UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q





RQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended June 30, 2012or£TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period from                    to





Commission File Number: 001-33345


___________________





RAND LOGISTICS, INC.


(Exact name of registrant as specified in its charter)





DelawareNo. 20-1195343(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)500 Fifth Avenue, 50thFloorNew York, NY10110(Address of principal executive offices)(Zip Code)





Registrant’s telephone number, including area code:


(212) 644-3450





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý 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 (or for such shorter period that the registrant was required to submit and post such files). Yes ý No 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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large accelerated filer£Accelerated filerRNon-accelerated filer£Smaller reporting company£





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R





17,724,306 shares of Common Stock, par value $.0001, were outstanding at August 6, 2012.




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RAND LOGISTICS, INC.





INDEX





PART I. FINANCIAL INFORMATION1Item 1. Financial Statements.1Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.32Item 3. Quantitative and Qualitative Disclosures About Market Risk.48Item 4. Controls and Procedures.48PART II. OTHER INFORMATION48Item 1. Legal Proceedings.48Item 1A. Risk Factors.48Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.48Item 3. Defaults Upon Senior Securities.48Item 4. Mine Safety Disclosures.49Item 5. Other Information.49Item 6. Exhibits.50
















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PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements.
 
 RAND LOGISTICS, INC.
 Consolidated Balance Sheets (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


June 30, 2012March 31, 2012ASSETSCURRENTCash and cash equivalents$4,157$5,563Accounts receivable, net (Note 4)25,5515,343Prepaid expenses and other current assets (Notes 5 and 8)7,4496,510Deferred income taxes (Note 6)286284Total current assets37,44317,700PROPERTY AND EQUIPMENT, NET (Note 7)204,271200,862LOAN TO EMPLOYEE250250OTHER ASSETS (Note 8)1,3601,528DEFERRED INCOME TAXES (Note 6)7601,318DEFERRED DRYDOCK COSTS, NET (Note 9)11,3099,879INTANGIBLE ASSETS, NET (Note 10)15,22916,101GOODWILL (Note 10)10,19310,193Total assets$280,815$257,831LIABILITIESCURRENTBank indebtedness (Note 12)$23,804$—Accounts payable20,34019,301Accrued liabilities (Note 13)17,81118,175Interest rate swap contracts (Note 21)8091,088Income taxes payable3276Deferred income taxes (Note 6)237418Current portion of deferred payment liability (Note 11)431431Current portion of long-term debt  (Note 14)9,5999,686Total current liabilities73,06349,175LONG-TERM PORTION OF DEFERRED PAYMENT LIABILITY (Note 11)1,9582,063LONG-TERM DEBT  (Note 14)119,972123,915OTHER LIABILITIES242242DEFERRED INCOME TAXES (Note 6)4,5433,091Total liabilities199,778178,486COMMITMENTS AND CONTINGENCIES (Notes 15 and 16)STOCKHOLDERS' EQUITYPreferred stock, $.0001 par value, Authorized 1,000,000 shares, Issued and outstanding 300,000 shares (Note 17)14,90014,900Common stock, $.0001 par value Authorized 50,000,000 shares, Issuable and outstanding 17,724,306 shares (Note 17)11Additional paid-in capital88,26987,853Accumulated deficit(23,012)(25,349)Accumulated other comprehensive income8791,940Total stockholders’ equity81,03779,345Total liabilities and stockholders’ equity$280,815$257,831





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


1


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RAND LOGISTICS, INC.
 Consolidated Statements of Operations (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





Three months ended June 30, 2012Three months ended June 30, 2011REVENUEFreight and related revenue$36,327$30,694Fuel and other surcharges12,47511,332Outside voyage charter revenue810310TOTAL REVENUE49,61242,336EXPENSESOutside voyage charter fees (Note 18)822307Vessel operating expenses33,15728,576Repairs and maintenance387826General and administrative2,9702,976Depreciation3,4882,791Amortization of drydock costs879739Amortization of intangibles326337Loss (gain) on foreign exchange4(31)42,03336,521OPERATING INCOME7,5795,815OTHER (INCOME) AND EXPENSESInterest expense (Note 19)2,7042,001Interest income(4)(1)Gain on interest rate swap contracts (Note 21)(270)(45)2,4301,955INCOME BEFORE INCOME TAXES5,1493,860PROVISION FOR INCOME TAXES (Note 6)Current—57Deferred2,0544742,054531NET INCOME BEFORE PREFERRED STOCK DIVIDENDS3,0953,329PREFERRED STOCK DIVIDENDS758660NET INCOME  APPLICABLE TO COMMON STOCKHOLDERS$2,337$2,669Net income per share basic and diluted (Note 22)$0.13$0.18Weighted average shares basic and diluted17,720,07114,858,952





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








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RAND LOGISTICS, INC.
 Statements of Stockholders' Equity and Other Comprehensive Income (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





Common StockPreferred StockAdditional Paid-InCapitalAccumulatedDeficitAccumulated Other ComprehensiveIncomeComprehensiveIncomeTotal Stockholders'EquitySharesAmountSharesAmountBalances, March 31, 201114,779,339$1300,000$14,900$71,503$(30,666)$2,591$1,614$58,329Net income—————8,123—8,1238,123Preferred stock dividends—————(2,806)—(2,806)Restricted stock issued (Note 17)86,217———685———685Unrestricted stock issued (Note 17)10,722———75———75Stock options issued (Note 17)————65———65Stock issued (Note 17)2,800,000———15,525———15,525Translation adjustment——————(651)(651)(651)Balances, March 31, 201217,676,278$1300,000$14,900$87,853$(25,349)$1,940$7,472$79,345Net income—————3,095—3,0953,095Preferred stock dividends—————(758)——(758)Restricted stock issued (Note 17)45,754——397———397Unrestricted stock issued (Note 17)2,274———19———19Translation adjustment——————(1,061)(1,061)(1,061)Balances, June 30, 201217,724,306$1300,000$14,900$88,269$(23,012)$879$2,034$81,037





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





3


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RAND LOGISTICS, INC.
 Consolidated Statements of Cash Flows (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





Three months ended June 30, 2012Three months ended June 30, 2011CASH FLOWS FROM OPERATING ACTIVITIESNet income$3,095$3,329Adjustments to reconcile net income to net cash providedby operating activities:Depreciation and amortization of drydock costs4,3673,530Amortization of intangibles and deferred financing costs654512Deferred income taxes2,054474Gain on interest rate swap contracts(270)(45)Equity compensation416769Deferred drydock costs paid(3,601)(1,264)Changes in operating assets and liabilities:Accounts receivable(20,208)(18,009)Prepaid expenses and other current assets(939)(1,120)Accounts payable and accrued liabilities6,7703,938Other assets and liabilities168(330)Income taxes payable (net)(44)39(7,538)(8,177)CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment(14,666)(10,265)(14,666)(10,265)CASH FLOWS FROM FINANCING ACTIVITIESDeferred payment liability obligation(105)(89)Long-term debt repayment(2,787)(1,225)Debt financing cost(78)(2,003)Proceeds from bank indebtedness24,01522,02721,04518,710EFFECT OF FOREIGN EXCHANGE RATES ON CASH(247)(14)NET  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(1,406)254CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD5,5634,508CASH AND CASH EQUIVALENTS, END OF  PERIOD$4,157$4,762SUPPLEMENTAL CASH FLOW DISCLOSUREPayments for interest$2,346$2,164Unpaid purchases of property and equipment$2,964$3,752Unpaid purchases of deferred drydock cost$200$21Payment of income taxes$44$7Capitalized interest$—$172





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


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





1. DESCRIPTION OF BUSINESS





Rand Logistics, Inc. (the “Company”), a Delaware corporation,  is a leading provider of bulk freight shipping services throughout  the Great Lakes region. The Company believes that it is the only company providing significant domestic port-to-port services to both Canada and the United States in the Great Lakes region. The Company 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 in Canada, respectively.











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|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 Corp. ("Rand LL Holdings") and Black Creek Holding Company, Inc. ("Black Creek Holdings"), wholly-owned subsidiaries of the Company, the accounts of Lower Lakes Towing Ltd. ("Lower Lakes"), Lower Lakes Transportation Company ("Lower Lakes Transportation") and Grand River Navigation Company, Inc. ("Grand River"), each of which is a wholly-owned subsidiary of Rand LL Holdings, and Black Creek Shipping Company, Inc. ("Black Creek"), which is a wholly-owned 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. In the opinion of management, the interim financial statements contain all adjustments necessary (consisting of normal recurring accruals) to present fairly the financial information contained herein. Operating results for the interim period presented are not necessarily indicative of the results to be expected for a full year, in part due to the seasonal nature of the business. The comparative balance sheet amounts are derived from audited consolidated financial statements for the year ended and as at March 31, 2012. The statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements that were included in the Company's Annual Report on Form 10-K for the year ended March 31, 2012.





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 has historically had no significant bad debts. Interest is not accrued on outstanding receivables.





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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


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|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 therefore 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. Intangible Assets are amortized as follows:





Trademarks and trade names10 years straight-lineCustomer relationships and contracts15 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.





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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


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|2. | SIGNIFICANT ACCOUNTING POLICIES (continued)




Property and equipment





Property and equipment are recorded at cost.  Depreciation methods for capital assets are as follows:





Vessels5 - 25 years straight-lineLeasehold improvements7 - 11 years straight-lineVehicles20% declining-balanceFurniture and equipment20% declining-balanceComputer equipment45% declining-balanceCommunication equipment20% declining-balance





Impairment of fixed assets





Fixed assets (e.g. property and equipment) and finite-lived intangible assets (e.g. customer lists) are tested for impairment upon the occurrence of a triggering event that indicates the carrying value of such an asset or asset groups e.g. tugs and barges, might be 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(s), 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(s) for continued use or to hold the asset(s) for sale. If the intent is to hold the asset for continued use, the recoverability test involves a comparison of undiscounted cash flows excluding interest expense, against the carrying value of the asset(s) as an initial test. If the carrying value of such asset(s) exceeds the undiscounted cash flow, the asset(s) 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(s). The Company generally determines fair value by using the discounted cash flow method. If the intent is to hold the asset(s) for sale and certain other criteria are met (i.e. the asset(s) 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 three month period ended June 30, 2012.





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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


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|2. | SIGNIFICANT ACCOUNTING POLICIES (continued)




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” and  Accounting Standards Update (“ASU”)2011-08 Intangibles—Goodwill and Other (Topic 350) -Testing Goodwill for Impairment, which was adopted March 31, 2012, requires that goodwill and certain intangible assets be assessed annually for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a three-step process. The first step of the goodwill impairment test is to perform a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, then entities are required to perform the two-step goodwill impairment test. The second 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 third 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, 2012, the Company conducted the qualitative assessment and determined that the fair value of its two reporting units exceeded their carrying amounts and the remaining two-step impairment testing was therefore not necessary.  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 three month period ended June 30, 2012.





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 useful life of the upgrade or asset repaired, or the remaining lease term.





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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


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|2. | SIGNIFICANT ACCOUNTING POLICIES (continued)




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. taxing authorities. The Canadian subsidiary was examined by the Canadian taxing authority for the tax years 2009 and 2010 and such examination is now complete.  This audit did not result in any material adjustments for such periods.  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:





JurisdictionOpen Tax YearsFederal (USA)2009 – 2012Various states2009 – 2012Federal (Canada)2008 – 2012Ontario2008 – 2012





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 month.  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.





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 used 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.





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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


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|2. | SIGNIFICANT ACCOUNTING POLICIES (continued)







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 such 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 21.





Fair value of financial instruments





ASC 820 “ Fair Value Measurements and Disclosures ” ("ASC 820") 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 21.





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|3. | RECENTLY ISSUED PRONOUNCEMENTS







Presentation of comprehensive income





In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued ASU No. 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05" ("ASU 2011-12"), to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. The Company adopted this guidance as of April 1, 2012 and such adoption had no impact on the Company's consolidated financial statements.





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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


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|3. | RECENTLY ISSUED PRONOUNCEMENTS (continued)







Disclosures about offsetting assets and liabilities


In December 2011, the FASB issued ASU No. 2011-11, "Disclosures about offsetting assets and liabilities" ("ASU 2011-11").  ASU 2011-11 requires entities to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on an entity's financial position. The amendments require enhanced disclosure by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with current literature or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The disclosures required by ASU 2011-11 will be applied retrospectively for all comparative periods presented.  The Company is currently reviewing the effects of ASU 2011-11.


Intangibles -Goodwill and Other (Topic 350)





In July 2012, the FASB issued ASU No. 2012-02 "Intangibles -Goodwill and Other (Topic 350)" ("ASU 2012-02").  The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company is currently reviewing the effects of ASU 2012-02.








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|4. | ACCOUNTS RECEIVABLE




Trade receivables are presented net of an allowance for doubtful accounts. The allowance was $Nil as of June 30, 2012 and March 31, 2012 .  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.





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|5. | PREPAIDEXPENSES AND OTHER CURRENT ASSETS




Prepaid expenses and other current assets are comprised of the following:





June 30, 2012March 31, 2012Prepaid insurance$903$289Fuel and lubricants4,7674,512Deposits and other prepaids1,7791,709$7,449$6,510


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





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|-- | ------------
|6. | INCOME TAXES




The Company's effective tax rate was an expense of 39.9% for the three month period ended June 30, 2012 compared to a tax expense of 13.8% for the three months ended June 30, 2011. The tax rate for the three months ended June 30, 2011 was lower due to the tax benefit associated with the reduction of the valuation allowance related to the net U.S. Federal deferred tax assets, including net operating losses.  The valuation allowance was reversed as of March 31, 2012, accordingly for the three month period ended June 30, 2012 this reduction was not available.





The effective tax rate for the three month period ended June 30, 2012 was higher than the statutory tax rate due to unfavorable permanent book to tax differences, partially offset by foreign earnings being subject to a lower statutory tax rate.





The Company had no unrecognized tax benefits as of June 30, 2012. The Company did not incur any income tax related interest expense or penalties related to uncertain tax positions during each of the three month periods ended June 30, 2012 and June 30, 2011.








12


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


|   |                       
|-- | ----------------------
|7. | PROPERTY AND EQUIPMENT




Property and equipment are comprised of the following:





June 30, 2012March 31, 2012CostVessels$245,328$238,830Leasehold improvements3,7793,847Furniture and equipment329335Vehicles2221Computer, communication equipment and purchased software2,8342,878$252,292$245,911Accumulated depreciationVessels$45,279$42,426Leasehold improvements1,0871,034Furniture and equipment168162Vehicles1212Computer, communication equipment  and purchased software1,4751,41548,02145,049$204,271$200,862





Depreciable assets as of June 30, 2012 included $26,537 ($ 21,927 as of March 31, 2012) related to an acquired vessel, for which depreciation will commence when the vessel is ready for use.





|   |             
|-- | ------------
|8. | OTHER ASSETS




Other assets includes certain customer contract related expenditures, which are being amortized over a five year period.


June 30, 2012March 31, 2012Customer contract costs$1,266$1,504Prepaid expenses and other assets7,5436,534Total$8,809$8,038Current portion7,4496,510Other long term assets$1,360$1,528





13


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


|   |                       
|-- | ----------------------
|9. | DEFERRED DRYDOCK COSTS




Deferred drydock costs are comprised of the following:





June 30, 2012March 31, 2012Drydock expenditures$24,700$22,573Accumulated amortization13,39112,694$11,309$9,879





The following table shows periodic deferrals of drydock costs and amortization.





Balance as of March 31, 2011$6,523Drydock costs accrued6,535Amortization of drydock costs(3,048)Foreign currency translation adjustment(131)Balance as of March 31, 2012$9,879Drydock costs accrued2,480Amortization of drydock costs(879)Foreign currency translation adjustment(171)Balance as of June 30, 2012$11,309


14


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





|    |                               
|--- | ------------------------------
|10. | INTANGIBLE ASSETS AND GOODWILL




Intangibles are comprised of the following:





June 30, 2012March 31, 2012Intangible assets:Deferred financing costs$6,253$6,336Trademarks and trade names1,0081,023Customer relationships and contracts17,90018,165Total identifiable intangibles$25,161$25,524Accumulated amortization:Deferred financing costs$2,780$2,487Trademarks and trade names638622Customer relationships and contracts6,5146,314Total accumulated amortization9,9329,423Net intangible assets$15,229$16,101Goodwill$10,193$10,193





Intangible asset amortization over the next five years is estimated as follows:





Twelve month period ending:


June 30, 2013$2,599June 30, 20142,561June 30, 20152,196June 30, 20161,261June 30, 20171,193$9,810





|    |                    
|--- | -------------------
|11. | 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 articulated 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”), as described below; and (iv) 1,305,963 shares of the Company’s common stock (the “Shares”).





The estimated fair values of assets acquired were as follows:





Current assets$94Property and equipment45,000Other identifiable intangible assets1,836$46,930








15


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


|    |                                
|--- | -------------------------------
|11. | 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’ and their 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, bore interest at a rate of 6% per annum, and all principal and interest thereon was due and paid 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 (i) to make the Deferred Payments and (ii) under the Note.





The acquisition of the Vessels was financed in part by the Black Creek credit agreement described in Note 14 and the issuance of shares of the Company’s common stock described in Note 17.





On July 21, 2011, Lower Lakes completed the acquisition of the MARITIME TRADER, a Canadian-flagged dry bulk carrier, pursuant to the terms of an asset purchase agreement, dated as of July 8, 2011, by and between the Company and Marcon International Inc., in its capacity as court-appointed seller of the vessel.  Pursuant to the terms of such asset purchase agreement, Lower Lakes’ acquisition of such vessel was subject only to the final approval of the Federal Court of Canada, which approval was granted on July 15, 2011.  Lower Lakes purchased such vessel for an aggregate purchase price of CDN $2,667 with borrowings under the Canadian term loan.





On October 14, 2011, Lower Lakes completed the acquisition of the bulk carrier M/V TECUMSEH (the "Tecumseh"), pursuant to the terms of an Asset Purchase Agreement, dated as of September 21, 2011, by and among Lower Lakes, Grand River and U.S. United Ocean Service, LLC ("USUOS"). Lower Lakes purchased the Tecumseh for $5,250, plus the value of the remaining bunkers and unused lubricating oils on board the Tecumseh at the closing of the acquisition. The acquisition was funded by the proceeds from the equity offering described in Note 17.





On December 1, 2011, Grand River entered into, and consummated the transactions contemplated by, an Asset Purchase Agreement (the “Barge Agreement”) with U.S. Bank National Association, as Trustee of the GTC Connecticut Statutory Trust, pursuant to which Grand River acquired a self-unloading barge “MARY TURNER” (the “Barge”). The purchase price for the Barge, together with the related stores and equipment, was $11,954 plus the value of the remaining bunkers and unused lubricating oils onboard the Barge at the closing of the acquisition.





Also on December 1, 2011, Grand River completed the acquisition of a tug “BEVERLY ANDERSON” (the “Tug”), pursuant to the terms of an Asset Purchase Agreement, dated as of September 21, 2011 (the “Tug Agreement”), by and between Grand River and USUOS. Grand River purchased the Tug for $7,796 plus the value of the remaining bunkers and unused lubricating oils on board the Tug at the closing of the acquisition.





The acquisitions of the Barge and the Tug were funded with additional borrowings under the US term loan as described in Note 14.


16


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


|    |                  
|--- | -----------------
|12. | BANK INDEBTEDNESS




As discussed in detail in Note 14, Lower Lakes, Lower Lakes Transportation and Grand River, as borrowers, and Rand LL Holdings, Rand Finance and the Company, as guarantors, entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) with their lenders on September 28, 2011, and on December 1, 2011, entered into a First Amendment (the “Amendment”) to the Second Amended and Restated Credit Agreement.  As of June 30, 2012 and March 31, 2012 , the Company had authorized operating lines of credit under the Second Amended and Restated Credit Agreement, as amended, and the Amended and Restated Credit Agreement (as such term is defined in Note 14), respectively, in the amounts of CDN $13,500 and US $13,500 , and was utilizing CDN $11,000 as of June 30, 2012 and $Nil as of March 31, 2012 and US $13,000 as of June 30, 2012 and $Nil as of March 31, 2012 , and maintained letters of credit of CDN $1,425 as of June 30, 2012 and CDN $500 as of March 31, 2012 . The Second Amended and Restated Credit Agreement provides that the line of credit bears interest at Canadian Prime Rate plus 3.5% or Canadian 30 day BA rate plus 4.5% on Canadian Dollar borrowings, and the U.S. Base rate plus 3.5% or LIBOR plus 4.5% on U.S. Dollar borrowings, and is secured under the same terms and has the same financial covenants described in Note 14. Such interest rate margins had previously increased by 0.75% on June 28, 2011 under the Fourth Amendment (as such term is defined in Note 14). 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. As of June 30, 2012, the Company had fully used its credit availability on the combined lines of credit and seasonal overadvance facility.





|    |                    
|--- | -------------------
|13. | ACCRUED LIABILITIES




Accrued liabilities are comprised of the following:





June 30, 2012March 31, 2012Deferred financing and other transaction costs$28$105Payroll compensation and benefits2,1891,015Preferred stock dividends11,04110,283Professional fees478650Interest783926Winter work, deferred drydock expenditures and capital expenditures3011,859Capital and franchise taxes259252Other2,7323,085$17,811$18,175





17


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





|    |               
|--- | --------------
|14. | LONG-TERM DEBT




June 30, 2012March 31, 2012a)Canadian term loan bearing interest at Canadian Prime rate plus 3.5% (3.5% at March 31, 2012) or Canadian BA rate plus 4.5% (4.5% at March 31, 2012) at the Company’s option.  The loan is repayable until April 1, 2015 with current quarterly payments of CDN $936 and the balance due April 1, 2015.  The term loan is collateralized by the existing and newly acquired assets of Lower Lakes, Grand River and Lower Lakes Transportation.$53,347$55,386b)Canadian engine term loan bearing interest at Canadian Prime rate plus 4.0% (4.0% at March 31, 2012) or Canadian BA rate plus 5.0% (5.0% at March 31, 2012) at the Company’s option.  The loan is repayable until April 1, 2015 with current quarterly payments of CDN $133 until March 1, 2015 and the balance due April 1, 2015.  The term loan is collateralized by the existing and newly acquired assets of Lower Lakes, Grand River  and Lower Lakes Transportation.5,7626,015c)US term loan bearing interest at LIBOR rate plus 4.5% (4.5% at March 31, 2012) or US base rate plus 3.5% (3.5% at March 31, 2012) at the Company’s option. The loan is repayable until April 1, 2015 with current quarterly payments of US $704 commencing June 1, 2012, and the balance due April 1, 2015.  The term loan is collateralized by the existing and newly acquired assets of Lower Lakes, Grand River and Lower Lakes Transportation.41,52942,233d)US term loan bearing interest at LIBOR rate plus 4.75% (4.75% at March 31, 2012) or US base rate plus 3.75% (3.75% at March 31, 2012) at the Company’s option. The loan is repayable until February 11, 2014 with quarterly payments of US $517 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.28,93329,967$129,571$133,601Less amounts due within 12 months9,5999,686$119,972$123,915





The effective interest rates on the term loans at June 30, 2012 , including the effect from interest rate swap contracts, were 6.91% (6.91% at March 31, 2012 ) on the Canadian term loan, 6.31% (6.28% at March 31, 2012 ) on the Canadian engine loan and 6.21% (6.22% at March 31, 2012 ) on the US term loan. The actual interest rates charged without the effect of interest rate swap contracts were 5.81% (5.78% at March 31, 2012 ) on the Canadian term loan, 6.31% (6.28% at March 31, 2012 ) on the Canadian engine loan, 4.97% (4.98% at March 31, 2011 ) on the US term loan and 5.22% (5.31% at March 31, 2012 ) on the Black Creek US term loan.

















18


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


|    |                           
|--- | --------------------------
|14. | LONG-TERM DEBT (continued)




Principal payments are due as follows:





Twelve month period ending:


June 30, 2013$9,599June 30, 201433,366June 30, 201586,606$129,571

















On June 28, 2011, Lower Lakes Transportation, Lower Lakes and Grand River,  the other Credit Parties thereto,  General Electric Capital Corporation, as agent and a lender, and certain other lenders thereunder entered into a Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement dated as of February 13, 2008 (the "Amended and Restated Credit Agreement").





The Fourth Amendment provided for an increase of the Canadian dollar denominated term loan in the aggregate amount of CDN $4,000 to finance the acquisition of the Maritime Trader and added 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 was amended by the Fourth Amendment), plus 3.50% per annum or (ii) the BA Rate (as such term was 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. Under the Fourth Amendment, the Canadian “Engine” term loan bore interest at a rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate plus 4.00% per annum or (ii) the BA Rate plus 5.00% 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.





On September 28, 2011, Lower Lakes, Lower Lakes Transportation and Grand River, as borrowers, Rand LL Holdings, Rand Finance and the Company, as guarantors, entered into the Second Amended and Restated Credit Agreement with General Electric Capital Corporation, as agent and a lender, and certain other lenders, which amended and restated the Amended and Restated Credit Agreement, as amended, in its entirety.





The Second Amended and Restated Credit Agreement continues the tranches of loans provided under the Amended and Restated Credit Agreement, and provides working capital financing, funds for other general corporate purposes and funds for other permitted purposes.  The Second Amended and Restated Credit Agreement provides for (i) a revolving credit facility under which Lower Lakes may borrow up to CDN $13,500 with a seasonal overadvance facility of CDN $10,000 , less the principal amount outstanding under the seasonal overadvance facility for Lower Lakes Transportation 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 seasonal over advance facility of US $10,000 , less the principal amount outstanding under the seasonal overadvance facility for Lower Lakes and a swing line facility of US $4,000 , subject to limitations, (iii) a Canadian dollar denominated term loan facility under which Lower Lakes is obligated to the lenders in the amount of CDN $56,133 as of the date of the Second Amended and Restated Credit Agreement, (iv) the continuation of a US dollar denominated term loan facility under which Grand River is obligated to the lenders in the amount of US $17,233 as of the date of the Second Amended and Restated Credit Agreement, and (v) the continuation of a Canadian Dollar denominated “Engine” term loan facility under which Lower Lakes is obligated to the lenders in the amount of CDN $6,267 as of the date of the Second Amended and Restated Credit Agreement.








19


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





|    |                           
|--- | --------------------------
|14. | LONG-TERM DEBT (continued)




Under the Second Amended and Restated Credit Agreement, the revolving credit facilities and swing line loans expire on April 1, 2015. The outstanding principal amount of the Canadian term loan borrowings will be repayable as follows: (i) quarterly payments of CDN $936 commencing December 1, 2011 and ending March 1, 2015 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, 2015. The outstanding principal amount of the US term loan borrowings will be repayable as follows: (i) quarterly payments of US $367 commencing December 1, 2011 and ending on March 1, 2015 and (iii) a final payment in the outstanding principal amount of the US term loan shall be payable upon the US term loan facility’s maturity on April 1, 2015. The outstanding principal amount of the Canadian “Engine” term loan borrowings will be repayable as follows: (i) quarterly payments of CDN $133 commencing quarterly December 1, 2011 and ending March 1, 2015 and (iii) a final payment in the outstanding principal amount of the Engine term loan shall be payable upon the Engine term loan facility’s maturity on April 1, 2015.





Borrowings under the Canadian revolving credit facility, Canadian swing line facility and the Canadian term loan will bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as defined in the Second Amended and Restated Credit Agreement), plus 3.50% per annum or (ii) the BA Rate (as defined in the Second Amended and Restated Credit Agreement) plus 4.50% per annum.  Borrowings under the US revolving credit facility, US swing line facility and the US term loan will bear interest, at the borrowers’ option equal to (i) LIBOR (as defined in the Second amended and Restated Credit Agreement) plus 4.50% per annum, or (ii) the US Base Rate (as defined in the Second Amended and Restated Credit Agreement), plus 3.50% per annum.  Borrowings under the Canadian “Engine” term loan will bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as defined in the Second 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. Obligations under the Second 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 Second 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.





On December 1, 2011, Lower Lakes Lower, Lakes Transportation, Grand River, and General Electric Capital Corporation, Inc., as Agent, entered into an amendment to the Second Amended and Restated Credit Agreement (the "Amendment").  The Amendment increased (i) the US Term Loan by US $25,000 (ii) the quarterly payments due under the US Term Loan from US $367 to US $704 beginning with the quarterly payment due in June 2012 and (iii) the seasonal overadvance revolving credit facility to US $12,000 subject to certain limitations. Additionally, the Amendment eliminated the quarterly payments due under the US Term Loan in December 2011 and March 2012. The Amendment also modified the definitions of “Capital Expenditures”, “Cdn. Vessels”, “EBITDA”, “Fleet Mortgage”, “Requisite Lenders”, “Requisite Revolving Lenders” and “US Owned Vessels” and amended the Minimum EBITDA, Maximum Senior Debt to EBITDA Ratio, Maximum Capital Expenditures, Minimum Appraised Value to Term Loan Outstandings and Minimum Liquidity covenants.





The Second Amended and Restated Credit Agreement, as amended, 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 Second 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 Second Amended and Restated Credit Agreement being accelerated.





As of June 30, 2012, the Company was not in compliance with the fixed charge coverage ratio and capital expenditures covenants contained in the Second Amended and Restated Credit Agreement, as amended. As discussed in Note 23, on July 31, 2012, the Company executed a  Consent and Waiver Agreement with General Electric Capital Corporation, Inc., and its other lenders, in which its lenders waived such covenant breaches.   As of June 30, 2012, the Company was otherwise in compliance with the covenants set forth in the  Second Amended and Restated Credit Agreement, as amended.


20


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)








|    |                           
|--- | --------------------------
|14. | LONG-TERM DEBT (continued)




As a result of incurred and planned capital expenditures primarily relating to improvements to its acquired vessels, the Company anticipates being out of compliance with certain financial covenants contained in the Second Amended and Restated Credit Agreement, as amended, for one or more testing periods through June 30, 2013. The Company is in discussions with its lenders with regards to such covenant violations.


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 described in Note 11, 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 June 30, 2012 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 Holdings’ 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.





On December 1, 2011, The Black Creek Credit Agreement was amended to change the payment due on March 31, 2012 to April 2, 2012, and the payment due on June 30, 2012 to July 2, 2012.





The Black Creek Credit Agreement, as amended, contains certain covenants, including those limiting the guarantor’s 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 the Black Creek Credit Agreement, as amended, as of June 30, 2012 .








21


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





|    |            
|--- | -----------
|15. | COMMITMENTS




The Company did not have any leases which met the criteria of a capital lease as of June 30, 2012 . 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:





Three months ended June 30, 2012Three months ended June 30, 2011Operating leases$104$81Operating sublease3837$142$118





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





Twelve month period ending:


June 30, 2013$360June 30, 2014282June 30, 2015214June 30, 2016150June 30, 2017133Thereafter113$1,252





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 $249 for the three month period ended June 30, 2012 ( $242 for the three month period ended June 30, 2011 ). 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% .





Twelve month period ending:


June 30, 2013$747June 30, 2014747June 30, 2015747June 30, 2016747June 30, 2017747Thereafter1,245$4,980





As of June 30, 2012, Lower Lakes had signed contractual commitments with several suppliers totaling $3,789 ($7,143 as of March 31, 2012) in connection with capital expenditure and drydock projects.


22


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


|    |              
|--- | -------------
|16. | CONTINGENCIES




The Company 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.  The Company evaluates the need for loss accruals under the requirements of ASC 450 – Contingencies. The Company records an estimated loss for any claim, lawsuit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can reasonably be estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, then the Company records the minimum amount in the range as loss accrual. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. As of June 30, 2012 an accrual of $561 ( $638 as of March 31, 2012 ) was recorded for various claims.  Management does not anticipate material variations in actual losses from the amounts accrued related to these claims.








|    |                     
|--- | --------------------
|17. | STOCKHOLDERS’ EQUITY




On September 21, 2011, the Company completed a public underwritten offering of 2,800,000 shares of the Company’s common stock for $6.00 per share.  The Company’s proceeds from the offering, net of underwriter’s commissions and expenses, were $15,525 .





On February 11, 2011, in connection with the transactions contemplated by the Asset Purchase Agreement with the Sellers discussed in Note 11, the Company issued 1,305,963 shares of the Company’s common stock to Buckeye. Such 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 the Company’s 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 June 30, 2012 was $11,041 and at March 31, 2012 was $10,283 . As of June 30, 2012 , the effective rate of preferred dividends was 12% (maximum) and as of March 31, 2012 , the effective interest rate of preferred dividends was 12% . The Company is limited in the payment of preferred dividends by the fixed charge coverage ratio covenant in the Second Amended and Restated Credit Agreement.





23


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


|    |                                 
|--- | --------------------------------
|17. | STOCKHOLDERS’ EQUITY (continued)




On October 13, 2009, the Company awarded 39,660 shares at the average of high and low share price on that day of $3.17 to a key executive in connection with an Employment Agreement. 20% of such shares vest on March 31 st of each year, beginning March 31, 2010. The Company recorded expense of $6 for each of the three month periods ended June 30, 2012 and 2011 related to such award. On February 24, 2010 the Company issued 76,691 shares to two key executives pursuant to Restricted Share Award Agreements.  Such shares were valued at the average of high and low share price on that day of $4.34 . The Company recorded expense of $28 related to such awards for each of the three month periods ended June 30, 2012 and 2011 . Such 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. Such shares were valued at the average of high and low share price on that day of $5.32 . The Company recorded expense of $16 for the each of the three month periods ended June 30, 2012 and June 30, 2011 related to such awards. The April 5, 2010 grants vest over three years in equal installments on each of such awards' anniversary dates in 2011, 2012 and 2013. On April 8, 2011, the Company issued 86,217 shares to six key executives pursuant to Restricted Share Award Agreements. Such shares were valued at the average of high and low share price on that day of $7.94 . The Company recorded expense of $57 for the three month period ended June 30, 2012 and $507 for the three month period ended June 30, 2011 related to such awards, including cash compensation expense related to tax withholding. On April 11, 2012, the Company issued 45,754 shares to two key executives pursuant to Restricted Share Award Agreements. Such shares were valued at the average of high and low share price on that day of $8.68. The Company recorded expense of $109 for the three month period ended June 30, 2012 related to such awards, including cash compensation related to tax withholding. The April 11, 2012 grants vest over three years in equal installments on each of such awards' anniversary dates in 2013, 2014 and 2015.





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 June 30, 2012 , a total of 798,619 shares ( 846,647 shares at March 31, 2012 ) 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 June 30, 2012 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 provided from April 1, 2010 through March 31, 2011. During the twelve month period ended March 31, 2012 the Company awarded 10,722 shares for services from April 1, 2011 to March 31, 2012. During the three month period ended June 30, 2012, the Company awarded 2,274 shares for services provided from April 1, 2012 to June 30, 2012. Grant date fair market value for all these awards is the average of the high and low trading prices of the Company’s common stock 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.





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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


|    |                                 
|--- | --------------------------------
|17. | STOCKHOLDERS’ EQUITY (continued)




Stock Options - Stock options granted to management employees vest over three years in equal annual installments. All options issued through June 30, 2012 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 June 30, 2012 , had a remaining weighted average contractual life of approximately five years and nine months.  The Company recorded compensation expenses of $Nil and $65 for the three month periods ended June 30, 2012 and June 30, 2011 , respectively. All of the stock options granted in February 2008 ( 243,199 ) and July 2008 ( 236,586 ), had vested as of June 30, 2012 .





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 June 30, 2012 .  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 $Nil of equity of such accrued compensation expense for each of the three month periods ended June 30, 2012 and June 30, 2011 .





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 Company’s common stock 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 of the Company’s common stock on the date of grant. The shares were issued under the LTIP and vested immediately.




















|    |                           
|--- | --------------------------
|18. | OUTSIDEVOYAGE 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.


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





|    |                 
|--- | ----------------
|19. | INTEREST EXPENSE




Interest expense is comprised of the following:





Three months ended June 30, 2012Three months ended June 30, 2011Bank indebtedness$251$196Amortization of deferred financing costs328175Long-term debt – senior1,7961,392Interest rate swaps284333Subordinated note—23Deferred payment liability4554Interest capitalized—(172)$2,704$2,001


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





|    |                    
|--- | -------------------
|20. | SEGMENT INFORMATION




The Company has identified only one reportable segment under ASC 280 “ Segment Reporting ”.





Information about geographic operations is as follows:





Three months ended June 30, 2012Three months ended June 30, 2011Revenue by country:Canada$31,773$22,303United States17,83920,033$49,612$42,336





Revenues from external customers are allocated based on the country of the legal entity of the Company in which the revenues were recognized.


June 30, 2012March 31, 2012Property and equipment by country:Canada$100,838$103,640United States103,43397,222$204,271$200,862Intangible assets by country:Canada$10,304$10,954United States4,9255,147$15,229$16,101Goodwill by country:Canada$8,284$8,284United States1,9091,909$10,193$10,193Total assets by country:Canada$150,205$143,954United States130,610113,877$280,815$257,831


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





|    |                      
|--- | ---------------------
|21. | FINANCIAL INSTRUMENTS




Fair value of financial instruments





Financial instruments are comprised of cash and cash equivalents, accounts receivable, accounts payable, long-term debts, a subordinated note, a deferred payment liability, accrued liabilities and bank indebtedness.  The estimated fair values of cash and cash equivalents, 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 the interest rate 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.  A financial asset's 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 June 30, 2012 and March 31, 2012 :





Fair value measurements at June 30, 2012Fair value measurements atMarch 31, 2012Carryingvalue atJune 30, 2012Quotedprices inactive markets(Level 1)Significant otherobservableinputs(Level 2)Carryingvalue atMarch 31,2012Quotedprices inactive markets(Level 1)Significant otherobservableinputs(Level 2)Interest rate swap contracts liability$809$—$809$1,088$—$1,088





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 three month period ended June 30, 2012 .





The Company has recorded a liability of $809 as of June 30, 2012 ( $1,088 as of March 31, 2012 ) for two interest rate swap contracts on the Company’s term debt. For the three month period ended June 30, 2012 , the fair value adjustment of the interest rate swap contracts resulted in a gain of $270 (gain of $45 for the three month period ended June 30, 2011 ). 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.


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)


|    |                                  
|--- | ---------------------------------
|21. | 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. 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 locationFair Value as atJune 30, 2012Fair Value as atMarch 31, 2012Interest rate swap contracts liabilityCurrent liability$809$1,088





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 notdesignated as hedging instrument:Location of gain-Recognized inearningsThree months ended June 30, 2012Three months ended June 30, 2011Interest rate swapcontracts liabilityOther (income) and expenses$(270)$(45)





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.


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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)





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|--- | ------------------
|22. | EARNINGS PER SHARE




The Company had a total of 17,724,306 shares of common stock issued and outstanding as of June 30, 2012 , out of an authorized total of 50,000,000 shares. The fully diluted calculation utilizes a total of 17,720,071 shares for the three month period ended June 30, 2012 and 14,858,952 shares for the three month period ended June 30, 2011 based on the calculations set forth below.  Since the calculation is anti-dilutive, the basic and fully diluted weighted average shares outstanding are 17,720,071 and 14,858,952 for 2012 and 2011. The convertible preferred shares convert to an aggregate of 2,419,355 common shares based on a conversion price of $6.20 .





Three months ended June 30, 2012Three months ended June 30, 2011Numerator:Net income before preferred dividends$3,095$3,329Preferred stock dividends(758)(660)Net income applicable to common stockholders$2,337$2,669Denominator:Weighted average common shares for basic EPS17,720,07114,858,952Effect of dilutive securities:Average price during period8.337.37Long term incentive stock option plan479,785479,785Average exercise price of stock options5.665.66Shares that could be acquired with the proceeds of options325,969368,369Dilutive shares due to options153,816111,416Weighted average convertible preferred shares at $6.202,419,3552,419,355Weighted average common shares for diluted EPS17,720,07114,858,952Basic EPS$0.13$0.18Diluted EPS$0.13$0.18





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RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)








|    |                 
|--- | ----------------
|23. | SUBSEQUENT EVENT




On July 31, 2012, Lower Lakes, Lower Lakes Transportation, Grand River and other credit parties under the Second Amended and Restated Credit Agreement, as amended, entered into a Consent and Waiver Agreement ("the Consent and Waiver Agreement") with General Electric Capital Corporation and the Company's other lenders.  The Consent and Waiver Agreement waived breaches of the fixed charge coverage ratio and capital expenditures covenants contained in the Second Amended and Restated Credit Agreement, as amended, as of June 30, 2012, and increased the Company's eligible borrowings against the receivables of one of its customers.








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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations.




All dollar amounts are presented in millions except share, per share and per day amounts.


The following Management's Discussion and Analysis of Financial Condition and Results of Operations (“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 Quarterly Report on Form 10-Q for the three month period ended June 30, 2012.








Cautionary Note Regarding Forward-Looking Statements





This quarterly report on Form 10-Q 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 “Risk Factors” on our Form 10-K filed with the Securities and Exchange Commission on June 8, 2012 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. ("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 at the time of acquisition, 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 added ten vessels to our fleet through acquisition transactions  and we retired two smaller vessels. During 2011 alone, we acquired three articulated tug and barge units and two bulk carriers.  In this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to Rand, we, us and the Company 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 our additional operating subsidiary, Black Creek Shipping Company, Inc. ("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


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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 sixteen cargo-carrying vessels.  We have grown to become one of the largest bulk shipping companies operating on the Great Lakes and the leading service provider in the River Class market segment, which we define as vessels less than 650 feet in overall length. We transport limestone, coal, iron ore, salt, grain and other dry bulk commodities for customers in the construction, electric utility, integrated steel and food industries.


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 in Canada.


Lower Lakes' fleet consists of five self-unloading bulk carriers and four conventional bulk carriers in Canada and seven active self-unloading bulk carriers in the U.S., including one integrated tug and barge unit and three articulated tug and barge units. Lower Lakes Towing owns the nine Canadian vessels. Lower Lakes Transportation time charters the seven U.S. vessels, including the four 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 articulated 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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Results of Operations for the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011


Selected Financial Information  (Unaudited) (USD in 000’s)Three months ended June 30, 2012Three months ended June 30, 2011$ Change% ChangeRevenue:Freight and related revenue$36,327$30,694$5,63318.4%Fuel and other surcharges$12,475$11,332$1,14310.1%Outside voyage charter revenue$810$310$500161.3%Total$49,612$42,336$7,27617.2%Expenses:Outside voyage charter fees$822$307$515167.8%Vessel operating expenses$33,157$28,576$4,58116.0%Repairs and maintenance$387$826$(439)(53.1)%Sailing days:1,1741,06510910.2%Per day in whole USD:Revenue per sailing day:Freight and related revenue$30,943$28,821$2,1227.4%Fuel and other surcharges$10,626$10,640$(14)(0.1)%Expenses per sailing day:Vessel operating expenses$28,243$26,832$1,4115.3%Repairs and maintenance$330$776$(446)(57.5)%


The following table summarizes the changes in the components of our revenue and vessel operating expenses as a result of changes in Sailing Days, which we define as days a vessel is crewed and available for sailing, during the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011:


(USD in 000’s)Sailing DaysFreight and related revenueFuel and other surchargesOutside voyage charterTotal revenueVessel operating expensesThree month period ended June 30, 20111,065$30,694$11,332$310$42,336$28,576Changes in three month period ended June 30, 2012:Change attributable to weaker Canadian dollar(1,008)(316)(34)(1,358)(883)Net increase attributable to customer demand and pricing (excluding currency impact)1096,6411,4598,1005,464Changes in outside voyage charter revenue (excluding currency impact)534534Sub-total109$5,633$1,143$500$7,276$4,581Three month period ended June 30, 20121,174$36,327$12,475$810$49,612$33,157


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Total revenue during the three month period ended June 30, 2012 was $49.6 million , an increase of $7.3 million , or 17.2% , compared to $42.3 million during the three month period ended June 30, 2011 .  This increase was primarily attributable to higher freight revenue, fuel surcharges and a modest increase in outside charter hire, partially offset  by the weaker Canadian dollar.


During the three month period ended June 30, 2012,  U.S.-flagged vessels industry-wide experienced a 1.3% decrease in overall customer demand compared to the three month period ended June 30, 2011. Other than aggregates, for which U.S.-flagged shipments increased 13.6%, overall industry tonnage decreased for all of the major commodities during the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011.


Freight and other related revenue generated from Company-operated vessels increased $5.6 million , or 18.4% , to $36.3 million during the three month period ended June 30, 2012 compared to $30.7 million during the three month period ended June 30, 2011 . Excluding the impact of currency changes, freight revenue increased 21.6% during the three month period ended June 30, 2012 compared to the three month period ended June 30, 2011.  This increase was attributable to 109 additional Sailing Days, resulting in a 18.7% increase in tonnage hauled by our operated vessels, and contractual price increases.


Management believes that each of our vessels should achieve approximately 91 Sailing Days in an average first fiscal quarter, 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 78 Sailing Days during the three month period ended June 30, 2012 compared to an average of 82 Sailing Days during the three month period ended June 30, 2011.  We operated fifteen vessels during the three month period ended June 30, 2012, including the  bulker vessels acquired in the second  and third quarters of the fiscal year ended March 31, 2012, compared to thirteen vessels during the three month period ended June 30, 2011. During the three month period ended June 30, 2012, the Company did not sail one vessel it acquired during the third quarter of the fiscal year ended March 31, 2012 as that vessel was undergoing structural modifications and upgrading.


Freight and related revenue per Sailing Day increased $2,122 , or 7.4% , to $30,943 per Sailing Day in the three month period ended June 30, 2012 compared to $28,821 per Sailing Day during the three month period ended June 30, 2011 .  This increase was somewhat offset by slightly reduced backhauls and a weaker Canadian dollar.


All of our customer contracts have fuel surcharge provisions whereby increases and decreases in our fuel costs are passed on to our customers.  Such increases and decreases in fuel surcharges impact margin percentages, but do not significantly impact our margin dollars.  Fuel and other surcharges increased $1.1 million , or 10.1% , to $12.5 million during the three month period ended June 30, 2012 compared to $11.3 million during the three month period ended June 30, 2011 .  This increase was attributable to an increased number of Sailing Days and was offset by a weaker Canadian dollar.   Fuel and other surcharges per Sailing Day decreased negligibly by $14 to $10,626 per Sailing Day during the three month period ended June 30, 2012 compared to $10,640 per Sailing Day during the three month period ended June 30, 2011 .


Vessel operating expenses increased $4.6 million , or 16.0% , to $33.2 million during the three month period ended June 30, 2012 compared to $28.6 million during the three month period ended June 30, 2011 .  This increase was primarily attributable to higher fuel costs, an increased number of Sailing Days and two additional vessels acquired in the fiscal year ended March 31, 2012 that we sailed during the three month period ended June 30, 2012, and was partially offset by a weaker Canadian dollar.  Vessel operating expenses per Sailing Day increased $1,411 , or 5.3% , to $28,243 per Sailing Day during the three month period ended June 30, 2012 from $26,832 per Sailing Day during the three month period ended June 30, 2011 .


Repairs and maintenance expenses, which primarily consist of expensed winter work, decreased $0.4 million to $0.4 million during the three month period ended June 30, 2012 from $0.8 million during the three month period ended June 30, 2011 .  Repairs and maintenance per Sailing Day decreased $446 to $330 per Sailing Day during the three month period ended June 30, 2012 from $776 per Sailing Day during the three month period ended June 30, 2011 .   This decrease was primarily due to a reduced level of  winter work carried into the 2012 sailing season.


Our general and administrative expenses were $3.0 million during each of the three month periods ended June 30, 2012 and June 30, 2011 .   These costs were flat due to the weaker Canadian dollar, which offset increased compensation costs primarily related to higher engineering and IT headcount. Our general and administrative expenses represented 8.2%  of freight revenues during the three month period ended June 30, 2012 , a decrease from 9.7%  of freight revenues during the three month period ended June 30, 2011 .  During the three month period ended June 30, 2012 , $0.9 million of our general and administrative expenses was attributable to our parent company and $2.1 million was attributable to our operating companies.


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Depreciation expense increased $0.7 million to $3.5 million during the three month period ended June 30, 2012 compared to $2.8 million during the three month period ended June 30, 2011 .  The increase in depreciation expense was primarily attributable to two bulker vessels acquired in the fiscal year ended March 31, 2012 that we sailed during the three month period ended June 30, 2012, other winter 2012 capital expenditures and the repowering of one vessel that was completed in June 2011, offset by a weaker Canadian dollar in the three month period ended June 30, 2012.


Amortization of drydock costs increased $0.1 million to $0.9 million during the three month period ended June 30, 2012 from $0.7 million during the three month period ended June 30, 2011 due to an increased number of vessels drydocked in the 2012 winter season, offset by a weaker Canadian dollar in the three month period ended June 30, 2012.  During the three month period ended June 30, 2012 , the Company amortized the deferred drydock costs of twelve of its fifteen operated vessels, compared to nine vessels during the three month period ended June 30, 2011 .


As a result of the items described above, during the three month period ended June 30, 2012 , the Company’s operating income increased $1.8 million to $7.6 million compared to operating income of $5.8 million during the three month period ended June 30, 2011 . Operating income plus depreciation, amortization of drydock costs and amortization of intangibles increased 26.8%, or $2.6 million, to $12.3 million during the three month period ended June 30, 2012 from $9.7 million during the three month period ended June 30, 2011.


Interest expense increased $0.7 million to $2.7 million during the three month period ended June 30, 2012 from $2.0 million during the three month period ended June 30, 2011 .  This increase in interest expense was primarily attributable to higher average debt balances due to the CDN $4.0 million increase in the Canadian Term Loan  in July 2011, the $25.0 million increase in the US Term Loan on December 1, 2011, higher interest rate margins and higher amortization of deferred financing costs.


We recorded a gain on interest rate swap contracts of $0.3 million in the three month period ended June 30, 2012 compared to a minimal  gain during the three month period ended June 30, 2011 .  Such gains were due to the recording of the fair value of our two interest rate swaps at the end of each such period.


Our income before income taxes was $5.1 million  during the three month period ended June 30, 2012 compared to income before income taxes of $3.9 million during the three month period ended June 30, 2011 .


Our effective tax rate was 39.9% for the three month period ended June 30, 2012 compared to a tax expense of 13.8% for the three month period ended June 30, 2011. The tax rate for the three months ended June 30, 2011 was lower due to the tax benefit associated with the reduction of the valuation allowance related to the net U.S. Federal deferred tax assets, including net operating losses.  The valuation allowance was reversed as of March 31, 2012 and accordingly for the three month period ended June 30, 2012 this reduction was not available.





The effective tax rate for the current period was higher than the statutory tax rate due to income recognized for tax but not reported for earnings, partially offset by foreign earnings being subject to a lower statutory tax rate.


Our provision for income tax expense was $2.1 million for the three month period ended June 30, 2012 compared to a tax expense of $0.5 million for the three month period ended June 30, 2011. The increase in income tax expense and effective tax rate from the prior period was due to higher net income before tax and the absence of a tax benefit from a change in valuation allowance during the three month period ended June 30, 2012 as compared to the three month period ended June 30, 2011.





Our net income before preferred stock dividends was $3.1 million during the three month period ended June 30, 2012 compared to $3.3 million during the three month period ended June 30, 2011 .





We accrued $0.8 million for cash dividends on our preferred stock during the three month period ended June 30, 2012 compared to $0.7 million during the three month period ended June 30, 2011 .  The dividends accrued at a rate of 12.0% during the three month period ended June 30, 2012 compared to a rate of 11.75% during the three month period ended June 30, 2011.  The dividend rate increased to a cap of 12.0% effective July 1, 2011.


Our net income applicable to common stockholders was $2.3 million during the three month period ended June 30, 2012 compared to net income of $2.7 million during the three month period ended June 30, 2011 .


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During the three month period ended June 30, 2012 , the Company operated an average of approximately six vessels in the US and nine 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 vessels operated 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 50% of our interest expense is incurred in Canada, and approximately half of our gain on interest rate swap contracts was realized in Canada, consistent with our percentage of overall indebtedness by country.   All of our preferred stock dividends are accrued in the US.





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 three month periods ended June 30, 2012 and June 30, 2011 .  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 facilities 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.


Net cash used by operating activities for the three month period ended June 30, 2012 was $7.5 million , a decrease of $0.6 million used compared to $8.2 million used during the three month period ended June 30, 2011 . This decrease in net cash used was primarily due to higher cash earnings and reduced working capital investment, offset by higher deferred drydock costs in the three month period ended June 30, 2012.  The Company did not incur any significant bad-debt write-offs or material slowdowns in receivable collections during the three month period ended June 30, 2012 .


Net cash used in investing activities increased by $4.4 million to net cash used of $14.7 million during the three month period ended June 30, 2012 from net cash used of $10.3 million during the three month period ended June 30, 2011 . This  increase was due to higher capital spending, including upgrades to the vessels we acquired in the fiscal year ended March 31, 2012.


Net cash provided in financing activities increased $2.3 million to $21.0 million provided during the three month period ended June 30, 2012 compared to $18.7 million provided in the three month period ended June 30, 2011 .  During the three month period ended June 30, 2012 , the Company received proceeds of $24.0 million from its revolving credit facility and made principal payments on its term debt of $2.8 million ; whereas the Company received revolving credit facility proceeds of $22.0 million , made principal payments on its term debt of $1.2 million and paid debt financing costs of $2.0 million during the three month period ended June 30, 2011 .


During the three month period ended June 30, 2012 , long-term debt, including the current portion, decreased $4.0 million to $129.6 million from $133.6 million during the three month period ending June 30, 2012 .  Such reduction was comprised of a $2.8 million decrease due to principal payments and a $1.2 million decrease due to the weaker Canadian dollar.


On September 21, 2011, the Company completed a public underwritten offering of 2,800,000 shares of the Company's common stock for $6.00 per share. The Company's proceeds from the offering, net of underwriter's commissions and legal and accounting costs, were $15.5 million. The Company used the net proceeds from the offering to partially fund the acquisition of a bulk carrier on October 14, 2011 and an articulated tug and barge on December 1, 2011.


On September 28, 2011, Lower Lakes Towing, Lower Lakes Transportation and Grand River, as borrowers, Rand LL Holdings Corp. and Rand Finance Corp., each of which is a wholly-owned subsidiary of Rand, and Rand, as guarantors, entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) with General Electric Capital Corporation, as agent and a lender, and certain other lenders, which amended and restated the borrowers' prior credit agreement in its entirety.


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The Second Amended and Restated Credit Agreement continued the tranches of loans provided for under the prior credit agreement, and provides working capital financing, funds for other general corporate purposes and funds for other permitted purposes. The Second Amended and Restated Credit Agreement provides for (i) a revolving credit facility under which Lower Lakes Towing may borrow up to CDN $13.5 million with a seasonal overadvance facility of CDN $10.0 million, less the principal amount outstanding under the seasonal overadvance facility for Lower Lakes Transportation and a swing line facility of CDN $4.0 million, subject to limitations, (ii) a revolving credit facility under which Lower Lakes Transportation may borrow up to US $13.5 million with a seasonal over advance facility of US $10.0 million, less the principal amount outstanding under the seasonal overadvance facility for Lower Lakes Towing and a swing line facility of US $4.0 million, subject to limitations, (iii) a Canadian dollar denominated term loan facility under which Lower Lakes Towing is obligated to the lenders in the amount of CDN $56.1 million as of the date of the Second Amended and Restated Credit Agreement, (iv) the continuation of a US dollar denominated term loan facility under which Grand River is obligated to the lenders in the amount of US $17.2 million as of the date of the Second Amended and Restated Credit Agreement, and (v) the continuation of a Canadian Dollar denominated “Engine” term loan facility under which Lower Lakes Towing is obligated to the lenders in the amount of CDN $6.3 million as of the date of the Second Amended and Restated Credit Agreement.


Under the Second Amended and Restated Credit Agreement, the revolving credit facilities and swing line loans expire on April 1, 2015. The outstanding principal amount of the Canadian term loan borrowings will be repayable as follows: (i) quarterly payments of CDN $0.9 million commencing December 1, 2011 and ending March 1, 2015 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, 2015. The outstanding principal amount of the US term loan borrowings will be repayable as follows: (i) quarterly payments of US $0.4 million commencing December 1, 2011 and ending on March 1, 2015 and (iii) a final payment in the outstanding principal amount of the US term loan shall be payable upon the US term loan facility's maturity on April 1, 2015. The outstanding principal amount of the Canadian “Engine” term loan borrowings will be repayable as follows: (i) quarterly payments of CDN $0.1 million commencing quarterly December 1, 2011 and ending March 1, 2015 and (iii) a final payment in the outstanding principal amount of the Engine term loan shall be payable upon the Engine term loan facility's maturity on April 1, 2015.


Borrowings under the Canadian revolving credit facility, Canadian swing line facility and the Canadian term loan bear an interest rate per annum, at the borrowers' option, equal to (i) the Canadian Prime Rate (as defined in the Second Amended and Restated Credit Agreement), plus 3.50% per annum or (ii) the BA Rate (as defined in the Second Amended and Restated Credit Agreement) plus 4.50% per annum. Borrowings under the US revolving credit facility, US swing line facility and the US term loan bear interest, at the borrowers' option equal to (i) LIBOR (as defined in the Second Amended and Restated Credit Agreement) plus 4.50% per annum, or (ii) the US Base Rate (as defined in the Second Amended and Restated Credit Agreement), plus 3.50% 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 Second Amended and Restated Credit Agreement), plus 4.00% per annum or (ii) the BA Rate (as defined in the Second Amended and Restated Credit Agreement) plus 5.00% per annum.


Obligations under the Second 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 Rand of all of the outstanding capital stock of Rand LL Holdings and Rand Finance. The indebtedness of each borrower under the Second 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 Second Amended and Restated Credit Agreement, the borrowers are 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 therefrom, 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 Second 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 Second Amended and Restated Credit Agreement requires the borrowers to maintain certain financial ratios, including minimum EBITDA (as defined therein), minimum fixed charge ratios, maximum senior debt-to-EBITDA ratios, and maximum capital expenditures and drydock expenditures.


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On December 1, 2011, Lower Lakes, Lower Lakes Transportation, Grand River, the other credit parties signatory thereto, the lenders signatory thereto and General Electric Capital Corporation, Inc., as Agent, entered into a First Amendment (the “Amendment”) to the Second Amended and Restated Credit Agreement.


The Amendment increased (i) the US Term Loan (as such term is defined in the Credit Agreement) by US $25.0 million (ii) the quarterly payments due under the US Term Loan from US $0.4 million to US $0.7 million beginning with the quarterly payment due in June 2012 and (iii) the seasonal overadvance revolving credit facility to US $12.0 million, subject to certain limitations. Additionally, the Amendment eliminates the quarterly payments due under the US Term Loan in December 2011 and March 2012. The Amendment also modified the definitions of “Capital Expenditures”, “Cdn. Vessels”, “EBITDA”, “Fleet Mortgage”, “Requisite Lenders”, “Requisite Revolving Lenders” and “US Owned Vessels” and amended the Minimum EBITDA, Maximum Senior Debt to EBITDA Ratio, Maximum Capital Expenditures, Minimum Appraised Value to Term Loan Outstandings and Minimum Liquidity covenants.  The Second Amended and Restated Credit Agreement's covenants are set in Canadian dollars in order to better match the cash earnings and debt levels of the business by currency. Failure of the borrowers or the guarantors to comply with any of these covenants or financial ratios could result in the loans under the Second Amended and Restated Credit Agreement being accelerated.


As of June 30, 2012, the Company was not in compliance with the fixed charge coverage ratio and capital expenditures covenants contained in the Second Amended and Restated Credit Agreement, as amended. On July 31, 2012, the Company executed a  Consent and Waiver Agreement with General Electric Capital Corporation, Inc. and its other lenders in which it lenders waived such covenant breaches.  As of June 30, 2012, the Company was otherwise in compliance with the covenants set forth in the   Second Amended and Restated Credit Agreement, as amended.





As a result of incurred and planned capital expenditures primarily relating to improvements to its acquired vessels, the Company anticipates being out of compliance with certain financial covenants contained in the Second Amended and Restated Credit Agreement, as amended, for one or more testing periods through June 30, 2013. The Company is in discussions with its lenders with regards to such covenant violations.


On February 11, 2011, Black Creek, as borrower, and Black Creek Shipping Holding Company, Inc. (“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 $0.5 million 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.  The Company


39


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met such financial covenants during the three month period ended June 30, 2012.


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 June 30, 2012 was $ 11.0 million compared to $10.3 million at March 31, 2012.  As of June 30, 2012, the effective rate of preferred dividends was 12.0%.  As of June 30, 2011, the effective rate of preferred dividends was 11.75%.  The dividend rate increased to a cap of 12.0% effective July 1, 2011 until such time as the accrued dividends are paid in cash. The Company is limited in the payment of preferred stock dividends by the fixed charge coverage ratio covenant in the Company’s Second 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 $11.5 million in accrued capital expenditures and drydock expenses during the three month period ended June 30, 2012, including $7.5 million relating to carryover from the 2012 winter season, compared to $2.3 million, during the three month period ended June 30, 2011.


During the three month period ended June 30, 2012, the Company commenced upgrading the barge it acquired in December 2011.


Vessel Acquisitions


On July 21, 2011, Lower Lakes acquired a Canadian-flagged dry bulk carrier for CDN $2.7 million with borrowings under the Canadian term loan.


On September 21, 2011, Lower Lakes Towing and Grand River entered into an Asset Purchase Agreement with U.S. United Ocean Service, LLC (“USUOS”) pursuant to which Lower Lakes Towing agreed to purchase a bulk carrier from USUOS for a purchase price of $5.3 million plus the value of the remaining bunkers and unused lubricating oils onboard such bulk carrier at the closing of the acquisition. We completed the acquisition of such bulk carrier on October 14, 2011. We used a portion of the net proceeds from the equity offering described above under “Liquidity and Capital Resources” to fund deferred drydock costs and improvements to such bulk carrier.


Also on September 21, 2011, Grand River entered into an Asset Purchase Agreement (the “Tug Agreement”) with USUOS pursuant to which Grand River purchased a tug (the “Tug”) from USUOS for a purchase price of $7.8 million plus the value of the remaining bunkers and unused lubricating oils onboard the Tug at the closing of the acquisition. We completed the acquisition of the Tug on December 1, 2011.


Additionally, on September 21, 2011, Grand River entered into an Asset Purchase Agreement (the “Barge Agreement”) with USUOS pursuant to which USUOS granted Grand River the option to act as USUOS's third-party designee to purchase a self-unloading barge (the “Barge”) for a purchase price of $12.0 million plus the value of the remaining bunkers and unused


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lubricating oils onboard the Barge at the closing of the acquisition. In connection with the option described in the preceding sentence, on December 1, 2011, Grand River entered into, and consummated the transactions contemplated by, an Asset Purchase Agreement with U.S. Bank National Association, as Trustee of the GTC Connecticut Statutory Trust, pursuant to which Grand River acquired the Barge, together with the related stores and equipment, for a purchase price of US $12.0 million plus the value of the remaining bunkers and unused lubricating oils onboard the Barge at the closing of the acquisition.


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 June 30, 2012, our liability for financial instruments with exposure to foreign currency risk in Canada was approximately CDN $60.2 million of term borrowings and CDN $11.0 million of revolving borrowings.  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.


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, a large portion of our financial liabilities are denominated in Canadian dollars, exposing 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 Second 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.


As of June 30, 2012, we held two interest rate swap contracts for approximately 29% of our combined Lower Lakes and Black Creek term loans which expire on April 1, 2013 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 may 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


There are no off-balance sheet arrangements.


Contractual Commitments





As of June 30, 2012, Lower Lakes had signed contractual commitments with several suppliers totaling $3,789 ($7,143 as of March 31, 2012) in connection with capital expenditure and drydock projects.





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.


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


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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;

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|  |                              
|- | -----------------------------
|• | vessel insurance arrangement;

|  |                   
|- | ------------------
|• | vessel scheduling;

|  |                                                             
|- | ------------------------------------------------------------
|• | 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.

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Critical accounting policies


Rand’s significant accounting policies are presented in Note 2 to its  consolidated financial statements, and the following summaries should be read in conjunction with the financial statements and the related notes included in this quarterly report on Form 10-Q. 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.


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 therefore 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.


Intangible assets and goodwill





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


Trademarks and trade names         10 years straight-line


Customer relationships and contracts     15 years straight-line


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


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effective interest method.


Impairment of fixed assets





Fixed assets (e.g. property and equipment) and finite-lived intangible assets (e.g. customer lists) are tested for impairment upon the occurrence of a triggering event that indicates the carrying value of such an asset or asset groups (e.g. tugs and barges), might be 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(s), 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(s) for continued use or to hold the asset(s) for sale. If the intent is to hold the asset(s) for continued use, the recoverability test involves a comparison of undiscounted cash flows, excluding interest expense, against the carrying value of the asset(s) as an initial test. If the carrying value of such asset(s) exceeds the undiscounted cash flow, the asset(s) 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(s). The Company generally determines fair value by using the discounted cash flow method. If the intent is to hold the asset(s) for sale and certain other criteria are met (i.e., the asset(s) 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 three month period ended June 30, 2012.


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” and Accounting Standards Update (“ASU”) 2011-08 Intangibles—Goodwill and Other (Topic 350) -Testing Goodwill for Impairment, which was adopted March 31, 2012, require that goodwill and certain intangible assets be assessed annually for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a three-step process. The first step of the goodwill impairment test is to perform a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, then entities are required to perform the two-step goodwill impairment test. The second 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 third 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 June 30, 2012, the Company conducted the qualitative assessment described above and determined that the fair value of its two reporting units exceeded their carrying amounts and the remaining steps of the impairment testing were therefore  unnecessary. 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 three month period ended June 30, 2012.


Income taxes





The Company accounts for income taxes in accordance with ASC 740 “Income Taxes”, which requires the determination


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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 adopted accounting guidance surrounding the accounting for uncertainty in income taxes on January 1, 2007, which had no impact on the company's consolidated financial statements because management concluded that the tax benefits related to the Company's uncertain tax positions can be fully recognized. 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. taxing authorities. The Canadian subsidiary was examined by the Canadian taxing authority for the tax years 2009 and 2010 and such examination is now complete. This audit did not result in any material adjustments for such periods. 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:





JurisdictionOpen Tax YearsFederal (USA)2009 – 2012Various states2009 – 2012Federal (Canada)2008 – 2012Ontario2008 – 2012











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


Presentation of comprehensive income


In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued ASU No. 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05" ("ASU 2011-12"), to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. The Company adopted this guidance as of April 1, 2012 and such adoption had no impact on the Company's consolidated financial statements.





Disclosures about offsetting assets and liabilities


In December 2011, the FASB issued ASU No. 2011-11, "Disclosures about offsetting assets and liabilities" ("ASU 2011-11").  ASU 2011-11 requires entities to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on an entity's financial position. The amendments require enhanced disclosure by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with current literature or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The disclosures required by ASU 2011-11 will be applied retrospectively for all comparative periods presented.  The Company is currently reviewing the effects of ASU 2011-11.


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Intangibles -Goodwill and Other (Topic 350)





In July 2012, the FASB issued ASU No. 2012-02 "Intangibles -Goodwill and Other (Topic 350)" ("ASU 2012-02").  The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company is currently reviewing the effects of ASU 2012-02.


















































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|        |                                                            
|------- | -----------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk.




Pursuant to Item 305(c) of Regulation S-K, we are not required to provide an update on our Quantitative and Qualitative Disclosures About Market Risk until after we have filed our Annual Report on Form 10-K for our fiscal year ended March 31, 2013.





|        |                         
|------- | ------------------------
|Item 4. | 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 June 30, 2012.


No change occurred in our internal controls concerning financial reporting during the three month period ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.








PART II. OTHER INFORMATION








|        |                   
|------- | ------------------
|Item 1. | 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.








|         |              
|-------- | -------------
|Item 1A. | Risk Factors.




There has been no material change to our Risk Factors from those presented in our Form 10-K for the fiscal year ended March 31, 2012.








|        |                                                             
|------- | ------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.




None.








|        |                                 
|------- | --------------------------------
|Item 3. | Defaults Upon Senior Securities.




None.





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|        |                         
|------- | ------------------------
|Item 4. | Mine Safety Disclosures.




Not applicable.








|        |                   
|------- | ------------------
|Item 5. | Other Information.




None.





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|        |          
|------- | ---------
|Item 6. | Exhibits.




(a) Exhibits


31.1Chief Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2Chief Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*101.INSXBRL Instance Document*101.SCHXBRL Taxonomy Extension Schema Document*101.CALXBRL Taxonomy Extension Calculation Linkbase Document*101.DEFXBRL Taxonomy Extension Definition Linkbase Document*101.LABXBRL Taxonomy Extension Label Linkbase Document*101.PREXBRL Taxonomy Extension Presentation Linkbase Document* To be furnished by filing an amendment to this Form 10-Q within 30 days of the file date hereof, as permitted by Rule 405(a)(2)(ii) of Regulation S-T.





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SIGNATURES





Pursuant to the requirements 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.Date:August 6, 2012/s/ Laurence S. LevyLaurence S. LevyChairman of the Board and ChiefExecutive Officer (Principal Executive Officer)Date:August 6, 2012/s/ Joseph W. McHugh, Jr.Joseph W. McHugh, Jr.Chief Financial Officer (Principal Financial and Accounting Officer)








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Exhibit Index





31.1Chief Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2Chief Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*101.INSXBRL Instance Document*101.SCHXBRL Taxonomy Extension Schema Document*101.CALXBRL Taxonomy Extension Calculation Linkbase Document*101.DEFXBRL Taxonomy Extension Definition Linkbase Document*101.LABXBRL Taxonomy Extension Label Linkbase Document*101.PREXBRL Taxonomy Extension Presentation Linkbase Document* To be furnished by filing an amendment to this Form 10-Q within 30 days of the file date hereof, as permitted by Rule 405(a)(2)(ii) of Regulation S-T.








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