Pangaea Logistics Solutions Ltd.
Pangaea Logistics Solutions, Ltd.
Consolidated Statements of Cash Flows
(unaudited)
|
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| Operating activities | |
| | |
|
| Net income | $ | 4,577,976 |
| | $ | 8,820,206 |
|
| Adjustments to reconcile net income to net cash provided by operations: | |
| | |
| Depreciation and amortization expense | 11,604,168 |
| | 10,576,223 |
|
| Loss on sale and leaseback of vessel | 9,134,908 |
| | — |
|
| Amortization of deferred financing costs | 527,348 |
| | 513,311 |
|
| Amortization of prepaid rent | 91,453 |
| | — |
|
| Unrealized gain on derivative instruments | (430,869 | ) | | (1,212,434 | ) |
| (Gain) loss from equity method investee | (282,362 | ) | | 68,477 |
|
| (Recovery of) provision for doubtful accounts | (10,356 | ) | | 982,393 |
|
| Share-based compensation | 878,759 |
| | 274,286 |
|
| Change in operating assets and liabilities: | | | |
| Decrease in restricted cash | — |
| | 499,269 |
|
| Accounts receivable | (10,428,305 | ) | | 3,824,491 |
|
| Bunker inventory | (3,267,454 | ) | | (1,845,707 | ) |
| Advance hire, prepaid expenses and other current assets | (7,118,526 | ) | | (2,471,301 | ) |
| Drydocking costs | (1,043,164 | ) | | (42,478 | ) |
| Accounts payable, accrued expenses and other current liabilities | 8,021,053 |
| | (743,918 | ) |
| Deferred revenue | 1,490,536 |
| | (925,490 | ) |
| Net cash provided by operating activities | 13,745,165 |
| | 18,317,328 |
|
| | | | |
| Investing activities | |
| | |
|
| Purchase of vessels | (47,328,517 | ) | | (3,372,433 | ) |
| Purchase of building and equipment | — |
| | (315,818 | ) |
| Purchase of non-controlling interest in consolidated subsidiary | (832,572 | ) | | — |
|
| Net cash used in investing activities | (48,161,089 | ) | | (3,688,251 | ) |
| | | | |
| Financing activities | |
| | |
|
| Proceeds of related party debt | — |
| | 1,522,500 |
|
| Payments of related party debt | — |
| | (2,500,497 | ) |
| Proceeds from long-term debt | 25,000,000 |
| | 1,375,971 |
|
| Payments of financing and issuance costs | (896,175 | ) | | (45,755 | ) |
| Payments of long-term debt | (20,635,670 | ) | | (20,809,044 | ) |
| Proceeds from sale and leaseback of vessel | 28,000,000 |
| | — |
|
| Payments of capital lease obligations | (768,599 | ) | | — |
|
| Decrease (increase) in restricted cash | 2,100,000 |
| | (5,000,000 | ) |
| Proceeds from non-controlling interests | — |
| | 1,600,000 |
|
| Proceeds from private placement of common stock, net of issuance costs | 9,631,530 |
| | — |
|
| Accrued common stock dividends paid | (1,001,424 | ) | | (100,000 | ) |
| Net cash provided by (used in) financing activities | 41,429,662 |
| | (23,956,825 | ) |
| | | | |
| Net increase (decrease) in cash and cash equivalents | 7,013,738 |
| | (9,327,748 | ) |
| Cash and cash equivalents at beginning of period | 22,322,949 |
| | 37,520,240 |
|
| Cash and cash equivalents at end of period | $ | 29,336,687 |
| | $ | 28,192,492 |
|
| | | | |
| Supplemental cash flow information and disclosure of noncash items | |
| | |
|
| Cash paid for interest | $ | 5,052,102 |
| | $ | 3,520,635 |
|
| Conversion of dividend into common stock | $ | 4,385,000 |
| | $ | — |
|
| Extinguishment of related party loan | $ | 9,278,800 |
| | $ | — |
|
| | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2023 | | 2022 |
| Operating activities | | | |
| Net income | $ | 6,169,770 | | | $ | 49,934,635 | |
| Adjustments to reconcile net income to net cash provided by operations: | | | |
| Depreciation and amortization expense | 14,453,855 | | | 14,594,852 | |
| Amortization of deferred financing costs | 471,582 | | | 499,703 | |
| Amortization of prepaid rent | 60,564 | | | 60,969 | |
| Unrealized loss (gain) on derivative instruments | 1,771,853 | | | (3,998,665) | |
| Income from equity method investee | (635,275) | | | (218,438) | |
| Earnings attributable to non-controlling interest recorded as other long term liability | 760,600 | | | 3,543,007 | |
| Provision for doubtful accounts | 1,129,270 | | | 518,796 | |
| Loss on impairment of vessel | — | | | 3,007,809 | |
| Loss on sale of vessel | 1,172,196 | | | 318,032 | |
| Drydocking costs | (3,361,280) | | | (4,858,510) | |
| Share-based compensation | 1,123,507 | | | 1,138,785 | |
| Change in operating assets and liabilities: | | | |
| Accounts receivable | (7,196,493) | | | 12,640,090 | |
| Bunker inventory | 1,652,227 | | | (25,675,924) | |
| Advance hire, prepaid expenses and other current assets | (3,503,097) | | | 12,286,477 | |
| Accounts payable, accrued expenses and other current liabilities | 5,894,024 | | | 13,292,238 | |
| Deferred revenue | (6,383,893) | | | (7,858,791) | |
| Net cash provided by operating activities | 13,579,410 | | | 69,225,065 | |
| | | |
| Investing activities | | | |
| Purchase of vessels and vessel improvements | (27,039,525) | | | (18,501,875) | |
| | | |
| Purchase of fixed assets and equipment | — | | | (71,416) | |
| | | |
| Proceeds from sale of vessel | 8,933,700 | | | 8,400,000 | |
| Acquisitions, net of cash acquired | (7,200,000) | | | — | |
| Dividends received from equity method investments | 1,627,500 | | | — | |
| Contributions to non-consolidated subsidiaries | — | | | (18,505) | |
| Net cash used in investing activities | (23,678,325) | | | (10,191,796) | |
| | | |
| Financing activities | | | |
| | | |
| Payments of financing fees and debt issuance costs | — | | | (331,317) | |
| Payments of long-term debt | (9,096,390) | | | (9,010,117) | |
| Proceeds from finance leases | — | | | 15,000,000 | |
| Payments of finance lease obligations | (8,133,049) | | | (7,808,388) | |
| | | |
| Dividends paid to non-controlling interests | (5,000,000) | | | (5,000,000) | |
| Accrued common stock dividends paid | (9,133,109) | | | (5,629,329) | |
| Cash paid for incentive compensation shares relinquished | (127,283) | | | (287,630) | |
| | | |
| Payments to non-controlling interest recorded as long-term liability | (2,500,000) | | | — | |
| Net cash used in financing activities | (33,989,831) | | | (13,066,781) | |
| | | |
| Net (decrease) increase in cash and cash equivalents | (44,088,746) | | | 45,966,488 | |
| Cash and cash equivalents at beginning of period | 128,384,606 | | | 56,208,902 | |
| Cash and cash equivalents at end of period | $ | 84,295,860 | | | $ | 102,175,390 | |
The accompanying notes are an integral part of these condensed consolidated financial statements
statements.
Note 1.
NOTE 1 - GENERAL INFORMATION AND RECENT EVENTS
Organization and General Information
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.
TheAt June 30, 2023, the Company owns twothree Panamax, two Ultramax Ice Class 1C, fiveone Ultramax and nine Supramax and two Handymax Ice Class 1A drybulk vessels, including two vessels financed under capital lease obligations.vessels. The Company also owns one-thirdtwo-thirds of Nordic Bulk Holding Company Ltd. (“NBHC”("NBHC"), a consolidated joint venture with which owns a fleet of six Panamax Ice Class 1A drybulk vessels. The Company operates two additional Supramaxowns 50% of Nordic Bulk Partners LLC. ("NBP") which owns a fleet of four Post Panamax Ice Class 1A drybulk vessels under bareboat charter for five-year periods that commenced on July 13, 2016. In addition,vessels. The Company also has a 50% interest in the owner of a deck barge. On June 1, 2023, the Company through a new wholly-owned subsidiary, signed a Memorandumcompleted the acquisition of Agreement to purchase a Supramax bulk carrier built in 2008, for approximately $13.8 million. The vessel is expected to be delivered in December 2017.port and terminal operation.
On January 27, 2017, the Company acquired its consolidated joint venture partner's interest in Nordic Bulk Ventures Holding Company Ltd. (“BVH”). BVH owns m/v Bulk Destiny and m/v Bulk Endurance through wholly-owned subsidiaries. BVH is wholly-owned by the Company after the acquisition.
On March 21, 2017, the Company's Board of Directors (the “Board”) approved, and on June 27, 2017, the shareholders holding a majority of the issued and outstanding shares of our Common Stock approved, by unanimous written consent, the issuance of shares of our Common Stock in connection with two stock purchase agreements, both dated as of June 15, 2017, (the “Agreements”).
Shares of common stock sold under the Agreements totaled 6,533,443. These shares were issued on June 29, 2017 and August 9, 2017 for aggregate net proceeds of $14.1 million of which approximately $4.4 million was issued as in-kind payment of accrued dividends. Upon completion of these transactions, issued and outstanding shares of Common Stock totaled 43,795,182.
Note 2. Basis of PresentationNOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated balance sheet as of September 30, 2017, the consolidated statements of income and cash flows for the three and nine months ended September 30, 2017 and 2016 are unaudited. The unaudited interim consolidated financial statements have been prepared onin accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and the same basis as the annual consolidatedinstructions 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, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairlyfor a fair presentation of the Company’sinterim period results. These unaudited consolidated financial position as of September 30, 2017 and December 31, 2016, and its results of operations and cash flows for the three and nine months ended September 30, 2017 and 2016. The financial data and the other information disclosedstatements should be read in these notes toconjunction with the consolidated financial statements related to these three and nine month periods are unaudited. Certain information and disclosuresnotes thereto included in the annual consolidated financial statements have been omitted for the interim periods pursuant to the rules and regulations of the SEC. The results for the three and nine months ended September 30, 2017 are not necessarily indicative of the resultsour Annual Report on Form 10-K for the year endingended December 31, 2017 or for2022.
As of January 1, 2023, we adopted ASU No. 2016-13, "Financial Instruments—Credit Losses" ("ASU 2016-13"). ASU 2016-13 amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The adoption of the accounting standard did not have any other interim period or future years.material impact on our consolidated financial statements.
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. Significant estimates include the percentage completion of spot voyages, the establishment of the allowance for credit losses and the estimate of salvage value used in determining vessel depreciation expense. Actual results could differ from those estimates. The significant estimates
Advance hire, prepaid expenses 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.other current assets
Advance hire, prepaid expenses and other current assets were comprised of the following:
| | | | | | | | | | | | | | |
| | | June 30, 2023 | | December 31, 2022 |
| | | (unaudited) | | |
| Advance hire | | $ | 5,056,997 | | | $ | 3,491,835 | |
| Prepaid expenses | | 6,317,751 | | | 4,777,648 | |
| Accrued receivables | | 7,123,725 | | | 7,721,500 | |
| Cash margin on deposit | | 5,543,685 | | | 3,239,947 | |
| Derivative assets | | 5,288,301 | | | 4,892,144 | |
| Other current assets | | 3,029,446 | | | 4,143,757 | |
| | | $ | 32,359,905 | | | $ | 28,266,831 | |
|
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | (unaudited) | | |
| Advance hire | | $ | 5,159,896 |
| | $ | 2,232,444 |
|
| Prepaid expenses | | 646,493 |
| | 1,844,522 |
|
| Accrued receivables | | 5,042,672 |
| | 1,319,220 |
|
| Other current assets | | 2,616,102 |
| | 1,045,397 |
|
| | | $ | 13,465,163 |
| | $ | 6,441,583 |
|
Other non-current Assets
Other non-current assets were comprised of the following:
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| Name | | (unaudited) | | |
| Intangible Assets - Note 12: Acquisitions | | $ | 2,251,100 | | | $ | — | |
| Investment in Seamar Management | | 723,232 | | | 598,725 | |
| Investment in unconsolidated joint ventures | | 1,748,899 | | | 3,954,605 | |
| Investment in Narragansett Bulk Carriers (US) Corp | | 519,975 | | | 234,141 | |
| Other investments | | 863,580 | | | 496,656 | |
| | | $ | 6,106,786 | | | $ | 5,284,127 | |
Accounts payable, accrued expenses and other current liabilities
Accounts payable, accrued expenses and other current liabilities were comprised of the following:
| | | | | | | | | | | | | | |
| | | June 30, 2023 | | December 31, 2022 |
| | | (unaudited) | | |
| Accounts payable | | $ | 14,545,982 | | | $ | 9,979,451 | |
| Accrued expenses | | 12,477,619 | | | 11,795,973 | |
| Bunkers suppliers | | 4,966,521 | | | 6,526,725 | |
| Charter hire payable | | 11,252,112 | | | 9,337,941 | |
| | | | |
| Other accrued liabilities | | 3,463,748 | | | 914,041 | |
| | | $ | 46,705,982 | | | $ | 38,554,131 | |
|
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | (unaudited) | | |
| Accounts payable | | $ | 17,690,288 |
| | $ | 15,435,179 |
|
| Accrued voyage expenses | | 11,656,486 |
| | 6,955,389 |
|
| Accrued interest | | 604,041 |
| | 412,984 |
|
| Other accrued liabilities | | 209,556 |
| | 427,627 |
|
| | | $ | 30,160,371 |
| | $ | 23,231,179 |
|
Leases
Recently Issued Accounting Pronouncements
Time charter in contracts
In February 2016,
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 FASB issuedcharter hire payments as an ASU 2016-02, Accounting Standards Update for Leases. The updateexpense on a straight-line basis over the term of the charter. Charter hire payments are typically made in advance, and the unrecognized portion 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 recognizereflected as advance hire in the statementaccompanying 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, Leases ("ASC 842"), the Company made an accounting policy election by class 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, to forego recognizing a lessee is permitted to make an accounting policy election by class of underlyingright-of-use asset not to recognize lease assets and lease liabilities. liability on its balance sheet. For the quarter ending June 30, 2023, 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.
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.
At June 30, 2023, the Company had three vessel chartered to customers under time charters that contained a lease. These three leases varied in original length from 31 days to 68 days. The lease payments due under these arrangements totaled approximately $1,497,000 and each of the time charters were due to be completed in 41 days or less.
At June 30, 2022, the Company had one vessel chartered to a customer under time charter that contained a lease. This lease's duration was 28 days. At June 30, 2022, lease payments due under this arrangement totaled approximately 125,000 and the time charter was due to be completed in 4 days.
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. have any sales-type or direct financing leases.
Office leases
The Company doeshas four non-cancelable office and office equipment leases. The resulting lease assets and liabilities are not expect adoption of this guidance to have a material impact on its financial statements.material.
RevenueRecognition
In May 2014,a voyage charter contract, the FASB issued an ASU 2014-09, Accounting Standards Updatecharterer hires the vessel to transport a specific agreed-upon cargo for a single voyage, which may contain multiple load ports and discharge ports. The consideration in such a contract is determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The charter party generally has a minimum amount of cargo. The charterer is liable for any short loading of cargo or "dead" freight. The voyage contract generally has standard payment terms of 95% freight paid within three days after completion of loading. The voyage charter party generally has a "demurrage" or "despatch" clause. As per this clause, the charterer reimburses the Company for any delays that exceed the agreed to laytime at the ports visited, with the amounts recorded as demurrage revenue. Conversely, the charterer is given credit if the loading/discharging activities happen within the allowed laytime which is known as despatch and results in a reduction of revenue. In a voyage charter contract, the performance obligations begin to be satisfied once the vessel begins loading the cargo. The Company determined that its voyage charter contracts consist of a single performance obligation of transporting the cargo within a specified time period. Therefore, the performance obligation is met evenly as the voyage progresses, and the revenue is recognized on a straight-line basis over the voyage days from the commencement of the loading of cargo to completion of discharge.
The voyage contracts are considered service contracts which fall under the provisions of ASC 606, Revenue from Contracts with Customers. The core principleCustomers because the Company, as the shipowner, retains control over the operations of the guidancevessel such as directing the routes taken or the vessel speed. The voyage contracts generally have variable consideration in the form of demurrage or despatch.
During time charter agreements, 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, the charterers have substantive decision-making rights to direct how and for what purpose the vessel is used. As such, the Company has identified that an entity should recognize revenuetime charter agreements contain a lease in accordance with ASC 842. Revenue is not earned when vessels are offhire.
In a stevedore service contract, the Company is paid to depictprovide cargo handling services on a per unit basis for a specified quantity of cargo. The consideration in such a contract is determined on the transferbasis of promised goodsa rate per unit of cargo handled. The contract may contain minimum quantities. Revenues from stevedore service contracts are earned and recognized on a per unit basis as completed over the performance period.
Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for applying generally accepted accounting principles (“GAAP”) to contracts, hedging relationships and other transactions that reference LIBOR or services to customers in an amount that reflects the consideration to which the entity expectsanother reference rate expected to be entitleddiscontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which clarified that certain optional expedients and exceptions in exchange for those goods or services.Topic 848 apply to derivatives that are affected by the discounting transition due to reference rate reform. In December 2022, the FASB issued ASU No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848," which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief under Topic 848. The new standard is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017. Management has organized a working group andCompany is currently analyzing contracts with our customers coveringevaluating the significant streams of the Company's annual revenues under the provisions of theimpact that adopting this new accounting standard as well as changes necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting.
While we are continuing to assess all potential impacts of the standard, the Company's preliminary expectation is that revenue from vessels operatingwill have on time charter will continue to be recognized under current revenue recognition policies because the services being provided to its customers currently reflect the consideration to which the entity expects to be entitled in exchange for those services, and because these arrangements qualify as single performance obligations that meet the criteria to recognize revenue over time, as the customer is simultaneously receiving and consuming the benefits of these services. The performance obligation in a voyage charter is also the transportation service provided and also meets the criteria to recognize revenue over time. However, under the new standard, our expectation is that revenue for these voyages will be recognized over the period between load port and discharge port in contrast to the current recognition policy to recognize revenue from discharge port to discharge port. The Company also believes that under the new standard, it will recognize an asset from certain costs incurred to fulfill contracts that have not begun to load if they meet the criteria outlined in this update. Such assets will be amortized pro rata over the period of the contract. Neither of these changes is expected to have a material impact on the consolidated financial statements becauseand related disclosures.
NOTE 3 - CASH AND CASH EQUIVALENTS
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 and cash equivalents reported within the number of open voyages at any point in time are not a significant portionconsolidated balance sheets that sum to the total of the annual totalsame amounts shown in the consolidated statement of cash flows:
| | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| (unaudited) | | |
| Money market accounts – cash equivalents | $ | 26,855,278 | | | $ | 33,689,361 | |
| Time deposit accounts - cash equivalents | 17,143,883 | | | 46,000,000 | |
Cash (1) | 40,296,699 | | | 48,695,245 | |
| Total cash and cash equivalents | $ | 84,295,860 | | | $ | 128,384,606 | |
| | | |
| | | |
(1) Consists of cash deposits at various major banks.
As of June 30, 2023 and December 31, 2022, the difference in revenue is expected to be only a small percentage of such voyage revenue. The Company will apply the new revenue standard on a modified retrospective basis with a cumulative effect adjustment to the opening balance of retained earnings as of
January 1, 2018. Prior periods will not be retrospectively adjusted. The Company is prepared to implement the new revenue standard on the effective dateheld cash and will follow recently issued guidance on practical expedients as part of our transition.
In November 2016, the FASB issued an ASU 2016-18 Accounting Standards Update for Statement of Cash Flows. 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 amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied usingfollowing subsidiaries:
| | | | | | | | | | | |
| Cash and cash equivalents | June 30, 2023 | | December 31, 2022 |
| (unaudited) | | |
Pangaea (1) | $ | 60,459,523 | | | $ | 85,398,332 | |
NBHC (2) | 19,584,454 | | | 34,718,529 | |
NBP and Deck Barge (3) | 4,251,883 | | | 8,267,745�� | |
| Total cash and cash equivalents | $ | 84,295,860 | | | $ | 128,384,606 | |
(1) Held by 100% owned Pangaea consolidated subsidiaries
(2) Held by a retrospective transition method to each period presented. The Company does not expect adoption of this guidance to have67% owned Pangaea consolidated subsidiary
(3) Held by a material impact on its financial statements.50% owned Pangaea consolidated subsidiary
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 4 - FIXED ASSETS
At SeptemberJune 30, 2017,2023, the Company owned seventeentwenty-five dry bulk vessels including twoeight financed under capital lease obligations.finance leases; and one barge. The carrying amounts of these vessels, including unamortized drydocking costs, are as follows:
| | | | | | | | | | | |
| | June 30, | | December 31, |
| 2023 | | 2022 |
| (unaudited) | | |
m/v NORDIC ODYSSEY (1) | $ | 19,817,308 | | | $ | 20,685,092 | |
m/v NORDIC ORION (1) | 20,598,185 | | | 21,406,429 | |
m/v NORDIC OSHIMA (1) | 23,615,187 | | | 24,292,108 | |
m/v NORDIC OLYMPIC (1) | 23,967,093 | | | 24,627,857 | |
m/v NORDIC ODIN (1) | 24,068,935 | | | 24,726,033 | |
m/v NORDIC OASIS (1) | 25,543,329 | | | 26,232,723 | |
m/v NORDIC NULUUJAAK (2) (4) | 36,803,585 | | | 37,518,857 | |
m/v NORDIC QINNGUA (2) (4) | 36,723,412 | | | 37,428,322 | |
m/v NORDIC SANNGIJUQ (2) (4) | 36,311,617 | | | 37,000,230 | |
m/v NORDIC SIKU(2) (4) | 36,701,578 | | | 37,393,171 | |
| m/v BULK ENDURANCE | 22,482,736 | | | 23,106,438 | |
| m/v BULK PRUDENCE | 26,866,858 | | | — | |
m/v BULK COURAGEOUS (4) | 15,535,865 | | | 15,755,839 | |
m/v BULK CONCORD (4) | 18,877,907 | | | 19,394,966 | |
| m/v BULK NEWPORT | — | | | 10,211,578 | |
| m/v BULK FREEDOM | 8,312,733 | | | 7,464,118 | |
| m/v BULK PRIDE | 11,684,638 | | | 12,174,942 | |
m/v BULK SPIRIT (4) | 13,485,239 | | | 11,703,170 | |
| m/v BULK SACHUEST | 16,907,406 | | | 17,188,278 | |
| m/v BULK INDEPENDENCE | 14,316,099 | | | 14,879,681 | |
m/v BULK FRIENDSHIP (4) | 13,245,645 | | | 13,680,578 | |
| m/v BULK VALOR | 16,770,264 | | | 17,106,444 | |
| m/v BULK PROMISE | 17,294,746 | | | 17,619,467 | |
| | | |
MISS NORA G PEARL (3) | 2,044,660 | | | 2,268,086 | |
| 481,975,025 | | | 473,864,407 | |
| Other fixed assets, net | 4,405,547 | | | 2,660,345 | |
| Total fixed assets, net | $ | 486,380,572 | | | $ | 476,524,752 | |
| | | |
| Right of Use Assets | | | |
| m/v BULK XAYMACA | $ | 12,353,157 | | | $ | 13,082,596 | |
| m/v BULK DESTINY | 19,292,643 | | | 19,814,777 | |
| m/v BULK TRIDENT | 10,404,561 | | | 11,024,196 | |
| $ | 42,050,361 | | | $ | 43,921,569 | |
| | | |
| | | |
|
| | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
| Owned vessels | (unaudited) | | |
| m/v BULK PANGAEA | $ | 16,768,833 |
| | $17,879,380 |
| m/v BULK PATRIOT | 11,426,580 |
| | 12,391,724 |
|
| m/v BULK JULIANA | 11,621,472 |
| | 12,252,733 |
|
| m/v NORDIC ODYSSEY | 25,981,360 |
| | 27,021,211 |
|
| m/v NORDIC ORION | 26,819,591 |
| | 27,874,584 |
|
| m/v BULK TRIDENT | 14,386,864 |
| | 14,962,163 |
|
m/v BULK BEOTHUK (1) | — |
| | 12,006,270 |
|
| m/v BULK NEWPORT | 13,312,095 |
| | 13,473,429 |
|
| m/v NORDIC BARENTS | 3,526,711 |
| | 3,517,151 |
|
| m/v NORDIC BOTHNIA | 3,518,031 |
| | 3,520,616 |
|
| m/v NORDIC OSHIMA | 30,428,323 |
| | 31,346,414 |
|
| m/v NORDIC OLYMPIC | 30,668,705 |
| | 31,560,965 |
|
| m/v NORDIC ODIN | 30,846,740 |
| | 31,741,658 |
|
| m/v NORDIC OASIS | 31,915,214 |
| | 32,834,500 |
|
m/v BULK ENDURANCE (2) | 27,284,169 |
| | — |
|
m/v BULK FREEDOM (3) | 8,942,254 |
| | — |
|
| | 287,446,942 |
| | 272,382,798 |
|
| Other fixed assets, net | 3,390,595 |
| | 2,882,874 |
|
| Total fixed assets, net | $ | 290,837,537 |
| | $ | 275,265,672 |
|
| | | | |
| Vessels under capital lease | | | |
m/v BULK DESTINY (4) | $ | 23,365,388 |
| | $ | — |
|
m/v BULK BEOTHUK (1) | $ | 6,920,181 |
| | $ | — |
|
| | $ | 30,285,569 |
| | $ | — |
|
(1) Vessels are owned by NBHC, a consolidated joint venture in which the Company has a two-third ownership interest at June 30, 2023 and December 31, 2022, respectively.
| |
(1)
| The m/v Bulk Beothuk was sold on June 15, 2017 and simultaneously chartered back under a bareboat charter accounted for as a capital lease, the terms of which are discussed in Note 7. |
| |
(2)
| The m/v Bulk Endurance was delivered
(2) Vessels are owned by NBP, a consolidated joint venture in which the Company has a 50% ownership interest at June 30, 2023 and December 31, 2022. (3) Barge is owned by a 50% owned consolidated subsidiary. (4) Refer to Note 6, "Finance Leases" of our Financial Statements for additional information related to the Company on January 7, 2017. |
| |
(3)
| The Company acquired the m/v Bulk Freedom on June 14, 2017. |
| |
(4)
| The Company took delivery of the m/v Bulk Destiny on January 7, 2017 and simultaneously entered into a sale and leaseback financing agreement, the terms of which are discussed in Note 7. |
The Company also operates two dry bulk vessels under bareboat charters accounted for as operating leases, as discussed in Note 7.finance lease.
Long-lived Assets Impairment Considerations.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 valuesamounts. If indicators of impairment are present, we perform an analysis 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 tendanticipated undiscounted future net cash flows 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 resultderived from the use of the group and its eventual disposition is less than its carrying value. Thisrelated 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 significant factors and assumptions usedCompany concluded that no triggering event had occurred during the second quarter of 2023, which would require impairment testing. However, during the first quarter of 2023, the Company determined that a triggering event had occurred related to the sale of a vessel, as its carrying value exceeded its fair value. On January 18, 2023, the Company signed a memorandum of agreement to sell the m/v Bulk Newport for $8.9 million in net consideration after brokerage commissions. As a result, we recorded a loss on sale of $1.2 million in the undiscounted projected net operating cash flow analysis include the Company’s estimatefirst quarter 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.2023. The Company prepares a series of scenarios inperformed 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 revenueimpairment analysis 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 theeach asset group an impairment charge would be recognized.
During the three months ended September 30, 2017, the Company did not identify any potential triggering events. At December 31, 2016, testing for recoverability indicated thatand concluded the estimated undiscounted future cash flows were higher than their carrying amounts and as such, no additional loss on impairment was recognized.
The Company concluded that no triggering event had occurred during the second quarter of 2022, which would require impairment testing. However, during the first quarter of 2022, the Company determined that a triggering event occurred related to the sale of a vessel, as the carrying amountvalue exceeded its fair value. On April 20, 2022, the Company signed a memorandum of agreement to sell the m/v Bulk Pangaea for $8.6 million in net consideration after brokerage commissions. As a result, we recorded an impairment charge of $3.0 million in the first quarter of 2022. The Company performed an impairment analysis on each long-lived asset group therefore,and concluded the Company did not recognize anyestimated undiscounted future cash flows were higher than their carrying amounts and as such, no additional loss on impairment. impairment was recognized.
Note 4. Debt
NOTE 5 - DEBT
Long-term debt consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 | | Interest Rate (%) (1) | | Maturity Date |
| | (unaudited) | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Bulk Nordic Odyssey (MI) Corp., Bulk Nordic Orion (MI) Corp. Senior Secured Term Loan Facility (2) (3) | | 13,460,664 | | | 14,395,409 | | | 2.95 | % | | December 2027 |
Bulk Nordic Oshima (MI) Corp., Bulk Nordic Odin (MI) Corp., Bulk Nordic Olympic (MI) Corp., Bulk Nordic Oasis (MI) Corp. Secured Term Loan Facility (2) (3) | | 42,200,000 | | | 44,600,000 | | | 3.38 | % | | June 2027 |
The Amended Senior Facility - Dated May 13, 2019 (formerly The Amended Senior Facility - Dated December 21, 2017) (4) | | | | | | | | |
Bulk Nordic Six Ltd. - Tranche A (2) | | 9,566,659 | | | 10,099,993 | | | 4.39 | % | | May 2024 |
| Bulk Nordic Six Ltd. - Tranche B | | — | | | 2,070,000 | | | | | Paid in full in January 10, 2023 |
Bulk Pride - Tranche C (2) | | 2,450,000 | | | 3,000,000 | | | 5.39 | % | | May 2024 |
Bulk Independence - Tranche E (2) | | 10,000,000 | | | 10,500,000 | | | 3.54 | % | | May 2024 |
| | | | | | | | |
Bulk Valor Corp. Loan and Security Agreement (2) | | 10,761,031 | | | 11,424,507 | | | 3.29 | % | | June 2028 |
Bulk Promise Corp. (2) | | 10,377,482 | | | 11,069,630 | | | 5.45 | % | | October 2027 |
Bulk Sachuest (2) | | 8,121,780 | | | 8,500,000 | | | 6.19 | % | | October 2029 |
| 109 Long Wharf Commercial Term Loan | | — | | | 374,466 | | | | | Paid in full in January 24, 2023 |
| Total | | $ | 106,937,616 | | | $ | 116,034,005 | | | | | |
| Less: unamortized issuance costs, net | | (1,237,015) | | | (1,431,736) | | | | | |
| | $ | 105,700,601 | | | $ | 114,602,269 | | | | | |
| Less: current portion | | (32,259,599) | | | (15,782,530) | | | | | |
| Secured long-term debt, net | | $ | 73,441,002 | | | $ | 98,819,739 | | | | | |
|
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | (unaudited) | | |
| Bulk Pangaea Secured Note | | $ | — |
| | $ | 1,040,625 |
|
| Bulk Patriot Secured Note | | — |
| | 1,087,500 |
|
Bulk Trident Secured Note (1) | | 3,887,500 |
| | 5,737,500 |
|
Bulk Juliana Secured Note (1) | | 2,028,126 |
| | 3,042,186 |
|
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) | | 71,700,000 |
| | 77,325,001 |
|
| Bulk Atlantic Secured Note | | — |
| | 5,350,000 |
|
Bulk Phoenix Secured Note (1) | | 4,916,663 |
| | 6,816,685 |
|
| Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.) | | 6,119,550 |
| | 7,097,820 |
|
Bulk Nordic Oasis Ltd. Loan Agreement (2) | | 18,875,000 |
| | 20,000,000 |
|
| Bulk Nordic Six Ltd. Loan Agreement | | 19,135,000 |
| | — |
|
| Bulk Freedom Loan Agreement | | 5,325,000 |
| | — |
|
| 109 Long Wharf Commercial Term Loan | | 949,864 |
| | 1,032,067 |
|
| Phoenix Bulk Carriers (US) LLC Automobile Loan | | 24,483 |
| | 28,582 |
|
| Phoenix Bulk Carriers (US) LLC Master Loan | | 197,362 |
| | 236,242 |
|
| Total | | 133,158,548 |
| | 128,794,208 |
|
| Less: unamortized bank fees | | (1,897,347 | ) | | (1,528,511 | ) |
| | | 131,261,201 |
| | 127,265,697 |
|
| Less: current portion | | (17,830,996 | ) | | (19,627,846 | ) |
| Secured long-term debt, net | | $ | 113,430,205 |
| | $ | 107,637,851 |
|
| |
(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.
|
(1)As of June 30, 2023.
(2)Interest rates on the loan facilities are fixed.
(3)The Senior Secured Post-Delivery Term Loan Facilityborrower under this facility is NBHC. The Company has two-third's ownership interest and an independent third party 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.
On April 14, 2017,(4)This facility is cross-collateralized by 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 Pangaea Secured Note
Initial amount of $12,250,000, entered into in December 2009, for the acquisition ofvessels m/v Bulk Pangaea. The Fourth Amendment advanced the final installment to April 18, 2017, thereby increasing the amount to $1,040,625, which was paid on the maturity date.
Bulk Patriot Secured Note
Initial amount of $12,000,000, entered into in September 2011, for the acquisition of theEndurance, m/v Bulk Patriot. The Fourth Amendment advanced the final installment to April 18, 2017, thereby increasing the amount to $1,087,500, which was paid on the maturity date.
Bulk Trident Secured Note
Initial amount of $10,200,000, entered into in April 2012, for the acquisition of thePride, and 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, 2017Independence and is floating at LIBOR plus 3.50% (4.78% at September 30, 2017), since April 19, 2017.guaranteed by the Company.
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 in 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 requirefuture minimum annual payments under the Company to maintain a minimum net worth and minimum liquidity, on a consolidated basis. The facility also contains a consolidated leverage ratio and a consolidated debt service coverage ratio. In addition, the facility contains other Company and vessel related covenants that, among other things, restrict changes in management and ownership of the vessel, declaration of dividends, further indebtedness and mortgaging of a vessel without the bank’s prior consent. It also requires minimum collateral maintenance, which is tested at the discretion of the lender. As of September 30, 2017 and December 31, 2016, the Company was in compliance with these covenants.
Bulk Atlantic Secured Note
Initial amount of $8,520,000, entered into on February 18, 2013, for the acquisition of m/v Bulk Beothuk. The loan required repayment in 8 equal quarterly installments of $90,000 beginning in May 2013, 12 equal quarterly installments of $295,000 and a balloon payment of $4,170,000 due in February 2018. The loan was repaid in conjunction with the sale of the vessel on June 6, 2017.
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 advancesagreements are as follows:
| | | | | | | | |
| | Years ending December 31, |
| | (unaudited) |
| 2023 (remainder of the year) | | $ | 6,686,140 | |
| 2024 | | 30,751,725 | |
| 2025 | | 10,476,019 | |
| 2026 | | 10,638,024 | |
| 2027 | | 39,955,014 | |
| Thereafter | | 8,430,694 | |
| | $ | 106,937,616 | |
In respect of
Financial Covenants
Under 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% (3.55% at September 30, 2017). 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% (3.55% at September 30, 2017).
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 requiresCompany'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. At September 30, 2017ratios and December 31, 2016, the Company was in compliance with this clause.
The Bulk Nordic Oasis Ltd. - Loan Agreement - Dated December 11, 2015
The agreement advanced $21,500,000 in respect of the m/v Nordic Oasis. The agreement requires repayment of the advance in 24 equal quarterly installments of $375,000 beginning on March 28, 2016 and a balloon payment of $12,500,000 due with the final installment in March 2022. Interest on this advance is fixed at 4.30%.
The loan is secured by a first preferred mortgage on the m/v Nordic Oasis, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. As of September 30, 2017 and December 31, 2016, 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% (3.80% at September 30, 2017). 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").maintain positive working capital. The Company was in compliance with this covenant at Septemberall applicable financial covenants as of June 30, 20172023 and December 31, 2016.2022.
NOTE 6 - FINANCE LEASES
The Bulk Destiny, Bulk Trident, Bulk Xaymaca, Bulk Spirit, Bulk Friendship, Bulk Courageous, Nordic Six Ltd. - Loan Agreement -- Dated December 21, 2016
The agreement advanced $19,500,000 in respect ofNuluujaak, Nordic Qinngua, Nordic Sanngiguq, Nordic Siku and Bulk Concord are classified as finance leases and the m/v Bulk Endurance on January 7, 2017, in two tranches. The agreement requires repayment of Tranche A, totaling $16,000,000, in 3 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% (7.30% at September 30, 2017).
The loan isleases are secured by a first preferred mortgage on the m/v Bulk Endurance, the assignment of earnings insurances and requisite compensation of the entity,insurances and by guarantees of its shareholders. Additionally, the agreement containsCompany. Minimum lease payments under finance leases are recognized on a minimum liquidity requirement, positive working capitalstraight‑line basis over the term of the borrowerlease and a collateral maintenance ratio clause which requires the fair market valueCompany will own these vessels at the end of lease term. Refer to the Company's annual report Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 15, 2023 for additional information on these finance leases.
Finance lease consists of the vessel plusfollowing as of June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 | | Interest Rate (%) (1) | | Maturity Date |
| | (unaudited) | | | | | | |
| Bulk PODS Ltd. | | $ | 5,684,895 | | | $ | 6,606,770 | | | 5.54 | % | | December 2027 |
| Bulk Trident Ltd. | | 4,739,336 | | | 5,551,836 | | | 5.52 | % | | June 2027 |
| Bulk Spirit Ltd. | | 8,057,292 | | | 8,627,604 | | | 5.10 | % | | February 2027 |
Bulk Nordic Five Ltd. (2) | | 12,376,591 | | | 13,142,885 | | | 3.92 | % | | April 2028 |
Bulk Friendship Corp. (2) | | 9,002,526 | | | 9,507,875 | | | 5.29 | % | | September 2024 |
Bulk Nordic Seven LLC (3) | | 29,288,060 | | | 30,100,318 | | | 6.80 | % | | May 2036 |
Bulk Nordic Eight LLC(3) | | 29,276,537 | | | 30,088,514 | | | 6.80 | % | | June 2036 |
Bulk Nordic Nine LLC(3) | | 29,374,350 | | | 30,163,750 | | | 6.80 | % | | September 2036 |
Bulk Nordic Ten LLC(3) | | 29,489,913 | | | 30,276,595 | | | 6.80 | % | | November 2036 |
Bulk Courageous Corp. (2) | | 9,600,000 | | | 10,200,000 | | | 3.93 | % | | April 2028 |
Phoenix Bulk 25 Corp. (2) | | 12,889,587 | | | 13,645,990 | | | 4.67 | % | | February 2029 |
| Total | | $ | 179,779,087 | | | $ | 187,912,137 | | | | | |
| Less: unamortized issuance costs, net | | (2,728,453) | | | (3,033,123) | | | | | |
| | $ | 177,050,634 | | | $ | 184,879,014 | | | | | |
| Less: current portion | | (16,423,228) | | | (16,365,075) | | | | | |
| Secured long-term debt, net | | $ | 160,627,406 | | | $ | 168,513,939 | | | | | |
(1)As of June 30, 2023 including the net realizable valueeffect of any additional collateral previously provided, to remain above defined ratios.interest rate cap if any.
(2)Interest rates on the loan facilities are fixed.
(3)The Company entered into an interest rate cap through Q2 of 2026 and Q4 2026 which caps the LIBOR rate at 3.25%.
The Bulk Freedom Corp. Loan Agreement -- Dated June 14, 2017
The agreement advanced $5,500,000 in respectfollowing table provides details 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% (5.05% at September 30, 2017).
The loan is secured by a first preferred mortgageCompany's future minimum lease payments under finance lease liabilities recorded on the m/v Bulk Freedom, the assignmentCompany's consolidated balance sheets as 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.June 30, 2023.
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 2.00% (3.30% at September 30, 2017). The loan is collateralized by all real estate located at 109 Long Wharf, Newport, RI, and a corporate guarantee of the Company. The loan contains a maximum loan to value covenant and a debt service coverage ratio. At September 30, 2017 and December 31, 2016, 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%.
Phoenix Bulk Carriers (US) LLC Master Equipment Loan
The Company purchased commercial equipment for use at the site of its port project on the United States' East Coast. The total loan amount of $250,536 is payable in 48 equal monthly installments of $5,741. Interest is fixed at 4.75%.
The future minimum annual payments (excluding unamortized bank fees) under the debt agreements are as follows:
|
| | | |
| | Years ending September 30, |
| | (unaudited) |
| 2018 | $ | 17,830,996 |
|
| 2019 | 17,999,412 |
|
| 2020 | 25,225,098 |
|
| 2021 | 18,921,949 |
|
| 2022 | 52,779,228 |
|
| Thereafter | 401,865 |
|
| | $ | 133,158,548 |
|
| | | | | |
| Year ending December 31, | Amount |
| (unaudited) |
| 2023 (remainder of the year) | $ | 15,305,194 | |
| 2024 | 36,751,235 | |
| 2025 | 27,001,889 | |
| 2026 | 24,369,466 | |
| 2027 | 24,543,577 | |
| Thereafter | 142,395,020 | |
| Total minimum lease payments | $ | 270,366,381 | |
| Less imputed interest | 90,587,294 | |
| Present value of minimum lease payments | 179,779,087 | |
| Less current portion | (16,423,228) | |
| Less issuance costs | (2,728,453) | |
| Long-term portion | $ | 160,627,406 | |
Note 5. Derivative Instruments and Fair Value MeasurementsNOTE 7 - DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Interest-Rate Swaps
From time to time, the Company enters into interest rate swap agreements to mitigate the risk of interest rate fluctuations on its variable rate debt. The Company was party to one interest rate swap, which was entered into in February 2011, as required by the 109 Long Wharf Construction to Term Loan agreement. Under the terms of the swap agreement, the interest rate was fixed at 6.63%. The swap was cancelled in conjunction with, and the outstanding balance was financed by, the 109 Long Wharf Commercial Term Loan in May 2016, which is discussed in Note 4.
The Company did not elect to designate the swap as a hedge at inception, pursuant to ASC 815, Derivatives and Hedging. Accordingly, changes in the fair value are recorded in current earnings in the accompanying consolidated statements of income.
The aggregate change in the fair value of the interest rate swap agreement for the nine months ended September 30, 2016 was a loss of $104,000 which was reflected in the unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of operations.
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). SuchThese economic hedges do not alwaysusually 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 September 30, 2017, the Company entered into FFAs that were not designated for hedge accounting. The aggregate fair value of these FFAs at September 30, 2017 and December 31, 2016 were assets of approximately $675,000, which are included in other current assets on the consolidated balance sheets, and liabilities of approximately $21,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the three and nine months ended September 30, 2017 are a loss of approximately $379,000 and a gain of approximately $696,225, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of operations. There were no open positions, and therefore no gain or loss in the three and nine months ended September 30, 2016.
Fuel Swap Contractsswap 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, theThe Company enteredenters into various fuel swap contracts that wereare not designated for hedge accounting. 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 aggregateCompany’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.
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 of these fuel swapson a recurring basis at SeptemberJune 30, 20172023 and December 31, 2016 are assets of approximately $38,000 and $304,000, respectively, which are included in other current assets on the consolidated balance sheets.2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Asset Derivative | | Liability Derivative |
| Derivative instruments | | Balance Sheet Location | | 06/30/2023 | | 12/31/2022 | | Balance Sheet Location | | 6/30/2023 | | 12/31/2022 |
| | | | (unaudited) | | | | | | (unaudited) | | |
Margin accounts (1) | | Other current assets | | $ | 5,543,685 | | | $ | 3,239,947 | | | Other current liabilities | | $ | — | | | $ | — | |
Forward freight agreements (2) | | Other current assets | | $ | — | | | $ | — | | | Other current liabilities | | $ | 1,843,288 | | | $ | 164,787 | |
Fuel swap contracts (2) | | Other current assets | | $ | — | | | $ | — | | | Other current liabilities | | $ | 648,435 | | | $ | 158,926 | |
Interest rate cap (2) | | Other current assets | | $ | 5,288,301 | | | $ | 4,892,144 | | | Other current liabilities | | $ | — | | | $ | — | |
(1) The change in the aggregate fair value measurements were all categorized within Level 1 of the fuel swaps during the three and nine months ended September 30, 2017 are gains of approximately $319,000 and losses of approximately $265,000, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of operations. The change in the aggregate fair value hierarchy.
(2) These fair value measurements were all categorized within Level 2 of the fuel swaps during the three and nine months ended September 30, 2016 are losses of approximately $156,000 and gains of approximately $1,109,000, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of income. 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 summarizes assetspresents the effect of our derivative financial instruments on the consolidated statements of operations for the three and liabilities measured at fair value on a recurring basis at Septembersix months ended June 30, 20172023 and December 31, 2016:2022:
|
| | | | | | | | | | | | | | | |
| | Balance at September 30, 2017 | | Level 1 | | Level 2 | | Level 3 |
| | (unaudited) | | | | | | |
| Margin accounts | $ | 2,688,122 |
| | $ | 2,688,122 |
| | $ | — |
| | $ | — |
|
| Fuel swaps | $ | 38,319 |
| | $ | — |
| | $ | 38,319 |
| | $ | — |
|
| Freight forward agreements | $ | 675,275 |
| | $ | — |
| | $ | 675,275 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unrealized (loss) gain on derivative instruments |
| | For the three months ended | | For the six months ended |
| Derivative instruments | | 06/30/2023 | | 6/30/2022 | | 06/30/2023 | | 6/30/2022 |
| | (unaudited) | | (unaudited) |
| Forward freight agreements | | $ | (1,841,065) | | | $ | (1,698,327) | | | $ | (1,678,501) | | | $ | 1,061,579 | |
| Fuel Swap Contracts | | (726,590) | | | (2,133,497) | | | $ | (489,509) | | | $ | 889,285 | |
| Interest rate cap | | 1,219,371 | | | 330,175 | | | $ | 396,157 | | | $ | 2,047,801 | |
| Total (loss) gain | | $ | (1,348,284) | | | $ | (3,501,649) | | | $ | (1,771,853) | | | $ | 3,998,665 | |
|
| | | | | | | | | | | | | | | |
| | Balance at December 31, 2016 | | Level 1 | | Level 2 | | Level 3 |
| Margin accounts | $ | 488,084 |
| | $ | 488,084 |
| | $ | — |
| | $ | — |
|
| Fuel swaps | $ | 303,675 |
| | $ | — |
| | $ | 303,675 |
| | $ | — |
|
| Freight forward agreements | $ | (20,950 | ) | | $ | — |
| | $ | (20,950 | ) | | $ | — |
|
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 TransactionsNOTE 8 - RELATED PARTY TRANSACTIONS
|
| | | | | | | | | | | |
| | December 31, 2016 | | Activity | | September 30, 2017 |
| | | | | | (unaudited) |
| Included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets: | |
| | |
| | |
|
| Affiliated companies (trade payables) | $ | 1,109,570 |
| | 34,994 |
| | $ | 1,144,564 |
|
| | | | | | |
| 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) | 368,347 |
| | 236,538 |
| | 604,885 |
|
| Promissory Note | 2,000,000 |
| | — |
| | 2,000,000 |
|
Loan payable – BVH shareholder (STST)(ii) | 9,278,800 |
| | (9,278,800 | ) | | — |
|
| Total current related party debt | $ | 15,972,147 |
| | $ | (9,042,262 | ) | | $ | 6,929,885 |
|
(i) Paid in cash
(ii) ST ShippingAmounts and Transport Pte. Ltd. ("STST")
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 Note isnotes payable on demand. Interest on the Note is 5%. The Company repaid a net amount of $3,000,000 since the Note's inception.
BVH entered into an agreement for the construction of two new ultramax newbuildings in 2013. Shareholder loans totaling $9,278,800 at December 31, 2016, were provided in order to make deposits on these contracts. The loans were converted to equity in conjunction with the acquisition of the noncontrolling interest in BVH on January 27, 2017. BVH is a wholly-owned subsidiary of the Company after the acquisition.
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 September 30, 2017 and December 31, 2016.
Dividends payablerelated parties consist of the following, allfollowing:
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | | Activity | | June 30, 2023 |
| | | (unaudited) |
| | | | | |
| | | | | |
| | | | | |
| Included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets: | | | | | |
Affiliated companies (trade payables) (i) | $ | 1,643,806 | | | 550,011 | | | $ | 2,193,817 | |
| Commissions payable (trade payables) (ii) | $ | — | | | 89,075 | | | $ | 89,075 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
i.Seamar Management S.A. ("Seamar")
ii.Phoenix Bulk Carriers (Brasil) Intermediacoes Maritimas Ltda. - a wholly-owned Company of which are payable to related parties:a member of the Board of Directors
|
| | | | | | | | | | | | | | | | | | | | |
| | | 2008
common
stock
dividend | | 2012
common
stock
special
dividend | | 2013
common
stock
dividend | | 2013
Odyssey
and Orion
dividend | | Total |
| Balance at December 31, 2015 | | 2,474,125 |
| | 2,934,357 |
| | 6,411,540 |
| | 904,803 |
| | 12,724,825 |
|
| Paid in cash | | (100,000 | ) | | — |
| | — |
| | — |
| | (100,000 | ) |
| Balance at December 31, 2016 | | 2,374,125 |
| | 2,934,357 |
| | 6,411,540 |
| | 904,803 |
| | 12,624,825 |
|
| Converted to common shares | | (2,374,125 | ) | | (2,010,875 | ) | | — |
| | — |
| | (4,385,000 | ) |
| Paid in cash | | (100,000 | ) | | (1,001,424 | ) | | — |
| | — |
| | (1,001,424 | ) |
| Balance at September 30, 2017 | | $ | — |
| | $ | (77,942 | ) | | $ | 6,411,540 |
| | $ | 904,803 |
| | $ | 7,238,401 |
|
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.vessels. During the three months ended June 30, 2023 and nine-month periods ended September 30, 2017 and 2016,2022, the Company incurred technical management fees of approximately $718,000$774,000 and $2,022,000; and $538,000 and $1,411,000,$815,400, respectively, under this arrangement. TheseDuring the six months ended June 30, 2023 and 2022, the Company incurred technical management fees are included in vessel operating expenses inof approximately $1,567,200 and $1,597,000, respectively, under this arrangement.
During the consolidated statementssix months ended June 30, 2023, the Company paid cash dividends of income. The total amounts payable$5.0 million to Seamar at September 30, 2017 and December 31, 2016 were approximately $1,145,000 and $1,110,000, respectively.a non-controlling interest holder of NBHC. Additionally, a distribution of $2.5 million was made to a non-controlling interest holder of NBP LLC.
Note 7. Commitments and ContingenciesNOTE 9 - COMMITMENTS AND CONTINGENCIES
Vessel Sales and Leasebacks Accounted for as Capital Leases
The Company's fleet includes one vessel financed under a sale and leaseback financing arrangement accounted for as a capital lease. The selling price of the vessel to the new owner (lessor) was $21.0 million and the fair value of the vessel at the inception of the lease was $24.0 million. The difference between the selling price and the fair value of the vessel was recorded as prepaid rent and is being amortized over the 25 year estimated useful life of the vessel. Prepaid rent is included in vessel under capital lease on the consolidated balance sheet at September 30, 2017. Minimum lease payments fluctuate based on three-month LIBOR and are payable quarterly over the seven year lease term, with a balloon payment of $11,200,000 due with the final lease payment in January 2024. Interest is floating at LIBOR plus 2.75% (3.85% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term.
The Company's fleet also includes one vessel financed under a sale and leaseback (bareboat charter) accounted for as a capital lease. The selling price was $7,000,000 and the fair value is 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 terminatedexpires in December 2025, at which time the lease continues on a month to month basis with a non-cancelable period of six months.
The Company leases office space for its Singapore operations. In July 2023, the Company renewed its lease for a two year period. At June 30, 2023, the remaining lease term is twenty-six months.
For the three months ended June 30, 2023 and 2022, the Company recognized approximately $52,000 as lease expense for office leases in General and Administrative Expenses.
For the six months prior notice afterended June 30, 2018.2023 and 2022, the Company recognized approximately $104,000 as lease expense for these office leases in General and Administrative Expenses.
Future minimum lease payments under capital leasesLegal Proceedings and operating leases with initial or remaining terms in excess of one year at September 30, 2017 were:Claims
|
| | | | | | | |
| | Capital Lease | | Operating Leases |
| 2018 | $ | 3,278,295 |
| | $ | 585,717 |
|
| 2019 | 3,278,295 |
| | 420,514 |
|
| 2020 | 3,278,295 |
| | 365,446 |
|
| 2021 | 3,278,295 |
| | 285,348 |
|
| 2022 | 6,858,295 |
| | — |
|
| Thereafter | 14,227,441 |
| | — |
|
| Total minimum lease payments | $ | 34,198,916 |
| | $ | 1,657,025 |
|
| Less amount representing interest | 6,967,515 |
| | |
| Present value of minimum lease payments | 27,231,401 |
| | |
| Less current portion | 1,759,303 |
| | |
| Long-term portion | $ | 25,472,098 |
| | |
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 10 - OTHER LONG-TERM LIABILITIES
In April 2017,September 2019, the Company entered into a settlementan LLC agreement relatedfor the formation of NBP, that, at inception is owned 75% by the Company and 25% by an independent third party. NBP was established for the purpose of constructing and owning four new-build ice class post panamax vessels. The third party contributed additional funding which increased their ownership of NBP to a litigation action. The Company was indemnified by third parties related to this matter and recovered approximately $462,000 that was reserved50% at the time of delivery of the action was initiatednew-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 to, pursuant to the call option, to purchase the third party's interest in NBP beginning anytime 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 includedexercised, 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 other income (expense)NBP as a Long term liabilities - Other. The Company took delivery of Nordic Nuluujaak, Nordic Qinngua, Nordic Sanngijuq and Nordic Siku in 2021. Earnings attributable to the consolidated statements of operations for the nine months ended September 30, 2017.third party’s interest in NBP are recorded in Income attributable to Non-controlling interest recorded as long-term liability.
Note 8. Subsequent Events
The Company acquiredpaid off the m/v Bulk Pride$7.5 million note payable in relation to the acquisition of an additional one-third equity interest in NBHC in September of 2022. NBHC continues 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.
The roll-forward of Other Long-term Liabilities are as follows:
| | | | | | | | | | | | | | |
| | 06/30/2023 | | 12/31/2022 |
| | (unaudited) | | |
| Beginning Balance | | $ | 19,974,390 | | | $ | 17,806,976 | |
| Payments to non-controlling interest recorded as long-term liability | | (2,500,000) | | | (2,050,000) | |
| | | | |
| Earnings attributable to non-controlling interest recorded as other long term liability | | 760,600 | | | 6,717,414 | |
| Reclassification of deferred consideration related to acquisition of non-controlling interest to other current liabilities | | — | | | 2,500,000 | |
| Payments on other long-term liability | | — | | | (5,000,000) | |
| Ending balance | | $ | 18,234,990 | | | $ | 19,974,390 | |
NOTE 11 - NET INCOME PER COMMON SHARE
The computation of basic net income per share is based on October 11, 2017 through its new wholly owned subsidiary Bulk Pride Corp. the weighted average number of common shares outstanding for the three months ended June 30, 2023 and 2022. Diluted net income per share gives effect to restricted stock awards.
The following table summarizes the calculation of basic and diluted income per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| (unaudited) | | |
| Net income | $ | 2,844,540 | | | $ | 25,032,433 | | | $ | 6,318,807 | | | $ | 45,200,398 | |
| Weighted Average Shares - Basic | 44,775,438 | | | 44,430,487 | | | 44,744,039 | | | 44,411,025 | |
| Dilutive effect of restricted stock awards | 352,534 | | | 640,046 | | | 377,980 | | | 718,052 | |
| Weighted Average Shares - Diluted | 45,127,972 | | | 45,070,533 | | | 45,122,019 | | | 45,129,077 | |
| Basic net income per share | $ | 0.06 | | | $ | 0.56 | | | $ | 0.14 | | | $ | 1.02 | |
| Diluted net income per share | $ | 0.06 | | | $ | 0.56 | | | $ | 0.14 | | | $ | 1.00 | |
NOTE 12 - ACQUISITIONS
On March 24, 2023, the Company signed a Members Interest Purchase Agreement for the acquisition of marine port terminal operations for a purchase price of $7.2 million. On June 1, 2023, the vessel, which is expectedCompany completed the acquisition for a total purchase price of $9.3 million including acquired net working capital. Under the terms of the agreement, Pangaea acquired all onshore assets, licenses and business operations related to the sellers terminal operation.
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed:
| | | | | | | | |
| Net working capital, excluding cash | | $ | 1,772,889 | |
| Property, plant and equipment | | 1,844,100 | |
| Goodwill | | 3,104,800 | |
| Other intangible assets | | 2,251,100 | |
| Fair value of net assets acquired, excluding cash and cash equivalents | | 8,972,889 | |
| Cash and cash equivalents | | 326,888 | |
| Fair value of net assets acquired | | $ | 9,299,777 | |
NOTE 13 - SUBSEQUENT EVENTS
On August 7, 2023, the Company's Board of Directors declared a quarterly cash dividend of $0.10 per common share, to be delivered in December 2017, was $13.8 million. The purchase price will be financed with a commercial facility.paid on September 15, 2023, to all shareholders of record as of September 1, 2023.
The Company acquired a 50% interest in a joint venture, Venture Barge (US) Corp. which purchased a deck barge on November 3, 2017. The barge, which was built in 1979 and rebuilt in 2016, was acquired for $2.4 million.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and footnotes thereto contained in this report.
Forward Looking Statements
All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward looking statements as a result of the risk factors and other factors detailed in our filings with the Securities and Exchange Commission. All subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
Important Financial and Operational Terms and Concepts
The Company uses a variety of financial and operational terms and concepts when analyzing its performance.
These include revenue recognition, deferred revenue, allowance for doubtful accounts, vessels and depreciation and long-lived assets impairment considerations, as defined above as well as the following:
Voyage Revenue. Voyage revenue is derived from voyage charters which involve the carriage of cargo from a load port to a discharge port.port, which is predetermined in each voyage contract. Gross revenue is calculated by multiplying the agreed rate per ton of cargo by the number of tons loaded. The Company directs how and for what purpose the vessel is used and therefore, these voyage contracts do not contain leases.
Charter Revenue. Charter revenue is earned when the Company lets a vessel it owns or operates to a charterer for a specified period of time. Charter revenue is based on the agreeagreed rate per day. These time-charter arrangements contain leases because the lessee has the power to direct the use and receives substantially all of the economic benefits from the use of the vessel. The operating lease component and the vessel operating expense non-lease component of a time-charter contract are reported as a single component.
Terminal & Stevedore Revenue. Terminal & Stevedore revenue is derived from inbound and outbound cargo handling services at ports which the Company operates in. Gross revenue is earned typically based on a per-unit rate for volumes handled.
Voyage Expenses. The Company incurs expenses for voyage charters, including bunkers (fuel), port charges, canal tolls, brokerage commissions and cargo handling operations, which are expensed as incurred.
Charter Expenses. The Company charters in vessels to supplement its owned fleet to support its voyage charter operations. The Company hires vessels under time charters with third party vessel owners, and recognizes the charter hire payments as an expense on a straight-line basis over the term of the charter. Charter hire payments are typically made in advance, and the unrecognized portion is reflected as advance hire in the accompanying consolidated balance sheets. Under the time charters, the vessel owner is responsible for the vessel operating costs such as crews, maintenance and repairs, insurance, and stores. The Company does not record a right-of-use asset or lease liability for any arrangement less than one year.
Vessel Operating Expenses. Vessel operating expenses represent the cost to operate the Company’s owned vessels. Vessel operating expenses include crew hire and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes, other miscellaneous expenses, and technical management fees. These expenses are recognized as incurred. Technical management services include day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, arranging the hire of crew, and purchasing stores, supplies, and spare parts.
Terminal & Stevedore Expenses. Terminal & Stevedore expenses represent the cost to provide the Company's cargo handling services. Terminal & Stevedore expenses include direct labor and related costs, the cost of insurance, expenses relating to repairs and maintenance of shore based equipment, trucking, and other direct miscellaneous expenses.
Fleet Data. The Company believes that the measures for analyzing future trends in its results of operations consist of the following:
• Shipping days. The Company defines shipping days as the aggregate number of days in a period during which its owned or chartered-in vessels are performing either a voyage charter (voyage days) or a time charter (time charter days).
• Daily vessel operating expenses. The Company defines daily vessel operating expenses as vessel operating expenses divided by ownership days for the period. Vessel operating expenses include crew hire and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes, other miscellaneous expenses, and technical management fees.
• Chartered in days. The Company defines chartered in days as the aggregate number of days in a period during which it chartered in vessels from third party vessel owners.
• Time Charter Equivalent ‘‘TCE’’ rates.rates. The Company defines TCE rates as total revenues less voyage expenses divided by the length of the voyage, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because rates for vessels on voyage charters are generally not expressed in per-day amounts while rates for vessels on time charters generally are expressed in per-day amounts.
Selected Financial Information
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(in thousands, except for shipping days data and per share data)
(figures may not foot due to rounding) | | For the three months ended June 30, | | For the six months ended June 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| Selected Financial Data | | (unaudited) | | (unaudited) |
| Voyage revenue | | $ | 110,466 | | | $ | 173,189 | | | $ | 218,416 | | | $ | 349,526 | |
| Charter revenue | | 7,090 | | | 22,355 | | | 12,839 | | | 37,781 | |
| Terminal & Stevedore Revenue | | 520 | | | — | | | 520 | | | — | |
| Total revenue | | 118,076 | | | 195,544 | | | 231,255 | | | 387,306 | |
| Voyage expense | | 54,460 | | | 67,908 | | | 111,274 | | | 133,158 | |
| Charter hire expense | | 29,126 | | | 65,713 | | | 51,717 | | | 143,425 | |
| Vessel operating expenses | | 13,211 | | | 12,930 | | | 26,818 | | | 26,118 | |
| Terminal Expenses | | 375 | | | — | | | 375 | | | — | |
| Total cost of transportation and service revenue | | 97,171 | | | 146,551 | | | 189,808 | | | 302,700 | |
| Vessel depreciation and amortization | | 7,100 | | | 7,293 | | | 14,399 | | | 14,595 | |
| Gross Profit | | 13,805 | | | 41,700 | | | 27,193 | | | 70,011 | |
| Other operating expenses | | 5,951 | | | 5,137 | | | 11,670 | | | 10,419 | |
| Loss on impairment of vessels | | — | | | — | | | — | | | 3,008 | |
| Loss on sale of vessel | | — | | | 318 | | | 1,172 | | | 318 | |
| Income from operations | | 7,855 | | | 36,245 | | | 14,351 | | | 56,266 | |
| Total other (expense) income, net | | (5,088) | | | (8,758) | | | (8,181) | | | (6,332) | |
| Net income | | 2,767 | | | 27,487 | | | 6,170 | | | 49,935 | |
| Loss (income) attributable to non-controlling interests | | 78 | | | (2,454) | | | 149 | | | (4,734) | |
| Net income attributable to Pangaea Logistics Solutions Ltd. | | $ | 2,845 | | | $ | 25,032 | | | $ | 6,319 | | | $ | 45,200 | |
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| Net income from continuing operations per common share information | | | | | | | | |
| Basic net income per share | | $ | 0.06 | | | $ | 0.56 | | | $ | 0.14 | | | $ | 1.02 | |
| Diluted net income per share | | $ | 0.06 | | | $ | 0.56 | | | $ | 0.14 | | | $ | 1.00 | |
| Weighted-average common shares Outstanding - basic | | 44,775 | | | 44,430 | | | 44,744 | | | 44,411 | |
| Weighted-average common shares Outstanding - diluted | | 45,128 | | | 45,071 | | | 45,122 | | | 45,129 | |
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Adjusted EBITDA (1) | | $ | 15,923 | | | $ | 44,248 | | | $ | 32,161 | | | $ | 75,544 | |
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Shipping Days (2) | | | | | | | | |
| Voyage days | | 3,577 | | | 3,963 | | | 6,969 | | | 8,139 | |
| Time charter days | | 479 | | | 740 | | | 1,045 | | | 1,343 | |
| Total shipping days | | 4,056 | | | 4,703 | | | 8,014 | | | 9,482 | |
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| TCE Rates ($/day) | | $ | 15,558 | | | $ | 27,139 | | | $ | 14,971 | | | $ | 26,803 | |
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| | June 30, 2023 | | December 31, 2022 |
| Selected Data from the Consolidated Balance Sheets | | (unaudited) | | |
| Cash and cash equivalents | | $ | 84,296 | | | $ | 128,385 | |
| Total assets | | $ | 724,573 | | | $ | 748,241 | |
| Total secured debt, including finance leases liabilities | | $ | 282,751 | | | $ | 299,481 | |
| Total shareholders' equity | | $ | 361,572 | | | $ | 368,722 | |
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| | For the six months ended June 30, |
| | 2023 | | 2022 |
| | (unaudited) |
| Selected Data from the Consolidated Statements of Cash Flows | | | | |
| Net cash provided by operating activities | | $ | 13,579 | | | $ | 69,225 | |
| Net cash used in investing activities | | $ | (23,678) | | | $ | (10,192) | |
| Net cash used in financing activities | | $ | (33,990) | | | $ | (13,067) | |
(1)Adjusted EBITDA represents net income (or loss), determined in accordance with U.S. GAAP, excluding interest expense, interest income, income taxes, depreciation and amortization, loss on impairment, loss on sale and leaseback of vessels, share-based compensation, other non-operating income and/or expense, and other non-recurring items, if any. Adjusted EBITDA is included because it is used by management and certain investors to measure operating performance and is also reviewed periodically as a measure of financial performance by Pangaea's Board of Directors. Adjusted EBITDA is not an item recognized by the generally accepted accounting principles in the United States of America, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other indicator of a company's operating performance required by U.S. GAAP. Pangaea’s definition of Adjusted EBITDA used here may not be comparable to the definition of EBITDA used by other companies.
(2)Shipping days are defined as the aggregate number of days in a period during which its owned or chartered-in vessels are performing either a voyage charter (voyage days) or time charter (time charter days).
The seaborne drybulkreconciliation of gross profit to net transportation and service revenue and net income in accordance with U.S. GAAP to Adjusted EBITDA is as follows:
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| (in thousands, figures may not foot due to rounding) | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Net Transportation and Service Revenue (3) | | (unaudited) | | (unaudited) |
Gross Profit (4) | | $ | 13,805 | | | $ | 41,700 | | | $ | 27,193 | | | $ | 70,011 | |
| Add: | | | | | | | | |
| Vessel Depreciation and Amortization | | 7,100 | | | 7,293 | | | 14,399 | | | 14,595 | |
| Net transportation and service revenue | | $ | 20,905 | | | $ | 48,993 | | | $ | 41,592 | | | $ | 84,606 | |
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| Adjusted EBITDA | | | | | | | | |
| Net Income | | $ | 2,767 | | | $ | 27,487 | | | $ | 6,170 | | | $ | 49,935 | |
| Interest expense, net | | 3,083 | | | 3,635 | | | 6,284 | | | 7,006 | |
| Earnings attributable to non-controlling interest recorded as other long term liability | | 905 | | | 1,703 | | | 761 | | | 3,543 | |
| Depreciation and amortization | | 7,127 | | | 7,293 | | | 14,454 | | | 14,595 | |
| EBITDA | | $ | 13,882 | | | $ | 40,118 | | | $ | 27,668 | | | $ | 75,078 | |
| Non-GAAP Adjustments | | | | | | | | |
| Loss on impairment of vessels | | — | | | — | | | — | | | 3,008 | |
| Loss on sale of vessels | | — | | | 318 | | | 1,172 | | | 318 | |
| Share-based compensation | | 267 | | | 311 | | | 1,124 | | | 1,139 | |
| Unrealized loss (gain) on derivative instruments, net | | 1,348 | | | 3,502 | | | 1,772 | | | (3,999) | |
| Other non-recurring items | | $ | 426 | | | $ | — | | | $ | 426 | | | $ | — | |
| Adjusted EBITDA | | $ | 15,923 | | | $ | 44,248 | | | $ | 32,161 | | | $ | 75,544 | |
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(3) Net transportation and service revenue represents total revenue less the total direct costs of transportation and services, which includes charter hire, voyage and vessel operating expenses and terminal & stevedore expenses. Net transportation and service revenue is included because it is used by management and certain investors to measure performance by comparison to other logistic service providers. Net transportation and service revenue is not an item recognized by the generally accepted accounting principles in the United States of America, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other indicator of a company's operating performance required by U.S. GAAP. Pangaea’s definition of net transportation and service revenue used here may not be comparable to an operating measure used by other companies.
(4) Gross profit represents total revenue less cost of transportation and service revenue less vessel depreciation.
Business Overview
The dry bulk transportation and logistics industry is cyclicalknown for its cyclicality and volatile. Drybulkvolatility, which can be attributed to fluctuations in vessel supply and demand for the transportation of dry bulk commodities. Despite the dry bulk freight market rates improved markedly fromreaching decade high levels in 2021 and maintaining strong performance in the fallfirst half of 20162022, there was a decrease in freight demand in the third quarter of 2022, leading to Marcha slowdown that persisted through the first quarter of this year, gave up some of the gains2023 before rebounding in the second quarter, then finished the third quarter at its highest in nearly three years. The increase in freight rates is due to various factors, including the improving global economy and increasing base metal and industrial commodity prices.quarter. The Baltic Dry Index ("BDI"(“BDI”), a measure of dry bulk market performance, increasedaveraged 1,215 for the second quarter of 2023, up approximately 19% from the prior quarter, and compared to an average of 1,1622,403 for the thirdsame quarter of 2017,2022. The average published market rates for Supramax and Panamax vessels, reflecting the composition of the company's fleet, also decreased approximately 60%, from an average of 744 for$26,075 in the thirdsecond quarter of 2016.2022 to $10,431 in the same period of 2023. As a result of the industry's volatility, we have experienced fluctuations in our quarterly and annual operating results in the past, and we expect to continue experiencing such fluctuations in the future due to various factors, including cargo demand, vessel supply, competition, and seasonality.
TheEffect of Inflation
High inflation in the United States and in many of the global economies where the Company operates is beginning to impact vessel operating costs, including crew travel, transportation of equipment and spares, and drydocking costs. We expect crew payroll expenses to stabilize over the near and medium term, however other inflated cost changes may make our vessel daily operating costs higher. Increases in the cost of fuel consumed on voyages are usually absorbed by cargo market rates passed on to customers or covered by fuel cost pass through under the terms of long-term contracts. Because interest rates on a large portion of the Company’s long-term debt, and finance leases is fixed or capped, the impact of higher interest rates on the Company’s earnings is limited.
Quarterly TCE Performance
For the three months ended June 30, 2023, the Company's strategyTCE rates were down 43% to charter in vessels to serve primarily contracted business means we limit our carried volume of chartered-in vessels, which shields us$15,558 from losses we may incur under a long-term charter-in strategy, but will also have the effect of limiting upside in an increasing rate environment, when we charter-in vessels at higher rates to meet the needs of this contracted business.
3rd Quarter 2017 Highlights
Income from operations up 29% to $10.0 million$27,139 for the three months ended SeptemberJune 30, 2017,2022. The Company's achieved TCE rates improved from $7.8 millionthe previous quarter as the overall dry bulk market rates improved for the same periodthree months ended June 30, 2023. The Company's achieved TCE rate for the three months ended June 30, 2023 outperformed the average of 2016.the Baltic panamax and supramax market indexes and exceeded the average market rates by approximately 49% due to its long-term contracts of affreightment, ("COAs"), its specialized fleet and its cargo-focused strategy.
2nd Quarter Highlights
•Net income attributable to Pangaea Logistics Solutions Ltd. of $7.2was approximately $2.8 million for three months ended June 30, 2023 as compared to $6.1approximately $25.0 million for the same period of 2022.
•Diluted net income per share was $0.06 for three months ended June 30, 2023, as compared to $0.56 for the same period of 2022.
•Pangaea's TCE rates were $15,558 for the three months ended June 30, 2023 and $27,139 for the three months ended June 30, 2022.
•Adjusted EBITDA was $15.9 million for the three months ended SeptemberJune 30, 2016.
51% increase in revenue2023, as compared to $107.0 million for the three months ended September 30, 2017, up from $70.8$44.2 million for the same period in 2016.of 2022.
Pangaea's TCE rates increased 13% to $11,822 while the market average was approximately $9,715. Total shipping days increased 34%. These improvements are due to continued growth in the drybulk market and to an increase in drybulk market rates. The Company operated 58 vessels, on average during the third quarter of 2017 versus approximately 43 during the third quarter of 2016.
•At the end of the quarter, Pangaea had $29.3$84.3 million in unrestricted cash, and cash equivalents.
Three Months Ended SeptemberJune 30, 20172023 Compared to Three Months Ended SeptemberJune 30, 20162022
Revenues
Pangaea’s revenues are derived predominately from voyage, and time charters which are discussed below.and terminal and stevedore revenue. Total revenue for the three months ended SeptemberJune 30, 20172023 was $107.0$118.1 million, compared to $70.8$195.5 million for the same period in 2016,2022, a 51% increase.40% decrease. The decrease in revenues was primarily driven by lower average TCE rates earned as discussed above as well as a decrease in total number of shipping days, increased 34%which went down by 14% to 5,3054,056 in the three months ended SeptemberJune 30, 2017, compared2023, in comparison to 3,9714,703 for the same period in 2016. The average TCE rate2022. However, this decrease was $11,822 per daypartially offset by an increase in terminal and stevedore revenue resulting from the company's acquisition of port and terminal operations in June 2023.
Components of revenue are as follows:
Voyage revenues decreased by 36% for the three months ended SeptemberJune 30, 2017,2023 to $110.5 million compared to $10,480 per day$173.2 million for the same period in 2016.2022. The revenuedecrease in voyage revenues was primarily due to lower average TCE rates earned and a lower number of voyage days which decreased 10% to 3,577 for the three months ended June 30, 2023 compared to 3,963 for the same period in 2022.
Charter revenues decreased to $7.1 million from $22.4 million, or 68%, for the three months ended June 30, 2023 compared to the same period in 2022. The decrease in charter revenues was due to a decrease in time charter days which were down 35% to 479 in the first quarter of 2023 from 740 for the same quarter in 2022 and decreased charter hire rates earned. The optionality of our chartering strategy allows the Company to selectively release excess ship days, if any, into the market under time charter arrangements.
Terminal & Stevedore revenues increased to $0.5 million, a 100% increase is predominantlyfor the three months ended June 30, 2023, as a result of the company's acquisition of port and terminal operations in June 2023.
Voyage Expenses
Voyage expenses were $54.5 million for the three months ended June 30, 2023, compared to $67.9 million for the same period in 2022, a decrease of approximately 20%. The decrease was attributable to a decrease in bunker consumption partially offset by an increase port costs. Total costs of bunkers consumed decreased by 32.8% for the three months ended June 30, 2023 compared to the same period in 2022. The reduction in bunker expenses was primarily attributable to the decrease in voyage days and a decrease in the market price. Although the number of voyage days reduced, port expenses increased by 5% compared to the prior year due to the increase in canal fees.
Charter Hire Expenses
Charter hire expenses for the three months ended June 30, 2023 were $29.1 million, compared to $65.7 million for the same period in 2022, a 56% decrease. The decrease in charter hire expenses was primarily due to a decrease in market rates to charter-in vessels. The average published market rates for Supramax and Panamax vessels decreased approximately 60% from an average of $26,075 in the second quarter of 2022 to $10,431 in the same period of 2023. Chartered-in days decreased 23% from 2,501 days in the three months ended June 30, 2022 to 1,915 days for the three months ended June 30, 2023. The Company's flexible charter-in strategy allows it to supplement its owned fleet with short term chartered-in tonnage at prevailing market prices, when needed, to meet cargo demand.
Vessel Operating Expenses
Vessel operating expenses for the three months ended June 30, 2023 were $13.2 million, compared to $12.9 million for the same period in 2022, an increase of approximately 2%. The ownership days for the three months ended June 30, 2023 and 2022 were 2,200 and 2,269, respectively, down 3%. Excluding technical management fees, vessel operating expenses on a per day basis were $5,517 for the three months ended June 30, 2023 and $5,198 for the three months ended June 30, 2022. Technical management fees were approximately $1.1 million for the three months ended June 30, 2023 and 2022. The increase in vessel operating expenses was mainly attributable to an increase in crew expenses due to an increase in crewing costs and crew changes. The Company continues to face general inflationary pressures particularly impacting the cost of lubes, stores and spares.
Terminal & Stevedore Expenses
Terminal & Stevedore expenses increased to $0.4 million, a 100% increase for the three months ended June 30, 2023, as a result of the company's acquisition of port and terminal operations in June 2023.
General and Administrative Expenses
General and administrative expenses were $5.9 million and $5.1 million for the three months ended June 30, 2023 and 2022, respectively. The increase was primarily driven by an increase in compensation costs, and the Company's acquisition of port and terminal operation in June of 2023 which added approximately $0.5 million non-recurring acquisition costs. However this was partially offset by a decrease in incentive compensation cost recognized in the second quarter of 2023 compared to the same period of 2022.
Unrealized gain (loss) on derivative instruments
The Company assesses risk associated with fluctuating future freight rates and bunker prices, and when appropriate, actively hedges identified economic risk that may impact the operating income of long-term cargo contracts and forward bookings with forward freight agreements and bunkers swaps. The utilization of such derivatives can lead to fluctuations in the Company's reported results from operations on a period-to-period basis as the Company marks these positions to market at the balance sheet date while settlement of the position and execution of the physical transaction may occur at a future date. The Company recognized a mark to market loss on bunker swaps of approximately $0.7 million and on forward freight agreements (FFAs) of approximately $1.8 million in the three months ended June 30, 2023. The fair value gain on interest rate derivative amounted to approximately $1.2 million for the three months ended June 30, 2023. These gains and losses resulted from changes in the fair value of the derivatives at the respective balance sheet dates.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Revenues
Pangaea’s revenues are derived predominately from voyage, time charters and terminal and stevedore revenue. Total revenue for the six months ended June 30, 2023 was $231.8 million, compared to $387.3 million for the same period in 2022, a 40% decrease. The decrease in revenues was primarily due to lower average TCE rates and a 15% reduction in total shipping days, andwhich amounted to overall improvement8,014 in the dry bulk market.six months ended June 30, 2023, compared to 9,482 for the same period in 2022.
Components of revenue are as follows:
Voyage revenues which represent 88% of total revenue, increaseddecreased by 42%38% for the threesix months ended SeptemberJune 30, 20172023 to $93.7$218.4 million compared to $66.0$349.5 million for the same period in 2016.2022. The increasedecrease in voyage revenues was predominantly driven by the 23% increaseprimarily due to lower average TCE rates and a 14% decrease in the number of voyage days, which were 4,133amounted to 6,969 in the third quarter of 2017 assix months ended June 30, 2023, compared to 3,3648,139 for the same period in the third quarter of 2016. Voyage revenues were also bolstered by the increased rates in the drybulk market over the comparable quarter.2022.
Charter revenues which represent 12% of total revenue, increaseddecreased to $13.3$12.8 million from $4.8$37.8 million, or 178%66%, for the threesix months ended SeptemberJune 30, 20172023 compared to the same period in 2016.2022. The increasedecrease in charter revenues was due to improvementa decrease in drybulk market rates, as indicated above, andtime charter days, which were down 22% to an increase1,045 in the number ofsix months ended June 30, 2023 from 1,343 in the six months ended June 30, 2022. The time charter days. Time charter days were up 93%revenue per day was $12,286 for the six months ended June 30, 2023 compared to 1,172 in$28,131 for the third quartersame period of 2017 from 607 in the third quarter2022. The optionality of 2016. As the dry bulk
market improves,our chartering strategy allows the Company increases its chartered-in profileto selectively release excess ship days, if any, into the market under time charter arrangements.
Terminal & Stevedore revenue increased to $0.5 million, a 100% increase for the six months ended June 30, 2023, as a result of the company's acquisition of port and looks for additional spot opportunities. In the event a cargo does not present itself, the Company will sub-let the vessel on time-charter to another operator for those days remaining under the contract.terminal operations in June 2023.
Voyage Expenses
Voyage expenses were $111.3 million for the threesix months ended SeptemberJune 30, 2017 were $44.3 million,2023, compared to $29.2$133.2 million for the same period in 2016, an increase2022, a decrease of approximately 52%16%. The decrease was mainly attributable to decreased bunker costs, port expenses and canal fees. Bunkers, port charges, and canal fees increase in periods during which vessels are employed on voyage expense was due to the 23% increase in voyage days, as discussed above and to the $6.3 million increase in the cost of bunker fuel consumed.charters. The $6.3 million increase in the cost of bunker fuel consumed was due to both the increase in the number of voyage days as noted above, anddecreased by 14% to an increase in price. The average price paid for inventory increased 36%6,969 days in the third quarter of 2017 over the third quarter of 2016. Bunker prices expressed on a voyage day basis were approximately $4,928 in the threesix months ended SeptemberJune 30, 2017 as2023 compared to $4,189 in the three months ended September 30, 2016. Port expenses increased $2.5 million or 18%, due to the increase in the number of voyage8,139 days and ports visited. In addition, the Company incurred relet expenses of $3.7 million in the third quarter of 2017, but did not relet any cargoes infor the same period in 2022. Total costs of 2016. The Company will opportunistically relet a cargo depending onbunkers consumed decreased by 21% for the six months ended June 30, 2023 compared to the same period in 2022 due to decreasing market conditions and as a risk management tool.prices for bunkers. Port expenses decreased 8% compared to the prior year.
Charter Hire Expenses
Charter hire expenses for the threesix months ended SeptemberJune 30, 20172023 were $34.8$51.7 million, compared to $19.7$143.4 million for the same period in 2016.2022, a 64% decrease. The decrease in charter hire expenses was primarily due to a decrease in market rates to charter-in vessels and a decrease in the number of chartered-in days increased 39% from 2,7045,165 days in the threesix months ended SeptemberJune 30, 20162022 to 3,7633,693 days for the threesix months ended SeptemberJune 30, 2017. Further, the improving dry bulk2023. The Company's flexible charter-in strategy allows it to supplement its owned fleet with short term chartered-in tonnage at prevailing market pushed average charter-hire rates paid by the Company up 27%prices, when needed, to meet cargo demand.
Vessel Operating Expenses
Vessel operating expenses for the threesix months ended SeptemberJune 30, 20172023 were $26.8 million, compared to $26.1 million for the same period in 2022, an increase of approximately 3%, despite a slight decrease in ownership days compared to first half of 2022. The ownership days for the six months ended June 30, 2023 and 2022 were 4,422 and 4,472, respectively. Excluding technical management fees, vessel operating expenses on a per day basis were $5,575 for the six months ended June 30, 2023 and $5,270 for the same period in 2022. Technical management fees were approximately $2.2 million and $2.5 million for the six months ended June 30, 2023 and 2022, respectively. The increase in vessel operating expenses was primarily attributable to an increase in crew expenses due to an increase in crewing costs and crew changes. The Company continues to face general inflationary pressures particularly impacting the cost of lubes, stores and spares.
Terminal & Stevedore Expenses
Terminal expenses increased to $0.4 million, a 100% increase for the six months ended June 30, 2023, as a result of the Company's acquisition of port and terminal operations in June 2023.
General and Administrative Expenses
General and administrative expenses were $11.6 million and $10.4 million for the six months ended June 30, 2023 and 2022, respectively. The increase was primarily driven by an increase in compensation costs, and the Company's acquisition of port and terminal operation in June of 2023 which added approximately $0.5 million non-recurring acquisition costs. However this was partially offset by a decrease in incentive compensation cost recognized in the second quarter of 2023 compared to the same period of 2016. Charter hire expense as a percentage2022.
Unrealized (loss) gain on derivative instruments
The Company assesses risk associated with fluctuating future freight rates and bunker prices, and when appropriate, actively hedges identified economic risk that may impact the operating income of total revenue rose from 28%long-term cargo contracts and forward bookings with forward freight agreements and bunkers swaps. The utilization of such derivatives can lead to fluctuations in the three months ended September 30, 2016Company's reported results from operations on a period-to-period basis as the Company marks these positions to 32% inmarket at the three months ended September 30, 2017.balance sheet date while settlement of the position and execution of the physical transaction may occur at a future date. The Company continuesrecognized mark to operate under its successful strategymarket loss on bunker swaps of chartering-in primarily for committed contracts. However, demand in the third quarter resulted in a 34% increase in total shipping days, manyapproximately $0.5 million and loss on forward freight agreements (FFAs) of which are performed on chartered-in ships.
Vessel Operating Expenses
Vessel operating expenses for the three months ended September 30, 2017 were $9.1 million, compared to $7.5approximately $1.7 million in the comparable period in 2016, an increase of approximately 22%. The increase in vessel operating expenses is due to the 21% increase in owned and bareboat charter days, which were 1,748 in the threesix months ended SeptemberJune 30, 2017 as compared to 1,448 in the three months ended September 30, 2016. This increase is due to the addition of two newbuildings delivered2023. The fair value gain on January 7, 2017 and a vessel acquisition on June 14, 2017.
General and Administrative Expenses
General and administrative expenses increased from $3.2 million in the three months ended September 30, 2016 to $4.8 million in the three months ended September 30, 2017. The increase is due to an increase in incentive compensation and payroll related expenses.
Income from Operations
The Company had income from operations of $10.0interest rate derivatives was approximately $0.4 million for the threesix months ended SeptemberJune 30, 2017 as compared to $7.8 million for the three months ended September 30, 2016. This is due to the increase2023. These gains and losses resulted from changes in total shipping days and to improvement in the dry bulk market over the same period of 2016.
Interest Expense
The increase in interest expense is predominantly due to financing of the m/v Bulk Destiny under a capital lease and to the acquisition of the m/v Bulk Endurance, both in January 2017, and to the purchase of the Bulk Freedom in June 2017.
Other Income (Expense)
Other income represents the $0.9 million settlement of a non-performance claim that had not previously been recognized, and to income from an unconsolidated subsidiary.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Revenues
Total revenue for the nine months ended September 30, 2017 was $282.9 million, compared to $171.7 million for the same period in 2016, an increase of 65%. The total number of shipping days increased 39% to 14,309 for the nine months ended September 30, 2017, compared to 10,290 for the same period in 2016. The average TCE rate was $11,093 per day for the nine months ended September 30, 2017, compared to $9,451 per day for same period in 2016. The revenue increase is predominantly due to the increase in total shipping days and to overall improvement in the dry bulk market. The BDI increased 75%, to an average of 1,035 for the nine months ended September 30, 2017 from an average of 591 for the comparable period of 2016.
Components of revenue are as follows:
Voyage revenues, which represent 89% of total revenue, increased by 56% to $251.6 million for the nine months ended September 30, 2017 compared to $161.5 million for the same period in 2016. The increase in voyage revenues was predominantly driven by the 31% increase in the number of voyage days, which were 11,519 in the nine months ended September 30, 2017 as compared to 8,760 in the same period of 2016. Voyage revenues also reflect the increased rates in the drybulk market over the prior nine-month period.
Charter revenues, which represent 11% of total revenue, increased to $31.3 million from $10.2 million, or 208%, for the nine months ended September 30, 2017 compared to the same period in 2016. The increase in charter revenues was due to improvement in drybulk market rates, as indicated above, and to an increase in the number of time charter days. Time charter days were 2,790 in the nine months ended September 30, 2017 versus 1,530 in the nine months ended September 30, 2016, which is also indicative of the increased demand in the drybulk market. As the dry bulk market improves, the Company increases its chartered-in profile and looks for additional spot opportunities. In the event a cargo does not present itself, the Company will sub-let the vessel on time-charter to another operator for those days remaining under the contract.
Voyage Expenses
Voyage expenses for the nine months ended September 30, 2017 were $124.2 million, compared to $74.4 million for the same period in 2016, an increase of approximately 67%. The increase in voyage expense was due to the increase in voyage days, as discussed above and to the increase in the cost of bunker fuel consumed. The $19.6 million increase in the cost of bunker fuel consumed of was due to both the increase in the number of voyage days, as noted above, and to an increase in price. The average price paid for inventory increased 45% in the nine months ended September 30, 2017 over the nine months ended September 30, 2016. Bunker prices expressed on a voyage day basis were approximately $3,287 in the nine months ended September 30, 2017 as compared to $2,082 in the nine months ended September 30, 2016. Port expenses increased $8.4 million or 35%, due to the increase in the number of voyage days and the consequent number of ports visited.
Charter Hire Expenses
Charter hire expenses for the nine months ended September 30, 2017 were $91.1 million, compared to $43.2 million for the same period in 2016. The number of chartered-in days increased 52% from 6,546 days in the nine months ended September 30, 2016 to 9,932 days for the nine months ended September 30, 2017, while the improving market pushed average charter-hire rates paid by the Company up 39% for the nine months ended September 30, 2017 as compared to the same period of 2016. Charter hire expense as a percentage of total revenue rose from 25% in the nine months ended September 30, 2016 to 32% in the nine months ended September 30, 2017. The Company continues to operate under its successful strategy of chartering-in primarily for committed contracts. However, demand in the nine months ended September 30, 2017 resulted in a 39% increase in total shipping days, many of which are performed on chartered-in ships.
Vessel Operating Expenses
Vessel operating expenses for the nine months ended September 30, 2017 were $26.8 million compared to $22.3 million in the comparable period in 2016, an increase of approximately 20%. The increase in vessel operating expenses is due to the increase in owned and bareboat chartered-in days, which were 5,008 in the nine months ended September 30, 2017 as compared to 3,992 in the nine months ended September 30, 2016. This increase is due to the addition of two newbuildings delivered on January 7, 2017, two vessels under bareboat charter since July 2016 and a vessel acquisition on June 14, 2017. Vessel operating expenses under these bareboat charters are paid by Pangaea. Vessel operating expense expressed on a per day basis decreased to $5,353 for the nine months ended September 30, 2017 from $5,581 for the same period in 2016.
General and Administrative Expenses
General and administrative expenses increased 25%, from $9.2 million in the nine months ended September 30, 2016 to $11.4 million in the nine months ended September 30, 2017. The change is due to increases in incentive compensation, payroll and related expenses, including an increase in personnel in the corporate offices, employee stock based compensation expense, an increase in Director fees and to an increase in travel and representation expense.
Loss on Sale and Leaseback of Vessels
The Company sold the m/v Bulk Destiny, one of two ultramax newbuildings delivered on January 7, 2017, and simultaneously chartered-back the vessel under a capital lease financing arrangement with the buyer. At inception of the lease, the Company recognized a loss of $4.3 million representing the difference between the delivered cost and the fair value of the vessel, as determined by independent ship brokers. The Company's joint venture partner absorbed 50% of this loss, which is allocated to non-controlling interests to arrivederivatives at net income attributable to Pangaea. The Company also sold the m/v Bulk Beothuk on June 6, 2017 and simultaneously chartered-back the vessel from the buyer under a capital lease. At inception of the lease, the Company recognized a loss of $4.9 million representing the difference between the selling price and the carrying amount of the vessel.respective balance sheet dates.
Income from Operations
The Company has income from operations of $8.5 million for the nine months ended September 30, 2017 as compared to $12.0 million for the nine months ended September 30, 2016. The decrease is due to losses on sale and leaseback transactions totaling $9.3 million, without which there would be adjusted income from operations of $17.8 million. Total revenue increased 65% from $171.7 million for the nine months ended September 30, 2016 to $282.9 million for the nine months ended September 30, 2017, which is due to improvement in the drybulk shipping market and a resulting increase in total shipping days. However, the increase in market rates was met with increasing bunker prices and increasing charter hire rates, as noted above, which lowered operating margins to a limited extent.
Interest Expense
The increase in interest expense is due to the lease of the m/v Bulk Destiny and the acquisition of the m/v Bulk Endurance, both in January 2017. In addition, the interest rates on certain loans were fixed at higher levels during 2016 and 2017 in order to mitigate the risk of further increases in LIBOR.
Unrealized (Loss) Gain on Derivative Instruments, Net
The Company entered into numerous freight forward agreements, or FFAs, between November 2016 and the June 2017, in order to manage the risk associated with increasing charter-hire rates due to improvement in the drybulk market. The total gain on these FFAs was approximately $0.7 million for the nine months ended September 30, 2017. There were no open positions and therefore no gain or loss on FFAs in nine months ended September 30, 2016. The Company also enters into fuel swaps to manage the risk associated with fluctuating bunker prices. The loss on these swaps was approximately $0.3 million for the nine months ended September 30, 2017 as compared to a gain of approximately $1.1 million for the nine months ended September 30, 2016.
Other Income (Expense)
Other income represents the $0.9 million settlement of a non-performance claim that had not previously been reserved, to the recovery of $0.5 million of expenses incurred in a litigation action that was indemnified by third parties, to other reductions in the reserve for uncollectible accounts, and to income from an unconsolidated subsidiary of $0.3 million.
Income Attributable to Noncontrolling Interests
The decrease in income attributable to noncontrolling interests resulted predominantly from the $4.3 million loss on the sale and leaseback of the m/v Bulk Destiny, of which the former joint venture partner in this entity absorbed 50%. This was offset by an increase in net income of NBHC.
Significant accounting estimates
The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are the estimated fair value used in determining the estimated future cash flows used in its impairment analysis, the estimated salvage value used in determining depreciation expense, the estimated on the percentage completion of spot voyages and the allowances for doubtful accounts.
Long-lived Assets Impairment Considerations
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying valuesamounts. If indicators of impairment are present, we perform an analysis 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 tendanticipated undiscounted future net cash flows 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 resultderived from the use of the group and its eventual disposition is less than its carrying value. Thisrelated 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 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 amount of the asset group, an impairment charge equal to the difference between the carrying amount and the fair value of the group would be recognized.
During the three months ended September 30, 2017,first quarter of 2023, the Company did not identify any potentialdetermined that a triggering events. At December 31, 2016, testingevent occurred related to the sale of a vessel, as the carrying value exceeded its fair value. On January 18, 2023, the Company signed a memorandum of agreement to sell the m/v Bulk Newport for recoverability indicated that$8.9 million in net consideration after brokerage commissions. As a result, we recorded a loss on sale of $1.2 million in the first quarter of 2023. The Company performed an impairment analysis on each asset group and concluded the estimated undiscounted future cash flows were higher than their carrying amounts and as such, no additional loss on impairment was recognized.
During the first quarter of 2022, the Company determined that a triggering event occurred related to the sale of a vessel, as the carrying amountvalue exceeded its fair value. On April 20, 2022, the Company signed a memorandum of agreement to sell the m/v Bulk Pangaea for $8.6 million in net consideration after brokerage commissions. As a result, we recorded an impairment charge of $3.0 million in the first quarter of 2022. The Company performed an impairment analysis on each long-lived asset group therefore,and concluded the Company did not recognize anyestimated undiscounted future cash flows were higher than their carrying amounts and as such, no additional loss on impairment. impairment was recognized.
Liquidity and Capital Resources
Liquidity and Cash Needs
The Company has historically financed its capital requirements with cash flow from operations, the issuance of common stock, proceeds from related party debt,non-controlling interests, and proceeds from long-term debt and finance lease financing arrangements. The Company has used its capital leases,primarily to fund operations, vessel acquisitions, and in June 2017, through a private placementthe repayment of common stock.debt and the associated interest expense. The Company may consider additional debt andor additional equity financing alternatives in the future.from time to time. However, if market conditions are negative,deteriorate, 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 SeptemberAs of June 30, 20172023 and December 31, 2016,2022, the Company had working capital of $22.4$76.2 million and a working capital deficit of $9.3$130.3 million, respectively. The improvementreduction in working capital iswas mainly attributed to (i) $34 million of cash acquisitions, including the m/v Bulk Prudence and the port and terminal operation in June of 2023 and (ii) $19.6 million reclassifications of long-term debt to current portion of long-term debt.
Cash Flows:
The table below summarizes our primary sources and uses of cash for the three months ended June 30, 2023 and 2022. We have derived these summarized statements of cash flows from the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Amounts in the table below have been calculated based on unrounded numbers. Accordingly, certain amounts may not appear to recalculate due to the effect of rounding.
| | | | | | | | | | | | | | |
| | For the six months ended |
| (In millions) | | June 30, 2023 | | June 30, 2022 |
| Net cash provided by/(used in): | | | | |
| Operating activities: | | | | |
| Net income adjusted for non-cash items | | $ | 23.1 | | | $ | 64.5 | |
| Changes in operating assets and liabilities, net | | (9.5) | | 4.7 |
| Operating activities | | 13.6 | | 69.2 |
| Investing activities | | (23.7) | | (10.2) |
| Financing activities | | (34.0) | | (13.1) |
| Net change | | $ | (44.1) | | | $ | 46.0 | |
Operating Activities
Net cash provided by operating activities during the six months ended June 30, 2023 was $13.6 million compared to net cash provided by operating activities of $69.2 million for the six months ended June 30, 2022. The cash flows from operating activities decreased compared to the same period in the prior year primarily due to the decrease in income from operations, and timing of customer receipts and supplier payments.
Investing Activities
Net cash used in investing activities during the six months ended June 30, 2023 was $23.7 million compared to net cash used in investing activities of $10.2 million for the same period in 2022. During the six months ended June 30, 2023, the Company (i) paid $27.0 million for the purchase of one vessel and other vessel improvements, (ii) paid $7.2 million for net, cash acquisition of noncontrolling interesta port and terminal operation. These uses of cash were partially offset by $8.9 million in a consolidated joint venture in January 2017 and the resulting reduction in related party debt, to the increase in cashnet proceeds from proceeds of common stock issuance, to the sale of one vessel. During the m/v Bulk Beothuk,six months ended June 30, 2022, the Company paid $18.5 million to purchase one vessel and toother vessel improvements, these uses of cash generatedwere partially offset by $8.4 million from operations.the sale of one vessel.
Financing Activities
Considerations made by managementNet cash used in assessingfinancing activities during the Company’s ability to continue as a going concern are its ability to consistently generate positive cash flows from operations, which were approximately $13.7six months ended June 30, 2023 and 2022 was $34.0 million and $18.3$13.1 million, respectively. During the six months ended June 30, 2023, the Company repaid $9.1 million of long-term debt and $8.1 million of finance leases. The Company also paid $9.1 million in cash dividends to its shareholders and $7.5 million in cash dividends to non-controlling interest holders. During the ninesix months ended SeptemberJune 30, 20172022, the Company repaid $9.0 million of long term debt and 2016, respectively; $19.2$7.8 million of finance leases. The Company also paid $5.6 million in 2016cash dividends to its shareholders and $26.0$5.0 million in 2015; and its abilitycash dividends to procure long-term fixed contract employment (COAs) with new and longstanding customers. In addition, thenon-controlling interest holders. These uses of cash were partially offset by $15.0 million proceeds from finance leases.
The Company has demonstrated its unique ability to adapt to changing market conditions by changing themaintaining a nimble chartered-in profile to meet its cargo commitments. For more information onWe believe, given our current cash holdings, if drybulk shipping rates do not decline significantly from current levels, our capital resources, including cash anticipated to be generated within the results ofyear, are sufficient to fund our operations see ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Results of Operations.for at least the next twelve months.
Capital Expenditures
The Company’s capital expenditures relate to the purchase of vessels 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.vessels, as well as port & terminal operations. The Company’s owned or partially owned and leasedcontrolled fleet includes twoat June 30, 2023 includes: nine Panamax drybulk carriers four Supramax drybulk carriers, two Ultramax Ice-Class 1C and two Handymax drybulk carriers (both(six of which are Ice-Class 1A). The Company also has a one-third interest in a consolidated joint venture; eight Supramax drybulk carriers, three Ultramax drybulk carriers (Two of which owns sixare Ice-Class IC), and four Post Panamax Ice-ClassIce Class 1A drybulk carriers.vessels.
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 $3.4 million and $4.9 million in the six months ended June 30, 2023 and 2022, respectively. The Company expensed drydocking costs of approximately $90,000 and $4,000, respectively, in the six months ended June 30, 2023 and 2022.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements at SeptemberJune 30, 20172023 or December 31, 2016.2022.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risks
Interest Rate Risk
The international shipping industry is capital intensive, requiringNo significant amountschanges to our market risk have occurred since December 31, 2022. For a discussion of investment providedmarket risks affecting us, refer to Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk" included in the form of long-term debt. Certain of the Company’s outstanding debt contain floating interest rates that fluctuate with changes in the financial markets and in particular changes in LIBOR. Increasing interest rates could increase the Company’s interest expense and adversely impact its future earnings. In the past, the Company has managed this risk by entering into interest rate swap agreements in which the Company exchanged fixed and variable interest rates basedAnnual Report on agreed upon notional amounts. The Company has used such derivative financial instruments as risk management tools and notForm 10-K for speculative or trading purposes. As of September 30, 2017 and December 31, 2016, the Company did not have any open interest rate swap agreements. The Company’s net effective exposure to floating interest rate fluctuations on its outstanding debt was $52.7 million and $46.8 million, respectively, at September 30, 2017 and December 31, 2016.
The Company’s interest expense is affected by changes in the general level of interest rates, particularly LIBOR. As an indication of the extent of the Company’s sensitivity to interest rate changes, an increase in LIBOR of 1% would have decreased the Company’s net income and cash flows during the nine months ended September 30, 2017 and 2016 by approximately $0.4 million and $0.6 million, respectively, based on the debt levels at the beginning of each period. The Company expects its sensitivity to interest rate changes to increase in the future if the Company enters into additional floating rate debt agreements in connection with its acquisition of additional vessels.
Forward Freight Agreements
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. The aggregate fair value of FFAs at September 30, 2017 was an asset of $0.7 million and the aggregate fair value of FFAs at December 31, 2016 was a liability of approximately $21,000.
Fuel Swap Contracts
The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker hedging program. During the nine months ended September 30, 2017 and the year ended December 31, 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 September 30, 2017 and December 31, 2016 were assets of approximately $38,000 and $0.3 million, respectively.2022.
ITEM 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for the ninesix months ended SeptemberJune 30, 2017.2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
From time to time, we are involved in various other disputes and litigation matters that arise in the ordinary course of our business, principally cargo claims. Those claims, even if lacking merit, could result in the expenditure by us of significant financial and managerial resources.
Item 1A – Risk Factors
There have been no material changes fromIn addition to the “Riskother information set forth in this report, the reader should carefully consider the factors discussed in “Item 1A. Risk Factors” previously disclosed in ourthe Company’s Annual Report on Form 10-K filed withfor the SEC on March 23, 2017.year ended December 31, 2022 and the Risk Factor described below, which could materially affect the Company’s business, financial condition or future results.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
As previously disclosed on a Current Report on Form 8-K, Pangaea Logistics Solutions Ltd. (the “Company”) enteredinto two stock purchase agreements, both dated June 15, 2017 (the “Agreements”), for the sale of an aggregate of approximately $15.0 million of its common shares, par value $0.0001 per share (the “Common Shares”), in private placement transactions which are exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) thereof, at a purchase price of $2.25 per share (the “Transaction”). One agreement was completed with certain directors, officers and employees of the Company (the “Insider Investors”) and was subject to shareholder approval pursuant to NASDAQ Listing Rule 5635(c) and the other agreement was completed with other institutional and other accredited investors. The transaction has closed and the Company issued a total of 6,533,443 Common Shares in connection with the sales under both Agreements. As of November 9, 2017 the Company has 43,795,182 Common Shares issued and outstanding. None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 – Mine Safety Disclosures
None.
Item 5 - Other Information
None.
Item 6 – Exhibits
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Exhibit no.No. | Description | Incorporated By Reference | Filed herewith |
| | Form | Date | Exhibit | |
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| 31.1 | | | | | X |
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| 31.2 | | | | | X |
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| 32.1 | | | | | X |
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| 32.2 | | | | | X |
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| EX-101.INS | XBRL Instance Document | | | | X |
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| EX-101.SCH | XBRL Taxonomy Extension Schema | | | | X |
| | | | | |
| EX-101.CAL | XBRL Taxonomy Extension Calculation Linkbase | | | | X |
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| EX-101.DEF | XBRL Taxonomy Extension Definition Linkbase | | | | X |
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| EX-101.LAB | XBRL Taxonomy Extension Label Linkbase | | | | X |
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| EX-101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
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| 104 | | | XCover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
______________
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Section 13 or 15 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on NovemberAugust 9, 2017.2023.
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| PANGAEA LOGISTICS SOLUTIONS LTD. |
| |
| By: | /s/ Edward CollMark L. Filanowski |
| Edward CollMark L. Filanowski |
| Chief Executive Officer |
| (Principal Executive Officer) |
| |
| By: | /s/ Gianni DelSignoreDel Signore |
| Gianni DelSignoreDel Signore |
| Chief Financial Officer |
| (Principal Financial and Accounting Officer) |