SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company and its subsidiaries is presented to assist in understanding the Company’s consolidated financial statements. These accounting policies conform to accounting principles generally accepted in the United States, and have been applied in the preparation of the consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the establishment of the allowance for doubtful accounts and the estimate of salvage value used in determining vessel depreciation expense.

Consolidation

The purpose of consolidated financial statements is to present the financial position and results of operations of a company and its subsidiaries as if the group were a single company. The first step in the Company’s consolidation policy is to determine whether an entity is to be evaluated for potential consolidation based on its outstanding voting interests or its variable interests. Accordingly, the Company first determines whether the entity is a Variable Interest Entity (“VIE”) pursuant to the provisions of ASC 810-10. If the entity is a VIE, consolidation is based on the entity’s variable interests and not its outstanding voting shares. If the entity is not determined to be a VIE, the Company evaluates the entity based on its outstanding voting interests.

Amounts pertaining to the non-controlling ownership interest held by third parties in the financial position and operating results of the Company’s subsidiaries and/or consolidated VIEs are reported as non-controlling interest in the accompanying consolidated balance sheets.

As part of the Company’s consolidation process, intercompany transactions are eliminated in the consolidated financial statements.

Revenue Recognition

Voyage revenues represent revenues earned by the Company, principally from providing transportation services under voyage charters. A voyage charter involves the carriage of a specific amount and type of cargo on a load port to discharge port basis, subject to various cargo handling terms. Under a voyage charter, the service revenues are earned and recognized ratably over the duration of the voyage. Estimated losses under a voyage charter are provided for in full at the time such losses become probable. Demurrage, which is included in voyage revenues, represents payments by the charterer to the vessel owner when loading and discharging time exceed the stipulated time in the voyage charter. Demurrage is measured in accordance with the provisions of the respective charter agreements and the circumstances under which demurrage revenues arise. At the time demurrage revenue can be estimated, it is included in the calculation of voyage revenue and recognized ratably over the duration of the voyage to which it pertains. Voyage revenue recognized is presented net of address commissions.

Charter revenues relate to a time charter arrangement under which the Company is paid to provide transportation services on a per day basis for a specified period of time. Revenues from time charters are earned and recognized on a straight-line basis over the term of the charter, as the vessel operates under the charter. Revenue is not earned when vessels are offhire.

Costs incurred in fulfillment of a contract that meet certain criteria are deferred and recognized when or as the related performance obligations are satisfied.

On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606). 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. We account for a contract when it has approval and commitment from both parties, the rights and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The performance obligations under our contracts are transportation services, which are received and consumed by our customers over time, as we perform the services. Revenues are recognized using the input method, proportionate to the days elapsed since the service commencement compared to the total days anticipated to complete the service. Under the new standard, voyage revenue is recognized over the period between load port and discharge port. Costs to fulfill contracts for voyages for which loading has not commenced are recognized as assets and amortized pro rata over the period between load and discharge. Costs to obtain a contract are expensed as incurred, as provided by a practical expedient, since all such costs are expected to be amortized over less than one year. The Company adopted ASC 606 using the modified retrospective transition method applied to voyage contracts that were not substantially complete at the end of 2017. The Company recorded a $2.4 million adjustment to decrease retained earnings at the beginning of 2018, which reflects the cumulative impact of adopting this standard. Comparative financial statements have not been restated and are reported under the accounting standards in effect for those periods.

A reconciliation as of and for the year ended December 31, 2018, as reported under ASC 606 to the prior accounting standards, for each of the financial statement line items impacted, is provided below:



	As of December 31, 2018
Consolidated Balance Sheets	As Reported	Effect of ASC 606 Adoption		Under Prior Accounting
Advance hire, prepaid expenses and other current assets	12,187,551	1,307,848		10,879,703
Total current assets	113,506,160	1,307,848		112,198,312
Total assets	453,474,622	1,307,848		452,166,774
Deferred revenue	14,717,072	1,716,420		13,000,652
Total current liabilities	79,048,628	1,716,420		77,332,208
Accumulated deficit	5,737,199	(408,572	)	6,145,771
Total liabilities and stockholders' equity	453,474,622	1,307,848		452,166,774

	For the Twelve Months Ended December 31, 2018
Consolidated Statements of Cash Flows	As Reported	Effect of ASC 606 Adoption		Under Prior Accounting
Net Income	23,981,646	2,014,463		21,967,183
Change in operating assets and liabilities:
Advance hire, prepaid expenses and other current assets	1,624,441	997,872		626,569
Deferred Revenue	4,172,392	(3,012,335	)	7,184,727



	For the Twelve Months Ended December 31, 2018
Consolidated Statements of Operations	As Reported		Effect of ASC 606 Adoption		Under Prior Accounting
Voyage revenue	$	319,753,056	$	3,012,335	$	316,740,721
Total revenues	372,970,373		3,012,335		369,958,038
Voyage expense	145,146,359		137,915		145,008,444
Charter hire expense	116,958,024		859,957		116,098,067
Total Expenses	336,899,635		997,872		335,901,763
Income from Operations	36,070,738		2,014,463		34,056,275
Net Income	23,981,646		2,014,463		21,967,183
Net income attributable to Pangaea Logistics Solutions Ltd.	$	17,757,020	$	2,014,463	$	15,742,557
Earnings per common share, basic	$	0.42	$	0.05	$	0.37
Earnings per common share, diluted	$	0.42	$	0.05	$	0.37

Assets and liabilities related to our voyage contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. Contract assets include accounts receivable for amounts billed and currently due from customers, which are reported at their net estimated realizable value. The Company maintains reserves against its accounts receivable for potential credit losses, which were immaterial for the years ended December 31, 2018 and 2017, respectively. Other contract assets include unbilled revenue which arises when revenue is recognized in advance of billing for certain voyage contracts and hire paid to shipowners in advance. Contract liabilities consist of deferred revenue which arises when amounts are billed to or collected from customers in advance of revenue recognition.

ASC 606 requires the recognition of an asset for costs to fulfill contracts that: (1) relate directly to the contract; (2) are expected to generate resources that will be used to satisfy our performance obligation under the contract; and (3) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed to voyage expenses as we satisfy our performance obligations. These costs consist primarily of bunker and charter hire costs incurred prior to loading and are amortized pro rata over the period between load and discharge. At December 31, 2018 and January 1, 2018, deferred contract fulfillment costs amounted to $1.3 million and $2.3 million, respectively, and are included in advance hire, prepaid expenses and other current assets on the consolidated balance sheets. For the year ended December 31, 2018, we recognized expense of $8.1 million associated with the amortization of deferred contract costs.

Under ASC 606, deferred revenue represents the consideration received for undelivered performance obligations. The Company recorded an additional $1.7 million and $4.7 million of deferred revenue on voyages in progress as of December 31, 2018 and January 1, 2018, respectively, due to the adoption of ASC 606 because this revenue can no longer be recognized until the vessel arrives in the load port.

All voyages that were not substantially complete on January 1, 2018 were completed during the year ended December 31, 2018, therefore, all related voyage contract assets and liabilities from those voyages were recognized as expense and revenue, respectively, in the period.

Deferred Revenue

Billings for services for which revenue is not recognized in the current period are recorded as deferred revenue. Deferred revenue recognized in the accompanying consolidated balance sheets is expected to be realized within twelve months of the balance sheet date.

Voyage Expenses

The Company incurs expenses for voyage charters that include bunkers (fuel), port charges, canal tolls, broker 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 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 (“VOE”) represent the cost to operate the Company’s owned vessels. VOE include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumables, other miscellaneous expenses, and technical management fees. 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. These expenses are recognized as incurred.

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents, trade receivables and derivative instruments. The Company maintains its cash accounts with various high-quality financial institutions in the United States, Germany, and Bermuda. The Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company does not believe that significant concentration of credit risk exists with respect to these cash equivalents. Trade accounts receivable are recorded at the invoiced amount, and do not bear interest. The Company performs ongoing credit evaluations of its customers’ financial condition, but does not require collateral. Historically, credit risk with respect to trade accounts receivable has been considered minimal due to the long-standing relationships with significant customers, and their relative financial stability. However, current economic conditions could impact the collectibility of certain customers' trade receivables, which could have a material effect on the Company's results of operations. Derivative instruments are recorded at fair value. The Company does not have any off-balance sheet credit exposure related to its customers.

At December 31, 2018, two customers accounted for 25% of the Company’s trade accounts receivable. At December 31, 2017, there were two customers that accounted for 32% of the Company’s trade accounts receivable.

At December 31, 2018, ten customers in the United States and three customers in Canada accounted for 45% of accounts receivable. At December 31, 2017, fourteen customers in the United States and five customers in Canada accounted for 52% of accounts receivable.

For the year ended December 31, 2018, revenue from customers in each of the following countries accounted for at least 10% of total revenue; the United States (twenty-six representing 24%) and Canada (six representing 13%). For the year ended December 31, 2017, revenue from customers in each of the following countries accounted for at least 10% of total revenue; the United States (eighteen representing 20%) and Canada (four representing 20%).

For the year ended December 31, 2018 two customers accounted for approximately 10% (each) of total revenue. For the year ended December 31, 2017, one customers accounted for 12% of total revenue.

Cash, Cash Equivalents and Restricted Cash

On January 1, 2018, the Company adopted ASU No. 2016-18, Statement of Cash Flows (ASC 230). The amendments in this update provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing the diversity in practice. Specifically, this update addresses how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash, cash equivalents, and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents. The new standard became effective for the Company on January 1, 2018. The amendments in this update were applied using a retrospective transition method to each period presented.

Cash and cash equivalents include short-term deposits with an original maturity of less than three months. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows:



	December 31,
	2018		2017
Money market accounts – cash equivalents	$	13,819,043	$	21,009,821
Cash ⁽¹⁾	39,795,692		13,521,991
Total cash and cash equivalents	$	53,614,735	$	34,531,812
Restricted cash	$	2,500,000	$	4,000,000
Total cash, cash equivalents and restricted cash	$	56,114,735	$	38,531,812

⁽¹⁾Consists of cash deposits at various major banks.

Restricted cash at December 31, 2018 consists of $2.5 million held by the facility agent as required by the Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. and Bulk Nordic Oshima Ltd. – Dated September 28, 2015 - Amended and Restated Loan Agreement (See Note 8).

Restricted cash at December 31, 2017 consists of $1.5 million held by the facility agent as required by the The Senior Secured Post-Delivery Term Loan Facility and $2.5 million held by the facility agent as required by the Bulk Nordic Odin Ltd., Bulk Nordic Olympic Ltd. Bulk Nordic Odyssey Ltd., Bulk Nordic Orion Ltd. And Bulk Nordic Oshima Ltd. – Dated September 28, 2015 - Amended and Restated Loan Agreement (See Note 8).

Allowance for Doubtful Accounts

The Company provides a specific reserve for significant outstanding accounts that are considered potentially uncollectible in whole or in part. In addition, the Company’s policy based on experience is to establish a reserve equal to approximately 25% of accounts receivable balances that are 30-180 days past due and approximately 50% of accounts receivable balances that are 180 or more days past due, and which are not otherwise reserved. The reserve estimates are adjusted as additional information becomes available, or as payments are made. At December 31, 2018 and 2017, the Company has provided an allowance for doubtful accounts of $2,357,130 and $2,135,877 respectively, for amounts that are not expected to be fully collected. The provision for doubtful accounts was approximately $269,000 in 2018 and $544,000 in 2017. The Company wrote off approximately $48,000 and $3,160,000 during 2018 and 2017, respectively, which amounts were previously included in the allowance, because these amounts were determined to be uncollectible.

Bunker Inventory

Inventory is primarily comprised of fuel oil purchased and stored onboard a vessel. Inventory is measured at the lower of cost under the first-in, first-out method or net realizable value.

Advanced Hire, Prepaid Expenses and Other Current Assets

Advance hire represents payment to ship owners under time-charters for days subsequent to the balance sheet date. Hire is typically paid in advance for the following fifteen days, but intervals vary by time-charter contract. Prepaid expenses include advance funding to the technical manager for vessel operating expenses, lubricating oils and stores kept on board owned vessels, certain voyage expenses paid in advance and direct costs incurred to fulfill a COA. These specifically identified costs are used to satisfy the contract and are expected to be recovered over the term of the COA. Such costs are amortized on a straight-line basis and charged equally to each of the voyages under the contract. Other assets include deposits held by counterparties to various derivative instruments and the fair value of derivative instruments when it exceeds the settlement price of the instrument.

At December 31, advance hire, prepaid expenses and other current assets were comprised of the following:



	2018		2017
Advance hire	$	5,851,070	$	3,628,417
Prepaid expenses	1,276,901		460,445
Accrued receivables	2,479,800		6,153,212
Margin Deposit	1,820,656		912,981
Other current assets	759,124		877,217
Total	$	12,187,551	$	12,032,272

Vessels and Depreciation

Vessels are stated at cost, which includes contract price and acquisition costs. Significant improvements to vessels are capitalized; maintenance and repairs that do not improve or extend the lives of the vessels are expensed as incurred. Depreciation is provided using the straight-line method over the remaining estimated useful lives of the vessels (excluding the time a vessel in is dry dock), based on cost less salvage value. Each vessel’s salvage value is equal to the product of its lightweight tonnage and an estimated scrap rate of $300 per ton, which was determined by reference to quoted rates and is reviewed annually. The Company estimates the useful life of its vessels to be 25 years to 30 years from the date of initial delivery from the shipyard. The remaining estimated useful lives of the current fleet are 2 - 23 years. The Company does not incur depreciation expense when vessels are taken out of service for dry docking.

Vessels held for sale are carried at estimated fair value less cost to sell. No additional depreciation expense is recorded for vessels categorized as held for sale.

Dry Docking Expenses and Amortization

Significant upgrades made to the vessels during dry docking are capitalized when incurred and amortized on a straight-line basis over the five year period until the next dry docking. Costs capitalized as part of the dry docking include direct costs incurred to meet regulatory requirements that add economic life to the vessel, that increase the vessel’s earnings capacity or which improve the vessel’s efficiency. Direct costs include the shipyard costs, parts, inspection fees, steel, blasting and painting. Expenditures for normal maintenance and repairs, whether incurred as part of the dry docking or not, are expensed as incurred. Unamortized dry-docking costs of vessels that are sold are written off and included in the calculation of the resulting gain or loss on sale.

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, since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of new vessels. Historically, both charter rates and vessel values tend to be cyclical. The carrying amounts of vessels held and used by the Company are reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of a particular vessel 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 vessel and its eventual disposition is less than the vessel’s carrying amount. This assessment is made at the asset group level which represents the lowest level for which identifiable cash flows are largely independent of other groups of assets. The asset groups established by the Company are defined by vessel size, age and classification. At December 31, 2018 and 2017, the Company did not identify any potential impairment indicator.

During the quarters ended June 30, 2018 and 2017 and at March 31, 2017, the Company identified a potential impairment indicator by reference to industry-wide estimated market values of its vessel groups. As a result, the Company evaluated each group for impairment by estimating the total undiscounted cash flows expected to result from the use of the group and its eventual disposal. The estimated undiscounted future cash flows were higher than the carrying amount of the vessels in the Company's fleet and as such, no loss on impairment was recognized in these periods.

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. The Company applies a multiple to account for expected growth or decline in TCE rates due to market conditions for periods beyond those for which rates are available. Projected net operating cash flows are net of brokerage and address commissions and exclude revenue on scheduled off-hire days. The Company uses current vessel operating expense amounts, 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.

Debt Issuance Costs, Bank Fees and Amortization

Qualifying expenses associated with commercial financing and fees paid to financial institutions to obtain financing are carried as a reduction of the outstanding debt and amortized over the term of the arrangement using the effective interest method. The unamortized portion is included as a reduction of secured long-term debt on the consolidated balance sheets.

In connection with the Company’s new and amended secured term loans executed in 2018, the Company incurred financing costs of approximately $728,000. In connection with the Company’s new and amended secured term loans executed in 2017, the Company incurred financing costs of approximately $1,022,500.

Amortization of the debt issuance costs is included as a component of interest expense in the consolidated statements of income. Unamortized debt issuance costs of approximately $455,000 were written off in conjunction with the repayment of the loan by Bulk Trident in June 2018, when the ship was sold and leased back from the buyer. Unamortized debt issuance costs of approximately $274,000 were written off in conjunction with the repayment of the loan by Bulk Beothuk in June 2017, when the ship was sold and leased back from the buyer.

The components of net debt issuance costs and bank fees, which are included in secured long-term debt on the consolidated balance sheets are as follows:



	December 31,
	2018			2017
Debt issuance costs and bank fees paid to financial institutions	$	6,341,393		$	6,068,806
Less: accumulated amortization	(4,437,399		)	(4,199,026		)
Unamortized debt issuance costs and bank fees	$	1,903,994		$	1,869,780

Amortization included in interest expense	$	693,788		$	681,279

Accounts Payable and Accrued Expenses

The components of accounts payable and accrued expenses are as follows:



	December 31,
	2018		2017
Accounts payable	$	19,892,511	$	15,686,235
Accrued expenses	7,424,286		11,923,445
Accrued interest	540,886		611,406
Derivative liabilities	3,225,907		—
Other accrued liabilities	813,917		960,190
Total	$	31,897,507	$	29,181,276

Taxation

The Company is not subject to corporate income taxes on its profits in Bermuda because Bermuda does not impose an income tax.

NBC, a wholly-owned subsidiary of the Company, is subject to a Danish tonnage tax. NBC is not taxed on the basis of their actual income derived from their business but on an alternative income determination based on the net tons carrying capability of their fleet. As the tax is not determined based on taxable income, NBC’s tax expense of approximately $356,000 and $428,000 is included within voyage expenses in the accompanying consolidated statements of operations as of December 31, 2018 and 2017, respectively.

Shipping income derived from sources outside the United States is not subject to any Unites States federal income tax. U.S. sourced income from the international operation of ships that is considered qualified income and earned by a qualified foreign corporation can also be considered exempt from U.S. federal income taxation. The exemption requires a number of tests be met including qualifying income earned subject to an equivalent exemption in a qualified country and a qualified foreign corporation meeting the qualified foreign country, qualified income, stock ownership tests and substantiation requirements. The Company believes it meets all of the tests to qualify for an exemption from income under Internal Revenue Code section 883. To the extent the Company is unable to qualify for the exemption, the Company would be subject to U.S. federal income taxation of 4% of its U.S. shipping income on a gross basis without deductions. If certain other conditions are present, as defined in the Code, U.S. source shipping income, net of applicable deductions, may be subject to federal income tax of up to 21% and a 30% branch profits tax. The company believes that none of its U.S. source shipping income is effectively connected with the conduct of a U.S. trade or business.

Since earnings from shipping operations of the Company are not subject to U.S. or foreign income taxation, the Company has not recorded income tax expense, deferred tax assets or liabilities for the years ended December 31, 2018 and 2017.

On December 22, 2017, the Tax Cuts and Jobs Act was passed which, among other things, reduces the federal corporate tax rate to 21.0% effective January 1, 2018. Recent guidance allows for a measurement period approach for the income tax effects of tax reform for which the accounting is incomplete, but the Company is able to provide a provisional estimate for various changes in the law. As a result of the Company’s income qualifying for exemption from US taxation under Internal Revenue Code section 883, there was no federal income tax impact to the years ended December 31, 2018 and 2017. As long as the Company continues to meet the exemption for its qualifying income and the U.S. and foreign laws do not change regarding the application of this exemption, the Company does not believe the impact for tax reform to have a material impact on the company. The Company will continue to monitor guidance regarding these changes for how it may impact the financial statements in later periods.

Where required, the Company complies with income tax filings in its various jurisdictions of operations. As of December 31, 2018 and 2017, the Company is not subject to U.S. federal or foreign examinations by tax authorities for years before 2013.

Restricted Common Share Awards

Compensation cost of restricted share awards is measured using the grant date fair value of the Company's common shares, as quoted on the Nasdaq Capital Market, multiplied by the total number of shares granted. Compensation cost is amortized according to the vesting period indicated in the grant agreement. Total compensation cost recognized during the years ended December 31, 2018 and 2017 is approximately $1,200,000 and $1,074,000, respectively, which is included in general and administrative expenses in the consolidated statements of operations.

Dividends

Dividends on common stock are recorded when declared by the Board of Directors. Refer to Note 9 for a discussion regarding common stock dividends.

Earnings per Common Share

Basic earnings per share ("EPS") is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period.

Diluted EPS is computed using the treasury stock method. Under this method, the amount of unrecognized compensation cost related to future services by employees who were awarded restricted shares is assumed to be used to repurchase common stock at the average market price during the period. The incremental shares (nonvested less repurchased) are considered to be outstanding for diluted EPS.

Foreign Exchange

The Company conducts all of its business in U.S. dollars; accordingly, there are no foreign exchange transaction gains or losses reflected in the consolidated statements of income.

Derivatives and Hedging Activities

The Company accounts for derivatives in accordance with the provisions of ASC 815, Derivatives and Hedging. The Company uses interest rate swaps to reduce market risks associated with its operations, principally changes in variable interest rates on its bank debt. Additionally, the Company uses forward freight agreements to protect against changes in charter rates and bunker (fuel) swaps to protect against changes in fuel prices. Derivative instruments are measured at fair value and are recorded as assets or liabilities.

The Company is exposed to credit loss in the event of nonperformance by the counterparty to the interest rate swaps, forward freight agreements and bunker hedges.

Segment Reporting

Operating segments are components of a business that are evaluated regularly by the chief operating decision maker ("CODM") for the purpose of assessing performance and allocating resources. Based on the information that the CODM uses, including consideration of whether discrete financial information is available for the business activities, the Company has identified multiple operating segments which have been aggregated based on considerations such as the nature of its services, customers, operations and economic characteristics. The Company has determined that it operates under one reportable segment.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate fair value due to the short-term maturities of these instruments. The carrying amount of the Company’s floating rate long-term debt approximates its fair value due to the variable interest rates associated with these related credit facilities.

At December 31, 2018, the Company has four fully fixed rate debt facilities and four facilities which are fixed in part. At December 31, 2017, the Company has seven fully fixed rate debt facilities and three facilities of which fifty percent are fixed. The aggregate carrying amounts and fair values of the long-term debt associated with the fixed rate borrowing arrangements are as follows:



	December 31,
	2018		2017
Carrying amount of fixed rate long-term debt	$	80,964,690	$	92,096,979
Fair value of fixed rate long-term debt	$	81,412,986	$	93,417,008

Fair values of these debt obligations were estimated based on quoted market prices for the same or similar issues of debt with the same remaining maturities, which is considered Level 2 in the fair value hierarchy established by ASC 820.

Reclassifications

The Company reclassified prior year income earned on the non-performance of COA's from other income to voyage revenue to conform to the current year's presentation. This reclassification had no effect on the Company’s previously reported consolidated operations or shareholders’ equity.

Recent 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. As allowed by a practical expedient under ASC 842, a lessee is permitted to make an accounting policy election by class of underlying asset for leases with a term of 12 months or less, to forego recognizing a right-of-use asset and lease liability on its balance sheet. 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. In determining the estimated value of right-use assets and lease liabilities, the Company will consider the noncancelable period of the lease as well as periods for which it is reasonably certain that renewal options will be exercised. The Company will discount the estimated lease liability using the portfolio approach, the composition of which is its secured long-term debt facilities.

The Company expects to elect the "package of practical expedients" in the new standard, under which we are not required to reassess our prior conclusions regarding lease identification, classification and initial direct costs. We do not expect to elect the use-of-hindsight practical expedient; and the practical expedient pertaining to land easements will not apply to the Company.

In July 2018, the Financial Accounting Standards Board issued ASU 2018-11 to amend ASU 2016-02 and provided an additional (and optional) transition method to adopt the new lease standard. This transition method allows entities to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption instead of using the original modified retrospective transition method of adoption which required the restatement of all prior period financial statements. Under this new transition method, the comparative periods presented in the financial statements will continue to be in accordance with current GAAP (Topic 840, Leases). Management will adopt the new lease standard using this new transition method under ASU 2018-11.

The amendments in this Update also provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met:

1. The timing and pattern of transfer of the nonlease component(s) and associated lease component are the same.

2. The lease component, if accounted for separately, would be classified as an operating lease.

The Company intends to elect this practical expedient when it adopts the lessor provisions of this Update. As a result, time charter arrangements using the Company's owned vessels will account for the operating lease component of charter-hire revenue and the vessel operating expense nonlease component as a single component. Accordingly, the lessor provisions under ASC 842 are not expected to have a material impact on the Company’s financial statements.

The Company does not expect the adoption of the lessee provisions of this guidance to have a material impact on its consolidated financial statements because the Company rarely charters-in vessels (lessee) for longer than one year and the Company intends to apply the practical expedient relating to leases with terms of 12 months or less. Furthermore, the Company has only one noncancelable office lease for which the noncancelable period is less than eight months and noncancelable office equipment leases which are not expected to create significant right to use assets or lease liabilities.

The Company will implement the new guidance effective January 1, 2019 and will provide the required disclosures under the standard in its Form 10-Q filing for the quarterly period ending March 31, 2019.

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.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for our company at the beginning of 2020. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the standard on our consolidated financial statements.