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 March 31, 2020
 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
 
 
Commission File Number: 001-36139

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

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

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

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

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

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

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

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, 45,061,100 shares outstanding as of May 13, 2020.





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


2






Pangaea Logistics Solutions Ltd.
Consolidated Balance Sheets

March 31, 2020

December 31, 2019

(unaudited)

 
Assets
 

 
Current assets
 


 

Cash and cash equivalents
$
39,972,746


$
50,555,091

Restricted cash
1,000,000

 
1,000,000

Accounts receivable (net of allowance of $1,723,510 at
March 31, 2020 and $1,908,841 at December 31, 2019)
23,140,149


28,309,402

Bunker inventory
19,156,816


21,001,010

Advance hire, prepaid expenses and other current assets
17,831,006


18,770,825

Vessel held for sale

 
8,319,152

Total current assets
101,100,717


127,955,480





 
Restricted cash
1,500,000

 
1,500,000

Fixed assets, net
287,533,664


281,474,857

Investment in newbuildings in-process
15,390,634

 
15,357,189

Finance lease right of use assets, net
46,493,362

 
53,615,305

Total assets
$
452,018,377


$
479,902,831





 
Liabilities and stockholders' equity
 


 

Current liabilities
 

 
Accounts payable, accrued expenses and other current liabilities
$
35,556,515


$
39,973,635

Related party debt
242,852


332,987

Deferred revenue
7,616,895


14,376,394

Current portion of secured long-term debt
22,240,674


22,990,674

Current portion of finance lease liabilities
6,902,370

 
12,549,208

Dividend payable
132,659


631,961

Total current liabilities
72,691,965


90,854,859





 
Secured long-term debt, net
81,143,060

 
83,649,717

Finance lease liabilities
55,768,735

 
57,498,217

Long-term liabilities - other - Note 8
5,052,984


4,828,364

 
 
 
 
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; 45,112,062 shares issued and outstanding at March 31, 2020; 44,886,122 shares issued and outstanding at December 31, 2019
4,512

 
4,489

Additional paid-in capital
158,564,477

 
157,504,895

Retained earnings
5,941,205

 
12,736,580

Total Pangaea Logistics Solutions Ltd. equity
164,510,194

 
170,245,964

Non-controlling interests
72,851,439

 
72,825,710

Total stockholders' equity
237,361,633

 
243,071,674

Total liabilities and stockholders' equity
$
452,018,377

 
$
479,902,831

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

3





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

 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
Revenues:
 
 
 
Voyage revenue
$
86,523,891

 
$
65,851,347

Charter revenue
9,356,046

 
13,692,838

 
95,879,937

 
79,544,185

Expenses:
 
 
 
Voyage expense
47,795,912

 
32,174,107

Charter hire expense
32,325,447

 
24,947,369

Vessel operating expense
9,933,862

 
9,754,375

General and administrative
3,993,243

 
4,033,680

Depreciation and amortization
4,242,251

 
4,377,188

Gain on sale of vessels
(77,990
)
 

Total expenses
98,212,725

 
75,286,719


 
 
 
(Loss) income from operations
(2,332,788
)
 
4,257,466


 
 
 
Other (expense) income:
 
 
 

Interest expense, net
(2,116,320
)
 
(2,207,168
)
Interest expense on related party debt

 
(26,898
)
Unrealized (loss)/gain on derivative instruments, net
(2,917,094
)
 
2,289,786

Other income
596,556

 
167,820

Total other (expense) income, net
(4,436,858
)
 
223,540


 
 
 
Net (loss) income
(6,769,646
)
 
4,481,006

Income attributable to non-controlling interests
(25,729
)
 
(778,452
)
Net (loss) income attributable to Pangaea Logistics Solutions Ltd.
$
(6,795,375
)
 
$
3,702,554


 
 
 
Earnings per common share:
 
 
 
Basic
$
(0.16
)
 
$
0.09

Diluted
$
(0.16
)
 
$
0.09


 
 
 
Weighted average shares used to compute earnings per common share:
 
 
 
Basic
43,341,005

 
42,601,227

Diluted
43,341,005

 
43,071,632

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


4




Pangaea Logistics Solutions Ltd.
Consolidated Statements of Stockholders' Equity
(unaudited)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Total Pangaea Logistics  Solutions Ltd. Equity
 
Non-Controlling Interest
 
Total  Stockholders' Equity
 
Shares
 
Amount
 
Balance at December 31, 2019
44,886,122

 
$
4,489

 
$
157,504,895

 
$
12,736,580

 
$
170,245,964

 
$
72,825,710

 
$
243,071,674

Share-based compensation

 

 
1,102,769

 

 
1,102,769

 

 
1,102,769

Issuance of restricted shares, net of forfeitures
225,940

 
23

 
(43,187
)
 

 
(43,164
)
 

 
(43,164
)
Net (Loss) Income

 

 

 
(6,795,375
)
 
(6,795,375
)
 
25,729

 
(6,769,646
)
Balance at March 31, 2020
45,112,062

 
$
4,512

 
$
158,564,477

 
$
5,941,205

 
$
164,510,194

 
$
72,851,439

 
$
237,361,633

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Total Pangaea Logistics  Solutions Ltd. Equity
 
Non-Controlling Interest
 
Total  Stockholders' Equity
 
Shares
 
Amount
 
Balance at December 31, 2018
43,998,560

 
$
4,400

 
$
155,946,452

 
$
5,737,199

 
$
161,688,051

 
$
71,678,946

 
$
233,366,997

Share-based compensation

 

 
674,599

 

 
674,599

 

 
674,599

Issuance of restricted shares, net of forfeitures
505,530

 
50

 
(50
)
 

 

 

 

Net income

 

 

 
3,702,554

 
3,702,554

 
778,452

 
4,481,006

Balance at March 31, 2019
44,504,090

 
$
4,450

 
$
156,621,001

 
$
9,439,753

 
$
166,065,204

 
$
72,457,398

 
$
238,522,602


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


5

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

 
Three Months Ended March 31,
 
2020
 
2019
Operating activities
 
 
 
Net (loss) income
$
(6,769,646
)
 
$
4,481,006

Adjustments to reconcile net income to net cash (used in) provided by operations:
 
 
 
Depreciation and amortization expense
4,242,251

 
4,377,188

Amortization of deferred financing costs
176,526

 
182,802

Amortization of prepaid rent
30,568

 
29,649

Unrealized loss (gain) on derivative instruments
2,917,094

 
(2,289,786
)
Gain from equity method investee
(429,360
)
 
(128,250
)
Earnings attributable to non-controlling interest recorded as interest expense
(27,643
)
 

(Recovery) provision for doubtful accounts
(185,331
)
 
487,372

Gain on sale of vessel
(77,990
)
 

Drydocking costs
(2,903,277
)
 
(381,059
)
Share-based compensation
1,102,769

 
674,599

Change in operating assets and liabilities:
 
 
 
Accounts receivable
5,354,584

 
15,264,298

Bunker inventory
1,844,194

 
3,806,864

Advance hire, prepaid expenses and other current assets
1,369,179

 
(872,860
)
Accounts payable, accrued expenses and other current liabilities
(6,729,172
)
 
(5,363,850
)
Deferred revenue
(6,759,499
)
 
(8,308,254
)
Net cash (used in) provided by operating activities
(6,844,753
)
 
11,959,719

 
 
 
 
Investing activities


 
 
Purchase of vessels and vessel improvements
(283,446
)
 
(11,426,174
)
Investment in newbuildings in-process
(33,445
)
 

Purchase of fixed assets and equipment

 
(159,619
)
Proceeds from sale of vessels
8,397,142

 

Purchase of derivative instrument
(628,000
)
 

Net cash provided by (used in) investing activities
7,452,251

 
(11,585,793
)
 
 
 
 
Financing activities
 
 
 
Payments of related party debt
(90,135
)
 
(838,102
)
Payments of financing fees and debt issuance costs
(149,118
)
 
(260,225
)
Payments of long-term debt
(3,284,067
)
 
(4,203,014
)
Proceeds from finance leases

 
13,000,000

Payments of finance lease obligations
(7,376,320
)
 
(1,429,275
)
Accrued common stock dividends paid
(499,302
)
 
(1,135,000
)
Cash paid for incentive compensation shares relinquished
(43,164
)
 

Contributions from non-controlling interest recorded as long-term liability
322,750

 

Payments to non-controlling interest recorded as long-term liability
(70,487
)
 

Net cash (used in) provided by financing activities
(11,189,843
)
 
5,134,384

 
 
 
 
Net (decrease) increase in cash, cash equivalents and restricted cash
(10,582,345
)
 
5,508,310

Cash, cash equivalents and restricted cash at beginning of period
53,055,091

 
56,114,735

Cash, cash equivalents and restricted cash at end of period
$
42,472,746

 
$
61,623,045

Supplemental cash flow information
 
 
 
Cash and cash equivalents
$
39,972,746

 
$
59,123,045

Restricted cash
2,500,000

 
2,500,000

 
$
42,472,746

 
$
61,623,045


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

6



NOTE 1 - GENERAL INFORMATION AND RECENT EVENTS

Organization and General

The accompanying consolidated financial statements include the accounts of Pangaea Logistics Solutions Ltd. and its consolidated subsidiaries (collectively, the “Company”, “Pangaea” “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.

At March 31, 2020, the Company owns two Panamax, two Ultramax Ice Class 1C, and eight Supramax 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.

Recent Events

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus strain, or COVID-19, to be a pandemic. The COVID-19 pandemic (“COVID-19”) is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Management continues to evaluate the impact of COVID-19 on the industry and its business. At present, it is not possible to ascertain the overall impact of COVID-19 on the Company’s financial position and results of its operations. However, an increase in the severity or duration or a resurgence of COVID-19 could have a material adverse effect on the Company’s business, results of operations, cash flows and financial condition. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q. Accordingly, these interim financial statements do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements. The accompanying financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the interim period results. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Certain reclassifications have been made to prior periods to conform to current period presentation. 
The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are the estimated future cash flows used in its impairment analysis, the estimated salvage value used in determining depreciation expense and the allowances for doubtful accounts.

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

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

7



Cash and cash equivalents include short-term deposits with an original maturity of less than three months. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:
 
 
March 31, 2020
 
December 31, 2019
 
(unaudited)
 
 
Money market accounts – cash equivalents
$
28,744,019

 
$
32,150,342

Cash (1)
11,228,727

 
18,404,749

Total cash and cash equivalents
$
39,972,746

 
$
50,555,091

Restricted cash
2,500,000

 
2,500,000

Total cash, cash equivalents and restricted cash
$
42,472,746

 
$
53,055,091


(1) Consists of cash deposits at various major banks.
 
Restricted cash at March 31, 2020 and December 31, 2019 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. $1,000,000 restricted cash was reclassified to current assets due to the balloon payments of Bulk Nordic Odyssey Ltd and Bulk Nordic Orion Ltd due in September of 2020.

Advance hire, prepaid expenses and other current assets were comprised of the following:  
 
 
March 31, 2020
 
December 31, 2019
 
 
(unaudited)
 
 
Advance hire
 
$
3,976,205

 
$
3,985,826

Prepaid expenses
 
2,918,761

 
4,924,557

Accrued receivables
 
6,802,009

 
6,466,068

Margin deposit
 
2,383,275

 
269,379

Other current assets
 
1,750,756

 
3,124,995

 
 
$
17,831,006

 
$
18,770,825

 

8



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

 
 
March 31, 2020
 
December 31, 2019
 
 
(unaudited)
 
 
Accounts payable
 
$
23,712,097

 
$
24,173,291

Accrued expenses
 
8,590,256

 
14,883,555

Derivative liabilities
 
2,761,165

 
472,073

Other accrued liabilities
 
492,997

 
444,716

 
 
$
35,556,515

 
$
39,973,635


Time charter out contracts

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

Time charter in contracts

The Company charters in vessels to supplement its owned fleet to support its voyage charter operations. The Company hires vessels under time charters with third party vessel owners, and recognizes the charter hire payments as an expense on a straight-line basis over the term of the charter. Charter hire payments are typically made in advance, and the unrecognized portion is reflected as advance hire in the accompanying consolidated balance sheets. Under the time charters, the vessel owner is responsible for the vessel operating costs such as crews, maintenance and repairs, insurance, and stores. As allowed by a practical expedient under ASC 842, the Company made an accounting policy election by class of underlying asset for leases with a term of 12 months or less, to forego recognizing a right-of-use asset and lease liability on its balance sheet. For the quarter ending March 31, 2020, the Company did not have any time charter in contracts with terms greater than 12 months, as such charter hire expense presented on the consolidated statements of income are lease expenses for chartered in contracts less than 12 months.

Leases under ASC 842

At March 31, 2020, the Company had four vessels chartered to customers under time charters that contain leases. These four leases varied in original length from 1 day to 30 days. At March 31, 2020, lease payments due under these arrangements totaled approximately $312,000 and each of the time charters were due to be completed in thirty-one days or less. The Company does not have any sales-type or direct financing leases.

The Company has two non-cancelable office leases and non-cancelable office equipment leases and the lease assets and liabilities are not material.

Recently Issued Accounting Pronouncements Not Yet Adopted
    
In March 2020, the FASB issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Companies can apply the ASU immediately, however the guidance will only be available until December 31, 2022. The Company is currently evaluating the impact that adopting this new accounting standard will have on its consolidated financial statements and related disclosures.


9


NOTE 3 - FIXED ASSETS

At March 31, 2020, the Company owned eighteen dry bulk vessels including three financed under finance leases; and one barge. The carrying amounts of these vessels, including unamortized drydocking costs, are as follows: 
 
March 31,
 
December 31,
 
2020
 
2019
Owned vessels
(unaudited)
 
 
m/v BULK PANGAEA
$
14,650,117

 
$
14,988,076

m/v NORDIC ODYSSEY
22,564,898

 
22,897,029

m/v NORDIC ORION
23,437,392

 
23,688,812

m/v BULK NEWPORT
12,722,983

 
12,975,767

m/v NORDIC OSHIMA
27,985,690

 
28,325,078

m/v NORDIC ODIN
28,381,196

 
28,094,764

m/v NORDIC OLYMPIC
28,275,734

 
27,931,771

m/v NORDIC OASIS
28,900,457

 
29,190,935

m/v BULK ENDURANCE
24,784,479

 
25,037,775

m/v BULK FREEDOM
9,918,266

 
8,269,777

m/v BULK PRIDE
12,858,352

 
12,996,311

m/v BULK SPIRIT
12,727,209

 
12,867,060

m/v BULK INDEPENDENCE
13,965,442

 
14,000,946

m/v BULK FRIENDSHIP
13,897,189

 
14,052,500

m/v BULK BEOTHUK (1)
6,476,788

 

MISS NORA G PEARL
3,497,833

 
3,609,851

 
285,044,025

 
278,926,452

Other fixed assets, net
2,489,639

 
2,548,405

Total fixed assets, net
$
287,533,664

 
$
281,474,857

 
 
 
 
Right of Use Assets
 
 
 
m/v BULK DESTINY
$
21,272,616

 
$
21,484,733

m/v BULK BEOTHUK (1)

 
6,589,537

m/v BULK TRIDENT
11,949,023

 
12,095,727

m/v BULK PODS
$
13,271,723

 
13,445,308

 
$
46,493,362

 
$
53,615,305


(1) In January 2020 the Company completed an early buy-out of the lease for a purchase price of $5.5 million.
On February 2020, the Company sold the m/v Nordic Barents and m/v Bulk Patriot. Both were recorded as vessels held for sale at December 31, 2019.

Long-lived Assets Impairment Considerations

The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. If indicators of impairment are present, we perform an analysis of the anticipated undiscounted future net cash flows to be derived from the related long-lived assets. Our assessment is made at the asset 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 Company performed its quarterly assessment by evaluating whether a triggering event had occurred as of March 31, 2020 considering current market conditions resulting from the global COVID-19 pandemic. The Company concluded that no triggering event had occurred at March 31, 2020 and will continue to monitor the market for any adverse conditions resulting from the COVID-19 pandemic.

10


    
At March 31, 2019, the Company did not identify any potential triggering events and therefore, in accordance with authoritative guidance, did not perform tests of recoverability.

NOTE 4 - DEBT

Long-term debt consists of the following: 
 
 
March 31, 2020
 
December 31, 2019
 
Interest Rate (%) (1)
 
Maturity Date
 
 
(unaudited)
 
 
 
 
 
 
Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Loan Agreement (2)
 
27,716,300

 
28,466,300

 
4.07
%
 
2022
Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. Loan Agreement (2) (3)
 
12,104,406

 
12,854,405

 
3.77
%
 
2020
Bulk Nordic Oshima Ltd. Amended and Restated Loan Agreement (2) (4)
 
13,129,295

 
13,504,295

 
3.14
%
 
2021
Bulk Nordic Oasis Ltd. Loan Agreement
 
15,125,000

 
15,500,000

 
4.30
%
 
2022
The Amended Senior Facility - Dated May 13, 2019 (formerly The Amended Senior Facility - Dated December 21, 2017) (5)
 
 
 
 
 
 
 
 
Bulk Nordic Six Ltd. - Tranche A
 
13,033,330

 
13,299,997

 
3.69
%
 
2024
Bulk Nordic Six Ltd. - Tranche B
 
2,785,000

 
2,850,000

 
3.65
%
 
2024
Bulk Pride - Tranche C
 
6,025,000

 
6,300,000

 
4.69
%
 
2024
Bulk Independence - Tranche E
 
13,250,000

 
13,500,000

 
3.48
%
 
2024
Bulk Freedom Loan Agreement
 
3,650,000

 
3,800,000

 
4.49
%
 
2022
109 Long Wharf Commercial Term Loan
 
675,866

 
703,266

 
3.69
%
 
2026
Total
 
$
107,494,197

 
$
110,778,263

 
 
 
 
Less: unamortized bank fees
 
(4,110,463
)
 
(4,137,872
)
 
 
 
 
 
 
$
103,383,734

 
$
106,640,391

 
 
 
 
Less: current portion
 
(22,240,674
)
 
(22,990,674
)
 
 
 
 
Secured long-term debt, net
 
$
81,143,060

 
$
83,649,717

 
 
 
 

(1) 
As of March 31, 2020.
(2) 
The borrower under this facility is NBHC, of which the Company and its joint venture partners, STST and ASO2020, each own one-third. NBHC is consolidated in accordance with ASC 810-10 and as such, amounts pertaining to the non-controlling ownership held by these third parties in the financial position of NBHC are reported as non-controlling interest in the accompanying balance sheets.
(3) 
Interest on 50% of the advances to Bulk Nordic Odyssey and Bulk Nordic Orion was fixed at 4.24% in March 2017 and Interest on the remaining advances is floating at LIBOR plus 2.40%. The Company will refinance or pay off the balloon payments due in September of 2020.
(4) 
Interest on 50% of the advance to Bulk Nordic Oshima was fixed at 4.16% in January 2017 and Interest on the remaining advance is floating at LIBOR plus 2.25%.
(5) 
This facility is cross-collateralized by the vessels m/v Bulk Endurance, m/v Bulk Pride, and m/v Bulk Independence and is guaranteed by the Company.

Financial Covenants

Under the Company's respective debt agreements, the Company is required to comply with certain financial covenants, including 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 and to maintain positive working capital. The Company was in compliance with all applicable financial covenants as of March 31, 2020 and December 31, 2019.

 
 


11


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 March 31, 2020 and December 31, 2019 were liabilities of approximately $136,000 and $150,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the three months ended March 31, 2020 and 2019 are a gain of approximately $14,130 and a loss of approximately $440,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of income.

Fuel Swap Contracts

The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker hedging program. The Company enters into fuel swap contracts that are not designated for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of these fuel swaps at March 31, 2020 and December 31, 2019 are liabilities of approximately $2,874,000 and $322,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the fuel swaps during the three months ended March 31, 2020 and 2019 are a loss of approximately $2,551,000 and a gain of approximately $2,729,000, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of income.

Interest rate cap

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract.

In January 2020, the Company paid $628,000 for interest rate cap contracts to mitigate the risk associated with increases in interest rates on our sale and lease back financing arrangements of the four new-buildings. In the event that the three-month LIBOR rate rises above the applicable strike rate, the Company would receive quarterly payments related to the spread difference.
The following table summarizes these derivative instruments as of March 31, 2020.
 
 
 
 
 
 
 
 
Fair Value
 
Notional Amount
Interest Rate Derivative
 
Effective Date
 
Maturity Date
 
Interest Rate Strike
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
Interest rate cap contract - 1
 
November 15, 2020
 
April 30, 2026
 
3.25%
 
$53,970
 
$—
 
$5,742,750
 
$—
Interest rate cap contract - 2
 
December 15, 2020
 
May 31, 2026
 
3.25%
 
$56,132
 
$—
 
$5,742,750
 
$—
Interest rate cap contract - 3
 
May 15, 2021
 
November 30, 2026
 
3.25%
 
$68,994
 
$—
 
$5,654,336
 
$—
Interest rate cap contract - 4
 
May 15, 2021
 
November 30, 2026
 
3.25%
 
$68,994
 
$—
 
$5,654,336
 
$—
Total
 
 
 
 
 
 
 
$248,090
 
 
 
 
 
 

These interest rate cap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs. The loss of $379,910 on changes in the fair value of the interest rate cap contracts was recorded in unrealized (loss)/gain on derivative instruments, net at March 31, 2020.


12


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 March 31, 2020 and December 31, 2019:
 
Balance at
 
 
 
 
 
 
 
March 31, 2020
 
Level 1
 
Level 2
 
Level 3
 
(unaudited)
 
 
 
 
 
 
Margin accounts
$
2,383,275

 
$
2,383,275

 
$

 
$

Fuel swaps
$
(2,873,625
)
 
$

 
$
(2,873,625
)
 
$

Freight forward agreements
$
(135,630
)
 
$

 
$
(135,630
)
 
$

Interest Rate Derivative
$
248,090

 
 
 
$
248,090

 
$

 
 
Balance at
December 31, 2019
 
Level 1
 
Level 2
 
Level 3
Margin accounts
$
269,379

 
$
269,379

 
$

 
$

Fuel swaps
$
(322,313
)
 
$

 
$
(322,313
)
 
$

Freight forward agreements
$
(149,760
)
 
$

 
$
(149,760
)
 
$

 
The estimated fair values of the Company’s forward freight agreements and fuel swap contracts are based on market prices obtained from an independent third-party valuation specialist based on published indices. Such quotes represent the estimated amounts the Company would receive or pay to terminate the contracts. The interest rate caps contracts are valued using analysis obtained from independent third party valuation specialists based on market observable inputs, representing Level 2 assets.








13


NOTE 6 - RELATED PARTY TRANSACTIONS

Amounts and notes payable to related parties consist of the following:
 
December 31, 2019
 
Activity
 
March 31, 2020
 
 
 
 
 
(unaudited)
Included in trade accounts receivable and voyage revenue on the consolidated balance sheets and statements of income, respectively:
 
 
 
 
 
Trade receivables due from King George Slag (i)
$
457,629

 
$

 
$
457,629

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

 
 

 
 

Affiliated companies (trade payables) (ii)
5,679,768

 
744,554

 
6,424,322

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

 
 

 
 

Interest payable - 2011 Founders Note
332,987

 
(90,135
)
 
242,852

Total current related party debt
$
332,987

 
$
(90,135
)
 
$
242,852


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



Under the terms of a technical management agreement between the Company and Seamar Management S.A. (“Seamar”), an equity method investee, Seamar is responsible for the day-to-day operations for certain of the Company’s owned vessels. During the three months ended March 31, 2020 and 2019, the Company incurred technical management fees of approximately $707,400 and $716,400, respectively, under this arrangement. The total amounts payable to Seamar at March 31, 2020 and December 31, 2019 were approximately $6,424,000 and $5,680,000, respectively.
    
Dividends payable to related parties consist of the following:
 
 
2013 common stock dividend

Balance at December 31, 2019
 
$
631,961

Paid in cash
 
(478,359
)
Balance at March 31, 2020
 
$
153,602



NOTE 7 - COMMITMENTS AND CONTINGENCIES

The Company's leases are secured by the assignment of earnings and insurances and by guarantees of the Company.

Vessel Acquisition Accounted for as a Finance Lease (in accordance with new accounting guidance - ASC 840)

The selling price of the m/v Bulk Destiny to the new owner (lessor) was $21.0 million and the fair value of the vessel at the inception of the lease was $24.0 million. The difference between the selling price and the fair value of the vessel was recorded as prepaid rent and is being amortized over the 25 year estimated useful life of the vessel. Prepaid rent is included in finance lease right of use assets (previously "vessels under capital lease") on the consolidated balance sheet at March 31, 2020. Minimum lease payments fluctuate based on three-month LIBOR and are payable quarterly over the seven year lease term, with a purchase obligation of $11.2 million due with the final lease payment in January 2024. Interest is floating at LIBOR plus 2.75% (4.65% 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 $7.0 million 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 $4.0 million is due with the final lease payment in June 2022. The implied interest rate at inception was 11.83%. In January 2020 the Company completed an early buy-out of the lease for a purchase price of $5.5 million.

14



The selling price of the m/v Bulk Trident was $13.0 million and the fair value was estimated to be the same. The Company simultaneously leased the vessel back from the buyer. The minimum lease payments fluctuate based on three-month LIBOR and are payable monthly over the eight-year lease term. The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. Interest is floating at LIBOR plus 1.7% (3.15% 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 $14.8 million 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% (2.90% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term.    

Vessel Acquisition Accounted for as a Finance Lease (in accordance with new accounting guidance - ASC 842)
    
In February 2019, the Company acquired the m/v Bulk Spirit for $13.0 million, which is the estimated fair value and simultaneously entered into a failed sale and leaseback of the vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606, because control of the vessel was not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease transfers ownership of the vessel to the Company by the end of the lease term. The minimum lease payments include interest at 5.10% for the first five years. Interest fluctuates based on the three-month LIBOR for the remaining three years of the eight-year lease term. The Company has the option to purchase the vessel at the end of the second year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. The Company is obligated to repurchase the vessel at the end of the lease term. A balloon payment of $3.9 million is due with the final lease payment in March 2027. This lease is secured by the assignment of earnings and insurances and by a guarantee of the Company.

In September 2019, the Company acquired the m/v Bulk Friendship for $14.1 million, which is the estimated fair value and simultaneously entered into a failed sale and leaseback of the vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606, because control of the vessel was not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease includes a fixed price purchase option, which the Company expects to exercise at the end of the lease term. The minimum lease payments include imputed interest at 5.29%. The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. In the event the Company has not exercised any of the purchase options during the term of the charter then the Company shall have a final purchase option to purchase the vessel at the end of the fifth year at a fixed price of $7.8 million. This lease is secured by the assignment of earnings and insurances and by a guarantee of the Company.

Vessel Newbuildings

During second and third quarter of 2019, the Company entered into two vessel newbuilding contracts to build four new high ice class post-panamax 95,000 dwt dry bulk vessels. The new vessels, with a building cost of approximately between $37.7 million to $38.3 million each, are expected to be delivered in 2021. As of September 30, 2019, the Company has made deposits of $15.4 million for the four new vessels. The second installments of 20% are due and payable upon launching of the vessels and the final payments are due upon delivery of the vessels.         

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

The Company has also entered into a LLC agreement with the non-controlling interest holder of NBP which includes certain obligations as described in Note 8.


15


Long-term Contracts Accounted for as Operating Leases

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

The Company leases office space for its Singapore operations. At March 31, 2020, the remaining lease term is nine months.

For the three months ended March 31, 2020 and 2019, the Company recognized approximately $52,000 as lease expense for office leases in General and Administrative Expenses.

Future minimum lease payments under finance leases with initial or remaining terms in excess of one year at March 31, 2020 were:
Year ending December 31,
 
2020
$
7,472,176

2021
9,774,982

2022
9,608,224

2023
9,440,933

2024
26,166,010

Thereafter
13,051,955

Total minimum lease payments
$
75,514,280

Less imputed interest
12,843,175

Present value of minimum lease payments
62,671,105

Less current portion
6,902,370

Long-term portion
$
55,768,735


Legal Proceedings and Claims

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 - OTHER LONG-TERM LIABILITIES

In September 2019, the Company entered into an LLC agreement for the formation of NBP, that, at inception is owned 75% by the Company and 25% by an independent third party. NBP was established for the purpose of constructing and owning four new-build ice class post panamax vessels. During the construction phase of the vessel, the third party has committed to contribute additional funding and ultimately own 50% of NBP at the time of delivery of the new-build ice class post panamax vessels. The agreement contains both put and call option provisions. Accordingly, the Company may be obligated, pursuant to the put option, or entitled pursuant to the call option, to purchase the third party's interest in NBP beginning any time after September 2026. The put option and call option are at fixed prices which are not significantly different from each other, starting at $4.0 million per vessel on the fourth anniversary from completion and delivery of each vessel and declining to $3.7 million per vessel on or after the seventh anniversary from completion and delivery of each vessel. If neither put nor call option is exercised, the Company is obligated to purchase the vessels from NBP at a fixed price. Pursuant to ASC 480, Distinguishing Liabilities from Equity, the Company has recorded the third party's interest in NBP of $5.1 million in Long term liabilities - Other at March 31, 2020. Earnings attributable to the third party’s interest in NBP are recorded in Interest expense, net, which resulted in a reduction in interest expenses of $27,643 for the period ended March 31, 2020.


16





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

Forward Looking Statements

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

Important Financial and Operational Terms and Concepts

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

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

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

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

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

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

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.

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).


17




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.

18




Selected Financial Information

(in thousands, except for shipping days data and per share data)
(figures may not foot due to rounding)
 
For the three months ended March 31,
 
 
2020
 
2019
Selected Financial Data
 
 
Voyage revenue
 
$
86,524

 
$
65,851

Charter revenue
 
9,356

 
13,693

Total revenue
 
95,880

 
79,544

Voyage expense
 
47,796

 
32,174

Charter hire expense
 
32,325

 
24,947

Vessel operating expenses
 
9,934

 
9,754

Total cost of transportation and service revenue
 
90,055

 
66,876

Vessel depreciation and amortization
 
4,196

 
4,342

Gross Profit
 
1,629

 
8,326

Other operating expenses
 
4,039

 
4,069

Gain on sale of vessels
 
(78
)
 

(Loss) income from operations
 
(2,333
)
 
4,257

Total other expense, net
 
(4,437
)
 
224

Net (loss) income
 
(6,770
)
 
4,481

Income attributable to non-controlling interests
 
(26
)
 
(778
)
Net (loss) income attributable to Pangaea Logistics Solutions Ltd.
 
$
(6,795
)
 
$
3,703

 
 
 
 
 
Net (loss) income from continuing operations per common share information
 
 
 
 
Basic net (loss) income per share
 
$
(0.16
)
 
$
0.09

Diluted net (loss) income per share
 
(0.16
)
 
$
0.09

Weighted-average common shares Outstanding - basic
 
43,341,005

 
42,601,227

Weighted-average common shares Outstanding - diluted
 
43,341,005

 
43,071,632

 
 
 
 
 
Adjusted EBITDA (1)
 
$
2,934

 
$
9,309

 
 
 
 
 
Shipping Days (2)
 
 

 
 

Voyage days
 
3,625

 
2,905

Time charter days
 
951

 
1,033

Total shipping days
 
4,576

 
3,938

 
 
 
 
 
TCE Rates ($/day) (3)
 
$
10,508

 
$
12,029



19




 
 
March 31, 2020
 
December 31, 2019
Selected Data from the Consolidated Balance Sheets
 
 

 
 

Cash, restricted cash and cash equivalents
 
$
42,473

 
$
53,055

Total assets
 
$
452,018

 
$
479,903

Total secured debt, including finance leases liabilities
 
$
166,055

 
$
176,688

Total shareholders' equity
 
$
237,362

 
$
243,072

 
 
 
 
 
 
 
For the three months ended March 31,
 
 
2020
 
2019
Selected Data from the Consolidated Statements of Cash Flows
 
 
 
 
Net cash (used in) provided by operating activities
 
$
(6,845
)
 
$
11,960

Net cash provided by (used in) investing activities
 
$
7,452

 
$
(11,586
)
Net cash (used in) provided by financing activities
 
$
(11,190
)
 
$
5,134


(1) 
Adjusted EBITDA represents operating earnings before interest expense, income taxes, depreciation and amortization, loss on sale and leaseback of vessels, share-based compensation 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.

(2) 
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).

(3) 
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.

The reconciliation of gross profit to net transportation and service revenue and income from operations to Adjusted EBITDA is as follows:
(in thousands, figures may not foot due to rounding)

Three Months Ended March 31,
 
2020
 
2019
Net Transportation and Service Revenue (4)
 
 
 
Gross Profit
$
1,629

 
$
8,327

Add:
 
 
 
Vessel Depreciation and Amortization
$
4,196

 
$
4,342

Net transportation and service revenue
$
5,825

 
$
12,669

Adjusted EBITDA
 
 
 
(Loss) income from operations
$
(2,333
)
 
$
4,257

Depreciation and amortization
4,242

 
4,377

Gain on sale of vessels
$
(78
)
 
$

Share-based compensation
$
1,103

 
$
675

Adjusted EBITDA

$
2,934

 
$
9,309

 
(4) Net transportation and service revenue represents total revenue less the total direct costs of transportation and services, which includes charter hire, voyage and vessel operating expenses. Net transportation and service revenue is included because it is used by management and certain investors to measure performance by comparison to other logistic service providers. Net transportation and service 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 transportation and service revenue used here may not be comparable to an operating measure used by other companies.


20




Business Overview

The dry bulk sector of the transportation and logistics industry is cyclical and can be volatile due to changes in supply of vessels and demand for transportation of dry bulk commodities. The Baltic Dry Index (“BDI”), a measure of dry bulk market performance, averaged 549 for the first quarter of 2020, down from an average of 689 for the comparable quarter of 2019. More specifically, and reflecting the composition of the Company's fleet, the average published market rates for Supramax and Panamax vessels decreased approximately 17% from an average of $7,160 in first quarter of 2019 to $5,920 in the same period of 2020. We have historically experienced fluctuations in our results of operations on a quarterly and annual basis. We expect to experience continued fluctuations in our operating results in the foreseeable future due to a variety of factors, including competition and seasonality.

Although our business is not heavily focused in China, the dry bulk sector of the shipping industry is closely correlated to economic activity in China, which was the first country to be impacted by the novel coronavirus or COVID-19. This resulted in closures and an overall contraction in China's economic output in January and February. By March China began to loosen restriction and show some signs of improvement which resulted in a slight rebound in the BDI. However also in early March, the global spread of the virus accelerated especially in parts of Europe and the United States resulting in various forms of nationwide shut downs. The impacts of these shutdowns on the demand for dry bulk goods will be highly dependent on the duration and how quickly various countries can return to normal levels of industrial activity, which is uncertain.

Given the uncertainties of the COVID-19 pandemic, we have taken steps to manage and reduce operating costs, further enhance our financial flexibility, and protect the health and safety of our crew and shore based employees. Consistent with our chartering strategy we have redelivered chartered-in vessels when possible and continue to charter in new vessels when needed for short term period in order to limit our exposure to further declines in the market and to reduce our time charter expenses in future periods. Further we have temporarily suspended our dividend to maintain a strong liquidity position for eventual market recovery. We have implemented stricter protocols around crew changes, and required quarantine periods, and shore based employees in our Newport, Copenhagen, Singapore and Athens offices are working remotely.

Quarterly TCE Performance

The Company's TCE rates were down 13% from $12,029 for the three months ended March 31, 2019 to $10,508 for the three months ended March 31, 2020. The Company's achieved TCE rates continued to outperform against the average of the Baltic panamax and supramax market indexes and exceeded the average market rates by approximately 78% due to its long-term contracts of affreightment, ("COAs"), its specialized fleet and its cargo-focused strategy.

1st Quarter Highlights     

Net loss attributable to Pangaea Logistics Solutions Ltd. was approximately $6.8 million for three months ended March 31, 2020 as compared to approximately $3.7 million net income for the same period of 2019.
Net loss per share was $0.16 for three months ended March 31, 2020 as compared to earnings per share of $0.09 for the same period of 2019.
Pangaea's TCE rates were $10,508 for the three months ended March 31, 2020 and $12,029 for the three months ended March 31, 2019 while the market average for the first quarter of 2020 was approximately $5,920, giving the Company an overall average premium over market rates of approximately $4,588 or 78%. The Company's long-term COAs, cargo focus, and specialized fleet give rise to this premium.
Total revenue increased to $95.9 million for the three months ended March 31, 2020, from $79.5 million for the three months ended March 31, 2019 due to an increase in shipping days.
At the end of the quarter, Pangaea had $42.5 million in cash, restricted cash and cash equivalents.

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
 
Revenues
 
Pangaea’s revenues are derived predominately from voyage and time charters, which are discussed below. Total revenue for the three months ended March 31, 2020 was $95.9 million, compared to $79.5 million for the same period in 2019, a 21% increase. The total number of shipping days increased 16% to 4,576 in the three months ended March 31, 2020, compared to 3,938 for the same period in 2019.
 

21




Components of revenue are as follows:
 
Voyage revenues increased by 31% for the three months ended March 31, 2020 to $86.5 million compared to $65.9 million for the same period in 2019. The increase in voyage revenues was primarily due to an increase in the number of voyage days, which were 3,625 in the first quarter of 2020 as compared to 2,905 in the first quarter of 2019, an increase of 25% .

Charter revenues decreased to $9.4 million from $13.7 million, or 32%, for the three months ended March 31, 2020 compared to the same period in 2019. The decrease in charter revenues was due to a decrease in hire rates, which as noted above declined by approximately 17%, and a decline in time charter days of 8%. The optionality of our chartering strategy allows the Company to selectively release excess tonne-days into the market under time charters arrangements.
 
Voyage Expenses
 
Voyage expenses for the three months ended March 31, 2020 were $47.8 million, compared to $32.2 million for the same period in 2019, an increase of approximately 49%. The increase in voyage expense was primarily due to a 25% increase in voyage days in first quarter of 2020, an increase in bunker expenses due to timing of bunker liftings in late 2019 to comply with IMO 2020 fuel requirements that became effective on January 1, 2020, and an increase in port expenses due to short haul voyages, increased port calls and canal fees.

Charter Hire Expenses
 
Charter hire expenses for the three months ended March 31, 2020 were $32.3 million, compared to $24.9 million for the same period in 2019, a 30% increase. This was due to an increase in chartered-in days during the three months ended March 31, 2020. The number of chartered-in days increased 35% from 2,220 days in the three months ended March 31, 2019 to 3,003 days for the three months ended March 31, 2020. The dry bulk market rates experienced a decline starting at the end of 2019 through January of 2020, while the Company was still paying short term fixed charter rates for third-party vessels. As noted above the Company charters vessels in on short term periods, however the turnover of the chartered-in fleet will lag a decline such as the one experienced in early 2020.

Vessel Operating Expenses 

Vessel operating expenses for the three months ended March 31, 2020 were $9.9 million, compared to $9.8 million for the same period in 2019, a slight increase of approximately 2%. Excluding technical management fees, vessel operating expenses on a per day basis were $5,229 for the three months ended March 31, 2020 and $5,098 for the three months ended March 31, 2019. Technical management fees were approximately $0.9 million for the three months ended March 31, 2020 and 2019.

General and Administrative Expenses

General and administrative expenses were $4.0 million for the three months ended March 31, 2020 and 2019.

(Loss) Income from Operations

Loss from operations was $2.3 million for the three months ended March 31, 2020 as compared to income from operations of $4.3 million for the three months ended March 31, 2019. This is primarily due to the increases in voyage expenses and charter hire expenses as discussed above.

Unrealized (loss) gain on derivative instruments

The Company incurred losses on bunker swaps of approximately $2,551,000 and gains on forward freight agreements (FFAs) of approximately $14,000 in the three months ended March 31, 2020 as compared to a gain of approximately $2,729,000 on bunker swaps and a loss of approximately $440,000 on FFAs in the three months ended March 31, 2019. We expect that any decline in the fair value of the fuel swap contracts would be offset by a decrease in the cost of underlying fuel purchases. The fair value loss on interest rate derivative was approximately $380,000. These result from changes in the fair value of the derivatives at the respective balance sheet dates.

Significant accounting estimates


22




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

Long-lived Assets Impairment Considerations

The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. If indicators of impairment are present, we perform an analysis of the anticipated undiscounted future net cash flows to be derived from the related long-lived assets. Our assessment is made at the assets 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 Company performed its quarterly assessment by evaluating whether a triggering event had occurred as of March 31, 2020 considering current market conditions resulting from the global COVID-19 pandemic. The Company concluded that no triggering event had occurred at March 31, 2020 and will continue to monitor the market for any adverse conditions resulting from the COVID-19 pandemic.

At March 31, 2019 the Company did not identify any potential triggering events and therefore, in accordance with authoritative guidance, did not perform tests of recoverability.
    
Liquidity and Capital Resources

The Company has historically financed its capital requirements with cash flow from operations, proceeds from related party debt, proceeds from long-term debt and finance leases, and through a private placement of common stock. The Company may consider additional debt and equity financing alternatives in the future. As a result, the Company may not be able to pursue opportunities to expand its business. At March 31, 2020 and December 31, 2019, the Company had working capital of $28.4 million and $37.1 million, respectively.

Operating Activities

Operating cash flows during the three months ended March 31, 2020 resulted in a net outflow of $6.8 million compared to a net inflow of $12.0 million during the same period of 2019. The decrease primarily resulted from net loss of $6.8 million and higher dry-docking cost incurred during the first quarter of 2020.

Investing Activities

Investing cash flows during the three months ended March 31, 2020 was a net inflow of $7.5 million compared to a net outflow of $11.6 million during the same period of 2019. The increase was primarily due to the cash receipts from sale of two vessels in the first quarter of 2020.

Financing Activities

Financing cash flows during the three months ended March 31, 2020 was a net outflow of $11.2 million compared to net inflow of $5.1 million during the same period of 2019. The Company paid off one of its finance leases during the three months ended March 31, 2020 and we received cash of $13.0 million from a finance lease during the same period of 2019.

The Company has demonstrated its unique ability to adapt to changing market conditions by maintaining a nimble chartered-in profile to meet its cargo commitments. We believe, given our current cash holdings, if drybulk shipping rates do not decline significantly from current levels, our capital resources, including cash anticipated to be generated within the year, are sufficient to fund our operations for at least the next twelve months.

23





Capital Expenditures
 
The Company’s capital expenditures relate to the purchase and lease of interests in vessels, newbuild vessels, and capital improvements to its vessels which are expected to enhance the revenue earning capabilities and safety of these vessels. The Company’s owned and leased fleet includes two Panamax drybulk carriers, two Ultramax Ice-Class 1C, eight Supramax drybulk carriers 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.
 
In addition to vessel acquisitions that the Company may undertake in future periods, its other major capital expenditures include funding its program of regularly scheduled drydockings necessary to make improvements to its vessels, as well as to comply with international shipping standards and environmental laws and regulations. This includes installation of ballast water treatment systems required under new regulations, the cost of which will be approximately $0.5 million to $0.7 million per vessel. The Company has some flexibility regarding the timing of dry docking, but the total cost is unpredictable. Funding expenses associated with these requirements will be met with cash from operations. The Company anticipates that this process of recertification will require it to reposition these vessels from a discharge port to shipyard facilities, which will reduce the Company’s available days and operating days during that period. The Company capitalized drydocking costs totaling approximately $2,903,000 and $381,000 in the three months ended March 31, 2020 and 2019, respectively. The Company expensed drydocking costs of approximately $15,000 in the three months ended March 31, 2020 and did not incur any drydocking costs in the first quarter of 2019.
 
Off-Balance Sheet Arrangements
 
The Company does not have off-balance sheet arrangements at March 31, 2020 or December 31, 2019. 


24




ITEM 3. Quantitative and Qualitative Disclosures about Market Risks
 
No significant changes to our market risk have occurred since December 31, 2019. For a discussion of market risks affecting us, refer to Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk" included in the Company Annual Report on Form 10-K for the year ended December 31, 2019.

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 three months ended March 31, 2020.
 
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.
 

25




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
 
In addition to the other information set forth in this report, the reader should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and the Risk Factor described below, which could materially affect the Company’s business, financial condition or future results.

The coronavirus or COVID-19 pandemic is dynamic and expanding. The continuation of this outbreak likely will have, and the emergence of other epidemic or pandemic crises could have, material adverse effects on our business, results of operations, or financial condition.

The COVID-19 pandemic is dynamic and expanding, and its ultimate scope, duration and effects are uncertain. We expect that this pandemic, and any future epidemic or pandemic crises, could result in direct and indirect adverse effects on our industry and customers, which in turn may impact our business, results of operations and financial condition. Effects of the current pandemic include, or may include, among others:

disruptions to our operations as a result of the potential health impact on our employees and crew, and on the workforces of our customers and business partners;
disruptions to our business from, or additional costs related to, new regulations, directives or practices implemented in response to the pandemic, such as travel restrictions (including for any of our onshore personnel or any of our crew members to timely embark or disembark from our vessels), increased inspection regimes, hygiene measures (such as quarantining and physical distancing) or increased implementation of remote working arrangements;
potential delays in the loading and discharging of cargo on or from our vessels, and any related off hire due to quarantine, worker health, or regulations, which in turn could disrupt our operations and result in a reduction of revenue;
potential shortages or a lack of access to required spare parts for our vessels, or potential delays in any repairs to, scheduled or unscheduled maintenance or modifications, or drydocking of, our vessels, as a result of a lack of berths available by shipyards from a shortage in labor or due to other business disruptions;
potential delays in vessel inspections and related certifications by class societies, customers or government agencies;
potential reduced cash flows and financial condition, including potential liquidity constraints;
reduced access to capital, including the ability to refinance any existing obligations, as a result of any credit tightening generally or due to continued declines in global financial markets, including to the prices of publicly-traded securities of us, our peers and of listed companies generally;
a reduced ability to opportunistically sell any of our vessels on the second-hand market, either as a result of a lack of buyers or a general decline in the value of second-hand vessels;
a decline in the market value of our vessels, which may cause us to (a) incur impairment charges or (b) breach certain covenants under our financing agreements (including our secured facility agreements and financial leases) relating to vessel-to-loan covenants; and
potential deterioration in the financial condition and prospects of our customers, joint venture partners or business partners, or attempts by customers or third parties to invoke force majeure contractual clauses as a result of delays or other disruptions.
Although disruption and effects from COVID-19 pandemic may be temporary, given the dynamic nature of these circumstances and the worldwide nature of our business and operations, the duration of any business disruption and the related financial impact to us cannot be reasonably estimated at this time but could materially affect our business, results of operations and financial condition.

26









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.
 

27




Item 6 – Exhibits 
Exhibit No.
Description
 
 
 
 
31.1
 
 
31.2
 
 
32.1
 
 
32.2
 
 
EX-101.INS
XBRL Instance Document
 
 
EX-101.SCH
XBRL Taxonomy Extension Schema
 
 
EX-101.CAL
XBRL Taxonomy Extension Calculation Linkbase
 
 
EX-101.DEF
XBRL Taxonomy Extension Definition Linkbase
 
 
EX-101.LAB
XBRL Taxonomy Extension Label Linkbase
 
 
EX-101.PRE
XBRL Taxonomy Extension Presentation Linkbase
______________
*    Filed herewith


28




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 May 13, 2020.
 
 
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)


29
Exhibit


Exhibit 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
 
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Edward Coll, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Pangaea Logistics Solutions Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
a)
All material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
May 13, 2020
/s/ Edward Coll
 
 
Edward Coll
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)



Exhibit


Exhibit 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
 
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Gianni DelSignore, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Pangaea Logistics Solutions Ltd.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
a)
All material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
5/13/2020
/s/ Gianni Del Signore
 
 
Gianni Del Signore
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)



Exhibit


Exhibit 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Pangaea Logistics Solutions Ltd. (the “Company”) on Form 10-Q for the three months ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward Coll, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
5/13/2020
/s/ Edward Coll
 
 
Edward Coll
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)



Exhibit


Exhibit 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Pangaea Logistics Solutions Ltd. (the “Company”) on Form 10-Q for the three months ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gianni DelSignore, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:
May 13, 2020
/s/ Gianni Del Signore
 
 
Gianni Del Signore
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)



v3.20.1
Derivative Instruments and Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value
The following table summarizes these derivative instruments as of March 31, 2020.
 
 
 
 
 
 
 
 
Fair Value
 
Notional Amount
Interest Rate Derivative
 
Effective Date
 
Maturity Date
 
Interest Rate Strike
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
Interest rate cap contract - 1
 
November 15, 2020
 
April 30, 2026
 
3.25%
 
$53,970
 
$—
 
$5,742,750
 
$—
Interest rate cap contract - 2
 
December 15, 2020
 
May 31, 2026
 
3.25%
 
$56,132
 
$—
 
$5,742,750
 
$—
Interest rate cap contract - 3
 
May 15, 2021
 
November 30, 2026
 
3.25%
 
$68,994
 
$—
 
$5,654,336
 
$—
Interest rate cap contract - 4
 
May 15, 2021
 
November 30, 2026
 
3.25%
 
$68,994
 
$—
 
$5,654,336
 
$—
Total
 
 
 
 
 
 
 
$248,090
 
 
 
 
 
 
The following table summarizes assets and liabilities measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019:
 
Balance at
 
 
 
 
 
 
 
March 31, 2020
 
Level 1
 
Level 2
 
Level 3
 
(unaudited)
 
 
 
 
 
 
Margin accounts
$
2,383,275

 
$
2,383,275

 
$

 
$

Fuel swaps
$
(2,873,625
)
 
$

 
$
(2,873,625
)
 
$

Freight forward agreements
$
(135,630
)
 
$

 
$
(135,630
)
 
$

Interest Rate Derivative
$
248,090

 
 
 
$
248,090

 
$

 
 
Balance at
December 31, 2019
 
Level 1
 
Level 2
 
Level 3
Margin accounts
$
269,379

 
$
269,379

 
$

 
$

Fuel swaps
$
(322,313
)
 
$

 
$
(322,313
)
 
$

Freight forward agreements
$
(149,760
)
 
$

 
$
(149,760
)
 
$

v3.20.1
Basis of Presentation and Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Recently Issued Accounting Pronouncements
Time charter out contracts

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

Time charter in contracts

The Company charters in vessels to supplement its owned fleet to support its voyage charter operations. The Company hires vessels under time charters with third party vessel owners, and recognizes the charter hire payments as an expense on a straight-line basis over the term of the charter. Charter hire payments are typically made in advance, and the unrecognized portion is reflected as advance hire in the accompanying consolidated balance sheets. Under the time charters, the vessel owner is responsible for the vessel operating costs such as crews, maintenance and repairs, insurance, and stores. As allowed by a practical expedient under ASC 842, the Company made an accounting policy election by class of underlying asset for leases with a term of 12 months or less, to forego recognizing a right-of-use asset and lease liability on its balance sheet. For the quarter ending March 31, 2020, the Company did not have any time charter in contracts with terms greater than 12 months, as such charter hire expense presented on the consolidated statements of income are lease expenses for chartered in contracts less than 12 months.

Leases under ASC 842

At March 31, 2020, the Company had four vessels chartered to customers under time charters that contain leases. These four leases varied in original length from 1 day to 30 days. At March 31, 2020, lease payments due under these arrangements totaled approximately $312,000 and each of the time charters were due to be completed in thirty-one days or less. The Company does not have any sales-type or direct financing leases.

The Company has two non-cancelable office leases and non-cancelable office equipment leases and the lease assets and liabilities are not material.

Recently Issued Accounting Pronouncements Not Yet Adopted
    
In March 2020, the FASB issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Companies can apply the ASU immediately, however the guidance will only be available until December 31, 2022. The Company is currently evaluating the impact that adopting this new accounting standard will have on its consolidated financial statements and related disclosures.
v3.20.1
Derivative Instruments and Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Instruments and Fair Value Measurements
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 March 31, 2020 and December 31, 2019 were liabilities of approximately $136,000 and $150,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the three months ended March 31, 2020 and 2019 are a gain of approximately $14,130 and a loss of approximately $440,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of income.

Fuel Swap Contracts

The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker hedging program. The Company enters into fuel swap contracts that are not designated for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of these fuel swaps at March 31, 2020 and December 31, 2019 are liabilities of approximately $2,874,000 and $322,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the fuel swaps during the three months ended March 31, 2020 and 2019 are a loss of approximately $2,551,000 and a gain of approximately $2,729,000, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of income.

Interest rate cap

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract.

In January 2020, the Company paid $628,000 for interest rate cap contracts to mitigate the risk associated with increases in interest rates on our sale and lease back financing arrangements of the four new-buildings. In the event that the three-month LIBOR rate rises above the applicable strike rate, the Company would receive quarterly payments related to the spread difference.
The following table summarizes these derivative instruments as of March 31, 2020.
 
 
 
 
 
 
 
 
Fair Value
 
Notional Amount
Interest Rate Derivative
 
Effective Date
 
Maturity Date
 
Interest Rate Strike
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
Interest rate cap contract - 1
 
November 15, 2020
 
April 30, 2026
 
3.25%
 
$53,970
 
$—
 
$5,742,750
 
$—
Interest rate cap contract - 2
 
December 15, 2020
 
May 31, 2026
 
3.25%
 
$56,132
 
$—
 
$5,742,750
 
$—
Interest rate cap contract - 3
 
May 15, 2021
 
November 30, 2026
 
3.25%
 
$68,994
 
$—
 
$5,654,336
 
$—
Interest rate cap contract - 4
 
May 15, 2021
 
November 30, 2026
 
3.25%
 
$68,994
 
$—
 
$5,654,336
 
$—
Total
 
 
 
 
 
 
 
$248,090
 
 
 
 
 
 


These interest rate cap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs. The loss of $379,910 on changes in the fair value of the interest rate cap contracts was recorded in unrealized (loss)/gain on derivative instruments, net at March 31, 2020.

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 March 31, 2020 and December 31, 2019:
 
Balance at
 
 
 
 
 
 
 
March 31, 2020
 
Level 1
 
Level 2
 
Level 3
 
(unaudited)
 
 
 
 
 
 
Margin accounts
$
2,383,275

 
$
2,383,275

 
$

 
$

Fuel swaps
$
(2,873,625
)
 
$

 
$
(2,873,625
)
 
$

Freight forward agreements
$
(135,630
)
 
$

 
$
(135,630
)
 
$

Interest Rate Derivative
$
248,090

 
 
 
$
248,090

 
$

 
 
Balance at
December 31, 2019
 
Level 1
 
Level 2
 
Level 3
Margin accounts
$
269,379

 
$
269,379

 
$

 
$

Fuel swaps
$
(322,313
)
 
$

 
$
(322,313
)
 
$

Freight forward agreements
$
(149,760
)
 
$

 
$
(149,760
)
 
$


 
The estimated fair values of the Company’s forward freight agreements and fuel swap contracts are based on market prices obtained from an independent third-party valuation specialist based on published indices. Such quotes represent the estimated amounts the Company would receive or pay to terminate the contracts. The interest rate caps contracts are valued using analysis obtained from independent third party valuation specialists based on market observable inputs, representing Level 2 assets.
v3.20.1
Related Party Transactions - Amounts and Notes Payable to Related Parties (Details)
3 Months Ended
Mar. 31, 2020
USD ($)
Schedule of Related Party Payables  
Beginning balance $ 332,987
Ending balance 242,852
Included in current related party debt on the consolidated balance sheets  
Schedule of Related Party Payables  
Beginning balance 332,987
Activity (90,135)
Ending balance $ 242,852
Trade receivables due from King George Slag | Included in trade accounts receivable and voyage revenue on the consolidated balance sheets and statements of income, respectively  
Related Party Transaction [Line Items]  
Ownership percentage 25.00%
Schedule of Related Party Payables  
Beginning balance $ 457,629
Activity 0
Ending balance 457,629
Affiliated companies (trade payables) | Included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets  
Schedule of Related Party Payables  
Beginning balance 5,679,768
Activity 744,554
Ending balance 6,424,322
Interest payable - 2011 Founders Note | Included in current related party debt on the consolidated balance sheets | Loans payable  
Schedule of Related Party Payables  
Beginning balance 332,987
Activity (90,135)
Ending balance $ 242,852
v3.20.1
Commitments and Contingencies - Future Minimum Lease Payments Under Finance Leases (Details) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]    
2020 $ 7,472,176  
2021 9,774,982  
2022 9,608,224  
2023 9,440,933  
2024 26,166,010