UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20192020
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36139
PANGAEA LOGISTICS SOLUTIONS LTD.
(Exact name of Registrant as specified in its charter)
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Bermuda | | 98-1205464 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
c/o Phoenix Bulk Carriers (US) LLC
109 Long Wharf
Newport, RI 02840
(Address of principal executive offices)(Zip (Zip Code)
Registrant’s telephone number, including area code: (401) 846-7790
Securities registered pursuant to Section 12(b) of the Act:
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| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | PANL | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated Filer ¨ | | Accelerated Filer ¨ |
Non-accelerated Filer x | | Smaller reporting company x |
| | Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO x
Securities registered pursuant to Section 12(b) of the Act:
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| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | PANL | NASDAQ |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share, 44,499,92445,061,100 shares outstanding as of May 15, 2019.13, 2020.
TABLE OF CONTENTS
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PART I | FINANCIAL INFORMATION | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
Signatures | |
Pangaea Logistics Solutions Ltd.
Consolidated Balance Sheets | |
| March 31, 2019 |
| December 31, 2018 | March 31, 2020 |
| December 31, 2019 |
| (unaudited) |
| | (unaudited) |
| |
Assets | |
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Current assets | |
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Cash and cash equivalents | $ | 59,123,045 |
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| $ | 53,614,735 |
| $ | 39,972,746 |
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| $ | 50,555,091 |
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Accounts receivable (net of allowance of $2,349,977 at March 31, 2019 and $2,357,130 December 31, 2018) | 12,730,117 |
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| 28,481,787 |
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Restricted cash | | 1,000,000 |
| | 1,000,000 |
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Accounts receivable (net of allowance of $1,723,510 at March 31, 2020 and $1,908,841 at December 31, 2019) | | 23,140,149 |
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| 28,309,402 |
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Bunker inventory | 15,415,223 |
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| 19,222,087 |
| 19,156,816 |
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| 21,001,010 |
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Advance hire, prepaid expenses and other current assets | 13,188,661 |
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| 12,187,551 |
| 17,831,006 |
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| 18,770,825 |
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Vessel held for sale | | — |
| | 8,319,152 |
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Total current assets | 100,457,046 |
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| 113,506,160 |
| 101,100,717 |
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| 127,955,480 |
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Restricted cash | 2,500,000 |
| | 2,500,000 |
| 1,500,000 |
| | 1,500,000 |
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Fixed assets, net | 289,557,019 |
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| 281,355,366 |
| 287,533,664 |
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| 281,474,857 |
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Investment in newbuildings in-process | | 15,390,634 |
| | 15,357,189 |
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Finance lease right of use assets, net | 55,488,026 |
| | 56,113,096 |
| 46,493,362 |
| | 53,615,305 |
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Total assets | $ | 448,002,091 |
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| $ | 453,474,622 |
| $ | 452,018,377 |
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| $ | 479,902,831 |
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Liabilities and stockholders' equity | |
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Current liabilities | |
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Accounts payable, accrued expenses and other current liabilities | $ | 24,260,439 |
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| $ | 31,897,507 |
| $ | 35,556,515 |
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| $ | 39,973,635 |
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Related party debt | 2,039,644 |
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| 2,877,746 |
| 242,852 |
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| 332,987 |
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Deferred revenue | 6,408,818 |
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| 14,717,072 |
| 7,616,895 |
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| 14,376,394 |
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Current portion of secured long-term debt | 18,958,795 |
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| 20,127,742 |
| 22,240,674 |
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| 22,990,674 |
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Current portion of finance lease liabilities | 6,601,611 |
| | 5,364,963 |
| 6,902,370 |
| | 12,549,208 |
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Dividend payable | 2,928,598 |
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| 4,063,598 |
| 132,659 |
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| 631,961 |
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Total current liabilities | 61,197,905 |
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| 79,048,628 |
| 72,691,965 |
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| 90,854,859 |
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Secured long-term debt, net | 92,262,780 |
| | 95,374,270 |
| 81,143,060 |
| | 83,649,717 |
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Finance lease liabilities | 56,018,804 |
| | 45,684,727 |
| 55,768,735 |
| | 57,498,217 |
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Long-term liabilities - other - Note 8 | | 5,052,984 |
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| 4,828,364 |
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Commitments and contingencies (Note 7) |
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Commitments and contingencies - Note 7 | |
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Stockholders' equity: | |
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Preferred stock, $0.0001 par value, 1,000,000 shares authorized and no shares issued or outstanding | — |
| | — |
| — |
| | — |
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 44,504,090 shares issued and outstanding at March 31, 2019; 43,998,560 shares issued and outstanding at December 31, 2018 | 4,450 |
| | 4,400 |
| |
Common stock, $0.0001 par value, 100,000,000 shares authorized; 45,112,062 shares issued and outstanding at March 31, 2020; 44,886,122 shares issued and outstanding at December 31, 2019 | | 4,512 |
| | 4,489 |
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Additional paid-in capital | 156,621,001 |
| | 155,946,452 |
| 158,564,477 |
| | 157,504,895 |
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Retained earnings | 9,439,753 |
| | 5,737,199 |
| 5,941,205 |
| | 12,736,580 |
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Total Pangaea Logistics Solutions Ltd. equity | 166,065,204 |
| | 161,688,051 |
| 164,510,194 |
| | 170,245,964 |
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Non-controlling interests | 72,457,398 |
| | 71,678,946 |
| 72,851,439 |
| | 72,825,710 |
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Total stockholders' equity | 238,522,602 |
| | 233,366,997 |
| 237,361,633 |
| | 243,071,674 |
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Total liabilities and stockholders' equity | $ | 448,002,091 |
| | $ | 453,474,622 |
| $ | 452,018,377 |
| | $ | 479,902,831 |
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The accompanying notes are an integral part of these consolidated financial statements
Pangaea Logistics Solutions Ltd.
Consolidated Statements of IncomeOperations
(unaudited)
| | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
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Revenues: | | | | | | |
Voyage revenue | $ | 65,851,347 |
| | $ | 70,319,194 |
| $ | 86,523,891 |
| | $ | 65,851,347 |
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Charter revenue | 13,692,838 |
| | 8,654,099 |
| 9,356,046 |
| | 13,692,838 |
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| 79,544,185 |
| | 78,973,293 |
| 95,879,937 |
| | 79,544,185 |
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Expenses: | | | | | | |
Voyage expense | 32,174,107 |
| | 30,168,028 |
| 47,795,912 |
| | 32,174,107 |
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Charter hire expense | 24,947,369 |
| | 22,695,935 |
| 32,325,447 |
| | 24,947,369 |
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Vessel operating expense | 9,754,375 |
| | 9,849,165 |
| 9,933,862 |
| | 9,754,375 |
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General and administrative | 4,033,680 |
| | 4,128,298 |
| 3,993,243 |
| | 4,033,680 |
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Depreciation and amortization | 4,377,188 |
| | 4,338,188 |
| 4,242,251 |
| | 4,377,188 |
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Gain on sale of vessels | | (77,990 | ) | | — |
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Total expenses | 75,286,719 |
| | 71,179,614 |
| 98,212,725 |
| | 75,286,719 |
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Income from operations | 4,257,466 |
| | 7,793,679 |
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(Loss) income from operations | | (2,332,788 | ) | | 4,257,466 |
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Other income (expense): | | | |
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Other (expense) income: | | | | |
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Interest expense, net | (2,207,168 | ) | | (2,060,736 | ) | (2,116,320 | ) | | (2,207,168 | ) |
Interest expense on related party debt | (26,898 | ) | | (63,459 | ) | — |
| | (26,898 | ) |
Unrealized gain (loss) on derivative instruments, net | 2,289,786 |
| | (562,605 | ) | |
Unrealized (loss)/gain on derivative instruments, net | | (2,917,094 | ) | | 2,289,786 |
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Other income | 167,820 |
| | 428,332 |
| 596,556 |
| | 167,820 |
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Total other income (expense), net | 223,540 |
| | (2,258,468 | ) | |
Total other (expense) income, net | | (4,436,858 | ) | | 223,540 |
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Net income | 4,481,006 |
| | 5,535,211 |
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Net (loss) income | | (6,769,646 | ) | | 4,481,006 |
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Income attributable to non-controlling interests | (778,452 | ) | | (1,210,217 | ) | (25,729 | ) | | (778,452 | ) |
Net income attributable to Pangaea Logistics Solutions Ltd. | $ | 3,702,554 |
| | $ | 4,324,994 |
| |
Net (loss) income attributable to Pangaea Logistics Solutions Ltd. | | $ | (6,795,375 | ) | | $ | 3,702,554 |
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Earnings per common share: | | | | | | |
Basic | $ | 0.09 |
| | $ | 0.10 |
| $ | (0.16 | ) | | $ | 0.09 |
|
Diluted | $ | 0.09 |
| | $ | 0.10 |
| $ | (0.16 | ) | | $ | 0.09 |
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Weighted average shares used to compute earnings per common share: | | | | | | |
Basic | 42,601,227 |
| | 42,019,779 |
| 43,341,005 |
| | 42,601,227 |
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Diluted | 43,071,632 |
| | 42,655,038 |
| 43,341,005 |
| | 43,071,632 |
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The accompanying notes are an integral part of these consolidated financial statements
Pangaea Logistics Solutions Ltd.
Consolidated Statements of Stockholders' Equity
(unaudited)
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| Preferred Stock | | Common Stock | | Additional Paid-in Capital | | (Accumulated Deficit) Retained Earnings | | Total Pangaea Logistics Solutions Ltd. Equity | | Non-Controlling Interest | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | | |
Balance at December 31, 2017 | — |
| | $ | — |
| | 43,794,526 |
| | $ | 4,379 |
| | $ | 154,943,728 |
| | $ | (9,596,785 | ) | | $ | 145,351,322 |
| | $ | 65,304,320 |
| | $ | 210,655,642 |
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Recognized cost for restricted stock issued as compensation | — |
| | — |
| | — |
| | — |
| | 612,665 |
| | — |
| | 612,665 |
| | — |
| | 612,665 |
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Issuance of restricted shares, net of forfeitures | — |
| | — |
| | 302,385 |
| | 31 |
| | (31 | ) | | — |
| | — |
| | — |
| | — |
|
Change in accounting pronouncement | — |
| | — |
| | — |
| | — |
| | — |
| | (2,423,036 | ) | | (2,423,036 | ) | | — |
| | (2,423,036 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 4,324,994 |
| | 4,324,994 |
| | 1,210,217 |
| | 5,535,211 |
|
Balance at March 31, 2018 | — |
| | $ | — |
| | 44,096,911 |
| | $ | 4,410 |
| | $ | 155,556,362 |
| | $ | (7,694,827 | ) | | $ | 147,865,945 |
| | $ | 66,514,537 |
| | $ | 214,380,482 |
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| Preferred Stock | | Common Stock | | Additional Paid-in Capital | | (Accumulated Deficit) Retained Earnings | | Total Pangaea Logistics Solutions Ltd. Equity | | Non-Controlling Interest | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | | |
Balance at December 31, 2018 | — |
| | $ | — |
| | 43,998,560 |
| | $ | 4,400 |
| | $ | 155,946,452 |
| | $ | 5,737,199 |
| | $ | 161,688,051 |
| | $ | 71,678,946 |
| | $ | 233,366,997 |
|
Recognized cost for restricted stock issued as compensation | — |
| | — |
| | — |
| | — |
| | 674,599 |
| | — |
| | 674,599 |
| | — |
| | 674,599 |
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Issuance of restricted shares, net of forfeitures | — |
| | — |
| | 505,530 |
| | 50 |
| | (50 | ) | | — |
| | — |
| | — |
| | — |
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Net Income | — |
| | — |
| | — |
| | — |
| | — |
| | 3,702,554 |
| | 3,702,554 |
| | 778,452 |
| | 4,481,006 |
|
Balance at March 31, 2019 | — |
| | $ | — |
| | 44,504,090 |
| | $ | 4,450 |
| | $ | 156,621,001 |
| | $ | 9,439,753 |
| | $ | 166,065,204 |
| | $ | 72,457,398 |
| | $ | 238,522,602 |
|
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| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Total Pangaea Logistics Solutions Ltd. Equity | | Non-Controlling Interest | | Total Stockholders' Equity |
| Shares | | Amount | |
Balance at December 31, 2019 | 44,886,122 |
| | $ | 4,489 |
| | $ | 157,504,895 |
| | $ | 12,736,580 |
| | $ | 170,245,964 |
| | $ | 72,825,710 |
| | $ | 243,071,674 |
|
Share-based compensation | — |
| | — |
| | 1,102,769 |
| | — |
| | 1,102,769 |
| | — |
| | 1,102,769 |
|
Issuance of restricted shares, net of forfeitures | 225,940 |
| | 23 |
| | (43,187 | ) | | — |
| | (43,164 | ) | | — |
| | (43,164 | ) |
Net (Loss) Income | — |
| | — |
| | — |
| | (6,795,375 | ) | | (6,795,375 | ) | | 25,729 |
| | (6,769,646 | ) |
Balance at March 31, 2020 | 45,112,062 |
| | $ | 4,512 |
| | $ | 158,564,477 |
| | $ | 5,941,205 |
| | $ | 164,510,194 |
| | $ | 72,851,439 |
| | $ | 237,361,633 |
|
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| | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Total Pangaea Logistics Solutions Ltd. Equity | | Non-Controlling Interest | | Total Stockholders' Equity |
| Shares | | Amount | |
Balance at December 31, 2018 | 43,998,560 |
| | $ | 4,400 |
| | $ | 155,946,452 |
| | $ | 5,737,199 |
| | $ | 161,688,051 |
| | $ | 71,678,946 |
| | $ | 233,366,997 |
|
Share-based compensation | — |
| | — |
| | 674,599 |
| | — |
| | 674,599 |
| | — |
| | 674,599 |
|
Issuance of restricted shares, net of forfeitures | 505,530 |
| | 50 |
| | (50 | ) | | — |
| | — |
| | — |
| | — |
|
Net income | — |
| | — |
| | — |
| | 3,702,554 |
| | 3,702,554 |
| | 778,452 |
| | 4,481,006 |
|
Balance at March 31, 2019 | 44,504,090 |
| | $ | 4,450 |
| | $ | 156,621,001 |
| | $ | 9,439,753 |
| | $ | 166,065,204 |
| | $ | 72,457,398 |
| | $ | 238,522,602 |
|
The accompanying notes are an integral part of these consolidated financial statements
Pangaea Logistics Solutions, Ltd.
Consolidated Statements of Cash Flows
(unaudited)
| | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Operating activities | |
| | |
| | | |
Net income | $ | 4,481,006 |
| | $ | 5,535,211 |
| |
Adjustments to reconcile net income to net cash provided by operations: | |
| | | |
Net (loss) income | | $ | (6,769,646 | ) | | $ | 4,481,006 |
|
Adjustments to reconcile net income to net cash (used in) provided by operations: | | | | |
Depreciation and amortization expense | 4,377,188 |
| | 4,338,188 |
| 4,242,251 |
| | 4,377,188 |
|
Amortization of deferred financing costs | 182,802 |
| | 166,221 |
| 176,526 |
| | 182,802 |
|
Amortization of prepaid rent | 29,649 |
| | 30,484 |
| 30,568 |
| | 29,649 |
|
Unrealized (gain) loss on derivative instruments | (2,289,786 | ) | | 562,605 |
| |
Unrealized loss (gain) on derivative instruments | | 2,917,094 |
| | (2,289,786 | ) |
Gain from equity method investee | (128,250 | ) | | (90,000 | ) | (429,360 | ) | | (128,250 | ) |
Provision for doubtful accounts | 487,372 |
| | — |
| |
Earnings attributable to non-controlling interest recorded as interest expense | | (27,643 | ) | | — |
|
(Recovery) provision for doubtful accounts | | (185,331 | ) | | 487,372 |
|
Gain on sale of vessel | | (77,990 | ) | | — |
|
Drydocking costs | (381,059 | ) | | (1,497,979 | ) | (2,903,277 | ) | | (381,059 | ) |
Recognized cost for restricted stock issued as compensation | 674,599 |
| | 612,665 |
| |
Share-based compensation | | 1,102,769 |
| | 674,599 |
|
Change in operating assets and liabilities: | | | | | | |
Accounts receivable | 15,264,298 |
| | (593,487 | ) | 5,354,584 |
| | 15,264,298 |
|
Bunker inventory | 3,806,864 |
| | 1,063,365 |
| 1,844,194 |
| | 3,806,864 |
|
Advance hire, prepaid expenses and other current assets | (872,860 | ) | | 4,026,194 |
| 1,369,179 |
| | (872,860 | ) |
Accounts payable, accrued expenses and other current liabilities | (5,363,850 | ) | | (7,400,141 | ) | (6,729,172 | ) | | (5,363,850 | ) |
Deferred revenue | (8,308,254 | ) | | (3,962,909 | ) | (6,759,499 | ) | | (8,308,254 | ) |
Net cash provided by operating activities | 11,959,719 |
| | 2,790,417 |
| |
Net cash (used in) provided by operating activities | | (6,844,753 | ) | | 11,959,719 |
|
| | | | | | |
Investing activities | |
| | |
|
|
| | |
Purchase of vessels and vessel improvements | (11,426,174 | ) | | (298,418 | ) | (283,446 | ) | | (11,426,174 | ) |
Purchase of building and equipment | (159,619 | ) | | (110,417 | ) | |
Proceeds from sale of equipment | — |
| | 31,594 |
| |
Net cash used in investing activities | (11,585,793 | ) | | (377,241 | ) | |
Investment in newbuildings in-process | | (33,445 | ) | | — |
|
Purchase of fixed assets and equipment | | — |
| | (159,619 | ) |
Proceeds from sale of vessels | | 8,397,142 |
| | — |
|
Purchase of derivative instrument | | (628,000 | ) | | — |
|
Net cash provided by (used in) investing activities | | 7,452,251 |
| | (11,585,793 | ) |
| | | | | | |
Financing activities | |
| | |
| | | |
Payments of related party debt | (838,102 | ) | | (2,541,140 | ) | (90,135 | ) | | (838,102 | ) |
Payments of financing fees and issuance costs | (260,225 | ) | | (91,329 | ) | |
Payments of financing fees and debt issuance costs | | (149,118 | ) | | (260,225 | ) |
Payments of long-term debt | (4,203,014 | ) | | (4,765,747 | ) | (3,284,067 | ) | | (4,203,014 | ) |
Proceeds from finance leases | 13,000,000 |
| | — |
| — |
| | 13,000,000 |
|
Dividends paid to non-controlling interests | — |
| | (904,803 | ) | |
Payments of finance lease obligations | (1,429,275 | ) | | (436,506 | ) | (7,376,320 | ) | | (1,429,275 | ) |
Accrued common stock dividends paid | (1,135,000 | ) | | — |
| (499,302 | ) | | (1,135,000 | ) |
Net cash provided by (used in) financing activities | 5,134,384 |
| | (8,739,525 | ) | |
Cash paid for incentive compensation shares relinquished | | (43,164 | ) | | — |
|
Contributions from non-controlling interest recorded as long-term liability | | 322,750 |
| | — |
|
Payments to non-controlling interest recorded as long-term liability | | (70,487 | ) | | — |
|
Net cash (used in) provided by financing activities | | (11,189,843 | ) | | 5,134,384 |
|
| | | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 5,508,310 |
| | (6,326,349 | ) | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | (10,582,345 | ) | | 5,508,310 |
|
Cash, cash equivalents and restricted cash at beginning of period | 56,114,735 |
| | 38,531,812 |
| 53,055,091 |
| | 56,114,735 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 61,623,045 |
| | $ | 32,205,463 |
| $ | 42,472,746 |
| | $ | 61,623,045 |
|
| | | | |
| | Supplemental cash flow information and disclosure of noncash items | | | | |
Cash paid for interest | $ | 2,237,147 |
| | $ | 1,758,934 |
| |
| | | | |
Supplemental cash flow information | | | | |
Cash and cash equivalents | $ | 59,123,045 |
| | $ | 28,205,463 |
| $ | 39,972,746 |
| | $ | 59,123,045 |
|
Restricted cash | 2,500,000 |
| | 4,000,000 |
| 2,500,000 |
| | 2,500,000 |
|
| $ | 61,623,045 |
| | $ | 32,205,463 |
| $ | 42,472,746 |
| | $ | 61,623,045 |
|
The accompanying notes are an integral part of these consolidated financial statements
NOTE 1 - GENERAL INFORMATION AND RECENT EVENTS
Organization and General
The accompanying consolidated financial statements include the accounts of Pangaea Logistics Solutions Ltd. and its consolidated subsidiaries (collectively, the “Company”, “Pangaea” “we” or “our”). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership, chartering and operation of drybulk vessels. The Company is a holding company incorporated under the laws of Bermuda as an exempted company on April 29, 2014.
TheAt March 31, 2020, the Company owns threetwo Panamax, two Ultramax Ice Class 1C, sevenand eight Supramax and two Handymax Ice Class 1A drybulk vessels. The Company also owns one-third of Nordic Bulk Holding Company Ltd. (“NBHC”), a consolidated joint venture with a fleet of six Panamax Ice Class 1A drybulk vessels and has a 50% interest in the owner of a deck barge.
Recent Events
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus strain, or COVID-19, to be a pandemic. The COVID-19 pandemic (“COVID-19”) is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Management continues to evaluate the impact of COVID-19 on the industry and its business. At present, it is not possible to ascertain the overall impact of COVID-19 on the Company’s financial position and results of its operations. However, an increase in the severity or duration or a resurgence of COVID-19 could have a material adverse effect on the Company’s business, results of operations, cash flows and financial condition. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated balance sheets as of March 31, 2019 and 2018, the consolidated statements of income for the three months ended March 31, 2019 and 2018 and the consolidated statements of cash flows for the three months ended March 31, 2019 and 2018 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 March 31, 2019 and December 31, 2018, and its results of operations and cash flows for the three months ended March 31, 2019 and 2018. The financial data and the other information disclosedstatements should be read in these notes toconjunction with the consolidated financial statements related to these three 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 three months ended March 31, 2019 and 2018 are not necessarily indicative of the resultsour Annual Report on Form 10-K for the year endingended December 31, 2019 or for any other interim2019.
Certain reclassifications have been made to prior periods to conform to current period or future years.presentation.
The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are the estimated future cash flows used in its impairment analysis, the estimated salvage value used in determining depreciation expense and the allowances for doubtful accounts.
Voyage revenues represent revenues earned by the Company, principally from providing transportation services under voyage charters. A voyage charter involves the carriage of a specific amount and type of cargo on a load port to discharge port basis, subject to various cargo handling terms. Under a voyage charter, the service revenues are earned and recognized ratably over the duration of the voyage. A contract is accounted for when it has approval and commitment from both parties, the rights and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Estimated losses under a voyage charter are provided for in full at the time such losses become probable. Demurrage, which is included in voyage revenues, represents payments by the charterer to the vessel owner when loading and discharging time exceed the stipulated time in the voyage charter. Demurrage is measured in accordance with the provisions of the respective charter agreements and the circumstances under which demurrage revenues arise. At the time demurrage revenue can be estimated, it is included in the calculation of voyage revenue and recognized ratably over the duration of the voyage to which it pertains. Voyage revenue recognized is presented net of address commissions.
Charter revenues relate to a time charter arrangement under which the Company is paid to provide transportation services on a per day basis for a specified period of time. Revenues from time charters are earned and recognized on a straight-line basis over the term of the charter, as the vessel operates under the charter. Revenue is not earned when vessels are offhire.
Cash and cash equivalents include short-term deposits with an original maturity of less than three months. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows:
| | | March 31, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
| (unaudited) | | | (unaudited) | | |
Money market accounts – cash equivalents | $ | 41,149,343 |
| | $ | 13,819,043 |
| $ | 28,744,019 |
| | $ | 32,150,342 |
|
Cash (1) | 17,973,702 |
| | 39,795,692 |
| 11,228,727 |
| | 18,404,749 |
|
Total cash and cash equivalents | $ | 59,123,045 |
| | $ | 53,614,735 |
| $ | 39,972,746 |
| | $ | 50,555,091 |
|
Restricted cash | $ | 2,500,000 |
| | $ | 2,500,000 |
| 2,500,000 |
| | 2,500,000 |
|
Total cash, cash equivalents and restricted cash | $ | 61,623,045 |
| | $ | 56,114,735 |
| $ | 42,472,746 |
| | $ | 53,055,091 |
|
(1) Consists of cash deposits at various major banks.
Restricted cash at March 31, 20192020 and December 31, 20182019 consists of $2.5 million held by the facility agent as required by the Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. and Bulk Nordic Oshima Ltd. – Dated September 28, 2015 - Amended and Restated Loan Agreement (See NOTE 4).
Agreement. $1,000,000 restricted cash was reclassified to current assets due to the balloon payments of Bulk Nordic Odyssey Ltd and Bulk Nordic Orion Ltd due in September of 2020.
Advance hire, prepaid expenses and other current assets were comprised of the following:
| | | | March 31, 2019 | | December 31, 2018 | | March 31, 2020 | | December 31, 2019 |
| | (unaudited) | | | | (unaudited) | | |
Advance hire | | $ | 2,493,274 |
| | $ | 5,851,070 |
| | $ | 3,976,205 |
| | $ | 3,985,826 |
|
Prepaid expenses | | 2,386,632 |
| | 1,276,901 |
| | 2,918,761 |
| | 4,924,557 |
|
Accrued receivables | | 6,066,030 |
| | 2,479,800 |
| | 6,802,009 |
| | 6,466,068 |
|
Margin deposit | | 1,405,010 |
| | 1,820,656 |
| | 2,383,275 |
| | 269,379 |
|
Other current assets | | 837,715 |
| | 759,124 |
| | 1,750,756 |
| | 3,124,995 |
|
| | $ | 13,188,661 |
| | $ | 12,187,551 |
| | $ | 17,831,006 |
| | $ | 18,770,825 |
|
Accounts payable, accrued expenses and other current liabilities were comprised of the following:
|
| | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
| | (unaudited) | | |
Accounts payable | | $ | 12,123,157 |
| | $ | 19,892,511 |
|
Accrued expenses | | 10,361,607 |
| | 7,424,286 |
|
Accrued interest | | 541,153 |
| | 540,886 |
|
Derivative liabilities | | 1,002,798 |
| | 3,225,907 |
|
Other accrued liabilities | | 231,724 |
| | 813,917 |
|
| | $ | 24,260,439 |
| | $ | 31,897,507 |
|
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued an ASU 2016-02, Accounting Standards Update for Leases. The update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. In determining the estimated value of right-of-use assets and lease liabilities, the Company considers the noncancelable period of the lease as well as periods for which it is reasonably certain that renewal options will be exercised. The Company discounts any estimated lease liability using the portfolio approach, the composition of which is its secured long-term debt facilities.
|
| | | | | | | | |
| | March 31, 2020 | | December 31, 2019 |
| | (unaudited) | | |
Accounts payable | | $ | 23,712,097 |
| | $ | 24,173,291 |
|
Accrued expenses | | 8,590,256 |
| | 14,883,555 |
|
Derivative liabilities | | 2,761,165 |
| | 472,073 |
|
Other accrued liabilities | | 492,997 |
| | 444,716 |
|
| | $ | 35,556,515 |
| | $ | 39,973,635 |
|
Time charter out contracts
Charter revenue is earned when the Company lets a vessel it owns or operates to a charterer for a specified period of time. Charter revenue is based on the agreed rate per day. The charterer has the power to direct the use and receives substantially all of the economic benefits from the use of the vessel. The Company determined that all time charter contracts are considered operating leases and therefore fall under the scope of ASC 842 because: (i) the vessel is an identifiable asset; (ii) the Company does not have substantive substitution rights; and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives the economic benefits from such use.
Time charter in contracts
The Company charters in vessels to supplement its owned fleet to support its voyage charter operations. The Company hires vessels under time charters with third party vessel owners, and recognizes the charter hire payments as an expense on a straight-line basis over the term of the charter. Charter hire payments are typically made in advance, and the unrecognized portion is reflected as advance hire in the accompanying consolidated balance sheets. Under the time charters, the vessel owner is responsible for the vessel operating costs such as crews, maintenance and repairs, insurance, and stores. As allowed by a practical expedient under ASC 842, the Company made an accounting policy election by class of underlying asset for leases with a term of 12 months or less, to forego recognizing a right-of-use asset and lease liability on its balance sheet. For the quarter ending March 31, 2019,2020, the Company did not have any time charter in contracts with terms greater than 12 months, as such charter hire expense presented on the Consolidated Statementconsolidated statements of Operationsincome are lease expenses for chartered in contracts less than 12 months.
Adoption ofLeases under ASC 842
The Company adopted ASC 842 on January 1, 2019. The Company elected the "package of practical expedients" in the new standard, under which we are not required to reassess our prior conclusions regarding lease identification, classification and initial direct costs. We did not elect the use-of-hindsight practical expedient; and the practical expedient pertaining to land easements does not apply to the Company.
In July 2018, the Financial Accounting Standards Board issued ASU 2018-11 to amend ASU 2016-02 and provided an additional (and optional) transition method to adopt the new lease standard. This transition method allows entities to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption instead of using the original modified retrospective transition method of adoption which required the restatement of all prior period financial statements. Under this new transition method, the comparative periods presented in the financial statements will continue to be in accordance with ASC Topic 840, Leases. The Company adopted the new lease standard effective January 1, 2019 using this new transition method.
The amendments in this Update also provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met:
1. The timing and pattern of transfer of the nonlease component(s) and associated lease component are the same.
2. The lease component, if accounted for separately, would be classified as an operating lease.
The Company elected to use this practical expedient when it adopted the lessor provisions of this Update. As a result, the operating lease component and the vessel operating expense nonlease component in a time charter are reported as a single component.
At March 31, 2019,2020, the Company had sixfour vessels chartered to customers under time charters that contain leases. These sixfour leases varied in original length from 34 days1 day to 11630 days. At March 31, 2019,2020, lease payments due under these arrangements totaled approximately $797,000$312,000 and each of the time charters were due to be completed in twenty-onethirty-one days or less. The Company does not have any sales-type or direct financing leases.
Adoption of the lessee provisions of this guidance did not have a material impact on the Company's consolidated financial statements because the Company does not have any vessels chartered in (operating leases) for longer than one year and the practical expedient relating to leases with terms of 12 months or less was elected. Furthermore, the Company's finance lease right of use assets and finance lease liabilities were referred to as "assets under capital lease" and "obligations under capital leases" in prior period financial statements, but no other changes resulted from adoption of the standard. In addition, theThe Company has only one
noncancelabletwo non-cancelable office lease for which the noncancelable period is less than five monthsleases and noncancelablenon-cancelable office equipment leases doand the lease assets and liabilities are not create significant right-of-use assets or lease liabilities.material.
In August 2017, the FASB issued an ASU 2017-12Recently Issued 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. 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. Adoption of this guidance did not have a material impact on the Company's financial statements because our forward freight agreements and our fuel swaps do not qualify for hedge accounting treatment even after application of the amendments in this Update.Pronouncements Not Yet Adopted
In June 2016,March 2020, the FASB issued ASU No. 2016-13,2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Instruments – Credit Losses. For mostReporting. ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for our company at the beginning of 2020. Entities are required toreporting. Companies can apply the provisions ofASU immediately, however the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We areguidance will only be available until December 31, 2022. The Company is currently evaluating the impact of thethat adopting this new accounting standard will have on ourits consolidated financial statements.statements and related disclosures.
NOTE 3 - FIXED ASSETS
At March 31, 2019,2020, the Company owned twentyeighteen dry bulk vessels including fivethree financed under finance leases; and one barge. The carrying amounts of these vessels, including unamortized drydocking costs, are as follows:
| | | March 31, | | December 31, | March 31, | | December 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Owned vessels | (unaudited) | | | (unaudited) | | |
m/v BULK PANGAEA | $ | 15,241,681 |
| | $15,231,305 | $ | 14,650,117 |
| | $ | 14,988,076 |
|
m/v BULK PATRIOT | 9,807,507 |
| | 10,130,797 |
| |
m/v BULK JULIANA | 10,527,478 |
| | 10,651,029 |
| |
m/v NORDIC ODYSSEY | 23,936,879 |
| | 24,283,497 |
| 22,564,898 |
| | 22,897,029 |
|
m/v NORDIC ORION | 24,743,805 |
| | 25,095,469 |
| 23,437,392 |
| | 23,688,812 |
|
m/v BULK NEWPORT | 13,717,761 |
| | 13,956,092 |
| 12,722,983 |
| | 12,975,767 |
|
m/v NORDIC BARENTS | 4,249,276 |
| | 4,370,817 |
| |
m/v NORDIC BOTHNIA | 4,202,519 |
| | 4,322,490 |
| |
m/v NORDIC OSHIMA | 28,608,642 |
| | 28,897,931 |
| 27,985,690 |
| | 28,325,078 |
|
m/v NORDIC ODIN | 29,014,890 |
| | 29,151,529 |
| 28,381,196 |
| | 28,094,764 |
|
m/v NORDIC OLYMPIC | 28,846,590 |
| | 29,321,599 |
| 28,275,734 |
| | 27,931,771 |
|
m/v NORDIC OASIS | 30,110,222 |
| | 30,416,651 |
| 28,900,457 |
| | 29,190,935 |
|
m/v BULK ENDURANCE | 25,774,822 |
| | 26,020,505 |
| 24,784,479 |
| | 25,037,775 |
|
m/v BULK FREEDOM | 8,469,683 |
| | 8,467,058 |
| 9,918,266 |
| | 8,269,777 |
|
m/v BULK PRIDE | 13,397,749 |
| | 13,531,561 |
| 12,858,352 |
| | 12,996,311 |
|
m/v BULK SPIRIT (1) | 13,248,500 |
| | 1,950,000 |
| |
m/v BULK SPIRIT | | 12,727,209 |
| | 12,867,060 |
|
m/v BULK INDEPENDENCE | | 13,965,442 |
| | 14,000,946 |
|
m/v BULK FRIENDSHIP | | 13,897,189 |
| | 14,052,500 |
|
m/v BULK BEOTHUK (1) | | 6,476,788 |
| | — |
|
MISS NORA G PEARL | 2,995,144 |
| | 2,995,144 |
| 3,497,833 |
| | 3,609,851 |
|
| 286,893,148 |
| | 278,793,474 |
| 285,044,025 |
| | 278,926,452 |
|
Other fixed assets, net | 2,663,871 |
| | 2,561,892 |
| 2,489,639 |
| | 2,548,405 |
|
Total fixed assets, net | $ | 289,557,019 |
| | $ | 281,355,366 |
| $ | 287,533,664 |
| | $ | 281,474,857 |
|
| | | | | | |
Right of Use Assets | | | | | | |
m/v BULK DESTINY | $ | 22,101,959 |
| | $ | 22,307,701 |
| $ | 21,272,616 |
| | $ | 21,484,733 |
|
m/v BULK BEOTHUK | 6,946,360 |
| | 7,065,300 |
| |
m/v BULK BEOTHUK (1) | | — |
| | 6,589,537 |
|
m/v BULK TRIDENT | 12,522,611 |
| | 12,664,906 |
| 11,949,023 |
| | 12,095,727 |
|
m/v BULK PODS | $ | 13,917,096 |
| | 14,075,189 |
| $ | 13,271,723 |
| | 13,445,308 |
|
| $ | 55,488,026 |
| | $ | 56,113,096 |
| $ | 46,493,362 |
| | $ | 53,615,305 |
|
| |
(1)
| On October 26, 2018, the Company entered into an agreement to purchase a 2009 built Supramax (m/v Bulk Spirit) for $13 million, and placed a deposit of $1.95 million. The vessel was delivered in February 2019 (see NOTE 7). |
(1) In January 2020 the Company completed an early buy-out of the lease for a purchase price of $5.5 million.
On February 2020, the Company sold the m/v Nordic Barents and m/v Bulk Patriot. Both were recorded as vessels held for sale at December 31, 2019.
Long-lived Assets Impairment Considerations.Considerations
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, TheImpairment 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 used inCompany performed its quarterly assessment by evaluating whether a triggering event had occurred as of March 31, 2020 considering current market conditions resulting from the undiscounted projected net operating cash flow analysis include the Company’s estimate of future time charter equivalent "TCE" rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates.global COVID-19 pandemic. The Company prepares a series of scenarios in an attemptconcluded that no triggering event had occurred at March 31, 2020 and will continue to capturemonitor 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 usesmarket for any adverse conditions resulting from the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying value of the asset group, an impairment charge would be recognized. COVID-19 pandemic.
At March 31, 2019, and 2018 the Company did not identify any potential triggering events and therefore, in accordance with authoritative guidance, did not perform tests of recoverability.
NOTE 4 - DEBT
Long-term debt consists of the following:
| | | | March 31, 2019 | | December 31, 2018 | | March 31, 2020 | | December 31, 2019 | | Interest Rate (%) (1) | | Maturity Date |
| | (unaudited) | | | | (unaudited) | | | | | |
Bulk Phoenix Secured Note (1) | | 2,259,515 |
| | 2,702,374 |
| |
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) | | 60,450,001 |
| | 62,325,000 |
| |
Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.) | | 4,163,010 |
| | 4,489,100 |
| |
Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Loan Agreement (2) | | | 27,716,300 |
| | 28,466,300 |
| | 4.07 | % | | 2022 |
Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. Loan Agreement (2) (3) | | | 12,104,406 |
| | 12,854,405 |
| | 3.77 | % | | 2020 |
Bulk Nordic Oshima Ltd. Amended and Restated Loan Agreement (2) (4) | | | 13,129,295 |
| | 13,504,295 |
| | 3.14 | % | | 2021 |
Bulk Nordic Oasis Ltd. Loan Agreement (3) | | 16,625,000 |
| | 17,000,000 |
| | 15,125,000 |
| | 15,500,000 |
| | 4.30 | % | | 2022 |
The Amended Senior Facility (formerly Bulk Nordic Six Ltd. - Loan Agreement) | | 24,644,998 |
| | 25,626,665 |
| |
The Amended Senior Facility - Dated May 13, 2019 (formerly The Amended Senior Facility - Dated December 21, 2017) (5) | | | | | | | | |
Bulk Nordic Six Ltd. - Tranche A | | | 13,033,330 |
| | 13,299,997 |
| | 3.69 | % | | 2024 |
Bulk Nordic Six Ltd. - Tranche B | | | 2,785,000 |
| | 2,850,000 |
| | 3.65 | % | | 2024 |
Bulk Pride - Tranche C | | | 6,025,000 |
| | 6,300,000 |
| | 4.69 | % | | 2024 |
Bulk Independence - Tranche E | | | 13,250,000 |
| | 13,500,000 |
| | 3.48 | % | | 2024 |
Bulk Freedom Loan Agreement | | 4,275,000 |
| | 4,450,000 |
| | 3,650,000 |
| | 3,800,000 |
| | 4.49 | % | | 2022 |
109 Long Wharf Commercial Term Loan | | 785,466 |
| | 812,867 |
| | 675,866 |
| | 703,266 |
| | 3.69 | % | | 2026 |
Total | | 113,202,990 |
| | 117,406,006 |
| | $ | 107,494,197 |
| | $ | 110,778,263 |
| | | |
Less: unamortized bank fees | | (1,981,417 | ) | | (1,903,994 | ) | | (4,110,463 | ) | | (4,137,872 | ) | | | |
| | 111,221,573 |
| | 115,502,012 |
| | $ | 103,383,734 |
| | $ | 106,640,391 |
| | | |
Less: current portion | | (18,958,793 | ) | | (20,127,742 | ) | | (22,240,674 | ) | | (22,990,674 | ) | | | |
Secured long-term debt, net | | $ | 92,262,780 |
| | $ | 95,374,270 |
| | $ | 81,143,060 |
| | $ | 83,649,717 |
| | | |
| |
(1) | See Senior Secured Post-Delivery Term Loan Facility below.As of March 31, 2020. |
| |
(2) | The borrower under this facility is NBHC, of which the Company and its joint venture partners, STST and ASO2020, each own one-third. NBHC is consolidated in accordance with ASC 810-10 and as such, amounts pertaining to the non-controlling ownership held by these third parties in the financial position of NBHC are reported as non-controlling interest in the accompanying balance sheets. |
| |
(3) | Interest on 50% of the advances to Bulk Nordic Odyssey and Bulk Nordic Orion was fixed at 4.24% in March 2017 and Interest on the remaining advances is floating at LIBOR plus 2.40%. The Company will refinance or pay off the balloon payments due in September of 2020. |
| |
(4) | Interest on 50% of the advance to Bulk Nordic Oshima was fixed at 4.16% in January 2017 and Interest on the remaining advance is floating at LIBOR plus 2.25%. |
| |
(5) | This facility is cross-collateralized by the vessels m/v Bulk Endurance, m/v Bulk Pride, and m/v Bulk Pride,Independence and is guaranteed by the Company. |
Financial Covenants
The Senior Secured Post-Delivery Term Loan Facility
On April 14, 2017,Under the Company's respective debt agreements, the Company through its wholly owned subsidiaries, Bulk Pangaea, Bulk Patriot, Bulk Juliana, Bulk Trident and Bulk Phoenix, entered into the Fourth Amendatory Agreement, (the "Fourth Amendment"), amending and supplementing the Loan Agreement dated April 15, 2013, as amended by a First Amendatory Agreement dated May 16, 2013, the Second Amendatory Agreement dated August 28, 2013 and the Third Amendatory Agreement dated July 14, 2016. The Fourth Amendment advanced the final repayment dates for Bulk Pangaea and Bulk Patriot, which have since been repaid. Final payment on the Bulk Juliana Secured Note was made on July 19, 2018. The Bulk Trident Secured Note was repaid on June 7, 2018 in conjunctionis required to comply with the sale and leaseback of the vessel (NOTE - 7).
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 containscertain financial covenants, that require the Company to maintain a minimum net worth and minimum liquidity, on a consolidated basis. The facility also contains a consolidated leverage ratio and a consolidated debt service coverage ratio. In addition, the facility contains other Company and vessel related covenants that, among other things, restrict changes in management and ownership of the vessel, declaration of dividends, further indebtedness and mortgaging of a vessel without the bank’s prior consent. It also requires minimum collateral maintenance, which is tested at the discretion of the lender. As of March 31, 2019 and December 31, 2018, the Company was in compliance with these covenants.
Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. And Bulk Nordic Oshima Ltd. – Dated September 28, 2015 - Amended and Restated Loan Agreement
The amended agreement advanced $21,750,000 in respect of each the m/v Nordic Odin and the m/v Nordic Olympic; $13,500,000 in respect of each the m/v Nordic Odyssey and the m/v Nordic Orion, and $21,000,000 in respect of the m/v Nordic Oshima.
The agreement requires repayment of the advances as follows:
In respect of the Odin and Olympic advances, repayment to be made in 28 equal quarterly installments of $375,000 per borrower (one of which was paid prior to the amendment by each borrower) and balloon payments of $11,233,150 due with each of the final installments in January 2022.
In respect of the Odyssey and Orion advances, repayment to be made in 20 quarterly installments of $375,000 per borrower and balloon payments of $5,677,203 due with each of the final installments in September 2020.
In respect of the Oshima advance, repayment to be made in 28 equal quarterly installments of $375,000 and a balloon payment of $11,254,295 due with the final installment in September 2021.
Interest on 50% of the advances to Odyssey and Orion was fixed at 4.24% in March 2017. Interest on the remaining advances to Odyssey and Orion is floating at LIBOR plus 2.40% (4.80% at March 31, 2019). Interest on 50% of the advances to Odin and Olympic was fixed at 3.95% in January 2017. Interest on the remaining advances to Odin and Olympic was floating at LIBOR plus 2.0% and was fixed at 4.07% on April 27, 2017. Interest on 50% of the advance to Oshima was fixed at 4.16% in January 2017. Interest on the remaining advance to Oshima is floating at LIBOR plus 2.25% (4.65% at March 31, 2019).
The amended loan is secured by first preferred mortgages on the m/v Nordic Odin, m/v Nordic Olympic, m/v Nordic Odyssey, m/v Nordic Orion and m/v Nordic Oshima, the assignment of earnings, insurances and requisite compensation of the five entities, and by guarantees of their shareholders.
The amended agreement contains one financial covenant that requires the Companyincluding to maintain minimum liquidity and a collateral maintenance ratio clause, which requires the aggregate fair market value of the vessels plus the net realizable value of any additional collateral provided, to remain above defined ratios. At March 31, 2019ratios and December 31, 2018, the Company was in compliance with this covenant.
The Bulk Nordic Oasis Ltd. - Loan Agreement - Dated December 11, 2015
The agreement advanced $21,500,000 in respect of the m/v Nordic Oasis. The agreement requires repayment of the advance in 24 equal quarterly installments of $375,000 beginning on March 28, 2016 and a balloon payment of $12,500,000 due with the final installment in March 2022. Interest on this advance is fixed at 4.30%.
The loan is secured by a first preferred mortgage on the m/v Nordic Oasis, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. As of March 31, 2019 and December 31, 2018, the Company was in compliance with this covenant.
Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.)
Barents and Bothnia entered into a secured Term Loan Facility of $13,000,000 in two tranches of $6,500,000 which were drawn in conjunction with the delivery of the m/v Bulk Bothnia on January 23, 2014 and the m/v Bulk Barents on March 7, 2014. The loan is secured by mortgages on the m/v Nordic Bulk Barents and m/v Nordic Bulk Bothnia and is guaranteed by the Company.
The facility bears interest at LIBOR plus 2.50% (4.90% at March 31, 2019). 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 atall applicable financial covenants as of March 31, 20192020 and December 31, 2018.
The Amended Senior Facility - Dated December 21, 2017 (previously identified as Bulk Nordic Six Ltd. - Loan Agreement - Dated December 21, 2016)
The agreement advanced $19,500,000 in respect of the m/v Bulk Endurance on January 7, 2017, in two tranches. The agreement requires repayment of Tranche A, totaling $16,000,000, in three equal quarterly installments of $100,000 beginning on April 7, 2017 and, thereafter, 17 equal quarterly installments of $266,667 and a balloon payment of $11,667,667 due with the final installment in March 2022. Interest on this advance was fixed at 4.74% on March 27, 2017. The agreement also advanced $3,500,000 under Tranche B, which is payable in 18 equal quarterly installments of $65,000 beginning on October 7, 2017, and a balloon payment of $2,330,000 due with the final installment in March 2022. Interest on this advance is floating at LIBOR plus 6.00% (8.40% at March 31, 2019).
The amended agreement advanced $10,000,000 in respect of the m/v Bulk Pride on December 21, 2017, in two tranches. The agreement requires repayment of Tranche C, totaling $8,500,000, in 16 equal quarterly installments of $275,000 beginning in March 2018 and a balloon payment of $4,100,000 due with the final installment in December 2021. Interest on this advance was fixed at 5.74% as of May 2018. The agreement also advanced $1,500,000 under Tranche D, which is payable in 4 equal quarterly installments of $375,000 beginning on August 21, 2018. Interest on this advance is floating at LIBOR plus 6.00% (8.40% at March 31, 2019).
The loan is secured by first preferred mortgages on the m/v Bulk Endurance and the m/v Bulk Pride, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a minimum liquidity requirement, positive working capital of the borrower and a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. At March 31, 2019 and December 31, 2018, the Company was in compliance with these covenants.
The Bulk Freedom Corp. Loan Agreement -- Dated June 14, 2017
The agreement advanced $5,500,000 in respect of the m/v Bulk Freedom on June 14, 2017. The agreement requires repayment of the loan in 8 quarterly installments of $175,000 and 12 quarterly installments of $150,000 beginning on September 14, 2017. A balloon payment of $2,300,000 is due with the final installment. The facility bears interest at LIBOR plus a margin of 3.75%. On June 14, 2018, the Company elected to fix rates for the following four quarterly periods. The rate at March 31, 2019 is 6.09%, increasing quarterly to 6.51% for the installment due June 14, 2019.
The loan is secured by a first preferred mortgage on the m/v Bulk Freedom, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. At March 31, 2019 and December 31, 2018, the Company was in compliance with this covenant.
109 Long Wharf Commercial Term Loan
Initial amount of $1,096,000 entered into on May 27, 2016. The Long Wharf Construction to Term Loan was repaid from the proceeds of this new facility. The loan is payable in 120 equal monthly installments of $9,133. Interest is floating at the 30 day LIBOR plus 2.0% (4.40% at March 31, 2019). The loan is collateralized by all real estate located at 109 Long Wharf,
Newport, RI, and a corporate guarantee of the Company. The loan contains a maximum loan to value covenant and a debt service coverage ratio. At March 31, 2019 and December 31, 2018, the Company was in compliance with these covenants.
The future minimum annual payments (excluding unamortized bank fees) under the debt agreements are as follows:
|
| | | |
| Years ending |
| March 31, |
| (unaudited) |
2020 | $ | 18,958,793 |
|
2021 | 21,240,674 |
|
2022 | 70,096,857 |
|
2023 | 2,559,600 |
|
2024 | 109,600 |
|
Thereafter | 237,466 |
|
| $ | 113,202,990 |
|
NOTE 5 - DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Forward freight agreements
The Company assesses risk associated with fluctuating future freight rates and, when appropriate, hedges identified economic risk with appropriate derivative instruments, specifically forward freight agreements (FFAs). These economic hedges do not usually qualify for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of FFAs at March 31, 20192020 and December 31, 20182019 were liabilities of approximately $500,000$136,000 and $60,000,$150,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the three months ended March 31, 2020 and 2019 and 2018 are lossesa gain of approximately $440,000$14,130 and $314,000,a loss of approximately $440,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of operations.income.
Fuel Swap Contracts
The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker hedging program. The Company enters into fuel swap contracts that are not designated for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of these fuel swaps at March 31, 20192020 and December 31, 20182019 are liabilities of approximately $437,000$2,874,000 and $3,166,000,$322,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the fuel swaps during the three months ended March 31, 2020 and 2019 and 2018 are gainsa loss of approximately $2,729,000$2,551,000 and lossesa gain of $248,000,approximately $2,729,000, respectively, which are included in unrealized (loss) gain (loss) on derivative instruments in the accompanying consolidated statements of operations.income.
Interest rate cap
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract.
In January 2020, the Company paid $628,000 for interest rate cap contracts to mitigate the risk associated with increases in interest rates on our sale and lease back financing arrangements of the four new-buildings. In the event that the three-month LIBOR rate rises above the applicable strike rate, the Company would receive quarterly payments related to the spread difference.
The following table summarizes these derivative instruments as of March 31, 2020.
|
| | | | | | | | | | | | | | |
| | | | | | | | Fair Value | | Notional Amount |
Interest Rate Derivative | | Effective Date | | Maturity Date | | Interest Rate Strike | | March 31, 2020 | | December 31, 2019 | | March 31, 2020 | | December 31, 2019 |
Interest rate cap contract - 1 | | November 15, 2020 | | April 30, 2026 | | 3.25% | | $53,970 | | $— | | $5,742,750 | | $— |
Interest rate cap contract - 2 | | December 15, 2020 | | May 31, 2026 | | 3.25% | | $56,132 | | $— | | $5,742,750 | | $— |
Interest rate cap contract - 3 | | May 15, 2021 | | November 30, 2026 | | 3.25% | | $68,994 | | $— | | $5,654,336 | | $— |
Interest rate cap contract - 4 | | May 15, 2021 | | November 30, 2026 | | 3.25% | | $68,994 | | $— | | $5,654,336 | | $— |
Total | | | | | | | | $248,090 | | | | | | |
These interest rate cap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs. The loss of $379,910 on changes in the fair value of the interest rate cap contracts was recorded in unrealized (loss)/gain on derivative instruments, net at March 31, 2020.
The three levels of the fair value hierarchy established by ASC 820, Fair Value Measurements and Disclosures, in order of priority are as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 fair value measurements include cash, money-market accounts and restricted cash accounts.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions).
The following table summarizes assets and liabilities measured at fair value on a recurring basis at March 31, 20192020 and December 31, 2018:2019:
| | | Balance at | | | | | | | Balance at | | | | | | |
| March 31, 2019 | | Level 1 | | Level 2 | | Level 3 | March 31, 2020 | | Level 1 | | Level 2 | | Level 3 |
| (unaudited) | | | | | | | (unaudited) | | | | | | |
Margin accounts | $ | 1,405,010 |
| | $ | 1,405,010 |
| | $ | — |
| | $ | — |
| $ | 2,383,275 |
| | $ | 2,383,275 |
| | $ | — |
| | $ | — |
|
Fuel swaps | $ | (436,541 | ) | | $ | — |
| | $ | (436,541 | ) | | $ | — |
| $ | (2,873,625 | ) | | $ | — |
| | $ | (2,873,625 | ) | | $ | — |
|
Freight forward agreements | $ | (499,580 | ) | | $ | — |
| | $ | (499,580 | ) | | $ | — |
| $ | (135,630 | ) | | $ | — |
| | $ | (135,630 | ) | | $ | — |
|
Interest Rate Derivative | | $ | 248,090 |
| | | | $ | 248,090 |
| | $ | — |
|
| | | Balance at December 31, 2018 | | Level 1 | | Level 2 | | Level 3 | Balance at December 31, 2019 | | Level 1 | | Level 2 | | Level 3 |
Margin accounts | $ | 1,820,657 |
| | $ | 1,820,657 |
| | $ | — |
| | $ | — |
| $ | 269,379 |
| | $ | 269,379 |
| | $ | — |
| | $ | — |
|
Fuel swaps | $ | (3,165,967 | ) | | $ | — |
| | $ | (3,165,967 | ) | | $ | — |
| $ | (322,313 | ) | | $ | — |
| | $ | (322,313 | ) | | $ | — |
|
Freight forward agreements | $ | (59,940 | ) | | $ | — |
| | $ | (59,940 | ) | | $ | — |
| $ | (149,760 | ) | | $ | — |
| | $ | (149,760 | ) | | $ | — |
|
The estimated fair values of the Company’s forward freight agreements and fuel swap contracts are based on market prices obtained from an independent third-party valuation specialist based on published indices. Such quotes represent the estimated amounts the Company would receive or pay to terminate the contracts. The interest rate caps contracts are valued using analysis obtained from independent third party valuation specialists based on market observable inputs, representing Level 2 assets.
NOTE 6 - RELATED PARTY TRANSACTIONS
Amounts and notes payable to related parties consist of the following:
| | | December 31, 2018 | | Activity | | March 31, 2019 | December 31, 2019 | | Activity | | March 31, 2020 |
| | | | | (unaudited) | | | | | (unaudited) |
Included in trade accounts receivable and voyage revenue on the consolidated balance sheets and statements of income, respectively: | | | | | | | | | | |
Trade receivables due from King George Slag(i) | 627,629 |
| — |
| (50,000 | ) | | 577,629 |
| $ | 457,629 |
| | $ | — |
| | $ | 457,629 |
|
| | | | | | | | | | |
Included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets: | |
| | |
| | |
| |
| | |
| | |
|
Affiliated companies (trade payables)(ii) | 1,971,935 |
| | 323,663 |
| | 2,295,598 |
| 5,679,768 |
| | 744,554 |
| | 6,424,322 |
|
| | | | | | | | | | |
Included in current related party debt on the consolidated balance sheets: | |
| | |
| | |
| |
| | |
| | |
|
Loan payable – 2011 Founders Note | $ | 2,595,000 |
| | (865,000 | ) | | $ | 1,730,000 |
| |
Interest payable - 2011 Founders Note | 282,746 |
| | 26,898 |
| | 309,644 |
| 332,987 |
| | (90,135 | ) | | 242,852 |
|
Total current related party debt | $ | 2,877,746 |
| | $ | (838,102 | ) | | $ | 2,039,644 |
| $ | 332,987 |
| | $ | (90,135 | ) | | $ | 242,852 |
|
| |
i. | King George Slag LLC is a joint venture of which the Company owns 25% |
| |
ii. | Seamar Management S.A. ("Seamar") |
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 $1,730,000 and $2,595,000 at March 31, 2019 and December 31, 2018, respectively.
Under the terms of a technical management agreement between the Company and Seamar Management S.A. (“Seamar”), an equity method investee, Seamar is responsible for the day-to-day operations for certain of the Company’s owned vessels. During the three months ended March 31, 20192020 and 2018,2019, the Company incurred technical management fees of approximately $716,400$707,400 and $756,000,$716,400, respectively, under this arrangement. The total amounts payable to Seamar at March 31, 20192020 and December 31, 20182019 were approximately $2,296,000$6,424,000 and $1,972,000,$5,680,000, respectively.
Dividends payable to related parties consist of the following, all of which are payable to related parties:following:
|
| | | | |
| | 2013 common stock dividend |
Balance at December 31, 2018 | | 4,063,598 |
|
Payments | | (1,135,000 | ) |
Balance at March 31, 2019 | | $ | 2,928,598 |
|
|
| | | | |
| | 2013 common stock dividend |
|
Balance at December 31, 2019 | | $ | 631,961 |
|
Paid in cash | | (478,359 | ) |
Balance at March 31, 2020 | | $ | 153,602 |
|
NOTE 7 - COMMITTMENTSCOMMITMENTS AND CONTINGENCIES
Vessel Sales and Leasebacks Accounted for as Capital Leases (in accordance with prior accounting guidance - ASC 840)
The Company's fleet includes four vessels financed under sale and leaseback financing arrangements accounted for as capital leases. These leases are secured by the assignment of earnings and insurances and by guarantees of the Company.
Vessel Acquisition Accounted for as a Finance Lease (in accordance with new accounting guidance - ASC 840)
The selling price of the m/v Bulk Destiny to the new owner (lessor) was $21.0 million and the fair value of the vessel at the inception of the lease was $24.0 million. The difference between the selling price and the fair value of the vessel was recorded as prepaid rent and is being amortized over the 25 year estimated useful life of the vessel. Prepaid rent is included in finance lease right of use assets (previously "vessels under capital lease") on the consolidated balance sheet at March 31, 2019.2020. Minimum lease payments fluctuate based on three-month LIBOR and are payable quarterly over the seven year lease term, with a purchase obligation of $11,200,000$11.2 million due with the final lease payment in January 2024. Interest is floating at LIBOR plus 2.75% (5.06%(4.65% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term. The lease contains a minimum liquidity requirement, positive working capital of the leasee and a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. At March 31, 2019 and December 31, 2018, the Company was in compliance with these covenants.
The selling price of the m/v Bulk Beothuk was $7,000,000$7.0 million and the fair value was estimated to be the same. The lease is payable at $3,500 per day every fifteen days over the five year lease term, and a balloon payment of $4,000,000$4.0 million is due with the final lease payment in June 2022. The implied interest rate at inception was 11.83%. TheIn January 2020 the Company will own this vessel at the endcompleted an early buy-out of the lease term.for a purchase price of $5.5 million.
The selling price of the m/v Bulk Trident was $13,000,000$13.0 million and the fair value was estimated to be the same. The Company simultaneously leased the vessel back from the buyer. The minimum lease payments fluctuate based on three-month LIBOR and are payable monthly over the eight-year lease term. The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. Interest is floating at LIBOR plus 1.7% (4.02%(3.15% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term.
The selling price of the m/v Bulk PODS was $14,750,000$14.8 million and the fair value was estimated to be the same. The Company simultaneously leased the vessel back from the buyer. The minimum lease payments fluctuate based on three-month LIBOR and are payable monthly over the eight-year lease term. The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. Interest is floating at LIBOR plus 1.7% (4.02%(2.90% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term.
Vessel Acquisition Accounted for as a Finance Lease (in accordance with new accounting guidance - ASC 842)
In February 2019, the Company acquired the m/v Bulk Spirit for $13,000,000,$13.0 million, which is the estimated fair value and simultaneously entered into a failed sale and leaseback of the vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606, because control of the vessel was not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease transfers ownership of the vessel to the Company by the end of the lease term. The minimum lease payments include interest at 5.10% for the first five years. Interest fluctuates based on the three-month LIBOR for the remaining three years of the eight-year lease term. The Company has the option to purchase the vessel at the end of the second year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. The Company is obligated to repurchase the vessel at the end of the lease term. A balloon payment of $3,875,000$3.9 million is due with the final lease payment in March 2027. This lease is secured by the assignment of earnings and insurances and by a guarantee of the Company.
In September 2019, the Company acquired the m/v Bulk Friendship for $14.1 million, which is the estimated fair value and simultaneously entered into a failed sale and leaseback of the vessel. The Company determined that the transfer of the vessel to the lessor was not a sale in accordance with ASC 606, because control of the vessel was not transferred to the lessor. The lease is classified as finance lease in accordance with ASC 842, because the lease includes a fixed price purchase option, which the Company expects to exercise at the end of the lease term. The minimum lease payments include imputed interest at 5.29%. The Company has the option to purchase the vessel at the end of the third year of the lease or thereafter, or in the case of default by the lessor, at any time during the lease term. In the event the Company has not exercised any of the purchase options during the term of the charter then the Company shall have a final purchase option to purchase the vessel at the end of the fifth year at a fixed price of $7.8 million. This lease is secured by the assignment of earnings and insurances and by a guarantee of the Company.
Vessel Newbuildings
During second and third quarter of 2019, the Company entered into two vessel newbuilding contracts to build four new high ice class post-panamax 95,000 dwt dry bulk vessels. The new vessels, with a building cost of approximately between $37.7 million to $38.3 million each, are expected to be delivered in 2021. As of September 30, 2019, the Company has made deposits of $15.4 million for the four new vessels. The second installments of 20% are due and payable upon launching of the vessels and the final payments are due upon delivery of the vessels.
The Company entered into a series of transactions to finance its four new post-panamax dry bulk vessels, to be delivered in 2021, under sale and leaseback transactions. The agreements obligate the Company to sell the vessels upon completion of construction at the lesser of approximately $32 million or 85% of fair market value at closing. Following the sale, the Company is obligated to charter the vessels from the buyer under a bareboat charter for a period of 15 years with a purchase obligation of $2.5 million at the end of year 15. The Company has options to purchase the vessels at designated prices starting the sixth year after delivery of each vessel. The Company expects to account for these transactions as failed sale and leaseback transactions and classify the leases as finance leases.
The Company has also entered into a LLC agreement with the non-controlling interest holder of NBP which includes certain obligations as described in Note 8.
Long-term Contracts Accounted for as Operating Leases
The Company leases office space for its Copenhagen operations. Since December 31, 2018, this lease continues on a month to month basis. The noncancelablenon-cancelable period is six months, which represents the period for which it is reasonably certain that termination will not be exercised.months.
The Company leases office space for its Singapore operations. At March 31, 2020, the remaining lease term is nine months.
For the three months ended March 31, 2020 and 2019, the remaining obligation under thisCompany recognized approximately $52,000 as lease is approximately $42,000.expense for office leases in General and Administrative Expenses.
Future minimum lease payments under finance leases with initial or remaining terms in excess of one year at March 31, 20192020 were:
| | | Years ending March 31, | |
Year ending December 31, | | |
2020 | $ | 10,262,187 |
| $ | 7,472,176 |
|
2021 | 9,999,366 |
| 9,774,982 |
|
2022 | 9,860,376 |
| 9,608,224 |
|
2023 | 12,356,386 |
| 9,440,933 |
|
2024 | 19,595,782 |
| 26,166,010 |
|
Thereafter | 16,754,568 |
| 13,051,955 |
|
Total minimum lease payments | $ | 78,828,665 |
| $ | 75,514,280 |
|
Less amount representing interest | 16,208,250 |
| |
Less imputed interest | | 12,843,175 |
|
Present value of minimum lease payments | 62,620,415 |
| 62,671,105 |
|
Less current portion | 6,601,611 |
| 6,902,370 |
|
Long-term portion | $ | 56,018,804 |
| $ | 55,768,735 |
|
At March 31, 2019 the Company recognized approximately $52,000 as lease expense for office leases in GeneralLegal Proceedings and Administrative Expenses. Claims
The Company is subject to certain asserted claims arising in the ordinary course of business. The Company intends to vigorously assert its rights and defend itself in any litigation that may arise from such claims. While the ultimate outcome of these matters could affect the results of operations of any one year, and while there can be no assurance with respect thereto, management believes that after final disposition, any financial impact to the Company would not be material to its consolidated financial position, results of operations, or cash flows.
NOTE 8 - SUBSEQUENT EVENTSOTHER LONG-TERM LIABILITIES
On May 7,In September 2019, the Company entered into an LLC agreement for the formation of NBP, that, at inception is owned 75% by the Company and 25% by an independent third party. NBP was established for the purpose of constructing and owning four new-build ice class post panamax vessels. During the construction phase of the vessel, the third party has committed to contribute additional funding and ultimately own 50% of NBP at the time of delivery of the new-build ice class post panamax vessels. The agreement contains both put and call option provisions. Accordingly, the Company may be obligated, pursuant to the put option, or entitled pursuant to the call option, to purchase a 2008 built Supramax (to be renamed m/v Bulk Independence) for $14 million.the third party's interest in NBP beginning any time after September 2026. The put option and call option are at fixed prices which are not significantly different from each other, starting at $4.0 million per vessel which was delivered on May 14, 2019, was financed with an existing lenderthe 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 cross-collateralized with the m/v Bulk Endurance and m/v Bulk Pride.
On May 2, 2019, the Board of Directors of NBHC approved a $7 million dividend to its shareholders, two-thirds of which is payable to noncontrolling interests. The dividend was paid on May 7, 2019.
On April 30, 2019,exercised, the Company entered intois obligated to purchase the vessels from NBP at a contractfixed price. Pursuant to build two new post-panamax 95,000 dwt dry bulk vessels and holds optionsASC 480, Distinguishing Liabilities from Equity, the Company has recorded the third party's interest in NBP of $5.1 million in Long term liabilities - Other at March 31, 2020. Earnings attributable to build two more similar vessels. The new vessels, withthe third party’s interest in NBP are recorded in Interest expense, net, which resulted in a building costreduction in interest expenses of approximately $38 million each, are expected to be delivered in$27,643 for the first half of 2021.period ended March 31, 2020.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and footnotes thereto contained in this report.
Forward Looking Statements
All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward looking statements as a result of the risk factors and other factors detailed in our filings with the Securities and Exchange Commission. All subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
Important Financial and Operational Terms and Concepts
The Company uses a variety of financial and operational terms and concepts when analyzing its performance.
These include revenue recognition, deferred revenue, allowance for doubtful accounts, vessels and depreciation and long-lived assets impairment considerations, as defined above as well as the following:
Voyage Revenue. Voyage revenue is derived from voyage charters which involve the carriage of cargo from a load port to a discharge port, which is predetermined in each voyage contract. Gross revenue is calculated by multiplying the agreed rate per ton of cargo by the number of tons loaded. The Company directs how and for what purpose the vessel is used and therefore, these voyage contracts do not contain leases.
Charter Revenue. Charter revenue is earned when the Company lets a vessel it owns or operates to a charterer for a specified period of time. Charter revenue is based on the agreed rate per day. These time-charter arrangements contain leases because the lessee has the power to direct the use and receives substantially all of the economic benefits from the use of the vessel. The operating lease component and the vessel operating expense nonleasenon-lease component of a time-charter contract are reported as a single component.
Voyage Expenses. The Company incurs expenses for voyage charters, including bunkers (fuel), port charges, canal tolls, brokerage commissions and cargo handling operations, which are expensed as incurred.
Charter Expenses. The Company charters in vessels to supplement its owned fleet to support its voyage charter operations. The Company hires vessels under time charters with third party vessel owners, and recognizes the charter hire payments as an expense on a straight-line basis over the term of the charter. Charter hire payments are typically made in advance, and the unrecognized portion is reflected as advance hire in the accompanying consolidated balance sheets. Under the time charters, the vessel owner is responsible for the vessel operating costs such as crews, maintenance and repairs, insurance, and stores. The Company does not record a right-of-use asset or lease liability for any arrangement less than one year.
Vessel Operating Expenses. Vessel operating expenses represent the cost to operate the Company’s owned vessels. Vessel operating expenses include crew hire and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes, other miscellaneous expenses, and technical management fees. These expenses are recognized as incurred. Technical management services include day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, arranging the hire of crew, and purchasing stores, supplies, and spare parts.
Net Revenue. Net revenue represents total revenue less the total direct costs of transportation and services, which includes charter hire, voyage and vessel operating expenses.
Fleet Data. The Company believes that the measures for analyzing future trends in its results of operations consist of the following:
Shipping days. The Company defines shipping days as the aggregate number of days in a period during which its owned or chartered-in vessels are performing either a voyage charter (voyage days) or a time charter (time charter days).
Daily vessel operating expenses. The Company defines daily vessel operating expenses as vessel operating expenses divided by ownership days for the period. Vessel operating expenses include crew hire and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes, other miscellaneous expenses, and technical management fees.
Chartered in days. The Company defines chartered in days as the aggregate number of days in a period during which it chartered in vessels from third party vessel owners.
Time Charter Equivalent ‘‘TCE’’ rates. The Company defines TCE rates as total revenues less voyage expenses divided by the length of the voyage, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because rates for vessels on voyage charters are generally not expressed in per-day amounts while rates for vessels on time charters generally are expressed in per-day amounts.
Selected Financial Information
| | (in thousands, except shipping days data) (figures may not foot due to rounding) | As of and for the three months ended March 31, | |
(in thousands, except for shipping days data and per share data) (figures may not foot due to rounding) | | | For the three months ended March 31, |
| 2019 | | 2018 | | 2020 | | 2019 |
Selected Data from the Consolidated Statements of Operations | | |
Selected Financial Data | | | |
Voyage revenue | $ | 65,851 |
| | $ | 70,319 |
| | $ | 86,524 |
| | $ | 65,851 |
|
Charter revenue | 13,693 |
| | 8,654 |
| | 9,356 |
| | 13,693 |
|
Total revenue | 79,544 |
| | 78,973 |
| | 95,880 |
| | 79,544 |
|
Voyage expense | 32,174 |
| | 30,168 |
| | 47,796 |
| | 32,174 |
|
Charter expense | 24,947 |
| | 22,696 |
| |
Charter hire expense | | | 32,325 |
| | 24,947 |
|
Vessel operating expenses | 9,754 |
| | 9,849 |
| | 9,934 |
| | 9,754 |
|
Total cost of transportation and service revenue | 66,876 |
| | 62,713 |
| | 90,055 |
| | 66,876 |
|
Net revenue (1) | 12,668 |
| | 16,260 |
| |
Vessel depreciation and amortization | | | 4,196 |
| | 4,342 |
|
Gross Profit | | | 1,629 |
| | 8,326 |
|
Other operating expenses | 8,411 |
| | 8,466 |
| | 4,039 |
| | 4,069 |
|
Income from operations | 4,257 |
| | 7,794 |
| |
Gain on sale of vessels | | | (78 | ) | | — |
|
(Loss) income from operations | | | (2,333 | ) | | 4,257 |
|
Total other expense, net | 224 |
| | (2,258 | ) | | (4,437 | ) | | 224 |
|
Net income | 4,481 |
| | 5,535 |
| |
Income attributable to noncontrolling interests | (778 | ) | | (1,210 | ) | |
Net income attributable to Pangaea Logistics Solutions Ltd. | $ | 3,703 |
| | $ | 4,325 |
| |
Net (loss) income | | | (6,770 | ) | | 4,481 |
|
Income attributable to non-controlling interests | | | (26 | ) | | (778 | ) |
Net (loss) income attributable to Pangaea Logistics Solutions Ltd. | | | $ | (6,795 | ) | | $ | 3,703 |
|
| | | | | | | |
Adjusted EBITDA (2) | 8,635 |
| | 12,132 |
| |
Net (loss) income from continuing operations per common share information | | | | | |
Basic net (loss) income per share | | | $ | (0.16 | ) | | $ | 0.09 |
|
Diluted net (loss) income per share | | | (0.16 | ) | | $ | 0.09 |
|
Weighted-average common shares Outstanding - basic | | | 43,341,005 |
| | 42,601,227 |
|
Weighted-average common shares Outstanding - diluted | | | 43,341,005 |
| | 43,071,632 |
|
| | | | | | | |
Shipping Days (3) | |
| | |
| |
Adjusted EBITDA (1) | | | $ | 2,934 |
| | $ | 9,309 |
|
| | | | | |
Shipping Days (2) | | | |
| | |
|
Voyage days | 2,905 |
| | 2,945 |
| | 3,625 |
| | 2,905 |
|
Time charter days | 1,033 |
| | 579 |
| | 951 |
| | 1,033 |
|
Total shipping days | 3,938 |
| | 3,524 |
| | 4,576 |
| | 3,938 |
|
| | | | | | | |
TCE Rates ($/day) (4) | $ | 12,029 |
| | $ | 13,849 |
| |
TCE Rates ($/day) (3) | | | $ | 10,508 |
| | $ | 12,029 |
|
| | | March 31, 2019 | | December 31, 2018 | | March 31, 2020 | | December 31, 2019 |
Selected Data from the Consolidated Balance Sheets | |
| | |
| | |
| | |
|
Cash, restricted cash and cash equivalents | $ | 61,623 |
| | $ | 56,115 |
| | $ | 42,473 |
| | $ | 53,055 |
|
Total assets | $ | 448,002 |
| | $ | 453,475 |
| | $ | 452,018 |
| | $ | 479,903 |
|
Total secured debt, including finance leases liabilities | $ | 173,842 |
| | $ | 166,552 |
| | $ | 166,055 |
| | $ | 176,688 |
|
Total liabilities and stockholders' equity | $ | 448,002 |
| | $ | 453,475 |
| |
Total shareholders' equity | | | $ | 237,362 |
| | $ | 243,072 |
|
| | | | | | | |
| For the three months ended March 31, | | For the three months ended March 31, |
| 2019 | | 2018 | | 2020 | | 2019 |
Selected Data from the Consolidated Statements of Cash Flows | | | | | | | |
Net cash provided by operating activities | $ | 11,960 |
| | $ | 2,790 |
| |
Net cash used in investing activities | $ | (11,586 | ) | | $ | (377 | ) | |
Net cash (used in) provided by operating activities | | | $ | (6,845 | ) | | $ | 11,960 |
|
Net cash provided by (used in) investing activities | | | $ | 7,452 |
| | $ | (11,586 | ) |
Net cash (used in) provided by financing activities | $ | 5,134 |
| | $ | (8,740 | ) | | $ | (11,190 | ) | | $ | 5,134 |
|
| | | | |
| |
(1) | Net revenue represents total revenue less the total direct costs of transportation and services, which includes charter hire, voyage and vessel operating expenses. Net revenue is included because it is used by management and certain investors to measure performance by comparison to other logistic service providers. Net revenue is not an item recognized by the generally accepted accounting principles in the United States of America, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other indicator of a company's operating performance required by U.S. GAAP. Pangaea’s definition of net revenue used here may not be comparable to an operating measure used by other companies. |
| |
(2) | Adjusted EBITDA represents operating earnings before interest expense, income taxes, depreciation and amortization, loss on sale and leaseback of vessels, share-based compensation and other non-operating income and/or expense, if any. Adjusted EBITDA is included because it is used by management and certain investors to measure operating performance and is also reviewed periodically as a measure of financial performance by Pangaea's Board of Directors. Adjusted EBITDA is not an item recognized by the generally accepted accounting principles in the United States of America, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other indicator of a company's operating performance required by U.S. GAAP. Pangaea’s definition of Adjusted EBITDA used here may not be comparable to the definition of EBITDA used by other companies. |
| |
(2) | Shipping days are defined as the aggregate number of days in a period during which its owned or chartered-in vessels are performing either a voyage charter (voyage days) or time charter (time charter days). |
| |
(3) | Pangaea defines time charter equivalent, or “TCE,” rates as total revenues less voyage expenses divided by the length of the voyage, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because rates for vessels on voyage charters are generally not expressed in per-day amounts while rates for vessels on time charters generally are expressed in such amounts. |
The reconciliation of gross profit to net transportation and service revenue and income (loss) from operations to net revenue and adjustedAdjusted EBITDA is as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| | | |
Net Revenue | | | |
Income from operations | $ | 4,257,466 |
| | $ | 7,793,679 |
|
General and administrative | 4,033,680 |
| | 4,128,298 |
|
Depreciation and amortization | 4,377,188 |
| | 4,338,188 |
|
Net Revenue | $ | 12,668,334 |
| | $ | 16,260,165 |
|
| | | |
Adjusted EBITDA | | | |
Income from operations | 4,257,466 |
| | 7,793,679 |
|
Depreciation and amortization | 4,377,188 |
| | 4,338,188 |
|
Adjusted EBITDA | $ | 8,634,654 |
| | $ | 12,131,867 |
|
|
| | | | | | | |
(in thousands, figures may not foot due to rounding)
| Three Months Ended March 31, |
| 2020 | | 2019 |
Net Transportation and Service Revenue (4) | | | |
Gross Profit | $ | 1,629 |
| | $ | 8,327 |
|
Add: | | | |
Vessel Depreciation and Amortization | $ | 4,196 |
| | $ | 4,342 |
|
Net transportation and service revenue | $ | 5,825 |
| | $ | 12,669 |
|
Adjusted EBITDA | | | |
(Loss) income from operations | $ | (2,333 | ) | | $ | 4,257 |
|
Depreciation and amortization | 4,242 |
| | 4,377 |
|
Gain on sale of vessels | $ | (78 | ) | | $ | — |
|
Share-based compensation | $ | 1,103 |
| | $ | 675 |
|
Adjusted EBITDA
| $ | 2,934 |
| | $ | 9,309 |
|
(3) Shipping days are defined as(4) Net transportation and service revenue represents total revenue less the aggregate numbertotal direct costs of days in a period duringtransportation and services, which its owned or chartered-in vessels are performing either aincludes charter hire, voyage charter (voyage days) or time charter (time charter days).
(4) Pangaea defines time charter equivalent, or “TCE,” rates as total revenues less voyage expenses dividedand vessel operating expenses. Net transportation and service revenue is included because it is used by management and certain investors to measure performance by comparison to other logistic service providers. Net transportation and service revenue is not an item recognized by the lengthgenerally accepted accounting principles in the United States of the voyage, which is consistent with industry standards. TCE rate isAmerica, or U.S. GAAP, and should not be considered as an alternative to net income, operating income, or any other indicator of a common shipping industrycompany'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 primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because rates for vessels on voyage charters are generally not expressed in per-day amounts while rates for vessels on time charters generally are expressed in such amounts.other companies.
IndustryBusiness Overview
The seaborne drybulkdry bulk sector of the transportation and logistics industry is cyclical and can be volatile.volatile due to changes in supply of vessels and demand for transportation of dry bulk commodities. The Baltic Dry Index (“BDI”), a measure of dry bulk market performance, fell from 1,282 at the start of the year to 685 at the end of the quarter before inching back into the 900s in April. The BDI averaged 689549 for the first quarter of 2019,2020, down from an average of 1,146689 for the comparable quarter of 2018. Factors contributing2019. More specifically, and reflecting the composition of the Company's fleet, the average published market rates for Supramax and Panamax vessels decreased approximately 17% from an average of $7,160 in first quarter of 2019 to this recent downtrend appear$5,920 in the same period of 2020. We have historically experienced fluctuations in our results of operations on a quarterly and annual basis. We expect to be seasonal, such as Lunar New Year, and weaker soybean tradeexperience continued fluctuations in our operating results in the foreseeable future due to the lossa variety of US shipments to China. However,factors, including competition and seasonality.
Although our business is not heavily focused in China, the dry bulk marketsector of the shipping industry is closely correlated to economic activity in China, which was the first country to be impacted by the novel coronavirus or COVID-19. This resulted in closures and an overall contraction in China's economic output in January and February. By March China began to loosen restriction and show some signs of recovery immediately following Chinese New Year celebrations withimprovement which resulted in a normal flowslight rebound in the BDI. However also in early March, the global spread of cargo,the virus accelerated especially in parts of Europe and the supply-sideUnited States resulting in various forms of nationwide shut downs. The impacts of these shutdowns on the demand for dry bulk goods will be highly dependent on the duration and how quickly various countries can return to normal levels of industrial activity, which is expecteduncertain.
Given the uncertainties of the COVID-19 pandemic, we have taken steps to contract duemanage and reduce operating costs, further enhance our financial flexibility, and protect the health and safety of our crew and shore based employees. Consistent with our chartering strategy we have redelivered chartered-in vessels when possible and continue to increased scrappingcharter in new vessels when needed for short term period in order to limit our exposure to further declines in the market and downtime associated with outfitting scrubbers.to reduce our time charter expenses in future periods. Further we have temporarily suspended our dividend to maintain a strong liquidity position for eventual market recovery. We have implemented stricter protocols around crew changes, and required quarantine periods, and shore based employees in our Newport, Copenhagen, Singapore and Athens offices are working remotely.
Quarterly TCE Performance
The Company's TCE rates were down 13% quarter over quarter after having climbed consistently from $12,029 for the third quarter of 2017three months ended March 31, 2019 to $10,508 for the end of 2018. However, thethree months ended March 31, 2020. The Company's achieved TCE significantly outperformedrates continued to outperform against the indexaverage of the Baltic panamax and supramax market indexes and exceeded the average published market rates by approximately 68%78% due to its long-term COAs,contracts of affreightment, ("COAs"), its specialized fleet and its cargo-focused strategy.
1st Quarter Highlights
Net incomeloss attributable to Pangaea Logistics Solutions Ltd. of $3.7was approximately $6.8 million for three months ended March 31, 2020 as compared to $4.3approximately $3.7 million net income for the same period of 2019.
Net loss per share was $0.16 for three months ended March 31, 2020 as compared to earnings per share of $0.09 for the same period of 2019.
Pangaea's TCE rates were $10,508 for the three months ended March 31, 2018.
Pangaea's TCE rates were2020 and $12,029 for the three months ended March 31, 2019 and $13,849 for the three months ended March 31, 2018 while the market average for the first quarter of 20192020 was approximately $7,160,$5,920, giving the Company an overall average premium over market rates of approximately $4,869$4,588 or 68%78%. The Company's long-term COAs, cargo focus, and specialized fleet of ice class vessels give rise to this premium.
Total revenue increased slightly to $95.9 million for the three months ended March 31, 2020, from $79.5 million for the three months ended March 31, 2019 up from $79.0 million for the three months ended March 31, 2018 due to an increase in shipping days.
At the end of the quarter, Pangaea had $61.6$42.5 million in cash, restricted cash and cash equivalents.
Three Months Ended March 31, 20192020 Compared to Three Months Ended March 31, 20182019
Revenues
Pangaea’s revenues are derived predominately from voyage and time charters, which are discussed below. Total revenue for the three months ended March 31, 20192020 was $79.5$95.9 million, compared to $79.0$79.5 million for the same period in 2018,2019, a 1%21% increase. The total number of shipping days increased 12%16% to 3,9384,576 in the three months ended March 31, 2019,2020, compared to 3,5243,938 for the same period in 2018.2019.
Components of revenue are as follows:
Voyage revenues decreasedincreased by 6%31% for the three months ended March 31, 20192020 to $65.9$86.5 million compared to $70.3$65.9 million for the same period in 2018.2019. The decreaseincrease in voyage revenues was primarily due to a decreasean increase in the number of voyage days, which were 3,625 in the first quarter of 2020 as compared to 2,905 in the first quarter of 2019, as compared to 2,945 in the first quarteran increase of 2018 and by the decrease in TCE rates, as discussed above.25% .
Charter revenues increaseddecreased to $9.4 million from $13.7 million, from $8.7 million, or 58%32%, for the three months ended March 31, 20192020 compared to the same period in 2018.2019. The increasedecrease in charter revenues was due to an increasea decrease in hire rates, which as noted above declined by approximately 17%, and a decline in time charter days which were up 78% to 1,033 in the first quarter of 2019 from 579 in the first quarter of 2018.8%. The optionality of our chartering strategy allows the Company to selectively release excess tonne-days into the market under time charters arrangements.
Voyage Expenses
Voyage expenses for the three months ended March 31, 20192020 were $32.2$47.8 million, compared to $30.2$32.2 million for the same period in 2018,2019, an increase of approximately 7%49%. The increase in voyage expense was primarily due to an 8%a 25% increase in the average costvoyage days in first quarter of bunkers, quarter over quarter.
2020, an increase in bunker expenses due to timing of bunker liftings in late 2019 to comply with IMO 2020 fuel requirements that became effective on January 1, 2020, and an increase in port expenses due to short haul voyages, increased port calls and canal fees.
Charter Hire Expenses
Charter hire expenses for the three months ended March 31, 20192020 were $24.9$32.3 million, compared to $22.7$24.9 million for the same period in 2018.2019, a 30% increase. This was due to an increase in chartered-in days during the three months ended March 31, 2020. The number of chartered-in days increased 13%35% from 1,9592,220 days in the three months ended March 31, 20182019 to 2,2203,003 days for the three months ended March 31, 2019. This reflects2020. The dry bulk market rates experienced a decline starting at the Company's unique ability to adapt to changing market conditions by changingend of 2019 through January of 2020, while the Company was still paying short term fixed charter rates for third-party vessels. As noted above the Company charters vessels in on short term periods, however the turnover of the chartered-in profile to meet its cargo commitments.fleet will lag a decline such as the one experienced in early 2020.
Vessel Operating Expenses
Vessel operating expenses for the three months ended March 31, 2019 and 2018 remained unchanged at2020 were $9.9 million, compared to $9.8 million which includesfor the same period in 2019, a slight increase of approximately 2%. Excluding technical management fees, of approximately $914,400 and $962,400, respectively. Owned and bareboat charter daysvessel operating expenses on a per day basis were 1,734 in$5,229 for the three months ended March 31, 2019 as compared to 1,800 in the three months ended March 31, 2018. This decrease is due to the release of 2 long-term bareboat charter agreements in August2020 and September of 2018, offset by the addition of two vessels in August 2018 and February 2019. Vessel operating expenses less technical management fee per day were $5,098 for the three months ended March 31, 2019 and $4,9372019. Technical management fees were approximately $0.9 million for the three months ended March 31, 2018.2020 and 2019.
General and Administrative Expenses
General and administrative expenses were $4.0 million for the three months ended March 31, 2020 and 2019.
(Loss) Income from Operations
The Company hadLoss from operations was $2.3 million for the three months ended March 31, 2020 as compared to income from operations of $4.3 million for the three months ended March 31, 2019 as compared to income from operations of $7.8 million for the three months ended March 31, 2018.2019. This is primarily due to to the increases in voyage expenses and charter hire expenses asdiscussed above. Net revenue was down 22% over the same period.
Unrealized (loss) gain (loss) on derivative instruments
The Company had unrealized gainsincurred losses on bunker swaps of $2,729,000approximately $2,551,000 and gains on forward freight agreements (FFAs) of approximately $14,000 in the three months ended March 31, 20192020 as compared to unrealized lossesa gain of approximately $248,000$2,729,000 on bunker swaps and a loss of approximately $440,000 on FFAs in the three months ended March 31, 2018. This is primarily due to2019. We expect that any decline in the fair value of the fuel swap contracts would be offset by a drastic dropdecrease in the cost of underlying fuel pricespurchases. The fair value loss on interest rate derivative was approximately $380,000. These result from changes in the fair value of the derivatives at the end of 2018, followed by the market recovery during the first quarter of 2019. Market prices remained relatively stable for the first quarter of 2018. The Company had unrealized losses on FFAs of approximately $440,000 and $314,000 for the three months ended March 31, 2019 and 2018, respectively.
Income attributable to noncontrolling interests
Income attributable to noncontrolling interests totaled $778,000 for the three months ended March 31, 2019 versus $1,210,000 for the three months ended March 31, 2018. This is due to lower rates and the impact on the noncontrolling interests' earnings.respective balance sheet dates.
Significant accounting estimates
The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are the estimated fair value used in determining the estimated future cash flows used in its impairment analysis, the estimated salvage value used in determining depreciation expense and the allowances for doubtful accounts.
Long-lived Assets Impairment Considerations
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying 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 assets group level, which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size and major characteristic or trade.
The significant factorsCompany performed its quarterly assessment by evaluating whether a triggering event had occurred as of March 31, 2020 considering current market conditions resulting from the global COVID-19 pandemic. The Company concluded that no triggering event had occurred at March 31, 2020 and assumptions used inwill continue to monitor the undiscounted projected net operating cash flow analysis includemarket for any adverse conditions resulting from the Company’s estimate of future TCE rates based on current rates under existing charters and contracts. When existing contracts expire,COVID-19 pandemic.
At March 31, 2019 the Company uses an estimated TCE based on actual resultsdid not identify any potential triggering events and extends these rates out to the endtherefore, in accordance with authoritative guidance, did not perform tests of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and address commissions and assume no revenue on scheduled offhire days. The Company uses the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying value of the asset group, an impairment charge would be recognized.recoverability.
Liquidity and Capital Resources
Liquidity and Cash Needs
The Company has historically financed its capital requirements with cash flow from operations, proceeds from related party debt, proceeds from long-term debt and finance leases, and in June 2017, through a private placement of common stock. The Company may consider additional debt and equity financing alternatives in the future. In February 2019 the Company entered into a finance lease arrangement to generate $13 million of cash for the acquisition of the m/v Bulk Spirit. However, if market conditions are negative, the Company may be unable to raise additional debt or equity financing on acceptable terms or at all. As a result, the Company may not be unableable to pursue opportunities to expand its business. At March 31, 20192020 and December 31, 2018,2019, the Company had working capital of $39.3$28.4 million and $34.5$37.1 million, respectively.
Considerations made by management in assessing the Company’s ability to continue as a going concern are its ability to consistently generate positiveOperating Activities
Operating cash flows from operations, which were approximately $12.0 million and $2.8 million induring the three months ended March 31, 20192020 resulted in a net outflow of $6.8 million compared to a net inflow of $12.0 million during the same period of 2019. The decrease primarily resulted from net loss of $6.8 million and 2018, respectively; $40.1higher dry-docking cost incurred during the first quarter of 2020.
Investing Activities
Investing cash flows during the three months ended March 31, 2020 was a net inflow of $7.5 million compared to a net outflow of $11.6 million during the same period of 2019. The increase was primarily due to the cash receipts from sale of two vessels in 2018the first quarter of 2020.
Financing Activities
Financing cash flows during the three months ended March 31, 2020 was a net outflow of $11.2 million compared to net inflow of $5.1 million during the same period of 2019. The Company paid off one of its finance leases during the three months ended March 31, 2020 and $29.2we received cash of $13.0 million in 2017; and its ability to procure long-term fixed contract employment (COAs) with new and longstanding customers. In addition,from a finance lease during the same period of 2019.
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 and lease of interests in vessels, newbuild vessels, and capital improvements to its vessels which are expected to enhance the revenue earning capabilities and safety of these vessels. The Company’s owned and leased fleet includes threetwo Panamax drybulk carriers, seven Supramax drybulk carriers, two Ultramax Ice-Class 1C, two Handymaxeight Supramax drybulk carriers (both of which are Ice-Class 1A) and one barge. The Company also has a one-third interest in a consolidated joint venture which owns six Panamax Ice-Class 1A drybulk carriers.
In addition to vessel acquisitions that the Company may undertake in future periods, its other major capital expenditures include funding its program of regularly scheduled drydockings necessary to make improvements to its vessels, as well as to comply with international shipping standards and environmental laws and regulations. This includes installation of ballast water treatment systems required under new regulations, the cost of which will be approximately $0.5 million to $0.7 million per vessel. The Company has some flexibility regarding the timing of dry docking, but the total cost is unpredictable. Funding expenses associated with these requirements will be met with cash from operations. The Company anticipates that this process of recertification will require it to reposition these vessels from a discharge port to shipyard facilities, which will reduce the Company’s available days and operating days during that period. The Company capitalized drydocking costs totaling approximately $381,000$2,903,000 and $1.5 million$381,000 in the three months ended March 31, 2020 and 2019, and 2018, respectively, andrespectively. The Company expensed drydocking costs of approximately $34,000$15,000 in the three months ended March 31, 2018.
2020 and did not incur any drydocking costs in the first quarter of 2019.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements at March 31, 20192020 or December 31, 2018.2019.
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, 2019. 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 ofCompany Annual Report on Form 10-K for the Company’s outstanding debt contain floating interest rates that fluctuate with changes in the financial markets and in particular changes in LIBOR. Increasing interest rates could increase the Company’s interest expense and adversely impact its future earnings. The Company’s net effective exposure to floating interest rate fluctuations on its outstanding debt, including finance leases, was $77.2 million and $81.4 million, respectively, at March 31, 2019 andyear ended December 31, 2018.
The Company’s interest expense is affected by changes in the general level of interest rates, particularly LIBOR. As an indication of the extent of the Company’s sensitivity to interest rate changes, an increase in LIBOR of 1% would have decreased the Company’s net income and cash flows during each of the three month periods ended March 31, 2019 and 2018 by approximately $0.2 million, based on the debt levels at the beginning of each period. The Company expects its sensitivity to interest rate changes to increase in the future if the Company enters into additional floating rate debt agreements in connection with its acquisition of additional vessels.
Forward Freight Agreements
The Company assesses risk associated with fluctuating future freight rates and, when appropriate, hedges identified economic risk related to long-term cargo contracts with appropriate derivative instruments, specifically forward freight agreements (FFAs). These economic hedges do not usually qualify for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of FFAs at March 31, 2019 and December 31, 2018 were liabilities of approximately $500,000 and $60,000, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the three months ended March 31, 2019 and 2018 are losses of approximately $440,000 and $314,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of operations.
Fuel Swap Contracts2019.
The Company continuously monitors the market volatility associated with bunker prices and its impact on long-term contracts and seeks to reduce the risk of such volatility through a bunker hedging program. During 2019 and 2018, the Company entered into fuel swap contracts that were not designated for hedge accounting. The aggregate fair value of these fuel swaps at March 31, 2019 and December 31, 2018 are assets of approximately $437,000 and $3,166,000, respectively, which are included in other current assets on the consolidated balance sheets. The change in the aggregate fair value of the fuel swaps during the three months ended March 31, 2019 and 2018 are gains of approximately $2,729,000 and $248,000, respectively, which are included in unrealized gain (loss) on derivative instruments in the accompanying consolidated statements of operations.
ITEM 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for the three months ended March 31, 2019.2020.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 SECyear ended December 31, 2019 and the Risk Factor described below, which could materially affect the Company’s business, financial condition or future results.
The coronavirus or COVID-19 pandemic is dynamic and expanding. The continuation of this outbreak likely will have, and the emergence of other epidemic or pandemic crises could have, material adverse effects on March 20, 2019.our business, results of operations, or financial condition.
The COVID-19 pandemic is dynamic and expanding, and its ultimate scope, duration and effects are uncertain. We expect that this pandemic, and any future epidemic or pandemic crises, could result in direct and indirect adverse effects on our industry and customers, which in turn may impact our business, results of operations and financial condition. Effects of the current pandemic include, or may include, among others:
disruptions to our operations as a result of the potential health impact on our employees and crew, and on the workforces of our customers and business partners;
disruptions to our business from, or additional costs related to, new regulations, directives or practices implemented in response to the pandemic, such as travel restrictions (including for any of our onshore personnel or any of our crew members to timely embark or disembark from our vessels), increased inspection regimes, hygiene measures (such as quarantining and physical distancing) or increased implementation of remote working arrangements;
potential delays in the loading and discharging of cargo on or from our vessels, and any related off hire due to quarantine, worker health, or regulations, which in turn could disrupt our operations and result in a reduction of revenue;
potential shortages or a lack of access to required spare parts for our vessels, or potential delays in any repairs to, scheduled or unscheduled maintenance or modifications, or drydocking of, our vessels, as a result of a lack of berths available by shipyards from a shortage in labor or due to other business disruptions;
potential delays in vessel inspections and related certifications by class societies, customers or government agencies;
potential reduced cash flows and financial condition, including potential liquidity constraints;
reduced access to capital, including the ability to refinance any existing obligations, as a result of any credit tightening generally or due to continued declines in global financial markets, including to the prices of publicly-traded securities of us, our peers and of listed companies generally;
a reduced ability to opportunistically sell any of our vessels on the second-hand market, either as a result of a lack of buyers or a general decline in the value of second-hand vessels;
a decline in the market value of our vessels, which may cause us to (a) incur impairment charges or (b) breach certain covenants under our financing agreements (including our secured facility agreements and financial leases) relating to vessel-to-loan covenants; and
potential deterioration in the financial condition and prospects of our customers, joint venture partners or business partners, or attempts by customers or third parties to invoke force majeure contractual clauses as a result of delays or other disruptions.
Although disruption and effects from COVID-19 pandemic may be temporary, given the dynamic nature of these circumstances and the worldwide nature of our business and operations, the duration of any business disruption and the related financial impact to us cannot be reasonably estimated at this time but could materially affect our business, results of operations and financial condition.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 – Mine Safety Disclosures
None.
Item 5 - Other Information
None.
Item 6 – Exhibits
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| | | | | |
Exhibit no.No. | Description | Incorporated By Reference | Filed herewith |
| | Form | Date | Exhibit | |
| | | | | |
10.44 | | | | | X |
| | | | | |
31.1 | | | | | X |
| | | | | |
31.2 | | | | | X |
| | | | | |
32.1 | | | | | X |
| | | | | |
32.2 | | | | | X |
| | | | | |
EX-101.INS | | | | | X |
| | | | | |
EX-101.SCH | | | | | X |
| | | | | |
EX-101.CAL | | | | | X |
| | | | | |
EX-101.DEF | | | | | X |
| | | | | |
EX-101.LAB | | | | | X |
| | | | | |
EX-101.PRE | | | | | X |
______________
* 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 May 15, 2019.13, 2020.
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| | |
| PANGAEA LOGISTICS SOLUTIONS LTD. |
| |
| By: | /s/ Edward Coll |
| Edward Coll |
| Chief Executive Officer |
| (Principal Executive Officer) |
| |
| By: | /s/ Gianni Del Signore |
| Gianni Del Signore |
| Chief Financial Officer |
| (Principal Financial and Accounting Officer) |