other non-operating income and/or expense, if any. Adjusted EBITDA is included because it is used by management and certain investors to measure operating performance and is also reviewed periodically as a measure of financial performance by Pangaea's Board of Directors. Adjusted EBITDA is not an item recognized by the generally accepted accounting principles in the United States of America, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other indicator of a company's operating performance required by U.S. GAAP. Pangaea’s definition of Adjusted EBITDA used here may not be comparable to the definition of EBITDA used by other companies.

The reconciliation of income from operations to net revenue and Adjusted EBITDA is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net Revenue
 
 
 
 
 
 
 
Income from operations
$
13,050,143

 
$
12,147,790

 
$
24,131,602

 
$
28,376,415

General and administrative
2,768,253

 
3,704,360

 
12,160,924

 
12,211,329

Depreciation and amortization
4,652,563

 
4,410,977

 
13,521,078

 
13,140,234

Loss on sale and leaseback of vessels
$

 
$

 
$

 
$
860,426

Net Revenue
$
20,470,959

 
$
20,263,127

 
$
49,813,604

 
$
54,588,404

 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
Income from operations
13,050,143

 
12,147,790

 
24,131,602

 
28,376,415

Depreciation and amortization
4,652,563

 
4,410,977

 
13,521,078

 
13,140,234

Loss on sale and leaseback of vessels
$

 
$

 
$

 
$
860,426

Adjusted EBITDA
$
17,702,706

 
$
16,558,767

 
$
37,652,680

 
$
42,377,075

 
(3) Shipping days are defined as the aggregate number of days in a period during which its owned or chartered-in vessels are performing either a voyage charter (voyage days) or time charter (time charter days).

(4) Pangaea defines time charter equivalent, or “TCE,” rates as total revenues less voyage expenses divided by the length of the voyage, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because rates for vessels on voyage charters are generally not expressed in per-day amounts while rates for vessels on time charters generally are expressed in such amounts.


22




Industry Overview

The dry bulk sector of the transportation and logistics industry is cyclical and can be volatile due to changes in supply of vessels and demand for transportation of dry bulk commodities. The Baltic Dry Index (“BDI”), a measure of dry bulk market performance, rose from a seasonal low of 1,354 at the end of the second quarter to 1,823 at the end of the third quarter. The BDI averaged 2,023 for the third quarter of 2019, up from an average of 1,627 for the comparable quarter of 2018.

The Company's TCE rates were up 13% from $14,111 for the three months ended September 30, 2018 to $15,915 for the three months ended September 30, 2019. The Company's achieved TCE rate for the three months ended September 30, 2019 continued to outperform against the average of the Baltic panamax and supramax market indexes and exceeded the average market rates by approximately 16% due to its long-term contracts of affreightment, ("COAs"), its specialized fleet and its cargo-focused strategy.

3rd Quarter Highlights     

Net income attributable to Pangaea Logistics Solutions Ltd. was approximately $8.3 million for three months ended September 30, 2019 consistent with approximately $8.3 million for the same period of 2018.
Diluted earnings per share were $0.19 for both three months ended September 30, 2019 and 2018.
Pangaea's TCE rates were $15,915 for the three months ended September 30, 2019 and $14,111 for the three months ended September 30, 2018 while the market average for the third quarter of 2019 was approximately $13,728, giving the Company an overall average premium over market rates of approximately $2,187 or 16%. The Company's long-term COAs, cargo focus, and specialized fleet give rise to this premium.
Total revenue increased to $118.9 million for the three months ended September 30, 2019, from $95.3 million for the three months ended September 30, 2018 due to an increase in market rates and shipping days.
At the end of the quarter, Pangaea had $36.7 million in cash, restricted cash and cash equivalents.

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018
 
Revenues
 
Pangaea’s revenues are derived predominately from voyage and time charters, which are discussed below. Total revenue for the three months ended September 30, 2019 was $118.9 million, compared to $95.3 million for the same period in 2018, a 25% increase. The total number of shipping days increased 12% to 4,636 in the three months ended September 30, 2019, compared to 4,157 for the same period in 2018.
 
Components of revenue are as follows:
 
Voyage revenues increased by 27% for the three months ended September 30, 2019 to $103.8 million compared to $81.8 million for the same period in 2018. The increase in voyage revenues was primarily due to an increase in the number of voyage days, which were 3,712 in the third quarter of 2019 as compared to 3,193 in the third quarter of 2018, or 16% increase, and by the increase in TCE rates, as discussed above.

Charter revenues increased to $15.1 million from $13.5 million, or 11%, for the three months ended September 30, 2019 compared to the same period in 2018. The increase in charter revenues was due to an increase in hire rates, offset by a slight decline in time charter days. The optionality of our chartering strategy allows the Company to selectively release excess tonne-days into the market under time charters arrangements.
 
Voyage Expenses
 
Voyage expenses for the three months ended September 30, 2019 were $45.1 million, compared to $36.7 million for the same period in 2018, an increase of approximately 23%. The increase in voyage expense was primarily due to a 16% increase in voyage days in third quarter of 2019, along with an increase in port expenses for voyages that completed during the period.


23




Charter Hire Expenses
 
Charter hire expenses for the three months ended September 30, 2019 were $42.0 million, compared to $28.5 million for the same period in 2018, a 47% increase. This was due to an increase in hire rates in a rising market during the three months ended September 30, 2019, as well as increase in chartered-in days. The number of chartered-in days increased 12% from 2,454 days in the three months ended September 30, 2018 to 2,750 days for the three months ended September 30, 2019. This reflects the Company's unique ability to quickly adapt to changing market conditions by increasing, decreasing, or renewing the chartered-in profile to meet its cargo commitments.

Vessel Operating Expenses 

Vessel operating expenses for the three months ended September 30, 2019 were $11.3 million, compared to $9.9 million for the same period in 2018, an increase of approximately 15%. The increase in vessel operating expenses is due to the increase in owned days, which were 1,939 in the three months ended September 30, 2019 as compared to 1,848 in the three months ended September 30, 2018. This increase is due to the addition of three vessels offset by the completion of two bareboat charters in 2018. Excluding technical management fees, vessel operating expenses per day were $5,313 for the three months ended September 30, 2019 and $4,810 for the three months ended September 30, 2018. Technical management fees were approximately $1.0 million for the three months ended September 30, 2019 and 2018.

General and Administrative Expenses

General and administrative expenses decreased from $3.7 million in the three months ended September 30, 2018 to $2.8 million in the three months ended September 30, 2019. This decrease was primarily due to timing of the accrued bonus expense.

Income from Operations

Income from operations increased slightly to $13.1 million for the three months ended September 30, 2019 as compared to income from operations of $12.1 million for the three months ended September 30, 2018. This is primarily due to the increases in revenues, lower general and administrative expenses, and partially offset by higher voyage expenses and charter hire expenses as discussed above.

Unrealized gain (loss) on derivative instruments

The Company incurred losses on bunker swaps of approximately $417,000 and gains on forward freight agreements (FFAs) of approximately $116,000 in the three months ended September 30, 2019 as compared to a gain of approximately $495,000 on bunker swaps and a loss of approximately $9,000 on FFAs in the three months ended September 30, 2018. These result from changes in the fair value of the derivatives at the respective balance sheet dates.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Revenues
 
Pangaea’s revenues are derived predominately from voyage and time charters, which are discussed below. Total revenue for the nine months ended September 30, 2019 was $281.7 million, compared to $271.1 million for the same period in 2018, a 4% increase. The total number of shipping days increased 1% to 12,136 in the nine months ended September 30, 2019, compared to 11,964 for the same period in 2018.
 
Components of revenue are as follows:
 
Voyage revenues increased by 6% for the nine months ended September 30, 2019 to $247.1 million compared to $234.0 million for the same period in 2018. The increase in voyage revenue was primarily due to an increase in the number of voyage days, which were 9,670 for the nine months ended September 30, 2019 as compared to 9,366 for the nine months ended September 30, 2018, or a 3% increase.

Charter revenues decreased to $34.6 million from $37.2 million, or 7%, for the nine months ended September 30, 2019 as compared to the same period in 2018. The decrease in charter revenues was due to a decrease in time charter days which were down 5% to 2,466 in the nine months ended September 30, 2019 from 2,598 in the nine months ended September 30, 2018.

24




 
Voyage Expenses

Voyage expenses for the nine months ended September 30, 2019 were $114.5 million, compared to $104.9 million for the same period in 2018, an increase of approximately 9%. The increase was primarily due to an increase in the number of voyage days, which were 9,670 for the nine months ended September 30, 2019 as compared to 9,366 for the nine months ended September 30, 2018.

Charter Hire Expenses
 
Charter hire expenses for the nine months ended September 30, 2019 were $85.2 million, compared to $81.9 million for the same period in 2018, a 4% increase. This is primarily due to an increase in market time charter rates in the third quarter of 2019, at which time the Company entered into several time charter's to fulfill its increased voyage demand in the quarter. This was offset by a decrease in the number of chartered-in days of 5% to 6,712 days in the nine months ended September 30, 2019 from 7,094 days for the nine months ended September 30, 2018.

Vessel Operating Expenses 

Vessel operating expenses for the nine months ended September 30, 2019 were $32.2 million, compared to $29.8 million for the same period in 2018, an increase of approximately 8%. Excluding technical management fees, vessel operating expenses per day were $5,274 for the nine months ended September 30, 2019 and $4,914 for the nine months ended September 30, 2018. Technical management fees were approximately $2.9 million for the nine months ended September 30, 2019 and 2018.

General and Administrative Expenses

General and administrative expenses are both approximately $12.2 million in the nine months ended September 30, 2019 and 2018.

Income from Operations

The Company had income from operations of $24.1 million for the nine months ended September 30, 2019 as compared to income from operations of $28.4 million for the nine months ended September 30, 2018. This is primarily due to the increase in voyage expenses, charter hire expenses and vessel operating expenses, as a result, net revenue was down 9%.

Unrealized gain (loss) on derivative instruments

The Company had unrealized gains on bunker swaps of approximately $2.0 million and $0.7 million, respectively in the nine months ended September 30, 2019 and 2018. This is primarily due to fuel prices recovery during 2019. The Company had unrealized gains on FFAs of approximately $233,000 and unrealized losses of approximately $263,000 for the nine months ended September 30, 2019 and 2018, respectively.

Income attributable to non-controlling interests

Income attributable to non-controlling interests totaled $4.0 million for the nine months ended September 30, 2019 and $4.4 million for the nine months ended September 30, 2018. This is due to lower rates and the impact on the non-controlling interests' earnings.

Significant accounting estimates

The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are the estimated fair value used in determining the estimated future cash flows used in its impairment analysis, the estimated salvage value used in determining depreciation expense and the allowances for doubtful accounts.


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Long-lived Assets Impairment Considerations

The carrying values of the Company’s vessels may not represent their fair market value or the amount that could be obtained by selling the vessel at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the pricing of new vessels. Historically, both charter rates and vessel values tend to be cyclical. The carrying value of each group of vessels (allocated by size, age and major characteristic or trade), which are classified as held and used by the Company, are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of a particular group may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the group and its eventual disposition is less than its carrying value. This assessment is made at the group level, which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size and major characteristic or trade.

The significant factors and assumptions used in the undiscounted projected net operating cash flow analysis include the Company’s estimate of future TCE rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and address commissions and assume no revenue on scheduled offhire days. The Company uses the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying value of the asset group, an impairment charge would be recognized.
    
Liquidity and Capital Resources

The Company has historically financed its capital requirements with cash flow from operations, proceeds from related party debt, proceeds from long-term debt and finance leases, and through a private placement of common stock. The Company may consider additional debt and equity financing alternatives in the future. However, if market conditions are negative, the Company may not be able to raise additional debt or equity financing on acceptable terms or at all. As a result, the Company may not be able to pursue opportunities to expand its business. At September 30, 2019 and December 31, 2018, the Company had working capital of $23.7 million and $34.5 million, respectively.

Considerations made by management in assessing the Company’s ability to continue as a going concern are its ability to consistently generate positive cash flows from operations, which were approximately $23.4 million and $27.2 million in the nine months ended September 30, 2019 and 2018, respectively; and its ability to procure long-term fixed COAs with new and longstanding customers. In addition, the Company has demonstrated its unique ability to adapt to changing market conditions by maintaining a nimble chartered-in profile to meet its cargo commitments. For more information on the results of operations, see ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Results of Operations.

Capital Expenditures
 
The Company’s capital expenditures relate to the purchase and lease of interests in vessels, newbuild vessels, and capital improvements to its vessels which are expected to enhance the revenue earning capabilities and safety of these vessels. The Company’s owned and leased fleet includes three Panamax drybulk carriers, nine Supramax drybulk carriers, two Ultramax Ice-Class 1C, two Handymax drybulk carriers (both of which are Ice-Class 1A) and one barge. The Company also has a one-third interest in a consolidated joint venture which owns six Panamax Ice-Class 1A drybulk carriers.
 

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In addition to vessel acquisitions that the Company may undertake in future periods, its other major capital expenditures include funding its program of regularly scheduled drydockings necessary to make improvements to its vessels, as well as to comply with international shipping standards and environmental laws and regulations. This includes installation of ballast water treatment systems required under new regulations, the cost of which will be approximately $0.5 million to $0.7 million per vessel. The Company has some flexibility regarding the timing of dry docking, but the total cost is unpredictable. Funding expenses associated with these requirements will be met with cash from operations. The Company anticipates that this process of recertification will require it to reposition these vessels from a discharge port to shipyard facilities, which will reduce the Company’s available days and operating days during that period. The Company capitalized drydocking costs totaling approximately $16,595 in the three months ended September 30, 2019. The Company capitalized drydocking costs totaling approximately $1.6 million and $1.5 million in nine months ended September 30, 2019 and 2018 and expensed drydocking costs of approximately $78,000 and $71,000 in the nine months ended September 30, 2019 and 2018, respectively.
 
Off-Balance Sheet Arrangements
 
The Company does not have off-balance sheet arrangements at September 30, 2019 or December 31, 2018. 


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ITEM 3. Quantitative and Qualitative Disclosures about Market Risks
 
No significant changes to our market risk have occurred since December 31, 2018. For a discussion of market risks affecting us, refer to Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk" included in the Company Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 4. Controls and Procedures
 
Management’s Evaluation of Disclosure Controls and Procedures.
 
As of the end of the period covered by this report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for the nine months ended September 30, 2019.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 

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PART II: OTHER INFORMATION
 
Item 1 - Legal Proceedings
 
From time to time, we are involved in various other disputes and litigation matters that arise in the ordinary course of our business, principally cargo claims. Those claims, even if lacking merit, could result in the expenditure by us of significant financial and managerial resources.
 
Item 1A – Risk Factors
 
There have been no material changes from the “Risk Factors” previously disclosed in our Annual Report on Form 10-K, filed with the SEC on March 20, 2019.
 
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
Item 3 - Defaults Upon Senior Securities
 
None.
 
Item 4 – Mine Safety Disclosures
 
None.
 
Item 5 - Other Information  
 
None.
 

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Item 6 – Exhibits 
Exhibit No.
Description
Incorporated By Reference
Filed herewith
 
 
Form
Date
Exhibit
 
 
 
 
 
 
 
10.46
 
 
 
X
 
 
 
 
 
 
31.1
 
 
 
X
 
 
 
 
 
 
31.2
 
 
 
X
 
 
 
 
 
 
32.1
 
 
 
X
 
 
 
 
 
 
32.2
 
 
 
X
 
 
 
 
 
 
EX-101.INS
XBRL Instance Document
 
 
 
X
 
 
 
 
 
 
EX-101.SCH
XBRL Taxonomy Extension Schema
 
 
 
X
 
 
 
 
 
 
EX-101.CAL
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
X
 
 
 
 
 
 
EX-101.DEF
XBRL Taxonomy Extension Definition Linkbase
 
 
 
X
 
 
 
 
 
 
EX-101.LAB
XBRL Taxonomy Extension Label Linkbase
 
 
 
X
 
 
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