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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 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: 001-36798

PANGAEA LOGISTICS SOLUTIONS LTD. 
(Exact name of Registrant as specified in its charter)
Bermuda98-1205464
(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 classTrading Symbol(s)Name of each exchange on which registered
Common StockPANLNASDAQ

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 FilerAccelerated Filer
Non-accelerated FilerSmaller reporting company
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 $0.0001 per share, 45,065,662 shares outstanding as of November 11, 2020.




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

2





Pangaea Logistics Solutions Ltd.
Consolidated Balance Sheets
September 30, 2020December 31, 2019
(unaudited) 
Assets  
Current assets  
Cash and cash equivalents$45,558,951 $50,555,091 
Restricted cash1,500,000 1,000,000 
Accounts receivable (net of allowance of $1,697,961 and $1,908,841 at September 30, 2020 and December 31, 2019, respectively)
19,938,892 28,309,402 
Bunker inventory16,232,580 21,001,010 
Advance hire, prepaid expenses and other current assets22,422,135 18,770,825 
Vessel held for sale 8,319,152 
Total current assets105,652,558 127,955,480 
Restricted cash1,000,000 1,500,000 
Fixed assets, net275,616,572 281,474,857 
Investment in newbuildings in-process15,390,635 15,357,189 
Finance lease right of use assets, net45,732,947 53,615,305 
Total assets$443,392,712 $479,902,831 
Liabilities and stockholders' equity  
Current liabilities  
Accounts payable, accrued expenses and other current liabilities$39,092,634 $39,973,635 
Related party debt242,852 332,987 
Deferred revenue10,387,175 14,376,394 
Current portion of secured long-term debt31,619,969 22,990,674 
Current portion of finance lease liabilities6,952,635 12,549,208 
Dividend payable99,127 631,961 
Total current liabilities88,394,392 90,854,859 
Secured long-term debt, net65,513,329 83,649,717 
Finance lease liabilities, net52,277,654 57,498,217 
Long-term liabilities - other - Note 810,062,268 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; 45,065,662 shares issued and outstanding at September 30, 2020; 44,886,122 shares issued and outstanding at December 31, 2019
4,507 4,489 
Additional paid-in capital159,265,939 157,504,895 
Retained earnings16,498,626 12,736,580 
Total Pangaea Logistics Solutions Ltd. equity175,769,072 170,245,964 
Non-controlling interests51,375,997 72,825,710 
Total stockholders' equity227,145,069 243,071,674 
Total liabilities and stockholders' equity$443,392,712 $479,902,831 
 The accompanying notes are an integral part of these consolidated financial statements
3




Pangaea Logistics Solutions Ltd.
Consolidated Statements of Income
(unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 
Revenues:
Voyage revenue$98,120,344 $103,806,391 $251,501,401 $247,087,805 
Charter revenue5,646,214 15,079,005 18,541,264 34,632,391 
Total revenue103,766,558 118,885,396 270,042,665 281,720,196 
Expenses:
Voyage expense40,729,271 45,102,602 120,283,093 114,501,121 
Charter hire expense34,969,551 41,980,065 82,498,729 85,244,779 
Vessel operating expense9,699,890 11,331,770 28,958,812 32,160,692 
General and administrative3,691,963 2,768,253 11,557,594 12,160,924 
Depreciation and amortization4,230,302 4,652,563 12,818,260 13,521,078 
Loss on impairment of vessels  1,801,039  
Loss on sale of vessels485,580  705,065  
Total expenses93,806,557 105,835,253 258,622,592 257,588,594 
Income from operations9,960,001 13,050,143 11,420,073 24,131,602 
Other (expense) income: 
Interest expense, net(1,956,729)(2,499,617)(6,073,599)(6,807,837)
Interest expense on related party debt (10,902) (48,938)
Unrealized gain (loss) on derivative instruments, net(18,098)(301,058)(1,530,875)2,203,899 
Other income301,543 180,194 996,734 580,106 
Total other (expense), net(1,673,284)(2,631,383)(6,607,740)(4,072,770)
Net income8,286,717 10,418,760 4,812,333 20,058,832 
Income attributable to non-controlling interests(734,472)(2,097,200)(1,050,287)(4,002,217)
Net income attributable to Pangaea Logistics Solutions Ltd.$7,552,245 $8,321,560 $3,762,046 $16,056,615 
Earnings per common share:
Basic$0.17 $0.19 $0.09 $0.38 
Diluted$0.17 $0.19 $0.09 $0.37 
Weighted average shares used to compute earnings per common share:
Basic43,488,241 42,817,933 43,393,764 42,729,775 
Diluted43,510,961 43,354,742 43,398,472 43,247,417 
 
The accompanying notes are an integral part of these consolidated financial statements
 

4



Pangaea Logistics Solutions Ltd.
Consolidated Statements of Stockholders' Equity
(unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsTotal Pangaea Logistics  Solutions Ltd. EquityNon-Controlling InterestTotal  Stockholders' Equity
SharesAmount
Balance at June 30, 202045,065,662 $4,507 $158,874,237 $8,946,381 $167,825,125 $73,141,525 $240,966,650 
Share-based compensation— — 391,702 — 391,702 — 391,702 
Acquisition of Non-Controlling Interest— — — — — (22,500,000)(22,500,000)
Net Income— — — 7,552,245 7,552,245 734,472 8,286,717 
Balance at September 30, 202045,065,662 $4,507 $159,265,939 $16,498,626 $175,769,072 $51,375,997 $227,145,069 
Balance at December 31, 201944,886,122 $4,489 $157,504,895 $12,736,580 $170,245,964 $72,825,710 $243,071,674 
Share-based compensation1,915,1881,915,1881,915,188
Acquisition of Non-Controlling Interest— — — — — (22,500,000)(22,500,000)
Issuance of restricted shares, net of forfeitures179,54018(154,144)(154,126)(154,126)
Net Income3,762,0463,762,0461,050,2874,812,333
Balance at September 30, 202045,065,662 $4,507 $159,265,939 $16,498,626 $175,769,072 $51,375,997 $227,145,069 
Common StockAdditional Paid-in CapitalRetained EarningsTotal Pangaea Logistics  Solutions Ltd. EquityNon-Controlling InterestTotal  Stockholders' Equity
SharesAmount
Balance at June 30, 201944,451,940 $4,445 $156,855,761 $11,916,436 $168,776,642 $68,917,298 $237,693,940 
Share-based compensation— — 320,462 — 320,462 — 320,462 
Common Stock Dividend— — — (1,544,819)(1,544,819)— (1,544,819)
Net income— — — 8,321,560 8,321,560 2,097,200 10,418,760 
Balance at September 30, 201944,451,940 $4,445 $157,176,223 $18,693,177 $175,873,845 $71,014,498 $246,888,343 
Balance at December 31, 201843,998,560 4,400 155,946,452 5,737,199 161,688,051 71,678,946 233,366,997 
Share-based compensation— — 1,365,969 — 1,365,969 — 1,365,969 
Issuance of restricted shares, net of forfeitures453,380 45 (136,198)— (136,153)— (136,153)
Distribution to Non-Controlling Interests— — — — — (4,666,665)(4,666,665)
Common Stock Dividend— — — (3,100,637)(3,100,637)— (3,100,637)
Net Income— — — 16,056,615 16,056,615 4,002,217 20,058,832 
Balance at September 30, 201944,451,940 $4,445 $157,176,223 $18,693,177 $175,873,845 $71,014,498 $246,888,343 

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

5

Pangaea Logistics Solutions, Ltd.
Consolidated Statements of Cash Flows
(unaudited)
 Nine Months Ended September 30,
 20202019
Operating activities
Net income$4,812,333 $20,058,832 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization expense12,818,260 13,521,078 
Amortization of deferred financing costs513,092 538,427 
Amortization of prepaid rent91,704 88,948 
Unrealized loss (gain) on derivative instruments1,530,875 (2,203,899)
Income from equity method investee(1,097,531)(416,435)
Earnings attributable to non-controlling interest recorded as interest expense104,662  
Recovery for doubtful accounts(45,661)(47,351)
Loss on impairment of vessels1,801,039  
Loss on sale of vessel705,065  
Drydocking costs(3,112,910)(1,561,689)
Share-based compensation1,915,188 1,365,968 
Change in operating assets and liabilities:
Accounts receivable8,416,171 (692,306)
Bunker inventory4,768,430 2,219,986 
Advance hire, prepaid expenses and other current assets(2,553,779)(15,220,967)
Accounts payable, accrued expenses and other current liabilities(4,236,385)6,171,148 
Deferred revenue(3,989,219)(419,835)
Net cash provided by operating activities22,441,334 23,401,905 
Investing activities
Purchase of vessels and vessel improvements(2,072,496)(40,201,356)
Investment in newbuildings in-process(33,446)(7,691,522)
Purchase of fixed assets and equipment (293,385)
Acquisition of non-controlling interest(15,000,000) 
Proceeds from sale of vessels11,691,507  
Purchase of derivative instrument(628,000) 
Net cash used in investing activities(6,042,435)(48,186,263)
Financing activities
Proceeds from long-term debt 14,000,000 
Payments of related party debt (1,681,063)
Payments of financing fees and debt issuance costs(167,984)(646,538)
Payments of long-term debt(9,852,201)(17,343,675)
Proceeds from finance leases 25,600,000 
Dividends paid to non-controlling interests (4,666,665)
Payments of finance lease obligations(10,817,136)(4,678,761)
Accrued common stock dividends paid(532,834)(5,242,613)
Cash paid for incentive compensation shares relinquished(154,126) 
Contributions from non-controlling interest recorded as long-term liability322,750  
Payments to non-controlling interest recorded as long-term liability(193,508) 
Net cash (used in) provided by financing activities(21,395,039)5,340,685 
Net decrease in cash, cash equivalents and restricted cash(4,996,140)(19,443,673)
Cash, cash equivalents and restricted cash at beginning of period53,055,091 56,114,735 
Cash, cash equivalents and restricted cash at end of period$48,058,951 $36,671,062 
6

Pangaea Logistics Solutions, Ltd.
Consolidated Statements of Cash Flows
(unaudited)
Supplemental cash flow information  
Cash and cash equivalents$45,558,951 $34,171,062 
Restricted cash2,500,000 2,500,000 
$48,058,951 $36,671,062 
Supplemental non-cash investing and financing Information:
Deferred consideration related to acquisition of non-controlling interest $7,500,000 $ 

The accompanying notes are an integral part of these consolidated financial statements
7



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.

On September 28, 2020, the Company acquired an additional one-third equity interest in its partially-owned consolidated subsidiary Nordic Bulk Holding Company Ltd. (“NBHC”) from one of NBHC’s shareholders.

At September 30, 2020, the Company owns two Panamax, two Ultramax Ice Class 1C, and seven Supramax drybulk vessels. The Company owns two-thirds of NBHC after the acquisition. NBHC owns a fleet of six Panamax Ice Class 1A drybulk vessels. The Company also 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, the surge in cases has slowed, or is under control, in many countries around the world, especially those that are core to the dry bulk industry. However it is not possible to forecast the virus spread in the future or ascertain the overall impact of COVID-19 on the Company’s financial position and results of its operations. 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.

8


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. There was no impact on total operating expenses or net income (loss) resulting from these reclassifications.
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.

Cash and cash equivalents include short-term deposits with an original maturity of less than three months. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:
 
 September 30, 2020December 31, 2019
(unaudited)
Money market accounts – cash equivalents$26,518,566 $32,150,342 
Cash (1)
19,040,385 18,404,749 
Total cash and cash equivalents$45,558,951 $50,555,091 
Restricted cash2,500,000 2,500,000 
Total cash, cash equivalents and restricted cash$48,058,951 $53,055,091 

(1) Consists of cash deposits at various major banks.
 
Restricted cash at September 30, 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. $1,500,000 restricted cash was reclassified to current assets due to the balloon payments related to the Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. tranches due in December of 2020 and Bulk Oshima tranche due in September of 2021.

9


Advance hire, prepaid expenses and other current assets were comprised of the following:  
 September 30, 2020December 31, 2019
 (unaudited) 
Advance hire$5,531,783 $3,985,826 
Prepaid expenses3,287,976 4,924,557 
Accrued receivables8,370,234 6,466,068 
Margin deposit2,053,309 269,379 
Other current assets3,178,833 3,124,995 
 $22,422,135 $18,770,825 

Accounts payable, accrued expenses and other current liabilities were comprised of the following:
 September 30, 2020December 31, 2019
 (unaudited) 
Accounts payable$23,587,531 $24,173,291 
Accrued expenses10,586,481 14,883,555 
Derivative liabilities1,374,948 472,073 
Deferred consideration - Note 82,500,000  
Other accrued liabilities1,043,674 444,716 
 $39,092,634 $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 September 30, 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 September 30, 2020, the Company had nine vessels chartered to customers under time charters that contain leases. These nine leases varied in original length from 26 days to 60 days. At September 30, 2020, lease payments due under these arrangements totaled approximately $3,381,000 and each of the time charters were due to be completed in 56 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.

10


Revenue Recognition

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. 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. Demurrage revenue 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 and do not fall under the scope of ASC 606, as defined below, revenue is not earned when vessels are offhire.

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.

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

11


NOTE 3 - FIXED ASSETS

At September 30, 2020, the Company owned seventeen 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: 
 September 30,December 31,
20202019
Owned vessels(unaudited) 
m/v BULK PANGAEA$13,974,199 $14,988,076 
m/v BULK NEWPORT12,218,098 12,975,767 
m/v NORDIC ODYSSEY (1)
22,288,109 22,897,029 
m/v NORDIC ORION (1)
23,038,349 23,688,812 
m/v NORDIC OSHIMA (1)
27,305,645 28,325,078 
m/v NORDIC ODIN (1)
27,742,774 28,094,764 
m/v NORDIC OLYMPIC (1)
27,662,258 27,931,771 
m/v NORDIC OASIS (1)
28,319,502 29,190,935 
m/v BULK ENDURANCE24,277,889 25,037,775 
m/v BULK FREEDOM9,627,193 8,269,777 
m/v BULK PRIDE13,123,416 12,996,311 
m/v BULK SPIRIT12,752,841 12,867,060 
m/v BULK INDEPENDENCE13,965,032 14,000,946 
m/v BULK FRIENDSHIP13,742,452 14,052,500 
MISS NORA G PEARL (2)
3,273,797 3,609,851 
273,311,554 278,926,452 
Other fixed assets, net2,305,018 2,548,405 
Total fixed assets, net$275,616,572 $281,474,857 
Right of Use Assets
m/v BULK DESTINY$20,848,382 $21,484,733 
m/v BULK BEOTHUK (3)
 6,589,537 
m/v BULK TRIDENT11,655,615 12,095,727 
m/v BULK PODS$13,228,950 13,445,308 
$45,732,947 $53,615,305 

(1) Vessels are owned by Nordic Bulk Holding Company Ltd. (“NBHC”), a consolidated joint venture which the Company has a two-third of ownership.
(2) Barge is owned by a 50% owned consolidated subsidiary.
(3) In January 2020 the Company completed an early buy-out of the lease for a purchase price of $5.5 million, on August 4, 2020, the Company sold the m/v Bulk Beothuk to an unrelated third party for a net sale price of $4.6 million.
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 concluded that no triggering event had occurred during the first and third of 2020 which would require impairment testing. During the second quarter of 2020, the Company determined that a triggering event occurred related to a sale of a vessel, as the carrying value exceeded its fair value. The Company performed an impairment analysis on each asset
12


group and concluded the estimated undiscounted future cash flows were higher than their carrying amount and as such, no additional loss on impairment was recognized.



NOTE 4 - DEBT

Long-term debt consists of the following: 
September 30, 2020December 31, 2019
Interest Rate (%) (1)
Maturity Date
(unaudited)
Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Loan Agreement (2)
26,216,300 28,466,300 4.06 %January 2022
Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. Loan Agreement (2) (3)
10,604,406 12,854,405 2.63 %December 2020
Bulk Nordic Oshima Ltd. Amended and Restated Loan Agreement (2) (4)
12,379,295 13,504,295 2.48 %September 2021
Bulk Nordic Oasis Ltd. Loan Agreement14,375,000 15,500,000 4.30 %December 2021
The Amended Senior Facility - Dated May 13, 2019 (formerly The Amended Senior Facility - Dated December 21, 2017) (5)
Bulk Nordic Six Ltd. - Tranche A12,499,996 13,299,997 3.69 %May 2024
Bulk Nordic Six Ltd. - Tranche B2,655,000 2,850,000 2.01 %May 2024
Bulk Pride - Tranche C5,475,000 6,300,000 4.69 %May 2024
Bulk Independence - Tranche E12,750,000 13,500,000 2.84 %May 2024
Bulk Freedom Loan Agreement3,350,000 3,800,000 4.06 %June 2022
109 Long Wharf Commercial Term Loan621,066 703,266 3.69 %April 2026
Total$100,926,063 $110,778,263 
Less: unamortized bank fees(3,792,765)(4,137,872)
$97,133,298 $106,640,391 
Less: current portion(31,619,969)(22,990,674)
Secured long-term debt, net$65,513,329 $83,649,717 

(1)As of September 30, 2020.
(2)The borrower under this facility is NBHC. The Company has two-third's ownership interest and STST has one-third ownership interest in NBHC. NBHC is consolidated in accordance with ASC 810-10 and as such, amounts pertaining to the non-controlling ownership held by the 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%. In September 2020, the lender agreed to an extension of maturity date to December 31, 2020. The Company made its regularly scheduled quarterly principal of $750,000 and accrued interest payment on September 25, 2020. The remaining $10.6 million balloon payment is due on December 31, 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.

13


The future minimum annual payments under the debt agreements are as follows:
Years ending December 31,
(unaudited)
2020 (remainder of the year)$13,138,473 
202133,140,563 
202228,602,568 
20233,536,268 
202422,352,925 
Thereafter155,266 
$100,926,063 

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 September 30, 2020 and December 31, 2019.

14


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.

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.

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 entered into four interest rate cap contracts with total notional amount of $22.8 million at a cost of $628,000 to mitigate the risk associated with increases in interest rates on our sale and lease back financing arrangements of the four new-building vessels. In the event that the three-month LIBOR rate rises above the applicable strike rate of 3.25%, the Company would receive quarterly payments related to the spread difference. These interest rate cap agreements do not qualify for hedge accounting treatment.

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.

The following table summarizes assets and liabilities measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019:
Asset DerivativeLiability Derivative
Derivative instrumentsBalance Sheet Location09/30/202012/31/2019Balance Sheet Location9/30/202012/31/2019
Margin accounts (1)
Other current assets$2,053,309 $269,379 Other current liabilities$ $ 
Forward freight agreements (2)
Other current assets$ $ Other current liabilities $89,355 $149,760 
Fuel swap contracts (2)
Other current assets$ $ Other current liabilities$1,489,505 $322,313 
Interest rate cap (2)
Other current assets$203,912 $ Other current liabilities$ $ 

15


(1) The fair value measurements were all categorized within Level 1 of the fair value hierarchy.
(2) These fair value measurements were all categorized within Level 2 of the fair value hierarchy.

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 presents the effect of our derivative financial instruments on the consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019:

Unrealized gain (loss) on derivative instruments
For the three months ended For the nine months ended
Derivative instruments9/30/20209/30/20199/30/20209/30/2019
Forward freight agreements$(57,765)$115,675 $60,405 $233,130 
Fuel Swap Contracts$19,924 $(416,733)$(1,167,192)$1,970,769 
Interest rate cap$19,743 $ $(424,088)$ 



 








16


NOTE 6 - RELATED PARTY TRANSACTIONS

Amounts and notes payable to related parties consist of the following:
December 31, 2019ActivitySeptember 30, 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 $(254,999)$202,630 
Included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets:   
Affiliated companies (trade payables) (ii)
5,679,768 (1,388,905)4,290,863 
Included in current related party debt on the consolidated balance sheets:   
Interest payable - 2011 Founders Note332,987 (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 September 30, 2020 and 2019, the Company incurred technical management fees of approximately $627,600 and $832,000, respectively, under this arrangement. During the nine months ended September 30, 2020 and 2019, the Company incurred technical management fees of approximately $1,990,000 and $2,342,000, respectively, under this arrangement. The total amounts payable to Seamar at September 30, 2020 and December 31, 2019 were approximately $4,291,000 and $5,680,000, respectively.    

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 previous 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 September 30, 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% (2.98% 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 and the vessel was sold to an unrelated third party for a net sale price of $4.6 million on August 4, 2020.

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
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at LIBOR plus 1.7% (1.94% 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% (1.93% 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 the 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 between approximately $37.7 million to $38.3 million each, are expected to be delivered in 2021. As of September 30, 2020, 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.

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Long-term Contracts Accounted for as Operating Leases

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

The Company leases office space for its Singapore operations. At September 30, 2020, the remaining lease term is fourteen months.

For the three and nine months ended September 30, 2020 and 2019, the Company recognized approximately $52,000 and $155,000, respectively, as lease expense for office leases in General and Administrative Expenses.

Future minimum lease payments under finance leases with initial or remaining terms in excess of one year at September 30, 2020 were:
Year ending December 31,
2020 (remainder of the year)$2,449,459 
20219,379,592 
20229,263,796 
20239,148,314 
202426,062,508 
Thereafter13,020,221 
Total minimum lease payments$69,323,890 
Less imputed interest10,093,601 
Present value of minimum lease payments59,230,289 
Less current portion6,952,635 
Long-term portion$52,277,654 

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.    

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NOTE 8 - OTHER LONG-TERM LIABILITIES

In September 2019, the Company entered into an LLC agreement for the formation of Nordic Bulk Partners LLC (“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 September 30, 2020. Earnings attributable to the third party’s interest in NBP are recorded in Interest expense, net, which resulted in additional interest expenses of $76,496 and $104,662, respectively, for the three and nine months ended September 30, 2020.

On September 28, 2020, the Company acquired an additional one-third equity interest in its partially-owned consolidated subsidiary NBHC from its shareholders. The Company owned a one-third of equity interest of NBHC, a joint-venture formed in October 2012 for the purpose of owning Bulk Nordic Odyssey Ltd. (“Bulk Odyssey”) and Bulk Nordic Orion Ltd. (“Bulk Orion”) and to invest in additional vessels through its wholly-owned subsidiaries. The acquisition increases the Company’s equity interest in NBHC to 66.7%. The purchase price of the equity interest was $22.5 million, including a $15.0 million cash payment upon closing and $7.5 million of deferred consideration, at a three-month LIBOR plus 3.5%, in three equal installments of $2.5 million due on the first, second, and third anniversaries of September 28, 2020. The deferred consideration is recorded in "Other current liabilities" and "Long-term liabilities - other" on the Company's Consolidated Balance Sheet as of September 30, 2020. NBHC will continue to be a consolidated entity in the Company’s consolidated financial statements pursuant to ASC 810-10. The portion of NBHC not owned by the Company will continue to be recognized as non-controlling interest in the Company’s consolidated financial statements.
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NOTE 9 - SUBSEQUENT EVENTS

NBHC Loan Refinancing

On November 2, 2020, NBHC signed a nonbinding term sheet with a new lender pursuant to which the new lender has proposed to provide NBHC a loan for up to $18.0 million with a term of 84 months at an interest rate of 2.95% per annum. The borrower will make 28 quarterly payments in arrears followed by one final installment of $4.4 million payable on the 7th anniversary of the drawdown date, no later than December 31, 2020. The Loan would be secured by a first lien on m/v Nordic Odyssey and m/v Nordic Orion. The Company intends to use a portion of the proceeds of the loan to repay the outstanding balance of $10.6 million for the Nordic Odyssey and Nordic Orion loan facilities which matures on December 31, 2020.
        

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations