|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
As Reported
|
|
Effect of ASC 606 Adoption
|
|
Under Prior Accounting
|
Advance hire, prepaid expenses and other current assets
|
|
9,797,784
|
|
|
1,359,317
|
|
|
8,438,467
|
|
Total current assets
|
|
73,979,506
|
|
|
1,359,317
|
|
|
72,620,189
|
|
Total assets
|
|
411,799,149
|
|
|
1,359,317
|
|
|
410,439,832
|
|
Deferred revenue
|
|
6,581,760
|
|
|
2,124,830
|
|
|
4,456,930
|
|
Total current liabilities
|
|
59,695,765
|
|
|
2,124,830
|
|
|
57,570,935
|
|
Accumulated deficit
|
|
(7,694,827
|
)
|
|
(765,513
|
)
|
|
(6,929,314
|
)
|
Total liabilities and stockholders' equity
|
|
411,799,149
|
|
|
1,359,317
|
|
|
410,439,832
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
As Reported
|
|
Effect of ASC 606 Adoption
|
|
Under Prior Accounting
|
Voyage revenue
|
|
70,319,194
|
|
|
2,603,925
|
|
|
67,715,269
|
|
Total revenues
|
|
78,973,293
|
|
|
2,603,925
|
|
|
76,369,368
|
|
Voyage expense
|
|
30,168,028
|
|
|
256,325
|
|
|
29,911,703
|
|
Charter hire expense
|
|
22,695,935
|
|
|
690,078
|
|
|
22,005,857
|
|
Total Expenses
|
|
71,179,614
|
|
|
946,403
|
|
|
70,233,211
|
|
Income from Operations
|
|
7,793,679
|
|
|
1,657,522
|
|
|
6,136,157
|
|
Net Income
|
|
5,535,211
|
|
|
1,657,522
|
|
|
3,877,689
|
|
Net income attributable to Pangaea Logistics Solutions Ltd.
|
|
4,324,994
|
|
|
1,657,522
|
|
|
2,667,472
|
|
Earnings per common share, basic
|
|
0.10
|
|
|
0.04
|
|
|
0.06
|
|
Earnings per common share, diluted
|
|
0.10
|
|
|
0.04
|
|
|
0.06
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
As Reported
|
|
Effect of ASC 606 Adoption
|
|
Under Prior Accounting
|
Net Income
|
|
5,535,211
|
|
|
1,657,522
|
|
|
3,877,689
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
Advance hire, prepaid expenses and other current assets
|
|
4,026,194
|
|
|
946,403
|
|
|
3,079,791
|
|
Deferred Revenue
|
|
(3,962,909
|
)
|
|
(2,603,925
|
)
|
|
(1,358,984
|
)
|
Assets and liabilities related to our voyage contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. Accounts receivable represent amounts billed and currently due from customers which are reported at their net estimated realizable value. The Company maintains reserves against its accounts receivable for potential credit losses. Credit losses recognized on accounts receivable were immaterial for the three-month periods ended March 31, 2018 and 2017, respectively. Other contract assets include unbilled revenue which arises when revenue is recognized in advance of billing for certain voyage contracts. Contract liabilities consist of deferred revenue which arises when amounts are billed to or collected from customers in advance of revenue recognition.
At March 31, 2018, unbilled revenue and deferred revenue totaled
$1.4 million
and
$2.1 million
, respectively. Upon adoption of ASC 606 on January 1, 2018, unbilled revenue and deferred revenue totaled
$2.3 million
and
$4.7 million
, respectively. All voyages that were not substantially complete on January 1, 2018 were completed during the
three months ended March 31, 2018
, therefore, all related voyage contract liabilities were recognized as revenue in the quarter.
On January 1, 2018, the Company adopted ASU No. 2016-18,
Statement of Cash Flows (ASC 230).
The amendments in this update provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing the diversity in practice. Specifically, this update addresses how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash, cash equivalents, and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments
made from restricted cash or restricted cash equivalents. The new standard became effective for the Company on January 1, 2018. The amendments in this update were applied using a retrospective transition method to each period presented.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows:
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Cash and cash equivalents
|
$
|
28,205,463
|
|
|
$
|
34,531,812
|
|
Restricted cash
|
4,000,000
|
|
|
4,000,000
|
|
Total cash, cash equivalents and restricted cash
|
$
|
32,205,463
|
|
|
$
|
38,531,812
|
|
Cash and cash equivalents include short-term deposits with an original maturity of less than three months. Restricted cash at
March 31, 2018
and December 31, 2017 consists of
$1.5 million
held by the facility agent as required by the The Senior Secured Post-Delivery Term Loan Facility and
$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.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued an ASU 2016-02, Accounting Standards Update for Leases. The update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The Company does not typically enter into charters for terms exceeding six months. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company does not expect adoption of this guidance to have a material impact on its financial statements.
In August 2017, the FASB issued an ASU 2017-12 Accounting Standards Update for Derivatives and Hedging. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the update. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this update. The amended presentation and disclosure guidance is required only prospectively. The Company does not expect adoption of this guidance to have a material impact on its financial statements.
Note 3. Fixed Assets
At
March 31, 2018
, the Company owned eighteen dry bulk vessels including two financed under capital leases and one barge. The carrying amounts of these vessels, including unamortized drydocking costs, are as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2018
|
|
2017
|
Owned vessels
|
(unaudited)
|
|
|
m/v BULK PANGAEA
|
$
|
16,034,826
|
|
|
$16,398,650
|
m/v BULK PATRIOT
|
10,790,200
|
|
|
11,111,437
|
|
m/v BULK JULIANA
|
11,205,266
|
|
|
11,411,052
|
|
m/v NORDIC ODYSSEY
|
25,296,932
|
|
|
25,634,743
|
|
m/v NORDIC ORION
|
26,124,812
|
|
|
26,467,928
|
|
m/v BULK TRIDENT
|
14,003,332
|
|
|
14,195,098
|
|
m/v BULK NEWPORT
|
14,720,293
|
|
|
13,139,242
|
|
m/v NORDIC BARENTS
|
4,731,668
|
|
|
4,846,522
|
|
m/v NORDIC BOTHNIA
|
4,678,480
|
|
|
4,787,388
|
|
m/v NORDIC OSHIMA
|
29,816,112
|
|
|
30,122,172
|
|
m/v NORDIC ODIN
|
30,241,726
|
|
|
30,548,435
|
|
m/v NORDIC OLYMPIC
|
30,066,346
|
|
|
30,371,285
|
|
m/v NORDIC OASIS
|
31,301,751
|
|
|
31,608,785
|
|
m/v BULK ENDURANCE
|
26,778,315
|
|
|
27,030,918
|
|
m/v BULK FREEDOM
|
8,742,824
|
|
|
8,834,746
|
|
m/v BULK PRIDE
|
13,871,047
|
|
|
14,007,731
|
|
MISS NORA G PEARL
|
2,639,360
|
|
|
2,695,145
|
|
|
301,043,290
|
|
|
303,211,277
|
|
Other fixed assets, net
|
3,071,523
|
|
|
3,081,378
|
|
Total fixed assets, net
|
$
|
304,114,813
|
|
|
$
|
306,292,655
|
|
|
|
|
|
Vessels under capital lease
|
|
|
|
m/v BULK DESTINY
|
$
|
22,942,313
|
|
|
$
|
23,153,850
|
|
m/v BULK BEOTHUK
|
6,762,517
|
|
|
6,840,362
|
|
|
$
|
29,704,830
|
|
|
$
|
29,994,212
|
|
The Company also operates two dry bulk vessels under bareboat charters accounted for as operating leases, as discussed in Note 7.
Long-lived Assets Impairment Considerations.
The carrying values of the Company’s vessels may not represent their fair market value or the amount that could be obtained by selling the vessel at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the pricing of new vessels, which tend to be cyclical. The carrying value of each group of vessels classified as held and used are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of a particular group may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the group and its eventual disposition is less than its carrying value. This assessment is made at the group level, which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size and major characteristic or trade.
The significant factors and assumptions used in the undiscounted projected net operating cash flow analysis include the Company’s estimate of future time charter equivalent "TCE" rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and address commissions and assume no revenue on scheduled offhire days. The Company uses the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying value of the asset group, an impairment charge would be recognized.
During the
three months ended March 31, 2018
, the Company did not identify any potential triggering events and therefore, in accordance with authoritative guidance, did not perform tests of recoverability.
During the
three months ended March 31, 2017
, the Company identified a potential impairment indicator based on the estimated market value of its vessels. As a result, the Company evaluated each asset group for impairment by estimating the total undiscounted cash flows expected to result from the use of the asset group and its eventual disposal. The estimated undiscounted future cash flows were higher than the carrying amount of the vessels in the Company's fleet and as such, no loss on impairment was recognized.
Note 4. Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
(unaudited)
|
|
|
Bulk Trident Secured Note
(1)
|
|
$
|
3,017,500
|
|
|
$
|
3,452,500
|
|
Bulk Juliana Secured Note
(1)
|
|
1,014,064
|
|
|
1,521,095
|
|
Bulk Phoenix Secured Note
(1)
|
|
4,030,947
|
|
|
4,473,805
|
|
Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. and Bulk Nordic Oshima Ltd. Amended and Restated Loan Agreement
(2)
|
|
67,950,000
|
|
|
69,825,000
|
|
Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.)
|
|
5,467,370
|
|
|
5,793,460
|
|
Bulk Nordic Oasis Ltd. Loan Agreement
(2)
|
|
18,125,000
|
|
|
18,500,000
|
|
Bulk Nordic Six Ltd. Loan Agreement
|
|
28,196,666
|
|
|
28,803,333
|
|
Bulk Freedom Loan Agreement
|
|
4,975,000
|
|
|
5,150,000
|
|
109 Long Wharf Commercial Term Loan
|
|
895,067
|
|
|
922,466
|
|
Phoenix Bulk Carriers (US) LLC Automobile Loan
|
|
—
|
|
|
23,090
|
|
Total
|
|
133,671,614
|
|
|
138,464,749
|
|
Less: unamortized bank fees
|
|
(1,794,888
|
)
|
|
(1,869,780
|
)
|
|
|
131,876,726
|
|
|
136,594,969
|
|
Less: current portion
|
|
(18,706,122
|
)
|
|
(18,979,335
|
)
|
Secured long-term debt, net
|
|
$
|
113,170,604
|
|
|
$
|
117,615,634
|
|
|
|
(1)
|
The Bulk Juliana Secured Note, the Bulk Trident Secured Note and the Bulk Phoenix Secured Note are cross-collateralized by the m/v Bulk Juliana, m/v Bulk Trident and m/v Bulk Newport and are guaranteed by the Company.
|
|
|
(2)
|
The borrower under this facility is NBHC, of which the Company and its joint venture partners, STST and ASO2020, each own one-third. NBHC is consolidated in accordance with Accounting Standards Codification ("ASC") 810,
Consolidation
, and as such, amounts pertaining to the non-controlling ownership held by these third parties in the financial position of NBHC are reported as non-controlling interest in the accompanying balance sheets.
|
The Senior Secured Post-Delivery Term Loan Facility
On April 14, 2017, the Company, through its wholly owned subsidiaries, Bulk Pangaea, Bulk Patriot, Bulk Juliana, Bulk Trident and Bulk Phoenix, entered into the Fourth Amendatory Agreement, (the "Fourth Amendment"), amending and supplementing the Loan Agreement dated April 15, 2013, as amended by a First Amendatory Agreement dated May 16, 2013, the Second Amendatory Agreement dated August 28, 2013 and the Third Amendatory Agreement dated July 14, 2016. The Fourth Amendment advanced the final repayment dates for Bulk Pangaea and Bulk Patriot and extended the final maturity date and modified the repayment schedules, as follows:
Bulk Trident Secured Note
Initial amount of
$10,200,000
, entered into in April 2012, for the acquisition of the m/v Bulk Trident. The Fourth Amendment extends the final maturity date and modifies the repayment schedule. The first and second quarterly installments following the amendment were increased to
$650,000
and the third and fourth installments were increased to
$435,000
. These are followed by two installments of
$327,500
and three of
$300,000
. A balloon payment of
$1,462,500
is payable on July 19, 2019. The interest rate was fixed at
4.29%
through April 19, 2017 and is floating at LIBOR plus
3.50%
(
5.81%
at
March 31, 2018
), since April 19, 2017.
On April 19, 2018, the Company entered into a sale-leaseback financing arrangement whereby the m/v Bulk Trident will be sold and simultaneously leased back under a bareboat charter for a period of eight years. Proceeds from the sale will be used to repay the Bulk Trident Secured Note (see Note 8. - Subsequent Events)
Bulk Juliana Secured Note
Initial amount of
$8,112,500
, entered into in April 2012, for the acquisition of the m/v Bulk Juliana. The Fourth Amendment did not change this tranche, the balance of which is payable in
six
quarterly installments of
$507,031
. The final payment is due on July 19, 2018. The interest rate is fixed at
4.38%
.
Bulk Phoenix Secured Note
Initial amount of
$10,000,000
, entered into in May 2013, for the acquisition of m/v Bulk Newport. The Fourth Amendment did not change this tranche, the balance of which is payable in
two
installments of
$700,000
and
seven
installments of
$442,858
. A balloon payment of
$1,816,659
is payable on July 19, 2019. The interest rate is fixed at
5.09%
.
The agreement contains financial covenants that require the Company to maintain a minimum net worth and minimum liquidity, on a consolidated basis. The facility also contains a consolidated leverage ratio and a consolidated debt service coverage ratio. In addition, the facility contains other Company and vessel related covenants that, among other things, restrict changes in management and ownership of the vessel, declaration of dividends, further indebtedness and mortgaging of a vessel without the bank’s prior consent. It also requires minimum collateral maintenance, which is tested at the discretion of the lender. As of
March 31, 2018
and
December 31, 2017
, the Company was in compliance with these covenants.
Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. And Bulk Nordic Oshima Ltd. – Dated September 28, 2015 - Amended and Restated Loan Agreement
The amended agreement advanced
$21,750,000
in respect of each the m/v Nordic Odin and the m/v Nordic Olympic;
$13,500,000
in respect of each the m/v Nordic Odyssey and the m/v Nordic Orion, and
$21,000,000
in respect of the m/v Nordic Oshima.
The agreement requires repayment of the advances as follows:
In respect of the Odin and Olympic advances, repayment to be made in
28
equal quarterly installments of
$375,000
per borrower (one of which was paid prior to the amendment by each borrower) and balloon payments of
$11,233,150
due with each of the final installments in January 2022.
In respect of the Odyssey and Orion advances, repayment to be made in
20
quarterly installments of
$375,000
per borrower and balloon payments of
$5,677,203
due with each of the final installments in September 2020.
In respect of the Oshima advance, repayment to be made in
28
equal quarterly installments of
$375,000
and a balloon payment of
$11,254,295
due with the final installment in September 2021.
Interest on
50%
of the advances to Odyssey and Orion was fixed at
4.24%
in March 2017. Interest on the remaining advances to Odyssey and Orion is floating at LIBOR plus
2.40%
(
4.71%
at
March 31, 2018
). Interest on
50%
of the advances to Odin and Olympic was fixed at
3.95%
in January 2017. Interest on the remaining advances to Odin and Olympic was floating at LIBOR plus
2.0%
and was fixed at
4.07%
on April 27, 2017. Interest on
50%
of the advance to Oshima was fixed at
4.16%
in January 2017. Interest on the remaining advance to Oshima is floating at LIBOR plus
2.25%
(
4.56%
at
March 31, 2018
).
The amended loan is secured by first preferred mortgages on the m/v Nordic Odin, m/v Nordic Olympic, m/v Nordic Odyssey, m/v Nordic Orion and m/v Nordic Oshima, the assignment of earnings, insurances and requisite compensation of the five entities, and by guarantees of their shareholders.
The amended agreement contains one financial covenant that requires the Company to maintain minimum liquidity and a collateral maintenance ratio clause, which requires the aggregate fair market value of the vessels plus the net realizable value of any additional collateral provided, to remain above defined ratios. At
March 31, 2018
and
December 31, 2017
, the Company was in compliance with this covenant.
The Bulk Nordic Oasis Ltd. - Loan Agreement - Dated December 11, 2015
The agreement advanced
$21,500,000
in respect of the m/v Nordic Oasis. The agreement requires repayment of the advance in
24
equal quarterly installments of
$375,000
beginning on March 28, 2016 and a balloon payment of
$12,500,000
due with the final installment in March 2022. Interest on this advance is fixed at
4.30%
.
The loan is secured by a first preferred mortgage on the m/v Nordic Oasis, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. As of
March 31, 2018
and
December 31, 2017
, the Company was in compliance with this covenant.
Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.)
Barents and Bothnia entered into a secured Term Loan Facility of
$13,000,000
in
two
tranches of
$6,500,000
which were drawn in conjunction with the delivery of the m/v Bulk Bothnia on January 23, 2014 and the m/v Bulk Barents on March 7, 2014. The loan is secured by mortgages on the m/v Nordic Bulk Barents and m/v Nordic Bulk Bothnia and is guaranteed by the Company.
The facility bears interest at LIBOR plus
2.50%
(
4.81%
at
March 31, 2018
). The loan requires repayment in
22
equal quarterly installments of
$163,045
(per borrower) beginning in June 2014, one installment of
$163,010
(per borrower) and a balloon payment of
$1,755,415
(per borrower) due in December 2019.
In addition, any cash in excess of $750,000 per borrower on any repayment date shall be applied toward prepayment of the relevant loan in inverse order, so the balloon payment is prepaid first.
The agreement also contains a profit split in respect of the proceeds from the sale of either vessel and a minimum value clause ("MVC"). The Company was in compliance with this covenant at
March 31, 2018
and
December 31, 2017
.
The Amended Senior Facility - Dated December 21, 2017 (previously identified as Bulk Nordic Six Ltd. - Loan Agreement - Dated December 21, 2016)
The agreement advanced
$19,500,000
in respect of the m/v Bulk Endurance on January 7, 2017, in two tranches. The agreement requires repayment of Tranche A, totaling
$16,000,000
, in
three
equal quarterly installments of
$100,000
beginning on April 7, 2017 and, thereafter,
17
equal quarterly installments of
$266,667
and a balloon payment of
$11,667,667
due with the final installment in March 2022. Interest on this advance was fixed at
4.74%
on March 27, 2017. The agreement also advanced
$3,500,000
under Tranche B, which is payable in
18
equal quarterly installments of
$65,000
beginning on October 7, 2017, and a balloon payment of
$2,330,000
due with the final installment in March 2022. Interest on this advance is floating at LIBOR plus
6.00%
(
8.31%
at
March 31, 2018
).
The amended agreement advanced
$10,000,000
in respect of the m/v Bulk Pride on December 21, 2017, in two tranches. The agreement requires repayment of Tranche C, totaling
$8,500,000
, in
16
equal quarterly installments of
$275,000
beginning in March 2018 and a balloon payment of
$4,100,000
due with the final installment in December 2021. Interest on this advance is floating at LIBOR plus
2.75%
(
5.06%
at
March 31, 2018
). The agreement also advanced
$1,500,000
under Tranche D, which is payable in
4
equal quarterly installments of
$375,000
beginning on August 21, 2018. Interest on this advance is floating at LIBOR plus
6.00%
(
8.31%
at
March 31, 2018
).
The loan is secured by a first preferred mortgage on the m/v Bulk Endurance, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a minimum liquidity requirement, positive working capital of the borrower and a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. At
March 31, 2018
and
December 31, 2017
, the Company was in compliance with these covenants.
The Bulk Freedom Corp. Loan Agreement -- Dated June 14, 2017
The agreement advanced
$5,500,000
in respect of the m/v Bulk Freedom on June 14, 2017. The agreement requires repayment of the loan in
8
quarterly installments of
$175,000
and
12
quarterly installments of
$150,000
beginning on September 14, 2017. A balloon payment of
$2,300,000
is due with the final installment. Interest is floating at LIBOR plus
3.75%
(
6.06%
at
March 31, 2018
).
The loan is secured by a first preferred mortgage on the m/v Bulk Freedom, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. At
March 31, 2018
and
December 31, 2017
, the Company was in compliance with these covenants.
109 Long Wharf Commercial Term Loan
Initial amount of
$1,096,000
entered into on May 27, 2016. The
Long Wharf Construction to Term Loan
was repaid from the proceeds of this new facility. The loan is payable in
120
equal monthly installments of
$9,133
. Interest is floating at the 30 day LIBOR plus
2.0%
(
4.31%
at
March 31, 2018
). The loan is collateralized by all real estate located at 109 Long Wharf, Newport, RI, and a corporate guarantee of the Company. The loan contains a maximum loan to value covenant and a debt service coverage ratio. At
March 31, 2018
and
December 31, 2017
, the Company was in compliance with these covenants.
Phoenix Bulk Carriers (US) LLC Automobile Loan
The Company purchased a commercial vehicle for use at the site of its port project on the United States' East Coast. The total loan amount of
$29,435
is payable in
60
equal monthly installments of
$539
. Interest is fixed at
3.74%
. The vehicle was sold in January 2018 and the loan was repaid.
The future minimum annual payments (excluding unamortized bank fees) under the debt agreements are as follows:
|
|
|
|
|
|
Years ending
|
|
March 31,
|
|
(unaudited)
|
2019
|
$
|
18,706,122
|
|
2020
|
20,721,295
|
|
2021
|
21,240,674
|
|
2022
|
70,096,857
|
|
2023
|
2,559,600
|
|
Thereafter
|
347,066
|
|
|
$
|
133,671,614
|
|
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). Such economic hedges do not always 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. Between November 2016 and
March 31, 2018
, the Company entered into FFAs that were not designated for hedge accounting. The aggregate fair value of these FFAs at
March 31, 2018
were liabilities of approximately
$49,000
, which are included in other current liabilities on the consolidated balance sheets. The aggregate fair value of FFAs at
December 31, 2017
were assets of approximately
$266,000
, which are included in other current assets on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the
three months ended March 31, 2018
and
2017
are a loss of approximately
$314,000
and a gain of approximately
$2,728,000
, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of operations.
Fuel Swap Contracts
The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker hedging program. During 2017 and 2016, the Company entered into various fuel swap contracts that were not designated for hedge accounting. The aggregate fair value of these fuel swaps at
March 31, 2018
and
December 31, 2017
are assets of approximately
$129,000
and
$377,000
, respectively, which are included in other current assets on the consolidated balance sheets. The change in the aggregate fair value of the fuel swaps during the
three
months ended
March 31, 2018
and
2017
are losses of approximately
$248,000
and
$758,000
, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of operations.
The three levels of the fair value hierarchy established by ASC 820,
Fair Value Measurements and Disclosures
, in order of priority are as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 fair value measurements include cash, money-market accounts and restricted cash accounts.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions).
The following table summarizes assets and liabilities measured at fair value on a recurring basis at
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(unaudited)
|
|
|
|
|
|
|
Margin accounts
|
$
|
579,299
|
|
|
$
|
579,299
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fuel swaps
|
$
|
129,037
|
|
|
$
|
—
|
|
|
$
|
129,037
|
|
|
$
|
—
|
|
Freight forward agreements
|
$
|
(48,600
|
)
|
|
$
|
—
|
|
|
$
|
(48,600
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Margin accounts
|
$
|
912,981
|
|
|
$
|
912,981
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fuel swaps
|
$
|
377,273
|
|
|
$
|
—
|
|
|
$
|
377,273
|
|
|
$
|
—
|
|
Freight forward agreements
|
$
|
265,768
|
|
|
$
|
—
|
|
|
$
|
265,768
|
|
|
$
|
—
|
|
The estimated fair values of the Company’s forward freight agreements and fuel swap contracts are based on market prices obtained from an independent third-party valuation specialist based on published indexes. Such quotes represent the estimated amounts the Company would receive or pay to terminate the contracts.
Note 6. Related Party Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Activity
|
|
March 31, 2018
|
|
|
|
|
|
(unaudited)
|
Included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Affiliated companies (trade payables)
|
$
|
1,421,920
|
|
|
(203,479
|
)
|
|
$
|
1,218,441
|
|
|
|
|
|
|
|
Included in current related party debt on the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Loan payable – 2011 Founders Note
|
$
|
4,325,000
|
|
|
—
|
|
|
$
|
4,325,000
|
|
Interest payable in-kind - 2011 Founders Note
(i)
|
684,597
|
|
|
(541,140
|
)
|
|
143,457
|
|
Promissory Note to Bulk Invest, Ltd.
|
2,000,000
|
|
|
(2,000,000
|
)
|
|
—
|
|
Total current related party debt
|
$
|
7,009,597
|
|
|
$
|
(2,541,140
|
)
|
|
$
|
4,468,457
|
|
(i)
Paid in cash
In November 2014, the Company entered into a
$5,000,000
Promissory Note (the “Note”) with Bulk Invest, Ltd., a company controlled by the Founders. The outstanding balance on the Note was repaid on February 6, 2018.
On October 1, 2011, the Company entered into a
$10,000,000
loan agreement with the Founders, which was payable on demand at the request of the lenders (the 2011 Founders Note). The note bears interest at a rate of
5%
. The balance of the 2011 Founders Note was
$4,325,000
at
March 31, 2018
and
December 31, 2017
.
Under the terms of a technical management agreement between the Company and Seamar Management S.A. (“Seamar”), an equity method investee, Seamar is responsible for the day-to-day operations for certain of the Company’s owned vessels and the two vessels operating under bareboat charters. During the
three
-month periods ended
March 31, 2018
and
2017
, the Company incurred technical management fees of approximately
$756,000
and
$642,000
, respectively, under this arrangement. These fees are included in vessel operating expenses in the consolidated statements of income. The total amounts payable to Seamar at
March 31, 2018
and
December 31, 2017
were approximately
$1,218,000
and
$1,422,000
, respectively.
Dividends payable consist of the following, all of which are payable to related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
common
stock
dividend
|
|
2013
Odyssey
and Orion
dividend
(1)
|
|
Total
|
Balance at December 31, 2017
|
|
6,333,598
|
|
|
904,803
|
|
|
7,238,401
|
|
Payments
|
|
—
|
|
|
(904,803
|
)
|
|
(904,803
|
)
|
Balance at March 31, 2018
|
|
$
|
6,333,598
|
|
|
$
|
—
|
|
|
$
|
6,333,598
|
|
(1)
Paid on February 13, 2018
Note 7. Commitments and Contingencies
Vessel Sales and Leasebacks Accounted for as Capital Leases
The Company's fleet includes two vessels financed under sale and leaseback financing arrangements accounted for as capital leases. The selling price of the m/v Bulk Destiny to the new owner (lessor) was
$21.0 million
and the fair value of the vessel at the inception of the lease was
$24.0 million
. The difference between the selling price and the fair value of the vessel was recorded as prepaid rent and is being amortized over the 25 year estimated useful life of the vessel. Prepaid rent is included in vessel under capital lease on the consolidated balance sheet at
March 31, 2018
.
Minimum lease payments fluctuate based on three-month LIBOR and are payable quarterly over the seven year lease term
, with a purchase obligation of
$11,200,000
due with the final lease payment in January 2024. Interest is floating at LIBOR plus
2.75%
(
5.06%
including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term.
The selling price of the m/v Bulk Beothuk was
$7,000,000
and the fair value was estimated to be the same.
The lease is payable at $3,500 per day every fifteen days over the five year lease term
, and a balloon payment of
$4,000,000
is due with the final lease payment in June 2022. Interest is fixed at
11.83%
. The Company will own this vessel at the end of the lease term.
Long-term Contracts Accounted for as Operating Leases
On July 5, 2016, the Company entered into five-year bareboat charter agreements with the owner of two vessels (which were then renamed the m/v Bulk Power and the m/v Bulk Progress). Under a bareboat charter, the charterer is responsible for all of the vessel operating expenses in addition to the charter hire. The agreement also contains a profit sharing arrangement. Scheduled increases in charter hire are included in minimum rental payments and recognized on a straight-line basis over the lease term. Profit sharing is excluded from minimum lease payments and recognized as incurred. The rent expense under these bareboat charters (which are classified as operating leases) totals approximately
$365,000
per annum.
The Company leases office space for its Copenhagen operations. The lease can be terminated with six months prior notice after June 30, 2018.
Future minimum lease payments under capital leases and operating leases with initial or remaining terms in excess of one year at
March 31, 2018
were:
|
|
|
|
|
|
|
|
|
|
Capital Lease
|
|
Operating Leases
|
2019
|
$
|
3,278,295
|
|
|
$
|
530,649
|
|
2020
|
3,278,295
|
|
|
365,446
|
|
2021
|
3,278,295
|
|
|
365,446
|
|
2022
|
3,330,795
|
|
|
103,126
|
|
2023
|
6,175,795
|
|
|
—
|
|
Thereafter
|
13,218,293
|
|
|
—
|
|
Total minimum lease payments
|
$
|
32,559,768
|
|
|
$
|
1,364,667
|
|
Less amount representing interest
|
6,194,995
|
|
|
|
Present value of minimum lease payments
|
26,364,773
|
|
|
|
Less current portion
|
1,812,475
|
|
|
|
Long-term portion
|
$
|
24,552,298
|
|
|
|
The Company is subject to certain asserted claims arising in the ordinary course of business. The Company intends to vigorously assert its rights and defend itself in any litigation that may arise from such claims. While the ultimate outcome of these matters could affect the results of operations of any one year, and while there can be no assurance with respect thereto, management believes that after final disposition, any financial impact to the Company would not be material to its consolidated financial position, results of operations, or cash flows.
Note 8. Subsequent Events
On April 12, 2018, the Company, through a wholly-owned subsidiary, signed a Memorandum of Agreement to purchase a Panamax bulk carrier built in 2006 for approximately
$14.3 million
. The vessel is expected to be delivered in the second quarter of 2018.
On April 19, 2018, the Company entered into a sale-leaseback financing arrangement whereby the m/v Bulk Trident will be sold for
$15.0 million
and simultaneously leased back under a bareboat charter for a period of eight years. The agreement requires a
$2.0 million
bareboat charter hire down payment to be deducted from the selling price at the time of delivery to the buyer.
The lease is payable monthly at a rate of $4,845 per day over the eight year lease term
. Interest is floating at LIBOR plus
1.7%
(approximately
4.8%
including the margin, at inception of the lease).
Selected Financial Information
|
|
|
|
|
|
|
|
|
(in thousands, except shipping days data)
(figures may not foot due to rounding)
|
For the three months
ended March 31,
|
|
2018
|
|
2017
|
Selected Data from the Consolidated Statements of Operations
|
|
Voyage revenue
|
$
|
70,319
|
|
|
$
|
77,688
|
|
Charter revenue
|
$
|
8,654
|
|
|
$
|
6,767
|
|
Total revenue
|
78,973
|
|
|
84,455
|
|
Voyage expense
|
30,168
|
|
|
41,272
|
|
Charter expense
|
22,696
|
|
|
23,201
|
|
Vessel operating expenses
|
9,849
|
|
|
8,591
|
|
Total cost of transportation and service revenue
|
62,713
|
|
|
73,064
|
|
Net revenue
(1)
|
16,260
|
|
|
11,391
|
|
Other operating expenses
|
8,466
|
|
|
7,457
|
|
Loss on sale and leaseback of vessels
|
—
|
|
|
4,290
|
|
Income from operations
|
7,794
|
|
|
(356
|
)
|
Total other expense, net
|
(2,258
|
)
|
|
352
|
|
Net income
|
5,536
|
|
|
(4
|
)
|
Income attributable to noncontrolling interests
|
(1,210
|
)
|
|
1,351
|
|
Net income attributable to Pangaea Logistics Solutions Ltd.
|
$
|
4,326
|
|
|
$
|
1,347
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Selected Data from the Consolidated Balance Sheets
|
|
|
|
|
|
Cash
|
$
|
28,205
|
|
|
$
|
34,532
|
|
Total assets
|
$
|
411,799
|
|
|
$
|
423,297
|
|
Total secured debt, including obligations under capital leases
|
$
|
158,241
|
|
|
$
|
163,396
|
|
Total liabilities and stockholders' equity
|
$
|
411,799
|
|
|
$
|
423,297
|
|
|
|
|
|
|
For the three months
ended March 31,
|
|
2018
|
|
2017
|
Selected Data from the Consolidated Statements of Cash Flows
|
|
|
|
Net cash provided by operating activities
|
$
|
2,790
|
|
|
$
|
2,431
|
|
Net cash used in investing activities
|
$
|
(377
|
)
|
|
$
|
(38,709
|
)
|
Net cash (used in) provided by financing activities
|
$
|
(8,740
|
)
|
|
$
|
35,677
|
|
Adjusted EBITDA
(2)
|
$
|
12,132
|
|
|
$
|
7,876
|
|
|
|
|
|
Shipping Days
(3)
|
|
|
|
|
|
Voyage days
|
2,945
|
|
|
3,668
|
|
Time charter days
|
579
|
|
|
674
|
|
Total shipping days
|
3,524
|
|
|
4,342
|
|
|
|
|
|
TCE Rates ($/day)
(4)
|
$
|
13,849
|
|
|
$
|
9,945
|
|
|
|
|
|
|
|
(1)
|
Net revenue represents total revenue less the total direct costs of transportation and services, which includes charter hire, voyage and vessel operating expenses. Net revenue is included because it is used by management and certain investors to measure performance by comparison to other logistic service providers. Net revenue is not an item recognized by the generally accepted accounting principles in the United States of America, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other indicator of a company's operating performance required by U.S. GAAP. Pangaea’s definition of net revenue used here may not be comparable to an operating measure used by other companies.
|
|
|
(2)
|
Adjusted EBITDA represents operating earnings before interest expense, income taxes, depreciation and amortization, loss on sale and leaseback of vessels and other non-operating income and/or expense, if any. Adjusted EBITDA is included because it is used by management and certain investors to measure operating performance and is also reviewed periodically as a measure of financial performance by Pangaea's Board of Directors. Adjusted EBITDA is not an item recognized by the generally accepted accounting principles in the United States of America, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other indicator of a company's operating performance required by U.S. GAAP. Pangaea’s definition of Adjusted EBITDA used here may not be comparable to the definition of EBITDA used by other companies.
|
The reconciliation of income from operations to net revenue and adjusted EBITDA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
2017
|
Net Revenue
|
|
|
|
|
Income from operations
|
|
$
|
7,794
|
|
|
$
|
(356
|
)
|
General and administrative
|
|
$
|
4,128
|
|
|
$
|
3,515
|
|
Depreciation and amortization
|
|
4,338
|
|
|
3,942
|
|
Loss on sale and leaseback of vessels
|
|
—
|
|
|
4,290
|
|
Net Revenue
|
|
$
|
16,260
|
|
|
$
|
11,391
|
|
|
|
|
|
|
Adjusted EBITDA (in millions)
|
|
|
|
|
Income from operations
|
|
$
|
7,794
|
|
|
$
|
(356
|
)
|
Depreciation and amortization
|
|
$
|
4,338
|
|
|
$
|
3,942
|
|
Loss on sale and leaseback of vessel
|
|
$
|
—
|
|
|
$
|
4,290
|
|
Adjusted EBITDA
|
|
$
|
12,132
|
|
|
$
|
7,876
|
|
(3) Shipping days are defined as the aggregate number of days in a period during which its owned or chartered-in vessels are performing either a voyage charter (voyage days) or time charter (time charter days).
(4) Pangaea defines time charter equivalent, or “TCE,” rates as total revenues less voyage expenses divided by the length of the voyage, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because rates for vessels on voyage charters are generally not expressed in per-day amounts while rates for vessels on time charters generally are expressed in such amounts.
Industry Overview
The seaborne drybulk transportation industry is cyclical and can be volatile. The industry has seen steady improvement over the last year, with rates and demand for dry bulk tonnage up significantly since the historic low in February of 2016 and average published market rates have improved more than 86% since that time. The Baltic Dry Index (“BDI”), a measure of dry bulk market performance, averaged
1,146
for the first quarter of 2018, up from an average of
996
for the comparable quarter of 2017. The Company's TCE rates have climbed consistently since the first quarter of 2017 and have exceeded average published market rates by 10% to 25% over this period.
1st Quarter 2018 Highlights
|
|
•
|
Income from operations of
$7.8 million
for the
three months ended March 31, 2018
, as opposed to a loss from operations of
$0.4 million
for the same period of
2017
.
|
|
|
•
|
Net income attributable to Pangaea Logistics Solutions Ltd. of
$4.3 million
as compared to
$1.3 million
for the
three months ended March 31, 2017
.
|
|
|
•
|
Pangaea's TCE rates increased
39%
to
$13,849
from
$9,945
in the first quarter of
2017
while the market average for the first quarter was approximately $11,100, giving the Company an overall average premium over market rates of approximately $2,800 or 25%. The market rate increase is due to the consistent improvement in the drybulk market over the last year.
|
|
|
•
|
The Company completed two long-term COAs during 2017 and as a result, total shipping days decreased in the first quarter as compared to the first quarter of 2017. This decrease was matched with a corresponding decrease in voyage revenue, however, net revenue increased to
$16.3 million
for the
three months ended March 31, 2018
, due to the relative strength of the market as reflected in higher freight rates. Net revenue was
$11.4 million
for the
three months ended March 31, 2017
.
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At the end of the quarter, Pangaea had
$28.2 million
in unrestricted cash and cash equivalents.
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Three Months Ended March 31, 2018
Compared to
Three Months Ended March 31, 2017
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, 2018
was
$79.0 million
, compared to
$84.5 million
for the same period in
2017
, a
6%
decrease. The total number of shipping days decreased
19%
to
3,524
in the
three months ended March 31, 2018
, compared to
4,342
for the same period in
2017
. The average TCE rate was
$13,849
per day for the
three months ended March 31, 2018
, compared to
$9,945
per day for same period in
2017
. The revenue decrease is predominantly due to the decrease in total shipping days, even as rates improved dramatically.
Components of revenue are as follows:
Voyage revenues decreased by
9%
for the
three months ended March 31, 2018
to
$70.3 million
compared to
$77.7 million
for the same period in
2017
. The decrease in voyage revenues was predominantly driven by the
20%
decrease in the number of voyage days, which were
2,945
in the
first
quarter of
2018
as compared to
3,668
in the
first
quarter of
2017
. The decrease in voyage days was due in large part to COAs that began in the
three months ended March 31, 2017
and were completed prior to the first quarter of
2018
. However, market improvement from the
three months ended March 31, 2017
to the
three months ended March 31, 2018
translated into better net results for the current period, as highlighted above. Voyage revenues were also impacted by the adoption of ASC 606 which resulted in a net increase of approximately
$2.6 million
or
$739
per day of TCE revenue for the
three months ended March 31, 2018
.
Charter revenues increased to
$8.7 million
from
$6.8 million
, or
28%
, for the
three months ended March 31, 2018
compared to the same period in
2017
. The increase in charter revenues was due to improvement in drybulk market rates. Time charter days were down
14%
to
579
in the
first
quarter of
2018
from
674
in the
first
quarter of
2017
.
Voyage Expenses
Voyage expenses for the
three months ended March 31, 2018
were
$30.2 million
, compared to
$41.3 million
for the same period in
2017
, a decrease of approximately
27%
. The decrease in voyage expense was due to the
20%
decrease in voyage days, as discussed above. In addition, the Company incurred relet expenses of $3.4 million in the first quarter of 2017, but incurred only minimal relet expense in the same period of
2018
. The Company will opportunistically relet a cargo depending on market conditions and as a risk management tool. Voyage expenses were also impacted by the adoption of ASC 606 which resulted in a net increase in voyage expenses of approximately
$0.9 million
.
Charter Hire Expenses
Charter hire expenses for the
three months ended March 31, 2018
were
$22.7 million
, compared to
$23.2 million
for the same period in
2017
. The number of chartered-in days decreased
33%
from
2,916
days in the
three months ended March 31, 2017
to
1,959
days for the
three months ended March 31, 2018
. However, the improving dry bulk market pushed average charter-hire rates paid by the Company up
46%
for the
three months ended March 31, 2018
as compared to the same period of
2017
. Charter hire expense as a percentage of total revenue remained fairly consistent at
27%
in the
three months ended March 31, 2017
compared to
29%
in the
three months ended March 31, 2018
. The Company continues to operate under its successful strategy of chartering-in primarily for committed contracts. Increasing charter hire rates in the
first
quarter kept the Company from taking longer positions, thereby avoiding potential losses as these increases in hire rates outpaced improvements in freight rates.
Vessel Operating Expenses
Vessel operating expenses for the
three months ended March 31, 2018
were
$9.8 million
, compared to
$8.6 million
in the comparable period in
2017
, an increase of approximately
15%
. The increase in vessel operating expenses is due to the
12%
increase in owned and bareboat charter days, which were
1,800
in the
three months ended March 31, 2018
as compared to
1,608
in the
three months ended March 31, 2017
. This increase is due to the addition of two vessels acquired on June 14, 2017 and December 21, 2017. Vessel operating expenses per day were
$5,472
for the
three months ended March 31, 2018
and
$5,343
for the
three months ended March 31, 2017
.
General and Administrative Expenses
General and administrative expenses increased from
$3.5 million
in the
three months ended March 31, 2017
to
$4.1 million
in the
three months ended March 31, 2018
. This is due to an increase in accrued bonus compensation and director fees.
Depreciation and amortization
The increase in depreciation and amortization is due to the increase in the number of vessels owned and operated under bareboat charters. Ownership days increased
12%
due to acquisitions in June and December of 2017, as noted above.
Loss on sale and leaseback of vessels
The Company incurred a
$4.3 million
loss on the sale and subsequent leaseback of the m/v Bulk Destiny in
three months ended March 31, 2017
but did not incur any such losses for the corresponding period of
2018
.
Income from Operations
The Company had income from operations of
$7.8 million
for the
three months ended March 31, 2018
as compared to
$0.4 million
for the three months ended
March 31, 2017
. This is primarily due to the loss on sale and leaseback in January 2017, discussed above, and to improvement in the dry bulk market rates over the same period of
2017
.
Interest Expense
The increase in interest expense is predominantly due to financing of the m/v Bulk Freedom in June 2017 and the m/v Bulk Pride in December 2017.
Unrealized (loss) gain on derivative instruments
The Company incurred losses on FFAs of approximately
$314,000
and losses on bunker swaps of approximately
$248,000
in the
three months ended March 31, 2018
as compared to gains on FFAs of approximately
$2,728,000
and losses on bunker swaps of
approximately
$758,000
in the
three months ended March 31, 2017
. These result from changes in the fair value of the derivatives at the respective balance sheet dates.
Significant accounting estimates
The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are the estimated fair value used in determining loss on sale and leaseback of vessel, the estimated future cash flows used in its impairment analysis, the estimated salvage value used in determining depreciation expense and the allowances for doubtful accounts.
Long-lived Assets Impairment Considerations
Long-lived Assets Impairment Considerations.
The carrying values of the Company’s vessels may not represent their fair market value or the amount that could be obtained by selling the vessel at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the pricing of new vessels. Historically, both charter rates and vessel values tend to be cyclical. The carrying value of each group of vessels (allocated by size, age and major characteristic or trade), which are classified as held and used by the Company, are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of a particular group may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the group and its eventual disposition is less than its carrying value. This assessment is made at the group level, which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size and major characteristic or trade.
The significant factors and assumptions used in the undiscounted projected net operating cash flow analysis include the Company’s estimate of future TCE rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and address commissions and assume no revenue on scheduled offhire days. The Company uses the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying value of the asset group, an impairment charge would be recognized.
During the
three months ended March 31, 2018
, the Company did not identify any potential triggering events and therefore, in accordance with authoritative guidance, did not perform tests of recoverability.
During the
three months ended March 31, 2017
, the Company identified a potential impairment indicator based on the estimated market value of its vessels. As a result, the Company evaluated each asset group for impairment by estimating the total undiscounted cash flows expected to result from the use of the asset group and its eventual disposal. The estimated undiscounted future cash flows were higher than the carrying amount of the vessels in the Company's fleet and as such, no loss on impairment was recognized.
Liquidity and Capital Resources
Liquidity and Cash Needs
The Company has historically financed its capital requirements with cash flow from operations, proceeds from related party debt, proceeds from long-term debt and capital leases, and, in June 2017, through a private placement of common stock. The Company may consider additional debt and equity financing alternatives in the future. However, if market conditions are negative, the Company may be unable to raise additional debt or equity financing on acceptable terms or at all. As a result, the Company may be unable to pursue opportunities to expand its business.
At
March 31, 2018
and
December 31, 2017
, the Company had working capital of
$14.3 million
and
$13.0 million
, respectively.
Considerations made by management in assessing the Company’s ability to continue as a going concern are its ability to consistently generate positive cash flows from operations, which were approximately
$2.8 million
and
$2.4 million
in the
three months ended March 31, 2018
and 2017, respectively; $29.2 million in 2017 and $19.2 million in 2016; and its ability to procure long-term fixed contract employment (COAs) with new and longstanding customers. In addition, the Company has demonstrated its unique ability to adapt to changing market conditions by changing the chartered-in profile to meet its cargo commitments. For more information on the results of operations, see
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Results of Operations.
Capital Expenditures
The Company’s capital expenditures relate to the purchase and lease of interests in vessels, and capital improvements to its vessels which are expected to enhance the revenue earning capabilities and safety of these vessels. The Company’s owned and leased fleet includes two Panamax drybulk carriers, six Supramax drybulk carriers, two Ultramax Ice-Class 1C, two Handymax drybulk carriers (both of which are Ice-Class 1A) and one barge. The Company also has a one-third interest in a consolidated joint venture which owns six Panamax Ice-Class 1A drybulk carriers.
In addition to vessel acquisitions that the Company may undertake in future periods, its other major capital expenditures include funding its program of regularly scheduled drydockings necessary to make improvements to its vessels, as well as to comply with international shipping standards and environmental laws and regulations. Funding expenses associated with these requirements will be met with cash from operations. The Company anticipates that this process of recertification will require it to reposition these vessels from a discharge port to shipyard facilities, which will reduce the Company’s available days and operating days during that period. The Company capitalized drydocking costs totaling approximately
$1.5 million
and
$64,000
and expensed drydocking costs of approximately
$34,000
and
$58,000
in the
three months ended March 31, 2018
and
2017
, respectively.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements at
March 31, 2018
or
December 31, 2017
.