UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




Form 10-K




(Mark One)




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




For the Fiscal Year Ended March 31, 2011




or




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




Commission File Number: 001-33345




RAND LOGISTICS, INC.


(Exact name of registrant as specified in its charter)




Delaware
No. 20-1195343(State or other jurisdiction of
(I.R.S. EmployerIncorporation or organization)
Identification No.)500 Fifth Avenue, 50th FloorNew York, NY
10110(Address of principal executive offices)
(Zip Code)




Registrant’s telephone number, including area code:


(212) 644-3450




Securities registered pursuant to Section 12(b) of the Act:




Title of Each Class
Name of Each Exchange on Which RegisteredCommon Stock, $.0001 par value per share
The NASDAQ Capital Market




Securities registered pursuant to Section 12(g) of the Act:  None




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No x




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o     No x




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, and (2) has been subject to the filing requirements for at least the past 90 days.  Yes x     No o




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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.   Yes o     No o




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o




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  o
Accelerated filer  oNon-accelerated filer  o
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 o     No x




The aggregate market value of voting stock held by non-affiliates of the registrant as of September 30, 2010 was $45,113,686.




14,865,556 shares of Common Stock were outstanding at June 28, 2011.




DOCUMENTS INCORPORATED BY REFERENCE




Portions of the registrant’s definitive Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year covered by this Annual Report on Form 10-K, with respect to the Annual Meeting of Stockholders to be held on September 21, 2011, are incorporated by reference into Part III of this Annual Report on Form 10-K.









RANDLOGISTICS, INC.




TABLE OF CONTENTS




PART I

1Item 1.
Business
1Item 1A.
Risk Factors
3Item 1B.
Unresolved Staff Comments
12Item 2.
Properties
12Item 3.
Legal Proceedings
12Item 4.
Reserved
12PART II

13Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
13Item 6.
Selected Financial Data
13Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction
13Item 7A.
Quantitative and Qualitative Disclosure about Market Risk
30Item 8.
Financial Statements and Supplementary Data
30Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
30Item 9A.
Controls and Procedures
31Item 9B.
Other Information
31PART III

31Item 10.
Directors, Executive Officers and Corporate Governance
31Item 11.
Executive Compensation
32Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
32Item 13.
Certain Relationships and Related Transactions, and Director Independence
32Item 14.
Principal Accountant Fees and Services
32PART IV

33Item 15.
Exhibits and Financial Statement Schedules
33
 
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PART I




ITEM 1.  BUSINESS




Overview




Rand Logistics, Inc. (formerly Rand Acquisition Corporation) (“Rand,” the “Company,” “we,” “our” and “us”) was incorporated in the State of Delaware on June 2, 2004 as a blank check company to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. On November 2, 2004, we closed our initial public offering of 4,000,000 units with each unit consisting of one share of our common stock and two warrants, each to purchase one share of our common stock at an exercise price of $5.00 per share. The units were sold at an offering price of $6.00 per unit, generating gross proceeds of $24.0 million. On November 3, 2004, we sold an additional 600,000 units pursuant to the underwriters’ over-allotment option raising additional gross proceeds of $3.6 million. After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the offering were approximately $24.6 million.




On March 3, 2006, we acquired all of the outstanding shares of capital stock of Lower Lakes Towing Ltd. (“Lower Lakes Towing”), a Canadian corporation which, with its subsidiary Lower Lakes Transportation Company (“Lower Lakes Transportation”), provides bulk freight shipping services throughout the Great Lakes region and operated eight vessels. As part of the acquisition of Lower Lakes, we also acquired Lower Lakes’ affiliate, Grand River Navigation Company, Inc. (“Grand River”).  Prior to the acquisition, we did not conduct, or have any investment in, any operating business.  Subsequent to the acquisition, we have added several additional vessels to our fleet through acquisition transactions.  Most recently, as discussed below, we acquired two integrated tug and barge units through a new subsidiary, Black Creek Shipping Company, Inc. (“Black Creek”). In this Annual Report on Form 10-K, unless the context otherwise requires, references to Rand include Rand and its direct and indirect subsidiaries, and references to Lower Lakes’ business or the business of Lower Lakes mean the combined businesses of Lower Lakes Towing, Lower Lakes Transportation, Grand River and Black Creek.




On February 11, 2011, our subsidiaries Black Creek  and Black Creek Shipping Holding Company, Inc. (“Black Creek Holdings”) acquired two integrated tug and barge units, which vessels were subsequently chartered to Grand River.  In connection with the acquisition of these vessels, Black Creek entered into vessel transportation agreements with third parties which had previously been serviced by the seller of the vessels.




Our shipping business is operated in Canada by Lower Lakes Towing and in the United States by Lower Lakes Transportation. Lower Lakes Towing was organized in March 1994 under the laws of Canada to provide marine transportation services to dry bulk goods suppliers and purchasers operating in ports on the Great Lakes that were restricted in their ability to receive larger vessels. Lower Lakes has grown from its origin as a small tug and barge operator to a full service shipping company with a fleet of fifteen cargo-carrying vessels, including one vessel operated under a contract of affreightment with an unrelated third party.   From its exclusively Canadian beginnings, Lower Lakes has also grown to offer domestic services to both Canadian and U.S. customers as well as cross-border routes. Lower Lakes services the construction, electric utility, integrated steel and food industries through the transportation of limestone, coal, iron ore, salt, grain and other dry bulk commodities.




We believe that Lower Lakes is the only company providing significant domestic port-to-port services to both Canada and the United States in the Great Lakes region. Lower Lakes maintains this operating flexibility by operating both U.S. and Canadian flagged vessels in compliance with the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones Act, in the U.S. and the Coasting Trade Act (Canada) in Canada.




Lower Lakes’ fleet consists of five self-unloading bulk carriers and two conventional bulk carriers in Canada and seven self-unloading bulk carriers in the U.S., including three integrated tug and barge units. Lower Lakes Towing owns all of the Canadian vessels.  Lower Lakes Transportation time charters the seven U.S. vessels, including the three integrated tug and barge units, from Grand River. With the exception of one barge (which Grand River bareboat charters from an unrelated third party) and two of the integrated tug and barge units (which Grand River bareboat charters from Black Creek), Grand River owns the vessels that it time charters to Lower Lakes Transportation.




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Lower Lakes is a leading provider of River Class bulk freight shipping services throughout the Great Lakes, operating over one-half of all River Class vessels servicing the Great Lakes and the majority of boom-forward equipped vessels in this category.  River Class vessels - which represent the smaller end of Great Lakes vessels with maximum dimensions of approximately 650 feet in length and 72 feet in beam and carrying capacities of 15,000 to 20,000 tons - are ideal for customers seeking to move significant quantities of dry bulk product to or from ports which restrict non-River Class vessels due to size and capacity constraints.  Boom forward self-unloading vessels - those with their booms located in front of the cargo holds – offer greater accessibility for delivery of cargo to locations where only forward access is possible. Six of the vessels used in Lower Lakes’ operations are boom forward self-unloaders and six vessels are boom aft self-unloaders.




Lower Lakes services approximately 50 customers in a diverse array of end markets by shipping dry bulk commodities such as construction aggregates, coal, grain, iron ore and salt.  Lower Lakes’ top ten customers accounted for approximately 67% of its revenue during the fiscal year ended March 31, 2011.  Lower Lakes is the sole-source shipping provider to several of its customers.  Many of Lower Lakes’ customers are under long-term contracts with Lower Lakes, which typically average three to five years in duration and provide for minimum and maximum tonnage, annual price escalation features, and fuel surcharges.




Lower Lakes faces competition from other marine and land-based transporters of dry bulk commodities in and around the Great Lakes area.  In the River Class market segment, Lower Lakes generally faces two primary competitors: Seaway Marine Transport and American Steamship Company.  Seaway Marine Transport is a Canadian traffic and marketing partnership, which owns 19 self-unloading vessels, three of which are River Class boom-forward vessels.  American Steamship Company operates in the U.S. and maintains a fleet of 17 vessels, three of which are River Class vessels.  We believe that industry participants compete on the basis of customer relationships, price and service, and that the ability to meet a customer’s schedule and offer shipping flexibility is a key competitive factor.  Moreover, we believe that customers are generally willing to continue to use the same carrier assuming such carrier provides satisfactory service with competitive pricing.




We believe that the available shipping capacity on the Great Lakes is declining over the long term as aging fleets are retired. We do not believe that such retirements will be fully replaced with new or refurbished capacity until freight rates are substantially increased to justify such capital investments.




As of March 31, 2011, Lower Lakes had approximately 397 full-time employees, 30 of whom were shoreside and management and 367 of whom were shipboard employees.  Approximately 42% of Lower Lakes’ shipboard employees (all U.S. based Grand River crews) are unionized with the International Organization of Masters, Mates and Pilots, AFL-CIO.  Lower Lakes has never experienced a work stoppage on its crewed vessels as a result of labor issues, and we believe that our employee relations are good.




Our executive officers are Laurence S. Levy, who serves as our chairman of the board and chief executive officer; Edward Levy, who serves as our president; and Joseph W. McHugh, Jr., who serves as our chief financial officer.  Carol Zelinski is the secretary of Rand.




ITEM 1A.  RISK FACTORS




An investment in our common stock involves a high degree of risk. You should carefully consider the following material risks before you decide to buy our common stock. If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer. In these circumstances, the market price of our common stock could decline and you may lose all or part of your investment.




Risks Associated with our Business




The recent worldwide financial and credit crisis could lead to an extended worldwide economic recession and have a material adverse effect on our financial results and financial condition.




During recent years, there has been substantial volatility and losses in worldwide equity markets that could lead to an extended worldwide economic recession. In addition, due to the substantial uncertainty in the global economies, there has been deterioration in the credit and capital markets and access to financing is uncertain. These conditions could have an adverse effect on our industry and our business and future operating results. Our customers may curtail their capital and operating expenditure programs, which could result in a decrease in demand for our vessels and a reduction in rates and/or utilization. In addition, certain of our customers could experience an inability to pay suppliers, including us, in the event they are unable to access the capital markets to fund their business operations. Likewise, our suppliers may be unable to sustain their current level of operations, fulfill their commitments and/or fund future operations and obligations, each of which could adversely affect our operations.




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Capital expenditures and other costs necessary to operate and maintain Lower Lakes’ vessels tend to increase with the age of the vessel and may also increase due to changes in governmental regulations, safety or other equipment standards.




Capital expenditures and other costs necessary to operate and maintain Lower Lakes’ vessels tend to increase with the age of each vessel. Accordingly, it is likely that the operating costs of Lower Lakes’ older vessels will increase. In addition, changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require Lower Lakes to make additional expenditures. For example, if the U.S. Coast Guard, Transport Canada or the American Bureau of Shipping (an independent classification society that inspects the hull and machinery of commercial ships to assess compliance with minimum criteria as set by U.S., Canadian and international regulations) enact new standards, Lower Lakes may be required to incur significant costs for alterations to its fleet or the addition of new equipment. In order to satisfy any such requirement, Lower Lakes may be required to take its vessels out of service for extended periods of time, with corresponding losses of revenues. In the future, market conditions may not justify these expenditures or enable Lower Lakes to operate its older vessels profitably during the remainder of their anticipated economic lives.




If Lower Lakes is unable to fund its capital expenditures, drydock costs and winter work expenses, Lower Lakes may not be able to continue to operate some of its vessels, which would have a material adverse effect on our business.




In order to fund Lower Lakes’ capital expenditures, drydock costs and winter work expenses, we may be required to incur borrowings or raise capital through the sale of debt or equity securities. Our ability to access the capital markets for future offerings may be limited by our financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond its control. Our failure to obtain the funds for necessary future capital expenditures and winter work expenses would limit its ability to continue to operate some of its vessels and could have a material adverse effect on our business, results of operations and financial condition.




The climate in the Great Lakes region limits Lower Lakes’ vessel operations to approximately nine months per year.




Lower Lakes’ operating business is seasonal, meaning that it experiences higher levels of activity in some periods of the year than in others.  Ordinarily, Lower Lakes is able to operate its vessels on the Great Lakes for approximately nine months per year beginning in late March or April and continuing through December or mid-January. However, weather conditions and customer demand cause increases and decreases in the number of days Lower Lakes actually operates.




The shipping industry has inherent operational risks that may not be adequately covered by Lower Lakes’ insurance.




Lower Lakes maintains insurance on its fleet for risks commonly insured against by vessel owners and operators, including hull and machinery insurance, war risks insurance and protection and indemnity insurance (which includes environmental damage and pollution insurance). Lower Lakes does not, however, insure the loss of a vessel’s income when it is being repaired due to an insured hull and machinery claim. We can give no assurance that Lower Lakes will be adequately insured against all risks or that its insurers will pay a particular claim. Even if its insurance coverage is adequate to cover its losses, Lower Lakes may not be able to timely obtain a replacement vessel in the event of a loss. Furthermore, in the future, Lower Lakes may not be able to obtain adequate insurance coverage at reasonable rates for Lower Lakes’ fleet. Lower Lakes may also be subject to calls, or premiums, in amounts based not only on its own claims record but also the claims record of all other members of the protection and indemnity associations through which Lower Lakes may receive indemnity insurance coverage. Lower Lakes’ insurance policies will also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase its costs.




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Lower Lakes is subject to certain credit risks with respect to its counterparties on contracts and failure of such counterparties to meet their obligations could cause us to suffer losses on such contracts, decreasing our revenues and earnings.




Lower Lakes enters into contracts of affreightment (COAs) pursuant to which Lower Lakes agrees to carry cargoes, typically for industrial customers, who export or import dry bulk cargoes. Lower Lakes also enters into spot market voyage contracts, where Lower Lakes is paid a rate per ton to carry a specified cargo from point A to point B. All of these contracts subject Lower Lakes to counterparty credit risk. As a result, we are subject to credit risks at various levels, including with charterers, cargo interests, or terminal customers. If the counterparties fail to meet their obligations, Lower Lakes could suffer losses on such contracts which would decrease our revenues and earnings.




Lower Lakes and Black Creek may not be able to generate sufficient cash flows to meet their respective debt service obligations.




Lower Lakes’ and Black Creek’s ability to make payments on their respective indebtedness will depend on Lower Lakes’ ability to generate cash from its future operations. Lower Lakes’ business may not generate sufficient cash flow from operations or from other sources sufficient to enable it and Black Creek to repay their indebtedness and to fund their other liquidity needs, including capital expenditures and winter work expenses. The indebtedness of Lower Lakes and Black Creek under their respective credit facilities bears interest at floating rates, and therefore, if interest rates increase, Lower Lakes’ and Black Creek’s debt service requirements will increase, except for that portion of Lower Lakes’ term debt that is subject to interest rate swaps. Lower Lakes and Black Creek may need to refinance or restructure all or a portion of their respective indebtedness on or before maturity. Lower Lakes and Black Creek may not be able to refinance any of their respective indebtedness on commercially reasonable terms, or at all. If Lower Lakes or Black Creek cannot service or refinance their respective indebtedness, they may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, any of which could have a material adverse effect on our operations. Additionally, Lower Lakes and Black Creek may not be able to effect such actions, if necessary, on commercially reasonable terms, or at all.




A default under Lower Lakes’ or Black Creek’s indebtedness may have a material adverse effect on our financial condition.




In the event of a default under Lower Lakes’ or Black Creek’s indebtedness, the holders of the indebtedness under Lower Lakes’ or Black Creek’s respective credit facilities generally would be able to declare all of the indebtedness under such facility, together with accrued interest, to be due and payable. In addition, borrowings under the existing Lower Lakes senior credit facility are secured by a first priority lien on all of the assets of Lower Lakes Towing, Lower Lakes Transportation and Grand River and, in the event of a default under that facility, the lenders thereunder generally would be entitled to seize the collateral, including assets which are necessary to operate our business.  Similarly, borrowings under the Black Creek credit facility are secured by a first priority lien on all of Black Creek’s assets and, in the event of default under that facility, the lenders thereunder generally would be entitled to seize the collateral.  In addition, default under one debt instrument within Lower Lakes’ senior credit facility could in turn permit lenders under other debt instruments within Lower Lakes’ senior credit facility to declare borrowings outstanding under those other instruments to be due and payable pursuant to cross default clauses.  Moreover, upon the occurrence of an event of default under the Lower Lakes credit facility, the commitment of the lenders to make any further loans to us would be terminated. Accordingly, the occurrence of a default under any debt instrument, unless cured or waived, would likely have a material adverse effect on our results of operations.




Servicing debt could limit funds available for other purposes, such as the payment of dividends.




Lower Lakes and Black Creek will each use cash to pay the principal and interest on their debt, and to fund capital expenditures, drydock costs and winter work expenses. These payments limit funds that would otherwise be available for other purposes, including distributions of cash to our stockholders.




Lower Lakes’ and Black Creek’s loan agreements contain restrictive covenants that will limit their liquidity and corporate activities.




Lower Lakes’ and Black Creek’s respective credit facilities impose operating and financial restrictions that limit their ability to:




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o
incur additional indebtedness;




o
create additional liens on its assets;




o
make investments;




o
engage in mergers or acquisitions;




o
pay dividends; and




o
sell any of Lower Lakes’ or Black Creek’s vessels or any other assets outside the ordinary course of business.




Therefore, Lower Lakes and Black Creek will need to seek permission from their respective lenders in order to engage in some corporate actions. Lower Lakes’ and Black Creek’s lenders’ interests may be different from those of Lower Lakes or Black Creek, respectively, and no assurance can be given that Lower Lakes or Black Creek will be able to obtain their respective lenders’ permission when needed. This may prevent Lower Lakes and Black Creek from taking actions that are in their best interest.




Because Lower Lakes generates approximately 65% of its revenues and incurs approximately 65% of its expenses in Canadian dollars, exchange rate fluctuations could cause us to suffer exchange rate losses thereby increasing expenses and reducing income.




Lower Lakes generates a significant portion of its revenues and incurs a significant portion of its expenses in Canadian dollars. This could lead to fluctuations in our net income due to changes in the value of the U.S. Dollar relative to the Canadian Dollar.




Lower Lakes depends upon unionized labor for its U.S. operations. Any work stoppages or labor disturbances could disrupt its business.




All of Grand River’s shipboard employees are unionized with the International Organization of Masters, Mates and Pilots, AFL-CIO. Any work stoppages or other labor disturbances could have a material adverse effect on our business, results of operations and financial condition.




A labor union has attempted to unionize Lower Lakes’ Canadian employees.




The Seafarers International Union of Canada, or SIU, has attempted without success to organize Lower Lakes’ unlicensed Canadian employees periodically over the past several years. Although we believe that support for this union is low, if SIU is successful in organizing a union among Lower Lakes’ Canadian employees, it could result in increased labor costs or reduced productivity for Lower Lakes, which could have a material adverse effect on our results of operations.




Lower Lakes’ employees are covered by U.S. Federal laws that may subject it to job-related claims in addition to those provided by state laws.




All of Grand River’s shipboard employees are covered by provisions of the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones Act, and general maritime law. These laws typically operate to make liability limits established by state workers’ compensation laws inapplicable to these employees and to permit these employees and their representatives to pursue actions against employers for job-related injuries in Federal courts. Because Lower Lakes is not generally protected by the limits imposed by state workers’ compensation statutes, Lower Lakes has greater exposure for claims made by these employees as compared to employers whose employees are not covered by these provisions.




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Our capital stock is subject to restriction on foreign ownership and possible required divestiture by non-U.S. citizen stockholders.




Under U.S. maritime laws, in order for us to maintain our eligibility to own and operate vessels in the U.S. domestic trade, 75% of our outstanding capital stock and voting power is required to be held by U.S. citizens. Although our amended and restated certificate of incorporation contains provisions limiting non-citizenship ownership of our capital stock, we could lose our ability to conduct operations in the U.S. domestic trade if such provisions prove unsuccessful in maintaining the required level of citizen ownership. Such loss would have a material adverse effect on our results of operations. If our board of directors determines that persons who are not citizens of the U.S. own more than 23% of our outstanding capital stock or more than 23% of our voting power, we may redeem such stock or, if redemption is not permitted by applicable law or if our board of directors, in its discretion, elects not to make such redemption, we may require the non-citizens who most recently acquired shares to divest such excess shares to persons who are U.S. citizens in such manner as our board of directors directs. The required redemption would be at a price equal to the average closing price during the preceding 30 trading days, which price could be materially different from the current price of the common stock or the price at which the non-citizen acquired the common stock. If a non-citizen purchases the common stock, there can be no assurance that he or she will not be required to divest the shares and such divestiture could result in a material loss.   Such restrictions and redemption rights may make Rand’s equity securities less attractive to potential investors, which may result in Rand’s publicly traded common stock having a lower market price than it might have in the absence of such restrictions and redemption rights.




Our business is dependent upon key personnel whose loss may adversely impact our business.




We depend on the expertise, experience and continued services of Lower Lakes’ senior management employees, especially Scott Bravener, its President.  Mr. Bravener has acquired specialized knowledge and skills with respect to Lower Lakes and its operations and most decisions concerning the business of Lower Lakes are made or significantly influenced by him. Although Lower Lakes maintains life insurance with respect to Mr. Bravener, the proceeds of such insurance may not be adequate to compensate Lower Lakes in the event of Mr. Bravener’s death. The loss of Mr. Bravener or other senior management employees, or an inability to attract or retain other key individuals, could materially adversely affect our business. We seek to compensate and incentivize executives, as well as other employees, through competitive salaries and bonus plans, but there can be no assurance that these programs will allow us to retain key employees or hire new key employees. As a result, if Mr. Bravener were to leave Lower Lakes, we could face substantial difficulty in hiring a qualified successor and could experience a loss in productivity while any such successor obtains the necessary training and experience.




Our officers and directors may allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs.




Our officers and directors are not required to commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other businesses. Laurence S. Levy, the Chairman of our board of directors and our Chief Executive Officer, and Edward Levy, our President, are each engaged in several other business endeavors and are not obligated to contribute any specific number of hours per week to our affairs.




Some of our officers and directors may have conflicts of interest in business opportunities.




Some of our officers and directors may become aware of business opportunities which may be appropriate for presentation to us as well as the other entities with which they are or may be affiliated. Due to our officers’ and directors’ existing affiliations with other entities, they may have fiduciary obligations to present potential business opportunities to those entities in addition to presenting them to us which could cause additional conflicts of interest. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented.




The conversion of our series A convertible preferred stock will result in significant and immediate dilution of our existing stockholders and the book value of their common stock.




The shares of series A convertible preferred stock issued in connection with the acquisition of Lower Lakes are convertible into 2,419,355 shares of our common stock, subject to certain adjustments, which, on an “as converted” basis, representing approximately 14% of our aggregate outstanding common stock.  The conversion price of our series A convertible preferred stock is subject to weighted average anti-dilution provisions whereby, if Rand issues shares in the future for consideration below the existing conversion price of $6.20, then the conversion price of the series A convertible preferred stock would automatically be decreased, allowing the holders of the series A convertible preferred stock to receive additional shares of common stock upon conversion. Upon any conversion of the series A convertible preferred stock, the equity interests of our existing common stockholders, as a percentage of the total number of the outstanding shares of our common stock, and the net book value of the shares of our common stock will be significantly diluted.




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We may issue shares of our common stock and preferred stock to raise additional capital, including to complete a future acquisition, which would reduce the equity interest of our stockholders.




Our amended and restated certificate of incorporation authorizes the issuance of up to 50,000,000 shares of common stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par value $.0001 per share. We currently have 34,654,659 authorized but unissued shares of our common stock available for issuance (after appropriate reservation for the issuance of shares upon full exercise of our outstanding employee stock options) and 700,000 shares of preferred stock available for issuance. Although we currently have no other commitments to issue any additional shares of our common or preferred stock, we may in the future determine to issue additional shares of our common or preferred stock to raise additional capital for a variety of purposes, including to complete a future acquisition. The issuance of additional shares of our common stock or preferred stock may significantly reduce the equity interest of stockholders and may adversely affect prevailing market prices for our common stock.




Future acquisitions of vessels or businesses by Rand or Lower Lakes would subject Rand and Lower Lakes to additional business, operating and industry risks, the impact of which cannot presently be evaluated, and could adversely impact Rand’s or Lower Lakes’ capital structure.




Rand intends to pursue acquisition opportunities in an effort to diversify its investments and/or grow its business. While neither Rand nor Lower Lakes is presently committed to any acquisition, Rand is currently actively pursuing one or more potential acquisition opportunities.





Future acquisitions may be of individual or groups of vessels or of businesses operating in the shipping or other industries.  Rand is not limited to any particular industry or type of business that it may acquire.  Accordingly, there is no current basis for you to evaluate the possible merits or risks of the particular business or assets that Rand may acquire, or of the industry in which any such business may operate. To the extent Rand acquires an operating business, we may be affected by numerous risks inherent in the acquired business’s operations.





In addition, the financing of any acquisition completed by Rand could adversely impact Rand’s capital structure as any such financing could  include the issuance of additional equity securities and/or the borrowing of additional funds. The issuance of additional equity securities may significantly reduce the equity interest of existing stockholders and/or adversely affect prevailing market prices for Rand’s common stock. Increasing Rand’s indebtedness could increase the risk of a default that would entitle the holder to declare all of such indebtedness due and payable and/or to seize any collateral securing the indebtedness. In addition, default under one debt instrument could in turn permit lenders under other debt instruments to declare borrowings outstanding under those other instruments to be due and payable pursuant to cross default clauses. Accordingly, the financing of future acquisitions could adversely impact our capital structure and our stockholders’ equity interest in Rand.




Risks Associated with the Shipping Industry




The cyclical nature of the Great Lakes dry bulk shipping industry may lead to decreases in shipping rates, which may reduce Lower Lakes’ revenue and earnings.




The shipping business, including the dry cargo market, has been cyclical in varying degrees, experiencing fluctuations in charter rates, profitability and, consequently, vessel values. Rand anticipates that the future demand for Lower Lakes’ dry bulk carriers and dry bulk charter rates will be dependent upon continued demand for commodities, economic growth in the United States and Canada, seasonal and regional changes in demand, and changes to the capacity of the Great Lakes fleet which cannot be predicted. Adverse economic, political, social or other developments could decrease demand and growth in the shipping industry and thereby reduce revenue and earnings. Fluctuations, and the demand for vessels, in general, have been influenced by, among other factors:




o
global and regional economic conditions;




o
developments in international and Great Lakes trade;




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o
changes in seaborne and other transportation patterns, such as port congestion and canal closures;




o
weather, water levels and crop yields;




o
political developments; and




o
embargoes and strikes.




The market values of Lower Lakes’ and Black Creek’s vessels may decrease, which could cause Lower Lakes or Black Creek to breach covenants in their respective credit facilities, which could reduce earnings and revenues as a result of potential foreclosures.




Vessel values are influenced by several factors, including:




o
changes in environmental and other regulations that may limit the useful life of vessels;




o
changes in Great Lakes dry bulk commodity supply and demand;




o
types and sizes of vessels;




o
development of and increase in use of other modes of transportation;




o
governmental or other regulations; and




o
prevailing level of contract of affreightment rates and charter rates.




If the market values of Lower Lakes’ or Black Creek’s owned vessels decrease, Lower Lakes or Black Creek may breach some of the covenants contained in their respective credit facilities. If Lower Lakes or Black Creek breaches such covenants and is unable to remedy the relevant breach, Lower Lakes’ or Black Creek’s lenders, as applicable, could accelerate their respective debt and foreclose on the collateral, including Lower Lakes’ or Black Creek’s vessels. Any loss of vessels would significantly decrease the ability of Rand to generate revenue and income. In addition, if the book value of a vessel is impaired due to unfavorable market conditions, or a vessel is sold at a price below its book value, Rand would incur a loss that would reduce earnings.




A failure to pass inspection by classification societies and regulators could result in one or more vessels being unemployable unless and until they pass inspection, resulting in a loss of revenues from such vessels for that period and a corresponding decrease in earnings, which may be material.




The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry, as well as being subject to inspection by shipping regulatory bodies such as Transport Canada. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the United Nations Safety of Life at Sea Convention. Lower Lakes’ and Black Creek’s owned fleet is currently enrolled with either the American Bureau of Shipping or Lloyd’s Register of Shipping.




A vessel must undergo Annual Surveys, Intermediate Surveys, and Special Surveys by its classification society, as well as periodic inspections by shipping regulators. As regards classification surveys, in lieu of a Special Survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Lower Lakes’ and Black Creek’s vessels are on Special Survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also required to be drydocked every four to five years for inspection of the underwater parts of such vessel.




Due to the age of several of the vessels, the repairs and remediations required in connection with such classification society surveys and other inspections may be extensive and require significant expenditures. Additionally, until such time as certain repairs and remediations required in connection with such surveys and inspections are completed (or if any vessel fails such a survey or inspection), the vessel may be unable to trade between ports and, therefore, would be unemployable. Any such loss of the use of a vessel could have an adverse impact on Rand’s revenues, results of operations and liquidity, and any such impact may be material.




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Lower Lakes’ business would be adversely affected if Lower Lakes failed to comply with U.S. maritime laws or the Coasting Trade Act (Canada) provisions on coastwise trade, or if those provisions were modified or repealed.




Rand is subject to the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones Act, and other U.S. laws and the Coasting Trade Act (Canada) that restrict domestic maritime transportation to vessels operating under the flag of the subject state. In the case of the United States, vessels must be at least 75% owned and operated by U.S. citizens and manned by U.S. crews and, in addition, the vessels must have been built in the United States. Compliance with the foregoing legislation increases the operating costs of the vessels. With respect to its U.S. flagged vessels, Rand is responsible for monitoring the ownership of its capital stock to ensure compliance with U.S. maritime laws. If Rand does not comply with these restrictions, Rand will be prohibited from operating its vessels in U.S. coastwise trade, and under certain circumstances Rand will be deemed to have undertaken an unapproved foreign transfer, resulting in severe penalties, including permanent loss of U.S. coastwise trading rights for its vessels, and fines or forfeiture of the vessels.




Over the past decade, interest groups have lobbied Congress to modify or repeal U.S. maritime laws so as to facilitate foreign flag competition. Foreign vessels generally have lower construction costs and generally operate at significantly lower costs than vessels in the U.S. markets, which would likely result in reduced charter rates. Rand believes that continued efforts will be made to modify or repeal these laws. If these efforts are successful, it could result in significantly increased competition and have a material adverse effect on our business, results of operations and financial condition.




We may be unable to maintain or replace our vessels as they age.




As of March 31, 2011, the average age of the vessels operated by Lower Lakes was approximately 55 years. The expense of maintaining, repairing and upgrading Lower Lakes’ vessels typically increases with age, and after a period of time the cost necessary to satisfy required marine certification standards may not be economically justifiable. There can be no assurance that Lower Lakes will be able to maintain its fleet by extending the economic life of existing vessels, or that our financial resources will be sufficient to enable us to make expenditures necessary for these purposes. In addition, the supply of replacement vessels is very limited and the costs associated with acquiring a newly constructed vessel are prohibitively high. In the event that Lower Lakes were to lose the use of any its vessels, our financial performance would be adversely affected.




Lower Lakes is subject to environmental laws that could require significant expenditures both to maintain compliance with such laws and to pay for any uninsured environmental liabilities resulting from a spill or other environmental disaster.




The shipping business and vessel operations are materially affected by government regulation in the form of international conventions, United States and Canadian treaties, national, state, provincial, and local laws, and regulations in force in the jurisdictions in which vessels operate. Because such conventions, treaties, laws and regulations are often revised, Rand cannot predict the ultimate cost of compliance or its impact on the resale price or useful life of Lower Lakes’ vessels. Additional conventions, treaties, laws and regulations may be adopted which could limit Rand’s ability to do business or increase the cost of its doing business, which may materially adversely affect its operations, as well as the shipping industry generally. Lower Lakes is required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, and certificates with respect to its operations and any increased cost in connection with obtaining such permits, licenses and certificates, or the imposition on Lower Lakes of the obligation to obtain additional permits, licenses and certificates, could adversely affect Rand’s results of operations.




Canada has adopted a regime of strict liability for oil pollution damage caused by ships (Part 6 of the Marine Liability Act). In the case of non-tanker vessels, such as Lower Lakes’ vessels, a vessel’s registered owner is strictly liable for pollution damage caused on the Canadian territory, in Canadian territorial waters or in Canada’s exclusive economic zone by oil of any kind or in any form including petroleum, fuel oil, sludge, oil refuse and oil mixed with wastes, subject to certain defenses. The liability of the shipowner is, however, limited in accordance with the provisions of the Convention on Limitation of Liability for Maritime Claims, 1976, as amended by the Protocol of 1996. Pursuant to this Convention, the shipowner can limit its liability to (i) 1 million Special Drawing Right, or SDR, as defined by the International Monetary Fund for the first 2,000 tons of tonnage, (ii) 400 SDR for each additional ton up to 30,000 tons of tonnage, (iii) 300 SDR for each additional ton up to 70,000 tons of tonnage and (iv) 200 SDR for each additional ton of tonnage. In addition to the Marine Liability Act, Lower Lakes’ vessels are also subject to other Canadian laws and regulations that contain significant fine and penalty provisions relating to the marine environment, pollution and discharges of hazardous substances, including the Migratory Birds Convention Act, the Canadian Environmental Protection Act, 1999, and the Fisheries Act.




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The United States Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade in United States waters, which includes the Great Lakes and their connecting and tributary waterways. Under OPA, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from vessel discharges of oil of any kind or in any form.




Lower Lakes currently maintains pollution liability coverage insurance.  However, if the damages from a catastrophic incident exceed this insurance coverage, it could have a significant adverse impact on Rand’s cash flow, profitability and financial position.




The operation of Lower Lakes’ vessels is dependent on the price and availability of fuel. Continued periods of historically high fuel costs may materially adversely affect Rand’s operating results.




Rand’s operating results may be significantly impacted by changes in the availability or price of fuel for Lower Lakes’ vessels. Fuel prices have increased substantially since 2004.  Although fuel price escalation clauses are included in substantially all of Lower Lakes’ contracts of affreightment, which enable Lower Lakes to pass the majority of its increased fuel costs on to its customers, these measures may not be sufficient to enable Lower Lakes to fully recoup increased fuel costs or assure the continued availability of its fuel supplies. Although we are currently able to obtain adequate supplies of fuel, it is impossible to predict the price of fuel. Political disruptions or wars involving oil-producing countries (including, but not limited to, recent political unrest in Libya and other parts of the Middle East), changes in government policy, changes in fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages and additional fuel price increases in the future. There can be no assurance that Lower Lakes will be able to fully recover its increased fuel costs by passing these costs on to its customers. In the event that Lower Lakes is unable to do so, Rand’s operating results will be adversely affected.




Governments could requisition Lower Lakes’ vessels during a period of war or emergency, resulting in loss of revenues and earnings from such requisitioned vessels.




The United States or Canada could requisition title or seize Lower Lakes’ vessels during a war or national emergency. Requisition of title occurs when a government takes a vessel and becomes the owner. A government could also requisition Lower Lakes vessels for hire, which would result in the government’s taking control of a vessel and effectively becoming the charterer at a dictated charter rate. Requisition of one or more of Lower Lakes’ vessels would have a substantial negative effect on Rand, as Rand would potentially lose all or substantially all revenues and earnings from the requisitioned vessels and/or permanently lose the vessels. Such losses might be partially offset if the requisitioning government compensated Rand for the requisition.




The operation of Great Lakes-going vessels entails the possibility of marine disasters including damage or destruction of the vessel due to accident, the loss of a vessel due to piracy or terrorism, damage or destruction of cargo and similar events that may cause a loss of revenue from affected vessels and damage Lower Lakes’ business reputation, which may in turn, lead to loss of business.




The operation of Great Lakes-going vessels entails certain inherent risks that may adversely affect Lower Lakes’ business and reputation, including:




o
damage or destruction of a vessel due to marine disaster such as a collision;




o
the loss of a vessel due to piracy and terrorism;




o
cargo and property losses or damage as a result of the foregoing or less drastic causes such as human error, mechanical failure, low water levels and bad weather;




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o
environmental accidents as a result of the foregoing; and




o
business interruptions and delivery delays caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions.




Any of these circumstances or events could substantially increase Lower Lakes’ costs, as for example, the costs of replacing a vessel or cleaning up a spill, or lower its revenues by taking vessels out of operation permanently or for periods of time. The involvement of Lower Lakes’ vessels in a disaster or delays in delivery or damages or loss of cargo may harm its reputation as a safe and reliable vessel operator and cause it to lose business.




If Lower Lakes’ vessels suffer damage, they may need to be repaired at Lower Lakes’ cost at a drydocking facility.  The costs of drydock repairs are unpredictable and can be substantial. Lower Lakes may have to pay drydocking costs that insurance does not cover. The loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, could decrease its revenues and earnings substantially, particularly if a number of vessels are damaged or drydocked at the same time.




Maritime claimants could arrest Lower Lakes’ vessels, which could interrupt its cash flow.




Crew members, suppliers of goods and services to a vessel, shippers of cargo, and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages against such vessel. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of Lower Lakes’ vessels could interrupt its cash flow and require it to pay large sums of funds to have the arrest lifted.




ITEM 1B.  UNRESOLVED STAFF COMMENTS




None.




ITEM 2.  PROPERTIES




We maintain our executive offices at 500 Fifth Avenue, 50th Floor, New York, New York 10110 pursuant to an agreement with Hyde Park Real Estate LLC, an affiliate of Laurence S. Levy, our chairman of the board and chief executive officer and Edward Levy, our president. We currently lease the following properties:




o
Lower Lakes Towing leases approximately 4,500 square feet of warehouse space at 207 Greenock Street, Port Dover, Ontario under a lease that expires on October 31, 2012.




o
Lower Lakes Towing leases approximately 5,000 square feet of office space at 517 Main Street, Port Dover, Ontario under a lease that expires in October, 2018.




o
Grand River leases approximately 1,300 square feet of space at 32861 Pin Oak Parkway, Suite B, Avon Lake, Ohio under a lease that expires on March 31, 2014.




o
Grand River leases approximately 300 square feet at 3301 Veterans Drive. Suite 210, Traverse City, Michigan under a lease that is renewed on a monthly basis.




o
Rand Finance Corp., a wholly-owned subsidiary of the Company, leases approximately 175 square feet at 17 Wilson Road, Chelmsford, Massachusetts under a lease that is renewed on a monthly basis.




We consider our current office space adequate for our current operations.




ITEM 3.  LEGAL PROCEEDINGS




The nature of our business exposes us to the potential for legal proceedings related to labor and employment, personal injury, property damage, and environmental matters. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of each particular claim, as well as our current reserves and insurance coverage, we do not expect that any known legal proceeding will in the foreseeable future have a material adverse impact on our financial condition or the results of our operations.




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ITEM 4.  RESERVED




PART II




ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES




Our common stock is currently traded on the NASDAQ Capital Market under the symbol RLOG.  The following table sets forth the high and low sales prices for each full quarterly period within the two most recent fiscal years.




Common StockQuarter Ended
High
LowJune 30, 2009
$4.39
$2.02September 30, 2009
$3.37
$2.60December 31, 2009
$3.75
$3.01March 31, 2010
$5.17
$3.17June 30, 2010
$5.50
$4.66September 30, 2010
$5.24
$4.70December 31, 2010
$5.05
$4.02March 31, 2011
$8.25
$4.66





Holders




As of June 28, 2011, there were 22 holders of record of our common stock.




Dividends




We have not paid any dividends on our common stock to date and do not intend to pay dividends on our common stock in the near future. The payment of dividends in the future will be contingent upon our revenues, earnings, capital requirements and general financial condition. The payment of dividends is within the discretion of our board of directors. Other than dividends which our board of directors may determine to pay on our preferred stock, it is the present intention of our board of directors to retain all earnings for future investment and use in our business operations. Accordingly, our board of directors does not anticipate declaring any dividends in the foreseeable future on our common stock. In addition, no dividends may be declared or paid on our common stock unless all accrued dividends on our preferred stock have been paid.




ITEM 6.  SELECTED FINANCIAL DATA




We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.




ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION




All dollar amounts below $500,000 presented herein are in thousands, values greater than $500,000 are presented in millions except share, per share and per day amounts.




The following management’s discussion and analysis (“MD&A”) is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial Statements and the accompanying financial statement notes of the Company appearing elsewhere in this Annual Report on Form 10-K for the fiscal year ended March 31, 2011.




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Cautionary Note Regarding Forward-Looking Statements




This annual report on Form 10-K contains forward-looking statements, including those relating to our capital needs, business strategy, expectations and intentions. Statements that use the terms “believe”, “anticipate”, “expect”, “plan”, “estimate”, “intend” and similar expressions of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise. For these statements and all other forward-looking statements, we claim the protection of the Safe Harbor for Forward-Looking Statements contained in the Private Securities Litigation Reform Act of 1995.




Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated.  Forward-looking statements reflect our current views with respect to future events and because our business is subject to such risks and uncertainties, actual results, our strategic plan, our financial position, results of operations and cash flows could differ materially from those described in or contemplated by the forward-looking statements contained in this report.




Important factors that contribute to such risks include, but are not limited to, those factors set forth under Item 1A of this Form 10-K as well as the following: the continuing effects of the economic downturn in our markets; the weather conditions on the Great Lakes; and our ability to maintain and replace our vessels as they age.  The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.




Overview




Business




Rand Logistics, Inc. (formerly Rand Acquisition Corporation) was incorporated in the State of Delaware on June 2, 2004 as a blank check company to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business.




On March 3, 2006, we acquired all of the outstanding shares of capital stock of Lower Lakes Towing Ltd., a Canadian corporation which, with its subsidiary Lower Lakes Transportation Company, provides bulk freight shipping services throughout the Great Lakes region. As part of the acquisition of Lower Lakes, we also acquired Lower Lakes’ affiliate, Grand River Navigation Company, Inc. Prior to the acquisition, we did not conduct, or have any investment in, any operating business.  Subsequent to the acquisition, we have added several additional vessels to our fleet through acquisition transactions.  Most recently we acquired two integrated tug and barge units through Black Creek.




Our shipping business is operated in Canada by Lower Lakes Towing and in the United States by Lower Lakes Transportation. Lower Lakes Towing was organized in March 1994 under the laws of Canada to provide marine transportation services to dry bulk goods suppliers and purchasers operating in ports on the Great Lakes that were restricted in their ability to receive larger vessels. Lower Lakes has grown from its origin as a small tug and barge operator to a full service shipping company with a fleet of fourteen cargo-carrying vessels. From its exclusively Canadian beginnings, Lower Lakes has also grown to offer domestic services to both Canadian and U.S. customers as well as cross-border routes. Lower Lakes services the construction, electric utility, integrated steel and food industries through the transportation of limestone, coal, iron ore, salt, grain and other dry bulk commodities.




We believe that Lower Lakes is the only company providing significant domestic port-to-port services to both Canada and the United States in the Great Lakes region. Lower Lakes maintains this operating flexibility by operating both U.S. and Canadian flagged vessels in compliance with the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones Act, in the U.S. and the Coasting Trade Act (Canada) in Canada.




Results of Operations for the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010




The fiscal year ended March 31, 2011 was highlighted by several significant events as compared to the fiscal year ended March 31, 2010:




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(1)
We experienced mechanical incidents during the fiscal year ended March 31, 2011, resulting in approximately 113 days of downtime (including 77 Sailing Days, which we define as days a vessel is crewed and available for sailing) and approximately $1.1 million in repair costs below our insurance deductible limits.  In addition, we recorded approximately $1.3 million of assessments from one of our insurance carriers due to unusually large losses experienced by that insurer during that policy year.  Our inability to utilize such vessels while they were being repaired created inefficiencies in our trade patterns caused by the substitution of sub-optimal vessels into the trade routes of the affected vessels.




(2)
The fiscal year ended March 31, 2011 was also highlighted by several significant changes in our markets compared to the fiscal year ended March 31, 2010.  There was an overall increase in demand of approximately 25% in our markets during the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010, when a weakened economy significantly delayed the start of the 2009 sailing season.  During the fiscal year ended March 31, 2011, a stronger steel industry resulted in an approximate two-thirds increase in shipments of iron ore and, to a lesser extent, an increase in shipments of coal and aggregates.  There were also modest increases in export grain markets, offset by reductions in our salt markets compared to the fiscal year ended March 31, 2010.




(3)
We experienced a 2.0% increase in freight revenue, excluding the impact of currency translation, during the fiscal year ended March 31, 2011, which was lower than the overall market increase due to our mechanical incidents and our lower reliance on the steel industry compared to our competitors.  This increase in freight revenue was primarily attributable to price increases and an increase in the number of Sailing Days in the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010.




(4)
Our total Sailing Days increased 195 days, or 6.2%, to 3,338 Sailing Days during the fiscal year ended March 31, 2011 from 3,143 Sailing Days during the fiscal year ended March 31, 2010. The increase in Sailing Days was a result of stronger overall markets and the full season sailing of the McKee Sons, which we operated for an additional 106 Sailing Days in the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010, when it was laid up for the beginning of the 2009 sailing season.  This increase was offset by the loss of 77 Sailing Days due to mechanical incidents on several of our vessels during the fiscal year ended March 31, 2011.




(5)
We benefited from additional new business and contractual rate increases from existing customers during the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010.




(6)
All of our customer contracts have fuel surcharge provisions whereby the increases and decreases in our fuel costs are passed on to customers.  Such increases and decreases in fuel surcharges impact our margin percentages, but do not significantly impact our margin dollars.  Due to the increased number of Sailing Days, higher fuel prices and a stronger Canadian dollar during the fiscal year ended March 31, 2011, fuel surcharge revenues increased 33.1% compared to the fiscal year ended March 31, 2010.




(7)
The Canadian dollar strengthened by approximately 7.1% versus the U.S. dollar, averaging approximately $0.984 USD per CDN during the fiscal year ended March 31, 2011 compared to approximately $0.919 USD per CDN during the fiscal year ended March 31, 2010.  The Company’s balance sheet translation rate increased from $0.984 USD per CDN at March 31, 2010, to $1.031 USD per CDN at March 31, 2011.




(8)
We acquired two vessels on February 11, 2011 after the 2010 sailing season had ended.  We incurred approximately $1.2 million of cash operating expenses, $0.6 million of depreciation and interest expense, as well as $0.9 million of capital expenditures accrued (including $0.7 million unpaid at March 31, 2011) related to these acquired vessels.




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Selected Financial Information




(USD in 000’s)

Fiscal year ended March 31, 2011


Fiscal year ended March 31, 2010


$ Change


% ChangeRevenue:Freight and related revenue

$
90,433


$
85,135


$
5,298



6.2
%Fuel and other surcharges

$
20,471


$
15,385


$
5,086



33.1
%Outside voyage charter revenue

$
7,074


$
7,698


$
(624
)


(8.1
)%Total

$
117,978


$
108,218


$
9,760



9.0
%Expenses:Outside voyage charter fees

$
7,052


$
7,682


$
(630
)


(8.2
)%Vessel operating expenses

$
77,177


$
64,929


$
12,248



18.9
%Repairs and maintenance

$
5,456


$
5,319


$
137



2.6
%Sailing days:


3,338



3,143



195



6.2
%Per day in whole USD:Revenue per sailing day:Freight and related revenue

$
27,092


$
27,087


$
5



0.0
%Fuel and other surcharges

$
6,133


$
4,895


$
1,238



25.3
%Expenses per sailing day:Vessel operating expenses

$
23,121


$
20,658


$
2,463



11.9
%Repairs and maintenance

$
1,635


$
1,692


$
(57
)


(3.4
)%




Management believes that each of our vessels should achieve approximately 275 Sailing Days in an average Great Lakes season assuming no major repairs or incidents and normal drydocking cycle times performed during the winter lay-up period. The Company’s vessels sailed an average of approximately 278 Sailing Days during the fiscal year ended March 31, 2011 compared to 262 Sailing Days during the fiscal year ended March 31, 2010.




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The following table summarizes the changes in the components of our revenue and vessel operating expenses as a result of changes in Sailing Days during the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010:




(USD in 000’s)

Sailing Days


Freight and related revenue


Fuel and other surcharges


Outside voyage charter


Total revenue


Vessel operating expensesFiscal year ended March 31, 2010


3,143


$
85,135


$
15,385


$
7,698


$
108,218


$
64,929Changes in fiscal year ended March 31, 2011:Increase attributable to stronger Canadian dollar


-



3,601



713



454



4,768



2,979Net increase attributable to customer demand and pricing (excluding currency impact)


272



1,697



4,373



-



6,070



6,860Cost of repairs and

assessments from an insurance carrier


(77
)


-



-



-



-



2,409Changes in outside voyage charter revenue (excluding currency impact)


-



-



-



(1,078
)


(1,078
)


-Sub-total


195


$
5,298


$
5,086


$
(624
)

$
9,760


$
12,248Fiscal year ended March 31, 2011


3,338


$
90,433


$
20,471


$
7,074


$
117,978


$
77,177









Total revenue during the fiscal year ended March 31, 2011 was $118.0 million, an increase of $9.8 million, or 9.0%, compared to $108.2 million during the fiscal year ended March 31, 2010.  This increase was primarily attributable to higher fuel surcharges, the stronger Canadian dollar and price increases.




Freight and other related revenue generated from the Company’s owned vessels increased $5.3 million, or 6.2%, to $90.4 million during the fiscal year ended March 31, 2011 compared to $85.1 million during the fiscal year ended March 31, 2010. Freight and related revenue per Sailing Day increased $5 to $27,092 per Sailing Day in the fiscal year ended March 31, 2011 compared to $27,087 per Sailing Day during the fiscal year ended March 31, 2010.  This increase was attributable to the strength of the Canadian dollar and price increases during the fiscal year ended March 31, 2011, which were largely offset by inefficiencies in our trade patterns as a result of the substitution of sub-optimal vessels into the trade routes of our vessels that experienced mechanical incidents.




Fuel and other surcharges increased $5.1million, or 33.1%, to $20.5 million during the fiscal year ended March 31, 2011 compared to $15.4 million during the fiscal year ended March 31, 2010. Fuel and other surcharges per Sailing Day increased $1,238 to $6,133 per Sailing Day in the fiscal year ended March 31, 2011 compared to $4,895 per Sailing Day in the fiscal year ended March 31, 2010.




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Outside voyage charter revenues decreased $0.6 million, or 8.1%, to $7.1 million during the fiscal year ended March 31, 2011 compared to $7.7 million during the fiscal year ended March 31, 2010.  The decrease in outside voyage charter revenues was due to our ability to meet our customer’s 2010 sailing season deliveries with reduced reliance on outside charterers, offset by a stronger Canadian dollar during the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010.




Vessel operating expenses increased $12.3 million, or 18.9%, to $77.2 million in the fiscal year ended March 31, 2011 compared to $64.9 million in the fiscal year ended March 31, 2010.  This increase was primarily attributable to higher fuel costs, a stronger Canadian dollar, an increase in the number of Sailing Days, the costs of repairs of vessel incidents under deductibles and assessments from an insurance carrier during the fiscal year ended March 31, 2011.  Vessel operating expenses per Sailing Day increased $2,463, or 11.9%, to $23,121 per Sailing Day in the fiscal year ended March 31, 2011 from $20,658 per Sailing Day in the fiscal year ended March 31, 2010.




Repairs and maintenance expenses, which primarily consist of expensed winter work, increased $137 to $5.5 million in the fiscal year ended March 31, 2011 from $5.3 million during the fiscal year ended March 31, 2010.  Repairs and maintenance per Sailing Day decreased $57 to $1,635 per Sailing Day in the fiscal year ended March 31, 2011 from $1,692 per Sailing Day in the fiscal year ended March 31, 2010.   This increase was primarily due to the stronger Canadian dollar in the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010.




Our general and administrative expenses increased $224 to $9.9 million in the fiscal year ended March 31, 2011 from $9.7 million in the fiscal year ended March 31, 2010.  This increase was a result of the stronger Canadian dollar, higher restricted stock amortization expenses and higher legal costs in the fiscal year ended March 31, 2011, compared to the fiscal year ended March 31, 2010, which included a loan amendment fee of $446.  Our general and administrative expenses represented 8.4%of revenues during the fiscal year ended March 31, 2011, a decrease from 8.9%of revenues during the fiscal year ended March 31, 2010.  During the fiscal year ended March 31, 2011, $2.7 million of our general and administrative expenses was attributable to our parent company and $7.2 million was attributable to our operating companies.




Depreciation expense decreased $1.5 million to $7.7 million during the fiscal year ended March 31, 2011 compared to $9.2 million during the fiscal year ended March 31, 2010.  The decrease in depreciation expense was attributable to the completion of depreciation in the fiscal year ended March 31, 2010 of our oldest vessel acquired in our March 2006 acquisition of Lower Lakes, partially offset by increased depreciation from capital expenditures during the winter 2010 layup period and a stronger Canadian dollar in the fiscal year ended March 31, 2011.




Amortization of drydock costs increased $353 to $2.8 million during the fiscal year ended March 31, 2011 from $2.4 million during the fiscal year ended March 31, 2010, due to the drydocking of the Manistee during the fiscal 2010 winter lay-up period and the stronger Canadian dollar in the fiscal year ended March 31, 2011.  During the fiscal year ended March 31, 2011, the Company amortized the deferred drydock costs of eight of its twelve operated vessels, compared to seven vessels during the fiscal year ended March 31, 2010.




Amortization of intangibles decreased $232 to $1.2 million during the fiscal year ended March 31, 2011 from $1.4 million during the fiscal year ended March 31, 2010 due to the completion of amortizing certain acquired non-competition agreements during the fiscal year ended March 31, 2010.




As a result of the items described above, during the fiscal year ended March 31, 2011, the Company’s operating income decreased $0.8 million to $6.8 million compared to operating income of $7.6 million during the fiscal year ended March 31, 2010.




Interest expense increased $204 to $5.7 million during the fiscal year ended March 31, 2011 from $5.5 million during the fiscal year ended March 31, 2010.  This increase in interest expense was primarily attributable to higher average debt balances due to the $20 million increase in the Canadian Term Loan (partially offset by a lower revolver debt balance) and the $31 million Black Creek loan, including the higher amortization of deferred financing costs, partially offset by interest expense capitalized with the capital expenditures of the repowering of the Michipicoten.




We recorded a gain on interest rate swap contracts of $465 in the fiscal year ended March 31, 2011 compared to a gain of $2.1 million recorded in the fiscal year ended March 31, 2010 due to the recording of the fair value of our two interest rate swaps at the end of each such period.




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In connection with the Guarantee described under the heading “Off-Balance Sheet Arrangements,” below, we recorded a loss contingency of $1.3 million on Lower Lakes Towing’s guarantee of Voyageur’s indebtedness with GE Canada, following the Maritime Trader’s placement in receivership as of March 31, 2011.  We believe that the fair value of the Maritime Trader, which requires drydocking and steel renewal investments, is less than the estimated value of GE Canada’s total claim by at least the amount of Lower Lakes Towing’s $1.3 million guarantee.




Our income before income taxes was $255in the fiscal year ended March 31, 2011 compared to income before income taxes of $4.1 million in the fiscal year ended March 31, 2010.




Our provision for income tax expense was $140 during the fiscal year ended March 31, 2011 compared to a provision for income tax expense of $1.4 million during the fiscal year ended March 31, 2010.  Income tax expense decreased compared to the fiscal year ended March 31, 2010 due to lower income before income taxes.




Our net income before preferred stock dividends was $115 in the fiscal year ended March 31, 2011 compared to $2.7 million in the fiscal year ended March 31, 2010.




We accrued $2.4 million for cash dividends on our preferred stock during the fiscal year ended March 31, 2011 compared to $1.9 million during the fiscal year ended March 31, 2010.  The dividends accrued at a rate of 11.75% during the three month period ended March 31, 2011.  If the dividends are not paid in cash, the rate will increase to a cap of 12.0% effective July 1, 2011.




Our net income applicable to common stockholders was a loss of $2.2 million during the fiscal year ended March 31, 2011 compared to income of $0.8 million during the fiscal year ended March 31, 2010.




During the fiscal year ended March 31, 2011, the Company operated an average of approximately five vessels in the US and seven vessels in Canada.  The percentage of our total freight and other revenue, fuel and other surcharge revenue, vessel operating expenses, repairs and maintenance costs, and combined depreciation and amortization costs, approximate the percentage of vessel ownership by country.  Our outside voyage charter revenue and costs relate solely to our Canadian subsidiary and approximately 50% of our general and administrative costs are incurred in Canada.  Approximately 60% of our interest expense is incurred in Canada, consistent with our percentage of overall indebtedness by country.  Approximately 75% of our gain on interest rate swap contracts was realized in Canada based on the larger amount of indebtedness and greater increase of interest rates in Canada than in the US during the fiscal year ended March 31, 2011.  All of our preferred stock dividends are accrued in the US.




Impact of Inflation and Changing Prices




During the fiscal year ended March 31, 2011, there were major fluctuations in our fuel costs. However, our contracts with our customers provide for recovery of these costs over specified rates through fuel surcharges.  In addition, there was significant volatility in the exchange rate between the US dollar and the Canadian dollar during the past two fiscal years, which impacted our translation of revenue and costs to US dollars by an increase of approximately 7% during the fiscal year ended March 31, 2011.




Liquidity and Capital Resources




Our primary sources of liquidity are cash from operations, the proceeds of our credit facility and proceeds from sales of our common stock. Our principal uses of cash are vessel acquisitions, capital expenditures, drydock expenditures, operations and interest and principal payments under our credit facility.  Information on our consolidated cash flow is presented in the consolidated statements of cash flows (categorized by operating, investing and financing activities) which is included in our consolidated financial statements for the fiscal years ended March 31, 2011 and March 31, 2010.  The Company makes seasonal net borrowings under its revolving credit facility during the first quarter of each fiscal year to fund working capital needed to commence the sailing season. Such borrowings are then paid down during the second half of each fiscal year.  We believe cash generated from our operations and availability of borrowings under our credit facility will provide sufficient cash availability to cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months.  However, if the Company experiences a material shortfall to its financial forecasts or if the Company’s customers materially delay their receivable payments due to further deterioration of economic conditions, the Company may breach its financial covenants and collateral thresholds and be strained for liquidity.  The Company has maintained its focus on productivity gains and cost controls, and is closely monitoring customer credit and accounts receivable balances.




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Net cash provided by operating activities for the fiscal year ended March 31, 2011 was $11.2 million, a decrease of $0.9 million compared to $12.1 million in the fiscal year ended March 31, 2010. This decrease was primarily due to lower operating income and an increase in working capital in the fiscal year ended March 31, 2011.  During the fiscal year ended March 31, 2011, the sum of net income and adjustments to reconcile with net cash provided by operating activities totaled $14.1 million, including $0.8 million of equity compensation, offset by deferred drydock costs paid of $1.1 million and net cash used from changes in operating assets and liabilities of $1.8 million.  During the fiscal year ended March 31, 2010, the sum of net income plus adjustments to reconcile with net cash provided by operating activities totaled $17.6 million, including $2.2 million of equity compensation, offset by deferred drydock costs paid of $1.1 million and net cash used from changes in operating assets and liabilities of $4.4 million. The Company did not incur any significant bad-debt write-offs or material slowdowns in receivable collections during the fiscal year ended March 31, 2011.  The timing of the end of the Company’s fiscal year in relation to the sailing season allows most of a sailing season’s receivables to be collected prior to the end of the Company’s fiscal year. In addition, the earlier start of a sailing season prior to April 1, can modestly increase the amount of accounts receivable and accounts payable in the Company’s balance sheet at the end of our fiscal year.




Cash used in investing activities increased by $59.9 million to net cash used of $65.4 million during the fiscal year ended March 31, 2011 from net cash used of $5.5 million during the fiscal year ended March 31, 2010. Our capital expenditures paid increased $13.0 million primarily due to the timing of payments made on the new engine installation on the Michipicoten and $46.9 million paid in connection with the acquisition of two vessels in the fiscal year ended March 31, 2011.




Cash provided in financing activities increased $64.4 million to $56.6 million provided during the fiscal year ended March 31, 2011 compared to $7.8 million used in the fiscal year ended March 31, 2010.  During the fiscal year ended March 31, 2011, the Company received debt proceeds of $54.1 million; received proceeds from shares issued of $6.8 million and made principal payments on its term debt of $4.1 million.  During the fiscal year ended March 31, 2010, the Company made a net paydown of its revolving credit facility of $3.2 million and made principal payments on its term debt of $4.6 million.




During the fiscal year ended March 31, 2011, long-term debt, including the current portion, increased $49.5 million to $112.2 million from $62.7 million in the fiscal year ending March 31, 2010, including $49.8 million of new loans offset by $4.1 million in scheduled principal payments, as well as a $3.8 million increase due to the stronger Canadian dollar.  In addition, the Company received a seller note and deferred payment liabilities valued at $4.4 million in connection with the acquisition of two vessels in the fiscal year ended March 31, 2011.




Our Amended and Restated Credit Agreement, as amended, requires the Company to meet certain quarterly and annual financial covenants, including minimum EBITDA (as defined therein), minimum fixed charge ratios, maximum senior debt-to-EBITDA ratios, and maximum capital expenditures and drydock expenditures.  The Company met those financial covenants during the fiscal year ended March 31, 2011. The covenants are set in Canadian dollars in order to better match the cash earnings and debt levels of the business by currency.




On June 23, 2009, Lower Lakes, Lower Lakes Transportation, Grand River and the other Credit Parties thereto entered into a Second Amendment (the “Amendment”), to the Amended and Restated Credit Agreement, dated as of February 13, 2008, with the Lenders signatory thereto and General Electric Capital Corporation, as Agent. Under the Amendment, the parties amended the definitions of “Fixed Charge Coverage Ratio”, “Fixed Charges”, “Funded Debt” and “Working Capital”, modified the maximum amounts outstanding under the Canadian and US seasonal overadvance facilitiesand modified the Minimum Fixed Charge Coverage Ratio and the Maximum Senior Funded Debt to EBITDA Ratio.




On August 9, 2010, Lower Lakes Transportation, Lower Lakes Towing and Grand River and the other Credit Parties thereto entered into a Third Amendment to the Amended and Restated Credit Agreement (the “Third Amendment”), with General Electric Capital Corporation, as agent and a lender, and certain other lenders, further amending the Amended and Restated Credit Agreement. The Third Amendment provided for an additional Canadian dollar denominated term loan in the aggregate amount of CDN $20 million to finance the approximately US $15 million conversion of the Company’s last steam powered vessel, the SS Michipicoten, to diesel power, and certain other capital expenditures.  The Company took the SS Michipicoten out of service in December 2010 and the vessel is now fully operational.




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The Third Amendment also included (i) a modification to the Senior Funded Debt to EBITDA Ratio and (ii) a modification to the ratio of the aggregate appraised orderly liquidation value of all vessels of borrowers to the aggregate outstanding principal amount of the term loans from lenders.  The increased CDN Term Loan (as such term is defined in the Amended and Restated Credit Agreement) is repayable in quarterly installments of CDN $0.7 million commencing December 2010, increasing to CDN $0.9 million commencing September 2011 and maturing on April 1, 2013.




On February 11, 2011, Black Creek, as borrower, and Black Creek Holdings, as guarantor, General Electric Capital Corporation, as agent and lender, and certain other lenders, entered into a Credit Agreement (the “Black Creek Credit Agreement”) which (i) financed, in part, the acquisition of the two integrated tug and barge units by Black Creek, and (ii) provided funds for other transaction expenses.  The Black Creek Credit Agreement provided for a US Dollar denominated senior secured term loan under which Black Creek borrowed US $31.0 million.




The outstanding principal amount of the Black Creek term loan is repayable as follows: (i) quarterly payments of US $517 commencing September 30, 2011 and ending December 31, 2013 and (ii) a final payment in the outstanding principal amount of the term loan payable upon the term loan’s maturity on February 11, 2014.




The term loan bears an interest rate per annum, at Black Creek’s option, equal to (i) LIBOR (as defined in the Black Creek Credit Agreement) plus 4.75% per annum, or (ii) the US Base Rate (as defined in the Black Creek Credit Agreement), plus 3.75% per annum.




Obligations under the Black Creek Credit Agreement are secured by (i) a first priority lien and security interest on all of Black Creek’s and Black Creek Holding's assets, tangible or intangible, real, personal or mixed, existing and newly acquired and (ii) a pledge by Black Creek Holdings of all of the outstanding capital stock of Black Creek.  The indebtedness of Black Creek under the Black Creek Credit Agreement is unconditionally guaranteed by the guarantor, and such guaranty is secured by a lien on substantially all of the assets of Black Creek and Black Creek Holdings.




Under the Black Creek Credit Agreement, Black Creek will be required to make mandatory prepayments of principal on the term loan (i) in the event of certain dispositions of assets and insurance proceeds (as subject to certain exceptions), in an amount equal to 100% of the net proceeds received by Black Creek there from, and (ii) in an amount equal to 100% of the net proceeds to Black Creek from any issuance of Black Creek’s debt or equity securities.




The Black Creek Credit Agreement contains certain covenants, including those limiting the guarantors’ and Black Creek’s ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends.  In addition, the Black Creek Credit Agreement requires Black Creek to maintain certain financial ratios.  Failure of Black Creek or the guarantor to comply with any of these covenants or financial ratios could result in the loans under the Black Creek Credit Agreement being accelerated.




On June 28, 2011, Lower Lakes Transportation, Lower Lakes Towing and Grand River and the other Credit Parties thereto entered into a Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with General Electric Capital Corporation, as agent and a lender, and certain other lenders, which further amended the Amended and Restated Credit Agreement.
  The Fourth Amendment provides for an increase of the Canadian dollar denominated term loan in the aggregate amount of CDN $4.0 million to finance a possible future vessel acquisition and adds a customary anti-cash hoarding provision as a condition to further advances under the Amended and Restated Credit Agreement.  The Fourth Amendment modified the Canadian revolving credit facility, the Canadian term loan and the Canadian swing line facility to bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as such term is amended by the Fourth Amendment), plus 3.50% per annum or (ii) the BA Rate (as such term is amended by the Fourth Amendment) plus 4.50% per annum.  The Fourth Amendment also modified the US revolving credit facility, the US term loan and the US swing line facility to bear an interest rate per annum, at the borrowers’ option, equal to, (i) LIBOR (as defined in the Amended and Restated Credit Agreement) plus 4.50% per annum, or (ii) the US Base Rate (as defined in the Amended and Restated Credit Agreement), plus 3.50% per annum.  The Fourth Amendment extended the maturity of the commitments under the Amended and Restated Credit Agreement from April 1, 2013 until April 1, 2015.  The parties further agreed to amend and restate the Amended and Restated Credit Agreement by July 29, 2011.
  The Fourth Amendment additionally modified the Minimum Fixed Charge Coverage Ratio and Maximum Capital Expenditures covenants and added a new fiscal year-end Liquidity covenant.


Seasonality




Lower Lakes operates in a cyclical industry, primarily due to the typical cold weather patterns on the Great Lakes from December through March which cause lock closures, waterway ice, and customer facility closings, which typically shut down shipping for a period of up to 90 days commencing from late December to mid-January, and continuing until late March. Lower Lakes also experiences a cyclical pattern for its capital spending cycle, typically off-season from the shipping revenues, to permit annual maintenance and investment in the vessels. This places additional adverse pressures on Lower Lakes’ liquidity and capital resources. Such winter work, capital expenditure, and drydocking costs are incurred during a period when customer collections have ended from the prior season, and fit-out and vessel operating costs will be incurred at the beginning of the season as much as 45 to 60 days prior to the receipt of significant customer collections.  To counter these negative working capital cycles, Lower Lakes’ Amended and Restated Credit Facility includes a revolver feature with a seasonal overadvance facility which provides working capital from the March through July period, after which customer collections typically exceed cash disbursements.




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Preferred Stock and Preferred Stock Dividends




The Company has accrued, but not paid, its preferred stock dividends since January 1, 2007.  The shares of the series A convertible preferred stock rank senior to the Company’s common stock with respect to liquidation and dividends; are entitled to receive a cash dividend at the annual rate of 7.75% (based on the $50 per share issue price), payable quarterly (subject to increases of 0.5% for each six month period in respect of which the dividend is not paid in cash, up to a maximum of 12%, subject to reversion to 7.75% upon payment of all accrued and unpaid dividends); are convertible into shares of the Company’s common stock at any time at the option of the series A preferred stockholder at a conversion price of $6.20 per share (based on the $50 per share issue price and subject to adjustment) or 8.065 shares of common stock for each Series A Preferred Share (subject to adjustment); are convertible into shares of the Company’s common stock (based on a conversion price of $6.20 per share, subject to adjustment) at the option of the Company if, after the third anniversary of our acquisition of Lower Lakes, the trading price of the Company’s common stock for 20 trading days within any 30 trading day period equals or exceeds $8.50 per share (subject to adjustment); may be redeemed by the Company in connection with certain change of control or acquisition transactions; will vote on an as-converted basis with the Company’s common stock; and have a separate vote over certain material transactions or changes involving the Company. The accrued dividend payable at March 31, 2011 was $7.5 million compared to $5.1 million at March 31, 2010.  As of March 31, 2011, the effective rate of preferred dividends was 11.75%.  As of March 31, 2010, the effective rate of preferred dividends was 10.75%.  The dividend rate will increase to a cap of 12.0% effective July 1, 2011. The Company is limited in the payment of preferred stock dividends by the fixed charge coverage ratio covenant in the Company’s Amended and Restated Credit Agreement. In addition, the Company has made the decision to make its investments in its vessels before applying cash to pay preferred stock dividends. Under the terms of the preferred stock, upon the conversion of the preferred stock to common stock, a subordinated promissory note will be issued whereby the cash dividends will accrue at the rates set for the preferred stock and the note must be paid at the earlier of the second anniversary of the conversion or seven years from the initial issuance date of the preferred stock.




Investments in Capital Expenditures and Drydockings




We incurred $29.3 million in paid and unpaid capital expenditures and drydock expenses during the fiscal year ended March 31, 2011, including $304 relating to carryover from the 2010 winter season, compared to $8.9 million, including a carryover of $1.7 million from the 2009 winter season, in the fiscal year ended March 31, 2010.




The Company completed the conversion of its last steam powered vessel, the SS Michipicoten, to diesel power in April, 2011 and the vessel is now fully operational. The Company took the vessel out of service in December 2010.  This project has cost approximately $19 million.  The benefits of the conversion include increased revenues from higher speeds and lower costs from reduced fuel consumption, labor, maintenance and other operating expenses.




On February 11, 2011, Black Creek acquired two integrated tug and barge units for consideration consisting of (i) $35.5 million cash paid at closing, (ii) $3.6 million cash to be paid by Black Creek Holdings in 72 monthly installments of $50 beginning on April 15, 2011; (iii) a promissory note of Black Creek Holdings in the principal amount of $1.5 million; and (iv) 1,305,963 shares of the Company’s common stock.




Foreign Exchange Rate Risk




We have foreign currency exposure related to the currency related translation of various financial instruments denominated in the Canadian dollar (fair value risk) and operating cash flows denominated in the Canadian dollar (cash flow risk). These exposures are associated with period to period changes in the exchange rate between the U.S. dollar and the Canadian dollar.  At March 31, 2011, our liability for financial instruments with exposure to foreign currency risk was approximately CDN $61.3 million of term borrowings in Canada and there was no balance of revolving borrowings in Canada.  Although we have tried to match our indebtedness and cash flows from earnings by country, a sudden increase in the Canadian dollar exchange rates could increase the indebtedness converted to US dollars before operating cash flows can make up for such a currency conversion change.




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From a cash flow perspective, our operations are insulated against changes in currency rates as operations in Canada and the United States have revenues and expenditures denominated in local currencies and our operations are cash flow positive. However, as stated above, the majority of our financial liabilities are denominated in Canadian dollars which exposes us to currency risks related to principal payments and interest payments on such financial liability instruments.




Interest Rate Risk




We are exposed to changes in interest rates associated with revolving our indebtedness under our Amended and Restated Credit Agreement, which carries interest rates which vary with Canadian Prime Rates and B.A. Rates for Canadian borrowings, and US Prime Rates and Libor Rates on US borrowings.




We entered into two interest rate swap contracts for approximately 40% of our combined Lower Lakes and Black Creek term loans for the remaining term of such loans based on three month BA rates for the Canadian term loans and three month US Libor rates for the US term loans.  The rates on these instruments, prior to the addition of the lender’s margin, are 4.09% on the Canadian term loans, and 3.65% on the US term loans. We will be exposed to interest rate risk under our interest rate swap contracts if such contracts are required to be amended or terminated earlier than their termination dates.




Off-Balance Sheet Arrangements




On August 27, 2007, in connection with the entry into a contract of affreightment with Voyageur Maritime Transport Limited (“Voyageur”) and Voyageur Maritime Trading Inc. (“VMT”) and an option agreement with VMT, Lower Lakes Towing entered into a Guarantee (the “Guarantee”) with GE Canada Finance Holding Company (“GE Canada”), pursuant to which Lower Lakes Towing agreed to guarantee up to CDN $1.3 million (the "Guaranteed Obligations") of Voyageur's indebtedness to GE Canada, with Lower Lakes Towing’s obligations becoming due and payable should Voyageur fail to meet certain financial covenants under the terms of its loan from GE Canada or if Voyageur breached certain of its obligations under the COA.  Lower Lakes Towing’s maximum future payments under the Guarantee were limited to the Guaranteed Obligations plus the costs and expenses GE Canada incurred while enforcing its rights under the Guarantee. Lower Lakes secured its obligations under the Guarantee with a Letter of Credit (the “Letter of Credit”) issued under the Amended and Restated Credit Agreement.  Lower Lakes Towing had several options available to it in the event that GE Canada intended to draw under the Guarantee, including (i) the right to exercise its option for the Trader under the Option Agreement and (ii) the right to make a subordinated secured loan to Voyageur in an amount at least equal to the amount intended to be drawn by GE Canada on terms as were reasonably satisfactory to GE Canada and Voyageur.
  In connection with the Guarantee, as of March 31, 2011 we have recorded a loss contingency of $1.3 million on Lower Lakes Towing’s guarantee of Voyageur’s indebtedness with GE Canada, following the Maritime Trader’s placement in receivership as of March 14, 2011.  We believe that the fair value of the Maritime Trader, which requires drydocking and steel renewal investments, is less than the estimated value of GE Canada’s total claim by at least the amount of Lower Lakes Towing’s CDN $1.3 million guarantee.
  Due to Voyageur’s failure to meet its obligations under its financing arrangements with GE Canada, on May 17, 2011, General Electric Capital Corporation delivered a notice to Lower Lakes that effective as of May 6, 2011, GE Canada had drawn the full amount available under the Letter of Credit, with the CDN $1.3 million added to Lower Lakes’ revolving borrowings under the Amended and Restated Credit Agreement.
 
 Additionally, on March 14, 2011, GE Canada placed the Trader into receivership in accordance with the laws of Ontario and accordingly, Lower Lakes no longer has access to this vessel.


Voyageur was previously determined to be a variable interest entity of the Company under U.S. GAAP. We believe that Voyageur ceased to be a VIE of the Company when GE Canada seized the Trader pursuant to Ontario law and placed the subsidiary that owns the Trader under liquidation in the Federal Court of Canada effective March 14, 2011 due to Voyageur’s failure to pay principal and interest due to GE Canada in February 2011. We were never the primary beneficiary of Voyageur, and did not receive any material margin for the shipments made on the Trader, since the relationship was an industry standard charter relationship. The Company provided no loan support or liquidity to Voyageur during the fiscal year ended March 31, 2011.




Lack of Historical Operating Data for Acquired Vessels





From time to time, as opportunities arise and depending on the availability of financing, we may acquire additional secondhand drybulk carriers.





Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, there is typically no historical financial due diligence process conducted when we acquire vessels. Accordingly, in such circumstances, we do not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make vessel acquisitions, nor do we believe it would be helpful to potential investors in our stock in assessing our business or profitability.




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Consistent with shipping industry practice, we generally treat the acquisition of a vessel as the acquisition of an asset rather than a business.  In cases where a vessel services a contract of affreightment with a third party customer and the buyer desires to acquire such contract, the seller generally cannot transfer the contract to the buyer without the customer’s consent.  The purchase of a vessel itself typically does not transfer the contracts of affreightment serviced by such vessel because such contracts are separate service agreements between the vessel owner and its customers.





Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we allocate the purchase price of acquired tangible and intangible assets based on their relative fair values.





When we purchase a vessel and assume or renegotiate contracts of affreightment associated with the vessel, we must take the following steps before the vessel will be ready to commence operations:





·
obtain the customer’s consent to us as the new owner if applicable;





·
arrange for a new crew for the vessel;





·
replace all hired equipment on board, such as gas cylinders and communication equipment;





·
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers; and





·
implement a new planned maintenance program for the vessel.





The following discussion is intended to provide an understanding of how acquisitions of vessels affect our business and results of operations.





Our business is comprised of the following main elements:





·
employment and operation of our drybulk vessels;





·
scheduling our vessels to satisfy customer’s contracts of affreightment; and





·
management of the financial, general and administrative elements involved in the conduct of our business and ownership of our drybulk vessels.





The employment and operation of our vessels requires the following main components:





·
vessel maintenance and repair;





·
crew selection and training;





·
vessel spares and stores supply;





·
planning and undergoing drydocking, special surveys and other major repairs;





·
organizing and undergoing regular classification society surveys;





·
contingency response planning;





·
onboard safety procedures auditing;





·
accounting;





·
vessel insurance arrangement;





·
vessel scheduling;





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·
vessel security training and security response plans (ISPS);





·
obtain ISM certification and audit for each vessel within six months of taking over a vessel;





·
vessel hire management;





·
vessel surveying; and





·
vessel performance monitoring.





The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires the following main components:





·
management of our financial resources, including banking relationships (e.g., administration of bank loans);





·
management of our accounting system and records and financial reporting;





·
administration of the legal and regulatory requirements affecting our business and assets; and





·
management of the relationships with our service providers and customers.




The principal factors that affect our profitability, cash flows and stockholders' return on investment include:





·
rates of contracts of affreightment and charterhire;





·
scheduling to match vessels with customer requirements, including dock limitation, vessel trade patterns and backhaul opportunities;





·
weather conditions;





·
vessel incidents;





·
levels of vessel operating expenses;





·
depreciation and amortization expenses;





·
financing costs; and





·
fluctuations in foreign exchange rates.




Critical accounting policies




Rand’s significant accounting policies are presented in Note 2 to its audited consolidated financial statements, and the following summaries should be read in conjunction with the financial statements and the related notes included in this annual report on Form 10-K. While all accounting policies affect the financial statements, certain policies may be viewed as critical.




The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the application of certain accounting policies, many of which require the Company to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes.  Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates.  Such differences could be material to the financial statements.




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Revenue recognition




The Company generates revenues from freight billings under contracts of affreightment (voyage charters) generally on a rate per ton basis based on origin-destination and cargo carried. Voyage revenue is recognized ratably over the duration of a voyage based on the relative transit time in each reporting period when the following conditions are met: the Company has a signed contract of affreightment, the contract price is fixed or determinable and collection is reasonably assured.  Included in freight billings are other fees such as fuel surcharges and other freight surcharges, which represent pass-through charges to customers for toll fees, lockage fees and ice breaking fees paid to other parties.  Fuel surcharges are recognized over the duration of the voyage, while freight surcharges are recognized when the associated costs are incurred. Freight surcharges are less than 5% of total revenue.




The Company subcontracts excess customer demand to other freight providers.  Service to customers under such arrangements is transparent to the customer and no additional services are provided to customers.  Consequently, revenues recognized for customers serviced by freight subcontractors are recognized on the same basis as described above.  Costs for subcontracted freight providers, presented as “outside voyage charter fees” on the consolidated statement of operations are recognized as incurred and are thereby recognized ratably over the voyage.




In addition, all revenues are presented on a gross basis.




Vessel acquisitions





Vessels are stated at cost, which consists of the purchase price and any material expenses incurred upon acquisition, such as initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel for its initial voyage. Subsequent expenditures for conversions and major improvements are capitalized when they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessels. Significant financing costs incurred during the construction period of the vessels are also capitalized and included in the vessels' cost. Otherwise these amounts are charged to expense as incurred.




Intangible assets and goodwill




Intangible assets consist primarily of goodwill, financing costs, trademarks, trade names and customer relationships and contracts. Other intangibles are amortized as follows:




Trademarks and trade names

10 years straight-lineCustomer relationships and contracts

15 years straight-line




Although customer contracts have a typical duration of only three to five years, the Company has experienced a consistent track record of serial renewals by its significant contract customers (and such customers comprise most of the Company’s business).  The Company’s customer relationships are fortified by the fact that there are a limited number of Great Lakes shipping companies as well as a declining number of vessels operating on the Great Lakes.  The Company has an additional advantage in that it operates half of the vessels on the Great Lakes which are classified as “river-class vessels” and capable of accessing docks and customers not accessible to larger vessels.  Accordingly, customers have a substantial interest in protecting their Great Lakes transportation relationships.  Based on the foregoing, and in compliance with SFAS 142, the Company has determined that 15 years is the most appropriate “best estimate” amortization period for its customer relationships and contracts. The Company has estimated a 10 year useful life for its trademarks and trade names. In accordance with ASC350-30-35 “Determining the Life of an Intangible Asset”, since the Company cannot reliably determine the pattern of economic benefit of the use of the customer relationships and trademarks and trade names, the Company has determined that the straight line amortization is appropriate.




Deferred financing costs are amortized on a straight-line basis over the term of the related debt, which approximates the effective interest method.




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Impairment of fixed assets and intangible assets with finite lives




Fixed assets and finite-lived intangible assets are tested for impairment when a triggering event occurs. Examples of such triggering events include a significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related assets, a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business, and a significant change in the operations of an acquired business. The Company has determined that there were no adverse changes in our markets or other triggering events that could affect the valuation of our assets during the fiscal year ended March 31, 2011.




Impairment of goodwill




As of March 31, 2011, the Company made its annual test of goodwill. Significant assumptions are inherent in this process, including estimates of our undiscounted cash flows, discount rates, comparable companies and comparable transactions. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets. The Company presently has no intangible assets not subject to amortization other than goodwill. The fair market values of each of our reporting units exceeded the sum of the carrying values of those reporting units at March 31, 2011.




Income taxes




The Company accounts for income taxes in accordance with ASC 740 “Income Taxes” which requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of tax assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.  A valuation allowance is recognized, if necessary, to measure tax benefits to the extent that, based on available evidence, it is more likely than not that they will be realized. The determination to set up a valuation allowance is dependent on (1) management’s estimates of whether taxable income in future periods for each taxable entity is sufficient that deferred income tax assets will be realized, except for the change in foreign exchange loss, based on the performance of the entity and the expected timing of the reversal of the deferred tax liabilities, and (2) tax net operating losses in particular entities in recent years. Such management estimates are subject to uncertainty.




The Company has adopted the accounting guidance related to the accounting for uncertainty in income taxes effective April 1, 2007 which addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under such guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Establishing accruals for tax benefits requires management to make estimates and assessments with respect to the ultimate outcome of tax audit issues (if any) and amounts recorded on financial statements. The ultimate resolution of such uncertain tax benefits may differ from management’s estimate, potentially impacting the Company’s results of operations, cash flows, or financial position.  However, the impact of the Company’s reassessment of its tax positions did not have a material effect on the results of operations, financial condition or liquidity.




Stock-based compensation




The Company recognizes compensation expense for all newly granted awards and awards modified, repurchased or cancelled based on fair value at the date of grant.




Recently Issued Pronouncements




Fair value measurements





In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, "Improving Disclosures about Fair Value Measurements" (“ASU 2010-06”). This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The Company adopted the guidance in ASU 2010-06 on April 1, 2010, except for the requirements related to Level 3 disclosures, which will be effective for annual and interim reporting periods beginning after December 15, 2010.  This adoption expanded disclosures only and did not have any impact on the Company’s financial statements.




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Consolidation of variable interest entities





In December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU 2009-17”) amending the FASB Accounting Standards Codification. The amendments in ASU 2009-17 replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance and has either (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity.  An approach that is expected to be primarily qualitative will be more effective for identifying which enterprise has a controlling financial interest in a variable interest entity.  The amendments in ASU 2009-17 also require additional disclosure about an enterprise’s involvement in variable interest entities, which will enhance the information provided to users of financial statements.  ASU 2009-17 became effective as of the first annual reporting period beginning after November 15, 2009, interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter.  The Company adopted the guidance in ASU 2009-17 on April 1, 2010. The disclosure requirements of ASU 2009-17 are presented in Note 22 to the Company’s consolidated financial statements.




Multiple-deliverable revenue arrangements





In October 2009, the FASB issued ASU 2009-13, “Multiple-deliverable Revenue Arrangements” (“ASU 2009-13”), which amended ASC 605-25.  ASU 2009-13 modifies how consideration is allocated for the purpose of revenue recognition in multiple-element arrangements based on an element's estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2010. The Company does not expect the provisions of ASU 2009-13 to have a material effect on its financial position, results of operations or cash flows.




Equity: Accounting for distributions to shareholders with components of stock and cash





In January 2010, the FASB issued Accounting Standards Update 2010-01, “Equity: Accounting for distributions to shareholders with components of stock and cash” (“ASU 2010-01”).  ASU 2010-01 amends ASC 505-20, “Equity-Stock Dividends and Stock Splits”to clarify that the stock portion of a distribution to stockholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all stockholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. ASU 2010-01 is effective for fiscal years beginning after December 15, 2009.   The Company adopted the guidance in ASU 2010-01 on April 1, 2010, which did not have any impact on the Company’s consolidated financial statements.




Consolidation: Accounting and reporting for decreases in ownership of a subsidiary – a scope clarification




In January 2010, the FASB issued Accounting Standards Update 2010-02, “Consolidation: Accounting and Reporting for Decreases in Ownership of a Subsidiary – A Scope Clarification” (“ASU 2010-02”).  ASU 2010-02 amends ASC 810-10, “Consolidation—Overall” to clarify that the scope of the decrease in ownership provisions and related guidance applies to:  (i) a subsidiary or group of assets that is a business or nonprofit activity; (ii) a subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture; (iii) an exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity (including an equity-method investee or joint venture); and (iv) a decrease in ownership in a subsidiary that is not a business or nonprofit activity when the substance of the transaction causing the decrease in ownership is not addressed in other authoritative guidance.  If no other guidance exists, an entity should apply the guidance in ASC 810-10.  ASU 2010-02 is effective for fiscal years beginning on or after December 15, 2009. The Company adopted the guidance in ASU 2010-02 on April 1, 2010, which did not have any impact on our consolidated financial statements as we have not had such decreases in ownership of our subsidiaries.




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Disclosures about the credit quality of financing receivables and the allowance for credit losses





In July 2010, the FASB issued ASU 2010-20, “Receivables (“Topic 310”) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”). ASU 2010-20 requires a company to disclose information that provides financial statement users more information about the credit quality of a creditor’s financing receivables and the adequacy of its allowance for credit losses. Short-term accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from ASU 2010-20. For public companies, the amendments that require disclosure as of the end of a reporting period and the amendments that require disclosure for activity that occurs during a reporting period are effective for periods ending on or after December 15, 2010. ASU 2011-01 temporarily delays the effective date of the disclosures to interim and annual periods ending after June 15, 2011. The Company does not believe that the adoption of ASU 2010-20 will have a material impact on the Company’s financial position, results of operation, or cash flows.




Intangibles—Goodwill and other performing step 2 of the goodwill impairment test





In December 2010, the FASB issued ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350)—Intangibles—Goodwill and Other”(“ASU 2010-28”). ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years ending on or after December 15, 2010. The Company does not believe that the adoption of ASU 2010-28 will have a material impact on the Company’s consolidated financial statements.




Disclosure of supplementary pro forma information for business combinations





In December 2010, the FASB issued Accounting Standards Update No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”), which addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in ASU 2010-29 also expand the supplemental pro forma disclosure to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after December 15, 2010. We believe the adoption of ASU 2010-29 will not have a material impact on our consolidated financial position or results of operations.




ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK




We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




The financial statements and supplementary data of Rand Logistics, Inc. required by this Item are described in Item 15 of this Annual Report on Form 10-K and are presented beginning on page F-1.




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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE




None.




ITEM 9A.  CONTROLS AND PROCEDURES




Disclosure Controls and Procedures.




Our senior management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.




Evaluation of Disclosure Controls and Procedures.




We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other members of our management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2011.




Management’s Annual Report on Internal Control Over Financial Reporting




Our senior management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934), designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.




Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.




Management has evaluated the effectiveness of its internal control over financial reporting as of March 31, 2011 based on the criteria set forth in a report entitled Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we have concluded that, as of March 31, 2011, our internal control over financial reporting is effective based on those criteria.




Changes in Internal Control Over Financial Reporting




No change occurred in our internal controls concerning financial reporting during the fourth quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.




ITEM 9B.  OTHER INFORMATION





On June 28, 2011, Lower Lakes Transportation, Lower Lakes Towing and Grand River and the other Credit Parties thereto entered into a Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with General Electric Capital Corporation, as agent and a lender, and certain other lenders, which further amended the Amended and Restated Credit Agreement.
  The Fourth Amendment provides for an increase of the Canadian dollar denominated term loan in the aggregate amount of CDN $4.0 million to finance a possible future vessel acquisition and adds a customary anti-cash hoarding provision as a condition to further advances under the Amended and Restated Credit Agreement.  The Fourth Amendment modified the Canadian revolving credit facility, the Canadian term loan and the Canadian swing line facility to bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as such term is amended by the Fourth Amendment), plus 3.50% per annum or (ii) the BA Rate (as such term is amended by the Fourth Amendment) plus 4.50% per annum.  The Fourth Amendment also modified the US revolving credit facility, the US term loan and the US swing line facility to bear an interest rate per annum, at the borrowers’ option, equal to, (i) LIBOR (as defined in the Amended and Restated Credit Agreement) plus 4.50% per annum, or (ii) the US Base Rate (as defined in the Amended and Restated Credit Agreement), plus 3.50% per annum.  The Fourth Amendment extended the maturity of the commitments under the Amended and Restated Credit Agreement from April 1, 2013 until April 1, 2015.  The parties further agreed to amend and restate the Amended and Restated Credit Agreement by July 29, 2011.
  The Fourth Amendment additionally modified the Minimum Fixed Charge Coverage Ratio and Maximum Capital Expenditures covenants and added a new fiscal year-end Liquidity covenant.
  A copy of the Fourth Amendment is attached hereto as Exhibit 10.18 and is incorporated by reference herein.


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PART III




ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




Information with respect to this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC not later than 120 days after the end of our fiscal year.




ITEM 11.  EXECUTIVE COMPENSATION




Information with respect to this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC not later than 120 days after the end of our fiscal year.




ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS




Equity Compensation Plan Information




The following table provides certain information, as of June 28, 2011, about our common stock that may be issued upon the exercise of options, warrants and rights, as well as the issuance of restricted shares granted to employees, consultants or members of our Board of Directors, under our existing equity compensation plan, the Rand Logistics, Inc. 2007 Long-Term Incentive Plan.




Plan Category

Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights


Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights


Number of Securities Remaining Available for Future Issuance Under Equity Compensation PlanEquity compensation plans approved by security holders


479,785


$
5.66



857,369Equity compensation plans not approved by security holders


—



—



—Total


479,685


$
5.66



857,369




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE




Information with respect to this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC not later than 120 days after the end of our fiscal year.




ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES




Information with respect to this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC not later than 120 days after the end of our fiscal year.




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PART IV




ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES




(a)
1.
The financial statements at page F-1 are filed as a part of this Annual Report on Form 10-K.




2.
Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.




3.
Exhibits included or incorporated herein:




See Exhibit Index below.




EXHIBIT INDEX




Exhibit No.
Description2.1
Stock Purchase Agreement, dated as of September 2, 2005, among Rand Acquisition Corporation, LL Acquisition Corp. and the stockholders of Lower Lakes Towing Ltd. (Omitted: Appendices-Seller Disclosure Schedule and Purchase Seller Disclosure Schedule; Exhibits - 1) Allocation among Sellers, 2) Employment Agreement, 3) Escrow Agreement, 4) Release, 5) Opinion of Sellers’ Counsel, 6) Opinion of Rand’s and Purchaser’s Counsel, 7) Section 116 Escrow Agreement, 8) Company Indebtedness, 9) Seller’s Addresses, 10) Working Capital Statement, 11) Management Bonus Program, 12) Sellers Several Liability Allocation, 13) Financing Commitments (filed separately), 14) Bonus Program Participant Agreement and 15) Redemption Agreement). (1)2.2
Amendment to Stock Purchase Agreement, dated December 29, 2005. (2)2.3
Amendment to Stock Purchase Agreement, dated January 27, 2006. (3)2.4
Amendment to Stock Purchase Agreement, dated February 27, 2006. (4)3.1
Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on March 3, 2006. (6)3.2
Amended and Restated Certificate of Designations, filed with the Secretary of State of the State of Delaware on August 8, 2006. (7)3.3
Second Amended and Restated By-laws. (9)4.1
Specimen Common Stock Certificate. (5)4.2
Form of Unit Purchase Option granted to EarlyBirdCapital, Inc. (5)10.1
Registration Rights Agreement among the Registrant and the Founders. (5)10.2
Preferred Stock Purchase Agreement, dated September 2, 2005, by and between Knott Partners LP, Matterhorn Offshore Fund Ltd., Anno LP, Good Steward Fund Ltd., Bay II Resources Partners, Bay Resource Partners L.P., Bay Resource Partners Offshore Fund Ltd., Thomas E. Claugus and Rand Acquisition Corporation. (1)10.3
Rand Logistics, Inc. 2007 Long-Term Incentive Plan, dated July 26, 2007. (11)10.4
Contract of Affreightment, dated August 27, 2007, between Voyageur Marine Transport Ltd., Voyageur Maritime Trading Inc. and Lower Lakes Towing Ltd. (8)10.5
Option Agreement, dated August 27, 2007, between Lower Lakes Towing Ltd. and Voyageur Maritime Trading Inc. (8)10.6
Guarantee, dated August 27, 2007, between Lower Lakes Towing Ltd. and GE Canada Finance Holding Company. (8)10.7
Amended and Restated Credit Agreement, dated as of February 13, 2008, among Lower Lakes Towing Ltd., Lower Lakes Transportation Company, Grand River Navigation Company, Inc., the other credit parties signatory thereto, General Electric Capital Corporation, as Agent, National City Bank, as a Lender and as Co-Syndication Agent and the other Lenders signatory thereto from time to time. (10)  31
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  10.8
First Amendment to Amended and Restated Credit Agreement, dated as of June 24, 2008, by and among Lower Lakes Towing Ltd., Lower Lakes Transportation Company, Grand River Navigation Company, Inc., the other Credit Parties signatory thereto, the other Lenders signatory thereto and General Electric Capital Corporation, as Agent. (12)10.9
Second Amendment to Amended and Restated Credit Agreement, dated as of June 23, 2009, by and among Lower Lakes Towing Ltd., Lower Lakes Transportation Company, Grand River Navigation Company, Inc., the other Credit Parties signatory thereto, the other Lenders signatory thereto and General Electric Capital Corporation, as Agent. (13)10.10
Employment Agreement, dated October 8, 2009, by and between Scott Bravener and Lower Lakes Towing Ltd. (14)10.11
Form of Restricted Share Award Agreement by and between Rand Logistics, Inc. and Scott Bravener. (14)10.12
Third Amendment to Amended and Restated Credit Agreement, dated as of August 9, 2010, by and among Lower Lakes Towing Ltd., Lower Lakes Transportation Company, Grand River Navigation Company, Inc., the other Credit Parties signatory thereto, the other Lenders signatory thereto and General Electric Capital Corporation, as Agent. (15)10.13
Asset Purchase Agreement, dated as of February 11, 2011, by and among Black Creek Shipping Company, Inc., Black Creek Shipping Holding Company, Inc., Reserve Holdings, LLC and Buckeye Holdings, LLC. (16)10.14
Promissory Note of Black Creek Shipping Holding Company, Inc. in favor of Reserve Holdings, LLC and Buckeye Holdings, LLC, dated February 11, 2011. (16)10.15
Registration Rights Agreement, dated as of February 11, 2011, by and between Rand Logistics, Inc. and Buckeye Holdings, LLC. (16)10.16
Guarantee, dated February 11, 2011, made by Rand Logistics, Inc. to and for the benefit of  Reserve Holdings, LLC and Buckeye Holdings, LLC. (16)10.17
Credit Agreement, dated as of February 11, 2011, by and among Black Creek Shipping Company, Inc., Black Creek Shipping Holding Company, Inc., General Electric Capital Corporation, as agent and lender, and certain other lenders party thereto. (16)10.18
Fourth Amendment to Amended and Restated Credit Agreement, dated as of June 28, 2011, by and among Lower Lakes Towing Ltd., Lower Lakes Transportation Company, Grand River Navigation Company, Inc., the other Credit Parties signatory thereto, the other Lenders signatory thereto and General Electric Capital Corporation, as Agent. (17)21
Subsidiaries of Rand. (17)23
Consent of Grant Thornton LLP, independent chartered registered chartered accounting firm. (17)31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (17)31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (17)32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (17)32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (17)  _________________________(1)
Incorporated by reference to the Registrant’s Amended Quarterly Report on Form 10-QSB/A, filed with the Securities and Exchange Commission on January 20, 2006.(2)
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 3, 2006.  32
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  (3)
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 31, 2006.(4)
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 1, 2006.(5)
Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (SEC File No. 333-117051).(6)
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 9, 2006.(7)
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 10, 2006.(8)
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 31, 2007.(9)
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 17, 2007.(10)
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-QSB, filed with the Securities and Exchange Commission on February 14, 2008.(11)
Incorporated by reference to the Registrant’s Proxy Statement for the Annual Meeting of Stockholders held on September 11, 2007, filed with the Securities and Exchange Commission on July 30, 2007.(12)
Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on June 26, 2008.(13)
Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on June 25, 2009.(14)
Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 9, 2009.(15)
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 10, 2010.(16)
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on February 14, 2011.(17)
Filed herewith.




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SIGNATURES




Pursuant to the requirements of Section 13 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.






RAND LOGISTICS, INC.By:
/s/ Laurence S. LevyLaurence S. LevyChairman of the Board and Chief Executive Officer




Date: June 28, 2011




Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the Registrant, and in the capacities and on the dates indicated.




Signature
Title
Date/s/ Laurence S. Levy
Chairman of the Board and
June 28, 2011Laurence S. Levy
Chief Executive Officer(Principal Executive Officer)/s/ Edward Levy
President
June 28, 2011Edward Levy/s/ Joseph W. McHugh, Jr.
Vice President
June 28, 2011Joseph W. McHugh, Jr.
and Chief Financial Officer(Principal Financial and Accounting Officer)/s/ Scott Bravener
Director
June 28, 2011Scott Bravener/s/ H. Cabot Lodge, III
Director
June 28, 2011H. Cabot Lodge, III/s/ Jonathan Brodie
Director
June 28, 2011Jonathan Brodie/s/ Michael D. Lundin
Director
June 28, 2011Michael D. Lundin




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Board of Directors and
 Stockholders of Rand Logistics, Inc.
 
 We have audited the accompanying consolidated balance sheets of Rand Logistics, Inc. (a Delaware corporation) and its subsidiaries as of March 31, 2011 and March 31, 2010, and the related consolidated statements of operations, stockholders' equity and other comprehensive income (loss), and cash flows for the years ended March 31, 2011 and March 31, 2010.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rand Logistics, Inc. and its subsidiaries as of March 31, 2011 and March 31, 2010, and the results of its operations and its cash flows for the years ended March 31, 2011 and March 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
 
 /s/ Grant Thornton LLP
 Mississauga, Ontario, Canada
 June 28, 2011
  F-1
 Table of Contents
  RAND LOGISTICS, INC.
 Consolidated Balance Sheets
 (U.S. Dollars 000’sexcept for Shares and Per Share data)
 March 31,


March 31,2011


2010ASSETSCURRENTCash and cash equivalents

$
4,508


$
943Accounts receivable, net (Note 4)


6,991



3,922Prepaid expenses and other current assets (Note 5)


4,474



3,506Income taxes receivable


49



159Deferred income taxes (Note 6)


161



262Total current assets


16,183



8,792PROPERTY AND EQUIPMENT, NET (Note 7)


166,692



98,479LOAN TO EMPLOYEE


250



250OTHER ASSETS


363



541DEFERRED DRYDOCK COSTS, NET (Note 8)


6,523



7,129INTANGIBLE ASSETS, NET (Note 9)


15,306



14,000GOODWILL (Note 9)


10,193



10,193Total assets

$
215,510


$
139,384LIABILITIESCURRENTBank indebtedness (Note 11)

$
-


$
-Accounts payable


12,386



7,864Accrued liabilities (Note 12)


22,218



11,085Interest rate swap contracts (Note 20)


1,895



2,298Income taxes payable


-



266Deferred income taxes (Note 6)


603



-Subordinated note (Note 10)


1,482



-Current portion of deferred payment liability (Note 10)


382



-Current portion of long-term debt  (Note 13)


7,178



4,728Total current liabilities


46,144



26,241LONG-TERM PORTION OF DEFERRED PAYMENT LIABILITY (Note 10)


2,507



-LONG-TERM DEBT  (Note 13)


104,993



57,924OTHER LIABILITIES


238



238DEFERRED INCOME TAXES (Note 6)


3,299



3,503Total liabilities


157,181



87,906COMMITMENTS AND CONTINGENCIES (Notes 14 and 15)STOCKHOLDERS' EQUITYPreferred stock, $.0001 par value,
Authorized 1,000,000 shares, Issued and outstanding 300,000 shares (Note 16)


14,900



14,900Common stock, $.0001 par value
Authorized 50,000,000 shares, Issuable and outstanding 14,779,339 shares (Note 16)


1



1Additional paid-in capital


71,503



63,906Accumulated deficit


(30,666
)


(28,421
)Accumulated other comprehensive income  (Note 26)


2,591



1,092Total stockholders’ equity


58,329



51,478Total liabilities and stockholders’ equity

$
215,510


$
139,384
  The accompanying notes are an integral part of these consolidated financial statements.
  F-2
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  RAND LOGISTICS, INC.
 Consolidated Statements of Operations
 (U.S. Dollars 000’s except for Shares and Per Share data)
 
 Year ended

March 31, 2011


Year ended

March 31, 2010REVENUEFreight and related revenue

$
90,433


$
85,135Fuel and other surcharges


20,471



15,385Outside voyage charter revenue


7,074



7,698TOTAL REVENUE


117,978



108,218EXPENSESOutside voyage charter fees (Note 17)


7,052



7,682Vessel operating expenses


77,177



64,929Repairs and maintenance


5,456



5,319General and administrative


9,892



9,668Depreciation


7,684



9,217Amortization of drydock costs


2,779



2,425Amortization of intangibles


1,192



1,424Gain on foreign exchange


(18
)


(41
)111,214



100,623OPERATING INCOME


6,764



7,595OTHER (INCOME) AND EXPENSESInterest expense (Note 18)


5,737



5,533Interest income


(43
)


(6
)Estimated  loss from a loss contingency on guaranty (Note 15)


1,280



-Gain on interest rate swap contracts (Note 20)


(465
)


(2,069
)6,509



3,458INCOME BEFORE INCOME TAXES


255



4,137PROVISION FOR INCOME TAXES (Note 6)Current


(14
)


129Deferred


154



1,265140



1,394NET INCOME BEFORE PREFERRED STOCK DIVIDENDS


115



2,743PREFERRED STOCK DIVIDENDS


2,360



1,936NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS

$
(2,245
)

$
807Net (loss) income per share basic and diluted (Note 21)

$
(0.16
)

$
0.06Weighted average shares basic and diluted


13,632,961



13,071,651
  The accompanying notes are an integral part of these consolidated financial statements.
  F-3
 Table of Contents
 RAND LOGISTICS, INC.
 Consolidated Statements of Stockholders’ Equity and Other Comprehensive Income (Loss)
 (U.S. Dollars 000’sexcept for Shares and Per Share data)
 Common Stock


Preferred Stock


Additional Paid-In


Accumulated


Accumulated Other Comprehensive


Comprehensive


Total Stockholders'Shares


Amount


Shares


Amount


Capital


Deficit


Income (Loss)


Income (Loss)


EquityBalances, March 31, 2009


12,890,927


$
1



300,000


$
14,900


$
61,675


$
(29,228
)

$
(5,578
)

$
(13,830
)

$
41,770Net income


-



-



-



-



-



2,743



-



2,743



2,743Preferred stock dividends


-



-



-



-



-



(1,936
)


-



-



(1,936
)Stock issued in lieu of cash

compensation


158,325



-



-



-



500



-



-



-



500Stock issued under employees

retirement plan


201,902



-



-



-



622



-



-



-



622Restricted stock issued (Note 16)


116,351



-



-



-



459



-



-



-



459Unrestricted stock issued (Note 16)


37,144



-



-



-



128



-



-



-



128Stock options issued (Note 16)


-



-



-



-



522



-



-



-



522Translation adjustment


-



-



-



-



-



-



6,670



6,670



6,670Balances, March 31, 2010


13,404,649


$
1



300,000


$
14,900


$
63,906


$
(28,421
)

$
1,092


$
9,413


$
51,478Net income


-



-



-



-



-



115



-



115



115Preferred stock dividends


-



-



-



-



-



(2,360
)


-



-



(2,360
)Stock issued in lieu of cash

compensation


15,153



-



-



-



74



-



-



-



74Stock issued under employees

retirement plan


2,434



-



-



-



13



-



-



-



13Stock issued under asset  purchase

agreement


1,305,963



-



-



-



6,758



-



-



-



6,758Restricted stock issued (Note 16)


37,133



-



-



-



197



-



-



-



197Unrestricted stock issued (Note 16)


14,007



-



-



-



76



-



-



-



76Stock options issued (Note 16)


-



-



-



-



479



-



-



-



479Translation adjustment


-



-



-



-



-



-



1,499



1,499



1499Balances, March 31, 2011


14,779,339


$
1



300,000


$
14,900


$
71,503


$
(30,666
)

$
2,591


$
1,614


$
58,329
  The accompanying notes are an integral part of these consolidated financial statements.
  F-4
 Table of Contents
 RAND LOGISTICS, INC.
 Consolidated Statements of Cash Flows
 (U.S. Dollars 000’s except for Shares and Per Share data)
 Year ended

March 31, 2011


Year ended

March 31, 2010CASH FLOWS FROM OPERATING ACTIVITIESNet income

$
115


$
2,743Adjustments to reconcile net income to net cash providedby operating activitiesDepreciation and amortization of drydock costs


10,463



11,642Amortization of intangibles and deferred financing costs


1,745



1,823Deferred income taxes


154



1,265Gain on interest rate swap contracts


(465
)


(2,069
)Estimated loss from a loss contingency on guarantee


1,280



-Equity compensation


839



2,231Deferred drydock costs paid


(1,118
)


(1,093
)Changes in operating assets and liabilities:Accounts receivable


(3,069
)


(2,756
)Prepaid expenses and other current assets


(874
)


(498
)Accounts payable and accrued liabilities


2,103



(568
)Loan to employee


-



(250
)Other assets and liabilities


178



(535
)Income taxes payable (net)


(156
)


12911,195



12,064CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment


(18,471
)


(5,468
)Acquisition of  vessels (Note 10)


(46,930
)


-(65,401
)


(5,468
)CASH FLOWS FROM FINANCING ACTIVITIESShares issued under asset purchase agreement


6,758



-Proceeds from subordinated note


1,482



-Deferred payment liability obligation


2,889



-Proceeds from long-term debt


49,753



-Long-term debt repayment


(4,061
)


(4,556
)Debt financing cost


(492
)


-Proceeds from bank indebtedness


13,797



13,457Repayment of bank indebtedness


(13,501
)


(16,699
)56,625



(7,798
)EFFECT OF FOREIGN EXCHANGE RATES ON CASH


1,146



192NET  INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS


3,565



(1,010
)CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


943



1,953CASH AND CASH EQUIVALENTS, END OF  PERIOD

$
4,508


$
943SUPPLEMENTAL CASH FLOW DISCLOSUREPayments for interest

$
4,856


$
5,377Unpaid purchases of property and equipment

$
12,005


$
3,207Unpaid purchases of deferred drydock cost

$
951


$
58Payment of income taxes

$
286


$
35Capitalized interest

$
201


$
-
  The accompanying notes are an integral part of these consolidated financial statements.
  F-5
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  1.
DESCRIPTION OF BUSINESS
  Rand Logistics, Inc. (the “Company”) is a shipping company engaged in the operation of bulk carriers on the Great Lakes. Rand Acquisition Corporation was incorporated in Delaware on June 2, 2004 as a blank check company whose objective was to acquire an operating business. On March 3, 2006, the Company, through its wholly-owned subsidiary, LL Acquisition Corp., acquired all of the outstanding shares of capital stock of Lower Lakes Towing Ltd. (“Lower Lakes”) from the shareholders of Lower Lakes, in accordance with the terms of the Stock Purchase Agreement, dated September 2, 2005, by and among the Company, LL Acquisition Corp. and the stockholders of Lower Lakes, as amended. Immediately following completion of the acquisition, and in conjunction therewith, LL Acquisition Corp. and Lower Lakes were amalgamated under Canadian law and the shares of capital stock of Grand River Navigation Company, Inc. (“Grand River”) and Lower Lakes Transportation Company (“Lower Lakes Transportation”) owned by Lower Lakes at the time of the amalgamation were transferred to the Company’s wholly-owned subsidiary, Rand LL Holdings Corp. (“Rand LL Holdings”).  Upon completion of such transfer, the outstanding shares of Grand River not owned by Rand LL Holdings were redeemed in accordance with the terms of the Redemption Agreement, dated September 2, 2005, between Grand River and GR Holdings, Inc. Following completion of the foregoing transactions, as of March 3, 2006, each of Lower Lakes, Grand River and Lower Lakes Transportation became indirect, wholly-owned subsidiaries of the Company. In conjunction with the foregoing transactions, as of March 3, 2006, the Company, formerly known as Rand Acquisition Corporation, changed its name to Rand Logistics, Inc.
  On February 4, 2011, Black Creek Shipping Company, Inc. (“Black Creek”), a newly-formed, indirect wholly-owned subsidiary of the Company, and Black Creek Shipping Holding Company, Inc. (“Black Creek Holdings”), a newly-formed wholly-owned subsidiary of the Company and the parent corporation of Black Creek, were incorporated to acquire certain assets discussed in Note 10.
 
 2.
SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of presentation and consolidation
 
 The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of Rand Finance Corp.(“Rand Finance”), Rand LL Holdings and Black Creek Holdings, 100% subsidiaries of the Company, the accounts of Lower Lakes, Lower Lakes Transportation and Grand River, each of which is a 100% subsidiary of Rand LL Holdings, and Black Creek, which is a 100% subsidiary of Black Creek Holdings.
 
 The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
  Cash and cash equivalents
 
 The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
  Accounts receivable and concentration of credit risk
  The majority of the Company’s accounts receivable are amounts due from customers and other accounts receivable, including insurance and Harmonized Sales Tax refunds. The majority of accounts receivable are due within 30 to 60 days and are stated at amounts due from customers net of an allowance for doubtful accounts. The Company extends credit to its customers based upon its assessment of their creditworthiness and past payment history. Accounts outstanding longer than the contractual payment terms are considered past due. The Company had an allowance for doubtful accounts of $Nil as of March 31, 2011 and $225 as of March 31, 2010. The Company has historically had no significant bad debts. Interest is not accrued on outstanding receivables.
  F-6
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Revenue and operating expenses recognition
 
 The Company generates revenues from freight billings under contracts of affreightment (voyage charters) generally on a rate per ton basis based on origin-destination and cargo carried. Voyage revenue is recognized ratably over the duration of a voyage based on the relative transit time in each reporting period when the following conditions are met: the Company has a signed contract of affreightment, the contract price is fixed or determinable and collection is reasonably assured. Included in freight billings are other fees such as fuel surcharges and other freight surcharges, which represent pass-through charges to customers for toll fees, lockage fees and ice breaking fees paid to other parties. Fuel surcharges are recognized ratably over the duration of the voyage, while freight surcharges are recognized when the associated costs are incurred. Freight surcharges are less than 5% of total revenue.
 
 Marine operating expenses such as crewing costs, fuel, tugs and insurance are recognized as incurred or consumed and thereby are recognized ratably in each reporting period. Repairs and maintenance and certain other insignificant costs are recognized as incurred.
 
 The Company subcontracts excess customer demand to other freight providers. Service to customers under such arrangements is transparent to the customer and no additional services are provided to customers. Consequently, revenues recognized for customers serviced by freight subcontractors are recognized on the same basis as described above. Costs for subcontracted freight providers, presented as “outside voyage charter fees” in the consolidated statements of operations, are recognized as incurred and thereby are recognized ratably over the voyage.
 
 The Company accounts for sales taxes imposed on its services on a net basis in the consolidated statements of operations.
 
 In addition, all revenues are presented on a gross basis.
  Vessel acquisitions
 
 Vessels are stated at cost, which consists of the purchase price and any material expenses incurred upon acquisition, such as initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel for its initial voyage. Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessels. Significant financing costs incurred during the construction period of the vessels are also capitalized and included in the vessels' cost. Otherwise these amounts are charged to expense as incurred.
 
 Fuel and lubricant inventories
 
 Raw materials, fuel and operating supplies are accounted for on a first-in, first-out cost method (based on monthly averages). Raw materials and fuel are stated at the lower of actual cost (first-in, first-out method) or market. Operating supplies are stated at actual cost or average cost.
  Intangible assets and goodwill
 
 Intangible assets consist primarily of goodwill, financing costs, trademarks, trade names and customer relationships and contracts. The intangibles are amortized as follows:
  Trademarks and trade names

Customer relationships and contracts

10 years straight-line

15 years straight-line
  Deferred financing costs are amortized on a straight-line basis over the term of the related debt, which approximates the effective interest method.
  F-7
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Property and equipment
 
 Property and equipment are recorded at cost. Depreciationmethods for capital assets are as follows:
  Vessels

5 - 25 years straight-lineLeasehold improvements

7 - 11 years straight-lineVehicles

20% declining-balanceFurniture and equipment

20% declining-balanceComputer equipment

45% declining-balanceCommunication equipment

20% declining-balance
  Impairment of fixed assets


Fixed assets (e.g. property, plant and equipment) and finite-lived intangible assets (e.g. customer lists) are tested for impairment upon occurrence of a triggering event that indicates the carrying value of such asset is no longer recoverable. Examples of such triggering events include a significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related asset, a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business, and a significant change in the operations of an acquired business.
 
 Once a triggering event has occurred, the recoverability test employed is based on whether the intent is to hold the asset for continued use or to hold the asset for sale. If the intent is to hold the asset for continued use, the recoverability test involves a comparison of undiscounted cash flows against the carrying value of the asset as an initial test. If the carrying value of such asset exceeds the undiscounted cash flow, the asset would be deemed to be impaired. Impairment would then be measured as the difference between the fair value of the fixed or amortizing intangible asset and the carrying value of such asset. The Company generally determines fair value by using the discounted cash flow method. If the intent is to hold the asset for sale and certain other criteria are met (i.e., the asset can be disposed of currently, appropriate levels of authority have approved the sale and there is an actively pursuing buyer), the impairment test is a comparison of the asset’s carrying value to its fair value less costs to sell. To the extent that the carrying value is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference. The Company has determined that there were no adverse changes in our markets or other triggering events that could affect the valuation of our assets during the fiscal year ended March 31, 2011.
 
 Impairment of goodwill
 
 The Company annually reviews the carrying value of goodwill to determine whether impairment may exist. Accounting Standards Codification (“ASC”) 350 “Intangibles-Goodwill and Other” requires that goodwill and certain intangible assets be assessed annually for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of fair value of the Company’s two reporting units, which are the Company’s Canadian and US operations (excluding the parent), are determined using various valuation techniques with the primary techniques being a discounted cash flow analysis and peer analysis. A discounted cash flow analysis requires various judgmental assumptions, including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s forecast and long-term estimates. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. As of March 31, 2011, the Company conducted an annual test and determined that the fair value of its two reporting units exceeded their carrying amounts and the second step of the impairment testing was therefore not necessary.
  F-8
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  2.         SIGNIFICANT ACCOUNTING POLICIES (continued)
  Drydock costs
 
 Drydock costs incurred during statutory Canadian and United States certification processes are capitalized and amortized on a straight-line basis over the benefit period, which is generally 60 months. Drydock costs include costs of work performed by third party shipyards and subcontractors and other direct expenses to complete the mandatory certification process.
  Repairs and maintenance
 
 The Company’s vessels require repairs and maintenance each year to ensure the fleet is operating efficiently during the shipping season.  The majority of repairs and maintenance are completed in January, February and March of each year when the vessels are inactive.  The Company expenses such routine repairs and maintenance costs.  Significant repairs to the Company’s vessels, whether owned or available to the Company under a time charter, such as major engine overhauls and major hull steel repairs, are capitalized and amortized over the remaining life of the asset repaired or the remaining lease term.
  Income taxes
 
 The Company accounts for income taxes in accordance with ASC 740 “Income Taxes”, which requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of tax assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.  A valuation allowance is recognized, if necessary, to measure tax benefits to the extent that, based on available evidence, it is more likely than not that they will be realized.
 
 The Company classifies interest expense related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense.  To date, the Company has not incurred material interest expenses or penalties relating to assessed taxation amounts.
 
 There have been no recent examinations by the U.S. or Canadian tax authorities. The Company's primary U. S. state income tax jurisdictions are Illinois, Indiana, Michigan, Minnesota, Ohio and New York and its only international jurisdictions are Canada and its province of Ontario. The following table summarizes the open tax years for each major jurisdiction:
 
 Jurisdiction
Open Tax YearsFederal (USA)
2007 – 2010Various states
2007 – 2010Federal (Canada)
2005 – 2010Ontario
2005 – 2010
 
 Foreign currency translation
 
 The Company uses the U.S. Dollar as its reporting currency.  The functional currency of Lower Lakes is the Canadian Dollar.  The functional currency of the Company’s U.S. subsidiaries is the U.S. Dollar. Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the rate of exchange at the balance sheet date, while revenue and expenses are translated at the weighted average rates prevailing during the respective periods.  Components of stockholders’ equity are translated at historical rates.  Exchange gains and losses resulting from translation are reflected in accumulated other comprehensive income or loss.
  F-9
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Advertising costs
 
 The Company expenses all advertising costs as incurred. These costs are included in general and administrative costs and were insignificant during the periods presented.
  Use of estimates
 
 The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates included in the preparation of these financial statements include the assumptions used in determining the useful lives of long-lived assets, the assumptions used in determining whether assets are impaired, the assumptions used in determining the valuation allowance for deferred income tax assets and the assumptions used in stock based compensation awards. Actual results could differ from those estimates.
 
 Benefit plans
 
 The Company contributes to employee Registered Retirement Savings Plans in Canada and 401K plans in the United States.  Contributions are expensed as operating expenses when incurred.  The Company made contributions of $1,373 in 2011 and $1,240 in 2010.
 
 Stock-based compensation
 
 The Company recognizes compensation expense for all newly granted awards and awards modified, repurchased or cancelled based on fair value at the date of grant.
 
 Financial instruments
 
 The Company accounts for its two interest rate swap contracts on its term debt utilizing ASC 815 “Derivatives and Hedging”. All changes in the fair value of the swap contracts are recorded in earnings and the fair value of settlement costs to terminate the contracts are included in current liabilities on the consolidated balance sheets. Disclosure requirements of ASC 815 are disclosed in Note 20.
 
 Fair value of financial instruments
 
 ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and establishes a hierarchy that categorizes and prioritizes the inputs to be used to estimate fair value. The three levels of inputs used are as follows:
 
 Level 1 – Quoted prices in active markets for identical assets or liabilities.
 Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.
 Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
 The disclosure requirements of ASC 820 related to the Company’s financial assets and liabilities are presented in Note 20.
 
 Reclassifications
 
 Current and long-term deferred tax assets and liabilities, which were presented gross by jurisdiction in the prior year’s consolidated financial statements, have been presented net by jurisdiction to conform to the current period presentation.  The reclassification had no impact on previously reported net income or cash flows.
  F-10
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  3.
RECENTLY ISSUED PRONOUNCEMENTS
 
 Fair value measurements
 
 In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, "Improving Disclosures about Fair Value Measurements" (“ASU 2010-06”). This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The Company adopted the guidance in ASU 2010-06 on April 1, 2010, except for the requirements related to Level 3 disclosures, which will be effective for annual and interim reporting periods beginning after December 15, 2010.  This adoption expanded disclosures only and did not have any impact on the Company’s financial statements.
  Consolidation of variable interest entities
 
 In December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU 2009-17”) amending the FASB Accounting Standards Codification. The amendments in ASU 2009-17 replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance and has either (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity.  An approach that is expected to be primarily qualitative will be more effective for identifying which enterprise has a controlling financial interest in a variable interest entity.  The amendments in ASU 2009-17 also require additional disclosure about an enterprise’s involvement in variable interest entities, which will enhance the information provided to users of financial statements.  ASU 2009-17 became effective as of the first annual reporting period beginning after November 15, 2009, interim periods within that first annual reporting period and for interim and annual reporting periods thereafter.  The Company adopted the guidance in ASU 2009-17 on April 1, 2010. The disclosure requirements of ASU 2009-17 are presented in Note 22.
 
 Equity: Accounting for distributions to shareholders with components of stock and cash
 
 In January 2010, the FASB issued Accounting Standards Update 2010-01, “Equity: Accounting for distributions to shareholders with components of stock and cash” (“ASU 2010-01”).  ASU 2010-01 amends ASC 505-20, “Equity-Stock Dividends and Stock Splits”to clarify that the stock portion of a distribution to stockholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all stockholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. ASU 2010-01 is effective for fiscal years beginning after December 15, 2009.   The Company adopted the guidance in ASU 2010-01 on April 1, 2010, which did not have any impact on the Company’s consolidated financial statements.
  F-11
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  3.
RECENTLY ISSUED PRONOUNCEMENTS(continued)
  Multiple-deliverable revenue arrangements
 
 In October 2009, the FASB issued ASU 2009-13, “Multiple-deliverable Revenue Arrangements” (“ASU 2009-13”), which amended ASC 605-25.  ASU 2009-13 modifies how consideration is allocated for the purpose of revenue recognition in multiple-element arrangements based on an element's estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2010. The Company does not expect the provisions of ASU 2009-13 to have a material effect on its financial position, results of operations or cash flows.
 
 Consolidation: Accounting and reporting for decreases in ownership of a subsidiary – a scope clarification
  In January 2010, the FASB issued Accounting Standards Update 2010-02, “Consolidation: Accounting and Reporting for Decreases in Ownership of a Subsidiary – A Scope Clarification” (“ASU 2010-02”).  ASU 2010-02 amends ASC 810-10, “Consolidation—Overall” to clarify that the scope of the decrease in ownership provisions and related guidance applies to:  (i) a subsidiary or group of assets that is a business or nonprofit activity; (ii) a subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture; (iii) an exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity (including an equity-method investee or joint venture); and (iv) a decrease in ownership in a subsidiary that is not a business or nonprofit activity when the substance of the transaction causing the decrease in ownership is not addressed in other authoritative guidance.  If no other guidance exists, an entity should apply the guidance in ASC 810-10.  ASU 2010-02 is effective for fiscal years beginning on or after December 15, 2009. The Company adopted the guidance in ASU 2010-02 on April 1, 2010, which did not have any impact on our consolidated financial statements as we have not had such decreases in ownership of our subsidiaries.
 
 Disclosures about the credit quality of financing receivables and the allowance for credit losses
 
 In July 2010, the FASB issued ASU 2010-20, “Receivables (“Topic 310”) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”). ASU 2010-20 requires a company to disclose information that provides financial statement users more information about the credit quality of a creditor’s financing receivables and the adequacy of its allowance for credit losses. Short-term accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from ASU 2010-20. For public companies, the amendments that require disclosure as of the end of a reporting period and the amendments that require disclosure for activity that occurs during a reporting period are effective for periods ending on or after December 15, 2010. ASU 2011-01 temporarily delays the effective date of the disclosures to interim and annual periods ending after June 15, 2011. The Company does not believe that the adoption of ASU 2010-20 will have a material impact on the Company’s financial position, results of operation, or cash flows.
 
 Intangibles—Goodwill and other performing step 2 of the goodwill impairment test
 
 In December 2010, the FASB issued ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350)—Intangibles—Goodwill and Other”(“ASU 2010-28”). ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years ending on or after December 15, 2010. The Company does not believe that the adoption of ASU 2010-28 will have a material impact on the Company’s consolidated financial statements.
 
 Disclosure of supplementary pro forma information for business combinations
 
 In December 2010, the FASB issued Accounting Standards Update No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”), which addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in ASU 2010-29 also expand the supplemental pro forma disclosure to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after December 15, 2010. We believe the adoption of ASU 2010-29 will not have a material impact on our consolidated financial position or results of operations.
 
 F-12
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  4.
ACCOUNTS RECEIVABLE
  Trade receivables are presented net of an allowance for doubtful accounts.  The allowance was $Nil as of March 31, 2011 and $225 as of March 31, 2010. The allowance for doubtful accounts reflected estimates of probable losses in trade receivables.  The Company manages and evaluates the collectability of its trade receivables as follows: management reviews aged accounts receivable listings and contact is made with customers that have extended beyond agreed upon credit terms. Senior management and operations are notified so that when they are contacted by such customers for a future delivery, they can request that the customer  pay any past due amounts before any future cargo is booked for shipment. Customer credit risk is also managed by reviewing the history of payments by the customer, the size and credit quality of the customer, the period of time remaining within the shipping season and demand for future cargos.
 
 5.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
 
 Prepaid expenses and other current assets are comprised of the following:
 
 March 31,

2011


March 31,

2010Prepaid insurance

$
79


$
444Fuel and lubricants


3,372



2,080Deposits and other prepaids


1,023



982$
4,474


$
3,506
 
 6.
INCOME TAXES
 
 Income (loss) before income taxes was derived from the following sources:
 
 Year ended

March 31, 2011


Year ended

March 31, 2010United States

$
717


$
(2,259
)Foreign


(462
)


6,396$
255


$
4,137
 
 The components of the provision for income taxes are as follows:
 
 Year ended

March 31, 2011


Year ended

March 31, 2010CurrentFederal

$
33


$
(145
)State and local


22



19Foreign


(69
)


255Deferred:Federal


-



-State and local


225



(48
)Foreign


(71
)


1,313$
140


$
1,394
  F-13
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  6.
INCOME TAXES (continued)
 
 The total provision for income taxes differs from that amount which would be computed by applying the U.S. Federal and Canadian income tax rates to income before provision for income taxes as follows:
 
 Year ended

March 31, 2011


Year ended

March 31, 2010Statutory U.S. federal

income tax rate


34.0
%


34.0
%State and foreign

income taxes


109.6
%


(15.4
)%Imputed interest income


217.4
%


16.0
%Valuation allowance


(299.1
)%


(0.1
)%Foreign permanent items/other


(7.0
)%


(0.8
)%Effective income tax rate


54.9
%


33.7
%
 
 The primary reasons the effective income tax rate for fiscal 2011 was higher than the statutory U.S. federal tax rate were the imputed interest income and state and foreign income taxes, substantially offset by the reduction in the federal valuation allowance.
 
 The primary reasons the effective income tax rate for fiscal 2010 was lower than the statutory U.S. federal tax rate were the benefit of lower Canadian federal and Ontario taxes and a decrease in enacted future tax rates in Ontario during the fiscal year,  substantially offset by imputed interest income and non-deductible stock compensation.
  The significant components of current deferred tax assets and liabilities are as follows:
 
 March 31,

2011


March 31,

2010Assets:Accrued liabilities not yet deductible for tax

$
322


$
725Other


17



232339



957Valuation allowance


(142
)


(695
)Total current deferred tax assets


197



262Liability:Deferred foreign exchange gain


(639
)


-Total current deferred tax liabilities


(639
)


-Net current deferred tax assets (liabilities)

$
(442
)

$
262
 
 The Company has net current deferred tax assets of $161 ($Nil as of March 31, 2010) in United States Federal and state jurisdictions and net current deferred tax liabilities of $603 (deferred tax assets of $262 as of March 31, 2010) in Canadian jurisdictions.
  F-14
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  6.
INCOME TAXES (continued)
 
 The significant components of long-term deferred tax assets and liabilities are as follows:
  March 31,

2011


March 31,

2010Long-term deferred tax assetsOperating loss carry forwards

$
13,072


$
11,815Interest rate swap


603



699Other


681



50214,356



13,016Valuation allowance


(4,228
)


(4,433
)Net long-term deferred tax assets

$
10,128


$
8,583Long-term deferred tax liabilitiesSeparately identifiable Intangibles

$
(2,383
)

$
(2,739
)Deferred foreign exchange gain


-



(358
)Depreciation and dry dock expenses


(11,044
)


(8,989
)Total long-term deferred tax liabilities

$
(13,427
)

$
(12,086
)Net long-term deferred tax liabilities

$
(3,299
)

$
(3,503
)
 
 The Company has net long term deferred tax liabilities of $576 ($191 as of March 31, 2010) in United States Federal and state jurisdictions and $2,723 ($3,312 as of March 31, 2010) in Canadian jurisdictions.
 
 The Company establishes a valuation allowance when it is more likely than not that it will not be able to realize the benefit of the deferred tax assets or when future deductibility is uncertain.  Periodically, the valuation allowance is reviewed and adjusted based on management’s assessment of realizable deferred tax assets.
 
 At March 31, 2011 and 2010, the Company anticipated that its U.S. Federal net deferred tax assets including net operating loss carry-forward would not be utilized due to cumulative pre-tax losses during the past three fiscal years and accordingly  has recorded a full valuation allowance against the U.S. Federal net deferred tax assets.
 
 The Company determined at both March 31, 2011 and 2010 that it was more likely than not that the state deferred income tax assets will be realized, except for certain state net operating losses that are expected to expire unused based on a net deferred tax liability position and the expected timing of the reversal of the deferred tax liabilities.
 
 The Company also determined that it was more likely than not that the Canadian deferred income tax assets will be realized, except for a foreign currency exchange loss that existed at March 31, 2009, based on performance of the entity and the expected timing of the reversal of the deferred tax liabilities.  The valuation allowance against the foreign currency exchange loss of $955 was reversed during the year ended March 31, 2010 as the foreign currency exchange loss turned into a gain as of March 31, 2010.
 
 The valuation allowance against the U.S. Federal and state deferred tax assets decreased by $758 for the year ended March 31, 2011, and decreased by $63 for the year ended March 31, 2010.
 
 At March 31, 2011, the Company had unused U.S. federal net operating loss carry-forwards totaling $23,189 that expire between fiscal 2019 and 2029, of which a small portion is subject to Internal Revenue Code section 382 annual limitations. At March 31, 2011, the Company had various unused state net operating loss carry-forwards totaling $2,756 that expire between fiscal 2013 and 2029.  At March 31, 2011, the Company also had unused Canadian net operating loss carry-forwards totaling $19,857 that expire between fiscal 2024 and 2031.
  F-15
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  7.
PROPERTY AND EQUIPMENT
 
 Property and equipment are comprised of the following:
 
 March 31, 2011


March 31, 2010CostVessels

$
195,637


$
119,181Leasehold improvements


2,245



2,150Furniture and equipment


292



268Vehicles


23



22Computer, communication equipment and purchased software


2,511



2,348$
200,708


$
123,969Accumulated depreciationVessels

$
31,953


$
24,018Leasehold improvements


820



616Furniture and equipment


132



95Vehicles


10



7Computer, communication equipment  and purchased software


1,101



75434,016



25,490$
166,692


$
98,479
  8.
DEFERRED DRYDOCK COSTS
 
 Deferred drydock costs are comprised of the following:
 
 March 31, 2011


March 31, 2010Drydock expenditures

$
16,367


$
13,884Accumulated amortization


9,844



6,755$
6,523


$
7,129
  The following table shows periodic deferrals of drydock costs and amortization.
 
 Balance as of March 31, 2009

$
7,274Deferred drydock costs accrued


1,151Amortization of deferred drydock costs


(2,425
)Foreign currency translation adjustment


1,129Balance as of March 31, 2010

$
7,129Deferred drydock costs accrued


2,010Amortization of deferred drydock costs


(2,779
)Foreign currency translation adjustment


163Balance as of March 31, 2011

$
6,523
  F-16
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  9.
INTANGIBLE ASSETS AND GOODWILL
 
 Intangibles are comprised of the following:
 
 March 31, 2011


March 31, 2010Intangible assetsDeferred financing costs

$
2,964


$
2,149Trademarks and trade names


1,044



1,010Customer relationships and contracts


18,543



16,093Total identifiable intangibles

$
22,551


$
19,252Accumulated amortizationDeferred financing costs

$
1,498


$
901Trademarks and trade names


530



412Customer relationships and contracts


5,217



3,939Total accumulated amortization


7,245



5,252Total intangible assets

$
15,306


$
14,000Goodwill

$
10,193


$
10,193
  Intangible asset amortization over the next five years is estimated as follows:
 
 2012

$
2,0062013


2,0062014


1,3852015


1,3192016


1,312$
8,028
  10.
VESSEL ACQUISITIONS
  On February 11, 2011, Black Creek and Black Creek Holdings entered into, and consummated the transactions contemplated by, an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Reserve Holdings, LLC (“Reserve”), and Buckeye Holdings, LLC (“Buckeye” and, together with Reserve, the “Sellers”).  Under the Asset Purchase Agreement, Black Creek purchased two integrated tug/barge units (the “Vessels”) for consideration consisting of (i) $35,500 cash paid at closing, (ii) $3,600 cash to be paid by Black Creek Holdings in 72 monthly installments of $50 beginning on April 15, 2011 (the "Deferred Payments"); (iii) a promissory note of Black Creek Holdings in the principal amount of $1,500 (the “Note”) described below; and (iv) 1,305,963 shares of the Company’s common stock (the “Shares”).
  The estimated fair values of assets acquired are as follows:
  Current assets

$
94Property and equipment


45,000Other identifiable intangible assets


1,836$
46,930
  F-17
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  10.
VESSEL ACQUISITIONS (continued)
  The Asset Purchase Agreement provided for the Sellers to use their commercially reasonable efforts to seek the consent to the assignment to Black Creek of certain vessel transportation agreements pursuant to which the Sellers and their affiliates provide freight transportation services to third parties (each such agreement, a “VTA”).  As of March 31, 2011, all of the VTAs had been assigned to Black Creek.  The Asset Purchase Agreement also provided for Black Creek to assume the Sellers’ andtheir affiliates’ obligations relating to winter work and maintenance that was being performed on the Vessels at the time of their acquisition.
  The Note, dated February 11, 2011, bears interest at a rate of 6% per annum with all principal and interest thereon due and payable on December 15, 2011.
  On February 11, 2011, the Company entered into a guaranty (the “Guaranty”) to and for the benefit of each of the Sellers pursuant to which the Company guaranteed Black Creek Holdings’ obligations to make the Deferred Payments and under the Note.
 
 The acquisition of the Vessels was financed in part by the Black Creek credit agreement described in Note 13 and the issuance of shares of the Company’s common stock described in Note 16.
  11.
BANK INDEBTEDNESS
 
 As discussed in detail in Note 13, the Company amended and restated its 2006 Credit Agreement with its senior lender on February 13, 2008, as subsequently amended.  At each of March 31, 2011 and March 31, 2010, the Company had authorized operating lines of credit under this agreement in the amounts of CDN $13,500 and US $13,500 with its senior lender, and was utilizing CDN $Nil at each of March 31, 2011 and March 31, 2010 and US $Nil at each of March 31, 2011 and March 31, 2010, and maintained letters of credit of CDN $1,325 at March 31, 2011 (CDN $1,394 as at March 31, 2010).  The Amended and Restated Credit Agreement provides that the line of credit bears interest at Canadian Prime Rate plus 2.75% or Canadian 30 day BA rate plus 3.75% on Canadian Dollar borrowings, and the U.S. Base rate plus 2.75% or LIBOR plus 3.75% on U.S. Dollar borrowings and is secured under the same terms and has the same financial covenants described in Note 13. Such interest rate margins increased by 0.25% in November 2010. Available collateral for borrowings and letters of credit are based on eligible accounts receivable, which are limited to 85% of those receivables that are not over 90 days old, not in excess of 20% for one customer in each line and certain other standard limitations. At March 31, 2011, the Company had access to its US $9,490 seasonal over advance facility net of letter of credit obligations (see Note 13).
  F-18
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  12.
ACCRUED LIABILITIES
 
 Accrued liabilities are comprised of the following:
 
 March 31,

2011


March 31,

2010Deferred financing and other

transaction costs

$
486


$
-Payroll compensation and benefits


1,250



2,270Preferred stock dividends


7,477



5,117Professional fees


697



652Interest


693



200Winter work and capital expenditures


6,870



799Capital and franchise taxes


106



101Loss contingency on guaranty


1,289



-Other


3,350



1,946$
22,218


$
11,085
  13.
LONG-TERM DEBT
 
 On February 13, 2008, Lower Lakes, Lower Lakes Transportation and Grand River, as borrowers, Rand LL Holdings, Rand Finance and the Company, as guarantors, General Electric Capital Corporation, as agent and lender, and certain other lenders, entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which (i) amended and restated the Credit Agreement to which the borrowers were a party, dated as of March 3, 2006 (the “2006 Credit Agreement”), in its entirety, (ii) restructured the tranches of loans provided for under the 2006 Credit Agreement and advanced certain new loans, (iii) financed, in part, the acquisition of the three vessels by Grand River from Wisconsin & Michigan Steamship Company (“WMS”), and (iv) provided working capital financing, funds for other general corporate purposes and funds for other permitted purposes.  The Amended and Restated Credit Agreement provided for (i) a revolving credit facility under which Lower Lakes may borrow up to CDN $13,500 with a combined seasonal overadvance facility of US $10,000 (US $10,000 as of March 31, 2010), and a swing line facility of CDN $4,000 subject to limitations, (ii) a revolving credit facility under which Lower Lakes Transportation may borrow up to US $13,500 with a combined seasonal overadvance facility of US $10,000 (US $10,000 as of March 31, 2010), and a swing line facility of US $4,000 subject to limitations, (iii) a Canadian Dollar denominated term loan facility under which Lower Lakes borrowed CDN $41,700 (iv) a US Dollar denominated term loan facility under which Grand River borrowed US $22,000 and (v) a Canadian Dollar denominated “Engine” term loan facility under which Lower Lakes borrowed CDN $8,000.
  Under the Amended and Restated Credit Agreement, the revolving credit facilities and swing line loans expire on April 1, 2013.  The outstanding principal amount of the Canadian term loan borrowings is repayable as follows: (i) quarterly payments of CDN $695 commencing September 1, 2008 and ending March 1, 2013 and (ii) a final payment in the outstanding principal amount of the Canadian term loan shall be payable upon the Canadian term loan facility’s maturity on April 1, 2013.  The outstanding principal amount of the US term loan borrowings is repayable as follows: (i) quarterly payments of US $367 commencing September 1, 2008 and ending on March 1, 2013 and (ii) a final payment in the outstanding principal amount of the US term loan payable upon the US term loan facility’s maturity on April 1, 2013.  The outstanding principal amount of the Canadian “Engine” term loan borrowings is repayable as follows: (i) quarterly payments of CDN $133 commencing September 1, 2008 and ending March 1, 2013 and (ii) a final payment in the outstanding principal amount of the Engine term loan payable upon the Engine term loan facility’s maturity on April 1, 2013.
  F-19
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  13.
LONG-TERM DEBT (continued)
  Borrowings under the Canadian revolving credit facility, the Canadian term loan and the Canadian swing line facility bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as defined in the Amended and Restated Credit Agreement), plus 2.75% per annum or (ii) the BA Rate (as defined in the Amended and Restated Credit Agreement) plus 3.75% per annum.  The US revolving credit facility, the US term loan and the US swing line facility bear interest, at the borrower’s option, equal to (i) LIBOR (as defined in the Amended and Restated Credit Agreement) plus 3.75% per annum, or (ii) the US Base Rate (as defined in the Amended and Restated Credit Agreement), plus 2.75% per annum.  Borrowings under the Canadian “Engine” term loan bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as defined in the Amended and Restated Credit Agreement), plus 4.00% per annum or (ii) the BA Rate (as defined in the Amended and Restated Credit Agreement) plus 5.00% per annum. The interest rate margin is adjustable quarterly commencing on the second quarter of the fiscal year ended March 31, 2009, based upon the borrowers’ senior debt to EBITDA ratio as defined and calculated in accordance with the Amended and Restated Credit Agreement. Except for the Canadian “Engine” term loan, such interest rate margins increased by 0.25% to the current margin in November 2010.
  Obligations under the Amended and Restated Credit Agreement are secured by (i) a first priority lien and security interest on all of the borrowers’ and guarantors’ assets, tangible or intangible, real, personal or mixed, existing and newly acquired, (ii) a pledge by Rand LL Holdings of all of the outstanding capital stock of the borrowers and (iii) a pledge by the Company of all of the outstanding capital stock of Rand LL Holdings and Rand Finance.  The indebtedness of each borrower under the Amended and Restated Credit Agreement is unconditionally guaranteed by each other borrower and by the guarantors, and such guaranty is secured by a lien on substantially all of the assets of each borrower and each guarantor.
  Under the Amended and Restated Credit Agreement, the borrowers will be required to make mandatory prepayments of principal on term loan borrowings (i) if the outstanding balance of the term loans plus the outstanding balance of the seasonal facilities exceeds the sum of 75% of the fair market value of the vessels owned by the borrowers, less the amount of outstanding liens against the vessels with priority over the lenders’ liens, in an amount equal to such excess, (ii) in the event of certain dispositions of assets and insurance proceeds (all subject to certain exceptions), in an amount equal to 100% of the net proceeds received by the borrowers there from, and (iii) in an amount equal to 100% of the net proceeds to a borrower from any issuance of a borrower’s debt or equity securities.
  The Amended and Restated Credit Agreement contains certain covenants, including those limiting the guarantors’, the borrowers’, and their subsidiaries’ ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends.  In addition, the Amended and Restated Credit Agreement requires the borrowers to maintain certain financial ratios.  Failure of the borrowers or the guarantors to comply with any of these covenants or financial ratios could result in the loans under the Amended and Restated Credit Agreement being accelerated.
  On June 24, 2008, the Company entered into a First Amendment to the Amended and Restated Credit Agreement with the lenders signatory thereto and General Electric Capital Corporation, as Agent.  Under this Amendment, the borrowers amended the definition of “Fixed Charge Coverage Ratio,” modified the formula for the maximum amounts outstanding under the Canadian and US Revolving Credit Facilities and modified the measurement dates of the Maximum Capital Expenditures (as defined therein).
  On June 23, 2009, the Company entered into a Second Amendment to the Amended and Restated Credit Agreement. Under this Amendment, the parties amended the definitions of “Fixed Charge Coverage Ratio”, “Fixed Charges”, “Funded Debt” and “Working Capital”, modified the maximum amount of the combined seasonal overadvance facilities that is available to borrow from $8,000 to $10,000, the duration of the seasonal overadvance facilities under the Canadian and US Revolving Credit Facilities and the Minimum Fixed Charge Coverage Ratio and the Maximum Senior Funded Debt to EBITDA Ratio.
  On August 9, 2010, the Company entered into a Third Amendment to the Amended and Restated Credit Agreement (“Third Amendment”), amending the Amended and Restated Credit Agreement to which the borrowers are  parties, dated as of February 13, 2008. The Third Amendment provided for (i) an additional Canadian dollar denominated term loan in the aggregate amount of CDN $20,000 to finance a new engine for the vessel Michipicoten and certain other capital expenditures, (ii) a modification to the Senior Funded Debt to EBITDA Ratio and (iii) a modification to the ratio of the aggregate appraised orderly liquidation value of all vessels of borrowers to the aggregate outstanding principal amount of the term loans from lenders.  The increased CDN Term Loan (as such term is defined in the Amended and Restated Credit Agreement) is repayable in quarterly installments of CDN $695 commencing, December 2010, increasing to CDN $936 commencing, September 2011 and maturing on April 1, 2013.
  On June 28, 2011, the Company amended its Amended and Restated Credit Agreement as discussed in Note 26.
  F-20
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  13.
LONG-TERM DEBT (continued)
  On February 11, 2011, Black Creek, as borrower and Black Creek Holdings, as guarantor, General Electric Capital Corporation, as agent and lender, and certain other lenders, entered into a Credit Agreement (the “Black Creek Credit Agreement”) which (i) financed, in part, the acquisition of the Vessels by Black Creek as described in Note 10., and (ii) provided funds for other transaction expenses.  The Black Creek Credit Agreement provided for a US Dollar denominated senior secured term loan under which Black Creek borrowed US $31,000.
  The outstanding principal amount of the term loan is repayable as follows: (i) quarterly payments of US $517 commencing September 30, 2011 and ending December 31, 2013 and (ii) a final payment in the outstanding principal amount of the term loan is payable upon the term loan maturity on February 11, 2014.
  The term loan bears an interest rate per annum, at Black Creek’s option, equal to (i) LIBOR (as defined in the Black Creek Credit Agreement) plus 4.75% per annum, or (ii) the US Base Rate (as defined in the Black Creek Credit Agreement), plus 3.75% per annum.
  Obligations under the Black Creek Credit Agreement are secured by (i) a first priority lien and security interest on all of Black Creek’s and Black Creek Holding's assets, tangible or intangible, real, personal or mixed, existing and newly acquired and (ii) a pledge by Black Creek Holdings of all of the outstanding capital stock of Black Creek.  The indebtedness of Black Creek under the Black Creek Credit Agreement is unconditionally guaranteed by the guarantor, and such guarantee is secured by a lien on substantially all of the assets of Black Creek and Black Creek Holdings.
  Under the Black Creek Credit Agreement, Black Creek will be required to make mandatory prepayments of principal on the term loan (i) in the event of certain dispositions of assets and insurance proceeds (as subject to certain exceptions), in an amount equal to 100% of the net proceeds received by Black Creek therefrom, and (ii) in an amount equal to 100% of the net proceeds to Black Creek from any issuance of Black Creek’s debt or equity securities.
  The Black Creek Credit Agreement contains certain covenants, including those limiting the guarantors’ and Black Creek’s ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends.  In addition, the Black Creek Credit Agreement requires Black Creek to maintain certain financial ratios.  Failure of Black Creek or the guarantor to comply with any of these covenants or financial ratios could result in the loans under the Black Creek Credit Agreement being accelerated.
  The Company was in compliance with covenants under both credit agreements as of March 31, 2011.
  The effective interest rates on the term loans at March 31, 2011, including the effect from interest rate swap contracts, were 6.35% (6.8% at March 31, 2010) on the Canadian term loan, 6.30% (5.44% at March 31, 2010) on the Canadian engine loan and 7.40% (7.15% at March 31, 2010) on the US term loan. The actual interest rates charged without the effect of interest rate swap contracts were 5.05% (3.94% at March 31, 2010) on the Canadian term loan, 6.30% (5.44% at March 31, 2010) on the Canadian engine loan, 4.06% (3.75% at March 31, 2010) on the US term loan and 5.06% on the Black Creek US term loan.
  F-21
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  13.
LONG-TERM DEBT (continued)
  March 31, 2011


March 31, 2010a
)
Canadian term loan bearing interest at Canadian Prime rate plus 2.75% (2.5% for 2010) or Canadian BA rate plus 3.75% (3.5% for 2010) at the Company’s option.  The loan is repayable over a five year term until April 1, 2013 with current quarterly payments of CDN $695 commencing September 1, 2008 until June 1, 2011 with no payment on September 1, 2010, and increasing to CDN $936 commencing September 1, 2011 and the balance due April 1, 2013.  The term loan is collateralized by the existing and newly acquired assets of Lower Lakes, Grand River and Lower Lakes Transportation.

$
56,466


$
36,262b
)
Canadian engine term loan bearing interest at Canadian Prime rate plus 4.0% (3.75% for 2010) or Canadian BA rate plus 5.0% (5.00% for 2010) at the Company’s option.  The loan is repayable over a five year term until April 1, 2013 with current quarterly payments of CDN $133 commencing September 1, 2008 until March 1, 2013 and the balance due April 1, 2013.  The term loan is collateralized by the existing and newly acquired assets of Lower Lakes, Grand River  and Lower Lakes Transportation.


6,738



6,957c
)
US term loan bearing interest at LIBOR rate plus 3.75% (3.5% for 2010) or US base rate plus 2.75% (2.5% for 2010) at the Company’s option. The loan is repayable over a five year term until April 1, 2013 with current quarterly payments of US $367 commencing September 1, 2008 until March 1, 2013 and the balance due April 1, 2013.  The term loan is collateralized by the existing and newly acquired assets of Lower Lakes, Grand River and Lower Lakes Transportation.


17,967



19,433d
)
US term loan bearing interest at LIBOR rate plus 4.75% or US base rate plus 3.75% at the Company’s option. The loan is repayable over a three year term until February 11, 2014 with quarterly payments of US $517 commencing September 1, 2011 until December 31, 2013 and the balance due February 11, 2014.  The term loan is collateralized by the existing and newly acquired assets of Black Creek.


31,000



-$
112,171


$
62,652Less amounts due within 12 months


7,178



4,728$
104,993


$
57,924
 
 Principal payments are due as follows:
 
 2012

$
7,1782013


7,9432014


97,050$
112,171
  F-22
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  14.
COMMITMENTS
 
 The Company does not have any leases which meet the criteria of a capital lease as of March 31, 2011. Leases which do not qualify as a capital lease are classified as operating leases. Operating lease rental and sublease rental payments included in general and administrative expenses are as follows:
 
 Year ended

March 31, 2011


Year ended

March 31, 2010Operating lease

$
292


$
237Operating sublease


145



144$
437


$
381
 
 The Company’s future minimum rental commitments under other operating leases are as follows.
 
 2012

$
2622013


2032014


1362015


832016


70Thereafter


202$
956
  The Company is party to a bareboat charter agreement for the McKee Sons barge which expires in 2018.  The chartering cost included in vessel operating expenses was $715 for the year ended March 31, 2011 and $702 for the year ended March 31, 2010. The lease was amended on February 22, 2008 to provide a lease payment deferment in return for leasehold improvements. Total charter commitments for the McKee Sons vessel for the term of the lease before inflation adjustment are set forth below.  The lease contains a clause whereby annual payments escalate at the Consumer Price Index, capped at a maximum annual increase of 3%.
 
 2012

$
7262013


7252014


7262015


7252016


726Thereafter


2,176$
5,804
  F-23
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  15.
CONTINGENCIES
 
 Rand is not involved in any legal proceedings which are expected to have a significant effect on its business, financial position, results of operations or liquidity, nor is the Company aware of any proceedings that are pending or threatened which may have a significant effect on the Company’s business, financial position, results of operations or liquidity.  From time to time, Lower Lakes may be subject to legal proceedings and claims in the ordinary course of business involving principally commercial charter party disputes.  It is expected that larger claims would be covered by insurance, subject to customary deductibles, if they involve liabilities that may arise from allision, other marine casualty, damage to cargoes, oil pollution, death or personal injuries to crew. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.  Most of these claims are for insignificant amounts.  Given management’s assessment that losses were probable and reasonably estimable, and based on advice from the Company’s outside counsel, an accrual of $1,062 as of March 31, 2011 and $944 as of March 31, 2010 was recorded for various claims.  Management does not anticipate material variations in actual losses from the amounts accrued related to these claims.
  On August 27, 2007, in connection with the COA and Option Agreement with Voyageur (see Note 22), Lower Lakes entered into a Guarantee (the “Guarantee”) with GE Canada pursuant to which Lower Lakes agreed to guarantee up to CDN $1,250 (the “Guaranteed Obligations”) of Voyageur’s  indebtedness to GE Canada.  Lower Lakes’ maximum future payments under the Guarantee were limited to the Guaranteed Obligations plus the costs and expenses GE Canada incurred while enforcing its rights under the Guarantee.  Lower Lakes’ obligations under the Guarantee would become due should Voyageur fail to meet certain financial covenants under the terms of its loan from GE Canada or if Voyageur breached certain of its obligations under the COA.  Lower Lakes had several options available to it in the event that GE Canada intended to draw under the Guarantee, including (i) the right to exercise its option for the Trader under the Option Agreement and (ii) the right to make a subordinated secured loan to Voyageur in an amount at least equal to the amount intended to be drawn by GE Canada on terms as were reasonably satisfactory to GE Canada and Voyageur.
  As of March 31, 2011, the Company has recorded a loss contingency of $1,280 on the Guarantee of Voyageur’s indebtedness with GE Canada, following the Maritime Trader’s placement in receivership as of March 31, 2011.  The Company believes that the fair value of the vessel, which requires drydocking and steel renewal investments, is less than the estimated value of GE Canada’s total claim by at least the amount of our Guarantee.
  16.
STOCKHOLDERS’ EQUITY
  On February 11, 2011, under the transactions contemplated by the Asset Purchase Agreement with the Sellers as discussed in Note 10, the Company issued 1,305,963 shares of the Company’s common stock to Buckeye. The shares were valued at the average of high and low price on that day, of $5.175.
 
 The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences that may be determined from time to time by the Board of Directors. The shares of series A convertible preferred stock: rank senior to the Company’s common stock with respect to liquidation and dividends; are entitled to receive a cash dividend at the annual rate of 7.75% (based on the $50 per share issue price) payable quarterly (subject to increases of 0.5% for each six month period in respect of which the dividend is not timely paid, up to a maximum of 12%, subject to reversion to 7.75% upon payment of all accrued and unpaid dividends); are convertible into shares of the Company’s common stock at any time at the option of the series A preferred stockholder at a conversion price of $6.20 per share (based on the $50 per share issue price and subject to adjustment) or 8.065 shares of common stock for each Series A Preferred Share (subject to adjustment); are convertible into shares of the Company’s common stock (based on a conversion price of $6.20 per share, subject to adjustment) at the option of the Company if, after the third anniversary of the acquisition, the trading price of the Company’s common stock for 20 trading days within any 30 trading day period equals or exceeds $8.50 per share (subject to adjustment); may be redeemed by the Company in connection with certain change of control or acquisition transactions; will vote on an as-converted basis with the Company’s common stock; and have a separate vote over certain material transactions or changes involving the Company. The accrued dividend payable at March 31, 2011 was $7,477 and at March 31, 2010 was $5,117. As of March 31, 2011, the effective rate of preferred dividends was 11.75% (10.75% as of March 31, 2010). The rate will increase 0.25% effective July 1, 2011 when it reaches 12% (maximum) until the accrued dividends are paid. The Company is limited in the payment of preferred dividends by the fixed charge coverage ratio covenant in the Amended and Restated Credit Agreement.
  F-24
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  16.
STOCKHOLDERS’ EQUITY (continued)
 
 On October 13, 2009, the Company awarded 39,660 shares at the average of high and low price on that day of $3.17 to a key executive in connection with an Employment Agreement. 20% of these shares vest on March 31st of each year, beginning March 31, 2010. The Company recorded expense of $26 for the fiscal year ended March 31, 2011 ($25 for the fiscal year ended March 31, 2010) related to such award. On February 24, 2010 the Company issued 76,691 shares to two key executives pursuant to Restricted Share Award Agreements. The shares were valued at the average of high and low price on that day of $4.34. The Company recorded expense of $111 for the fiscal year ended March 31, 2011 ($280 for the fiscal year ended March 31, 2010, including cash compensation related to tax withholding of such awards). The Restricted Shares vest over three years in equal installments on each of the anniversary dates in 2011, 2012 and 2013. On April 5, 2010 the Company issued an aggregate of 37,133 shares to four key executives pursuant to Restricted Share Award Agreements. The shares were valued at the average of high and low price on that day of $5.32. The Company recorded expense of $163 for the fiscal year ended March 31, 2011 related to such awards, including cash compensation related to tax withholding. The April 5, 2010 grants vest over three years in equal installments on each of the anniversary dates in 2011, 2012 and 2013.
 
 Since January 2007, share-based compensation has been granted to management and directors from time to time. The Company had no surviving, outstanding share-based compensation agreements with employees or directors prior to that date except as described above. The Company has reserved 2,500,000 shares for issuance under the Company’s 2007 Long Term Incentive Plan (the “LTIP”) to employees, officers, directors and consultants. At March 31, 2011, a total of 943,586 shares (1,012,313 shares at March 31, 2010) were available under the LTIP for future awards.
 
 For all share-based compensation, as employees and directors render service over the vesting periods, expense is recorded in general and administrative expenses. Generally this expense is for the straight-line amortization of the grant date fair market value adjusted for expected forfeitures. Other paid-in capital is correspondingly increased as the compensation is recorded. Grant date fair market value for all non-option share-based compensation is the average of the high and low trading prices on the date of grant.
 
 The general characteristics of issued types of share-based awards granted under the LTIP through March 31, 2011 are as follows:
 
 Stock Awards- All of the shares issued to non-employee outside directors vest immediately. The first award to non-employee outside directors in the amount of 12,909 shares was made on February 13, 2008 for services through March 31, 2008. During the fiscal year ended March 31, 2009, the Company awarded 15,948 shares for services from April 1, 2008 through December 31, 2008. The Company awarded 37,144 shares during the fiscal year ended March 31, 2010 for services from January 1, 2009 through March 31, 2010. During the fiscal year ended March 31, 2011 the Company awarded 14,007 shares for services from April 1, 2010 through March 31, 2011. Grant date fair market value for all these awards is the average of the high and low trading prices on the date of grant.
 
 On July 31, 2008, the Company’s Board of Directors authorized management to make payments effective as of that date to the participants in the management bonus program. Pursuant to the terms of the management bonus program, Rand issued 478,232 shares of common stock to such employee participants.
 
 Stock Options - Stock options granted to management employees vest over three years in equal annual installments. All options issued through March 31, 2011 expire ten years from the date of grant. Stock option grant date fair values are determined at the date of grant using a Black-Scholes option pricing model, a closed-form fair value model, based on market prices at the date of grant. At each grant date the Company has estimated a dividend yield of 0%. The weighted average risk free interest rate within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant, which was 4.14% for the fiscal 2009 (July 2008) grant. Expected volatility for the fiscal 2009 grants was based on the prior 26 week period, which reflected trading and volume after the Company made major announcements on acquisitions and capital investments. Expected volatility was 39.49% for the fiscal 2009 grant. Options outstanding (479,785) at March 31, 2011, had a remaining weighted average contractual life of approximately seven years. The Company has recorded compensation expenses of $479 and $522 for the years ended March 31, 2011 and 2010, respectively. All of the stock options granted in February 2008 (243,199) and two- thirds of the stock options granted in July 2008 (236,586), had vested as of March 31, 2011.
  F-25
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  16.
STOCKHOLDERS’ EQUITY (continued)
 
 Shares issued under Employees’ Retirement Savings Plans - The Company issued an aggregate of 204,336 shares to the individual retirement plans of all eligible Canadian employees under the LTIP from July 1, 2009 through March 31, 2011. The Canadian employees’ plans are managed by independent brokerages. These shares vested immediately but are subject to the Company’s Insider Trading Policy. The shares were issued using the fair value share price, as defined by the LTIP, as of the first trading day of each month for that previous period’s accrued expense. The Company granted $13 of equity for the year ended March 31, 2011 ($622 for the year ended March 31, 2010) of such accrued compensation expense.
 
 Shares issued in lieu of cash compensation - The Company experienced a decrease in customer demand at the beginning of the 2009 sailing season and in an effort to maximize the Company’s liquidity, the Compensation Committee of the Company’s Board of Directors requested that three of the Company’s executive officers and all of its outside directors receive common stock as compensation in lieu of cash until the Company had better visibility about its outlook. As of November 16, 2009, the Company issued 158,325 shares to such officers and all of its outside directors at the average of the high and low trading prices on the date of grant. The shares were issued under the LTIP and vested immediately. Beginning the third quarter of the fiscal year ended March 31, 2010, such executives and outside directors’ compensation reverted back to cash. On September 16, 2010, the Company issued 15,153 shares to a key executive for payment of the fiscal year 2010 bonus at the average of the high and low trading prices on the date of grant. The shares were issued under the LTIP and vested immediately.
 
 Information relating to grants, forfeitures, vesting, exercise, expense and tax effects is contained in the following tables.
 
 Stock Options:

March 31, 2011


March 31, 2011


March 31, 2010


March 31, 2010Number of Options


Weighted Average Exercise Price per Share


Number of Options


Weighted Average Exercise Price per ShareOutstanding – beginning of year


479,785


$
5.66



479,785


$
5.66Granted


-



-



-



-Exercised


-



-



-



-Forfeitures


-



-



-



-Expired


-



-



-



-Outstanding-end of year


479,785


$
5.66



479,785


$
5.66Other data(In thousands except weighted average fair value):









March 31, 2011


March 31, 2010Weighted average grant date fair value of options granted during year









$
-


$
-Compensation expense










479



522Unrecognized compensation cost at March 31










65



544Weighted average remaining life for unrecognized compensation









.25 years


0.8 years
  F-26
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  16.
STOCKHOLDERS’ EQUITY (continued)
 
 Restricted Stock:

March 31, 2011


March 31, 2011


March 31, 2010


March 31, 2010Number of Shares


Weighted Average Value at Grant Date


Number of Shares


Weighted Average Value at Grant DateUnvested beginning of the year


108,419


$
4.00



-


$
-Granted


37,133



5.32



76,691



4.34Granted










39,660



3.17Vested


(25,564
)


4.34



-



-Vested


(7,932
)


3.17



(7,932
)


3.17Cancelled










-



-Unvested - end of the year


112,056


$
4.42



108,419


$
4.00Other data (In thousands):









March 31, 2011


March 31, 2010Compensation expense









$
201


$
43Unrecognized compensation cost at March 31










419



417Weighted average remaining life for unrecognized compensation









2.5 years


3.1 years
  17.
OUTSIDE VOYAGE CHARTER FEES
 
 Outside voyage charter fees relate to the subcontracting of external vessels chartered to service the Company’s customers and supplement the existing shipments made by the Company’s operated vessels.
 
 18.
INTEREST EXPENSE
 
 Interest expense is comprised of the following:
  Year ended

March 31, 2011


Year ended

March 31, 2010Bank indebtedness

$
274


$
437Amortization of deferred finance costs


553



399Long-term debt – senior


3,594



2,734Interest rate swaps


1,481



1,963Subordinated note


12



-Deferred payment liability


24



-Interest capitalized


(201
)


-$
5,737


$
5,533
  F-27
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  19.
SEGMENT INFORMATION
 
 The Company has identified only one reportable segment under ASC 280 “Segment Reporting”.
 
 Information about geographic operations is as follows:
 
 Year ended

March 31, 2011


Year ended

March 31, 2010Revenue by countryCanada

$
73,177


$
70,502United States


44,801



37,716$
117,978


$
108,218
 
 Revenues from external customers are allocated based on the country of the legal entity of the Company in which the revenues were recognized.
 
 March 31, 2011


March 31, 2010Property and equipment by countryCanada

$
92,982


$
69,798United States


73,710



28,681$
166,692


$
98,479Intangible assets by countryCanada

$
10,709


$
11,039United States


4,597



2,961$
15,306


$
14,000Goodwill by countryCanada

$
8,284


$
8,284United States


1,909



1,909$
10,193


$
10,193Total assets by countryCanada

$
124,038


$
99,297United States


91,472



40,087$
215,510


$
139,384
  F-28
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  20.
FINANCIAL INSTRUMENTS
 
 Fair Value of Financial Instruments
 
 Financial instruments comprise cash and cash equivalents, accounts receivable, accounts payable, long-term debts, a subordinated note, deferred payment liabilities, accrued liabilities and bank indebtedness. The estimated fair values of cash and cash equivalent, accounts receivable, accounts payable and accrued liabilities approximate book values because of the short-term maturities of these instruments. The estimated fair value of senior debt approximates the carrying value as the debt bears interest at variable interest rates, which are based on rates for similar debt with similar credit rates in the open market. The subordinated note and deferred payment liabilities were valued based on interest rates of similar debt in the open market.
 
 Fair value guidance establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
 
 The following table provides the liabilities carried at fair value measured on a recurring basis as of March 31, 2011 and March 31, 2010:
  Fair Value Measurements at 
March 31, 2011

Fair Value Measurements at 
March 31, 2010Carrying value at

March 31, 2011
Quoted prices in

active markets

(Level 1)
Significant other

Observable

Inputs

(Level 2)
Carrying value at

March 31, 2010
Quoted prices in

active markets

(Level 1)
Significant other

Observable

Inputs

(Level 2)Interest rate swap contracts liability
$      1,895
$         -
$    1,895
$    2,298
$         -
$    2,298
  Interest rate swap contracts are measured at fair value using available rates on the similar instruments and are classified within Level 2 of the valuation hierarchy. These contracts are accounted for using the mark-to-market accounting method as if the contracts were terminated at the day of valuation. There were no transfers into or out of Levels 1 and 2 of the fair value hierarchy during the fiscal year ended March 31, 2011.
  The Company has recorded a liability of $1,895 as of March 31, 2011 ($2,298 as of March 31, 2010) for two interest rate swap contracts on the Company’s term debt. For the year ended March 31, 2011, the fair value adjustment of the interest rate swap contracts resulted in a gain of $465 (gain of $2,069 for the year ended March 31, 2010). These gains are included in the Company’s earnings, and the fair value of settlement cost to terminate the contracts is included in current liabilities on the consolidated balance sheets.
  Foreign Exchange Risk
 
 Foreign currency exchange risk to the Company results primarily from changes in exchange rates between the Company’s reporting currency, the U.S. Dollar and the Canadian dollar. The Company is exposed to fluctuations in foreign exchange as a significant portion of revenue and operating expenses are denominated in Canadian dollars.
  F-29
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  20.
FINANCIAL INSTRUMENTS (continued)
 
 Interest Rate Risk
 
 The Company is exposed to fluctuations in interest rates as a result of its banking facilities and senior debt bearing variable interest rates.
 
 The Company is exposed to interest rate risk due to its long-term debt agreement, which requires that at least 50% of the outstanding term debt is hedged with interest rate swaps. Effective February 15, 2008, the Company entered into a CDN $49,700 interest rate swap derivative to pay interest at a fixed rate of approximately 4.09% on its CDN $49,700 term debt and receive 3-month BA variable rate interest payments quarterly through April 1, 2013. The notional amount of the Canadian debt swap decreases with each scheduled principal payment, except that the hedged amount decreased an additional CDN $15,000 on December 1, 2009. Additionally, effective February 15, 2008, the Company entered into a US $22,000 interest rate swap derivative to pay interest at a fixed rate of approximately 3.65% on its US $22,000 term debt and receive 3-month LIBOR variable rate interest payments quarterly through April 1, 2013. The notional amount of the US debt swap decreases with each scheduled principal payment.
 
 The following table sets forth the fair values of derivative instruments:
 
 Derivatives not designated as hedging instrument:
Balance Sheet location
Fair Value as at

March 31, 2011
Fair Value as at 
March 31, 2010Interest rate swap contracts liability
Current liability
$      1,895
$       2,298
 
 The Company has not designated these contracts for hedge accounting treatment and therefore changes in fair value of these contracts are recorded in earnings as follows:
 
 Derivatives not designated as hedging instrument:
Location of gain -Recognized in

Earnings
Year ended

March 31, 2011
Year ended

March 31, 2010Interest rate swap contracts liability
Other (income) and expenses
$   (465)
$   (2,069)
 
 Credit Risk
 
 Accounts receivable credit risk is mitigated by the dispersion of the Company’s customers among industries and the short shipping season.
 
 Liquidity Risk
 
 The ongoing tightened credit in financial markets and continued general economic downturn may adversely affect the ability of the Company’s customers and suppliers to obtain financing for significant operations and purchases and to perform their obligations under agreements with the Company. The tightening of credit could (i) result in a decrease in, or cancellation of, existing business, (ii) limit new business, (iii) negatively impact the Company’s ability to collect accounts receivable on a timely basis, and (iv) affect the eligible receivables that are collateral for the Company’s lines of credit.The Company makes seasonal net borrowings under its revolving credit facility during the first quarter of each fiscal year to fund working capital needed to commence the sailing season. Such borrowings are then paid down during the second half of each fiscal year.
  F-30
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  21.
EARNINGS PER SHARE
 
 The Company had a total of 14,779,339 common shares issued and outstanding as of March 31, 2011, out of an authorized total of 50,000,000 shares. The fully diluted calculation utilizes a total of 16,052,316 shares for the year ended March 31, 2011 and 15,491,006 shares for the year ended March 31, 2010 based on the calculations set forth below. Since the calculation is anti-dilutive, the basic and fully diluted weighted average shares outstanding are 13,632,961 and 13,071,651 for 2011 and 2010. The convertible preferred shares convert to an aggregate of 2,419,355 common shares based on a conversion price of $6.20.
 
 Year ended

March 31, 2011


Year ended

March 31, 2010Numerator:Net income before preferred dividends

$
115


$
2,743Preferred stock dividends


(2,360
)


(1,936
)Net (loss) income applicable to common stockholders

$
(2,245
)

$
807Denominator:Weighted average common shares for basic EPS


13,632,961



13,071,651Effect of dilutive securities:Average price during period


5.29



3.45Long term incentive stock option plan


479,785



479,785Average exercise price of stock options


5.66



5.66Shares that could be acquired with the proceeds of options


--



--Dilutive shares due to options


--



--Weighted average convertible preferred shares at $6.20


2,419,355



2,419,355Weighted average common shares for diluted EPS


13,632,961



13,071,651Basic EPS

$
(0.16
)

$
0.06Diluted EPS

$
(0.16
)

$
0.06
  F-31
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  22.
VARIABLE INTEREST ENTITIES
 
 In the normal course of business, the Company interacts with various entities that may be variable interest entities (“VIEs”).
  On August 27, 2007, Lower Lakes entered into and consummated the transactions under a Memorandum of Agreement with Voyageur Marine Transport Limited (“Voyageur”) and Voyageur Pioneer Marine Inc. pursuant to which Lower Lakes purchased the VOYAGEUR INDEPENDENT and the VOYAGEUR PIONEER (the “Voyageur Vessels”).
  Certain customer contracts were also assigned to the Company under a Contract of Assignment.
  Also on August 27, 2007, Lower Lakes entered into a Contract of Affreightment  (“COA”) with Voyageur and Voyageur Maritime Trading Inc. (“VMT”) pursuant to which Voyageur and VMT made a Canadian flagged vessel owned by VMT, the MARITIME TRADER (the “Trader”), available exclusively to Lower Lakes for its use in providing transportation and storage services for its customers.
  In connection with the COA, on August 27, 2007, Lower Lakes entered into an Option Agreement (the “Option Agreement”) with VMT pursuant to which Lower Lakes obtained the option to acquire the Trader for CDN $5,000, subject to certain adjustments. The option was exercisable between January 1, 2012 and December 31, 2017, subject to certain early exercise provisions. If, at any time prior to expiration of the option, VMT received a bona fide offer from a third party to purchase the Trader which VMT wished to accept, Lower Lakes had the right to acquire the Trader at the option price.
  On August 27, 2007, Lower Lakes entered into a Guarantee (the “Guarantee”) with GE Canada, pursuant to which Lower Lakes agreed to guarantee up to CDN $1,250 (the “Guaranteed Obligations”) of Voyageur’s  indebtedness to GE Canada. Under the Guarantee, Lower Lakes had several options available to it in the event that GE Canada intended to draw under the Guarantee, including (i) the right to exercise its option for the Trader under the Option Agreement and (ii) the right to make a subordinated secured loan to Voyageur in an amount at least equal to the amount intended to be drawn by GE Canada on terms as are reasonably satisfactory to GE Canada and Voyageur.
  The Company believes that Voyageur ceased to be a VIE of the Company when GE Canada seized the Trader pursuant to Ontario law and placed the subsidiary that owns the Trader under liquidation in the Federal Court of Canada effective March 14, 2011 due to Voyageur’s failure to pay its principal and interest to GE Canada in February 2011. The Company has provided for the contingent loss of CDN $1,250 of the Guaranteed Obligations in the consolidated statements of operations for the fiscal year ended March 31, 2011.
  The Company was never the primary beneficiary of Voyageur, and did not receive any material margin for the shipments made on the Trader, since the relationship was an industry standard charter relationship.
  The Company provided no loan support or liquidity to Voyageur during the fiscal year ended March 31, 2011.
  The Company continues to evaluate new investments for the application of consolidation and regularly reviews all existing entities in connection with any reconsideration events that may result in an entity becoming a VIE or the Company becoming the primary beneficiary of an existing VIE. There has been no change in previous conclusions about whether a VIE should be consolidated.
  F-32
 Table of Contents
  RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements
 (U.S. Dollars 000’s except for Shares and Per Share data)
  23.
RELATED PARTY TRANSACTIONS
 
 The Company presently occupies office space provided by the affiliates of our Chief Executive Officer and our President. Such related parties have agreed that they will make such office space, as well as certain office and secretarial services, available to the Company as may be required by the Company from time to time. The Company agreed to pay such affiliates $12 per month such that total lease expense for the year paid to such affiliates was $145 in the fiscal year ended March 31, 2011 and $144 in the fiscal year ended March 31, 2010. The Company reimbursed such affiliates for certain out of pocket costs of $255 in 2011 for office expenses and a lease deposit in connection with a new lease effective January 1, 2011 compared to $15 in 2010. The consolidated statements of operations for the fiscal years ended March 31, 2011 and 2010 include $250 and $159 respectively, related to this agreement.
 
 24.
ECONOMIC DEPENDENCE
 
 The Company had two customers in excess of 10% of revenue in 2011 and 2010. Customers in excess of 10% of revenues accounted for a total of 26% of net revenue in each of the fiscal years ended March 31, 2011 and March 31, 2010.
 
 25.
ACCUMULATED OTHER COMPREHENSIVE INCOME
 
 ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive income (loss), which is defined as the change in equity arising from non-owner sources. Comprehensive income (loss) is reflected in the Consolidated Statement of Stockholder’s equity and Other Comprehensive Income (Loss). The components of, and changes in, comprehensive income (loss) and accumulated other comprehensive income (loss) consist of translation adjustments arising from the translation of the parent Company accounts in the Canadian subsidiary from Canadian dollar functional currency to U.S. dollar reporting currency. Included in comprehensive income (loss) and accumulated other comprehensive income are the effects of foreign currency translation adjustments income of $1,499 in the fiscal year ended March 31, 2011 ($6,670 in fiscal year ended March 31, 2010).
 
 26.
SUBSEQUENT EVENTS
  Due to Voyageur’s failure to meet its obligations under its financing arrangements with GE Canada, on May 17, 2011, General Electric Capital Corporation delivered a notice to Lower Lakes that effective as of May 6, 2011, GE Canada had drawn the full amount available under the letter of credit issued in connection with the Guarantee, with the CDN $1,250 added to Lower Lakes’ revolving borrowings under the Amended and Restated Credit Agreement.
 
 On June 28, 2011, Lower Lakes Transportation, Lower Lakes Towing and Grand River and the other Credit Parties thereto entered into a Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with General Electric Capital Corporation, as agent and a lender, and certain other lenders, which further amended the Amended and Restated Credit Agreement.
 
 The Fourth Amendment provides for an increase of the Canadian dollar denominated term loan in the aggregate amount of CDN $4,000 to finance a possible future vessel acquisition and adds a customary anti-cash hoarding provision as a condition to further advances under the Amended and Restated Credit Agreement.  The Fourth Amendment modified the Canadian revolving credit facility, the Canadian term loan and the Canadian swing line facility to bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as such term is amended by the Fourth Amendment), plus 3.50% per annum or (ii) the BA Rate (as such term is amended by the Fourth Amendment) plus 4.50% per annum.  The Fourth Amendment also modified the US revolving credit facility, the US term loan and the US swing line facility to bear an interest rate per annum, at the borrowers’ option, equal to, (i) LIBOR (as defined in the Amended and Restated Credit Agreement) plus 4.50% per annum, or (ii) the US Base Rate (as defined in the Amended and Restated Credit Agreement), plus 3.50% per annum.  The Fourth Amendment extended the maturity of the commitments under the Amended and Restated Credit Agreement from April 1, 2013 until April 1, 2015.  The parties further agreed to amend and restate the Amended and Restated Credit Agreement by July 29, 2011.
 
 The Fourth Amendment additionally modified the Minimum Fixed Charge Coverage Ratio and Maximum Capital Expenditures covenants and added a new fiscal year-end Liquidity covenant.
 F-33