10-Q 1 panl-9302017x10q.htm 10-Q

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

FORM 10-Q
(Mark One)

x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017
OR

¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36139
PANGAEA LOGISTICS SOLUTIONS LTD.
(Exact name of Registrant as specified in its charter)

Bermuda |  | 98-1205464
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

c/o Phoenix Bulk Carriers (US) LLC
109 Long Wharf
Newport, RI 02840
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (401) 846-7790
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, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated Filer ¨ | Accelerated Filer ¨ | Non-accelerated Filer ¨ | Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share, 43,795,182 shares outstanding as of November 9, 2017.

TABLE OF CONTENTS

|  | Page
PART I | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
| Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016 | 3
| Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2017 and 2016 | 4
| Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2017 and 2016 | 5
| Notes to Consolidated Financial Statements | 6
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 18
Item 3. | Quantitative and Qualitative Disclosures about Market Risks | 25
Item 4. | Controls and Procedures | 25
PART II | OTHER INFORMATION |
Item 1. | Legal Proceedings | 26
Item 1A. | Risk Factors | 26
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 26
Item 3. | Defaults upon Senior Securities | 26
Item 4. | Mine Safety Disclosures | 26
Item 5. | Other Information | 26
Item 6. | Exhibits | 27
Signatures |

2

Pangaea Logistics Solutions Ltd.
Consolidated Balance Sheets

| September 30, 2017 |  | December 31, 2016
| (unaudited) |  |
Assets |  |  |
Current assets |  |  |  |  |
Cash and cash equivalents | $ | 29,336,687 |  |  | $ | 22,322,949 |
Restricted cash | 4,000,000 |  |  | 6,100,000 |
Accounts receivable (net of allowance of $4,183,826 at September 30, 2017 and $4,752,265 at December 31, 2016) | 30,915,458 |  |  | 20,476,797 |
Bunker inventory | 16,470,391 |  |  | 13,202,937 |
Advance hire, prepaid expenses and other current assets | 13,465,163 |  |  | 6,441,583 |
Total current assets | 94,187,699 |  |  | 68,544,266 |
Fixed assets, net | 290,837,537 |  |  | 275,265,672 |
Investments in newbuildings in-process | — |  |  | 18,383,964 |
Vessels under capital lease | 30,285,569 |  |  | — |
Total assets | $ | 415,310,805 |  |  | $ | 362,193,902 |
Liabilities and stockholders' equity |  |  |  |  |
Current liabilities |  |  |
Accounts payable, accrued expenses and other current liabilities | $ | 30,160,371 |  |  | $ | 23,231,179 |
Related party debt | 6,929,885 |  |  | 15,972,147 |
Deferred revenue | 7,913,518 |  |  | 6,422,982 |
Current portion of secured long-term debt | 17,830,996 |  |  | 19,627,846 |
Current portion of capital lease obligations | 1,759,303 |  |  | — |
Dividend payable | 7,238,401 |  |  | 12,624,825 |
Total current liabilities | 71,832,474 |  |  | 77,878,979 |
Secured long-term debt, net | 113,430,205 |  |  | 107,637,851 |
Obligations under capital lease | 25,472,098 |  |  | — |
Commitments and contingencies (Note 7) |  |  |  |  |
Stockholders' equity: |  |  |  |  |
Preferred stock, $0.0001 par value, 1,000,000 shares authorized and no shares issued or outstanding | — |  |  | — |
Common stock, $0.0001 par value, 100,000,000 shares authorized; 43,795,182 shares issued and outstanding at September 30, 2017; 36,590,417 shares issued and outstanding at December 31, 2016 | 4,380 |  |  | 3,659 |
Additional paid-in capital | 154,781,731 |  |  | 133,677,321 |
Accumulated deficit | (13,618,666 | ) |  | (17,409,579 | )
Total Pangaea Logistics Solutions Ltd. equity | 141,167,445 |  |  | 116,271,401 |
Non-controlling interests | 63,408,583 |  |  | 60,405,671 |
Total stockholders' equity | 204,576,028 |  |  | 176,677,072 |
Total liabilities and stockholders' equity | $ | 415,310,805 |  |  | $ | 362,193,902 |

The accompanying notes are an integral part of these condensed consolidated financial statements
3

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

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2017 |  | 2016 |  | 2017 |  | 2016
Revenues: |  |  |  |  |  |  |  |  |
Voyage revenue | $ | 93,688,834 |  |  | $ | 65,986,320 |  |  | $ | 251,608,298 |  |  | $ | 161,509,615 |
Charter revenue | 13,334,202 |  |  | 4,797,572 |  |  | 31,293,637 |  |  | 10,173,501 |
| 107,023,036 |  |  | 70,783,892 |  |  | 282,901,935 |  |  | 171,683,116 |
Expenses: |  |  |  |  |  |  |
Voyage expense | 44,305,446 |  |  | 29,166,651 |  |  | 124,174,513 |  |  | 74,434,257 |
Charter hire expense | 34,764,942 |  |  | 19,655,327 |  |  | 91,140,160 |  |  | 43,199,730 |
Vessel operating expense | 9,144,472 |  |  | 7,483,507 |  |  | 26,810,071 |  |  | 22,277,417 |
General and administrative | 4,762,860 |  |  | 3,179,287 |  |  | 11,418,900 |  |  | 9,151,608 |
Depreciation and amortization | 3,950,661 |  |  | 3,532,171 |  |  | 11,604,168 |  |  | 10,576,223 |
Loss on sale and leaseback of vessels | 70,000 |  |  | — |  |  | 9,275,042 |  |  | — |
Total expenses | 96,998,381 |  |  | 63,016,943 |  |  | 274,422,854 |  |  | 159,639,235 |
Income from operations | 10,024,655 |  |  | 7,766,949 |  |  | 8,479,081 |  |  | 12,043,881 |
Other income (expense): |  |  |  |  |  |  |  |  |
Interest expense, net | (2,106,139 | ) |  | (1,258,105 | ) |  | (5,981,237 | ) |  | (4,158,143 | )
Interest expense on related party debt | (79,713 | ) |  | (79,712 | ) |  | (236,538 | ) |  | (235,212 | )
Unrealized (loss) gain on derivative instruments, net | (59,138 | ) |  | 161,002 |  |  | 430,869 |  |  | 1,212,434 |
Other income (expense) | 977,795 |  |  | (8,097 | ) |  | 1,885,801 |  |  | (42,754 | )
Total other expense, net | (1,267,195 | ) |  | (1,184,912 | ) |  | (3,901,105 | ) |  | (3,223,675 | )
Net income | 8,757,460 |  |  | 6,582,037 |  |  | 4,577,976 |  |  | 8,820,206 |
Income attributable to non-controlling interests | (1,576,209 | ) |  | (517,701 | ) |  | (787,063 | ) |  | (1,429,132 | )
Net income attributable to Pangaea Logistics Solutions Ltd. | $ | 7,181,251 |  |  | $ | 6,064,336 |  |  | $ | 3,790,913 |  |  | $ | 7,391,074 |
Earnings per common share: |  |  |  |  |  |  |  |  |
Basic | $ | 0.18 |  |  | $ | 0.17 |  |  | $ | 0.10 |  |  | $ | 0.21 |
Diluted | $ | 0.17 |  |  | $ | 0.17 |  |  | $ | 0.10 |  |  | $ | 0.21 |
Weighted average shares used to compute earnings |  |  |  |  |  |  |  |
per common share |  |  |  |  |  |  |  |
Basic | 40,796,867 |  |  | 35,165,532 |  |  | 37,225,825 |  |  | 35,148,793 |
Diluted | 41,074,592 |  |  | 35,347,403 |  |  | 37,674,123 |  |  | 35,299,839 |

The accompanying notes are an integral part of these condensed consolidated financial statements
4

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

| Nine Months Ended September 30,
| 2017 |  | 2016
Operating activities |  |  |  |  |
Net income | $ | 4,577,976 |  |  | $ | 8,820,206 |
Adjustments to reconcile net income to net cash provided by operations: |  |  |  |
Depreciation and amortization expense | 11,604,168 |  |  | 10,576,223 |
Loss on sale and leaseback of vessel | 9,134,908 |  |  | — |
Amortization of deferred financing costs | 527,348 |  |  | 513,311 |
Amortization of prepaid rent | 91,453 |  |  | — |
Unrealized gain on derivative instruments | (430,869 | ) |  | (1,212,434 | )
(Gain) loss from equity method investee | (282,362 | ) |  | 68,477 |
(Recovery of) provision for doubtful accounts | (10,356 | ) |  | 982,393 |
Share-based compensation | 878,759 |  |  | 274,286 |
Change in operating assets and liabilities: |  |  |
Decrease in restricted cash | — |  |  | 499,269 |
Accounts receivable | (10,428,305 | ) |  | 3,824,491 |
Bunker inventory | (3,267,454 | ) |  | (1,845,707 | )
Advance hire, prepaid expenses and other current assets | (7,118,526 | ) |  | (2,471,301 | )
Drydocking costs | (1,043,164 | ) |  | (42,478 | )
Accounts payable, accrued expenses and other current liabilities | 8,021,053 |  |  | (743,918 | )
Deferred revenue | 1,490,536 |  |  | (925,490 | )
Net cash provided by operating activities | 13,745,165 |  |  | 18,317,328 |
Investing activities |  |  |  |  |
Purchase of vessels | (47,328,517 | ) |  | (3,372,433 | )
Purchase of building and equipment | — |  |  | (315,818 | )
Purchase of non-controlling interest in consolidated subsidiary | (832,572 | ) |  | — |
Net cash used in investing activities | (48,161,089 | ) |  | (3,688,251 | )
Financing activities |  |  |  |  |
Proceeds of related party debt | — |  |  | 1,522,500 |
Payments of related party debt | — |  |  | (2,500,497 | )
Proceeds from long-term debt | 25,000,000 |  |  | 1,375,971 |
Payments of financing and issuance costs | (896,175 | ) |  | (45,755 | )
Payments of long-term debt | (20,635,670 | ) |  | (20,809,044 | )
Proceeds from sale and leaseback of vessel | 28,000,000 |  |  | — |
Payments of capital lease obligations | (768,599 | ) |  | — |
Decrease (increase) in restricted cash | 2,100,000 |  |  | (5,000,000 | )
Proceeds from non-controlling interests | — |  |  | 1,600,000 |
Proceeds from private placement of common stock, net of issuance costs | 9,631,530 |  |  | — |
Accrued common stock dividends paid | (1,001,424 | ) |  | (100,000 | )
Net cash provided by (used in) financing activities | 41,429,662 |  |  | (23,956,825 | )
Net increase (decrease) in cash and cash equivalents | 7,013,738 |  |  | (9,327,748 | )
Cash and cash equivalents at beginning of period | 22,322,949 |  |  | 37,520,240 |
Cash and cash equivalents at end of period | $ | 29,336,687 |  |  | $ | 28,192,492 |
Supplemental cash flow information and disclosure of noncash items |  |  |  |  |
Cash paid for interest | $ | 5,052,102 |  |  | $ | 3,520,635 |
Conversion of dividend into common stock | $ | 4,385,000 |  |  | $ | — |
Extinguishment of related party loan | $ | 9,278,800 |  |  | $ | — |

The accompanying notes are an integral part of these condensed consolidated financial statements
5

Note 1. General Information
The accompanying consolidated financial statements include the accounts of Pangaea Logistics Solutions Ltd. and its consolidated subsidiaries (collectively, the “Company”, “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.
The Company owns two Panamax, two Ultramax Ice Class 1C, five Supramax, and two Handymax Ice Class 1A drybulk vessels, including two vessels financed under capital lease obligations. 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. The Company operates two additional Supramax drybulk vessels under bareboat charter for five-year periods that commenced on July 13, 2016. In addition, the Company, through a new wholly-owned subsidiary, signed a Memorandum of Agreement to purchase a Supramax bulk carrier built in 2008, for approximately $13.8 million. The vessel is expected to be delivered in December 2017.
On January 27, 2017, the Company acquired its consolidated joint venture partner's interest in Nordic Bulk Ventures Holding Company Ltd. (“BVH”). BVH owns m/v Bulk Destiny and m/v Bulk Endurance through wholly-owned subsidiaries. BVH is wholly-owned by the Company after the acquisition.
On March 21, 2017, the Company's Board of Directors (the “Board”) approved, and on June 27, 2017, the shareholders holding a majority of the issued and outstanding shares of our Common Stock approved, by unanimous written consent, the issuance of shares of our Common Stock in connection with two stock purchase agreements, both dated as of June 15, 2017, (the “Agreements”).
Shares of common stock sold under the Agreements totaled 6,533,443. These shares were issued on June 29, 2017 and August 9, 2017 for aggregate net proceeds of $14.1 million of which approximately $4.4 million was issued as in-kind payment of accrued dividends. Upon completion of these transactions, issued and outstanding shares of Common Stock totaled 43,795,182.
Note 2. Basis of Presentation
The accompanying consolidated balance sheet as of September 30, 2017, the consolidated statements of income and cash flows for the three and nine months ended September 30, 2017 and 2016 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2017 and December 31, 2016, and its results of operations and cash flows for the three and nine months ended September 30, 2017 and 2016. The financial data and the other information disclosed in these notes to the consolidated financial statements related to these three and nine month periods are unaudited. Certain information and disclosures included in the annual consolidated financial statements have been omitted for the interim periods pursuant to the rules and regulations of the SEC. The results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results for the year ending December 31, 2017 or for any other interim period or future years.
The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are the estimated fair value used in determining loss on sale and leaseback of vessel, the estimated future cash flows used in its impairment analysis, the estimated salvage value used in determining depreciation expense and the allowances for doubtful accounts.
6

Advance hire, prepaid expenses and other current assets were comprised of the following:

|  | September 30, 2017 |  | December 31, 2016
|  | (unaudited) |  |
Advance hire |  | $ | 5,159,896 |  |  | $ | 2,232,444 |
Prepaid expenses |  | 646,493 |  |  | 1,844,522 |
Accrued receivables |  | 5,042,672 |  |  | 1,319,220 |
Other current assets |  | 2,616,102 |  |  | 1,045,397 |
|  | $ | 13,465,163 |  |  | $ | 6,441,583 |

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

|  | September 30, 2017 |  | December 31, 2016
|  | (unaudited) |  |
Accounts payable |  | $ | 17,690,288 |  |  | $ | 15,435,179 |
Accrued voyage expenses |  | 11,656,486 |  |  | 6,955,389 |
Accrued interest |  | 604,041 |  |  | 412,984 |
Other accrued liabilities |  | 209,556 |  |  | 427,627 |
|  | $ | 30,160,371 |  |  | $ | 23,231,179 |

Recently Issued Accounting Pronouncements
In February 2016, the FASB issued an ASU 2016-02, Accounting Standards Update for Leases. The update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The Company does not typically enter into charters for terms exceeding six months. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company does not expect adoption of this guidance to have a material impact on its financial statements.
In May 2014, the FASB issued an ASU 2014-09, Accounting Standards Update for Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017. Management has organized a working group and is currently analyzing contracts with our customers covering the significant streams of the Company's annual revenues under the provisions of the new standard as well as changes necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting.
While we are continuing to assess all potential impacts of the standard, the Company's preliminary expectation is that revenue from vessels operating on time charter will continue to be recognized under current revenue recognition policies because the services being provided to its customers currently reflect the consideration to which the entity expects to be entitled in exchange for those services, and because these arrangements qualify as single performance obligations that meet the criteria to recognize revenue over time, as the customer is simultaneously receiving and consuming the benefits of these services. The performance obligation in a voyage charter is also the transportation service provided and also meets the criteria to recognize revenue over time. However, under the new standard, our expectation is that revenue for these voyages will be recognized over the period between load port and discharge port in contrast to the current recognition policy to recognize revenue from discharge port to discharge port. The Company also believes that under the new standard, it will recognize an asset from certain costs incurred to fulfill contracts that have not begun to load if they meet the criteria outlined in this update. Such assets will be amortized pro rata over the period of the contract. Neither of these changes is expected to have a material impact on the consolidated financial statements because the number of open voyages at any point in time are not a significant portion of the annual total and the difference in revenue is expected to be only a small percentage of such voyage revenue. The Company will apply the new revenue standard on a modified retrospective basis with a cumulative effect adjustment to the opening balance of retained earnings as of
7

January 1, 2018. Prior periods will not be retrospectively adjusted. The Company is prepared to implement the new revenue standard on the effective date and will follow recently issued guidance on practical expedients as part of our transition.
In November 2016, the FASB issued an ASU 2016-18 Accounting Standards Update for Statement of Cash Flows. The amendments in this Update provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing the diversity in practice. Specifically, this Update addresses how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash, cash equivalents, and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company does not expect adoption of this guidance to have a material impact on its financial statements.
In August 2017, the FASB issued an ASU 2017-12 Accounting Standards Update for Derivatives and Hedging. The amendments in this Update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the Update. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively. The Company does not expect adoption of this guidance to have a material impact on its financial statements.
8

Note 3. Fixed Assets
At September 30, 2017, the Company owned seventeen dry bulk vessels including two financed under capital lease obligations. The carrying amounts of these vessels, including unamortized drydocking costs, are as follows:

| September 30, |  | December 31,
| 2017 |  | 2016
Owned vessels | (unaudited) |  |
m/v BULK PANGAEA | $ | 16,768,833 |  |  | $17,879,380
m/v BULK PATRIOT | 11,426,580 |  |  | 12,391,724 |
m/v BULK JULIANA | 11,621,472 |  |  | 12,252,733 |
m/v NORDIC ODYSSEY | 25,981,360 |  |  | 27,021,211 |
m/v NORDIC ORION | 26,819,591 |  |  | 27,874,584 |
m/v BULK TRIDENT | 14,386,864 |  |  | 14,962,163 |
m/v BULK BEOTHUK (1) | — |  |  | 12,006,270 |
m/v BULK NEWPORT | 13,312,095 |  |  | 13,473,429 |
m/v NORDIC BARENTS | 3,526,711 |  |  | 3,517,151 |
m/v NORDIC BOTHNIA | 3,518,031 |  |  | 3,520,616 |
m/v NORDIC OSHIMA | 30,428,323 |  |  | 31,346,414 |
m/v NORDIC OLYMPIC | 30,668,705 |  |  | 31,560,965 |
m/v NORDIC ODIN | 30,846,740 |  |  | 31,741,658 |
m/v NORDIC OASIS | 31,915,214 |  |  | 32,834,500 |
m/v BULK ENDURANCE (2) | 27,284,169 |  |  | — |
m/v BULK FREEDOM (3) | 8,942,254 |  |  | — |
| 287,446,942 |  |  | 272,382,798 |
Other fixed assets, net | 3,390,595 |  |  | 2,882,874 |
Total fixed assets, net | $ | 290,837,537 |  |  | $ | 275,265,672 |
Vessels under capital lease |  |  |
m/v BULK DESTINY (4) | $ | 23,365,388 |  |  | $ | — |
m/v BULK BEOTHUK (1) | $ | 6,920,181 |  |  | $ | — |
| $ | 30,285,569 |  |  | $ | — |

(1) | The m/v Bulk Beothuk was sold on June 15, 2017 and simultaneously chartered back under a bareboat charter accounted for as a capital lease, the terms of which are discussed in Note 7.

(2) | The m/v Bulk Endurance was delivered to the Company on January 7, 2017.

(3) | The Company acquired the m/v Bulk Freedom on June 14, 2017.

(4) | The Company took delivery of the m/v Bulk Destiny on January 7, 2017 and simultaneously entered into a sale and leaseback financing agreement, the terms of which are discussed in Note 7.

The Company also operates two dry bulk vessels under bareboat charters accounted for as operating leases, as discussed in Note 7.
Long-lived Assets Impairment Considerations. The carrying values of the Company’s vessels may not represent their fair market value or the amount that could be obtained by selling the vessel at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the pricing of new vessels, which tend to be cyclical. The carrying value of each group of vessels classified as held and used are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of a particular group may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the group and its eventual disposition is less than its carrying value. This assessment is made at the group level, which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size and major characteristic or trade.
9

The significant factors and assumptions used in the undiscounted projected net operating cash flow analysis include the Company’s estimate of future time charter equivalent "TCE" rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and address commissions and assume no revenue on scheduled offhire days. The Company uses the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying value of the asset group, an impairment charge would be recognized.
During the three months ended September 30, 2017, the Company did not identify any potential triggering events. At December 31, 2016, testing for recoverability indicated that the estimated undiscounted future cash flows were higher than the carrying amount of each long-lived asset group, therefore, the Company did not recognize any loss on impairment.
Note 4. Debt
Long-term debt consists of the following:

|  | September 30, 2017 |  | December 31, 2016
|  | (unaudited) |  |
Bulk Pangaea Secured Note |  | $ | — |  |  | $ | 1,040,625 |
Bulk Patriot Secured Note |  | — |  |  | 1,087,500 |
Bulk Trident Secured Note (1) |  | 3,887,500 |  |  | 5,737,500 |
Bulk Juliana Secured Note (1) |  | 2,028,126 |  |  | 3,042,186 |
Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. and Bulk Nordic Oshima Ltd. Amended and Restated Loan Agreement (2) |  | 71,700,000 |  |  | 77,325,001 |
Bulk Atlantic Secured Note |  | — |  |  | 5,350,000 |
Bulk Phoenix Secured Note (1) |  | 4,916,663 |  |  | 6,816,685 |
Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.) |  | 6,119,550 |  |  | 7,097,820 |
Bulk Nordic Oasis Ltd. Loan Agreement (2) |  | 18,875,000 |  |  | 20,000,000 |
Bulk Nordic Six Ltd. Loan Agreement |  | 19,135,000 |  |  | — |
Bulk Freedom Loan Agreement |  | 5,325,000 |  |  | — |
109 Long Wharf Commercial Term Loan |  | 949,864 |  |  | 1,032,067 |
Phoenix Bulk Carriers (US) LLC Automobile Loan |  | 24,483 |  |  | 28,582 |
Phoenix Bulk Carriers (US) LLC Master Loan |  | 197,362 |  |  | 236,242 |
Total |  | 133,158,548 |  |  | 128,794,208 |
Less: unamortized bank fees |  | (1,897,347 | ) |  | (1,528,511 | )
|  | 131,261,201 |  |  | 127,265,697 |
Less: current portion |  | (17,830,996 | ) |  | (19,627,846 | )
Secured long-term debt, net |  | $ | 113,430,205 |  |  | $ | 107,637,851 |

(1) | The Bulk Juliana Secured Note, the Bulk Trident Secured Note and the Bulk Phoenix Secured Note are cross-collateralized by the m/v Bulk Juliana, m/v Bulk Trident and m/v Bulk Newport and are guaranteed by the Company.

(2) | The borrower under this facility is NBHC, of which the Company and its joint venture partners, STST and ASO2020, each own one-third. NBHC is consolidated in accordance with Accounting Standards Codification ("ASC") 810, Consolidation, and as such, amounts pertaining to the non-controlling ownership held by these third parties in the financial position of NBHC are reported as non-controlling interest in the accompanying balance sheets.

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The Senior Secured Post-Delivery Term Loan Facility
On April 14, 2017, the Company, through its wholly owned subsidiaries, Bulk Pangaea, Bulk Patriot, Bulk Juliana, Bulk Trident and Bulk Phoenix, entered into the Fourth Amendatory Agreement, (the "Fourth Amendment"), amending and supplementing the Loan Agreement dated April 15, 2013, as amended by a First Amendatory Agreement dated May 16, 2013, the Second Amendatory Agreement dated August 28, 2013 and the Third Amendatory Agreement dated July 14, 2016. The Fourth Amendment advanced the final repayment dates for Bulk Pangaea and Bulk Patriot and extended the final maturity date and modified the repayment schedules, as follows:
Bulk Pangaea Secured Note
Initial amount of $12,250,000, entered into in December 2009, for the acquisition of m/v Bulk Pangaea. The Fourth Amendment advanced the final installment to April 18, 2017, thereby increasing the amount to $1,040,625, which was paid on the maturity date.
Bulk Patriot Secured Note
Initial amount of $12,000,000, entered into in September 2011, for the acquisition of the m/v Bulk Patriot. The Fourth Amendment advanced the final installment to April 18, 2017, thereby increasing the amount to $1,087,500, which was paid on the maturity date.
Bulk Trident Secured Note
Initial amount of $10,200,000, entered into in April 2012, for the acquisition of the m/v Bulk Trident. The Fourth Amendment extends the final maturity date and modifies the repayment schedule. The first and second quarterly installments following the amendment were increased to $650,000 and the third and fourth installments were increased to $435,000. These are followed by two installments of $327,500 and three of $300,000. A balloon payment of $1,462,500 is payable on July 19, 2019. The interest rate was fixed at 4.29% through April 19, 2017 and is floating at LIBOR plus 3.50% (4.78% at September 30, 2017), since April 19, 2017.
Bulk Juliana Secured Note
Initial amount of $8,112,500, entered into in April 2012, for the acquisition of the m/v Bulk Juliana. The Fourth Amendment did not change this tranche, the balance of which is payable in six quarterly installments of $507,031. The final payment is due in July 19, 2018. The interest rate is fixed at 4.38%.
Bulk Phoenix Secured Note
Initial amount of $10,000,000, entered into in May 2013, for the acquisition of m/v Bulk Newport. The Fourth Amendment did not change this tranche, the balance of which is payable in two installments of $700,000 and seven installments of $442,858. A balloon payment of $1,816,659 is payable on July 19, 2019. The interest rate is fixed at 5.09%.
The agreement contains financial covenants that 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 September 30, 2017 and December 31, 2016, the Company was in compliance with these covenants.
Bulk Atlantic Secured Note
Initial amount of $8,520,000, entered into on February 18, 2013, for the acquisition of m/v Bulk Beothuk. The loan required repayment in 8 equal quarterly installments of $90,000 beginning in May 2013, 12 equal quarterly installments of $295,000 and a balloon payment of $4,170,000 due in February 2018. The loan was repaid in conjunction with the sale of the vessel on June 6, 2017.
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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% (3.55% at September 30, 2017). Interest on 50% of the advances to Odin and Olympic was fixed at 3.95% in January 2017. Interest on the remaining advances to Odin and Olympic was floating at LIBOR plus 2.0% and was fixed at 4.07% on April 27, 2017. Interest on 50% of the advance to Oshima was fixed at 4.16% in January 2017. Interest on the remaining advance to Oshima is floating at LIBOR plus 2.25% (3.55% at September 30, 2017).
The amended loan is secured by first preferred mortgages on the m/v Nordic Odin, m/v Nordic Olympic, m/v Nordic Odyssey, m/v Nordic Orion and m/v Nordic Oshima, the assignment of earnings, insurances and requisite compensation of the five entities, and by guarantees of their shareholders.
The amended agreement contains one financial covenant that requires the Company to maintain minimum liquidity and a collateral maintenance ratio clause, which requires the aggregate fair market value of the vessels plus the net realizable value of any additional collateral provided, to remain above defined ratios. At September 30, 2017 and December 31, 2016, the Company was in compliance with this clause.
The Bulk Nordic Oasis Ltd. - Loan Agreement - Dated December 11, 2015
The agreement advanced $21,500,000 in respect of the m/v Nordic Oasis. The agreement requires repayment of the advance in 24 equal quarterly installments of $375,000 beginning on March 28, 2016 and a balloon payment of $12,500,000 due with the final installment in March 2022. Interest on this advance is fixed at 4.30%.
The loan is secured by a first preferred mortgage on the m/v Nordic Oasis, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios. As of September 30, 2017 and December 31, 2016, the Company was in compliance with this covenant.
Term Loan Facility of USD 13,000,000 (Nordic Bulk Barents Ltd. and Nordic Bulk Bothnia Ltd.)
Barents and Bothnia entered into a secured Term Loan Facility of $13,000,000 in two tranches of $6,500,000 which were drawn in conjunction with the delivery of the m/v Bulk Bothnia on January 23, 2014 and the m/v Bulk Barents on March 7, 2014. The loan is secured by mortgages on the m/v Nordic Bulk Barents and m/v Nordic Bulk Bothnia and is guaranteed by the Company.
The facility bears interest at LIBOR plus 2.50% (3.80% at September 30, 2017). The loan requires repayment in 22 equal quarterly installments of $163,045 (per borrower) beginning in June 2014, one installment of $163,010 (per borrower) and a balloon payment of $1,755,415 (per borrower) due in December 2019. In addition, any cash in excess of $750,000 per borrower on any repayment date shall be applied toward prepayment of the relevant loan in inverse order, so the balloon payment is
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prepaid first. The agreement also contains a profit split in respect of the proceeds from the sale of either vessel and a minimum value clause ("MVC"). The Company was in compliance with this covenant at September 30, 2017 and December 31, 2016.
The 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 3 equal quarterly installments of $100,000 beginning on April 7, 2017 and, thereafter, 17 equal quarterly installments of $266,667 and a balloon payment of $11,667,667 due with the final installment in March 2022. Interest on this advance was fixed at 4.74% on March 27, 2017. The agreement also advanced $3,500,000 under Tranche B, which is payable in 18 equal quarterly installments of $65,000 beginning on October 7, 2017, and a balloon payment of $2,330,000 due with the final installment in March 2022. Interest on this advance is floating at LIBOR plus 6.00% (7.30% at September 30, 2017).
The loan is secured by a first preferred mortgage on the m/v Bulk Endurance, the assignment of earnings, insurances and requisite compensation of the entity, and by guarantees of its shareholders. Additionally, the agreement contains a minimum liquidity requirement, positive working capital of the borrower and a collateral maintenance ratio clause which requires the fair market value of the vessel plus the net realizable value of any additional collateral previously provided, to remain above defined ratios.
The Bulk Freedom Corp. Loan Agreement -- Dated June 14, 2017
The agreement advanced $5,500,000 in respect of the m/v Bulk Freedom on June 14, 2017. The agreement requires repayment of the loan in 8 quarterly installments of $175,000 and 12 quarterly installments of $150,000 beginning on September 14, 2017. A balloon payment of $2,300,000 is due with the final installment. Interest is floating at LIBOR plus 3.75% (5.05% at September 30, 2017).
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.
109 Long Wharf Commercial Term Loan
Initial amount of $1,096,000 entered into on May 27, 2016. The Long Wharf Construction to Term Loan was repaid from the proceeds of this new facility. The loan is payable in 120 equal monthly installments of $9,133. Interest is floating at the 30 day LIBOR plus 2.00% (3.30% at September 30, 2017). The loan is collateralized by all real estate located at 109 Long Wharf, Newport, RI, and a corporate guarantee of the Company. The loan contains a maximum loan to value covenant and a debt service coverage ratio. At September 30, 2017 and December 31, 2016, the Company was in compliance with these covenants.
Phoenix Bulk Carriers (US) LLC Automobile Loan
The Company purchased a commercial vehicle for use at the site of its port project on the United States' East Coast. The total loan amount of $29,435 is payable in 60 equal monthly installments of $539. Interest is fixed at 3.74%.
Phoenix Bulk Carriers (US) LLC Master Equipment Loan
The Company purchased commercial equipment for use at the site of its port project on the United States' East Coast. The total loan amount of $250,536 is payable in 48 equal monthly installments of $5,741. Interest is fixed at 4.75%.
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The future minimum annual payments (excluding unamortized bank fees) under the debt agreements are as follows:

| Years ending September 30,
| (unaudited)
2018 | $ | 17,830,996 |
2019 | 17,999,412 |
2020 | 25,225,098 |
2021 | 18,921,949 |
2022 | 52,779,228 |
Thereafter | 401,865 |
| $ | 133,158,548 |

Note 5. Derivative Instruments and Fair Value Measurements
Interest-Rate Swaps
From time to time, the Company enters into interest rate swap agreements to mitigate the risk of interest rate fluctuations on its variable rate debt. The Company was party to one interest rate swap, which was entered into in February 2011, as required by the 109 Long Wharf Construction to Term Loan agreement. Under the terms of the swap agreement, the interest rate was fixed at 6.63%. The swap was cancelled in conjunction with, and the outstanding balance was financed by, the 109 Long Wharf Commercial Term Loan in May 2016, which is discussed in Note 4.
The Company did not elect to designate the swap as a hedge at inception, pursuant to ASC 815, Derivatives and Hedging. Accordingly, changes in the fair value are recorded in current earnings in the accompanying consolidated statements of income.
The aggregate change in the fair value of the interest rate swap agreement for the nine months ended September 30, 2016 was a loss of $104,000 which was reflected in the unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of operations.
Forward freight agreements
The Company assesses risk associated with fluctuating future freight rates and, when appropriate, hedges identified economic risk with appropriate derivative instruments, specifically forward freight agreements (FFAs). Such economic hedges do not always qualify for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. Between November 2016 and September 30, 2017, the Company entered into FFAs that were not designated for hedge accounting. The aggregate fair value of these FFAs at September 30, 2017 and December 31, 2016 were assets of approximately $675,000, which are included in other current assets on the consolidated balance sheets, and liabilities of approximately $21,000, respectively, which are included in other current liabilities on the consolidated balance sheets. The change in the aggregate fair value of the FFAs during the three and nine months ended September 30, 2017 are a loss of approximately $379,000 and a gain of approximately $696,225, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of operations. There were no open positions, and therefore no gain or loss in the three and nine months ended September 30, 2016.
Fuel Swap Contracts
The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker hedging program. During 2017 and 2016, the Company entered into various fuel swap contracts that were not designated for hedge accounting. The aggregate fair value of these fuel swaps at September 30, 2017 and December 31, 2016 are assets of approximately $38,000 and $304,000, respectively, which are included in other current assets on the consolidated balance sheets. The change in the aggregate fair value of the fuel swaps during the three and nine months ended September 30, 2017 are gains of approximately $319,000 and losses of approximately $265,000, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of operations. The change in the aggregate fair value of the fuel swaps during the three and nine months ended September 30, 2016 are losses of approximately $156,000 and gains of approximately $1,109,000, respectively, which are included in unrealized (loss) gain on derivative instruments in the accompanying consolidated statements of income.
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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 September 30, 2017 and December 31, 2016:

| Balance at September 30, 2017 |  | Level 1 |  | Level 2 |  | Level 3
| (unaudited) |  |  |  |  |  |
Margin accounts | $ | 2,688,122 |  |  | $ | 2,688,122 |  |  | $ | — |  |  | $ | — |
Fuel swaps | $ | 38,319 |  |  | $ | — |  |  | $ | 38,319 |  |  | $ | — |
Freight forward agreements | $ | 675,275 |  |  | $ | — |  |  | $ | 675,275 |  |  | $ | — |

| Balance at December 31, 2016 |  | Level 1 |  | Level 2 |  | Level 3
Margin accounts | $ | 488,084 |  |  | $ | 488,084 |  |  | $ | — |  |  | $ | — |
Fuel swaps | $ | 303,675 |  |  | $ | — |  |  | $ | 303,675 |  |  | $ | — |
Freight forward agreements | $ | (20,950 | ) |  | $ | — |  |  | $ | (20,950 | ) |  | $ | — |

The estimated fair values of the Company’s forward freight agreements and fuel swap contracts are based on market prices obtained from an independent third-party valuation specialist based on published indexes. Such quotes represent the estimated amounts the Company would receive or pay to terminate the contracts.
Note 6. Related Party Transactions

| December 31, 2016 |  | Activity |  | September 30, 2017
|  |  |  |  | (unaudited)
Included in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets: |  |  |  |  |  |  |  |
Affiliated companies (trade payables) | $ | 1,109,570 |  |  | 34,994 |  |  | $ | 1,144,564 |
Included in current related party debt on the consolidated balance sheets: |  |  |  |  |  |  |  |
Loan payable – 2011 Founders Note | $ | 4,325,000 |  |  | — |  |  | $ | 4,325,000 |
Interest payable in-kind - 2011 Founders Note (i) | 368,347 |  |  | 236,538 |  |  | 604,885 |
Promissory Note | 2,000,000 |  |  | — |  |  | 2,000,000 |
Loan payable – BVH shareholder (STST)(ii) | 9,278,800 |  |  | (9,278,800 | ) |  | — |
Total current related party debt | $ | 15,972,147 |  |  | $ | (9,042,262 | ) |  | $ | 6,929,885 |

(i) Paid in cash
(ii) ST Shipping and Transport Pte. Ltd. ("STST")
In November 2014, the Company entered into a $5,000,000 Promissory Note (the “Note”) with Bulk Invest, Ltd., a company controlled by the Founders. The Note is payable on demand. Interest on the Note is 5%. The Company repaid a net amount of $3,000,000 since the Note's inception.
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BVH entered into an agreement for the construction of two new ultramax newbuildings in 2013. Shareholder loans totaling $9,278,800 at December 31, 2016, were provided in order to make deposits on these contracts. The loans were converted to equity in conjunction with the acquisition of the noncontrolling interest in BVH on January 27, 2017. BVH is a wholly-owned subsidiary of the Company after the acquisition.
On October 1, 2011, the Company entered into a $10,000,000 loan agreement with the Founders, which was payable on demand at the request of the lenders (the 2011 Founders Note). The note bears interest at a rate of 5%. The balance of the 2011 Founders Note was $4,325,000 at September 30, 2017 and December 31, 2016.
Dividends payable consist of the following, all of which are payable to related parties:

|  | 2008 common stock dividend |  | 2012 common stock special dividend |  | 2013 common stock dividend |  | 2013 Odyssey and Orion dividend |  | Total
Balance at December 31, 2015 |  | 2,474,125 |  |  | 2,934,357 |  |  | 6,411,540 |  |  | 904,803 |  |  | 12,724,825 |
Paid in cash |  | (100,000 | ) |  | — |  |  | — |  |  | — |  |  | (100,000 | )
Balance at December 31, 2016 |  | 2,374,125 |  |  | 2,934,357 |  |  | 6,411,540 |  |  | 904,803 |  |  | 12,624,825 |
Converted to common shares |  | (2,374,125 | ) |  | (2,010,875 | ) |  | — |  |  | — |  |  | (4,385,000 | )
Paid in cash |  | (100,000 | ) |  | (1,001,424 | ) |  | — |  |  | — |  |  | (1,001,424 | )
Balance at September 30, 2017 |  | $ | — |  |  | $ | (77,942 | ) |  | $ | 6,411,540 |  |  | $ | 904,803 |  |  | $ | 7,238,401 |

Under the terms of a technical management agreement between the Company and Seamar Management S.A. (“Seamar”), an equity method investee, Seamar is responsible for the day-to-day operations for certain of the Company’s owned vessels and the two vessels operating under bareboat charters. During the three and nine-month periods ended September 30, 2017 and 2016, the Company incurred technical management fees of approximately $718,000 and $2,022,000; and $538,000 and $1,411,000, respectively, under this arrangement. These fees are included in vessel operating expenses in the consolidated statements of income. The total amounts payable to Seamar at September 30, 2017 and December 31, 2016 were approximately $1,145,000 and $1,110,000, respectively.
Note 7. Commitments and Contingencies
Vessel Sales and Leasebacks Accounted for as Capital Leases
The Company's fleet includes one vessel financed under a sale and leaseback financing arrangement accounted for as a capital lease. The selling price of the vessel to the new owner (lessor) was $21.0 million and the fair value of the vessel at the inception of the lease was $24.0 million. The difference between the selling price and the fair value of the vessel was recorded as prepaid rent and is being amortized over the 25 year estimated useful life of the vessel. Prepaid rent is included in vessel under capital lease on the consolidated balance sheet at September 30, 2017. Minimum lease payments fluctuate based on three-month LIBOR and are payable quarterly over the seven year lease term, with a balloon payment of $11,200,000 due with the final lease payment in January 2024. Interest is floating at LIBOR plus 2.75% (3.85% including the margin, at inception of the lease). The Company will own this vessel at the end of the lease term.
The Company's fleet also includes one vessel financed under a sale and leaseback (bareboat charter) accounted for as a capital lease. The selling price was $7,000,000 and the fair value is estimated to be the same. The lease is payable at $3,500 per day every fifteen days over the five year lease term, and a balloon payment of $4,000,000 is due with the final lease payment in June 2022. Interest is fixed at 11.83%. The Company will own this vessel at the end of the lease term.
Long-term Contracts Accounted for as Operating Leases
On July 5, 2016, the Company entered into five-year bareboat charter agreements with the owner of two vessels (which were then renamed the m/v Bulk Power and the m/v Bulk Progress). Under a bareboat charter, the charterer is responsible for all of the vessel operating expenses in addition to the charter hire. The agreement also contains a profit sharing arrangement. Scheduled increases in charter hire are included in minimum rental payments and recognized on a straight-line basis over the lease term.
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Profit sharing is excluded from minimum lease payments and recognized as incurred. The rent expense under these bareboat charters (which are classified as operating leases) totals approximately $365,000 per annum.
The Company leases office space for its Copenhagen operations. The lease can be terminated with six months prior notice after June 30, 2018.
Future minimum lease payments under capital leases and operating leases with initial or remaining terms in excess of one year at September 30, 2017 were:

| Capital Lease |  | Operating Leases
2018 | $ | 3,278,295 |  |  | $ | 585,717 |
2019 | 3,278,295 |  |  | 420,514 |
2020 | 3,278,295 |  |  | 365,446 |
2021 | 3,278,295 |  |  | 285,348 |
2022 | 6,858,295 |  |  | — |
Thereafter | 14,227,441 |  |  | — |
Total minimum lease payments | $ | 34,198,916 |  |  | $ | 1,657,025 |
Less amount representing interest | 6,967,515 |  |  |
Present value of minimum lease payments | 27,231,401 |  |  |
Less current portion | 1,759,303 |  |  |
Long-term portion | $ | 25,472,098 |  |  |

The Company is subject to certain asserted claims arising in the ordinary course of business. The Company intends to vigorously assert its rights and defend itself in any litigation that may arise from such claims. While the ultimate outcome of these matters could affect the results of operations of any one year, and while there can be no assurance with respect thereto, management believes that after final disposition, any financial impact to the Company would not be material to its consolidated financial position, results of operations, or cash flows. In April 2017, the Company entered into a settlement agreement related to a litigation action. The Company was indemnified by third parties related to this matter and recovered approximately $462,000 that was reserved at the time the action was initiated which is included in other income (expense) in the consolidated statements of operations for the nine months ended September 30, 2017.
Note 8. Subsequent Events
The Company acquired the m/v Bulk Pride on October 11, 2017 through its new wholly owned subsidiary Bulk Pride Corp. The purchase price of the vessel, which is expected to be delivered in December 2017, was $13.8 million. The purchase price will be financed with a commercial facility.
The Company acquired a 50% interest in a joint venture, Venture Barge (US) Corp. which purchased a deck barge on November 3, 2017. The barge, which was built in 1979 and rebuilt in 2016, was acquired for $2.4 million.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and footnotes thereto contained in this report.
Forward Looking Statements
All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward looking statements as a result of the risk factors and other factors detailed in our filings with the Securities and Exchange Commission. All subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
Important Financial and Operational Terms and Concepts
The Company uses a variety of financial and operational terms and concepts when analyzing its performance.
These include revenue recognition, deferred revenue, allowance for doubtful accounts, vessels and depreciation and long-lived assets impairment considerations, as defined above as well as the following:
Voyage Revenue. Voyage revenue is derived from voyage charters which involve the carriage of cargo from a load port to a discharge port. Gross revenue is calculated by multiplying the agreed rate per ton of cargo by the number of tons loaded.
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 agree rate per day.
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.
Vessel Operating Expenses. Vessel operating expenses represent the cost to operate the Company’s owned vessels. Vessel operating expenses include crew hire and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes, other miscellaneous expenses, and technical management fees. These expenses are recognized as incurred. Technical management services include day-to-day vessel operations, performing general vessel maintenance, ensuring regulatory and classification society compliance, arranging the hire of crew, and purchasing stores, supplies, and spare parts.
Fleet Data. The Company believes that the measures for analyzing future trends in its results of operations consist of the following:
• Shipping days. The Company defines shipping days as the aggregate number of days in a period during which its owned or chartered-in vessels are performing either a voyage charter (voyage days) or a time charter (time charter days).
• 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.
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• 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.
Overview
The seaborne drybulk transportation industry is cyclical and volatile. Drybulk market rates improved markedly from the fall of 2016 to March of this year, gave up some of the gains in the second quarter, then finished the third quarter at its highest in nearly three years. The increase in freight rates is due to various factors, including the improving global economy and increasing base metal and industrial commodity prices. The Baltic Dry Index ("BDI"), a measure of dry bulk market performance, increased to an average of 1,162 for the third quarter of 2017, from an average of 744 for the third quarter of 2016.
The Company's strategy to charter in vessels to serve primarily contracted business means we limit our carried volume of chartered-in vessels, which shields us from losses we may incur under a long-term charter-in strategy, but will also have the effect of limiting upside in an increasing rate environment, when we charter-in vessels at higher rates to meet the needs of this contracted business.
3rd Quarter 2017 Highlights

• | Income from operations up 29% to $10.0 million for the three months ended September 30, 2017, from $7.8 million for the same period of 2016.

• | Net income attributable to Pangaea Logistics Solutions Ltd. of $7.2 million as compared to $6.1 million for the three months ended September 30, 2016.

• | 51% increase in revenue to $107.0 million for the three months ended September 30, 2017, up from $70.8 million for the same period in 2016.

• | Pangaea's TCE rates increased 13% to $11,822 while the market average was approximately $9,715. Total shipping days increased 34%. These improvements are due to continued growth in the drybulk market and to an increase in drybulk market rates. The Company operated 58 vessels, on average during the third quarter of 2017 versus approximately 43 during the third quarter of 2016.

• | At the end of the quarter, Pangaea had $29.3 million in unrestricted cash and cash equivalents.

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Revenues
Pangaea’s revenues are derived predominately from voyage and time charters, which are discussed below. Total revenue for the three months ended September 30, 2017 was $107.0 million, compared to $70.8 million for the same period in 2016, a 51% increase. The total number of shipping days increased 34% to 5,305 in the three months ended September 30, 2017, compared to 3,971 for the same period in 2016. The average TCE rate was $11,822 per day for the three months ended September 30, 2017, compared to $10,480 per day for same period in 2016. The revenue increase is predominantly due to the increase in total shipping days and to overall improvement in the dry bulk market.
Components of revenue are as follows:
Voyage revenues which represent 88% of total revenue, increased by 42% for the three months ended September 30, 2017 to $93.7 million compared to $66.0 million for the same period in 2016. The increase in voyage revenues was predominantly driven by the 23% increase in the number of voyage days, which were 4,133 in the third quarter of 2017 as compared to 3,364 in the third quarter of 2016. Voyage revenues were also bolstered by the increased rates in the drybulk market over the comparable quarter.
Charter revenues, which represent 12% of total revenue, increased to $13.3 million from $4.8 million, or 178%, for the three months ended September 30, 2017 compared to the same period in 2016. The increase in charter revenues was due to improvement in drybulk market rates, as indicated above, and to an increase in the number of time charter days. Time charter days were up 93% to 1,172 in the third quarter of 2017 from 607 in the third quarter of 2016. As the dry bulk
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market improves, the Company increases its chartered-in profile and looks for additional spot opportunities. In the event a cargo does not present itself, the Company will sub-let the vessel on time-charter to another operator for those days remaining under the contract.
Voyage Expenses
Voyage expenses for the three months ended September 30, 2017 were $44.3 million, compared to $29.2 million for the same period in 2016, an increase of approximately 52%. The increase in voyage expense was due to the 23% increase in voyage days, as discussed above and to the $6.3 million increase in the cost of bunker fuel consumed. The $6.3 million increase in the cost of bunker fuel consumed was due to both the increase in the number of voyage days, as noted above, and to an increase in price. The average price paid for inventory increased 36% in the third quarter of 2017 over the third quarter of 2016. Bunker prices expressed on a voyage day basis were approximately $4,928 in the three months ended September 30, 2017 as compared to $4,189 in the three months ended September 30, 2016. Port expenses increased $2.5 million or 18%, due to the increase in the number of voyage days and ports visited. In addition, the Company incurred relet expenses of $3.7 million in the third quarter of 2017, but did not relet any cargoes in the same period of 2016. The Company will opportunistically relet a cargo depending on market conditions and as a risk management tool.
Charter Hire Expenses
Charter hire expenses for the three months ended September 30, 2017 were $34.8 million, compared to $19.7 million for the same period in 2016. The number of chartered-in days increased 39% from 2,704 days in the three months ended September 30, 2016 to 3,763 days for the three months ended September 30, 2017. Further, the improving dry bulk market pushed average charter-hire rates paid by the Company up 27% for the three months ended September 30, 2017 as compared to the same period of 2016. Charter hire expense as a percentage of total revenue rose from 28% in the three months ended September 30, 2016 to 32% in the three months ended September 30, 2017. The Company continues to operate under its successful strategy of chartering-in primarily for committed contracts. However, demand in the third quarter resulted in a 34% increase in total shipping days, many of which are performed on chartered-in ships.
Vessel Operating Expenses
Vessel operating expenses for the three months ended September 30, 2017 were $9.1 million, compared to $7.5 million in the comparable period in 2016, an increase of approximately 22%. The increase in vessel operating expenses is due to the 21% increase in owned and bareboat charter days, which were 1,748 in the three months ended September 30, 2017 as compared to 1,448 in the three months ended September 30, 2016. This increase is due to the addition of two newbuildings delivered on January 7, 2017 and a vessel acquisition on June 14, 2017.
General and Administrative Expenses
General and administrative expenses increased from $3.2 million in the three months ended September 30, 2016 to $4.8 million in the three months ended September 30, 2017. The increase is due to an increase in incentive compensation and payroll related expenses.
Income from Operations
The Company had income from operations of $10.0 million for the three months ended September 30, 2017 as compared to $7.8 million for the three months ended September 30, 2016. This is due to the increase in total shipping days and to improvement in the dry bulk market over the same period of 2016.
Interest Expense
The increase in interest expense is predominantly due to financing of the m/v Bulk Destiny under a capital lease and to the acquisition of the m/v Bulk Endurance, both in January 2017, and to the purchase of the Bulk Freedom in June 2017.
Other Income (Expense)
Other income represents the $0.9 million settlement of a non-performance claim that had not previously been recognized, and to income from an unconsolidated subsidiary.
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Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Revenues
Total revenue for the nine months ended September 30, 2017 was $282.9 million, compared to $171.7 million for the same period in 2016, an increase of 65%. The total number of shipping days increased 39% to 14,309 for the nine months ended September 30, 2017, compared to 10,290 for the same period in 2016. The average TCE rate was $11,093 per day for the nine months ended September 30, 2017, compared to $9,451 per day for same period in 2016. The revenue increase is predominantly due to the increase in total shipping days and to overall improvement in the dry bulk market. The BDI increased 75%, to an average of 1,035 for the nine months ended September 30, 2017 from an average of 591 for the comparable period of 2016.
Components of revenue are as follows:
Voyage revenues, which represent 89% of total revenue, increased by 56% to $251.6 million for the nine months ended September 30, 2017 compared to $161.5 million for the same period in 2016. The increase in voyage revenues was predominantly driven by the 31% increase in the number of voyage days, which were 11,519 in the nine months ended September 30, 2017 as compared to 8,760 in the same period of 2016. Voyage revenues also reflect the increased rates in the drybulk market over the prior nine-month period.
Charter revenues, which represent 11% of total revenue, increased to $31.3 million from $10.2 million, or 208%, for the nine months ended September 30, 2017 compared to the same period in 2016. The increase in charter revenues was due to improvement in drybulk market rates, as indicated above, and to an increase in the number of time charter days. Time charter days were 2,790 in the nine months ended September 30, 2017 versus 1,530 in the nine months ended September 30, 2016, which is also indicative of the increased demand in the drybulk market. As the dry bulk market improves, the Company increases its chartered-in profile and looks for additional spot opportunities. In the event a cargo does not present itself, the Company will sub-let the vessel on time-charter to another operator for those days remaining under the contract.
Voyage Expenses
Voyage expenses for the nine months ended September 30, 2017 were $124.2 million, compared to $74.4 million for the same period in 2016, an increase of approximately 67%. The increase in voyage expense was due to the increase in voyage days, as discussed above and to the increase in the cost of bunker fuel consumed. The $19.6 million increase in the cost of bunker fuel consumed of was due to both the increase in the number of voyage days, as noted above, and to an increase in price. The average price paid for inventory increased 45% in the nine months ended September 30, 2017 over the nine months ended September 30, 2016. Bunker prices expressed on a voyage day basis were approximately $3,287 in the nine months ended September 30, 2017 as compared to $2,082 in the nine months ended September 30, 2016. Port expenses increased $8.4 million or 35%, due to the increase in the number of voyage days and the consequent number of ports visited.
Charter Hire Expenses
Charter hire expenses for the nine months ended September 30, 2017 were $91.1 million, compared to $43.2 million for the same period in 2016. The number of chartered-in days increased 52% from 6,546 days in the nine months ended September 30, 2016 to 9,932 days for the nine months ended September 30, 2017, while the improving market pushed average charter-hire rates paid by the Company up 39% for the nine months ended September 30, 2017 as compared to the same period of 2016. Charter hire expense as a percentage of total revenue rose from 25% in the nine months ended September 30, 2016 to 32% in the nine months ended September 30, 2017. The Company continues to operate under its successful strategy of chartering-in primarily for committed contracts. However, demand in the nine months ended September 30, 2017 resulted in a 39% increase in total shipping days, many of which are performed on chartered-in ships.
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Vessel Operating Expenses
Vessel operating expenses for the nine months ended September 30, 2017 were $26.8 million compared to $22.3 million in the comparable period in 2016, an increase of approximately 20%. The increase in vessel operating expenses is due to the increase in owned and bareboat chartered-in days, which were 5,008 in the nine months ended September 30, 2017 as compared to 3,992 in the nine months ended September 30, 2016. This increase is due to the addition of two newbuildings delivered on January 7, 2017, two vessels under bareboat charter since July 2016 and a vessel acquisition on June 14, 2017. Vessel operating expenses under these bareboat charters are paid by Pangaea. Vessel operating expense expressed on a per day basis decreased to $5,353 for the nine months ended September 30, 2017 from $5,581 for the same period in 2016.
General and Administrative Expenses
General and administrative expenses increased 25%, from $9.2 million in the nine months ended September 30, 2016 to $11.4 million in the nine months ended September 30, 2017. The change is due to increases in incentive compensation, payroll and related expenses, including an increase in personnel in the corporate offices, employee stock based compensation expense, an increase in Director fees and to an increase in travel and representation expense.
Loss on Sale and Leaseback of Vessels
The Company sold the m/v Bulk Destiny, one of two ultramax newbuildings delivered on January 7, 2017, and simultaneously chartered-back the vessel under a capital lease financing arrangement with the buyer. At inception of the lease, the Company recognized a loss of $4.3 million representing the difference between the delivered cost and the fair value of the vessel, as determined by independent ship brokers. The Company's joint venture partner absorbed 50% of this loss, which is allocated to non-controlling interests to arrive at net income attributable to Pangaea. The Company also sold the m/v Bulk Beothuk on June 6, 2017 and simultaneously chartered-back the vessel from the buyer under a capital lease. At inception of the lease, the Company recognized a loss of $4.9 million representing the difference between the selling price and the carrying amount of the vessel.
Income from Operations
The Company has income from operations of $8.5 million for the nine months ended September 30, 2017 as compared to $12.0 million for the nine months ended September 30, 2016. The decrease is due to losses on sale and leaseback transactions totaling $9.3 million, without which there would be adjusted income from operations of $17.8 million. Total revenue increased 65% from $171.7 million for the nine months ended September 30, 2016 to $282.9 million for the nine months ended September 30, 2017, which is due to improvement in the drybulk shipping market and a resulting increase in total shipping days. However, the increase in market rates was met with increasing bunker prices and increasing charter hire rates, as noted above, which lowered operating margins to a limited extent.
Interest Expense
The increase in interest expense is due to the lease of the m/v Bulk Destiny and the acquisition of the m/v Bulk Endurance, both in January 2017. In addition, the interest rates on certain loans were fixed at higher levels during 2016 and 2017 in order to mitigate the risk of further increases in LIBOR.
Unrealized (Loss) Gain on Derivative Instruments, Net
The Company entered into numerous freight forward agreements, or FFAs, between November 2016 and the June 2017, in order to manage the risk associated with increasing charter-hire rates due to improvement in the drybulk market. The total gain on these FFAs was approximately $0.7 million for the nine months ended September 30, 2017. There were no open positions and therefore no gain or loss on FFAs in nine months ended September 30, 2016. The Company also enters into fuel swaps to manage the risk associated with fluctuating bunker prices. The loss on these swaps was approximately $0.3 million for the nine months ended September 30, 2017 as compared to a gain of approximately $1.1 million for the nine months ended September 30, 2016.
Other Income (Expense)
Other income represents the $0.9 million settlement of a non-performance claim that had not previously been reserved, to the recovery of $0.5 million of expenses incurred in a litigation action that was indemnified by third parties, to other reductions in the reserve for uncollectible accounts, and to income from an unconsolidated subsidiary of $0.3 million.
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Income Attributable to Noncontrolling Interests
The decrease in income attributable to noncontrolling interests resulted predominantly from the $4.3 million loss on the sale and leaseback of the m/v Bulk Destiny, of which the former joint venture partner in this entity absorbed 50%. This was offset by an increase in net income of NBHC.
Significant accounting estimates
Long-lived Assets Impairment Considerations
The carrying values of the Company’s vessels may not represent their fair market value or the amount that could be obtained by selling the vessel at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the pricing of new vessels. Historically, both charter rates and vessel values tend to be cyclical. The carrying value of each group of vessels (allocated by size, age and major characteristic or trade), which are classified as held and used by the Company, are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of a particular group may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the group and its eventual disposition is less than its carrying value. This assessment is made at the group level, which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size and major characteristic or trade.
The significant factors and assumptions used in the undiscounted projected net operating cash flow analysis include the Company’s estimate of future TCE rates based on current rates under existing charters and contracts. When existing contracts expire, the Company uses an estimated TCE based on actual results and extends these rates out to the end of the vessel’s useful life. TCE rates can be highly volatile, may affect the fair value of the Company’s vessels and may have a significant impact on the Company’s ability to recover the carrying amount of its fleet. Accordingly, the volatility is contemplated in the undiscounted projected net operating cash flow by using a sensitivity analysis based on percent changes in the TCE rates. The Company prepares a series of scenarios in an attempt to capture the range of possible trends and outcomes. Projected net operating cash flows are net of brokerage and address commissions and assume no revenue on scheduled offhire days. The Company uses the current vessel operating expense budget, estimated costs of drydocking and historical general and administrative expenses as the basis for its expected outflows, and applies an inflation factor it considers appropriate. The net of these inflows and outflows, plus an estimated salvage value, constitutes the projected undiscounted future cash flows. If these projected cash flows do not exceed the carrying amount of the asset group, an impairment charge equal to the difference between the carrying amount and the fair value of the group would be recognized.
During the three months ended September 30, 2017, the Company did not identify any potential triggering events. At December 31, 2016, testing for recoverability indicated that the estimated undiscounted future cash flows were higher than the carrying amount of each long-lived asset group, therefore, the Company did not recognize any loss on impairment.
Liquidity and Capital Resources
Liquidity and Cash Needs
The Company has historically financed its capital requirements with cash flow from operations, proceeds from related party debt, proceeds from long-term debt and capital leases, and, in June 2017, through a private placement of common stock. The Company may consider additional debt and equity financing alternatives in the future. However, if market conditions are negative, the Company may be unable to raise additional debt or equity financing on acceptable terms or at all. As a result, the Company may be unable to pursue opportunities to expand its business.
At September 30, 2017 and December 31, 2016, the Company had working capital of $22.4 million and a working capital deficit of $9.3 million, respectively. The improvement in working capital is due to the acquisition of noncontrolling interest in a consolidated joint venture in January 2017 and the resulting reduction in related party debt, to the increase in cash from proceeds of common stock issuance, to the sale of the m/v Bulk Beothuk, and to cash generated from operations.
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Considerations made by management in assessing the Company’s ability to continue as a going concern are its ability to consistently generate positive cash flows from operations, which were approximately $13.7 million and $18.3 million in the nine months ended September 30, 2017 and 2016, respectively; $19.2 million in 2016 and $26.0 million in 2015; and its ability to procure long-term fixed contract employment (COAs) with new and longstanding customers. In addition, the Company has demonstrated its unique ability to adapt to changing market conditions by changing the chartered-in profile to meet its cargo commitments. For more information on the results of operations, see ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Results of Operations.
Capital Expenditures
The Company’s capital expenditures relate to the purchase and lease of interests in vessels, and capital improvements to its vessels which are expected to enhance the revenue earning capabilities and safety of these vessels. The Company’s owned and leased fleet includes two Panamax drybulk carriers, four Supramax drybulk carriers, two Ultramax Ice-Class 1C and two Handymax drybulk carriers (both of which are Ice-Class 1A). The Company also has a one-third interest in a consolidated joint venture which owns six Panamax Ice-Class 1A drybulk carriers.
In addition to vessel acquisitions that the Company may undertake in future periods, its other major capital expenditures include funding its program of regularly scheduled drydockings necessary to make improvements to its vessels, as well as to comply with international shipping standards and environmental laws and regulations. Funding expenses associated with these requirements will be met with cash from operations. The Company anticipates that this process of recertification will require it to reposition these vessels from a discharge port to shipyard facilities, which will reduce the Company’s available days and operating days during that period.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements at September 30, 2017 or December 31, 2016.
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ITEM 3. Quantitative and Qualitative Disclosures about Market Risks
Interest Rate Risk
The international shipping industry is capital intensive, requiring significant amounts of investment provided in the form of long-term debt. Certain of the Company’s outstanding debt contain floating interest rates that fluctuate with changes in the financial markets and in particular changes in LIBOR. Increasing interest rates could increase the Company’s interest expense and adversely impact its future earnings. In the past, the Company has managed this risk by entering into interest rate swap agreements in which the Company exchanged fixed and variable interest rates based on agreed upon notional amounts. The Company has used such derivative financial instruments as risk management tools and not for speculative or trading purposes. As of September 30, 2017 and December 31, 2016, the Company did not have any open interest rate swap agreements. The Company’s net effective exposure to floating interest rate fluctuations on its outstanding debt was $52.7 million and $46.8 million, respectively, at September 30, 2017 and December 31, 2016.
The Company’s interest expense is affected by changes in the general level of interest rates, particularly LIBOR. As an indication of the extent of the Company’s sensitivity to interest rate changes, an increase in LIBOR of 1% would have decreased the Company’s net income and cash flows during the nine months ended September 30, 2017 and 2016 by approximately $0.4 million and $0.6 million, respectively, based on the debt levels at the beginning of each period. The Company expects its sensitivity to interest rate changes to increase in the future if the Company enters into additional floating rate debt agreements in connection with its acquisition of additional vessels.
Forward Freight Agreements
The Company assesses risk associated with fluctuating future freight rates and, when appropriate, hedges identified economic risk with appropriate derivative instruments, specifically forward freight agreements (FFAs). Such economic hedges do not always qualify for hedge accounting under ASC 815 and as such, the usage of such derivatives can lead to fluctuations in the Company’s reported results from operations on a period-to-period basis. The aggregate fair value of FFAs at September 30, 2017 was an asset of $0.7 million and the aggregate fair value of FFAs at December 31, 2016 was a liability of approximately $21,000.
Fuel Swap Contracts
The Company continuously monitors the market volatility associated with bunker prices and seeks to reduce the risk of such volatility through a bunker hedging program. During the nine months ended September 30, 2017 and the year ended December 31, 2016, the Company entered into various fuel swap contracts that were not designated for hedge accounting. The aggregate fair value of these fuel swaps at September 30, 2017 and December 31, 2016 were assets of approximately $38,000 and $0.3 million, respectively.
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 nine months ended September 30, 2017.
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.
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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 from the “Risk Factors” previously disclosed in our Annual Report on Form 10-K, filed with the SEC on March 23, 2017.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
As previously disclosed on a Current Report on Form 8-K, Pangaea Logistics Solutions Ltd. (the “Company”) entered into two stock purchase agreements, both dated June 15, 2017 (the “Agreements”), for the sale of an aggregate of approximately $15.0 million of its common shares, par value $0.0001 per share (the “Common Shares”), in private placement transactions which are exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) thereof, at a purchase price of $2.25 per share (the “Transaction”). One agreement was completed with certain directors, officers and employees of the Company (the “Insider Investors”) and was subject to shareholder approval pursuant to NASDAQ Listing Rule 5635(c) and the other agreement was completed with other institutional and other accredited investors. The transaction has closed and the Company issued a total of 6,533,443 Common Shares in connection with the sales under both Agreements. As of November 9, 2017 the Company has 43,795,182 Common Shares issued and outstanding.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 – Mine Safety Disclosures
None.
Item 5 - Other Information
None.
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Item 6 – Exhibits

Exhibit no. | Description | Incorporated By Reference | Filed herewith
|  | Form | Date | Exhibit |
31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |  |  | X
31.2 | Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |  |  | X
32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  |  | X
32.2 | Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  |  | X
EX-101.INS | XBRL Instance Document |  |  |  | X
EX-101.SCH | XBRL Taxonomy Extension Schema |  |  |  | X
EX-101.CAL | XBRL Taxonomy Extension Calculation Linkbase |  |  |  | X
EX-101.DEF | XBRL Taxonomy Extension Definition Linkbase |  |  |  | X
EX-101.LAB | XBRL Taxonomy Extension Label Linkbase |  |  |  | X
EX-101.PRE | XBRL Taxonomy Extension Presentation Linkbase |  |  |  | X

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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 November 9, 2017.

| PANGAEA LOGISTICS SOLUTIONS LTD.
| By: | /s/ Edward Coll
| Edward Coll
| Chief Executive Officer
| (Principal Executive Officer)
| By: | /s/ Gianni DelSignore
| Gianni DelSignore
| Chief Financial Officer
| (Principal Financial and Accounting Officer)

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