Pangaea Logistics Solutions Ltd. - Quarter Report: 2018 September (Form 10-Q)

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, 2018



¨	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, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated Filer ¨	Accelerated Filer ¨	Non-accelerated Filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO x

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, 44,048,541 shares outstanding as of November 8, 2018.

TABLE OF CONTENTS



		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017	3

	Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2018 and 2017	4

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2018 and 2017	5

	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risks	30

Item 4.	Controls and Procedures	30

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
Signatures

Pangaea Logistics Solutions Ltd. Consolidated Balance Sheets



	September 30, 2018		December 31, 2017
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	50,765,165	$	34,531,812
Accounts receivable (net of allowance of $1,974,989 at September 30, 2018 and $2,135,877 December 31, 2017)	26,826,310		21,089,425
Bunker inventory	20,863,555		15,356,712
Advance hire, prepaid expenses and other current assets	14,101,854		12,032,272
Total current assets	112,556,884		83,010,221

Restricted cash	2,500,000		4,000,000
Fixed assets, net	282,643,142		306,292,655
Vessels under capital lease	56,146,928		29,994,212
Total assets	$	453,846,954	$	423,297,088

Liabilities and stockholders' equity
Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	30,058,749	$	29,181,276
Related party debt	3,701,332		7,009,597
Deferred revenue	11,013,013		5,815,924
Current portion of secured long-term debt	17,785,860		18,979,335
Current portion of capital lease obligations	5,336,417		1,785,620
Dividend payable	5,198,598		7,238,401
Total current liabilities	73,093,969		70,010,153

Secured long-term debt, net	101,765,760		117,615,634
Obligations under capital lease	47,036,903		25,015,659

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; 44,048,541 shares issued and outstanding at September 30, 2018; 43,794,526 shares issued and outstanding at December 31, 2017	4,405		4,379
Additional paid-in capital	155,856,330		154,943,728
Accumulated deficit	6,355,147		(9,596,785		)
Total Pangaea Logistics Solutions Ltd. equity	162,215,882		145,351,322
Non-controlling interests	69,734,440		65,304,320
Total stockholders' equity	231,950,322		210,655,642
Total liabilities and stockholders' equity	$	453,846,954	$	423,297,088

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

Pangaea Logistics Solutions Ltd.

Consolidated Statements of Income

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017

Revenues:
Voyage revenue	$	81,812,543		$	93,688,834		$	233,979,386		$	251,608,298
Charter revenue	13,532,296			13,334,202			37,161,948			31,293,637
	95,344,839			107,023,036			271,141,334			282,901,935
Expenses:
Voyage expense	36,684,994			44,305,446			104,880,511			124,174,513
Charter hire expense	28,532,774			34,764,942			81,912,601			91,140,160
Vessel operating expense	9,863,944			9,144,472			29,759,818			26,810,071
General and administrative	3,704,360			4,762,860			12,211,329			11,418,900
Depreciation and amortization	4,410,977			3,950,661			13,140,234			11,604,168
Loss on sale and leaseback of vessels	—			70,000			860,426			9,275,042
Total expenses	83,197,049			96,998,381			242,764,919			274,422,854

Income from operations	12,147,790			10,024,655			28,376,415			8,479,081

Other (expense) income:
Interest expense, net	(2,231,589		)	(2,106,139		)	(6,384,314		)	(5,981,237		)
Interest expense on related party debt	(43,961		)	(79,713		)	(161,334		)	(236,538		)
Unrealized gain (loss) on derivative instruments, net	486,412			(59,138		)	477,508			430,869
Other income	38,481			977,795			496,813			1,885,801
Total other expense, net	(1,750,657		)	(1,267,195		)	(5,571,327		)	(3,901,105		)

Net income	10,397,133			8,757,460			22,805,088			4,577,976
Income attributable to non-controlling interests	(2,120,182		)	(1,576,209		)	(4,430,120		)	(787,063		)
Net income attributable to Pangaea Logistics Solutions Ltd.	$	8,276,951		$	7,181,251		$	18,374,968		$	3,790,913

Earnings per common share:
Basic	$	0.20		$	0.18		$	0.44		$	0.10
Diluted	$	0.19		$	0.17		$	0.43		$	0.10

Weighted average shares used to compute earnings per common share:
Basic	42,348,175			40,796,867			42,208,038			37,225,825
Diluted	42,878,449			41,074,592			42,727,481			37,647,123

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

Pangaea Logistics Solutions, Ltd.

Consolidated Statements of Cash Flows

(unaudited)



	Nine Months Ended September 30,
	2018			2017
Operating activities
Net income	$	22,805,088		$	4,577,976
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense	13,140,234			11,604,168
Amortization of deferred financing costs	517,085			527,348
Amortization of prepaid rent	91,453			91,453
Unrealized loss (gain) on derivative instruments	(477,508		)	(430,869		)
Gain from equity method investee	(90,000		)	(282,362		)
Provision for doubtful accounts	(104,288		)	(10,356		)
Loss on sale of vessel	860,426			9,134,908
Drydocking costs	(1,497,979		)	(1,043,164		)
Recognized cost for restricted stock issued as compensation	1,064,520			878,759
Change in operating assets and liabilities:
Accounts receivable	(5,632,597		)	(10,428,305		)
Bunker inventory	(5,506,843		)	(3,267,454		)
Advance hire, prepaid expenses and other current assets	713,646			(7,118,526		)
Accounts payable, accrued expenses and other current liabilities	873,337			8,021,053
Deferred revenue	468,333			1,490,536
Net cash provided by operating activities	27,224,907			13,745,165

Investing activities
Purchase of vessels and vessel improvements	(14,695,391		)	(47,328,517		)
Purchase of building and equipment	(341,439		)	—
Proceeds from sale of equipment	31,594			—
Purchase of non-controlling interest in consolidated subsidiary	—			(832,572		)
Net cash used in investing activities	(15,005,236		)	(48,161,089		)

Financing activities
Proceeds from long-term debt	—			25,000,000
Payments of related party debt	(3,308,265		)	—
Payments of financing fees and issuance costs	(702,666		)	(896,175		)
Payments of long-term debt	(16,855,738		)	(20,635,670		)
Proceeds from sale and leaseback of vessel	27,750,000			28,000,000
Dividends paid to non-controlling interests	(904,803		)	—
Payments of capital lease obligations	(2,177,959		)	(768,599		)
Cash paid for incentive compensation shares relinquished	(101,075		)	—
Proceeds from private placement of common stock, net of issuance costs	(50,812		)	9,631,530
Accrued common stock dividends paid	(1,135,000		)	(1,001,424		)
Net cash provided by financing activities	2,513,682			39,329,662

Net increase in cash, cash equivalents and restricted cash	14,733,353			4,913,738
Cash, cash equivalents and restricted cash at beginning of period	38,531,812			28,422,949
Cash, cash equivalents and restricted cash at end of period	$	53,265,165		$	33,336,687

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

Pangaea Logistics Solutions, Ltd.

Consolidated Statements of Cash Flows

(unaudited)



Supplemental cash flow information and disclosure of noncash items
Cash paid for interest	$	5,959,189	$	5,052,102
Conversion of dividend to common stock	$	—	$	4,385,000
Conversion of related party debt to noncontrolling interest	$	—	$	9,278,800

Cash and cash equivalents	$	50,765,165	$	33,336,687
Restricted cash	2,500,000		4,000,000
	$	53,265,165	$	33,336,687

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

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, six 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 consolidated balance sheets as of September 30, 2018 and 2017, the consolidated statements of income for the three and nine months ended September 30, 2018 and 2017 and the consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2018 and December 31, 2017, and its results of operations and cash flows for the three and nine months ended September 30, 2018 and 2017. The financial data and the other information disclosed in these notes to the consolidated financial statements related to these three and nine month periods are unaudited. Certain information and disclosures included in the annual consolidated financial statements have been omitted for the interim periods pursuant to the rules and regulations of the SEC. The results for three and nine months ended September 30, 2018 and 2017 are not necessarily indicative of the results for the year ending December 31, 2018 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 fair value used in determining loss on sale and leaseback of vessel, 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.

Advance hire, prepaid expenses and other current assets were comprised of the following:



	September 30, 2018		December 31, 2017
	(unaudited)
Advance hire	$	6,770,721	$	3,628,417
Prepaid expenses	511,984		460,445
Unbilled receivables	4,265,182		6,153,212
Other current assets	2,553,967		1,790,198
	$	14,101,854	$	12,032,272

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



	September 30, 2018		December 31, 2017
	(unaudited)
Accounts payable	$	18,692,321	$	15,686,235
Accrued voyage expenses	10,103,609		11,923,445
Accrued interest	528,163		611,406
Other accrued liabilities	734,656		960,190
	$	30,058,749	$	29,181,276

Significant Accounting Policies Update

Our significant accounting policies are included in Note 3 of our Annual Report on Form 10-K for the year ended December 31, 2017. On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As the Company’s performance obligations are transportation services which are received and consumed by its customers as it performs such services, revenues are recognized over time using the input method, proportionate to the days elapsed since the service commencement compared to the total days anticipated to complete the service. The Company believes that this method provides a faithful depiction of the satisfaction of its performance obligation. After analyzing its contracts with customers for each significant revenue stream, the Company determined that revenue from vessels operating on time charter will not change significantly from previous practice, which is to recognize revenue ratably over the periods of such charters. Payment on time charters is made in advance. Under the new standard, voyage revenue is recognized over the period between load port and discharge port. In addition, certain costs to fulfill contracts for voyages for which loading has not commenced are recognized as assets and amortized pro rata over the period between load and discharge. The payment terms on voyage charters is within five days of cargo loading. Costs to obtain a contract are expensed as incurred, as provided by a practical expedient, since all such costs are expected to be amortized over less than one year. The Company adopted ASC 606 using the modified retrospective transition method applied to voyage contracts that were not substantially complete at the end of 2017. The Company recorded a $2.4 million adjustment to decrease retained earnings at the beginning of 2018, which reflects the cumulative impact of adopting this standard. Comparative financial statements have not been restated and are reported under the accounting standards in effect for those periods.

A reconciliation as of and for the nine months ended September 30, 2018 under ASC 606 to the prior accounting standards, for each of the financial statement line items impacted, is provided below:



	As of September 30, 2018
Consolidated Balance Sheets	As Reported	Effect of ASC 606 Adoption		Under Prior Accounting
Advance hire, prepaid expenses and other current assets	14,101,854	2,724,360		11,377,494
Total current assets	112,556,884	2,724,360		109,832,524
Total assets	453,846,954	2,724,360		451,122,594
Deferred revenue	11,013,013	3,676,640		7,336,373
Total current liabilities	73,093,969	3,676,640		69,417,329
Accumulated deficit	6,355,147	(952,280	)	7,307,427
Total liabilities and stockholders' equity	453,846,954	2,724,360		451,122,594

	For the Nine Months Ended September 30, 2018
Consolidated Statements of Cash Flows	As Reported	Effect of ASC 606 Adoption		Under Prior Accounting
Net Income	22,805,088	1,470,754		21,334,334
Change in operating assets and liabilities:
Advance hire, prepaid expenses and other current assets	713,646	(418,639	)	1,132,285
Deferred Revenue	468,333	(1,052,115	)	1,520,448



	For the Three Months Ended September 30, 2018							For the Nine Months Ended September 30, 2018
Consolidated Statements of Operations	As Reported		Effect of ASC 606 Adoption			Under Prior Accounting		As Reported		Effect of ASC 606 Adoption			Under Prior Accounting
Voyage revenue	$	81,812,543	$	(1,650,096	)	$	83,462,639	$	233,979,386	$	1,052,115		$	232,927,271
Total revenues	95,344,839		(1,650,096		)	96,994,935		271,141,334		1,052,115			270,089,219
Voyage expense	36,684,994		(519,726		)	37,204,720		104,880,511		(433,493		)	105,314,004
Charter hire expense	28,532,774		(536,038		)	29,068,812		81,912,601		14,854			81,897,747
Total Expenses	83,197,049		(1,055,764		)	84,252,813		242,764,919		(418,639		)	243,183,558
Income from Operations	12,147,790		(594,332		)	12,742,122		28,376,415		1,470,754			26,905,661
Net Income	10,397,133		(594,332		)	10,991,465		22,805,088		1,470,754			21,334,334
Net income attributable to Pangaea Logistics Solutions Ltd.	$	8,276,951	$	(594,332	)	$	8,871,283	$	18,374,968	$	1,470,754		$	16,904,214
Earnings per common share, basic	$	0.20	$	(0.01	)	$	0.21	$	0.44	$	0.03		$	0.41
Earnings per common share, diluted	$	0.19	$	(0.02	)	$	0.21	$	0.43	$	0.03		$	0.40

Assets and liabilities related to our voyage contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. Contract assets include accounts receivable for amounts billed and currently due from customers which are reported at their net estimated realizable value. The Company maintains reserves against its accounts receivable for potential credit losses, which were immaterial for the three and nine month periods ended September 30, 2018 and 2017, respectively. Other contract assets include unbilled revenue which arises when revenue is recognized in advance of billing for certain voyage contracts and hire paid to shipowners in advance. Contract liabilities consist of deferred revenue which arises when amounts are billed to or collected from customers in advance of revenue recognition.

ASC 606 requires the recognition of an asset for costs to fulfill contracts that: (1) relate directly to the contract; (2) are expected to generate resources that will be used to satisfy our performance obligation under the contract; and (3) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed to voyage expenses as we satisfy our performance obligations. These costs consist primarily of bunker and charter hire costs incurred prior to loading and

are amortized pro rata over the period between load and discharge. At September 30, 2018 and January 1, 2018 deferred contract fulfillment costs amounted to $2.7 million and $2.3 million, respectively, and are included in advance hire, prepaid expenses and other current assets on the consolidated balance sheets. For the three and nine month periods ended September 30, 2018, we recognized expense of $1.7 million and $5.3 million, respectively, associated with the amortization of deferred contract costs.

Under ASC 606, deferred revenue represents the consideration received for undelivered performance obligations. The Company recorded an additional $4.7 million and $3.7 million of deferred revenue on voyages in progress as of January 1, 2018 and September 30, 2018, respectively, due to the adoption of ASC 606 because this revenue can no longer be recognized until the vessel arrives in the load port.

All voyages that were not substantially complete on June 30, 2018 were completed during the three months ended September 30, 2018, therefore, all related voyage contract liabilities were recognized as revenue in the quarter.

On January 1, 2018, the Company adopted ASU No. 2016-18, Statement of Cash Flows (ASC 230). The amendments in this update provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing the diversity in practice. Specifically, this update addresses how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash, cash equivalents, and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents. The new standard became effective for the Company on January 1, 2018. The amendments in this update were applied using a retrospective transition method to each period presented.

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 such amounts shown in the consolidated statement of cash flows:



	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	50,765,165	$	34,531,812
Restricted cash	2,500,000		4,000,000
Total cash, cash equivalents and restricted cash	$	53,265,165	$	38,531,812

Cash and cash equivalents include short-term deposits with an original maturity of less than three months. Restricted cash at September 30, 2018 and December 31, 2017 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 and an additional $1.5 million at December 31, 2017 held by the facility agent as required by the The Senior Secured Post-Delivery Term Loan Facility.

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. As allowed by a practical expedient under ASC 842, a lessee is permitted to make 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. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company does not expect the adoption of this guidance pertaining to leases to have a material impact on its consolidated financial statements because the Company rarely charters-in vessels (lessee) for longer than one year and the Company intends to apply the practical expedient. Although the Company is continuing to evaluate the applicability of the lessor guidance to its contracts, the adoption of the lessor provisions under ASC 842 are not expected to have a material impact on the Company’s financial statements. The Company expects to complete its evaluation of ASC 842 and its impact on the financial statements during the fourth quarter 2018. The Company will implement the new guidance effective January 1, 2019.

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 current GAAP (Topic 840, Leases). Management will adopt the new lease standard using this new transition method under ASU 2018-11.

In August 2017, the FASB issued an ASU 2017-12 Accounting Standards Update for Derivatives and Hedging. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the update. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this update. The amended presentation and disclosure guidance is required only prospectively. The Company does not expect adoption of this guidance to have a material impact on its financial statements.

Note 3. Fixed Assets

At September 30, 2018, the Company owned nineteen dry bulk vessels including four financed under capital leases; and one barge. The carrying amounts of these vessels, including unamortized drydocking costs, are as follows:



	September 30,		December 31,
	2018		2017
Owned vessels	(unaudited)
m/v BULK PANGAEA	$	15,313,987	$16,398,650
m/v BULK PATRIOT	10,147,727		11,111,437
m/v BULK JULIANA	10,815,532		11,411,052
m/v NORDIC ODYSSEY	24,621,308		25,634,743
m/v NORDIC ORION	25,438,584		26,467,928
m/v BULK TRIDENT	—		14,195,098
m/v BULK NEWPORT	14,222,621		13,139,242
m/v NORDIC BARENTS	4,491,134		4,846,522
m/v NORDIC BOTHNIA	4,441,211		4,787,388
m/v NORDIC OSHIMA	29,203,992		30,122,172
m/v NORDIC ODIN	29,628,308		30,548,435
m/v NORDIC OLYMPIC	29,456,468		30,371,285
m/v NORDIC OASIS	30,687,684		31,608,785
m/v BULK ENDURANCE	26,273,108		27,030,918
m/v BULK FREEDOM	8,558,980		8,834,746
m/v BULK PRIDE	13,669,143		14,007,731
MISS NORA G PEARL	2,527,793		2,695,145
	279,497,580		303,211,277
Other fixed assets, net	3,145,562		3,081,378
Total fixed assets, net	$	282,643,142	$	306,292,655

Vessels under capital lease
m/v BULK DESTINY	$	22,519,238	$	23,153,850
m/v BULK BEOTHUK	6,606,826		6,840,362
m/v BULK TRIDENT	12,813,213		—
m/v BULK PODS ⁽¹⁾	$	14,207,651	$	—
	$	56,146,928	$	29,994,212

⁽¹⁾ The Company acquired the 2006 built Panamax (m/v Bulk PODS) on August 1, 2018. The m/v Bulk PODS was sold on August 21, 2018 and simultaneously chartered back under a bareboat charter accounted for as a capital lease, the terms of which are discussed in Note 7.

The Company also operated two dry bulk vessels under bareboat charters accounted for as operating leases, as discussed in Note 7.

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 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.

At June 30, 2018 and 2017, the Company identified potential triggering events that resulted from sale and leaseback financing arrangements transacted in those periods. 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, and therefore did not test for, recoverability, as of September 30, 2018, March 31, 2018 or December 31, 2017.

Note 4. Debt

Long-term debt consists of the following:



	September 30, 2018			December 31, 2017
	(unaudited)
Bulk Trident Secured Note	$	—		$	3,452,500
Bulk Juliana Secured Note (1)	—			1,521,095
Bulk Phoenix Secured Note (1)	3,145,232			4,473,805
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)	64,200,000			69,825,000
Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.)	4,815,190			5,793,460
Bulk Nordic Oasis Ltd. Loan Agreement (2)	17,375,000			18,500,000
The Amended Senior Facility (formerly Bulk Nordic Six Ltd. - Loan Agreement)	26,608,332			28,803,333
Bulk Freedom Loan Agreement	4,625,000			5,150,000
109 Long Wharf Commercial Term Loan	840,266			922,466
Phoenix Bulk Carriers (US) LLC Automobile Loan	—			23,090
Total	121,609,020			138,464,749
Less: unamortized bank fees	(2,057,401		)	(1,869,780		)
	119,551,619			136,594,969
Less: current portion	(17,785,859		)	(18,979,335		)
Secured long-term debt, net	$	101,765,760		$	117,615,634


⁽¹⁾	The Bulk Phoenix Secured Note is collateralized by the m/v Bulk Newport and is guaranteed by the Company.

⁽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 Accounting Standards Codification ("ASC") 810, Consolidation, 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.

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, and extended the final maturity date and modified the repayment schedules, as follows:

Bulk Trident Secured Note

Initial amount of $10,200,000, entered into in April 2012, for the acquisition of the m/v Bulk Trident. The Fourth Amendment extends the final maturity date and modifies the repayment schedule. The first and second quarterly installments following the amendment were increased to $650,000 and the third and fourth installments were increased to $435,000. These are followed by two installments of $327,500 and three of $300,000. A balloon payment of $1,462,500 is payable on July 19, 2019. The interest rate was fixed at 4.29% through April 19, 2017 and was floating at LIBOR plus 3.50% since April 19, 2017.

On June 7, 2018, the Company sold the m/v Bulk Trident and simultaneously leased the vessel back under a bareboat charter for a period of eight years (see Note 7). Approximately $2,700,000 of proceeds from the sale were used to repay the Bulk Trident Secured Note.

Bulk Juliana Secured Note

Initial amount of $8,112,500, entered into in April 2012, for the acquisition of the m/v Bulk Juliana. The Fourth Amendment did not change this tranche, the balance of which was payable in six quarterly installments of $507,031. The final payment was made on July 19, 2018. The interest rate was fixed at 4.38%.

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 is payable in two installments of $700,000 and seven installments of $442,858. A balloon payment of $1,816,659 is payable on July 19, 2019. The interest rate is fixed at 5.09%.

The agreement contains financial covenants that require the Company to maintain a minimum net worth and minimum liquidity, on a consolidated basis. The facility also contains a consolidated leverage ratio and a consolidated debt service coverage ratio. In addition, the facility contains other Company and vessel related covenants that, among other things, restrict changes in management and ownership of the vessel, declaration of dividends, further indebtedness and mortgaging of a vessel without the bank’s prior consent. It also requires minimum collateral maintenance, which is tested at the discretion of the lender. As of September 30, 2018 and December 31, 2017, the Company was in compliance with these covenants.

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% (4.80% at September 30, 2018). 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% (4.65% at September 30, 2018).

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, 2018 and December 31, 2017, 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%.

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, 2018 and December 31, 2017, 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 facility bears interest at LIBOR plus 2.50% (4.90% at September 30, 2018). 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. In addition, any cash in excess of $750,000 per borrower on any repayment date shall be applied toward prepayment of the relevant loan in inverse order, so the balloon payment is prepaid first. The agreement also contains a profit split in respect of the proceeds from the sale of either vessel and a minimum value clause ("MVC"). The Company was in compliance with this covenant at September 30, 2018 and December 31, 2017.

The Amended Senior Facility - Dated December 21, 2017 (previously identified as Bulk Nordic Six Ltd. - Loan Agreement - Dated December 21, 2016)

The 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, thereafter, 17 equal quarterly installments of $266,667 and a balloon payment of $11,667,667 due with the final installment in March 2022. Interest on this advance was fixed at 4.74% on March 27, 2017. The agreement also advanced $3,500,000 under Tranche B, which is payable in 18 equal quarterly installments of $65,000 beginning on October 7, 2017, and a balloon payment of $2,330,000 due with the final installment in March 2022. Interest on this advance is floating at LIBOR plus 6.00% (8.40% at September 30, 2018).

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 16 equal quarterly installments of $275,000 beginning in March 2018 and a balloon payment of $4,100,000 due with the final installment in December 2021. Interest on this advance was fixed at 5.74% as of May 2018. The agreement also advanced $1,500,000 under Tranche D, which is payable in 4 equal

quarterly installments of $375,000 beginning on August 21, 2018. Interest on this advance is floating at LIBOR plus 6.00% (8.40% at September 30, 2018).

The loan is secured by a first preferred mortgages on the m/v Bulk Endurance and the m/v Bulk Pride, 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 collateral previously provided, to remain above defined ratios. At September 30, 2018 and December 31, 2017, 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%. On June 14, 2018, the Company elected to fix rates for the following four quarterly periods. The rate at September 30, 2018 is 6.09%, increasing quarterly to 6.51% for the installment due June 14, 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, 2018 and December 31, 2017, the Company was in compliance with these covenants.

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% (4.40% at September 30, 2018). 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, 2018 and December 31, 2017, the Company was in compliance with these covenants.

Phoenix Bulk Carriers (US) LLC Automobile Loan

The Company purchased a commercial vehicle for use at the site of its port project on the United States' East Coast. The total loan amount of $29,435 is payable in 60 equal monthly installments of $539. Interest is fixed at 3.74%. The vehicle was sold in January 2018 and the loan was repaid.

The future minimum annual payments (excluding unamortized bank fees) under the debt agreements are as follows:



	Years ending
	September 30,
	(unaudited)
2019	$	17,785,859
2020	26,251,504
2021	20,015,563
2022	57,154,228
2023	109,600
Thereafter	292,266
	$	121,609,020

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, 2018 and December 31, 2017 were assets of approximately $3,000 and $266,000, which are included in other current assets on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the three months ended September 30, 2018 and 2017 are gains of approximately $9,000 and losses of approximately $379,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of operations. The change in the aggregate fair value of the FFAs during the nine months ended September 30, 2018 and 2017 are a loss of approximately $263,000 and a gain of approximately $1,075,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of operations.

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. During 2018 and 2017, the Company entered into fuel swap contracts that were not designated for hedge accounting. The aggregate fair value of these fuel swaps at September 30, 2018 and December 31, 2017 are assets of approximately $1,118,000 and $377,000, respectively, which are included in other current assets on the consolidated balance sheets. The change in the aggregate fair value of the fuel swaps during the three months ended September 30, 2018 and 2017 are gains of approximately $495,000 and $319,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of operations. The change in the aggregate fair value of the fuel swaps during the nine months ended September 30, 2018 and 2017 are gains of approximately $740,000 and losses of approximately $265,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of operations.

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, 2018 and December 31, 2017:



	Balance at
	September 30, 2018		Level 1		Level 2		Level 3
	(unaudited)
Margin accounts	$	384,168	$	384,168	$	—	$	—
Fuel swaps	$	1,117,609	$	—	$	1,117,609	$	—
Freight forward agreements	$	2,940	$	—	$	2,940	$	—



	Balance at December 31, 2017		Level 1		Level 2		Level 3
Margin accounts	$	912,981	$	912,981	$	—	$	—
Fuel swaps	$	377,273	$	—	$	377,273	$	—
Freight forward agreements	$	265,768	$	—	$	265,768	$	—

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 indexes. Such quotes represent the estimated amounts the Company would receive or pay to terminate the contracts.

Note 6. Related Party Transactions



	December 31, 2017		Activity			September 30, 2018
						(unaudited)
Included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets:
Affiliated companies (trade payables)	$	1,421,920	261,684			$	1,683,604

Included in current related party debt on the consolidated balance sheets:
Loan payable – 2011 Founders Note	$	4,325,000	(865,000		)	$	3,460,000
Interest payable in-kind - 2011 Founders Note	684,597		(443,265		)	241,332
Promissory Note to Bulk Invest, Ltd.	2,000,000		(2,000,000		)	—
Total current related party debt	$	7,009,597	$	(3,308,265	)	$	3,701,332

In November 2014, the Company entered into a $5,000,000 Promissory Note (the “Note”) with Bulk Invest, Ltd., a company controlled by the Founders. The $2,000,000 outstanding balance on the Note was repaid on February 6, 2018.

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 was $3,460,000 and $4,325,000 at September 30, 2018 and December 31, 2017, 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 and the two vessels operating under bareboat charters. During the three months ended September 30, 2018 and 2017, the Company incurred technical management fees of approximately $777,600 and $717,600, respectively, under this arrangement. During the nine-month periods ended September 30, 2018 and 2017, the Company incurred technical management fees of approximately $2,298,000 and $2,022,000, respectively, under this arrangement. These fees are included in vessel operating expenses in the consolidated statements of income. The total amounts payable to Seamar at September 30, 2018 and December 31, 2017 were approximately $1,684,000 and $1,422,000, respectively.

Dividends payable consist of the following, all of which are payable to related parties:



	2013 common stock dividend			2013 Odyssey and Orion dividend ⁽¹⁾			Total
Balance at December 31, 2017	6,333,598			904,803			7,238,401
Payments	(1,135,000		)	(904,803		)	(2,039,803		)
Balance at September 30, 2018	$	5,198,598		$	—		$	5,198,598

⁽¹⁾ Paid on February 13, 2018

Note 7. Commitments and Contingencies

Vessel Sales and Leasebacks Accounted for as Capital Leases

The Company's fleet includes four vessels financed under sale and leaseback financing arrangements accounted for as capital leases. 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 vessel under capital lease on the consolidated balance sheet at September 30, 2018. 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% (5.06% 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 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. Interest is fixed at 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% (4.02% 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% (4.02% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term.

Long-term Contracts Accounted for as Operating Leases

On July 5, 2016, the Company entered into five-year bareboat charter agreements with the owner of two vessels (which were then renamed the m/v Bulk Power and the m/v Bulk Progress). Under a bareboat charter, the charterer is responsible for all of the vessel operating expenses in addition to the charter hire. The agreement also contains a profit sharing arrangement. Scheduled increases in charter hire are included in minimum rental payments and recognized on a straight-line basis over the lease term. Profit sharing is excluded from minimum lease payments and recognized as incurred. The rent expense under these bareboat charters (which are classified as operating leases) totals approximately $365,000 per annum. The vessels' owner sold the m/v Bulk Progress on August 22, 2018 and the m/v Bulk Power on September 17, 2018. The Company agreed to release the owner from its commitment under the bareboat charters and has been compensated in the form of commission for the sales.

The Company leases office space for its Copenhagen operations. The lease can be terminated with six months prior notice after June 30, 2018.

Future minimum lease payments under capital leases and operating leases with initial or remaining terms in excess of one year at September 30, 2018 were:



	Capital Lease		Operating Leases
2019	$	8,392,312	$	110,136
2020	8,223,004		—
2021	8,237,265		—
2022	11,610,676		—
2023	6,577,371		—
Thereafter	22,773,669		—
Total minimum lease payments	$	65,814,297	$	110,136
Less amount representing interest	13,440,977
Present value of minimum lease payments	52,373,320
Less current portion	5,336,417
Long-term portion	$	47,036,903

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.

Note 8. Subsequent Events

On October 26, 2018, the Company, through a wholly-owned subsidiary, signed a Memorandum of Agreement to purchase a Supramax bulk carrier built in 2009 for approximately $13 million. The vessel is expected to be delivered in the first quarter of 2019.

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. Gross revenue is calculated by multiplying the agreed rate per ton of cargo by the number of tons loaded.

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.

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.

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.

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.

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,
	2018			2017			2018			2017
Selected Data from the Consolidated Statements of Operations
Voyage revenue	$	81,813		$	93,689		$	233,979		$	251,608
Charter revenue	13,532			13,334			37,162			31,294
Total revenue	95,345			107,023			271,141			282,902
Voyage expense	36,685			44,305			104,881			124,175
Charter expense	28,533			34,765			81,913			91,140
Vessel operating expenses	9,864			9,144			29,760			26,810
Total cost of transportation and service revenue	75,082			88,215			216,553			242,125
Net revenue ⁽¹⁾	20,263			18,808			54,588			40,777
Other operating expenses	8,115			8,714			25,352			23,023
Loss on sale and leaseback of vessels	—			70			860			9,275
Income from operations	12,148			10,025			28,376			8,479
Total other expense, net	(1,751		)	(1,267		)	(5,571		)	(3,901		)
Net income	10,397			8,757			22,805			4,578
Income attributable to noncontrolling interests	(2,120		)	(1,576		)	(4,430		)	(787		)
Net income attributable to Pangaea Logistics Solutions Ltd.	$	8,277		$	7,181		$	18,375		$	3,791

Adjusted EBITDA ⁽²⁾	16,559			14,045			42,377			29,358

Shipping Days ⁽³⁾
Voyage days	3,276			4,133			9,449			11,519
Time charter days	964			1,172			2,598			2,790
Total shipping days	4,240			5,305			12,047			14,309

TCE Rates ($/day) ⁽⁴⁾	$	13,835		$	11,822		$	13,801		$	11,093



	September 30, 2018			December 31, 2017
Selected Data from the Consolidated Balance Sheets
Cash, restricted cash and cash equivalents	$	53,265		$	38,532
Total assets	$	453,847		$	423,297
Total secured debt, including obligations under capital leases	$	171,925		$	163,396
Total liabilities and stockholders' equity	$	453,847		$	423,297

	For the nine months ended September 30,
	2018			2017
Selected Data from the Consolidated Statements of Cash Flows
Net cash provided by operating activities	$	27,225		$	13,745
Net cash used in investing activities	$	(15,005	)	$	(48,161	)
Net cash (used in) provided by financing activities	$	2,514		$	39,330

(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 (loss) from operations to net revenue and adjusted EBITDA is as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017

Net Revenue
Income from operations	$	12,147,790	$	10,024,655	$	28,376,415	$	8,479,081
General and administrative	3,704,360		4,762,860		12,211,329		11,418,900
Depreciation and amortization	4,410,977		3,950,661		13,140,234		11,604,168
Loss on sale and leaseback of vessels	—		70,000		860,426		9,275,042
Net Revenue	$	20,263,127	$	18,808,176	$	54,588,404	$	40,777,191

Adjusted EBITDA
Income from operations	$	12,147,790	$	10,024,655	$	28,376,415	$	8,479,081
Depreciation and amortization	4,410,977		3,950,661		13,140,234		11,604,168
Loss on sale and leaseback of vessel	—		70,000		860,426		9,275,042
Adjusted EBITDA	$	16,558,767	$	14,045,316	$	42,377,075	$	29,358,291

(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.

Industry Overview

The seaborne drybulk transportation industry is cyclical and can be volatile, however strong demand from China and fewer newbuilding deliveries have lead to higher rates, after several difficult years. The rising protectionism and uncertain trade war over tariffs may dampen growth in demand for some products, but analysts predict volumes will not change and may increase tonne-miles by disrupting historical trade patterns. Average published market rates have increased 22% quarter to quarter and the Baltic Dry Index (“BDI”), a measure of dry bulk market performance, averaged 1,627 for the third quarter of 2018, up from an average of 1,162 for the comparable quarter of 2017. The Company's TCE rates have climbed consistently since the third quarter of 2017 and have exceeded average published market rates by an average of 20% over this period.

3rd Quarter 2018 Highlights


•	Income from operations of $12.1 million for the three months ended September 30, 2018, compared to $10.0 million for the same period of 2017.


•	Net income attributable to Pangaea Logistics Solutions Ltd. of $8.3 million as compared to $7.2 million for the three months ended September 30, 2017.


•	Pangaea's TCE rates increased 17% to $13,835 from $11,822 in the third quarter of 2017 while the market average for the third quarter was approximately $11,395, giving the Company an overall average premium over market rates of approximately $2,440 or 21%.

•

The Company completed two long-term COAs during 2017 and as a result, total shipping days decreased in the third quarter as compared to the third quarter of 2017. However, this decrease was met with higher TCE rates, resulting in an increase in revenue and in net revenue, the latter of which increased 8% to $20.3 million for the three months ended September 30, 2018, up from $18.8 million for the three months ended September 30, 2017.


•	At the end of the quarter, Pangaea had $53.3 million in cash, restricted cash and cash equivalents.

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

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, 2018 was $95.3 million, compared to $107.0 million for the same period in 2017, an 11% decrease. The total number of shipping days decreased 20% to 4,240 in the three months ended September 30, 2018, compared to 5,305 for the same period in 2017.

Components of revenue are as follows:

Voyage revenues decreased by 13% for the three months ended September 30, 2018 to $81.8 million compared to $93.7 million for the same period in 2017. The decrease in voyage revenues was predominantly driven by a 21% decrease in the number of voyage days, which were 3,276 in the third quarter of 2018 as compared to 4,133 in the third quarter of 2017. The decrease in voyage days was due in large part to COAs that began in 2017 and were completed prior to the first quarter of 2018. However, market improvement from the three months ended September 30, 2017 to the three months ended September 30, 2018 translated into higher voyage revenues for the current period, as highlighted above.

Charter revenues increased to $13.5 million from $13.3 million, or 1%, for the three months ended September 30, 2018 compared to the same period in 2017. The increase in charter revenues was due to improvement in drybulk market rates offset by a decrease in time charter days which were down 10% to 964 in the third quarter of 2018 from 1,172 in the third quarter of 2017.

Voyage Expenses

Voyage expenses for the three months ended September 30, 2018 were $36.7 million, compared to $44.3 million for the same period in 2017, a decrease of approximately 17%. The decrease in voyage expense was due to the decrease in voyage days, as discussed above the effect of which was offset by an increase in the average cost of bunkers, quarter to quarter. The bunker cost per day increased 13% from the three months ended September 30, 2018 to the three months ended September 30, 2017.

Charter Hire Expenses

Charter hire expenses for the three months ended September 30, 2018 were $28.5 million, compared to $34.8 million for the same period in 2017. The number of chartered-in days decreased 33% from 3,762 days in the three months ended September 30, 2017 to 2,537 days for the three months ended September 30, 2018. However, the improving dry bulk market pushed average charter-hire rates paid by the Company up 22% for the three months ended September 30, 2018 as compared to the same period of 2017. Charter hire expense as a percentage of total revenue dropped to 30% in the three months ended September 30, 2018 compared to 32% in the three months ended September 30, 2017, mostly due to the increase in owned days, which is discussed below.

Vessel Operating Expenses

Vessel operating expenses for the three months ended September 30, 2018 were $9.9 million, compared to $9.1 million in the comparable period in 2017, an increase of approximately 8%. The increase in vessel operating expenses is due to the 6% increase in owned and bareboat charter days, which were 1,848 in the three months ended September 30, 2018 as compared to 1,748 in the three months ended September 30, 2017. This increase is due to the addition of vessels acquired on December 2017 and August 2018. Vessel operating expenses per day, including technical management fees, were $5,338 for the three months ended September 30, 2018 and $5,231 for the three months ended September 30, 2017.

General and Administrative Expenses

General and administrative expenses decreased from $4.8 million in the three months ended September 30, 2017 to $3.7 million in the three months ended September 30, 2018. This is due to timing of recognition of incentive compensation resulting in a decrease in accrued bonus compensation of $1million.

Depreciation and amortization

The increase in depreciation and amortization is due to the increase in the number of vessels owned and operated under bareboat charters. Ownership days increased 6% due to acquisitions in December of 2017 and August 2018, as noted above. In addition, there were capitalized drydock expenses for three of the Company's owned vessels since the third quarter of 2017, which increased the amortization expense by approximately $155,000.

Loss on sale and leaseback of vessels

The Company incurred a loss of $0.1 million on the sale and subsequent leaseback of the m/v Bulk Beothuk in the three months ended September 30, 2017.

Income from Operations

The Company had income from operations of $12.1 million for the three months ended September 30, 2018 as compared to income from operations of $10.0 million for the three months ended September 30, 2017. This is primarily due to the improving market fundamentals demonstrated by the 8% increase in net revenue.

Unrealized (loss) gain on derivative instruments

The Company incurred gains on FFAs of approximately $9,000 and $495,000 on bunker swaps in the three months ended September 30, 2018 as compared to losses on FFAs of approximately $379,000 and gains on bunker swaps of approximately $319,000 in the three months ended September 30, 2017. These result from changes in the fair value of the derivatives at the respective balance sheet dates.

Other Income (Expense)

In the three months ended September 30, 2017 the Company recognized other income of $0.9 million from a non-performance settlement that had not previously been recognized.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

Revenues

Total revenue for the nine months ended September 30, 2018 was $271.1 million, compared to $282.9 million for the same period in 2017. The total number of shipping days decreased 16% to 12,047 in the three months ended September 30, 2018, compared to 14,309 for the same period in 2017, however the average TCE rate increased 24% to $13,801 per day for the nine months ended September 30, 2018, compared to $11,093 per day for same period in 2017.

Components of revenue are as follows:

Voyage revenues were $234.0 million for the nine months ended September 30, 2018 compared to $251.6 million for the same period in 2017. The decrease in voyage revenues was predominantly driven by the 18% decrease in the number of voyage days, which were 9,449 in the nine months ended September 30, 2018 as compared to 11,519 in the nine months ended September 30, 2017. The decrease in voyage days was due in large part to COAs that began in the nine months ended September 30, 2017 and were completed within the year. However, market improvement from the nine months ended September 30, 2017 to the nine months ended September 30, 2018 translated into better net results for the current period, as highlighted above. Voyage revenues were also impacted by the adoption of ASC 606 which resulted in a net increase of approximately $1.1 million or $87 per day of TCE revenue for the nine months ended September 30, 2018.

Charter revenues increased to $37.2 million from $31.3 million, or 19%, for the nine months ended September 30, 2018 compared to the same period in 2017. The increase in charter revenues was due to improvement in drybulk market rates which are discussed above, offset by a slight reduction in time charter days which were down slightly to 2,598 in the nine months ended September 30, 2018 from 2,790 in the nine months ended September 30, 2017.

Voyage Expenses

Voyage expenses for the nine months ended September 30, 2018 were $104.9 million, compared to $124.2 million for the same period in 2017, a decrease of approximately 16%. The decrease in voyage expense was due to the 18% decrease in voyage days, as discussed above.

Charter Hire Expenses

Charter hire expenses for the nine months ended September 30, 2018 were $81.9 million, compared to $91.1 million for the same period in 2017. The number of chartered-in days decreased 28% from 9,932 days in the nine months ended September 30, 2017 to 7,176 days for the nine months ended September 30, 2018 due in part to the increase in owned days. However, the improving dry bulk market pushed average charter-hire rates paid by the Company up 24% for the nine months ended September 30, 2018 as compared to the same period of 2017. Charter hire expense as a percentage of total revenue remained fairly consistent at 32% in the nine months ended September 30, 2017 compared to 30% in the nine months ended September 30, 2018. The Company continues to operate under its successful strategy of chartering-in primarily for committed contracts.

Vessel Operating Expenses

Vessel operating expenses for the nine months ended September 30, 2018 were $29.8 million, compared to $26.8 million in the comparable period in 2017, an increase of approximately 11%. The increase in vessel operating expenses is due to the 9% increase in owned and bareboat charter days, which were 5,468 in the nine months ended September 30, 2018 as compared to 5,008 in the nine months ended September 30, 2017. This increase is due to the addition of two vessels acquired in December 2017 and August 2018. Vessel operating expenses per day, including technical management fees, were $5,443 for the nine months ended September 30, 2018 and $5,353 for the nine months ended September 30, 2017.

General and Administrative Expenses

General and administrative expenses increased from $11.4 million in the nine months ended September 30, 2017 to $12.2 million in the nine months ended September 30, 2018. This is due to an increase non cash stock based compensation, salary related expenses and other expenses of $0.2 million, $0.3 million and $0.3 million, respectively.

Depreciation and amortization

The increase in depreciation and amortization is due to the increase in the number of owned vessels after acquisitions in December of 2017 and August of 2018, as noted above and to an increase in amortization of capitalized drydocking expenses incurred in 2018 compared to 2017.

Loss on sale and leaseback of vessels

The Company incurred losses of $9.3 million on the sales and subsequent leasebacks of the m/v Bulk Destiny and the m/v Bulk Beothuk in the nine months ended September 30, 2017 and $0.9 million of loss on the sale and leaseback of the m/v Bulk Trident in the nine months ended September 30, 2018.

Income from Operations

The Company had income from operations of $28.4 million for the nine months ended September 30, 2018 as compared to income from operations of $8.5 million for the nine months ended September 30, 2017. The change reflects the 34% increase in net revenue resulting from improvement in market fundamentals and the losses on sale and leaseback transactions incurred in the nine months ended September 30, 2017, discussed above.

Unrealized (loss) gain on derivative instruments

The Company incurred losses on FFAs of approximately $0.3 million and gains on bunker swaps of approximately $0.7 million in the nine months ended September 30, 2018 as compared to a gain on FFAs of approximately $0.7 million and a loss on bunker swaps of approximately $0.3 million in the nine months ended September 30, 2017. These result from changes in the fair value of the derivatives at the respective balance sheet dates.

Other Income (Expense)

Other income represents a recovery $0.4 million of expenses reserved for claims that have been fully settled, and to income from an unconsolidated subsidiary of $0.1 million for the nine months ended September 30, 2018. For the nine months ended September 30, 2017 other income represents $0.9 million settlement of a non-performance claim that had not previously been recognized, to the recovery of $0.5 million of expenses incurred in a litigation action that was indemnified by third parties, and to income from an unconsolidated subsidiary of $0.3 million.

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 loss on sale and leaseback of vessel, 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.

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.

At June 30, 2018 and 2017, and , the Company identified potential triggering events that resulted from sale and leaseback financing arrangements transacted in those periods. 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.

Liquidity and Capital Resources

Liquidity and Cash Needs

The Company has historically financed its capital requirements with cash flow from operations, proceeds from related party debt, proceeds from long-term debt and capital leases, and, in June 2017, 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 be unable to raise additional debt or equity financing on acceptable terms or at all. As a result, the Company may be unable to pursue opportunities to expand its business.

At September 30, 2018 and December 31, 2017, the Company had working capital of $39.5 million and $13.0 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 $27.2 million and $13.7 million in the nine months ended September 30, 2018 and 2017, respectively; $29.2 million in 2017 and $19.2 million in 2016; and its ability to procure long-term fixed contract employment (COAs) with new and longstanding customers. In addition, the Company has demonstrated its unique ability to adapt to changing market conditions by changing the 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, 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 two Panamax drybulk carriers, six 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. A Memorandum of Agreement for the purchase of a third Panamax drybulk carrier was signed in April 2018.

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. 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 $289,000 in the three months ended September 30, 2017 and expensed drydocking costs of approximately $29,000 and $20,000 in the three months ended September 30, 2018 and 2017, respectively. The Company capitalized drydocking costs totaling approximately $1.5 million and $1.0 million and expensed drydocking costs of approximately $71,000 and $787,000 in the nine months ended September 30, 2018 and 2017, respectively.

Off-Balance Sheet Arrangements

The Company does not have off-balance sheet arrangements at September 30, 2018 or December 31, 2017.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risks

Interest Rate Risk

The international shipping industry is capital intensive, requiring significant amounts of investment provided in the form of long-term debt. Certain of the Company’s outstanding debt contain floating interest rates that fluctuate with changes in the financial markets and in particular changes in LIBOR. Increasing interest rates could increase the Company’s interest expense and adversely impact its future earnings. The Company’s net effective exposure to floating interest rate fluctuations on its outstanding debt was $83.6 million and $66.5 million, respectively, at September 30, 2018 and December 31, 2017.

The Company’s interest expense is affected by changes in the general level of interest rates, particularly LIBOR. As an indication of the extent of the Company’s sensitivity to interest rate changes, an increase in LIBOR of 1% would have decreased the Company’s net income and cash flows during each of the three month periods ended September 30, 2018 and 2017 by approximately $0.2 million, based on the debt levels at the beginning of each period. The Company expects its sensitivity to interest rate changes to increase in the future if the Company enters into additional floating rate debt agreements in connection with its acquisition of additional vessels.

Forward Freight Agreements

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. During the nine months ended September 30, 2018 and the year ended December 31, 2017, the Company entered into various fuel swap contracts that were not designated for hedge accounting. The aggregate fair value of these fuel swaps at September 30, 2018 and December 31, 2017 were assets of $1,118,000 and $377,000, respectively.

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, 2018.

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.

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 21, 2018.

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.

Item 6 – Exhibits



Exhibit no.	Description	Incorporated By Reference			Filed herewith
		Form	Date	Exhibit

10.43	Bareboat Charter Party Dated 17 August 2018				X

31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X

31.2	Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X

32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X

32.2	Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				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

EX-101.PRE	XBRL Taxonomy Extension Presentation Linkbase				X

SIGNATURES

Pursuant to the requirements of the Section 13 or 15 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 8, 2018.



	PANGAEA LOGISTICS SOLUTIONS LTD.

	By:	/s/ Edward Coll
	Edward Coll
	Chief Executive Officer
	(Principal Executive Officer)

	By:	/s/ Gianni Del Signore
	Gianni Del Signore
	Chief Financial Officer
	(Principal Financial and Accounting Officer)