UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549
 
 Form 10-Q
 
 R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended September 30, 2010or£
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)
 
 Delaware
No. 20-1195343(State or other jurisdiction of
(I.R.S. Employerincorporation or organization)
Identification No.)461 Fifth Avenue, 25th FloorNew York, NY
10017(Address of principal executive offices)
(Zip Code)
 
 Registrant’s telephone number, including area code:
 (212) 644-3450
 
 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934during 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 xNo 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 oNo 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 filer £Non-accelerated filer £
Smaller reporting company R
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes £No R
 
 13,466,836 shares of Common Stock, par value $.0001, were outstanding at November 9, 2010.
  
  RANDLOGISTICS, INC.
  INDEX
  PART I. FINANCIAL INFORMATION
1Item 1. Financial Statements
1Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
31Item 3. Quantitative and Qualitative Disclosures About Market Risk.
47Item 4T. Controls and Procedures.
47PART II. OTHER INFORMATION
47Item 1. Legal Proceedings.
47Item 1A. Risk Factors
48Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
48Item 3. Defaults Upon Senior Securities.
48Item 4. Reserved
48Item 5. Other Information.
48Item 6. Exhibits.
48
  Index
  PARTI. 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)
  September 30,


March 31,2010


2010ASSETSCURRENTCash and cash equivalents

$
15,837


$
943Accounts receivable (Note 3)


18,199



3,922Prepaid expenses and other current assets (Note 4)


4,221



3,506Income taxes receivable


31



159Deferred income taxes


515



262Total current assets


38,803



8,792PROPERTY AND EQUIPMENT, NET (Note 6)


95,824



98,479DEPOSITS ON PURCHASE OF EQUIPMENT


46



-LOAN TO EMPLOYEE


250



250OTHER ASSETS


535



541DEFERRED INCOME TAXES


9,075



8,583DEFERRED DRYDOCK COSTS, NET (Note 7)


5,692



7,129INTANGIBLE ASSETS, NET (Note 8)


13,526



14,000GOODWILL (Note 8)


10,193



10,193Total assets

$
173,944


$
147,967LIABILITIESCURRENTBank indebtedness (Note 9)

$
-


$
-Accounts payable


6,368



7,864Accrued liabilities (Note 10)


13,057



11,085Interest rate swap contracts (Note 18)


2,666



2,298Income taxes payable


-



266Deferred income taxes


262



-Current portion of long-term debt  (Note 11)


4,920



4,728Total current liabilities


27,273



26,241LONG-TERM DEBT  (Note 11)


74,946



57,924OTHER LIABILITIES


238



238DEFERRED INCOME TAXES


11,823



12,086Total liabilities


114,280



96,489COMMITMENTS AND CONTINGENCIES (Notes 12 and 13)STOCKHOLDERS’ EQUITYPreferred stock, $.0001 par value,Authorized 1,000,000 shares, Issued and outstanding 300,000shares (Note 14)


14,900



14,900Common stock, $.0001 par valueAuthorized 50,000,000 shares, Issuable and outstanding13,466,836 shares (Note 14)


1



1Additional paid-in capital


64,489



63,906Accumulated deficit


(20,458
)


(28,421
)Accumulated other comprehensive income


732



1,092Total stockholders’ equity


59,664



51,478Total liabilities and stockholders’ equity

$
173,944


$
147,967
  The accompanying notes are an integral part of these consolidated financial statements.
  1
 Index
  RAND LOGISTICS, INC.
 Consolidated Statements of Operations (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  Three months

ended


Three months

ended


Six months

ended


Six months

endedSeptember 30,

2010


September 30,

2009


September 30,

2010


September 30,

2009REVENUEFreight and related revenue

$
30,306


$
28,136


$
58,712


$
52,281Fuel and other surcharges


6,321



5,467



12,685



8,776Outside voyage charter revenue


2,168



2,640



4,206



4,437TOTAL REVENUE


38,795



36,243



75,603



65,494EXPENSESOutside voyage charter fees (Note 15)


2,170



2,634



4,201



4,420Vessel operating expenses


26,097



19,608



49,724



37,494Repairs and maintenance


-



63



44



717General and administrative


2,313



1,796



4,664



4,193Depreciation


1,774



2,373



3,558



4,381Amortization of drydock costs


684



602



1,374



1,180Amortization of intangibles


288



429



579



838Loss (gain) on foreign exchange


19



(39
)


5



833,345



27,466



64,149



53,231OPERATING INCOME


5,450



8,777



11,454



12,263OTHER (INCOME) AND EXPENSESInterest expense (Note 16)


1,369



1,482



2,658



2,911Interest income


(7
)


(4
)


(23
)


(5
)Loss (gain) on interest rate swap contracts (Note 18)


78



(296
)


377



(1,569
)1,440



1,182



3,012



1,337INCOME  BEFORE INCOME TAXES


4,010



7,595



8,442



10,926PROVISION (RECOVERY) FOR INCOME TAXES (Note 5)Current


98



69



174



69Deferred


(1,724
)


1,629



(817
)


2,675(1,626
)


1,698



(643
)


2,744NET INCOME BEFORE PREFERRED STOCK DIVIDENDS


5,636



5,897



9,085



8,182PREFERRED STOCK DIVIDENDS


581



477



1,122



920NET INCOME  APPLICABLE TO COMMON STOCKHOLDERS

$
5,055


$
5,420


$
7,963


$
7,262Net income per share basic (Note 19)

$
0.38


$
0.42


$
0.59


$
0.56Net income per share diluted

$
0.36


$
0.38


$
0.57


$
0.53Weighted average shares basic


13,450,376



12,909,014



13,446,508



12,900,020Weighted average shares diluted


15,869,731



15,328,369



15,865,863



15,319,375
  The accompanying notes are an integral part of these consolidated financial statements.


2
 Index
  RAND LOGISTICS, INC.
 Consolidated Statements of Stockholders’ Equity and Other Comprehensive Income (Loss) (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  Common Stock


Preferred Stock


Additional

Paid-In


Accumulated


Accumulated

Other

Comprehensive

Income


Comprehensive

Income


Total

Stockholders’Shares


Amount


Shares


Amount


Capital


Deficit


(Loss)


(Loss)


EquityBalances, March 31, 2009


12,890,927


$
1



300,000


$
14,900



61,675


$
(29,228
)

$
(5,578
)

$
(13,830
)

$
41,770Net income


--



--



--



--



--



2,743



--



2,743



2,743Preferred stock dividends


--



--



--



--



--



(1,936
)


--



--



(1,936
)Stock issued in lieu of cash compensation


158,325



--



--



--



500



--



--



--



500Stock issued under employees retirement plan


201,902



--



----



--



622



--



--



--



622Restricted stock issued


116,351



--



--



--



459



--



--



--



459Unrestricted stock issued


37,144



--



--



--



128



--



--



-



128Stock options issued (Note 14)


--



--



--



--



522



--



--



--



522Translation adjustment


--



--



--



--



--



--



6,670



6,670



6,670Balances, March 31, 2010


13,404,649


$
1



300,000


$
14,900


$
63,906


$
(28,421
)

$
1,092


$
9,413


$
51,478Net income


--



--



--



--



--



3,449



--



3,449



3,449Preferred stock dividends


--



--



--



--



--



(541
)


--



--



(541
)Stock issued under employees retirement plan


2,434



--



--



--



13



--



--



--



13Restricted stock issued


37,133



--



--



--



197



--



--



--



197Unrestricted stock issued


3,648



--



--



--



19



--



--



--



19Stock options issued (Note 14)


--



--



--



--



130



--



--



--



130Translation adjustment


--



--



--



--



--



--



(1,408
)


(1,408
)


(1,408
)Balances, June 30, 2010


13,447,864


$
1



300,000


$
14,900


$
64,265


$
(25,513
)

$
(316
)

$
2,041


$
53,337Net income


--



--



--



--



--



5,636



--



5,636



5,636Preferred stock dividends


--



--



--



--



--



(581
)


--



--



(581
)Stock issued in lieu of cash compensation


15,153



--



--



--



74



--



--



--



74Unrestricted stock issued


3,819



--



--



--



19



--



--



--



19Stock options issued (Note 14)


--



--



--



--



131



--



--



--



131Translation adjustment


--



--



--



--







--



1,048



1,048



1,048Balances, September 30, 2010


13,466,836


$
1



300,000


$
14,900


$
64,489


$
(20,458
)

$
732


$
6,684


$
59,664
  The accompanying notes are an integral part of these consolidated financial statements.
  3
 Index
  RAND LOGISTICS, INC.
 Consolidated Statements of Cash Flows (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  Six months ended


Six months endedSeptember 30, 2010


September 30, 2009CASH FLOWS FROM OPERATING ACTIVITIESNet income

$
9,085


$
8,182Adjustments to reconcile net income to net cash providedby operating activitiesDepreciation and amortization of drydock costs


4,932



5,561Amortization of intangibles and deferred financing costs


815



1,033Deferred income taxes


(817
)


2,675Loss (gain) on interest rate swap contracts


377



(1,569
)Equity compensation


583



432Deferred drydock costs paid


(58
)


--Changes in operating assets and liabilities:Accounts receivable


(14,277
)


(16,220
)Prepaid expenses and other current assets


(715
)


(508
)Accounts payable and accrued liabilities


2,480



2,037Other assets and liabilities


6



--Income taxes payable (net)


(138
)


692,273



1,692CASH FLOWS FROM INVESTING ACTIVITIESPurchases of property and equipment


(4,873
)


(2,476
)Deposits on purchase of equipment


(46
)


--(4,919
)


(2,476
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from long-term debt


18,753



--Long-term debt repayment


(1,641
)


(2,219
)Debt financing costs


(469
)


--Proceeds from bank indebtedness


13,797



13,457Repayment of bank indebtedness


(13,501
)


(5,189
)16,939



6,049EFFECT OF FOREIGN EXCHANGE RATES ON CASH


601



(47
)NET INCREASE IN CASH AND CASH EQUIVALENTS


14,894



5,218CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


943



1,953CASH AND CASH EQUIVALENTS, END OF  PERIOD

$
15,837


$
7,171SUPPLEMENTAL CASH FLOW DISCLOSUREPayments for interest

$
2,498


$
2,670Payment of income taxes

$
276


$
35Unpaid purchases of property and equipment

$
140


$
77
 
 The accompanying notes are an integral part of these consolidated financial statements.
  4
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  1.
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”) and Rand LL Holdings Corp. (“Rand LL Holdings”), 100% subsidiaries of the Company, and 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 100% subsidiary of Rand LL Holdings Corp.
  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 as of March 31, 2010 are derived from the March 31, 2010 audited consolidated financial statements. 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 period ended March 31, 2010.
  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 accounting for the balance.  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 an allowance for doubtful accounts of $222 as of September 30, 2010 and $225 as of March 31, 2010.  The Company has historically had no significant bad debts. Interest is not accrued on outstanding receivables.
  5
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  1.
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 being provided to customers.  Consequently, revenues recognized for customers serviced by freight subcontractors are recognized on the same basis as described above.  Costs for subcontracted freight providers, presented as “outside voyage charter fees” on the consolidated statements of operations, are recognized as incurred and thereby are recognized ratably over the voyage.
  The Company accounts for sales taxes imposed on its services on a net basis in the consolidated statement of operations.
  In addition, all revenues are presented on a gross basis.
  Fuel and lubricant inventories
  Raw materials, fuel, and operating supplies are accounted for on a first-in, first-out cost method (based on monthly averages). Raw materials and fuel are stated at the lower of actual cost (first-in, first-out method) or market. Operating supplies are stated at actual cost or average cost.
  Intangible assets and goodwill
  Intangible assets consist primarily of goodwill, financing costs, trademarks, trade names and customer relationships and contracts. The intangibles are amortized as follows:
  Trademarks and trade names
10 years straight-lineCustomer 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 effective interest method.
  6
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
  Property and equipment
  Property and equipment are recorded at cost.  Depreciation methods for capital assets are as follows:
  Vessels
4 - 25 years straight-lineLeasehold improvements
7 - 11 years straight-lineVehicles
20% declining-balanceFurniture and equipment
20% declining-balanceComputer equipment
45% declining-balanceCommunication equipment
20% declining-balance
  Impairment of Fixed Assets and Intangible Assets with Finite Lives
  Unlike goodwill and indefinite-lived intangible assets, fixed assets (e.g. property, plant, and equipment) and finite-lived intangible assets (e.g., customer lists) are tested for impairment upon occurrence of a triggering event that indicates the carrying value is no longer recoverable. Examples of such triggering events include a significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related asset, a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business, and a significant change in the operations of an acquired business.
  Once a triggering event has occurred, the recoverability test employed is based on whether the intent is to hold the asset for continued use or to hold the asset for sale. If the intent is to hold the asset for continued use, the recoverability test involves a comparison of undiscounted cash flows against the carrying value of the asset as an initial test. If the carrying value of such asset exceeds the undiscounted cash flow, the asset would be deemed to be impaired. Impairment would then be measured as the difference between the fair value of the fixed or amortizing intangible asset and the carrying value of such asset. The Company generally determines fair value by using the discounted cash flow method. If the intent is to hold the asset for sale and certain other criteria are met (i.e., the asset can be disposed of currently, appropriate levels of authority have approved the sale and there is an actively pursuing buyer), the impairment test is a comparison of the asset’s carrying value to its fair value less costs to sell. To the extent that the carrying value is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference. The Company has determined that there were no adverse changes in our markets or other triggering events that could affect the valuation of our assets during the six month period ended September 30, 2010.
  7
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
  Impairment of goodwill and indefinite-lived intangible assets
  The Company annually reviews the carrying value of intangible assets not subject to amortization and   goodwill to determine whether impairment may exist. Accounting Standards Codification (“ASC”) 350 “Intangibles-Goodwill and Other” requires that goodwill and certain intangible assets be assessed annually for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of fair value of the Company’s two reporting units, which are the Company’s Canadian and US operations (excluding the parent), are determined using various valuation techniques with the primary techniques being a discounted cash flow analysis and peer analysis. A discounted cash flow analysis requires various judgmental assumptions, including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s forecast and long-term estimates. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.  As of March 31, 2010, the Company conducted an annual test and determined that the fair value of its two reporting units exceeded their carrying amounts and the second step of the impairment testing was therefore not necessary. There were no events or changes in circumstances during the six month period ended September 30, 2010 that indicated that their carrying amounts may not be recoverable.
 
 The impairment test for other intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of intangible assets not subject to amortization are determined using various discounted cash flow valuation methodologies. Significant assumptions are inherent in this process, including estimates of discount rates. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets. 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 six month period ended September 30, 2010.
  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, subcontractors and other direct expenses to complete the mandatory certification process.
  8
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
  Repairs and maintenance
  The Company’s vessels require repairs and maintenance each year to ensure the fleet is operating efficiently during the shipping season.  The majority of repairs and maintenance are completed in January, February and March of each year when the vessels are inactive.  The Company expenses such routine repairs and maintenance costs.  Significant repairs to the Company’s vessels, whether owned or available to the Company under a time charter, such as major engine overhauls and major hull steel repairs, are capitalized and amortized over the remaining life of the asset repaired, or remaining lease term, whether it is engine equipment, the vessel, or leasehold improvements to a vessel leased under a time charter agreement.
  Income taxes
  The Company accounts for income taxes in accordance with ASC 740 “Income Taxes”, which requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of tax assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.  A valuation allowance is recognized, if necessary, to measure tax benefits to the extent that, based on available evidence, it is more likely than not that they will be realized.
  The Company classifies interest expense related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense.  To date, the Company has not incurred material interest expenses or penalties relating to assessed taxation amounts.
  There have been no recent examinations by the U.S. or Canadian tax authorities. The Company's primary U.S. state income tax jurisdictions are Illinois, Indiana, Michigan, Minnesota, Ohio and New York and its only international jurisdiction is Canada. The following table summarizes the open tax years for each major jurisdiction.
  Jurisdiction
Open Tax YearsFederal (USA)
2006 – 2010Various states
2006 – 2010Federal (Canada)
2004 – 2010Ontario
2004 – 2010
  Foreign currency translation
  The Company uses the U.S. Dollar as its reporting currency.  The functional currency of Lower Lakes is the Canadian Dollar.  The functional currency of the Company’s U.S. subsidiaries is the U.S. Dollar. Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the rate of exchange at the balance sheet date, while revenue and expenses are translated at the weighted average rates prevailing during the respective periods.  Components of stockholders’ equity are translated at historical rates.  Exchange gains and losses resulting from translation are reflected in accumulated other comprehensive income or loss.
  9
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  1.
SIGNIFICANT ACCOUNTING POLICIES (continued)
  Advertising costs
  The Company expenses all advertising costs as incurred. These costs are included in general and administrative costs and were insignificant during the periods presented.
  Use of Estimates
  The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates included in the preparation of these financial statements include the assumptions used in determination of useful lives of long-lived assets, the assumptions used in determination of 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.
  Stock-based compensation
  The Company recognizes compensation expense for all newly granted awards and awards modified, repurchased or cancelled using the modified prospective method as per ASC 718 “Compensation-Stock Compensation”.
  Financial instruments
  The Company accounts for its two interest rate swap contracts on its term debt utilizing ASC 815 “Derivatives and Hedging”. All changes in the fair value of the swap contracts are recorded in earnings and the fair value of settlement cost to terminate the contracts is included in current liabilities on the Consolidated Balance Sheets. Disclosure requirements of ASC 815 are disclosed in Note 18.
  Fair value of financial instruments
  ASC 820 “Fair Value Measurements and Disclosures”, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and establishes a hierarchy that categorizes and prioritizes the inputs to be used to estimate fair value. The three levels of inputs used are as follows:
  Level 1 – Quoted prices in active markets for identical assets or liabilities.
 Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.
 Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
 The disclosure requirements of ASC 820 related to the Company’s assets and liabilities are presented in Note 18.
  10
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  2.
RECENTLY ISSUED PRONOUNCEMENTS
  Fair value measurements
 
 In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, "Improving Disclosures about Fair Value Measurements" (“ASU 2010-06”). This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The Company adopted the guidance in ASU 2010-06 on April 1, 2010, except for the requirements related to Level 3 disclosures, which will be effective for annual and interim reporting periods beginning after December 15, 2010.  This adoption expanded disclosures only, and did not have any impact on the Company’s consolidated financial statements.
  Consolidation of variable interest entities
 
 In December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU 2009-17”) amending the FASB Accounting Standards Codification. The amendments in ASU 2009-17 replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance and has either (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity.  An approach that is expected to be primarily qualitative will be more effective for identifying which enterprise has a controlling financial interest in a variable interest entity.  The amendments in ASU 2009-17 also require additional disclosures about an enterprise’s involvement in variable interest entities, which will enhance the information provided to users of financial statements.  This update became effective as of the beginning first annual reporting period beginning after November 15, 2009 and interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter.  The Company adopted the guidance in ASU 2009-17 on April 1, 2010. The disclosure requirements of ASU 2009-17 are presented in Note 20.
  Multiple-deliverable revenue arrangements
 
 In October 2009, the FASB issued ASU 2009-13, “Multiple-deliverable revenue arrangements” (“ASU 2009-13”), which amends ASC 605-25.  ASU 2009-13 modifies how consideration is allocated for the purpose of revenue recognition in multiple-element arrangements based on an element's estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2010. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, result of operations or cash flows of the Company.
  11
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  2.
RECENTLY ISSUED PRONOUNCEMENTS(continued)
 
 Equity: Accounting for distributions to shareholders with components of stock and cash
 
 In January 2010, the FASB issued Accounting Standards Update 2010-01, “Equity: Accounting for distributions to shareholders with components of stock and cash” (“ASU 2010-01”).  ASU 2010-01 amends the ASC 505-20, “Equity-Stock Dividends and Stock Splits”to clarify that the stock portion of a distribution to stockholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. ASU 2010-01 is effective for fiscal years beginning after December 15, 2009.   The Company adopted the guidance in ASU 2010-01 on April 1, 2010, which did not have any impact on the Company’s financial statements.
 
 Consolidation: Accounting and reporting for decreases in ownership of a subsidiary – a scope clarification
  In January 2010, the FASB issued Accounting Standards Update 2010-02, “Consolidation: Accounting and Reporting for Decreases in Ownership of a Subsidiary – A Scope Clarification” (“ASU 2010-02”).  ASU 2010-02 amends the ASC 810-10, “Consolidation—Overall” to clarify that the scope of the decrease in ownership provisions and related guidance applies to:  (i) a subsidiary or group of assets that is a business or nonprofit activity; (ii) a subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture; (iii) an exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity (including an equity-method investee or joint venture); and (iv) a decrease in ownership in a subsidiary that is not a business or nonprofit activity when the substance of the transaction causing the decrease in ownership is not addressed in other authoritative guidance.  If no other guidance exists, an entity should apply the guidance in ASC 810-10.  ASU 2010-02 is effective for fiscal years beginning on or after December 15, 2009. The Company adopted the guidance in ASU 2010-02 on April 1, 2010, which did not have any impact on our consolidated financial statements as we have not had such decreases in ownership of our subsidiaries.
 
 Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
  In July 2010, the FASB issued ASU 2010-20, “Receivables (“Topic 310”) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”). ASU 2010-20 requires a company to disclose information that provides financial statement users more information about the credit quality of a creditor’s financing receivables and the adequacy of its allowance for credit losses. Short-term accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from the ASU 2010-20. For public companies, the amendments that require disclosure as of the end of a reporting period and the amendments that requires disclosures for activity that occurs during a reporting period are effective for periods ending on or after December 15, 2010. The Company does not believe that the adoption of this ASU will have a material impact on the Company’s financial position, results of operation, or cash flows.
  12
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  3.
ACCOUNTS RECEIVABLE
 
 Trade receivables are presented net of an allowance for doubtful accounts.  The allowance was $222 as of September 30, 2010 and $225 as of March 31, 2010. The allowance for doubtful accounts reflects estimates of probable losses in trade receivables.  The Company manages and evaluates the collectability of its trade receivables as follows:  management reviews aged accounts receivable listings and contact is made with customers that have extended beyond agreed upon credit terms. Senior management and operations are notified such that when they are contacted by such customers for a future delivery, the customer can be requested to 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.
  4.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
  Prepaid expenses and other current assets are comprised of the following:
  September 30,


March 31,2010


2010Prepaid insurance

$
753


$
444Fuel and lubricants


2,728



2,080Deposits and other prepaids


740



982$
4,221


$
3,506
  5.
INCOME TAXES
  The Company's effective tax rate was a benefit of 7.6% for the six month period ended September 30, 2010 compared to income tax expense of 25.1% for the six month period ended September 30, 2009.  The Company’s provision (recovery) for income taxes decreased from the prior year due to lower net income before taxes in the current year, a change in mix of income between the U.S. and Canada and changes in the Company’s forecasted U.S. and Canadian effective tax rates from the previous quarter.
 
 The effective tax rate for the six month period ended September 30, 2010 was lower than the statutory tax rate because the Company’s Canadian tax expense was more than offset by the tax benefit associated with the reduction of the valuation allowance related to the net U.S. Federal deferred tax assets whereby no U.S. Federal tax provision was recorded in the Company’s U.S. operations and a negative U.S. state effective tax rate resulting from unfavorable permanent book to tax differences.
 
 The effective tax rate for the three and six month period ended September 30, 2009 was lower than the statutory tax rate due to the tax benefit associated with the reduction of the valuation allowance related to the U.S. Federal tax provision that was recorded in the Company’s U.S. operations, which was partially offset by unfavorable permanent book to tax differences.
  13
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  6.
PROPERTY AND EQUIPMENT
  Property and equipment are comprised of the following:
  September 30,


March 31,2010


2010Cost:Vessels

$
119,882


$
119,181Leasehold improvements


2,209



2,150Furniture and equipment


265



268Vehicles


22



22Computer, communication equipment and purchased software


2,337



2,348$
124,715


$
123,969Accumulated depreciation:Vessels

$
27,146


$
24,018Leasehold improvements


717



616Furniture and equipment


110



95Vehicles


8



7Computer, communication equipment and purchased software


910



75428,891



25,490$
95,824


$
98,479
  7.
DEFERRED DRYDOCK COSTS
  Deferred drydock costs are comprised of the following:
  September 30,


March 31,2010


2010Drydock expenditures

$
13,765


$
13,884Accumulated amortization


8,073



6,755$
5,692


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

$
7,274Deferred drydock costs accrued


1,151Amortization of deferred drydock costs


(2,425
)Foreign currency translation adjustment


1,129Balance as of March 31, 2010

$
7,129Deferred drydock costs accrued


-Amortization of deferred drydock costs


(690
)Foreign currency translation adjustment


(194
)Balance as of June 30, 2010

$
6,245Deferred drydock costs accrued


-Amortization of deferred drydock costs


(684
)Foreign currency translation adjustment


131Balance as of September 30, 2010

$
5,692
  14
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  8.
INTANGIBLE ASSETS AND GOODWILL
  Intangibles are comprised of the following:
  September 30,

2010


March 31,

2010Intangible assets:Deferred financing costs

$
2,617


$
2,149Trademarks and trade names


1,001



1,010Customer relationships and contracts


15,927



16,093Total identifiable intangibles

$
19,545


$
19,252Accumulated amortization:Deferred financing costs

$
1,130


$
901Trademarks and trade names


458



412Customer relationships and contracts


4,431



3,939Total accumulated amortization


6,019



5,252Total intangible assets

$
13,526


$
14,000Goodwill

$
10,193


$
10,193
 
 Intangible asset amortization over the next five years is estimated as follows:
  Period ending September 30, 2011

$
1,757Period ending September 30, 2012


1,757Period ending September 30, 2013


1,459Period ending September 30, 2014


1,162Period ending September 30, 2015


1,162$
7,297
  15
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  9.
BANK INDEBTEDNESS
  As discussed in detail in Note 11, the Company amended and restated its Credit Agreement with its senior lender on February 13, 2008 as subsequently amended.  At each of September 30, 2010 and March 31, 2010, the Company had authorized operating lines of credit under this agreement in the amounts of CDN $13,500 and US $13,500 with its senior lender, and was utilizing CDN $Nil at September 30, 2010 and at March 31, 2010 and US $Nil at September 30, 2010 and at March 31, 2010, and maintained letters of credit of CDN $1,394 (CDN $1,394 as at March 31, 2010).  The Credit Agreement provides that the line of credit bears interest at Canadian Prime Rate plus 2.5% or Canadian 30 day BA rate plus 3.5% on Canadian Dollar borrowings, and the U.S. Base rate plus 2.5% or LIBOR plus 3.5% on U.S. Dollar borrowings and is secured under the same terms and has the same financial covenants described in Note 11. Such interest rate margin will increase by 0.25% in November 2010. Available collateral for borrowings and letters of credit are based on eligible accounts receivable, which are limited to 85% of those receivables that are not over 90 days old, not in excess of 20% for one customer in each line and certain other standard limitations. As of September 30, 2010, the Company had additional credit availability of US $11,695 on the combined lines of credit based on eligible receivables and the seasonal overadvance facility.
  10.
ACCRUED LIABILITIES
  Accrued liabilities are comprised of the following:
  September 30,


March 31,2010


2010Payroll compensation and benefits

$
2,270


$
2,270Preferred stock dividends


6,238



5,117Professional fees


595



652Interest


437



200Winter work and capital expenditures


56



799Capital and franchise taxes


235



101Other


3,226



1,946$
13,057


$
11,085
  16
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  11.
LONG-TERM DEBT
  On February 13, 2008, Lower Lakes, Lower Lakes Transportation and Grand River, as borrowers, Rand LL Holdings, Rand Finance and Rand Logistics, Inc., as guarantors, General Electric Capital Corporation, as agent and lender, and certain other lenders, entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which (i) amended and restated the Credit Agreement to which the borrowers were a party, dated as of March 3, 2006 (the “2006 Credit Agreement”), in its entirety, (ii) restructured the tranches of loans provided for under the 2006 Credit Agreement and advanced certain new loans, (iii) financed, in part, the acquisition of the three vessels by Grand River from Wisconsin & Michigan Steamship Company (“WMS”), and (iv) provided working capital financing, funds for other general corporate purposes and funds for other permitted purposes.  The Amended and Restated Credit Agreement provided for (i) a revolving credit facility under which Lower Lakes Towing may borrow up to CDN $13,500 with a combined seasonal overadvance facility of US $10,000 (US $10,000 as of March 31, 2010), and a swing line facility of CDN $4,000 subject to limitations, (ii) a revolving credit facility under which Lower Lakes Transportation may borrow up to US $13,500 with a combined seasonal overadvance facility of US $10,000 (US $10,000 as of March 31, 2010), and a swing line facility of US $4,000 subject to limitations, (iii) a Canadian Dollar denominated term loan facility under which Lower Lakes Towing borrowed CDN $41,700 (iv) a US Dollar denominated term loan facility under which Grand River borrowed US $22,000 and (v) a Canadian Dollar denominated “Engine” term loan facility under which Lower Lakes borrowed CDN $8,000.
  Under the Amended and Restated Credit Agreement, the revolving credit facilities and swing line loans expire on April 1, 2013.  The outstanding principal amount of the Canadian term loan borrowings are repayable as follows: (i) quarterly payments of CDN $695 commencing September 1, 2008 and ending March 1, 2013 and (ii) a final payment in the outstanding principal amount of the Canadian term loan shall be payable upon the Canadian term loan facility’s maturity on April 1, 2013.  The outstanding principal amount of the US term loan borrowings are repayable as follows: (i) quarterly payments of US $367 commencing September 1, 2008 and ending on March 1, 2013 and (ii) a final payment in the outstanding principal amount of the US term loan payable upon the US term loan facility’s maturity on April 1, 2013.  The outstanding principal amount of the Canadian “Engine” term loan borrowings are repayable as follows: (i) quarterly payments of CDN $133 commencing September 1, 2008 and ending March 1, 2013 and (ii) a final payment in the outstanding principal amount of the Engine term loan payable upon the Engine term loan facility’s maturity on April 1, 2013.
  Borrowings under the Canadian revolving credit facility, the Canadian term loan and the Canadian swing line facility bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as defined in the Amended and Restated Credit Agreement), plus 2.5% per annum or (ii) the BA Rate (as defined in the Amended and Restated Credit Agreement) plus 3.5% per annum.  The US revolving credit facility, the US term loan and the US swing line facility bear interest, at the borrower’s option, equal to (i) LIBOR (as defined in the Amended and Restated Credit Agreement) plus 3.5% per annum, or (ii) the US Base Rate (as defined in the Amended and Restated Credit Agreement), plus 2.5% per annum.  Borrowings under the Canadian “Engine” term loan bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as defined in the Amended and Restated Credit Agreement), plus 3.75% per annum or (ii) the BA Rate (as defined in the Amended and Restated Credit Agreement) plus 4.75% per annum. The interest rate margin is adjustable quarterly commencing on the second quarter of the fiscal year ended March 31, 2009, based upon the borrowers’ senior debt to EBITDA ratio as defined and calculated in accordance with the Amended and Restated Credit Agreement. Such interest rate margin will increase by 0.25% in November 2010.
  17
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  11.
LONG-TERM DEBT (continued)
  Obligations under the Amended and Restated Credit Agreement are secured by (i) a first priority lien and security interest on all of the borrowers’ and guarantors’ assets, tangible or intangible, real, personal or mixed, existing and newly acquired, (ii) a pledge by Rand LL Holdings of all of the outstanding capital stock of the borrowers and (iii) a pledge by the Company of all of the outstanding capital stock of Rand LL Holdings and Rand Finance.  The indebtedness of each borrower under the Amended and Restated Credit Agreement is unconditionally guaranteed by each other borrower and by the guarantors, and such guaranty is secured by a lien on substantially all of the assets of each borrower and each guarantor.
  Under the Amended and Restated Credit Agreement, the borrowers will be required to make mandatory prepayments of principal on term loan borrowings (i) if the outstanding balance of the term loans plus the outstanding balance of the seasonal facilities exceeds the sum of 75% of the fair market value of the vessels owned by the borrowers, less the amount of outstanding liens against the vessels with priority over the lenders’ liens, in an amount equal to such excess, (ii) in the event of certain dispositions of assets and insurance proceeds (all subject to certain exceptions), in an amount equal to 100% of the net proceeds received by the borrowers there from, and (iii) in an amount equal to 100% of the net proceeds to a borrower from any issuance of a Borrower’s debt or equity securities.
  The Amended and Restated Credit Agreement contains certain covenants, including those limiting the guarantors, the borrowers, and their subsidiaries’ ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends.  In addition, the Amended and Restated Credit Agreement requires the borrowers to maintain certain financial ratios.  Failure of the borrowers or the guarantors to comply with any of these covenants or financial ratios could result in the loans under the Amended and Restated Credit Agreement being accelerated.
  On June 24, 2008, the Company entered into a First Amendment to the Amended and Restated Credit Agreement with the lenders signatory thereto and General Electric Capital Corporation, as Agent.  Under this Amendment, the borrowers amended the definition of “Fixed Charge Coverage Ratio,” modified the formula for the maximum amounts outstanding under the Canadian and US Revolving Credit Facilities and modified the measurement dates of the Maximum Capital Expenditures (as defined therein).
  On June 23, 2009, the Company further amended its Amended and Restated Credit Agreement. Under this Amendment, the parties amended the definitions of “Fixed Charge Coverage Ratio”, “Fixed Charges”, “Funded Debt” and “Working Capital”, modified the maximum amount of the combined seasonal overadvance facilities that is available to borrow from $8,000 to $10,000 and duration of the seasonal overadvance facilities under the Canadian and US Revolving Credit Facilities and modified the Minimum Fixed Charge Coverage Ratio and the Maximum Senior Funded Debt to EBITDA Ratio.
  On August 9, 2010, the Company entered into a Third Amendment to the Amended and Restated Credit Agreement (“Third Amendment”), amending the Amended and Restated Credit Agreement to which the borrowers are a party, dated as of February 13, 2008.
  The Third Amendment provides for (i) an additional Canadian dollar denominated term loan in the aggregate amount of CDN $20,000 to finance a new engine for the Michipicoten and certain other capital expenditures, (ii) a modification to the Senior Funded Debt to EBITDA Ratio and (iii) a modification to the ratio of the aggregate appraised orderly liquidation value of all vessels of borrowers to the aggregate outstanding principal amount of the term loans from lenders.  The increased CDN Term Loan (as such term is defined in the Amended and Restated Credit Agreement) is repayable in quarterly installments of CDN $695 commencing December, 2010, increasing to CDN $936 commencing September, 2011 and maturing on April 1, 2013.
  The Company was in compliance with all the covenants as of September 30, 2010 and March 31, 2010.
  18
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  11.
LONG-TERM DEBT (continued)
  The effective interest rates on the term loans at September 30, 2010, including the effect from interest rate swap contracts, were 6.06% (6.8% at March 31, 2010) on the Canadian term loan, 6.09% (5.44% at March 31, 2010) on the Canadian engine loan and 7.15% (7.15% at March 31, 2010) on the US term loan. The actual interest rates charged without the effect of interest rate swap contracts were 5.24% (3.94% at March 31, 2010) on the Canadian term loan, 6.09% (5.44% at March 31, 2010) on the Canadian engine loan and 3.80% (3.75% at March 31, 2010) on the US term loan.
  September 30,

2010


March 31,

2010a
)

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

$
54,558


$
36,262b
)

Canadian engine term loan bearing interest at Canadian Prime rate plus 4% or Canadian BA rate plus 5% at the Company’s option.  The loan is repayable over a five year term until April 1, 2013 with current quarterly payments of CDN $133 commencing September 1, 2008 until March 1, 2013 and the balance due April 1, 2013.  The term loan is collateralized by the existing and newly acquired assets of the Company.


6,608



6,957c
)

US term loan bearing interest at LIBOR rate plus 3.5% or US base rate plus 2.5% at the Company’s option. The loan is repayable over a five year term until April 1, 2013 with current quarterly payments of US $367 commencing September 1, 2008 until March 1, 2013 and the balance due April 1, 2013.  The term loan is collateralized by the existing and newly acquired assets of the Company.


18,700



19,433$
79,866


$
62,652Less amounts due within 12 months


4,920



4,728$
74,946


$
57,924
 
 Principal payments are due as follows:
  Period ending September 30, 2011

$
4,920Period ending September 30, 2012


5,622Period ending September 30, 2013


69,324$
79,866
  19
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  12.
COMMITMENTS
  The Company does not have any leases which meet the criteria of a capital lease.  Leases which do not qualify as capital leases are classified as operating leases.  Operating lease rental and sublease rental payments included in general and administrative expenses are as follows:
  Three months

ended

September 30,

2010


Three months

ended

September 30,

2009


Six months

ended

September 30,

2010


Six months

ended

September 30,

2009Operating leases

$
67


$
59


$
137


$
117Operating subleases


36



36



72



72$
103


$
95


$
209


$
189
  The Company’s future minimum rental commitments under other operating leases are as follows.
  Period ending September 30, 2011

$
233Period ending September 30, 2012


170Period ending September 30, 2013


102Period ending September 30, 2014


69Period ending September 30, 2015


65Thereafter


226$
865
  The Company entered into a bareboat charter agreement for the McKee Sons barge which expires in 2018.  The chartering cost included in vessel operating expenses was $238 for the three months ended September 30, 2010 ($232 for three months ended September 30, 2009) and $476 for the six months ended September 30, 2010 ($464 for the six months ended September 30, 2009). 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 vessel for the term of the lease before inflation adjustment are set forth below.  The lease contains a clause whereby annual payments increase at the Consumer Price Index, capped at a maximum annual increase of 3%.
  Period ending September 30, 2011

$
715Period ending September 30, 2012


715Period ending September 30, 2013


715Period ending September 30, 2014


715Period ending September 30, 2015


714Thereafter


2,383$
5,957
  On July 27, 2010, the Company announced it will be converting Lower Lakes’ last steam powered vessel, the SS Michipicoten, to diesel power consistent with the engine replacement completed on the Saginaw in 2008. This project is estimated to cost approximately US $15,000.  As of September 30, 2010, Lower Lakes had signed contractual commitments with several suppliers totaling US $8,283 in connection with the repowering project.
  20
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  13.
CONTINGENCIES
  Rand is not involved in any legal proceedings which are expected to have a significant effect on its business, financial position, results of operations or liquidity, nor is the Company aware of any proceedings that are pending or threatened which may have a significant effect on the Company’s business, financial position, results of operations or liquidity.  From time to time, Lower Lakes may be subject to legal proceedings and claims in the ordinary course of business involving principally commercial charter party disputes.  It is expected that larger claims would be covered by insurance, subject to customary deductibles, if they involve liabilities that may arise from allision, other marine casualty, damage to cargoes, oil pollution, death or personal injuries to crew. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.  Most of these claims are for insignificant amounts.  Given management’s assessment that losses were probable and reasonably estimable, and based on advice from the Company’s outside counsel, an accrual of $679 as of September 30, 2010 and $944 as of March 31, 2010 has been recorded for various claims.  Management does not anticipate material variations in actual losses from the amounts accrued related to these claims.
  On August 27, 2007, in connection with the COA and Option Agreement with Voyageur (see Note 20), Lower Lakes entered into a Guarantee (the “Guarantee”) with GE Canada, pursuant to which Lower Lakes agreed to guarantee up to CDN $1,250 (the “Guaranteed Obligations”) of Voyageur’s  indebtedness to GE Canada.  Lower Lakes’ maximum future payments under the Guarantee are limited to the Guaranteed Obligations plus the costs and expenses GE Canada incurs while enforcing its rights under the Guarantee.  Lower Lakes’ obligations under the Guarantee shall become due should Voyageur fail to meet certain financial covenants under the terms of its loan from GE Canada or if Voyageur breaches certain of its obligations under the COA.  Lower Lakes has several options available to it in the event that GE Canada intends to draw under the Guarantee, including (i) the right to exercise its option for the Trader under the Option Agreement and (ii) the right to make a subordinated secured loan to Voyageur in an amount at least equal to the amount intended to be drawn by GE Canada on terms as are reasonably satisfactory to GE Canada and Voyageur.
  The Company has determined that there is no carrying amount of the liability for the guarantor’s obligations under the guarantees.
  14.
STOCKHOLDERS’ EQUITY
  The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences that may be determined from time to time by the Board of Directors. The shares of series A convertible preferred stock: rank senior to the Company’s common stock with respect to liquidation and dividends; are entitled to receive a cash dividend at the annual rate of 7.75% (based on the $50 per share issue price), payable quarterly (subject to increases of 0.5% for each six month period in respect of which the dividend is not timely paid, up to a maximum of 12%, subject to reversion to 7.75% upon payment of all accrued and unpaid dividends); are convertible into shares of the Company’s common stock at any time at the option of the series A preferred stockholder at a conversion price of $6.20 per share (based on the $50 per share issue price and subject to adjustment) or 8.065 shares of common stock for each Series A Preferred Share (subject to adjustment); are convertible into shares of the Company’s common stock (based on a conversion price of $6.20 per share, subject to adjustment) at the option of the Company if, after the third anniversary of the acquisition, the trading price of the Company’s common stock for 20 trading days within any 30 trading day period equals or exceeds $8.50 per share (subject to adjustment); may be redeemed by the Company in connection with certain change of control or acquisition transactions; will vote on an as-converted basis with the Company’s common stock; and have a separate vote over certain material transactions or changes involving the Company. The accrued dividend payable at September 30, 2010 was $6,238 and at March 31, 2010 was $5,117. As of September 30, 2010, the effective rate of preferred dividends was 11.25% (10.75% as of March 31, 2010). The rate will increase to 11.75% effective January 1, 2011 and will increase 0.5% every six months thereafter until it reaches 12% or the accrued dividends are paid. The Company is limited in the payment of preferred dividends by the fixed charge coverage ratio covenant in the Amended and Restated Credit Agreement.
  21
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  14.
STOCKHOLDERS’ EQUITY (continued)
  On January 17, 2007, the Company awarded 215,000 shares of its common stock to two key executives. The shares of common stock awarded (the “Restricted Shares”) were not registered under the Securities Act of 1933 (the “Act”) and constitute “restricted securities” within the meaning of the Act. The Restricted Shares were awarded pursuant to Restricted Share Award Agreements, dated January 17, 2007.  The shares were valued at the closing price on January 17, 2007 of $6.72 per share. The Company recorded expense of $Nil in 2010 and $361 in 2009 related to such awards. Pursuant to the Award Agreements: 44% of the Restricted Shares vested on the date of the award; 6% of the Restricted Shares vested on March 31, 2007; 25% of the Restricted Shares vested on March 31, 2008; and 25% of the Restricted Shares vested on March 31, 2009. However, in order to facilitate the Company’s federal and state tax withholding obligations in respect of the Restricted Stock awards, all of the Restricted Shares which vested on the date of the award were withheld by the Company, which paid the withholding taxes, resulting in 120,400 shares actually issued. On October 13, 2009, the Company awarded 39,660 shares, valued at the average of high and low price on that day of $3.17, to a key executive in connection with an Employment Agreement. 20% of these shares vest on March 31st of each year, beginning March 31, 2010. The Company recorded expense of  $13 for six month period ended September 30, 2010 related to such award and $ Nil for six month period ended September 30, 2009. On February 24, 2010 the Company issued 76,691 shares to two key executives pursuant to Restricted Share Award Agreements. The shares were valued at the average of high and low price on that day of $4.34. The Company recorded expense of $56 for six month period ended September 30, 2010 and $ Nil for Six month period September 30, 2009. The February 24, 2010 grants vest over three years in equal installments on each of the anniversary dates in 2011, 2012 and 2013. Also on April 5, 2010 the Company issued 37,133 shares to four key executives pursuant to Restricted Share Award Agreements. The shares were valued at the average of high and low price on that day of $5.32. The Company recorded expense of $130 for six month period ended September 30, 2010, including cash compensation related to tax withholding of such awards. The April 5, 2010 grants vest over three years in equal installments on each of the anniversary dates in 2011, 2012 and 2013.
  Since January 2007, share-based compensation has been granted to management and directors from time to time.  The Company had no surviving, outstanding share-based compensation agreements with employees or directors prior to that date except as described above.  The Company has reserved 2,500,000 shares for issuance under the Company’s 2007 Long Term Incentive Plan (the “LTIP”) to employees, officers, directors and consultants.  At September 30, 2010, a total of 950,126 shares (1,012,313 shares at March 31, 2010) were available under the LTIP for future awards.
  For all share-based compensation, as employees and directors render service over the vesting periods, expense is recorded in general and administrative expenses. Generally this expense is for the straight-line amortization of the grant date fair market value adjusted for expected forfeitures. Other paid-in capital is correspondingly increased as the compensation is recorded. Grant date fair market value for all non-option share-based compensation is the average of the high and low trading prices on the date of grant.
  22
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  14.
STOCKHOLDERS’ EQUITY (continued)
  The general characteristics of issued types of share-based awards granted under the Plans through September 30, 2010 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 twelve months ended March 31, 2010 for services from January 1, 2009 through March 31, 2010. During the six months ended September 30, 2010, the Company awarded 7,467 shares for services from April 1, 2010 through September 30, 2010. Grant date fair market value for all these awards is the average of the high and low trading prices on the date of grant.
  On July 31, 2008, the Company’s Board of Directors authorized management to make payments effective as of that date to the participants of the Company’s management bonus program. Pursuant to the terms of the management bonus program, Rand issued 478,232 shares of common stock to such employee participants.
  Stock Options -Stock options granted to management employees vest over three years in equal annual installments. All options issued through September 30, 2010 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 September 30, 2010, had a remaining weighted average contractual life of approximately seven years and six months. The Company has recorded compensation expenses of $261 for the six months ended September 30, 2010 ($262 for six months ended September 30, 2009). Two thirds of the stock options granted in February 2008 (243,199) and two thirds of the stock options granted in July 2008 (236,586), had vested as of September 30, 2010.
 
 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 for the period from July 1, 2009 through September 30, 2010.  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 for three months ended September 30, 2010 and $13 of equity for the six months period ended September 30, 2010 ($170 for the three and six month periods ended September 30, 2009) of such accrued compensation expense.
 
 Shares issued in lieu of cash compensation- The Company experienced a decrease in customer demand at the beginning of the 2009 sailing season and in an effort to maximize the Company’s liquidity, the Compensation Committee of the Company’s Board of Directors requested that three of the Company’s executive officers and all of its outside directors receive common stock as compensation in lieu of cash until the Company had better visibility about its outlook. As of November 16, 2009, the Company issued 158,325 shares to such officers and all of its outside directors at the average of the high and low trading prices on the date of grant. The shares were issued under the LTIP and vested immediately. Beginning the third quarter of the fiscal year ended March 31, 2010, such executives and outside directors’ compensation reverted back to cash. On September 16, 2010, the Company issued 15,153 shares to a key executive for payment of the fiscal year 2010 bonus at the average of the high and low trading prices on the date of grant. The shares were issued under the LTIP and vested immediately.
  23
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  15.
OUTSIDE VOYAGE CHARTER FEES
 
 Outside voyage charter fees relate to the subcontracting of external vessels chartered to service the Company’s customers and supplement the existing shipments made by the Company’s operated vessels.
  16.
INTEREST EXPENSE
  Interest expense is comprised of the following:
 
 Three months

ended

September 30,

2010


Three months

ended

September 30,

2009


Six months

ended

September 30,

2010


Six months

ended

September 30,

2009Bank indebtedness

$
81


$
145


$
210


$
279Amortization of deferred financing costs


133



99



236



195Long-term debt – senior


782



689



1,422



1,409Interest rate swaps


373



549



790



1,028$
1,369


$
1,482


$
2,658


$
2,911
  24
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  17.
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

September 30,

2010


Three months

ended

September 30,

2009


Six months

ended

September 30,

2010


Six months

ended

September 30,

2009Revenue by countryCanada

$
24,786


$
22,985


$
46,540


$
42,354United States


14,009



13,258



29,063



23,140$
38,795


$
36,243


$
75,603


$
65,494
  Revenues from external customers are allocated based on the country of the legal entity of the Company in which the revenues were recognized.
  September 30,

2010


March 31,

2010Property and equipment by countryCanada

$
68,320


$
69,798United States


27,504



28,681$
95,824


$
98,479Intangible assets by countryCanada

$
10,764


$
11,039United States


2,762



2,961$
13,526


$
14,000Goodwill by countryCanada

$
8,284


$
8,284United States


1,909



1,909$
10,193


$
10,193Total assets by countryCanada

$
122,601


$
103,297United States


51,343



44,670$
173,944


$
147,967
  25
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  18.
FINANCIAL INSTRUMENTS
  Fair Value of Financial Instruments
  Financial instruments comprise cash and cash equivalents, accounts receivable, accounts payable, long-term debts and accrued liabilities and bank indebtedness.  The estimated fair values of cash, 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.
  Fair value guidance establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value.  This hierarchy prioritizes the inputs into three broad levels as follows.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.  A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
  The following table provides the liabilities carried at fair value measured on a recurring basis as of September 30, 2010 and March 31, 2010:
  Fair Value Measurements at

September 30, 2010





Fair Value Measurements at

March 31, 2010Carrying

value at

September 30,

2010


Quoted prices in

active markets

(Level 1)


Significant other

Observable

Inputs

(Level 2)


Carrying

value at

March 31,

2010


Quoted prices in

active markets

(Level 1)


Significant other

Observable

Inputs

(Level 2)Interest rate swap contracts liability

$
2,666


$
-


$
2,666


$
2,298


$
-


$
2,298
  Interest rate swap contracts are measured at fair value using available rates on the similar instruments and are classified within Level 2 of the valuation hierarchy. These contracts are accounted for using the mark-to-market accounting method as if the contracts are 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 six month period ended September 30, 2010.
  The Company has recorded a liability of $2,666 as of September 30, 2010 ($2,298 as of March 31, 2010) for two interest rate swap contracts on the Company’s term debt. For the six month period ended September 30, 2010, the fair value adjustment of the interest rate swap contracts has resulted in a loss of $377 (gain of $1,569 for six month period ended September 30, 2009). These gains and losses are included in the earnings, and the fair value of settlement cost to terminate the contracts is included in current liabilities on the Consolidated Balance Sheet.
  26
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  18.
FINANCIAL INSTRUMENTS (continued)
  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.
  Interest Rate Risk
  The Company is exposed to fluctuations in interest rates as a result of its banking facilities and senior debt bearing variable interest rates.
  The Company is exposed to interest rate risk due to its long-term debt agreement, which requires that at least 50% of the outstanding term debt is hedged with interest rate swaps. Effective February 15, 2008, the Company entered into a CDN $49,700 interest rate swap derivative to pay interest at a fixed rate of approximately 4.09% on its CDN $49,700 term debt and receive 3-month BA variable rate interest payments quarterly through April 1, 2013.  The notional amount of the Canadian debt swap decreases with each then scheduled principal payment, except that the hedged amount decreased an additional CDN $15,000 on December 1, 2009.  Additionally, effective February 15, 2008, the Company entered into a US $22,000 interest rate swap derivative to pay interest at a fixed rate of approximately 3.65% on its US $22,000 term debt and receive 3-month LIBOR variable rate interest payments quarterly through April 1, 2013.  The notional amount of the US debt swap decreases with each scheduled principal payment.
  The following table sets forth the fair values of derivative instruments:
 
 Derivatives not designated as hedging instrument:
Balance Sheet location

Fair Value as at

September 30, 2010


Fair Value as at

March 31, 2010Interest rate swap contracts liability
Current liability

$
2,666


$
2,298
 
 The Company has not designated these contracts for hedge accounting treatment and therefore changes in fair value of these contracts are recorded in earnings as follows:
 
 Derivatives not designated as hedging instrument:
Location of loss (gain)

-Recognized in

earnings

Three months

ended

September 30,

2010


Three months

ended

September 30,

2009


Six months

ended

September 30,

2010


Six months

ended

September 30,

2009Interest rate swap contracts liability
Other (income) and expenses

$
78


$
(296
)

$
377


$
(1,569
)
 
 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 could result in a decrease in, or cancellation of, existing business, could limit new business, could negatively impact the Company’s ability to collect accounts receivable on a timely basis, and could affect the eligible receivables that are collateral for the Company’s lines of credit.
  27
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  19.
EARNINGS PER SHARE
  The Company has a total of 13,466,836 common shares issued and outstanding out of an authorized total of 50,000,000 common shares for the three month period ended September 30, 2010.  The fully diluted totals of 15,869,731 shares for the three month period ended September 30, 2010 and 15,328,369 shares for the three month period ended September 30, 2009 are based on the calculations set forth below. The convertible preferred shares convert to an aggregate of 2,419,355 common shares based on a conversion price of $6.20. In connection with the Company’s initial public offering, the Company issued to the representative of the underwriters in the initial public offering, for a de minimus amount, an option to purchase up to a total of 300,000 units, with each unit consisting of one share of common stock and two warrants.  The units issuable upon exercise of the option were identical to those issued in the Company’s initial public offering except that the warrants included in the units underlying the option had an exercise price of $6.25 per share.  The option was exercisable by the holder at $9.90 per unit commencing upon the consummation of a business combination by the Company on March 3, 2006 and expired on October 12, 2009.  The underwriter units are excluded from the dilution calculation on an annual basis for September 30, 2009 as the exercise price of $9.90 exceeded the estimated market value.
  Three months

ended

September 30,

2010


Three months

ended

September 30,

2009


Six months

ended

September 30,

2010


Six months

ended

September 30,

2009Numerator:Net income before preferred stock dividend

$
5,636


$
5,897


$
9,085


$
8,182Preferred stock dividends


(581
)


(477
)


(1,122
)


(920
)Net income available to common stockholders

$
5,055


$
5,420


$
7,963


$
7,262Denominator:Weighted average common shares for basic EPS


13,450,376



12,909,014



13,446,508



12,900,020Effect of dilutive securities:Average price during period


4.92



2.98



5.00



3.29Long-term incentive stock option plan


479,785



479,785



479,785



479,785Average exercise price of stock options


5.66



5.66



5.66



5.66Shares that could be acquired with the proceeds of options


--



--



--



--Dilutive shares due to options


--



--



--



--Weighted average convertible preferred shares at $6.20


2,419,355



2,419,355



2,419,355



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


15,869,731



15,328,369



15,865,863



15,319,375Basic EPS

$
0.38


$
0.42


$
0.59


$
0.56Diluted EPS

$
0.36


$
0.38


$
0.57


$
0.53
  28
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  20.
VARIABLE INTEREST ENTITIES
  In the normal course of business, the Company interacts with various entities that may be variable interest entities (“VIE”s).
  On August 27, 2007, Lower Lakes entered into and consummated the transactions under a Memorandum of Agreement with Voyageur Marine Transport Limited (“Voyageur”) and Voyageur Pioneer Marine Inc. pursuant to which Lower Lakes purchased the VOYAGEUR INDEPENDENT and the VOYAGEUR PIONEER (the “Vessels”).
  Certain customer contracts were also assigned to the Company under a Contract of Assignment.
  Also on August 27, 2007, Lower Lakes entered into a Contract of Affreightment  (“COA”) with Voyageur and Voyageur Maritime Trading Inc. (“VMT”) pursuant to which Voyageur and VMT made a Canadian flagged vessel owned by VMT, the MARITIME TRADER (the “Trader”), available exclusively to Lower Lakes for its use in providing transportation and storage services for its customers.
  In connection with the COA, on August 27, 2007, Lower Lakes entered into an Option Agreement (the “Option Agreement”) with VMT pursuant to which Lower Lakes obtained the option to acquire the Trader for CDN $5,000, subject to certain adjustments. The option is exercisable between January 1, 2012 and December 31, 2017, subject to certain early exercise provisions. If, at any time prior to expiration of the option, VMT receives a bona fide offer from a third party to purchase the Trader which VMT wishes to accept, Lower Lakes shall have the right to acquire the Trader at the option price.
  On August 27, 2007, Lower Lakes entered into a Guarantee (the “Guarantee”) with GE Canada, pursuant to which Lower Lakes agreed to guarantee up to CDN $1,250 (the “Guaranteed Obligations”) of Voyageur’s  indebtedness to GE Canada. Under the Guarantee, Lower Lakes has several options available to it in the event that GE Canada intends to draw under the Guarantee, including (i) the right to exercise its option for the Trader under the Option Agreement and (ii) the right to make a subordinated secured loan to Voyageur in an amount at least equal to the amount intended to be drawn by GE Canada on terms as are reasonably satisfactory to GE Canada and Voyageur.
  In compliance with ASC 810, in determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE.
  Though the Voyageur group of companies (Voyageur and its subsidiaries) is a variable interest entity for the Company, the Company is not deemed the “Primary Beneficiary” of Voyageur because Voyageur manages its own vessel costs and absorbs the majority of expected losses or receives the majority of expected residual returns. The Company has guaranteed Voyageur’s indebtedness to enable the undisrupted use in providing transportation and storage services for Rand’s customers. However, the orderly liquidation value of the vessel exceeds the Voyageur’ indebtedness, such that the Company’s exposure is limited. The maximum exposure of the Company in the event of a Voyageur default is CDN $1,250, representing the guarantee of Voyageur’s indebtedness to GE Canada, unless the Company exercises its purchase option, the value of which is also less than the orderly liquidation value. The Company has not provided support to the Voyageur group of companies when it was not contractually obliged to do so. Therefore, the Company is not required to consolidate Voyageur’s financial statements. Voyageur became a VIE to the Company on August 27, 2007. Voyageur is a privately held Canadian corporation and operates a Canadian flagged vessel in The Great Lakes region for bulk shipping, which operates under a Contract of Affreightment with Lower Lakes.
  29
 Index
 RAND LOGISTICS, INC.
 Notes to the Consolidated Financial Statements (Unaudited)
 (U.S. Dollars 000’s except for Shares and Per Share data)
  20.
VARIABLE INTEREST ENTITIES (continued)
  The Company continues to evaluate new investments for the application of consolidation and regularly reviews all existing entities that may result in an entity becoming a VIE or the Company becoming the primary beneficiary of an existing VIE. There has been no change in previous conclusions about whether a VIE should be consolidated.
  30
 Index
  Item2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
  All dollar amounts below $500,000 presented herein are in thousands, values greater than $500,000 are presented in millions except share, per share and per day amounts.
  The following 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 and six month periods ended September 30, 2010.
  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 16, 2010 as well as the following: the effect of the economic downturn in our markets; the weather conditions on the Great Lakes; and our ability to maintain and replace our vessels as they age.  The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.
  Overview
  Business
  Rand Logistics, Inc. (formerly Rand Acquisition Corporation) was incorporated in the State of Delaware on June 2, 2004 as a blank check company to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business.
  On March 3, 2006, we acquired all of the outstanding shares of capital stock of Lower Lakes Towing Ltd., a Canadian corporation which, with its subsidiary Lower Lakes Transportation Company, provides bulk freight shipping services throughout the Great Lakes region. As part of the acquisition of Lower Lakes, we also acquired Lower Lakes’ affiliate, Grand River Navigation Company, Inc. Prior to the acquisition we did not conduct, or have any investment in, any operating business. In this discussion of our business, 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 and Grand River.
  Our shipping business is operated in Canada by Lower Lakes Towing and in the United States by Lower Lakes Transportation. Lower Lakes Towing was organized in March 1994 under the laws of Canada to provide marine transportation services to dry bulk goods suppliers and purchasers operating in ports on the Great Lakes that were restricted in their ability to receive larger vessels. Lower Lakes has grown from its origin as a small tug and barge operator to a full service shipping company with a fleet of thirteen cargo-carrying vessels, including one vessel operated under a contract of affreightment.  From its exclusively Canadian beginnings, Lower Lakes has also grown to offer domestic services to both Canadian and U.S. customers as well as cross-border routes. Lower Lakes services the construction, electric utility, integrated steel and food industries through the transportation of limestone, coal, iron ore, salt, grain and other dry bulk commodities.
  31
 Index
  We believe that Lower Lakes is the only company providing significant domestic port-to-port services to both Canada and the United States in the Great Lakes region. Lower Lakes maintains this operating flexibility by operating both U.S. and Canadian flagged vessels in compliance with the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones Act, in the U.S. and the Coasting Trade Act (Canada) in Canada.
  Results of Operations
  Three month period ended September 30, 2010 compared to the three month period ended September 30, 2009:
  (1)
We experienced mechanical incidents on four vessels during the three month period ended September 30, 2010, resulting in approximately 41 days of downtime (including 23 Sailing Days, which we define as days a vessel is crewed and available for sailing) and approximately $0.7 million in repair costs below our insurance deductible limits.  In addition, we recorded approximately $1.3 million of assessments from one of our insurance carriers due to unusually large losses experienced in the current policy year.  Our inability to utilize such vessels during repairs created inefficiencies in our trade patterns caused by substituting sub-optimal vessels into the trade routes of the affected vessels.
  (2)
The three month period ended September 30, 2010 was also highlighted by other several significant changes compared to the three month period ended September 30, 2009.  There was an overall increase in demand in our markets during the three month period ended September 30, 2010 compared to the three month period ended September 30, 2009, when a weakened economy delayed the start of the 2009 sailing season.  During the three month period ended September 30, 2010, a stronger steel industry sharply increased shipments of ore and, to a lesser extent, coal and aggregates. There were also modest increases in our grain markets, offset by modest reductions in our salt markets compared to the three month period ended September 30, 2009.
  (3)
We experienced a 4.0% increase in freight revenue excluding the impact of currency during the three month period ended September 30, 2010, which was lower than the overall market increase due to the mechanical incidents and our lower reliance on the steel industry compared to our competitors.  This increase was attributable to an increase in the number of Sailing Days and price increases.  Our outside charter business decreased 17.9% during the three month period ended September 30, 2010 compared to the three month period ended September 30, 2009.
  (4)
Our total Sailing Days increased 81 days, or 8.1%, to 1,081 Sailing Days during the three month period ended September 30, 2010 from 1,000 Sailing Days during the three month period ended September 30, 2009. The increase in Sailing Days was a result of stronger overall markets, including the sailing of the McKee Sons, which did not sail during the first half of the three month period ended September 30, 2009, offset by the loss of 23 Sailing Days due to mechanical incidents during the three month period ended September 30, 2010.  We also lost approximately 19 Sailing Days in October arising from repairs relating to these incidents.
  (5)
We benefited from additional new business and contractual rate increases from existing customers during the three month period ended September 30, 2010 compared to the three month period ended September 30, 2009.
  (6)
All of our customer contracts have fuel surcharge provisions whereby the increases and decreases in our fuel costs are passed on to customers.  Such increases and decreases in fuel surcharges impact our margin percentages, but do not significantly impact our margin dollars.  Due to increased Sailing Days, higher fuel prices and a stronger Canadian dollar during the three month period ended September 30, 2010, fuel surcharge revenues increased 15.6% compared to the three month period ended September 30, 2009.
  (7)
The Canadian dollar strengthened by approximately 5.6% versus the U.S. dollar, averaging approximately $0.962 USD per CDN during the three month period ended at September 30, 2010 compared to approximately $0.911 USD per CDN during the three month period ended September 30, 2009.  The Company’s balance sheet translation rate decreased from $0.984 USD per CDN at March 31, 2010, to $0.972 USD per CDN at September 30, 2010.
  32
 Index
  Selected Financial Information
 (Unaudited)
  (USD in 000’s)

Three month period ended

September 30,

2010


Three month period ended

September 30,

2009


$ Change


% ChangeRevenue:Freight and related revenue

$
30,306


$
28,136


$
2,170



7.7
%Fuel and other surcharges


6,321



5,467



854



15.6
%Outside voyage charter revenue


2,168



2,640



(472
)


(17.9
)%Total

$
38,795


$
36,243


$
2,552



7.0
%Expenses:Outside voyage charter fees

$
2,170


$
2,634


$
(464
)


(17.6
)%Vessel operating expenses

$
26,097


$
19,608


$
6,489



33.1
%Repairs and maintenance

$
-


$
63


$
(63
)


(100.0
)%Sailing Days:


1,081



1,000



81



8.1
%Per Day in Whole USD:Revenue per Sailing Day:Freight and related revenue

$
28,035


$
28,136


$
(101
)


(0.4
)%Fuel and other surcharges

$
5,847


$
5,467


$
380



7.0
%Expenses per Sailing Day:Vessel operating expenses

$
24,142


$
19,608


$
4,534



23.1
%Repairs and maintenance

$
-


$
63


$
(63
)


(100.0
)%
  Management believes that each of our vessels should achieve approximately 92 Sailing Days in an average second fiscal quarter, assuming no major repairs or incidents and normal dry-docking cycle times performed during the winter lay-up period.
  33
 Index
  The following table summarizes the changes in the components of our revenue and vessel operating expenses as well as changes in Sailing Days during the three month period ended September 30, 2010 compared to the three month period ended September 30, 2009:
  (USD in 000’s) (Unaudited)

Sailing Days


Freight and Related Revenue


Fuel and Other Surcharges


Outside Voyage Charter


Total Revenue


Vessel Operating ExpensesThree month period ended

September 30, 2009


1,000


$
28,136


$
5,467


$
2,640


$
36,243


$
19,608Changes in the three month period ended September 30, 2010:Increase attributable to stronger Canadian dollar


-


$
1,054


$
180


$
89


$
1,323


$
921Net increase attributable to increased customer demand (excluding currency impact)


104


$
1,116


$
674


$
-


$
1,790


$
3,637Cost of repairs  of incidents and assessments from an insurance carrier


(23
)


-



-



-



-


$
1,931Changes in outside charter revenue (excluding currency impact)


-


$
-


$
-


$
(561
)

$
(561
)

$
-Sub-Total


81


$
2,170


$
854


$
(472
)

$
2,552


$
6,489Three month period ended

September 30, 2010


1,081


$
30,306


$
6,321


$
2,168


$
38,795


$
26,097
  Total revenue during the three month period ended September 30, 2010 was $38.8 million, an increase of $2.6 million, or 7.0%, compared to $36.2 million during the three month period ended September 30, 2009.  This increase was primarily attributable to a stronger Canadian dollar, increased freight revenue and higher fuel surcharges.
  Freight and related revenue generated from Company-operated vessels increased $2.2 million, or 7.7%, to $30.3 million during the three month period ended September 30, 2010 compared to $28.1 million during the three month period ended September 30, 2009.  Freight and related revenue per Sailing Day decreased $101, or 0.4%, to $28,035 per Sailing Day in the three month period ended September 30, 2010 compared to $28,136 per Sailing Day in the three month period ended September 30, 2009.  This decrease was attributable to inefficiencies in our trade patterns due to recent mechanical incidents, offset by a stronger Canadian dollar and price increases in the three month period ended September 30, 2010 compared to the three month period ended September 30, 2009.
  Fuel and other pass through surcharges increased $0.8 million, or 15.6%, to $6.3 million during the three month period ended September 30, 2010 compared to $5.5 million during the three month period ended September 30, 2009. Fuel and other surcharges revenue per Sailing Day increased $380 to $5,847 per Sailing Day in the three month period ended September 30, 2010 compared to $5,467 in the three month period ended September 30, 2009.
  Outside voyage charter revenues decreased $472, or 17.9%, to $2.2 million during the three month period ended September 30, 2010 compared to $2.6 million during the three month period ended September 30, 2009.  The decrease in outside voyage charter revenue was primarily attributable to the timing of 2010 deliveries that could be carried by our own vessels, slightly offset by a stronger Canadian dollar.
  34
 Index
  Vessel operating expenses increased $6.5 million, or 33.1%, to $26.1 million in the three month period ended September 30, 2010 compared to $19.6 million in the three month period ended September 30, 2009.  This increase was primarily attributable to the costs of incidents, assessments from one of our insurance carriers, increased costs from operating our vessels for 81 additional Sailing Days, the higher costs of a stronger Canadian dollar and higher fuel costs.  Vessel operating expenses per Sailing Day increased $4,534, or 23.1%, to $24,142 per Sailing Day in the three month period ended September 30, 2010 compared to $19,608 in the three month period ended September 30, 2009.
  Our general and administrative expenses increased $0.5 million to $2.3 million during the three month period ended September 30, 2010 compared to $1.8 million in the three month period ended September 30, 2009.  The increase in general and administrative expenses was primarily attributable to higher legal costs, a stronger Canadian dollar and higher restricted stock amortization expense.  Our general and administrative expenses represented 6.0% of revenues during the three month period ended September 30, 2010, an increase from 5.0% of revenues during the three month period ended September 30, 2009.  During the three month period ended September 30, 2010, $0.6 million of our general and administrative expenses was attributable to our parent company and $1.7 million was attributable to our operating companies.
  Depreciation expense decreased $0.6 million to $1.8 million during the three month period ended September 30, 2010 compared to $2.4 million during the three month period ended September 30, 2009.  The decrease was primarily attributable to completion after the three month period ended September 30, 2009 of the depreciation of one of our vessels acquired in our March 2006 acquisition of Lower Lakes, offset by increased depreciation from capital expenditures during the fiscal 2010 winter lay-up period and a stronger Canadian dollar.
  Amortization of drydock costs increased $82 to $0.7 million during the three month period ended September 30, 2010 compared to the three month period ended September 30, 2009 due to the drydock of the Manistee during the fiscal 2010 winter lay-up period and the stronger Canadian dollar.  During the three month period ended September 30, 2010, the Company amortized the deferred drydock costs of eight of its twelve vessels compared to seven vessels during the three month period ended September 30, 2009.
  Amortization of intangibles decreased $141 to $288 during the three month period ended September 30, 2010 from $429 during the three month period ended September 30, 2009 primarily due to the completion of amortizing certain acquired non-competition agreements during the three month period ended September 30, 2009.
  As a result of the items described above, during the three month period ended September 30, 2010, the Company’s operating income decreased $3.4 million to $5.4 million compared to $8.8 million during the three month period ended September 30, 2009.
  Interest expense decreased $113 to $1.4 million during the three month period ended September 30, 2010 from $1.5 million during the three month period ended September 30, 2009.  This decrease in interest expense was primarily a result of lower interest rates, including the benefit of a decrease in our applicable margin of 0.25% on most of our borrowings compared to the three month period ended September 30, 2009, and the expiration of interest rate swaps on $15.0 million of our Canadian term loan after the three month period ended September 30, 2009, partially offset by a stronger Canadian dollar during the three month period ended September 30, 2010.
  We recorded a net loss on interest rate swap contracts of $78 during the three month period ended September 30, 2010 compared to a gain of $296 in the three month period ended September 30, 2009 due to recording the fair value of our two interest rate swap agreements as of the end of such periods.
  Our income before income taxes was $4.0 million in the three month period ended September 30, 2010 compared to income before income taxes of $7.6 million in the three month period ended September 30, 2009.
  Our provision for income taxes was a benefit of $1.6 million during the three month period ended September 30, 2010 compared to income tax expense of $1.7 million during the three month period ended September 30, 2009.  The Company's provision for income taxes changed from a tax expense to a tax benefit due to lower net income before taxes in the three month period ended September 30, 2010 compared to the three month period ended September 30, 2009, and a change in the Company’s full year forecasted U.S. and Canadian effective tax rates from the previous quarter. The revised tax rates have been applied on a year to date basis to income (recovery) before taxes.  The Company’s effective tax rate was a benefit of 40.5% for the three month period ended September 30, 2010 compared to income tax expense of 22.4% for the three month period ended September 30, 2009.  The effective tax rate for the three month period ended September 30, 2010 was lower than the statutory tax rate due to a reduction in the Company’s forecasted effective tax rate for the fiscal year ended March 31, 2011, combined with the tax benefit associated with the reduction of the valuation allowance related to the net U.S. Federal deferred tax assets whereby no U.S. Federal tax provision was recorded in the Company’s U.S. operations, which were partially offset by unfavorable permanent book to tax differences.  The Company’s effective tax rate was also impacted by the reduction in the Company’s forecasted full year earnings in Canada and the United States, for which the cumulative effect was recorded in the current quarter provision (recovery) for income taxes. The effective tax rate for the three month period ended September 30, 2009 was lower than the statutory tax rate primarily due to the tax benefit associated with the reduction of the valuation allowance related to the U.S. Federal tax provision recorded in the Company’s U.S. operations, which was partially offset by unfavorable permanent book to tax differences.
  35
 Index
  Our net income decreased $261 to $5.6 million in the three month period ended September 30, 2010 compared to net income of $5.9 million in the three month period ended September 30, 2009.
  We accrued $0.6 million for cash dividends on our preferred stock during the three month period ended September 30, 2010 compared to $477 during the three month period ended September 30, 2009.  The dividends accrued at a rate of 11.25% for the three month period ended September 30, 2010 compared to a rate of 10.25% for the three month period ended September 30, 2009.  When the dividends are not paid in cash, the rate increases 0.5% every six months to a cap of 12.0%, and will increase to 11.75% effective January 1, 2011.
  Our net income applicable to common stockholders decreased $365 to $5.1 million during the three month period ended September 30, 2010 compared to net income applicable to common shareholders of $5.4 million during the three month period ended September 30, 2009.
  During the three month period ended September 30, 2010, the Company operated five vessels in the U.S. and seven vessels in Canada, and 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 two-thirds of our interest expense is incurred in Canada, consistent with our percentage of overall indebtedness by country.
  Six month period ended September 30, 2010 compared to the six month period ended September 30, 2009:
  (1)
We experienced mechanical incidents on five vessels during the six month period ended September 30, 2010, resulting in approximately 84 days of downtime (including 58 Sailing Days) and approximately $1.0 million in repair costs below our insurance deductible limits.  In addition, we recorded approximately $1.3 million of assessments from one of our insurance carriers due to unusually large losses experienced in the current policy year.  Our inability to utilize such vessels during repairs created inefficiencies in our trade patterns as a result of substituting sub-optimal vessels into the trade routes of the affected vessels.
  (2)
The six month period ended September 30, 2010 was also highlighted by several significant changes compared to the six month period ended September 30, 2009.  There was an overall increase in demand in our markets during the six month period ended September 30, 2010 compared to the six month period ended September 30, 2009, when a weakened economy delayed the start of the 2009 sailing season.  During the six month period ended September 30, 2010, a stronger steel industry sharply increased shipments of ore, and to a lesser extent coal and aggregates.  There were also modest increases in our grain markets, offset by modest reductions in our salt markets compared to the six month period ended September 30, 2009.
  (3)
We experienced a 6.8% increase in freight revenue, excluding the impact of currency, during the six month period ended September 30, 2010, which was lower than the overall market increase due to the impact of several mechanical incidents and our lower reliance on the steel industry compared to our competitors.  This increase was attributable to an increase in the number of Sailing Days compared to the six month period ended September 30, 2010.  Our outside charter business decreased approximately 5% during the six month period ended September 30, 2010 compared to the six month period ended September 30, 2009.
  (4)
Our total Sailing Days increased 192 days, or 10.0%, to 2,104 Sailing Days during the six month period ended September 30, 2010 from 1,912 Sailing Days during the six month period ended September 30, 2009. The increase in Sailing Days was a result of stronger overall markets, including the sailing of the McKee Sons, which sailed only 45 days during the six month period ended September 30, 2009, offset by the loss of 58 Sailing Days due to mechanical incidents on several of our vessels during the six month period ended September 30, 2010.  We also lost approximately 19 Sailing Days in October arising from repairs relating to these incidents.
  36
 Index
  (5)
We benefited from additional new business and contractual rate increases from existing customers during the six month period ended September 30, 2010 compared to the six month period ended September 30, 2009.
  (6)
All of our customer contracts have fuel surcharge provisions whereby the increases and decreases in our fuel costs are passed on to customers.  Such increases and decreases in fuel surcharges impact our margin percentages, but do not significantly impact our margin dollars.  Due to increased Sailing Days, higher fuel prices, and a stronger Canadian dollar during the six month period ended September 30, 2010, fuel surcharge revenues increased 44.5% compared to the six month period ended September 30, 2009.
  (7)
The Canadian dollar strengthened by approximately 9.6% versus the U.S. dollar, averaging approximately $0.968 USD per CDN during the six month period ended at September 30, 2010 compared to approximately $0.883 USD per CDN during the six month period ended September 30, 2009.  The Company’s balance sheet translation rate decreased from $0.984 USD per CDN at March 31, 2010, to $0.972 USD per CDN at September 30, 2010.
  37
 Index
  Selected Financial Information
 (Unaudited)
  (USD in 000’s)

Six month period ended September 30, 2010


Six month period ended September 30, 2009


$ Change


% ChangeRevenue:Freight and related revenue

$
58,712


$
52,281


$
6,431



12.3
%Fuel and other surcharges


12,685



8,776



3,909



44.5
%Outside voyage charter revenue


4,206



4,437



(231
)


(5.2
)%Total

$
75,603


$
65,494


$
10,109



15.4
%Expenses:Outside voyage charter fees

$
4,201


$
4,420


$
(219
)


(5.0
)%Vessel operating expenses

$
49,724


$
37,494


$
12,230



32.6
%Repairs and maintenance

$
44


$
717


$
(673
)


(93.9
)%Sailing Days:


2,104



1,912



192



10.0
%Per Day in Whole USD:Revenue per Sailing Day:Freight and related revenue

$
27,905


$
27,344


$
561



2.1
%Fuel and other surcharges

$
6,029


$
4,590


$
1,439



31.4
%Expenses per Sailing Day:Vessel operating expenses

$
23,633


$
19,610


$
4,023



20.5
%Repairs and maintenance

$
21


$
375


$
(354
)


(94.4
)%
  Management believes that each of our vessels should achieve approximately 183 Sailing Days in an average first two fiscal quarters, assuming no major repairs or incidents and normal dry-docking cycle times performed during the winter lay-up period.
  38
 Index
  The following table summarizes the changes in the components of our revenue and vessel operating expenses as well as changes in Sailing Days during the six month period ended September 30, 2010 compared to the six month period ended September 30, 2009:
  (USD in 000’s) (Unaudited)

Sailing Days


Freight and Related Revenue


Fuel and Other Surcharges


Outside Voyage Charter


Total Revenue


Vessel Operating ExpensesSix month period ended

September 30, 2009


1,912


$
52,281


$
8,776


$
4,437


$
65,494


$
37,494Changes in the six month period ended September 30, 2010:Increase attributable to stronger Canadian dollar


-


$
2,897


$
545


$
345


$
3,787


$
2,574Net increase attributable to increased customer demand (excluding currency impact)


250


$
3,534


$
3,364


$
-


$
6,898


$
7,247Costs of repairs of incidents and assessments for an insurance carrier


(58
)


-



-



-



-


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


-


$
-


$
-


$
(576
)

$
(576
)

$
-Sub-Total


192


$
6,431


$
3,909


$
(231
)

$
10,109


$
12,230Six  month period ended

September 30, 2010


2,104


$
58,712


$
12,685


$
4,206


$
75,603


$
49,724
  Total revenue during the six month period ended September 30, 2010 was $75.6 million, an increase of $10.1 million, or 15.4%, compared to $65.5 million during the six month period ended September 30, 2009.  This increase was primarily attributable to increased customer demand, higher fuel surcharges and a stronger Canadian dollar.
  Freight and related revenue generated from Company-operated vessels increased $6.4 million, or 12.3%, to $58.7 million during the six month period ended September 30, 2010 compared to $52.3 million during the six month period ended September 30, 2009.  Freight and related revenue per Sailing Day increased $561, or 2.1%, to $27,905 per Sailing Day in the six month period ended September 30, 2010 compared to $27,344 per Sailing Day in the six month period ended September 30, 2009.  This increase was attributable to a stronger Canadian dollar and price increases offset by inefficiencies in our trade patterns due to recent mechanical incidents during the six months ended September 30, 2010 compared to the six month period ended September 30, 2009.
  Fuel and other pass through surcharges increased $3.9 million, or 44.5%, to $12.7 million during the six month period ended September 30, 2010 compared to $8.8 million during the six month period ended September 30, 2009. Fuel and other surcharges revenue per Sailing Day increased $1,439, or 31.4%, to $6,029 per Sailing Day in the six month period ended September 30, 2010 compared to $4,590 in the six month period ended September 30, 2009.
  Outside voyage charter revenues decreased $231, or 5.2%, to $4.2 million during the six month period ended September 30, 2010 compared to $4.4 million during the six month period ended September 30, 2009.  The decrease in outside voyage charter revenue was primarily attributable to the timing of 2010 deliveries that could be carried by our own vessels, offset by a stronger Canadian dollar.
  39
 Index
  Vessel operating expenses increased $12.2 million, or 32.6%, to $49.7 million in the six month period ended September 30, 2010 compared to $37.5 million in the six month period ended September 30, 2009.  This increase was primarily attributable to the costs of the mechanical incidents, assessments from one of our insurance carriers, increased costs from operating our vessels for 192 additional Sailing Days, the higher costs of a stronger Canadian dollar and higher fuel costs.  Vessel operating expenses per Sailing Day increased $4,023, or 20.5%, to $23,633 per Sailing Day in the six month period ended September 30, 2010 compared to $19,610 in the six month period ended September 30, 2009.
  Repairs and maintenance expenses, which consist of expensed winter work, decreased $0.7 million to $44 during the six month period ended September 30, 2010 from $0.7 million during the six month period ended September 30, 2009.  Repairs and maintenance per Sailing Day decreased $354 to $21 per Sailing Day in the six month period ended September 30, 2010 from $375 per Sailing Day during the six month period ended September 30, 2009.  This decrease was related to the timing of completing the 2010 winter lay-up work for the earlier start of the 2010 sailing season in the six month period ended September 30, 2010 as compared to the timing of completing the 2009 winter lay-up work and the later start of the season in the six month period ended September 30, 2009.
  Our general and administrative expenses increased $471 to $4.7 million during the six month period ended September 30, 2010 compared to $4.2 million in the six month period ended September 30, 2009.  The increase in general and administrative expenses was a result of higher legal costs, a stronger Canadian dollar and higher restricted stock amortization expense, offset by a loan amendment fee of $436 incurred in the six month period ended September 30, 2009.  Our general and administrative expenses represented 6.2% of revenues during the six month period ended September 30, 2010, a decrease from 6.4% of revenues during the six month period ended September 30, 2009.  During the six month period ended September 30, 2010, $1.3 million of our general and administrative expenses was attributable to our parent company and $3.4 million was attributable to our operating companies.
  Depreciation expense decreased $0.8 million to $3.6 million during the six month period ended September 30, 2010 compared to $4.4 million during the six month period ended September 30, 2009.  The decrease was primarily attributable to completion after the six month period ended September 30, 2009 of the depreciation of one of our vessels acquired in our March 2006 acquisition of Lower Lakes, offset by increased depreciation from capital expenditures during the fiscal 2010 winter lay-up period and a stronger Canadian dollar.
  Amortization of drydock costs increased $194 to $1.4 million during the six month period ended September 30, 2010 compared to the six month period ended September 30, 2009 due to the drydock of the Manistee during the fiscal 2010 winter lay-up period and the stronger Canadian dollar.  During the six month period ended September 30, 2010, the Company amortized the deferred drydock costs of eight of its twelve vessels compared to seven vessels during the six month period ended September 30, 2009.
  Amortization of intangibles decreased $259 to $0.6 million during the six month period ended September 30, 2010 from $0.8 million during the six month period ended September 30, 2009 due primarily to the completion of amortizing certain acquired non-competition agreements during the six month period ended September 30, 2009.
  As a result of the items described above, during the six month period ended September 30, 2010, the Company’s operating income decreased $0.8 million to $11.5 million compared to $12.3 million during the six month period ended September 30, 2009.
  Interest expense decreased $253 to $2.7 million during the six month period ended September 30, 2010 from $2.9 million during the six month period ended September 30, 2009. This decrease in interest expense was primarily a result of slightly lower interest rates, including the benefit of a decrease in our applicable margin of 0.25% on most of our borrowings compared to the six month period ended September 30, 2009, and the expiration of interest rate swaps on $15.0 million of our Canadian term loan after the six month period ended September 30, 2009, partially offset by a stronger Canadian dollar during the six month period ended September 30, 2010.
  We recorded a net loss on interest rate swap contracts of $377 during the six month period ended September 30, 2010 compared to a gain of $1.6 million in the six month period ended September 30, 2009 due to recording the fair value of our two interest rate swap agreements as of the end of such periods.
  Our income before income taxes was $8.4 million in the six month period ended September 30, 2010 compared to income before income taxes of $10.9 million in the six month period ended September 30, 2009.
  40
 Index
  Our provision for income taxes was a benefit of $0.6 million during the six month period ended September 30, 2010, compared to income tax expense of $2.7 million during the six month period ended September 30, 2009.  The Company’s provision (recovery) for income taxes decreased from the six months ended September 30, 2009 due to lower net income before taxes in the six month period ended September 30, 2010, a change in mix of income between the U.S. and Canada and changes in the Company’s forecasted U.S and Canadian effective tax rates.  The Company's effective tax rate was a benefit of 7.6% for the six month period ended September 30, 2010, compared to income tax expense of 25.1% for the six month period ended September 30, 2009.  The effective tax rate for the six month period ended September 30, 2010 was lower than the statutory tax rate because the Company’s Canadian tax expense was more than offset by the tax benefit associated with the reduction of the valuation allowance related to the net U.S. Federal deferred tax assets whereby no U.S. Federal tax provision was recorded in the Company’s U.S. operations and a negative U.S. state effective tax rate resulting from unfavorable permanent book to tax differences.  The effective tax rate for the six month period ended September 30, 2009 was lower than the statutory tax rate due to the tax benefit associated with the reduction of the valuation allowance related to the U.S. Federal tax provision recorded in the Company’s U.S. operations, which was partially offset by unfavorable permanent book to tax differences.
  Our net income increased $0.9 million to $9.1 million in the six month period ended September 30, 2010 compared to net income of $8.2 million in the six month period ended September 30, 2009.
  We accrued $1.1 million for cash dividends on our preferred stock during the six month period ended September 30, 2010 compared to $0.9 million during the six month period ended September 30, 2009.  The dividends accrued at an average rate of 11.0% for the six month period ended September 30, 2010 compared to a rate of 10.0% for the six month period ended September 30, 2009.  When the dividends are not paid in cash, the rate increases 0.5% every six months to a cap of 12.0%, and will increase to 11.75% effective January 1, 2011.
  Our net income applicable to common stockholders increased $0.7 million to $8.0 million during the six month period ended September 30, 2010 compared to net income applicable to common shareholders of $7.3 million during the six month period ended September 30, 2009.
  During the six month period ended September 30, 2010, the Company operated five vessels in the U.S. and seven vessels in Canada, and 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 two-thirds of our interest expense is incurred in Canada, consistent with our percentage of overall indebtedness by country.
  Impact of Inflation and Changing Prices
  During the six month period ended September 30, 2010, there were increases in our fuel costs. Our contracts with our customers provide for recovery of fuel costs over specified rates through fuel surcharges.  In addition, there were changes in the exchange rate between the U.S. dollar and the Canadian dollar, which impacted our translation of our Canadian subsidiary’s revenue and costs to U.S. dollars by an increase of approximately 9.6% compared to the prior year.
  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 statement of cash flows (categorized by operating, investing and financing activities) which is included in our consolidated financial statements for the six month periods ended September 30, 2010 and September 30, 2009.  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 borrowing under our credit facility will provide sufficient cash availability to cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months.  However, if the Company experiences a material shortfall to its financial forecasts or if the Company’s customers materially delay their receivable payments due to a deterioration of economic conditions, the Company may breach its financial covenants and collateral thresholds and/or be strained for liquidity.
  41
 Index
  Net cash provided by operating activities for the six month period ended September 30, 2010 was $2.3 million, an increase of $0.6 million compared to $1.7 million during the six month period ended September 30, 2009.  This increase in net cash provided was primarily attributable to faster receivables collections in the six month period ended September 30, 2010 as a result of the earlier start of the 2010 sailing season compared to the 2009 sailing season.
  Cash used in investing activities increased by $2.4 million to $4.9 million during the six month period ended September 30, 2010 compared to $2.5 million during the six month period ended September 30, 2009.  This increase was attributable to the timing of paying capital expenditures incurred during the 2010 winter lay-up period as compared to the timing of payment of capital expenditures related to the 2009 winter lay-up period, as well as payments made on the new engine to be installed this winter on the Michipicoten.
  Cash flows provided from financing activities was $16.9 million during the six month period ended September 30, 2010, compared to cash flows provided from financing activities of $6.0 million during the six month period ended September 30, 2009.  On August 9, 2010, we received proceeds of $18.3 million, net of financing costs, in additional term debt to finance the repowering of the Michipcoten, of  which part of the proceeds were temporarily used to pay off the seasonal revolver.  During the six month period ended September 30, 2010, the Company paid off all seasonal borrowings under its revolving credit facility compared to net borrowings of $8.3 million during the six month period ended September 30, 2009, and made principal payments on its term debt of $1.6 million during the six month period ended September 30, 2010 compared to $2.2 million during the six month period ended September 30, 2009.
  During the six month period ended September 30, 2010, long-term debt, including the current portion, increased $17.2 million to $79.9 million from $62.7 million at March 31, 2010, which reflected an increase of $18.8 million additional term debt financing and $1.6 million of scheduled principal payments made during such period.
  Our Amended and Restated Credit Agreement, as amended, requires the Company to meet certain quarterly and annual financial covenants, including minimum EBITDA (as defined therein), minimum fixed charge ratios, maximum senior debt-to-EBITDA ratios, and maximum capital expenditures and drydock expenditures.  The Company met those financial covenants during the six month period ended September 30, 2010.  The 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.  Based on the Company’s fixed charge coverage ratio as of September 30, 2010, our interest rate margin will increase 0.25% in mid-November.
  On June 23, 2009, Lower Lakes Towing, Lower Lakes Transportation Company, Grand River Navigation Company, Inc. and the other Credit Parties thereto entered into a Second Amendment (the “Amendment”), to the Amended and Restated Credit Agreement with the Lenders signatory thereto and General Electric Capital Corporation, as Agent. Under the Amendment, the parties amended the definitions of “Fixed Charge Coverage Ratio”, “Fixed Charges”, “Funded Debt” and “Working Capital”, modified the maximum amounts and duration of the seasonal overadvance facilities under the Canadian and U.S. Revolving Credit Facilities and modified the Minimum Fixed Charge Coverage Ratio and the Maximum Senior Funded Debt to EBITDA Ratio.
  On August 9, 2010, Lower Lakes Transportation Company, Lower Lakes Towing Ltd. and Grand River Navigation Company, Inc., as borrowers, Rand LL Holdings Corp., Rand Finance Corp. and the Company, as guarantors, General Electric Capital Corporation, as agent and a lender, and certain other lenders entered into a Third Amendment to the Amended and Restated Credit Agreement (the “Third Amendment”), amending the Amended and Restated Credit Agreement to which the borrowers are a party, dated as of February 13, 2008.
  The Third Amendment provided for an additional Canadian dollar denominated term loan in the aggregate amount of CDN $20 million to finance the approximately US $15 million conversion of the Company’s last steam powered vessel, the SS Michipicoten, to diesel power, and certain other capital expenditures.  The Company expects to take the SS Michipicoten out of service in December 2010 and have it fully operational in the spring of 2011.
  The Third Amendment also included (i) a modification to the Senior Funded Debt to EBITDA Ratio and (ii) a modification to the ratio of the aggregate appraised orderly liquidation value of all vessels of borrowers to the aggregate outstanding principal amount of the term loans from lenders.  The increased CDN Term Loan (as such term is defined in the Amended and Restated Credit Agreement) is repayable in quarterly installments of CDN $0.7 million commencing December, 2010, increasing to CDN $0.9 million commencing September, 2011 and maturing on April 1, 2013.
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  Preferred Stock and Preferred Stock Dividends
  The Company has accrued, but not paid, its preferred stock dividends since January 1, 2007.  The shares of the series A convertible preferred stock rank senior to the Company’s common stock with respect to liquidation and dividends; are entitled to receive a cash dividend at the annual rate of 7.75% (based on the $50 per share issue price), payable quarterly (subject to increases of 0.5% for each six month period in respect of which the dividend is not paid in cash, up to a maximum of 12%, subject to reversion to 7.75% upon payment of all accrued and unpaid dividends); are convertible into shares of the Company’s common stock at any time at the option of the series A preferred stockholder at a conversion price of $6.20 per share (based on the $50 per share issue price and subject to adjustment) or 8.065 shares of common stock for each Series A Preferred Share (subject to adjustment); are convertible into shares of the Company’s common stock (based on a conversion price of $6.20 per share, subject to adjustment) at the option of the Company if, after the third anniversary of our acquisition of Lower Lakes, the trading price of the Company’s common stock for 20 trading days within any 30 trading day period equals or exceeds $8.50 per share (subject to adjustment); may be redeemed by the Company in connection with certain change of control or acquisition transactions; will vote on an as-converted basis with the Company’s common stock; and have a separate vote over certain material transactions or changes involving the Company. The accrued dividend payable at September 30, 2010 was $6.2 million and at March 31, 2010 was $5.1 million.  As of September 30, 2010, the effective rate of preferred dividends was 11.25%.  During the three month period ended September 30, 2009, the effective rate of preferred dividends was 10.25%.  The dividend rate increased to 11.25% effective July 1, 2010 and will increase 0.5% every six months thereafter until it reaches 12% or 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 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 invested $1.8 million in accrued capital expenditures and drydock expenses during the six month period ended September 30, 2010, including $304 relating to carryover from the 2010 winter season. Our capital expenditures and drydock expenses accrued for the total 2010 winter season were approximately $7.5 million.
  The Company will be converting Lower Lakes’ last steam powered vessel, the SS Michipicoten, to diesel power consistent with the engine replacement completed on the Saginaw in 2008. The Company expects to take the vessel out of service in December 2010 and have it fully operational in the spring of 2011.  This project is estimated to cost approximately US $15 million and is expected to generate an annual return on invested funds in the mid teens.  The benefits of the conversion include increased revenues from higher speeds and lower costs from reduced fuel consumption, labor, maintenance and other operating expenses.  As of November 9, 2010, the Company had signed contractual commitments with several suppliers totaling $8.3 million and made $7.4 million of payments in connection with the repowering project.
  Foreign Exchange Rate Risk
  We have foreign currency exposure related to the currency related remeasurements 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 September 30, 2010, our liability for financial instruments with exposure to foreign currency risk was approximately CDN $62.9 million of term borrowings in Canada.  At September 30, 2010, we had no revolving borrowings in Canada.  Although we have tried to match our indebtedness and cash flows from earnings by country, a sudden change in exchange rates can increase the indebtedness as converted to U.S. dollars before operating cash flows can make up for such a currency rate change.
  From a cash flow perspective, our operations are partially insulated against changes in currency rates as operations in Canada and the United States have revenues and expenditures denominated in local currencies. However, as stated above, the majority of our financial liabilities are denominated in Canadian dollars which exposes us to currency risks related to principal payments and interest payments on such financial liability instruments.
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  Interest Rate Risk
  We are exposed to changes in interest rates associated with any revolver indebtedness although there were no such borrowings on September 30, 2010.  We are also exposed to CDN $35.7 million of our term loans under our Amended and Restated Credit Agreement.  Interest rates on such revolver debt and Canadian term debt vary with Canadian Prime Rates and B.A. Rates for Canadian borrowings, and U.S. Prime Rates and Libor Rates on U.S. borrowings.
  As of September 30, 2010, we held two interest rate swap contracts for approximately 56% of our term loans for the remaining term of such loans based on three month BA rates for the Canadian term loans and three month U.S. Libor rates for the U.S. term loans, which were set in February 2008.  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 U.S. term loans. We will be exposed to interest rate risk under our interest rate swap contracts if such contracts are required to be amended or terminated earlier than their termination dates.
  Critical accounting policies
  Rand’s significant accounting policies are presented in Note 1 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 Recognition
  The Company generates revenues from freight billings under contracts of affreightment (voyage charters) generally on a rate per ton basis based on origin-destination and cargo carried. Voyage revenue is recognized ratably over the duration of a voyage based on the relative transit time in each reporting period when the following conditions are met: the Company has a signed contract of affreightment, the contract price is fixed or determinable and collection is reasonably assured.  Included in freight billings are other fees such as fuel surcharges and other freight surcharges, which represent pass-through charges to customers for toll fees, lockage fees and ice breaking fees paid to other parties.  Fuel surcharges are recognized over the duration of the voyage, while freight surcharges are recognized when the associated costs are incurred. Freight surcharges are less than 5% of total revenue.
  The Company subcontracts excess customer demand to other freight providers.  Service to customers under such arrangements is transparent to the customer and no additional services are provided to customers.  Consequently, revenues recognized for customers serviced by freight subcontractors are recognized on the same basis as described above.  Costs for subcontracted freight providers, presented as “outside voyage charter fees” on the consolidated statement of operations, are recognized as incurred and are thereby recognized ratably over the voyage.
  In addition, all revenues are presented on a gross basis.
  Intangible assets and goodwill
  Intangible assets consist primarily of goodwill, financing costs, trademarks, trade names and customer relationships and contracts. Other intangibles are amortized as follows:
  Trademarks and trade names
10 years straight-lineCustomer relationships and contracts
15 years straight-line
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 Index
  Although customer contracts have a typical duration of only three to five years, the Company has experienced a consistent track record of serial renewals by its significant contract customers (and such customers comprise most of the Company’s business).  The Company’s customer relationships are fortified by the fact that there are a limited number of Great Lakes shipping companies as well as a declining number of vessels operating on the Great Lakes.  The Company has an additional advantage in that it operates half of the vessels on the Great Lakes which are classified as “river-class vessels” and capable of accessing docks and customers not accessible to larger vessels.  Accordingly, customers have a substantial interest in protecting their Great Lakes transportation relationships.  Based on the foregoing, and in compliance with SFAS 142, the Company has determined that 15 years is the most appropriate “best estimate” amortization period for its customer relationships and contracts. The Company has estimated a 10 year useful life for its trademarks and trade names. In accordance with ASC350-30-35 “Determining the Life of an Intangible Asset”, since the Company cannot reliably determine the pattern of economic benefit of the use of the customer relationships and trademarks and trade names, the Company has determined that the straight line amortization is appropriate.
  Deferred financing costs are amortized on a straight-line basis over the term of the related debt, which approximates the effective interest method.
  Impairment of Fixed Assets and Intangible Assets with Finite Lives
  Fixed assets and finite-lived intangible assets are tested for impairment when a triggering event occurs. Examples of such triggering events include a significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related assets, a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business, and a significant change in the operations of an acquired business. The Company has determined that there were no adverse changes in our markets or other triggering events that could affect the valuation of our assets during the six month period ended September 30, 2010.
  Impairment of Goodwill
  As of March 31, 2010, the Company made its annual test of goodwill. Significant assumptions are inherent in this process, including estimates of our undiscounted cash flows, discount rates, comparable companies and comparable transactions. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets. The Company presently has no intangible assets not subject to amortization other than goodwill. The fair market values of each of our reporting units exceeded the sum of the carrying values of those reporting units at March 31, 2010  The Company has determined that there were no adverse changes in our markets or other triggering events that could affect the valuation of our goodwill during the six month period ended September 30, 2010.
  Income taxes
  The Company accounts for income taxes in accordance with ASC 740 “Income Taxes”, which requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of tax assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.  A valuation allowance is recognized, if necessary, to measure tax benefits to the extent that, based on available evidence, it is more likely than not that they will be realized. The determination to set up a valuation allowance is dependent on (1) management’s estimates of whether taxable income in future periods for each taxable entity is sufficient that deferred income tax assets will be realized, except for the change in foreign exchange loss, based on the performance of the entity and the expected timing of the reversal of the deferred tax liabilities, and (2) tax net operating losses in particular entities in recent years. Such management estimates are subject to uncertainty.
  Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Establishing accruals for tax benefits requires management to make estimates and assessments with respect to the ultimate outcome of tax audit issues (if any) and amounts recorded on financial statements. The ultimate resolution of such uncertain tax benefits may differ from management’s estimate, potentially impacting the Company’s results of operations, cash flows, or financial position.  However, the impact of the Company’s reassessment of its tax positions did not have a material effect on the results of operations, financial condition or liquidity.
  Stock-Based Compensation
  The Company recognizes compensation expense for all newly granted awards and awards modified, repurchased or cancelled using the modified prospective method as per ASC 718 “Compensation-Stock Compensation”.
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  Recently Issued Pronouncements
  Fair value measurements
  In January 2010, the FASB issued ASU 2010-06, "Improving Disclosures about Fair Value Measurements". This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The Company adopted the guidance in ASU 2010-06 on April 1, 2010, except for the requirements related to Level 3 disclosures, which will be effective for annual and interim reporting periods beginning after December 15, 2010.  This adoption only expanded disclosures and did not have any impact on the Company’s consolidated financial statements.
  Consolidation of variable interest entities
  In December 2009, the FASB issued Accounting Standards Update No. 2009-17, “Improvements to Financial Reporting byEnterprisesInvolved with Variable Interest Entities” amending the FASB Accounting Standards Codification. The amendments in ASU 2009-17 replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance and has either (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity.  An approach that is expected to be primarily qualitative will be more effective for identifying which enterprise has a controlling financial interest in a variable interest entity.  The amendments in ASU 2009-17 also require additional disclosures about an enterprise’s involvement in variable interest entities, which will enhance the information provided to users of financial statements.  This update became effective as of the first annual reporting period beginning after November 15, 2009 and interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter.  The Company adopted the guidance in ASU 2009-17 on April 1, 2010. The required disclosure under ASU 2009-17 is presented in Note 20 of the consolidated financial statements for September 30, 2010.
  Multiple-deliverable revenue arrangements
  In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, which amends ASC 605-25.  ASU 2009-13 modifies how consideration is allocated for the purpose of revenue recognition in multiple-element arrangements based on an element's estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2010. The company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the company.
  Equity: Accounting for distributions to shareholders with components of stock and cash
  In January 2010, the FASB issued Accounting Standards Update 2010-01, “Equity: Accounting for distributions to shareholderswithcomponents of stock and cash”.  ASU 2010-01 amends the ASC to clarify that the stock portion of a distribution to stockholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. ASU 2010-01 is effective for fiscal years beginning after December 15, 2009.   The Company adopted the guidance in ASU 2010-01 on April 1, 2010 which did not have any impact on the Company’s financial statements.
  Consolidation: Accounting and reporting for decreases in ownership of a subsidiary – a scope clarification
  In January 2010, the FASB issued Accounting Standards Update 2010-02, “Consolidation: Accounting and Reporting for Decreases in Ownership of a Subsidiary – A Scope Clarification”.  ASU 2010-02 amends the ASC to clarify that the scope of the decrease in ownership provisions and related guidance applies to:  (i) a subsidiary or group of assets that is a business or nonprofit activity; (ii) a subsidiary that is a business or nonprofit activity that is transferred to an equity method or joint venture; (iii) an exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity (including an equity-method investee or joint venture); and (iv) a decrease in ownership in a subsidiary that is not a business or nonprofit activity when the substance of the transaction causing the decrease in ownership is not addressed in other authoritative guidance.  If no other guidance exists, an entity should apply the guidance in ASC 810-10.  ASU 2010-02 is effective for fiscal years beginning on or after December 15, 2009. The Company adopted the guidance in ASU 2010-02 on April 1, 2010, which did not have any impact on our consolidated financial statements as we have not had such decreases in ownership of our subsidiaries.
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  Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
  In July 2010, the FASB issued ASU 2010-20, “Receivables (“Topic 310”) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”).  ASU 2010-20 requires a company to disclose information that provides financial statement users more information about the credit quality of a creditor’s financing receivables and the adequacy of its allowance for credit losses. Short-term accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from the ASU 2010-20. For public companies, the amendments that require disclosure as of the end of a reporting period and the amendments that requires disclosures for activity that occurs during a reporting period are effective for periods ending on or after December 15, 2010. The Company does not believe that the adoption of ASU 2010-20 will have a material impact on the Company’s financial position, results of operation, or cash flows.
  Item3.  Quantitative and Qualitative Disclosures About Market Risk.
  We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
  Item4T.  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 September 30, 2010.
  No change occurred in our internal controls concerning financial reporting during the three month period ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
  PARTII. 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.
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  Item1A.  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, 2010.
  Item2.  Unregistered Sales of Equity Securities and Use of Proceeds.
  None.
  Item3.  Defaults Upon Senior Securities.
  None.
  Item4.  Reserved.
  None.
  Item5.  Other Information.
  None.
  Item6.  Exhibits.
  (a) Exhibits
  31.1
Chief Executive Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
Chief Financial Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
Chief Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
Chief 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.
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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: November 9, 2010

/s/ Laurence S. LevyLaurence S. LevyChairman of the Board andChief Executive Officer

(Principal Executive Officer)Date: November 9, 2010

/s/ Joseph W. McHugh, Jr.Joseph W. McHugh, Jr.Chief Financial Officer

(Principal Financial and Accounting Officer)
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  Exhibit Index
 
 31.1
Chief Executive Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
Chief Financial Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
Chief Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
Chief 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.