Rand Logistics (RLOG) 10-Q 2012 Q3 Quarterly report

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 1934
	For the Quarterly Period Ended December 31, 2011
or
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Transition Period from                    to

Commission File Number: 001-33345

___________________

RAND LOGISTICS, INC.

(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number, including area code:

(212) 644-3450

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £	Accelerated 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

17,674.031 shares of Common Stock, par value $.0001, were outstanding at February 9, 2012.

RAND LOGISTICS, INC.

INDEX

PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements.	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	33
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	52
Item 4. Controls and Procedures.	52
PART II. OTHER INFORMATION	52
Item 1. Legal Proceedings.	52
Item 1A. Risk Factors.	52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	52
Item 3. Defaults Upon Senior Securities.	52
Item 4. Reserved.	53
Item 5. Other Information.	53
Item 6. Exhibits.	53

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

RAND LOGISTICS, INC.

Consolidated Balance Sheets (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

	December 31, 2011			March 31, 2011
ASSETS
CURRENT
Cash and cash equivalents	$	5,373		$	4,508
Accounts receivable, net (Note 3)	25,146			6,991
Prepaid expenses and other current assets (Note 4)	6,244			4,474
Income taxes receivable	—			49
Deferred income taxes	135			161
Total current assets	36,898			16,183
PROPERTY AND EQUIPMENT, NET (Note 6)	190,680			166,692
LOAN TO EMPLOYEE	250			250
OTHER ASSETS	429			363
DEFERRED DRYDOCK COSTS, NET (Note 7)	7,441			6,523
INTANGIBLE ASSETS, NET (Note 8)	16,458			15,306
GOODWILL (Note 8)	10,193			10,193
Total assets	$	262,349		$	215,510
LIABILITIES
CURRENT
Bank indebtedness (Note 10)	$	—		$	—
Accounts payable	12,237			12,386
Accrued liabilities (Note 11)	18,107			22,218
Interest rate swap contracts (Note 19)	1,358			1,895
Income taxes payable	288			—
Deferred income taxes	265			603
Subordinated note (Note 9)	—			1,482
Current portion of deferred payment liability (Note 9)	377			382
Current portion of long-term debt  (Note 12)	8,900			7,178
Total current liabilities	41,532			46,144
LONG-TERM PORTION OF DEFERRED PAYMENT LIABILITY (Note 9)	2,220			2,507
LONG-TERM DEBT  (Note 12)	125,092			104,993
OTHER LIABILITIES	242			238
DEFERRED INCOME TAXES	5,229			3,299
Total liabilities	174,315			157,181
COMMITMENTS AND CONTINGENCIES (Notes 13 and 14)
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value, Authorized 1,000,000 shares, Issued and outstanding 300,000 shares (Note 15)	14,900			14,900
Common stock, $.0001 par value Authorized 50,000,000 shares, Issuable and outstanding 17,674,031 shares (Note 15)	1			1
Additional paid-in capital	87,709			71,503
Accumulated deficit	(15,570		)	(30,666		)
Accumulated other comprehensive income	994			2,591
Total stockholders’ equity	88,034			58,329
Total liabilities and stockholders’ equity	$	262,349		$	215,510

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

1

RAND LOGISTICS, INC.

Consolidated Statement of Operations (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

	Three Months ended December 31, 2011			Three Months ended December 31, 2010			Nine Months ended December 31, 2011			Nine Months ended December 31, 2010
REVENUE
Freight and related revenue	$	35,917		$	27,331		$	101,775		$	86,043
Fuel and other surcharges	12,800			6,432			36,972			19,117
Outside voyage charter revenue	619			2,850			1,321			7,056
TOTAL REVENUE	49,336			36,613			140,068			112,216
EXPENSES
Outside voyage charter fees (Note 16)	615			2,831			1,312			7,032
Vessel operating expenses	32,076			23,389			91,907			73,113
Repairs and maintenance	36			74			1,068			118
General and administrative	2,558			2,416			7,987			7,080
Depreciation	2,903			1,818			8,636			5,376
Amortization of drydock costs	792			696			2,263			2,070
Amortization of intangibles	322			294			991			873
Loss (gain) on foreign exchange	16			2			(51		)	7
	39,318			31,520			114,113			95,669
OPERATING INCOME	10,018			5,093			25,955			16,547
OTHER (INCOME) AND EXPENSES
Interest expense (Note 17)	2,346			1,503			6,786			4,161
Interest income	(2		)	(11		)	(4		)	(34		)
Gain on interest rate swap contracts (Note 19)	(397		)	(508		)	(488		)	(131		)
	1,947			984			6,294			3,996
INCOME BEFORE INCOME TAXES	8,071			4,109			19,661			12,551
PROVISION (RECOVERY) FOR INCOME TAXES (Note 5)
Current	95			(178		)	417			(4		)
Deferred	618			450			2,079			(367		)
	713			272			2,496			(371		)
NET INCOME BEFORE PREFERRED STOCK DIVIDENDS	7,358			3,837			17,165			12,922
PREFERRED STOCK DIVIDENDS	715			597			2,069			1,719
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS	$	6,643		$	3,240		$	15,096		$	11,203
Net income per share basic (Note 20)	$	0.38		$	0.24		$	0.95		$	0.84
Net income per share diluted (Note 20)	$	0.37		$	0.24		$	0.93		$	0.82
Weighted average shares basic	17,671,114			13,466,879			15,894,463			13,404,338
Weighted average shares diluted	20,141,349			13,466,879			18,399,571			15,823,693

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

2

RAND LOGISTICS, INC.

Statement of Stockholders' Equity and Other Comprehensive Income (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

	Common Stock			Preferred Stock			Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Comprehensive Income			Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balances, March 31, 2010	13,404,649	$	1	300,000	$	14,900	$	63,906	$	(28,421	)	$	1,092		$	9,413		$	51,478
Net income	—	—		—	—		—		115			—			115			115
Preferred stock dividends	—	—		—	—		—		(2,360		)	—			—			(2,360		)
Stock issued in lieu of cash compensation	15,153	—		—	—		74		—			—			—			74
Stock issued under employees retirement plan	2,434	—		—	—		13		—			—			—			13
Stock issued under asset purchase agreement	1,305,963	—		—	—		6,758		—			—			—			6,758
Restricted stock issued (Note 15)	37,133	—		—	—		197		—			—			—			197
Unrestricted stock issued (Note 15)	14,007	—		—	—		76		—			—			—			76
Stock options issued (Note 15)	—	—		—	—		479		—			—			—			479
Translation adjustment	—	—		—	—		—		—			1,499			1,499			1,499
Balances, March 31, 2011	14,779,339	$	1	300,000	$	14,900	$	71,503	$	(30,666	)	$	2,591		$	1,614		$	58,329
Net income	—	—		—	—		—		3,329			—			3,329			3,329
Preferred stock dividends	—	—		—	—		—		(660		)	—			—			(660		)
Restricted stock issued (Note 15)	86,217	—		—	—		685		—			—			—			685
Unrestricted stock issued (Note 15)	2,565	—		—	—		19		—			—			—			19
Stock options issued (Note 15)	—	—		—	—		65		—			—			—			65
Translation adjustment	—	—		—	—		—		—			106			106			106
Balances, June 30, 2011	14,868,121	$	1	300,000	$	14,900	$	72,272	$	(27,997	)	$	2,697		$	3,435		$	61,873
Net income	—	—		—	—		—		6,478			—			6,478			6,478
Preferred stock dividends	—	—		—	—		—		(694		)	—			—			(694		)
Unrestricted stock issued (Note 15)	2,961	—		—	—		19		—			—			—			19
Stock issued (Note 15)	2,800,000	—		—	—		15,400		—			—			—			15,400
Translation adjustment	—	—		—	—		—		—			(2,844		)	(2,844		)	(2,844		)
Balances, September 30, 2011	17,671,082	$	1	300,000	$	14,900	$	87,691	$	(22,213	)	$	(147	)	$	3,634		$	80,232
Net income	—	—		—	—		—		7,358			—			7,358			7,358
Preferred stock dividends	—	—		—	—		—		(715		)	—			—			(715		)
Unrestricted stock issued (Note 15)	2,949	—		—	—		18		—			—			—			18
Translation adjustment	—	—		—	—		—		—			1,141			1,141			1,141
Balances, December 31, 2011	17,674,031	$	1	300,000	$	14,900	$	87,709	$	(15,570	)	$	994		$	8,499		$	88,034

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

3

RAND LOGISTICS, INC.

Consolidated Statements of Cash Flows (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

	Nine Months ended December 31, 2011			Nine Months ended December 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	17,165		$	12,922
Adjustments to reconcile net income to net cash provided  by operating activities
Depreciation and amortization of drydock costs	10,899			7,446
Amortization of intangibles and deferred financing costs	1,678			1,261
Deferred income taxes	2,079			(367		)
Gain on interest rate swap contracts	(488		)	(131		)
Equity compensation	807			733
Deferred drydock costs paid	(3,300		)	(188		)
Changes in operating assets and liabilities:
Accounts receivable	(18,155		)	(14,247		)
Prepaid expenses and other current assets	(1,770		)	(131		)
Accounts payable and accrued liabilities	3,356			(446		)
Other assets and liabilities	(62		)	115
Income taxes payable (net)	337			(65		)
	12,546			6,902
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(18,235		)	(12,477		)
Purchase of vessels	(28,747		)	—
	(46,982		)	(12,477		)
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred payment liability obligation	(292		)	—
Proceeds from equity offering	15,400			—
Proceeds from long-term debt	29,121			18,753
Repayment of subordinated note	(1,482		)	—
Long-term debt repayment	(4,248		)	(2,840		)
Debt financing cost	(3,508		)	(479		)
Proceeds from bank indebtedness	27,052			13,797
Repayment of bank indebtedness	(26,452		)	(13,501		)
	35,591			15,730
EFFECT OF FOREIGN EXCHANGE RATES ON CASH	(290		)	923
NET  INCREASE IN CASH AND CASH EQUIVALENTS	865			11,078
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	4,508			943
CASH AND CASH EQUIVALENTS, END OF  PERIOD	$	5,373		$	12,021
SUPPLEMENTAL CASH FLOW DISCLOSURE
Payments for interest	$	6,294		$	4,024
Unpaid purchases of property and equipment	$	2,306		$	529
Unpaid purchases of deferred drydock cost	$	1,082		$	485
Payment of income taxes	$	57		$	286
Capitalized interest	$	172		$	—

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

4

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”), Rand LL Holdings Corp. (“Rand LL Holdings”) and Black Creek Holding Company, Inc. (“Black Creek Holdings”), 100% subsidiaries of the Company, the accounts of Lower Lakes Towing Ltd. (“Lower Lakes”), Lower Lakes Transportation Company (“Lower Lakes Transportation”) and Grand River Navigation Company, Inc. (“Grand River ”), each of which is a 100% subsidiary of Rand LL Holdings, and Black Creek Shipping Company, Inc. (“Black Creek”), which is a 100% subsidiary of Black Creek Holdings.

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. In the opinion of management, the interim financial statements contain all adjustments necessary (consisting of normal recurring accruals) to present fairly the financial information contained herein. Operating results for the interim period presented are not necessarily indicative of the results to be expected for a full year, in part due to the seasonal nature of the business. The comparative balance sheet amounts are derived from the March 31, 2011 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 year ended March 31, 2011.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts receivable and concentration of credit risk

The majority of the Company’s accounts receivable are amounts due from customers and other accounts receivable, including insurance and Harmonized Sales Tax refunds.  The majority of accounts receivable are due within 30 to 60 days and are stated at amounts due from customers net of an allowance for doubtful accounts. The Company extends credit to its customers based upon its assessment of their creditworthiness and past payment history. Accounts outstanding longer than the contractual payment terms are considered past due. The Company has historically had no significant bad debts. Interest is not accrued on outstanding receivables.

5

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 provided to customers.  Consequently, revenues recognized for customers serviced by freight subcontractors are recognized on the same basis as described above.  Costs for subcontracted freight providers, presented as “outside voyage charter fees” in the consolidated statements of operations, are recognized as incurred and thereby are recognized ratably over the voyage.

The Company accounts for sales taxes imposed on its services on a net basis in the consolidated statements of operations.

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

Vessel acquisitions

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

Fuel and lubricant inventories

Raw materials, fuel and operating supplies are accounted for on a first-in, first-out cost method (based on monthly averages). Raw materials and fuel are stated at the lower of actual cost (first-in, first-out method) or market. Operating supplies are stated at actual cost or average cost.

Intangible assets and goodwill

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

Trademarks and trade names	10 years straight-line
Customer relationships and contracts	15 years straight-line

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

6

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	5 - 25 years straight-line
Leasehold improvements	7 - 11 years straight-line
Vehicles	20% declining-balance
Furniture and equipment	20% declining-balance
Computer equipment	45% declining-balance
Communication equipment	20% declining-balance

Impairment of fixed assets

Fixed assets (e.g. property and equipment) and finite-lived intangible assets (e.g. customer lists) are tested for impairment upon the occurrence of a triggering event that indicates the carrying value of such an asset 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 nine month period ended December 31, 2011.

Impairment of goodwill

The Company annually reviews the carrying value of goodwill to determine whether impairment may exist. Accounting Standards Codification (“ASC”) 350 “Intangibles-Goodwill and Other” requires that goodwill and certain intangible assets be assessed annually for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of fair value of the Company’s two reporting units, which are the Company’s Canadian and US operations (excluding the parent), are determined using various valuation techniques with the primary techniques being a discounted cash flow analysis and peer analysis. A discounted cash flow analysis requires various judgmental assumptions, including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s forecast and long-term estimates. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of

7

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)

goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.  As of March 31, 2011, the Company conducted an annual test and determined that the fair value of its two reporting units exceeded their carrying amounts and the second step of the impairment testing was therefore not necessary.  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 nine month period ended December 31, 2011.

Drydock costs

Drydock costs incurred during statutory Canadian and United States certification processes are capitalized and amortized on a straight-line basis over the benefit period, which is generally 60 months. Drydock costs include costs of work performed by third party shipyards and subcontractors and other direct expenses to complete the mandatory certification process.

Repairs and maintenance

The Company’s vessels require repairs and maintenance each year to ensure the fleet is operating efficiently during the shipping season.  The majority of repairs and maintenance are completed in January, February, and March of each year when the vessels are inactive.  The Company expenses such routine repairs and maintenance costs.  Significant repairs to the Company’s vessels, whether owned or available to the Company under a time charter, such as major engine overhauls and major hull steel repairs, are capitalized and amortized over the remaining life of the asset repaired or the remaining lease term.

Income taxes

The Company accounts for income taxes in accordance with ASC 740 “Income Taxes”, which requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of tax assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.  A valuation allowance is recognized, if necessary, to measure tax benefits to the extent that, based on available evidence, it is more likely than not that they will be realized.

The Company classifies interest expense related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense.  To date, the Company has not incurred material interest expenses or penalties relating to assessed taxation amounts.

There have been no recent examinations by the U.S. taxing authorities. The Company was examined by the Canadian taxing authority for the tax years 2009 and 2010 and the examination is now complete.  This audit did not result in any material adjustments for such periods. The Company's primary U.S. state income tax jurisdictions are Illinois, Indiana, Michigan, Minnesota, Ohio and New York and its only international jurisdictions are Canada and its province of Ontario. The following table summarizes the open tax years for each major jurisdiction:

Jurisdiction	Open Tax Years
Federal (USA)	2007 – 2011
Various states	2007 – 2011
Federal (Canada)	2007 – 2011
Ontario	2007 – 2011

8

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)

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.

Advertising costs

The Company expenses all advertising costs as incurred. These costs are included in general and administrative costs and were insignificant during the periods presented.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates included in the preparation of these financial statements include the assumptions used in determining the useful lives of long-lived assets, the assumptions used in determining whether assets are impaired, the assumptions used in determining the valuation allowance for deferred income tax assets and the assumptions used in stock based compensation awards. Actual results could differ from those estimates.

Stock-based compensation

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

Financial instruments

The Company accounts for its two interest rate swap contracts on its term debt utilizing ASC 815 “Derivatives and Hedging”. All changes in the fair value of the swap contracts are recorded in earnings and the fair value of settlement costs to terminate the contracts are included in current liabilities on the consolidated balance sheets. Disclosure requirements of ASC 815 are disclosed in Note 19.

Fair value of financial instruments

ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and establishes a hierarchy that categorizes and prioritizes the inputs to be used to estimate fair value. The three levels of inputs used are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The disclosure requirements of ASC 820 related to the Company’s financial assets and liabilities are presented in Note 19.

9

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

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

In December 2010, the FASB issued Accounting Standards Update (“ASU”)No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350)—Intangibles—Goodwill and Other” (“ASU 2010-28”). ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years beginning on or after December 15, 2010. The adoption of ASU 2010-28 became effective for the Company on April 1, 2011 and it did not have any impact on the Company’s consolidated financial statements.

Disclosure of supplementary pro forma information for business combinations

In December 2010, the FASB issued ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”), which addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in ASU 2010-29 also expand the supplemental pro forma disclosure to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after December 15, 2010. The Company adopted ASU 2010-29 effective April 1, 2011.

Amendments to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) — Fair Value Measurement”(“ASU 2011-04”), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The amendments are not expected to have a significant impact on companies that apply U.S. GAAP. This standard is effective for interim and annual periods beginning after December 15, 2011 and will be applied prospectively. The Company is currently evaluating the impact of adoption of ASU 2011-04 on the consolidated financial statements.

Presentation of comprehensive income

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”(“ASU 2011-05”). ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued ASU No. 2011-12, "Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05" ("ASU 2011-12"), to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. The Company will adopt this guidance in the first quarter of fiscal 2013. The adoption of ASU 2011-05 and the deferrals in ASU 2011-12 are not expected to have a material impact on the Company's consolidated financial statements.

10

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)

Testing goodwill for impairment

On September 15, 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”).  ASU 2011-08 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test prescribed by current accounting principles. The quantitative impairment test is required if an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not(a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. An entity can choose to perform the qualitative assessment on none, some or all of its reporting units.  An entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative goodwill impairment test, and then resume performing the qualitative assessment in any subsequent period.  ASU2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted.  The Company is currently reviewing the effects of ASU 2011-08.

Disclosures about offsetting assets and liabilities

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

3. ACCOUNTS RECEIVABLE

Trade receivables are presented net of an allowance for doubtful accounts. The allowance was $Nil as of December 31, 2011 and March 31, 2011.The Company manages and evaluates the collectability of its trade receivables as follows: management reviews aged accounts receivable listings and contact is made with customers that have extended beyond agreed upon credit terms. Senior management and operations are notified so that when they are contacted by such customers for a future delivery, they can request that the customer pay any past due amounts before any future cargo is booked for shipment. Customer credit risk is also managed by reviewing the history of payments by the customer, the size and credit quality of the customer, the period of time remaining within the shipping season and demand for future cargos.

4. PREPAIDEXPENSES AND OTHER CURRENT ASSETS

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

	December 31, 2011		March 31, 2011
Prepaid insurance	$	121	$	79
Fuel and lubricants	4,891		3,372
Deposits and other prepaids	1,232		1,023
	$	6,244	$	4,474

11

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

5. INCOME TAXES

The Company's effective tax rate was an expense of 12.7% for the nine month period ended December 31, 2011 compared to a tax benefit of 3.0% for the nine month period ended December 31, 2010.

The Company had an income tax expense in the amount of $2,496 for the nine month period ended December 31, 2011 compared to a tax benefit in the amount of $371 for the nine month period ended December 31, 2010. The change was due to a combination of higher 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 tax rates. The Company also modified its application of the estimated annual effective tax rate method from the jurisdictional based effective tax rate method utilized in the previous year to the consolidated worldwide effective tax rate approach, due to forecasted income in the United States in the current year.

The effective tax rate for the current and prior fiscal periods were lower than the statutory tax rate due to the tax benefit associated with the reduction of the valuation allowance related to the net U.S. Federal deferred tax assets. The Company did not record a U.S. Federal tax provision for the Company’s U.S. operations, as the benefit associated with the release of the valuation allowance was partially offset by unfavorable permanent book to tax differences.

The Company had unrecognized tax benefits of approximately $153 at December 31, 2011 associated with tax positions taken in the current year, all of which, if recognized, would impact the effective tax rate.  The Company had no unrecognized tax benefits at March 31, 2011.  The Company did not incur any income tax related interest expense or penalties related to uncertain tax positions during the nine month periods ended December 31, 2011 or 2010.

6. PROPERTY AND EQUIPMENT

Property and equipment are comprised of the following:

	December 31, 2011		March 31, 2011
Cost
Vessels	$	226,808	$	195,637
Leasehold improvements	2,300		2,245
Furniture and equipment	301		292
Vehicles	22		23
Computer, communication equipment and purchased software	2,908		2,511
	$	232,339	$	200,708
Accumulated depreciation
Vessels	$	39,209	$	31,953
Leasehold improvements	980		820
Furniture and equipment	149		132
Vehicles	11		10
Computer, communication equipment  and purchased software	1,310		1,101
	41,659		34,016
	$	190,680	$	166,692

12

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

7. DEFERRED DRYDOCK COSTS

Deferred drydock costs are comprised of the following:

	December 31, 2011		March 31, 2011
Drydock expenditures	$	19,190	$	16,367
Accumulated amortization	11,749		9,844
	$	7,441	$	6,523

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

Balance as of March 31, 2010	$	7,129
Drydock costs accrued	2,010
Amortization of drydock costs	(2,779		)
Foreign currency translation adjustment	163
Balance as of March 31, 2011	$	6,523
Drydock costs accrued	334
Amortization of drydock costs	(739		)
Foreign currency translation adjustment	18
Balance as of June 30, 2011	$	6,136
Drydock costs accrued	36
Amortization of drydock costs	(733		)
Foreign currency translation adjustment	(346		)
Balance as of September 31, 2011	$	5,093
Drydock costs accrued	3,061
Amortization of drydock costs	(791		)
Foreign currency translation adjustment	78
Balance as of December 31, 2011	$	7,441

13

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:

	December 31, 2011		March 31, 2011
Intangible assets
Deferred financing costs	$	6,172	$	2,964
Trademarks and trade names	1,009		1,044
Customer relationships and contracts	17,914		18,543
Total identifiable intangibles	$	25,095	$	22,551
Accumulated amortization
Deferred financing costs	$	2,127	$	1,498
Trademarks and trade names	588		530
Customer relationships and contracts	5,922		5,217
Total accumulated amortization	8,637		7,245
Net intangible assets	$	16,458	$	15,306
Goodwill	$	10,193	$	10,193

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

2012	$	2,575
2013	2,575
2014	2,485
2015	1,590
2016	1,212
	$	10,437

9. VESSEL ACQUISITIONS

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

The estimated fair values of assets acquired were as follows:

Current assets	$	94
Property and equipment	45,000
Other identifiable intangible assets	1,836
	$	46,930

14

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

9. VESSEL ACQUISITIONS (continued)

The Asset Purchase Agreement provided for the Sellers to use their commercially reasonable efforts to seek the consent to the assignment to Black Creek of certain vessel transportation agreements pursuant to which the Sellers and their affiliates provide freight transportation services to third parties (each such agreement, a “VTA”).  As of March 31, 2011, all of the VTAs had been assigned to Black Creek.  The Asset Purchase Agreement also provided for Black Creek to assume the Sellers’ and their affiliates’ obligations relating to winter work and maintenance that was being performed on the Vessels at the time of their acquisition.

The Note, dated February 11, 2011, bore interest at a rate of 6% per annum and all principal and interest thereon was due and paid on December 15, 2011.

On February 11, 2011, the Company entered into a guaranty (the “Guaranty”) to and for the benefit of each of the Sellers pursuant to which the Company guaranteed Black Creek Holdings’ obligations to make the Deferred Payments and under the Note.

The acquisition of the Vessels was financed in part by the Black Creek credit agreement described in Note 12 and the issuance of shares of the Company’s common stock described in Note 15.

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

On October 14, 2011, Lower Lakes completed the acquisition of the bulk carrier M/V TECUMSEH, pursuant to the terms of an Asset Purchase Agreement, dated as of September 21, 2011, by and among Lower Lakes, Grand River and U.S. United Ocean Service, LLC ("USUOS"). Lower Lakes purchased the Vessel for $5,250, plus the value of the remaining bunkers and unused lubricating oils on board the Vessel at the closing of the acquisition. The acquisition was funded by the proceeds from the equity offering described in Note 15.

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

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

The acquisitions of the Barge and the Tug were funded with additional borrowings under the US term loan as discussed in Note 12.

15

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

10. BANK INDEBTEDNESS

As discussed in detail in Note 12, Lower Lakes, Lower Lakes Transportation and Grand River, as borrowers, and Rand LL Holdings, Rand Finance and the Company, as guarantors, entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) with their lenders on September 28, 2011, and on December 1, 2011, entered into a First Amendment (the “Amendment”) to the Second Amended and Restated Credit Agreement.  As of December 31, 2011 and March 31, 2011, the Company had authorized operating lines of credit under the Second Amended and Restated Credit Agreement as amended and the Amended and Restated Credit Agreement, respectively, in the amounts of CDN $13,500 and US $13,500, and was utilizing CDN $Nil as of December 31, 2011 and March 31, 2011 and US $Nil as of December 31, 2011 and March 31, 2011, and maintained letters of credit of CDN $507 as of December 31, 2011 and CDN $1,325 as of March 31, 2011. The Second Amended and Restated Credit Agreement provides that the line of credit bears interest at Canadian Prime Rate plus 3.5% or Canadian 30 day BA rate plus 4.5% on Canadian Dollar borrowings, and the U.S. Base rate plus 3.5% or LIBOR plus 4.5% on U.S. Dollar borrowings, and is secured under the same terms and has the same financial covenants described in Note 12. Such interest rate margins had previously increased by 0.75% on June 28, 2011 under the Fourth Amendment to the previous Amended and Restated Credit Agreement. 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 December 31, 2011 the Company had credit availability of US $16,943 on the combined lines of credit based on eligible receivables and the seasonal overadvance facilities.

11. ACCRUED LIABILITIES

Accrued liabilities are comprised of the following:

	December 31, 2011		March 31, 2011
Deferred financing and other transaction costs	$	238	$	486
Payroll compensation and benefits	2,651		1,250
Preferred stock dividends	9,547		7,477
Professional fees	783		697
Interest	616		693
Winter work, deferred drydock expenditures and capital expenditures	1,003		6,870
Capital and franchise taxes	617		106
Loss contingency on guarantee	—		1,289
Other	2,652		3,350
	$	18,107	$	22,218

16

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

12. LONG-TERM DEBT

On February 13, 2008, Lower Lakes, Lower Lakes Transportation and Grand River, as borrowers, Rand LL Holdings, Rand Finance and the Company, as guarantors, General Electric Capital Corporation, as agent and lender, and certain other lenders, entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which (i) amended and restated the Credit Agreement to which the borrowers were a party, dated as of March 3, 2006 (the “2006 Credit Agreement”), in its entirety, (ii) restructured the tranches of loans provided for under the 2006 Credit Agreement and advanced certain new loans, (iii) financed, in part, the acquisition of the three vessels by Grand River from Wisconsin & Michigan Steamship Company (“WMS”), and (iv) provided working capital financing, funds for other general corporate purposes and funds for other permitted purposes.  The Amended and Restated Credit Agreement provided for (i) a revolving credit facility under which Lower Lakes could borrow up to CDN $13,500 with a combined seasonal overadvance facility of US $10,000 (US $10,000 as of March 31, 2011), and a swing line facility of CDN $4,000 subject to limitations, (ii) a revolving credit facility under which Lower Lakes Transportation could borrow up to US $13,500 with a combined seasonal overadvance facility of US $10,000 (US $10,000 as of March 31, 2011), and a swing line facility of US $4,000 subject to limitations, (iii) a Canadian Dollar denominated term loan facility under which Lower Lakes borrowed CDN $41,700 (iv) a US Dollar denominated term loan facility under which Grand River borrowed US $22,000 and (v) a Canadian Dollar denominated “Engine” term loan facility under which Lower Lakes borrowed CDN $8,000.

Under the Amended and Restated Credit Agreement, as amended, the revolving credit facilities and swing line loans expire on April 1, 2015.  The outstanding principal amount of the Canadian term loan borrowings was repayable as follows: (i) quarterly payments of CDN $695 commencing September 1, 2008 and ending March 1, 2015 and (ii) a final payment in the outstanding principal amount of the Canadian term loan was payable upon the Canadian term loan facility’s maturity on April 1, 2015.  The outstanding principal amount of the US term loan borrowings was repayable as follows: (i) quarterly payments of US $367 commencing September 1, 2008 and ending on March 1, 2015 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, 2015.  The outstanding principal amount of the Canadian “Engine” term loan borrowings was repayable as follows: (i) quarterly payments of CDN $133 commencing September 1, 2008 and ending March 1, 2015 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, 2015. Borrowings under the Canadian revolving credit facility, the Canadian term loan and the Canadian swing line facility bore 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 3.50% per annum or (ii) the BA Rate (as defined in the Amended and Restated Credit Agreement) plus 4.50% per annum.  The US revolving credit facility, the US term loan and the US swing line facility bore interest, at the borrower’s option, equal to (i) LIBOR (as defined in the Amended and Restated Credit Agreement) plus 4.50% per annum, or (ii) the US Base Rate (as defined in the Amended and Restated Credit Agreement), plus 3.50% per annum. Such interest rate margins increased by 0.75% on June 28, 2011 under the Fourth Amendment to the Amended and Restated Credit Agreement. Under the Fourth Amendment, the Canadian “Engine” term loan bore interest at a rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate plus 4.00% per annum or (ii) the BA Rate plus 5.00% per annum.

Obligations under the Amended and Restated Credit Agreement were 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 was unconditionally guaranteed by each other borrower and by the guarantors, and such guaranty was 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 were 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.

17

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

12. LONG-TERM DEBT (continued)

The Amended and Restated Credit Agreement contained 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 required 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 have resulted in the loans under the Amended and Restated Credit Agreement being accelerated.

On June 24, 2008, the Company entered into a First Amendment to the Amended and Restated Credit Agreement with the lenders signatory thereto and General Electric Capital Corporation, as Agent.  Under this amendment, the borrowers amended the definition of “Fixed Charge Coverage Ratio,” modified the formula for the maximum amounts outstanding under the Canadian and US Revolving Credit Facilities and modified the measurement dates of the Maximum Capital Expenditures (as defined therein).

On June 23, 2009, the Company entered into a Second Amendment to the Amended and Restated Credit Agreement. Under this amendment, the parties amended the definitions of “Fixed Charge Coverage Ratio”, “Fixed Charges”, “Funded Debt” and “Working Capital”, modified the maximum amount of the combined seasonal overadvance facilities that was available to borrow from $8,000 to $10,000, the duration of the seasonal overadvance facilities under the Canadian and US Revolving Credit Facilities and the Minimum Fixed Charge Coverage Ratio and the Maximum Senior Funded Debt to EBITDA Ratio.

On August 9, 2010, the Company entered into a Third Amendment to the Amended and Restated Credit Agreement (the “Third Amendment”). The Third Amendment provided for (i) an additional Canadian dollar denominated term loan in the aggregate amount of CDN $20,000 to finance a new engine for the vessel Michipicoten and certain other capital expenditures, (ii) a modification to the Senior Funded Debt to EBITDA Ratio and (iii) a modification to the ratio of the aggregate appraised orderly liquidation value of all vessels of borrowers to the aggregate outstanding principal amount of the term loans from lenders.  The increased CDN Term Loan (as such term is defined in the Amended and Restated Credit Agreement) was repayable in quarterly installments of CDN $695 commencing, December 2010, increasing to CDN $936 commencing, September 2011 and maturing on April 1, 2015 as amended.

On June 28, 2011, Lower Lakes Transportation, Lower Lakes and Grand River and the other Credit Parties thereto entered into a Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with General Electric Capital Corporation, as agent and a lender, and certain other lenders, which further amended the Amended and Restated Credit Agreement.

The Fourth Amendment provided for an increase of the Canadian dollar denominated term loan in the aggregate amount of CDN $4,000 to finance the acquisition of the Maritime Trader and added a customary anti-cash hoarding provision as a condition to further advances under the Amended and Restated Credit Agreement. The Fourth Amendment modified the Canadian revolving credit facility, the Canadian term loan and the Canadian swing line facility to bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as such term was amended by the Fourth Amendment), plus 3.50% per annum or (ii) the BA Rate (as such term was amended by the Fourth Amendment) plus 4.50% per annum. The Fourth Amendment also modified the US revolving credit facility, the US term loan and the US swing line facility to bear an interest rate per annum, at the borrowers’ option, equal to, (i) LIBOR (as defined in the Amended and Restated Credit Agreement) plus 4.50% per annum, or (ii) the US Base Rate (as defined in the Amended and Restated Credit Agreement), plus 3.50% per annum. Under the Fourth Amendment, the Canadian “Engine” term loan bore interest at a rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate plus 4.00% per annum or (ii) the BA Rate plus 5.00% per annum.  The Fourth Amendment extended the maturity of the commitments under the Amended and Restated Credit Agreement from April 1, 2013 until April 1, 2015.

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

18

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

12. LONG-TERM DEBT (continued)

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

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

Borrowings under the Canadian revolving credit facility, Canadian swing line facility and the Canadian term loan will bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as defined in the Second Amended and Restated Credit Agreement), plus 3.50% per annum or (ii) the BA Rate (as defined in the Second Amended and Restated Credit Agreement) plus 4.50% per annum.  Borrowings under the US revolving credit facility, US swing line facility and the US term loan will bear interest, at the borrowers’ option equal to (i) LIBOR (as defined in the Second amended and Restated Credit Agreement) plus 4.50% per annum, or (ii) the US Base Rate (as defined in the Second Amended and Restated Credit Agreement), plus 3.50% per annum.  Borrowings under the Canadian “Engine” term loan will bear an interest rate per annum, at the borrowers’ option, equal to (i) the Canadian Prime Rate (as defined in the Second Amended and Restated Credit Agreement), plus 4.00% per annum or (ii) the BA Rate (as defined in the Amended and Restated Credit Agreement) plus 5.00% per annum. Obligations under the Second Amended and Restated Credit Agreement are secured by (i) a first priority lien and security interest on all of the borrowers’ and guarantors’ assets, tangible or intangible, real, personal or mixed, existing and newly acquired, (ii) a pledge by Rand LL Holdings of all of the outstanding capital stock of the borrowers and (iii) a pledge by the Company of all of the outstanding capital stock of Rand LL Holdings and Rand Finance. The indebtedness of each borrower under the Second Amended and Restated Credit Agreement is unconditionally guaranteed by each other borrower and by the guarantors, and such guaranty is secured by a lien on substantially all of the assets of each borrower and each guarantor.

Under the Second 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 therefrom, and (iii) in an amount equal to 100% of the net proceeds to a borrower from any issuance of a borrower’s debt or equity securities.

19

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

12. LONG-TERM DEBT (continued)

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

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

On February 11, 2011, Black Creek, as borrower and Black Creek Holdings, as guarantor, General Electric Capital Corporation, as agent and lender, and certain other lenders, entered into a Credit Agreement (the “Black Creek Credit Agreement”) which (i) financed, in part, the acquisition of the Vessels by Black Creek described in Note 9, and (ii) provided funds for other transaction expenses.  The Black Creek Credit Agreement provided for a US Dollar denominated senior secured term loan under which Black Creek borrowed US $31,000.

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

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

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

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

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

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

20

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

12. LONG-TERM DEBT (continued)

The Company was in compliance with covenants under The Second Amended and Restated Credit Agreement, as amended, and Black Creek Credit Agreement, as amended, as of December 31, 2011.

The effective interest rates on the term loans at December 31, 2011, including the effect from interest rate swap contracts, were 6.93% (6.35% at March 31, 2011) on the Canadian term loan, 6.28% (6.30% at March 31, 2011) on the Canadian engine loan and 6.28% (7.40% at March 31, 2011) on the US term loan. The actual interest rates charged without the effect of interest rate swap contracts were 5.78% (5.05% at March 31, 2011) on the Canadian term loan, 6.28% (6.30% at March 31, 2011) on the Canadian engine loan, 5.03% (4.06% at March 31, 2010) on the US term loan and 5.31% (5.06% at March 31, 2011) on the Black Creek US term loan.

21

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

12. LONG-TERM DEBT (continued)

		December 31, 2011		March 31, 2011
a)	Canadian term loan bearing interest at Canadian Prime rate plus 3.5% (2.75% at March 31, 2011) or Canadian BA rate plus 4.5% (3.75% at March 31, 2011) at the Company’s option.  The loan is repayable over a seven year term until April 1, 2015 with current quarterly payments of CDN $695 commencing September 1, 2008 until June 1, 2010 with no payment on September 1, 2010, and increasing to CDN $936 commencing September 1, 2011 and the balance due April 1, 2015.  The term loan is collateralized by the existing and newly acquired assets of Lower Lakes, Grand River and Lower Lakes Transportation.	$	55,245	$	56,466
b)	Canadian engine term loan bearing interest at Canadian Prime rate plus 4.0% (4.0% at March 31, 2011) or Canadian BA rate plus 5.0% (5.0% at March 31, 2011) at the Company’s option.  The loan is repayable over a seven year term until April 1, 2015 with current quarterly payments of CDN $133 commencing September 1, 2008 until March 1, 2015 and the balance due April 1, 2015.  The term loan is collateralized by the existing and newly acquired assets of Lower Lakes, Grand River  and Lower Lakes Transportation.	6,031		6,738
c)	US term loan bearing interest at LIBOR rate plus 4.5% (3.75% at March 31, 2011) or US base rate plus 3.5% (2.75% at March 31, 2011) at the Company’s option. The loan is repayable over a seven year term until April 1, 2015 with current quarterly payments of US $367 commencing September 1, 2008 until September 1, 2011 with no payment on December 1, 2011 and March 1, 2012, and increasing to $704 commencing June 1, 2012, and the balance due April 1, 2015.  The term loan is collateralized by the existing and newly acquired assets of Lower Lakes, Grand River and Lower Lakes Transportation.	42,233		17,967
d)	US term loan bearing interest at LIBOR rate plus 4.75% (4.75% at March 31, 2011) or US base rate plus 3.75% (3.75% at March 31, 2011) at the Company’s option. The loan is repayable over a three year term until February 11, 2014 with quarterly payments of US $517 commencing September 1, 2011 until December 31, 2013 and the balance due February 11, 2014.  The term loan is collateralized by the existing and newly acquired assets of Black Creek.	30,483		31,000
		$	133,992	$	112,171
	Less amounts due within 12 months	8,900		7,178
		$	125,092	$	104,993

Principal payments are due as follows:

2012	$	8,900
2013	9,087
2014	32,854
2015	83,151
	$	133,992

22

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

13. COMMITMENTS

The Company did not have any leases which met the criteria of a capital lease as of December 31, 2011. Leases which do not qualify as a capital lease are classified as operating leases. Operating lease rental and sublease rental payments included in general and administrative expenses are as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
Operating leases	$	80	$	78	$	252	$	215
Operating sublease	37		36		112		108
	$	117	$	114	$	364	$	323

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

2012	$	321
2013	258
2014	195
2015	136
2016	130
Thereafter	180
	$	1,220

The Company is party to a bareboat charter agreement for the McKee Sons barge which expires in 2018.  The chartering cost included in vessel operating expenses was $242 for the three month period ended December 31, 2011 ($238 for the three month period ended December 31, 2010) and $484 for the nine month period ended December 31, 2011 ($476 for the nine month period ended December 31, 2010). The lease was amended on February 22, 2008 to provide a lease payment deferment in return for leasehold improvements. Total charter commitments for the McKee Sons vessel for the term of the lease before inflation adjustment are set forth below.  The lease contains a clause whereby annual payments escalate at the Consumer Price Index, capped at a maximum annual increase of 3%.

2012	$	726
2013	725
2014	726
2015	725
2016	726
Thereafter	1,451
	$	5,079

As of December 31, 2011, Lower Lakes had signed contractual commitments with several suppliers totaling $4,122 in connection with the capital expenditure and drydock projects.

23

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

14. 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.  The Company evaluates the need for loss accruals under the requirements of ASC 450 – Contingencies. The Company records an estimated loss for any claim, lawsuit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can reasonably be estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, then the Company records the minimum amount in the range as loss accrual. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. As of December 31, 2011 an accrual of $490 ($1,062 as of March 31, 2011) was recorded for various claims.  Management does not anticipate material variations in actual losses from the amounts accrued related to these claims.

As described in Note 21, on August 27, 2007, in connection with the COA and Option Agreement with Voyageur, Lower Lakes entered into a Guarantee (the “Guarantee”) with GE Canada pursuant to which Lower Lakes agreed to guarantee up to CDN $1,250 (the “Guaranteed Obligations”) of Voyageur’s  indebtedness to GE Canada.  Lower Lakes’ maximum future payments under the Guarantee were limited to the Guaranteed Obligations plus the costs and expenses GE Canada incurred while enforcing its rights under the Guarantee.  Lower Lakes’ obligations under the Guarantee became due when Voyageur failed to meet certain financial covenants under the terms of its loan from GE Canada and on May 17, 2011, General Electric Capital Corporation delivered a notice to Lower Lakes that effective as of May 6, 2011, GE Canada had drawn the full amount available under the letter of credit issued in connection with the Guarantee, with the CDN $1,250 added to Lower Lakes revolving borrowings under the Amended and Restated Credit Agreement. As of March 31, 2011, the Company had recorded a loss contingency of CDN $1,250 (US$1,280) on the Guarantee of Voyageur’s indebtedness with GE Canada.  On July 21, 2011, Lower Lakes completed the acquisition of the MARITIME TRADER, the vessel owned by Voyageur, pursuant to the terms of an asset purchase agreement, dated as of July 8, 2011, by and between the Company and Marcon International Inc., in its capacity as court-appointed seller of the vessel. 

15. STOCKHOLDERS’ EQUITY

On September 21, 2011, the Company completed a public underwritten offering of 2,800,000 shares of the Company’s common stock for $6.00 per share.  The Company’s proceeds from the offering, net of underwriter’s commissions and expenses, were $15,400.

On February 11, 2011, in connection with the transactions contemplated by the Asset Purchase Agreement with the Sellers  discussed in Note 9, the Company issued 1,305,963 shares of the Company’s common stock to Buckeye. Such shares were valued at the average of high and low price on that day of $5.175.

The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences that may be determined from time to time by the Board of Directors. The shares of the Company’s series A convertible preferred stock: rank senior to the Company’s common stock with respect to liquidation and dividends; are entitled to receive a cash dividend at the annual rate of 7.75% (based on the $50 per share issue price) payable quarterly (subject to increases of 0.5% for each six month period in respect of which the dividend is not timely paid, up to a maximum of 12%, subject to reversion to 7.75% upon payment of all accrued and unpaid dividends); are convertible into shares of the Company’s common stock at any time at the option of the series A preferred stockholder at a conversion price of $6.20 per share (based on the $50 per share issue price and subject to adjustment) or 8.065 shares of common stock for each Series A Preferred Share (subject to adjustment); are convertible into shares of the Company’s common stock (based on a conversion price of $6.20 per share, subject to adjustment) at the option of the Company if, after the third anniversary of the acquisition, the trading price of the Company’s common stock for 20 trading days within any 30 trading day period equals or exceeds $8.50 per share (subject to adjustment); may be redeemed by the Company in connection with certain change of control or acquisition transactions; will vote on an as-converted basis with the

24

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

15. STOCKHOLDERS’ EQUITY (continued)

Company’s common stock; and have a separate vote over certain material transactions or changes involving the Company. The accrued dividend payable at December 31, 2011 was $9,547 and at March 31, 2011 was $7,477. As of December 31, 2011, the effective rate of preferred dividends was 12% (maximum) and as of March 31, 2011, the effective interest rate of preferred dividends was 11.75%. The Company is limited in the payment of preferred dividends by the fixed charge coverage ratio covenant in the Second Amended and Restated Credit Agreement.

On October 13, 2009, the Company awarded 39,660 shares at the average of high and low share price on that day of $3.17 to a key executive in connection with an Employment Agreement. 20% of these shares vest on March 31^st of each year, beginning March 31, 2010. The Company recorded expense of $20 for each of the nine month periods ended December 31, 2011 and 2010 related to such award. On February 24, 2010 the Company issued 76,691 shares to two key executives pursuant to Restricted Share Award Agreements.  The shares were valued at the average of high and low share price on that day of $4.34. The Company recorded expense of $83 for each of the nine month periods ended December 31, 2011 and 2010. Such shares vest over three years in equal installments on each of the anniversary dates in 2011, 2012 and 2013. On April 5, 2010 the Company issued an aggregate of 37,133 shares to four key executives pursuant to Restricted Share Award Agreements. Such shares were valued at the average of high and low share price on that day of $5.32. The Company recorded expense of $50 for the nine month period ended December 31, 2011 and $146 for the nine month period ended December 31, 2010 related to such awards, including cash compensation related to tax withholding. The April 5, 2010 grants vest over three years in equal installments on each of the anniversary dates in 2011, 2012 and 2013. On April 8, 2011, the Company issued 86,217 shares to six key executives pursuant to Restricted Share Award Agreements. Such shares were valued at the average of high and low share price on that day of $7.94. The Company recorded expense of $620 for the nine month period ended December 31, 2011 related to such awards, including cash compensation related to tax withholding.

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 December 31, 2011, a total of 848,894 shares (943,586 shares at March 31, 2011) were available under the LTIP for future awards.

For all share-based compensation, as employees and directors render service over the vesting periods, expense is recorded in general and administrative expenses. Generally this expense is for the straight-line amortization of the grant date fair market value adjusted for expected forfeitures. Other paid-in capital is correspondingly increased as the compensation is recorded. Grant date fair market value for all non-option share-based compensation is the average of the high and low trading prices on the date of grant.

The general characteristics of issued types of share-based awards granted under the LTIP through December 31, 2011 are as follows:

Stock Awards - All of the shares issued to non-employee outside directors vest immediately.  The first award to non-employee outside directors in the amount of 12,909 shares was made on February 13, 2008 for services through March 31, 2008.  During the fiscal year ended March 31, 2009, the Company awarded 15,948 shares for services from April 1, 2008 through December 31, 2008. The Company awarded 37,144 shares during the fiscal year ended March 31, 2010 for services from January 1, 2009 through March 31, 2010. During the fiscal year ended March 31, 2011, the Company awarded 14,007 shares for services from April 1, 2010 through March 31, 2011. During the nine month period ended December 31, 2011 the Company awarded 8,475 shares for services from April 1, 2011 to December 31, 2011. Grant date fair market value for all these awards is the average of the high and low trading prices of the Company’s common stock on the date of grant.

On July 31, 2008, the Company’s Board of Directors authorized management to make payments effective as of that date to the participants in the management bonus program. Pursuant to the terms of the management bonus program, Rand issued 478,232 shares of common stock to such employee participants.

25

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

15. STOCKHOLDERS’ EQUITY (continued)

Stock Options - Stock options granted to management employees vest over three years in equal annual installments. All options issued through December 31, 2011 expire ten years from the date of grant. Stock option grant date fair values are determined at the date of grant using a Black-Scholes option pricing model, a closed-form fair value model, based on market prices at the date of grant. At each grant date the Company has estimated a dividend yield of 0%.  The weighted average risk free interest rate within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant, which was 4.14% for the fiscal 2009 (July 2008) grant. Expected volatility for the fiscal 2009 grants was based on the prior 26 week period, which reflected trading and volume after the Company made major announcements on acquisitions and capital investments. Expected volatility was 39.49% for the fiscal 2009 grant. Options outstanding (479,785) at December 31, 2011, had a remaining weighted average contractual life of approximately six years and three months.  The Company has recorded compensation expenses of $65 and $260 for the nine month periods ended December 31, 2011 and 2010, respectively. All of the stock options granted in February 2008 (243,199) and July 2008 (236,586), had vested as of December 31, 2011.

Shares issued under Employees’ Retirement Savings Plans - The Company issued an aggregate of 204,336 shares to the individual retirement plans of all eligible Canadian employees under the LTIP from July 1, 2009 through December 31, 2011.  The Canadian employees’ plans are managed by independent brokerages. These shares vested immediately but are subject to the Company’s Insider Trading Policy. The shares were issued using the fair value share price, as defined by the LTIP, as of the first trading day of each month for that previous period’s accrued expense. The Company granted $Nil and $13 for the nine month periods ended December 31, 2011 and 2010, respectively, of equity 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 Company’s common stock on the date of grant. The shares were issued under the LTIP and vested immediately. Beginning the third quarter of the fiscal year ended March 31, 2010, such executives and outside directors’ compensation reverted back to cash. On September 16, 2010, the Company issued 15,153 shares to a key executive for payment of the fiscal year 2010 bonus at the average of the high and low trading prices of the Company’s common stock on the date of grant. The shares were issued under the LTIP and vested immediately.

16. OUTSIDEVOYAGE CHARTER FEES

Outside voyage charter fees relate to the subcontracting of external vessels chartered to service the Company’s customers and supplement the existing shipments made by the Company’s operated vessels.

26

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

17. INTEREST EXPENSE

Interest expense is comprised of the following:

	Three months ended		Three months ended		Nine months ended			Nine months ended
	December 31, 2011		December 31, 2010		December 31, 2011			December 31, 2010
Bank indebtedness	$	64	$	33	$	503		$	243
Amortization of deferred finance costs	281		151		686			387
Long-term debt – senior	1,621		963		4,572			2,385
Interest rate swaps	306		356		968			1,146
Subordinated note	25		—		83			—
Deferred payment liability	49		—		146			—
Interest capitalized	—		—		(172		)	—
	$	2,346	$	1,503	$	6,786		$	4,161

27

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

18. 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		Three months ended		Nine months ended		Nine months ended
	December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
Revenue by country
Canada	$	28,122	$	23,781	$	76,261	$	70,321
United States	21,214		12,832		63,807		41,895
	$	49,336	$	36,613	$	140,068	$	112,216

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

	December 31, 2011		March 31, 2011
Property and equipment by country
Canada	$	99,685	$	92,982
United States	90,995		73,710
	$	190,680	$	166,692
Intangible assets by country
Canada	$	11,175	$	10,709
United States	5,283		4,597
	$	16,458	$	15,306
Goodwill by country
Canada	$	8,284	$	8,284
United States	1,909		1,909
	$	10,193	$	10,193
Total assets by country
Canada	$	146,706	$	124,038
United States	115,643		91,472
	$	262,349	$	215,510

28

RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

19. FINANCIAL INSTRUMENTS

Fair value of financial instruments

Financial instruments are comprised of cash and cash equivalents, accounts receivable, accounts payable, long-term debts, a subordinated note, deferred payment liabilities, accrued liabilities and bank indebtedness.  The estimated fair values of cash and cash equivalent, accounts receivable, accounts payable and accrued liabilities approximate book values because of the short-term maturities of these instruments.  The estimated fair value of senior debt approximates the carrying value as the debt bears interest at variable interest rates, which are based on rates for similar debt with similar credit rates in the open market.  The subordinated note and deferred payment liabilities were valued based on the interest rate of similar debt in the open market.

The following table provides the liabilities carried at fair value measured on a recurring basis as of December 31, 2011 and March 31, 2011:

		Fair value measurements at December 31, 2011			Fair value measurements at March 31, 2011
	Carrying value at December 31, 2011	Quoted prices in active markets (Level 1)	Significant other observable inputs (Level 2)	Carrying value at March 31, 2011	Quoted prices in active markets (Level 1)	Significant other observable inputs (Level 2)
Interest rate swap contracts liability	$1,358	$—	$1,358	$1,895	$—	$1,895

Interest rate swap contracts are measured at fair value using available rates on the similar instruments and are classified within Level 2 of the valuation hierarchy. These contracts are accounted for using the mark-to-market accounting method as if the contracts were terminated at the day of valuation. There were no transfers into or out of Levels 1 and 2 of the fair value hierarchy during the nine month period ended December 31, 2011.

The Company has recorded a liability of $1,358 as of December 31, 2011 ($1,895 as of March 31, 2011) for two interest rate swap contracts on the Company’s term debt. For the nine month period ended December 31, 2011, the fair value adjustment of the interest rate swap contracts resulted in a gain of $488 (gain of $131 for the nine month period ended December 31, 2010). These gains are included in the Company’s earnings, and the fair value of settlement cost to terminate the contracts is included in current liabilities on the consolidated balance sheets.

Foreign exchange risk

Foreign currency exchange risk to the Company results primarily from changes in exchange rates between the Company’s reporting currency, the U.S. Dollar, and the Canadian dollar.  The Company is exposed to fluctuations in foreign exchange as a significant portion of revenue and operating expenses are denominated in Canadian dollars.

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RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

19. FINANCIAL INSTRUMENTS (continued)

Interest rate risk

The Company is exposed to fluctuations in interest rates as a result of its banking facilities and senior debt bearing variable interest rates.

The Company is exposed to interest rate risk due to its long-term debt agreement. Effective February 15, 2008, the Company entered into a CDN $49,700 interest rate swap derivative to pay interest at a fixed rate of approximately 4.09% on its CDN $49,700 term debt and receive 3-month BA variable rate interest payments quarterly through April 1, 2013.  The notional amount of the Canadian debt swap decreases with each scheduled principal payment, except that the hedged amount decreased an additional CDN $15,000 on December 1, 2009.  Additionally, effective February 15, 2008, the Company entered into a US $22,000 interest rate swap derivative to pay interest at a fixed rate of approximately 3.65% on its US $22,000 term debt and receive 3-month LIBOR variable rate interest payments quarterly through April 1, 2013.  The notional amount of the US debt swap decreases with each scheduled principal payment.

The following table sets forth the fair values of derivative instruments:

Derivatives not designated as hedging instrument:	Balance Sheet location	Fair Value as at December 31, 2011	Fair Value as at March 31, 2011
Interest rate swap contracts liability	Current liability	$1,358	$1,895

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 December 31, 2011	Three Months ended December 31, 2010	Nine Months ended December 31, 2011	Nine Months ended December 31, 2010
Interest rate swap contracts liability	Other (income) and expenses	$(397)	$(508)	$(488)	$(131)

Credit risk

Accounts receivable credit risk is mitigated by the dispersion of the Company’s customers among industries and the short shipping season.

Liquidity risk

The ongoing tightened credit in financial markets and continued general economic downturn may adversely affect the ability of the Company’s customers and suppliers to obtain financing for significant operations and purchases and to perform their obligations under agreements with the Company.  The tightening of credit could (i) result in a decrease in, or cancellation of, existing business, (ii) limit new business, (iii) negatively impact the Company’s ability to collect accounts receivable on a timely basis, and (iv) affect the eligible receivables that are collateral for the Company’s lines of credit.  The Company makes seasonal net borrowings under its revolving credit facility during the first quarter of each fiscal year to fund working capital needed to commence the sailing season. Such borrowings are then paid down during the second half of each fiscal year.

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RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

20. EARNINGS PER SHARE

The Company had a total of 17,674,031 common shares issued and outstanding as of December 31, 2011, out of an authorized total of 50,000,000 shares. The fully diluted calculation utilizes a total of 20,141,349 shares for the three month period ended December 31, 2011 and 13,466,879 shares for the three month period ended December 31, 2010 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.

	Three Months ended December 31, 2011			Three Months ended December 31, 2010			Nine Months ended December 31, 2011			Nine Months ended December 31, 2010
Numerator:
Net income before preferred dividends	$	7,358		$	3,837		$	17,165		$	12,922
Preferred stock dividends	(715		)	(597		)	(2,069		)	(1,719		)
Net income applicable to common stockholders	$	6,643		$	3,240		$	15,096		$	11,203
Denominator:
Weighted average common shares for basic EPS	17,671,114			13,466,879			15,894,463			13,404,338
Effect of dilutive securities:
Average price during period	6.33			4.79			6.89			4.93
Long term incentive stock option plan	479,785			479,785			479,785			479,785
Average exercise price of stock options	5.66			5.66			5.66			5.66
Shares that could be acquired with the proceeds of options	428,905			—			394,032			—
Dilutive shares due to options	50,880			—			85,753			—
Weighted average convertible preferred shares at $6.20	2,419,355			2,419,355			2,419,355			2,419,355
Weighted average common shares for diluted EPS	20,141,349			13,466,879			18,399,571			15,823,693
Basic EPS	$	0.38		$	0.24		$	0.95		$	0.84
Diluted EPS	$	0.37		$	0.24		$	0.93		$	0.82

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RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

21. VARIABLE INTEREST ENTITIES

In the normal course of business, the Company interacts with various entities that may be variable interest entities (“VIEs”).

On August 27, 2007, Lower Lakes entered into and consummated the transactions under a Memorandum of Agreement with Voyageur Marine Transport Limited (“Voyageur”) and Voyageur Pioneer Marine Inc. pursuant to which Lower Lakes purchased the VOYAGEUR INDEPENDENT and the VOYAGEUR PIONEER (the “Voyageur Vessels”).

Certain customer contracts were also assigned to the Company under a Contract of Assignment.

Also on August 27, 2007, Lower Lakes entered into a Contract of Affreightment  (“COA”) with Voyageur and Voyageur Maritime Trading Inc. (“VMT”) pursuant to which Voyageur and VMT made a Canadian flagged vessel owned by VMT, the MARITIME TRADER (the “Trader”), available exclusively to Lower Lakes for its use in providing transportation and storage services for its customers.

In connection with the COA, on August 27, 2007, Lower Lakes entered into an Option Agreement (the “Option Agreement”) with VMT pursuant to which Lower Lakes obtained the option to acquire the Trader for CDN $5,000, subject to certain adjustments. The option was exercisable between January 1, 2012 and December 31, 2017, subject to certain early exercise provisions. If, at any time prior to expiration of the option, VMT received a bona fide offer from a third party to purchase the Trader which VMT wished to accept, Lower Lakes had the right to acquire the Trader at the option price.

On August 27, 2007, Lower Lakes entered into a Guarantee (the “Guarantee”) with GE Canada, pursuant to which Lower Lakes agreed to guarantee up to CDN$1,250 (the “Guaranteed Obligations”) of Voyageur’s  indebtedness to GE Canada. Under the Guarantee, Lower Lakes had several options available to it in the event that GE Canada intended to draw under the Guarantee, including (i) the right to exercise its option for the Trader under the Option Agreement and (ii) the right to make a subordinated secured loan to Voyageur in an amount at least equal to the amount intended to be drawn by GE Canada on terms as are reasonably satisfactory to GE Canada and Voyageur.

Voyageur ceased to be a VIE of the Company when GE Canada seized the Trader pursuant to Ontario law and placed the subsidiary that owned the Trader under liquidation in the Federal Court of Canada effective March 14, 2011 due to Voyageur’s failure to pay its principal and interest to GE Canada in February 2011. On July 21, 2011, Lower Lakes completed the acquisition of the Trader pursuant to the terms of an asset purchase agreement, dated as of July 8, 2011, by and between the Company and Marcon International Inc., in its capacity as court-appointed seller of the vessel. 

The Company was never the primary beneficiary of Voyageur, and did not receive any material margin for the shipments made on the Trader, since the relationship was an industry standard charter relationship.

The Company provided no loan support or liquidity to Voyageur during the fiscal year ended March 31, 2011 or the nine month period ended December 31, 2011.

The Company continues to evaluate new investments for the application of consolidation and regularly reviews all existing entities in connection with any reconsideration events  that may result in an entity becoming a VIE or the Company becoming the primary beneficiary of an existing VIE. There has been no change in previous conclusions about whether a VIE should be consolidated.

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RAND LOGISTICS, INC.

Notes to the Consolidated Financial Statements (Unaudited)

(U.S. Dollars 000’s except for Shares and Per Share data)

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

All dollar amounts are presented in millions except share, per share and per day amounts. The following Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial Statements and the accompanying financial statement notes of the Company appearing elsewhere in this Quarterly Report on Form 10-Q for the three and nine month periods ended December 31, 2011.

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 29, 2011 as well as the following: the continuing effects of the economic downturn in our markets; the weather conditions on the Great Lakes; and our ability to maintain and replace our vessels as they age. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.

Overview

Business

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

 On March 3, 2006, we acquired all of the outstanding shares of capital stock of Lower Lakes Towing Ltd. (“Lower Lakes Towing”), a Canadian corporation which, with its subsidiary Lower Lakes Transportation Company (“Lower Lakes Transportation”), provides bulk freight shipping services throughout the Great Lakes region and operated eight vessels. As part of the acquisition of Lower Lakes, we also acquired Lower Lakes' affiliate, Grand River Navigation Company, Inc. (“Grand River”).  Prior to the acquisition, we did not conduct, or have any investment in, any operating business.  Subsequent to the acquisition, we have added several additional vessels to our fleet through acquisition transactions, including in 2011 alone, the acquisition of three articulated tug and barge units and two bulk carriers. In this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to Rand, we, us and the Company include Rand and its direct and indirect subsidiaries, and references to Lower Lakes' business or the business of Lower Lakes mean the combined businesses of Lower Lakes Towing, Lower Lakes Transportation, Grand River and our additional operating subsidiary, Black Creek Shipping Company, Inc. ("Black Creek").

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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 seventeen cargo-carrying vessels (one of which is no longer sailing).  We have grown to become one of the largest bulk shipping companies operating on the Great Lakes and the leading service provider in the River Class market segment, which we define as vessels less than 650 feet in overall length. We transport limestone, coal, iron ore, salt, grain and other dry bulk commodities for customers in the construction, electric utility, integrated steel and food industries.  

We believe that Lower Lakes is the only company providing significant domestic port-to-port services to both Canada and the United States in the Great Lakes region. Lower Lakes maintains this operating flexibility by operating both U.S. and Canadian flagged vessels in compliance with the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones Act in the U.S. and the Coasting Trade Act in Canada. Lower Lakes' fleet consists of five self-unloading bulk carriers and four conventional bulk carriers in Canada and seven active self-unloading bulk carriers in the U.S., including one integrated tug and barge unit and three articulated tug and barge units. Lower Lakes Towing owns the nine Canadian vessels. Lower Lakes Transportation time charters the seven U.S. vessels, including the four tug and barge units, from Grand River. With the exception of one barge (which Grand River bareboat charters from an unrelated third party) and two of the articulated tug and barge units (which Grand River bareboat charters from Black Creek), Grand River owns the vessels that it time charters to Lower Lakes Transportation.

Results of Operations

Three month period ended December 31, 2011 compared to the three month period ended December 31, 2010:

Selected Financial Information

(Unaudited)

(USD in 000’s)	Three Months ended December 31, 2011		Three Months ended December 31, 2010		Change			% Change
Revenue:
Freight and related revenue	$	35,917	$	27,331	$	8,586		31.4	%
Fuel and other surcharges	12,800		6,432		6,368			99.0	%
Outside voyage charter revenue	619		2,850		(2,231		)	(78.3	)%
Total	$	49,336	$	36,613	$	12,723		34.7	%
Expenses:
Outside voyage charter fees	$	615	$	2,831	$	(2,216	)	(78.3	)%
Vessel operating expenses	$	32,076	$	23,389	$	8,687		37.1	%
Repairs and maintenance	$	36	$	74	$	(38	)	(51.4	)%
Operating Income	$	10,018	$	5,093	$	4,925		96.7	%
Sailing Days:	1,210		1,050		160			15.2	%
Per Day in Whole USD:
Revenue per Sailing Day:
Freight and related revenue	$	29,683	$	26,030	$	3,653		14.0	%
Fuel and other surcharges	$	10,579	$	6,126	$	4,453		72.7	%
Expenses per Sailing Day:
Vessel operating expenses	$	26,509	$	22,275	$	4,234		19.0	%
Repairs and maintenance	$	30	$	70	$	(40	)	(57.1	)%

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The following table summarizes the changes in the components of our revenue and vessel operating expenses as well as changes in Sailing Days, which we define as days a vessel is crewed and available for sailing, during the three month period ended December 31, 2011 compared to the three month period ended December 31, 2010:

(USD in 000’s) (Unaudited)	Sailing Days	Freight and Related Revenue			Fuel and Other Surcharges			Outside Voyage Charter			Total Revenue			Vessel Operating Expenses
Three month period ended December 31, 2010	1,050	$	27,331		$	6,432		$	2,850		$	36,613		$	23,389
Changes in the three month period ended December 31, 2011:
Decrease attributable to a weaker Canadian dollar		$	(146	)	$	(56	)	$	(4	)	$	(206	)	$	(132	)
Net changes exclusive of  currency impact	160	$	8,732		$	6,424		$	(2,227	)	$	12,929		$	8,819
Sub-Total	160	$	8,586		$	6,368		$	(2,231	)	$	12,723		$	8,687
Three month period ended December 31, 2011	1,210	$	35,917		$	12,800		$	619		$	49,336		$	32,076

Total revenue during the three month period ended December 31, 2011 was $49.3 million, an increase of $12.7 million, or 34.7% compared to $36.6 million during the three month period ended December 31, 2010. This increase was primarily attributable to higher freight revenue and fuel surcharges, offset by substantially reduced outside charter revenue.

During the three month period ended December 31, 2011, the industry experienced increases in overall customer demand compared to the three month period ended December 31, 2010. Other than coal, for which U.S.-flagged shipments decreased by almost 5.5%, overall industry tonnage increased for all of the major commodities during the three month period ended December 31, 2011 compared to the three month period ended December 31, 2010.

Freight and related revenue generated from Company-operated vessels increased $8.6 million, or 31.4%, to $35.9 million during the three month period ended December 31, 2011 compared to $27.3 million during the three month period ended December 31, 2010. Excluding the impact of currency changes, freight revenue increased 31.9% for the three month period ended December 31, 2011 compared to the three month period ended December 31, 2010. This increase in freight revenue was attributable to 160 additional Sailing Days, a 23.2% increase in tonnage hauled by our operated vessels and contractual price increases.

Management believes that each of our vessels should achieve approximately 87 Sailing Days in an average third fiscal quarter, assuming no major repairs or incidents and normal drydocking cycle times performed during the winter lay-up period.

We operated fourteen vessels during the three month period ended December 31, 2011, including the vessel acquired in July 2011, compared to twelve vessels during the three month period ended December 31, 2010. Our total Sailing Days increased 160 days, or 15.2%, to 1,210 Sailing Days during the three month period ended December 31, 2011, compared to 1,050 Sailing Days during the three month period ended December 31, 2010. The larger percentage increase in tonnage compared to the percentage increase in Sailing Days reflects the larger average size of our vessels utilized in the three month period ended December 31, 2011 versus the three month period ended December 31, 2010, that resulted from the addition of three vessels in the 2011 sailing season, and the long term lay-up of one of our vessels.

Freight and related revenue per Sailing Day increased $3,653, or 14.0%, to $29,683 per Sailing Day during the three month period ended December 31, 2011 compared to $26,030 per Sailing Day during the three month period ended December 31, 2010.

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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. Fuel and other pass through surcharges increased $6.4 million, or 99.0% to $12.8 million during the three month period ended December 31, 2011 compared to $6.4 million during the three month period ended December 31, 2010. The increase was attributable to higher fuel costs and an increased number of Sailing Days. Fuel and other surcharges revenue per Sailing Day increased $4,453 to $10,579 per Sailing Day during the three month period ended December 31, 2011 compared to $6,126 per Sailing Day during the three month period ended December 31, 2010.

Outside voyage charter revenue decreased $2.2 million or 78.3% to $0.6 million during the three month period ended December 31, 2011 compared to $2.8 million during the three month period ended December 31, 2010. The decrease in outside voyage charter revenue was primarily attributable to the unavailability of a vessel which we had previously operated under long term time charter and subsequently purchased in July 2011.

Vessel operating expenses increased $8.7 million, or 37.1%, to $32.1 million during the three month period ended December 31, 2011 compared to $23.4 million during the three month period ended December 31, 2010. This increase was primarily attributable to higher fuel costs, an increased number of Sailing Days resulting from the three recently acquired vessels operated during the three month period ended December 31, 2011, partially offset by reduction of costs due to the long term lay-up of one of our vessels. Vessel operating expenses per Sailing Day increased $4,234, or 19.0%, to $26,509 per Sailing Day during the three month period ended December 31, 2011 compared to $22,275 during the three month period ended December 31, 2010.

Our general and administrative expenses increased $0.2 million to $2.6 million during the three month period ended December 31, 2011 compared to $2.4 million during the three month period ended December 31, 2010. The increase in general and administrative expenses was primarily due to bank administrative fees due under the Black Creek loan, slightly higher compensation costs and higher audit costs associated with the implementation of compliance with Section 404(b) of the Sarbanes-Oxley Act. Our general and administrative expenses represented 7.1% of freight and related revenues during the three month period ended December 31, 2011, a decrease from 8.8% of freight and related revenues during the three month period ended December 31, 2010. During the three month period ended December 31, 2011, $0.7 million of our general and administrative expenses was attributable to our parent company and $1.9 million was attributable to our operating companies.

Depreciation expense increased $1.1 million to $2.9 million during the three month period ended December 31, 2011 compared to $1.8 million during the three month period ended December 31, 2010. The increase was primarily due to $0.6 million attributable to the vessels acquired in 2011 and increased depreciation from winter 2011 capital expenditures, including the repowering of one our vessels that was completed in June 2011.

Amortization of drydock costs increased $0.1 million to $0.8 million during the three month period ended December 31, 2011 compared to $0.7 million during the three month period ended December 31, 2010 due to the drydock of two of our vessels during the winter of 2011. During the three month period ended December 31, 2011, the Company amortized the deferred drydock costs of nine of its fourteen operated vessels, compared to seven of twelve vessels during the three month period ended December 31, 2010.

As a result of the items described above, during the three month period ended December 31, 2011, the Company's operating income increased $4.9 million to $10.0 million compared to $5.1 million during the three month period ended December 31, 2010.

Interest expense increased $0.8 million to $2.3 million during the three month period ended December 31, 2011 from $1.5 million during the three month period ended December 31, 2010. This increase in interest expense was primarily a result of an additional $0.5 million attributable to the Black Creek indebtedness, higher interest rate margins, higher term loan interest due to the CDN $20.0 million funding of the Michipicoten repowering, other capital expenditures and $25.0 million related to the acquisition of the articulated tug and barge and related capital expenditures during the three month period ended December 31, 2011.

Our income before income taxes was $8.1 million during the three month period ended December 31, 2011 compared to income before income taxes of $4.1 million during the three month period ended December 31, 2010.

Our effective tax rate was 8.8% for the three month period ended December 31, 2011 compared to 6.6% for the three month period ended December 31, 2010. Our provision for income tax expense was $0.7 million for the three month period ended December 31, 2011 compared to a benefit of $0.3 million for the three month period ended December 31, 2010. The change was due to a combination of higher net income before taxes in the current year, a change in mix of income between the U.S. and Canada, changes in the our forecasted U.S. and Canadian tax rates and a change to the consolidated effective tax rate method from the jurisdictional based effective tax rate method utilized in the previous year due to forecasted income in the United States in the

36

current year. The effective tax rate for the current and prior fiscal periods were lower than the statutory tax rate due to 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 was partially offset by unfavorable permanent book to tax differences.

Our net income increased $3.6 million to $7.4 million during the three month period ended December 31, 2011 compared to net income of $3.8 million during the three month period ended December 31, 2010.

We accrued $0.7 million for cash dividends on our preferred stock during the three month period ended December 31, 2011 compared to $0.6 million during the three month period ended December 31, 2010. The dividends accrued at a rate of 12.0% for the three month period ended December 31, 2011 compared to a rate of 11.25% for the three month period ended December 31, 2010. The dividends increased to a cap of 12.0%, effective July 1, 2011.

Our net income applicable to common stockholders increased $3.4 million to $6.6 million during the three month period ended December 31, 2011 compared to net income applicable to common stockholders of $3.2 million during the three month period ended December 31, 2010.

The Canadian dollar weakened by approximately 1.0% compared to the U.S. dollar, averaging approximately $0.977 USD per CDN during the three month period ended December 31, 2011 compared to approximately $0.987 USD per CDN during the three month period ended December 31, 2010. The Company's balance sheet translation rate decreased from $1.031 USD per CDN at March 31, 2011, to $0.983 USD per CDN at December 31, 2011.

During the three month period ended December 31, 2011, the Company operated six vessels in the U.S. and eight 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 50% of our interest expense is incurred in Canada, consistent with our percentage of average indebtedness by country.

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Results of Operations

Nine month period ended December 31, 2011 compared to the nine month period ended December 31, 2010:

Selected Financial Information

(Unaudited)

(USD in 000’s)	Nine Months ended December 31, 2011		Nine Months ended December 31, 2010		Change			% Change
Revenue:
Freight and related revenue	$	101,775	$	86,043	$	15,732		18.3	%
Fuel and other surcharges	36,972		19,117		17,855			93.4	%
Outside voyage charter revenue	1,321		7,056		(5,735		)	(81.3	)%
Total	$	140,068	$	112,216	$	27,852		24.8	%
Expenses:
Outside voyage charter fees	$	1,312	$	7,032	$	(5,720	)	(81.3	)%
Vessel operating expenses	$	91,907	$	73,113	$	18,794		25.7	%
Repairs and maintenance	$	1,068	$	118	$	950		805.1	%
Operating Income	$	25,955	$	16,547	$	9,408		56.9	%
Sailing Days:	3,465		3,154		311			9.9	%
Per Day in Whole USD:
Revenue per Sailing Day:
Freight and related revenue	$	29,372	$	27,281	$	2,091		7.7	%
Fuel and other surcharges	$	10,670	$	6,061	$	4,609		76.0	%
Expenses per Sailing Day:
Vessel operating expenses	$	26,524	$	23,181	$	3,343		14.4	%
Repairs and maintenance	$	308	$	37	$	271		732.4	%

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 nine month period ended December 31, 2011 compared to the nine month period ended December 31, 2010:

(USD in 000’s) (Unaudited)	Sailing Days	Freight and Related Revenue		Fuel and Other Surcharges		Outside Voyage Charter			Total Revenue		Vessel Operating Expenses
Nine month period ended December 31, 2010	3,154	$	86,043	$	19,117	$	7,056		$	112,216	$	73,113
Changes in the nine month period ended December 31, 2011:
Increase attributable to stronger Canadian dollar		$	1,925	$	623	$	31		$	2,579	$	1,748
Net changes exclusive of currency impact	311	$	13,807	$	17,232	$	(5,766	)	$	25,273	$	17,046
Sub-Total	311	$	15,732	$	17,855	$	(5,735	)	$	27,852	$	18,794
Nine month period ended December 31, 2011	3,465	$	101,775	$	36,972	$	1,321		$	140,068	$	91,907

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Total revenue during the nine month period ended December 31, 2011 was $140.1 million, an increase of $27.9 million, or 24.8%, compared to $112.2 million during the nine month period ended December 31, 2010. This increase was primarily attributable to higher fuel surcharges and higher freight revenue, offset by substantially reduced outside charter revenue.

During the nine month period ended December 31, 2011, the U.S.-flagged vessels experienced a 5.8% increase in overall customer demand compared to the nine month period ended December 31, 2010. Other than coal, for which U.S.-flag shipments decreased by 6.0%, overall industry tonnage increased for all of the major commodities during the nine month period ended December 31, 2011 compared to the nine month period ended December 31, 2010.

Freight and related revenue generated from Company-operated vessels increased $15.8 million, or 18.3%, to $101.8 million during the nine month period ended December 31, 2011 compared to $86.0 million during the nine month period ended December 31, 2010. Excluding the impact of currency changes, freight revenue increased 16.0% during the nine month period ended December 31, 2011 compared to the nine month period ended December 31, 2010. This increase was attributable to 311 additional Sailing Days (resulting in an 18.0% increase in tonnage hauled by our operated vessels) and contractual price increases.

Management believes that each of our vessels should achieve approximately 270 Sailing Days in an average first three fiscal quarters, assuming no major repairs or incidents and normal drydocking cycle times performed during the winter lay-up period. We operated fourteen vessels during the nine month period ended December 31, 2011, including the two vessels acquired in February 2011 and the vessel acquired in July 2011, compared to twelve vessels during the nine month period ended December 31, 2010.

Freight and related revenue per Sailing Day increased $2,091, or 7.7%, to $29,372 per Sailing Day during the nine month period ended December 31, 2011 compared to $27,281 per Sailing Day during the nine month period ended December 31, 2010. This increase was somewhat offset by inefficiencies experienced earlier in the year in matching fleet configuration with customer requirements, delays in completing required winter work which caused us to begin the 2011 sailing season later than our typical April 1 start date, and one of our vessels being out of service for 61 days due to its repowering.

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. Fuel and other pass through surcharges increased $17.9 million or 93.4%, to $37.0 million during the nine month period ended December 31, 2011 compared to $19.1 million during the nine month period ended December 31, 2010. This increase was attributable to higher fuel costs, a stronger Canadian dollar and an increased number of Sailing Days. Fuel and other surcharges revenue per Sailing Day increased $4,609 to $10,670 per Sailing Day during the nine month period ended December 31, 2011 compared to $6,061 per Sailing Day during the nine month period ended December 31, 2010.

Outside voyage charter revenue decreased $5.8 million, or 81.3%, to $1.3 million during the nine month period ended December 31, 2011 compared to $7.1 million during the nine month period ended December 31, 2010. The decrease in outside voyage charter revenue was primarily attributable to our purchase in July 2011 of a vessel which we had previously operated under long term time charter.

Vessel operating expenses increased $18.8 million, or 25.7%, to $91.9 million during the nine month period ended December 31, 2011 compared to $73.1 million during the nine month period ended December 31, 2010. This increase was primarily attributable to higher fuel costs, an increased number of Sailing Days, two additional vessels acquired in February 2011, one additional vessel acquired in July 2011 and a stronger Canadian dollar, partially offset by reduction of costs due to the long term lay-up of one of our vessels. Vessel operating expenses per Sailing Day increased $3,343, or 14.4%, to $26,524 per Sailing Day during the nine month period ended December 31, 2011 compared to $23,181 during the nine month period ended December 31, 2010.

Repairs and maintenance expenses, which primarily consist of expensed winter work, were $1.1 million during the nine month period ended December 31, 2011 compared to $0.1 million during the nine month period ending December 31, 2010. Repairs and maintenance per Sailing Day increased $271 to $308 per Sailing Day during the nine month period ended December 31, 2011 from $37 per Sailing Day during the nine month period ended December 31, 2010. This increase, which was incurred almost entirely in our first fiscal quarter, was due to the late sailing of several of our vessels due to delays in completing winter work during the nine month period ending December 31, 2011 compared to the nine month period ended December 31, 2010.

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Our general and administrative expenses increased $0.9 million to $8.0 million during the nine month period ended December 31, 2011 compared to $7.1 million during the nine month period ended December 31, 2010. The increase in general and administrative expenses was primarily due to slightly higher compensation costs, $0.2 million attributable to bank administrative fees due under the Black Creek loan, $0.1 million higher audit costs associated with the implementation of compliance with Section 404(b) of the Sarbanes-Oxley Act, and a stronger Canadian dollar. Our general and administrative expenses represented 7.8% of freight revenues during the nine month period ended December 31, 2011, a decrease from 8.2% of freight revenues during the nine month period ended December 31, 2010. During the nine month period ended December 31, 2011, $2.4 million of our general and administrative expenses was attributable to our parent company and $5.6 million was attributable to our operating companies.

Depreciation expense increased $3.2 million to $8.6 million during the nine month period ended December 31, 2011 compared to $5.4 million during the nine month period ended December 31, 2010. The increase was primarily due to $1.8 million attributable to the two vessels acquired in February 2011, a stronger Canadian dollar and increased depreciation from winter 2011 capital expenditures, including the repowering of one of our vessels that was completed in June 2011.

Amortization of drydock costs increased $0.2 million to $2.3 million during the nine month period ended December 31, 2011 compared to $2.1 million during the nine month period ended December 31, 2010 due to the drydock of two of our vessels during the winter of 2011 and a stronger Canadian dollar. During the nine month period ended December 31, 2011, the Company amortized the deferred drydock costs of nine of its fourteen operated vessels, compared to seven of twelve vessels during the nine month period ended December 31, 2010.

Amortization of intangibles increased $0.1 million to $1.0 million during the nine month period ended December 31, 2011 compared to $0.9 million during the nine month period ended December 31, 2010 primarily due to additional amortization related to the vessels acquisition in February 2011 and, to a lesser extent, a stronger Canadian dollar during the nine month period ended December 31, 2011.

As a result of the items described above, during the nine month period ended December 31, 2011, the Company's operating income increased $9.5 million to $26.0 million compared to $16.5 million during the nine month period ended December 31, 2010.

Interest expense increased $2.6 million to $6.8 million during the nine month period ended December 31, 2011 from $4.2 million during the nine month period ended December 31, 2010. This increase in interest expense was primarily a result of an additional $1.2 million attributable to the Black Creek indebtedness, higher interest rate margins, higher term loan interest attributable to the CDN $20.0 million funding used to finance the vessel repowering and other capital expenditures, a higher average revolver debt balance due to higher fuel costs, the increased size of our fleet and a stronger Canadian dollar, partially offset by $0.2 million of capitalized interest attributable to the repowering project during the nine month period ended December 31, 2011.

We recorded a gain on interest rate swap contracts of $0.5 million during the nine month period ended December 31, 2011 compared to a gain of $0.1 million during the nine month period ended December 31, 2010 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 $19.7 million during the nine month period ended December 31, 2011 compared to income before income taxes of $12.6 million during the nine month period ended December 31, 2010.

Our effective tax rate was 12.7% for the nine month period ended December 31, 2011 compared to a benefit of 3.0% for the nine month period ended December 31, 2010.  Our provision for income tax expense was $2.5 million for the nine month period ended December 31, 2011 compared to a benefit of $0.4 million for the nine month period ended December 31, 2010. The change was due to a combination of higher net income before taxes in the current year, a change in mix of income between the U.S. and Canada, changes in the Company's forecasted U.S. and Canadian tax rates and a change to the consolidated effective tax rate method from the jurisdictional based effective tax rate method utilized in the previous year due to forecasted income in the United States in the current year. The effective tax rate for the current and prior fiscal periods were lower than the statutory tax rate due to 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 was partially offset by unfavorable permanent book to tax differences.

Our net income increased $4.3 million to $17.2 million during the nine month period ended December 31, 2011 compared to net income of $12.9 million during the nine month period ended December 31, 2010.

We accrued $2.1 million for cash dividends on our preferred stock during the nine month period ended December 31, 2011

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compared to $1.7 million during the nine month period ended December 31, 2010. The dividends accrued at an average rate of 11.9% for the nine month period ended December 31, 2011 compared to an average rate of 11.1% for the nine month period ended December 31, 2010. The dividends increased to 12.0%, effective July 1, 2011, which is the maximum accrual rate for this instrument.

Our net income applicable to common stockholders increased $3.9 million to $15.1 million during the nine month period ended December 31, 2011 compared to net income applicable to common stockholders of $11.2 million during the nine month period ended December 31, 2010.

The Canadian dollar strengthened by approximately 3.7% compared to the U.S. dollar, averaging approximately $1.011 USD per CDN during the nine month period ended December 31, 2011 compared to approximately $0.974 USD per CDN during the nine month period ended December 31, 2010. The Company's balance sheet translation rate decreased from $1.031 USD per CDN at March 31, 2011 to $0.983 USD per CDN at December 31, 2011.

During the nine month period ended December 31, 2011, the Company operated six vessels in the U.S. and eight 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 50% of our interest expense is incurred in Canada, consistent with our percentage of average indebtedness by country.

Impact of Inflation and Changing Prices

During the nine month period ended December 31, 2011, 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 3.5 % 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 nine month periods ended December 31, 2011 and December 31, 2010. The Company makes seasonal net borrowings under its revolving credit facility during the first quarter of each fiscal year to fund working capital needed to commence the sailing season. Such borrowings are then paid down during the second half of each fiscal year. We believe cash generated from our operations and availability of 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. The Company has maintained its focus on productivity gains and cost controls, and is closely monitoring customer credit and accounts receivable balances.

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Net cash provided by operating activities for the nine month period ended December 31, 2011 was $12.5 million, an increase of $5.6 million compared to $6.9 million during the nine month period ended December 31, 2010. This increase in net cash provided was primarily attributable to higher cash earnings, partially offset by higher deferred drydock costs and a higher increase in working capital during the nine month period ended December 31, 2011.

Net cash used in investing activities increased by $34.5 million to $47.0 million during the nine month period ended December 31, 2011 compared to cash used in investing activities of $12.5 million during the nine month period ended December 31, 2010. This increase was primarily attributable to the payments of capital expenditures related to the repowering of one of our vessels and the acquisition of three vessels.

Net cash provided from financing activities was $35.6 million during the nine month period ended December 31, 2011, compared to cash flows provided from financing activities of $15.7 million during the nine month period ended December 31, 2010. During the nine month period ended December 31, 2011, the Company received $15.4 million in net proceeds from a public sale of its common stock. The Company made principal payments on its term debt of $4.2 million during the nine month period ended December 31, 2011 compared to $2.8 million during the nine month period ended December 31, 2010. We also paid $3.5 million in bank fees and legal costs in connection with the Fourth Amendment of our prior credit agreement and our Second Amended and Restated Credit Agreement during the nine month period ended December 31, 2011, which increased term loans and extended the maturity date of such credit facility for two years to April 1, 2015. During the nine month period ended December 31, 2011, the Company received $29.1 million of proceeds from long-term debt compared to $18.8 million in the nine month period ended December 31, 2010.

During the nine month period ended December 31, 2011, long-term debt, including the current portion, increased $21.8 million to $134.0 million from $112.2 million at March 31, 2011, which reflected proceeds of $29.1 million of new term loans, a decrease of $4.2 million due to scheduled principal payments made during such period and a decrease of $3.1 million due to the weaker Canadian dollar.

On September 21, 2011, the Company completed a public underwritten offering of 2,800,000 shares of the Company's common stock for $6.00 per share. The Company's proceeds from the offering, net of underwriter's commissions and legal and accounting costs, were $15.4 million. The Company used the net proceeds from the offering to partially fund the acquisition of a bulk carrier on October 14, 2011, and an articulated tug and barge on December 1, 2011.

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

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

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

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

Obligations under the Second Amended and Restated Credit Agreement are secured by (i) a first priority lien and security interest on all of the borrowers' and guarantors' assets, tangible or intangible, real, personal or mixed, existing and newly acquired, (ii) a pledge by Rand LL Holdings of all of the outstanding capital stock of the borrowers and (iii) a pledge by Rand of all of the outstanding capital stock of Rand LL Holdings and Rand Finance. The indebtedness of each borrower under the Second Amended and Restated Credit Agreement is unconditionally guarantied by each other borrower and by the guarantors, and such guaranty is secured by a lien on substantially all of the assets of each borrower and each guarantor.

Under the Second Amended and Restated Credit Agreement, the borrowers are required to make mandatory prepayments of principal on term loan borrowings (i) if the outstanding balance of the term loans plus the outstanding balance of the seasonal facilities exceeds the sum of 75% of the fair market value of the vessels owned by the borrowers, less the amount of outstanding liens against the vessels with priority over the lenders' liens, in an amount equal to such excess, (ii) in the event of certain dispositions of assets and insurance proceeds (all subject to certain exceptions), in an amount equal to 100% of the net proceeds received by the borrowers therefrom, and (iii) in an amount equal to 100% of the net proceeds to a borrower from any issuance of a borrower's debt or equity securities.

The Second Amended and Restated Credit Agreement contains certain covenants, including those limiting the guarantors', the borrowers', and their subsidiaries' ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the Second Amended and Restated Credit Agreement requires the borrowers to maintain certain financial ratios, including minimum EBITDA (as defined therein), minimum fixed charge ratios, maximum senior debt-to-EBITDA ratios, and maximum capital expenditures and drydock expenditures. The Company met those financial covenants during the nine month period ended December 31, 2011. The Second Amended and Restated Credit Agreement's covenants are set in Canadian dollars in order to better match the cash earnings and debt levels of the business by currency. Failure of the borrowers or the guarantors to comply with any of these covenants or financial ratios could result in the loans under the Second Amended and Restated Credit Agreement being accelerated.

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

The Amendment increased (i) the US Term Loan (as such term is defined in the Credit Agreement) by US $25.0 million (ii) the quarterly payments due under the US Term Loan from US $0.4 million to US $0.7 million beginning with the quarterly payment due in June 2012 and (iii) the seasonal overadvance revolving credit facility to US $12.0 million, subject to certain limitations. Additionally, the Amendment eliminates the quarterly payments due under the US Term Loan in December 2011 and March 2012. The Amendment also modified the definitions of “Capital Expenditures”, “Cdn. Vessels”, “EBITDA”, “Fleet Mortgage”, “Requisite Lenders”, “Requisite Revolving Lenders” and “US Owned Vessels” and amended the Minimum EBITDA, Maximum Senior Debt to EBITDA Ratio, Maximum Capital Expenditures, Minimum Appraised Value to Term Loan Outstandings and Minimum Liquidity covenants.

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

The outstanding principal amount of the Black Creek term loan is repayable as follows: (i) quarterly payments of US $0.5 million commencing September 30, 2011 and ending December 31, 2013 and (ii) a final payment in the outstanding principal amount of the term loan payable upon the term loan's maturity on February 11, 2014.

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

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

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

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

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 December 31, 2011 was $9.5 million compared to $7.5 million at March 31, 2011.  As of December 31, 2011, the effective rate of preferred dividends was 12%.  During the three month period ended December 31, 2010, the effective rate of preferred dividends was 11.25%.  The dividend rate increased to a cap of 12% effective July 1, 2011 until such time as the accrued dividends are paid in cash. The Company is limited in the payment of preferred stock dividends by the fixed charge coverage ratio covenant in the Company's Second Amended and Restated Credit Agreement. In addition, the Company has made the decision to make its investments in its vessels before applying cash to pay preferred stock dividends. Under the terms of the preferred stock, upon the conversion of the preferred stock to common stock, a subordinated promissory note will be issued whereby the cash dividends will accrue at the rates set for the preferred stock and the note must be paid at the earlier of the second anniversary of the conversion or seven years from the initial issuance date of the preferred stock.

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Investments in Capital Expenditures and Drydockings

We invested $12.0 million in accrued capital expenditures and drydock expenses during the nine month period ended December 31, 2011, including final winter 2011 capital expenditure and drydocking costs, compared to $10.4 million invested during the nine month period ended December 31, 2010.

The Company completed the repowering of the Michipicoten on May 31, 2011 and the vessel is now fully operational. The Company took the vessel out of service in December 2010.  This project cost approximately $19.5 million.  The benefits of the conversion include increased revenues from higher speeds and lower costs from reduced fuel consumption, labor, maintenance and other operating expenses.

Vessel Acquisitions

On February 11, 2011, Black Creek acquired two articulated tug and barge units for consideration consisting of (i) $35.5 million cash paid at closing, (ii) $3.6 million cash to be paid by Black Creek Holdings in 72 monthly installments of $0.05 million beginning on April 15, 2011; (iii) a promissory note of Black Creek Holdings in the principal amount of $1.5 million, which was subsequently repaid on December 15, 2011; and (iv) 1,305,963 shares of the Company's common stock.

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

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

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

Additionally, on September 21, 2011, Grand River entered into an Asset Purchase Agreement (the “Barge Agreement”) with USUOS pursuant to which USUOS granted Grand River the option to act as USUOS's third-party designee to purchase a self-unloading barge (the “Barge”) for a purchase price of $12.0 million plus the value of the remaining bunkers and unused lubricating oils onboard the Barge at the closing of the acquisition. In connection with the option described in the preceding sentence, on December 1, 2011, Grand River entered into, and consummated the transactions contemplated by, an Asset Purchase Agreement with U.S. Bank National Association, as Trustee of the GTC Connecticut Statutory Trust, pursuant to which Grand River acquired the Barge, together with the related stores and equipment, for a purchase price of US $12.0 million plus the value of the remaining bunkers and unused lubricating oils onboard the Barge at the closing of the acquisition.

Foreign Exchange Rate Risk

We have foreign currency exposure related to the currency related 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 December 31, 2011, our liability for financial instruments with exposure to foreign currency risk was approximately CDN $62.3 million of term 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 were exposed to changes in interest rates associated with any revolver indebtedness and a portion of our term debt at December 31, 2011. We were exposed to CDN $39.2 million of our term loans in Canada and $25.4 million of our term loans in the U.S. under our Second Amended and Restated Credit Agreement. We were also exposed to $30.5 million of our Black Creek indebtedness. Interest rates on Canadian 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 all U.S. borrowings.

As of December 31, 2011, we held two interest rate swap contracts for approximately 30.0% of the sum of our Lower Lakes term loans and Black Creek term 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. These two contracts will expire on April 1, 2013. 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.

Off-Balance Sheet Arrangements

On August 27, 2007, in connection with the entry into a contract of affreightment with Voyageur Maritime Transport Limited (“Voyageur”) and Voyageur Maritime Trading Inc. (“VMT”) and an option agreement with VMT, Lower Lakes Towing entered into a Guarantee (the “Guarantee”) with GE Canada Finance Holding Company (“GE Canada”), pursuant to which Lower Lakes Towing agreed to guarantee up to CDN $1.3 million (the "Guaranteed Obligations") of Voyageur's indebtedness to GE Canada, with Lower Lakes Towing's obligations becoming due and payable should Voyageur fail to meet certain financial covenants under the terms of its loan from GE Canada or if Voyageur breached certain of its obligations under the COA. Lower Lakes Towing's maximum future payments under the Guarantee were limited to the Guaranteed Obligations plus the costs and expenses GE Canada incurred while enforcing its rights under the Guarantee. Lower Lakes secured its obligations under the Guarantee with a Letter of Credit (the “Letter of Credit”) issued under its credit facility. Lower Lakes Towing had several options available to it in the event that GE Canada intended to draw under the Guarantee, including (i) the right to exercise its option for the Trader under the Option Agreement and (ii) the right to make a subordinated secured loan to Voyageur in an amount at least equal to the amount intended to be drawn by GE Canada on terms as were reasonably satisfactory to GE Canada and Voyageur.

In connection with the Guarantee, as of March 31, 2011 we recorded a loss contingency of $1.3 million on Lower Lakes Towing's guarantee of Voyageur's indebtedness with GE Canada, following the Maritime Trader's (the "Trader") placement in receivership as of March 14, 2011. Due to Voyageur's failure to meet its obligations under its financing arrangements with GE Canada, on May 17, 2011, General Electric Capital Corporation delivered a notice to Lower Lakes that effective as of May 6, 2011, GE Canada had drawn the full amount available under the Letter of Credit, with the CDN $1.3 million added to Lower Lakes' revolving borrowings under its credit facility. GE Canada, in its capacity as a lender to Voyageur, placed the Trader into receivership, and auctioned the vessel in accordance with the laws of Ontario.

Voyageur was previously determined to be a variable interest entity of the Company under U.S. GAAP. We believe that Voyageur ceased to be a VIE of the Company when GE Canada seized the Trader pursuant to Ontario law and placed the subsidiary that owns the Trader under liquidation in the Federal Court of Canada effective March 14, 2011 due to Voyageur's failure to pay principal and interest due to GE Canada in February 2011. On July 21, 2011, Lower Lakes completed the acquisition of the Trader pursuant to the terms of an asset purchase agreement, dated as of July 8, 2011, by and between the Company and Marcon International Inc., in its capacity as court-appointed seller of the vessel.  We were never the primary beneficiary of Voyageur, and did not receive any material margin for the shipments made on the Trader, since the relationship was an industry standard charter relationship. The Company provided no loan support or liquidity to Voyageur during the nine month period ended December 31, 2011.

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Lack of Historical Operating Data for Acquired Vessels

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

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

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

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

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

•obtain the customer's consent to us as the new owner if applicable;

•arrange for a new crew for the vessel;

•replace all hired equipment on board, such as gas cylinders and communications equipment;

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

•implement a new planned maintenance program for the vessel.

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

Our business is comprised of the following main elements:

•employment and operation of our drybulk vessels;

•scheduling our vessels to satisfy customer's contracts of affreightment; and

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

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

•vessel maintenance and repair;

•crew selection and training;

•vessel spares and stores supply;

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

•organizing and undergoing regular classification society surveys;

•contingency response planning;

•onboard safety procedures auditing;

•accounting;

•vessel insurance arrangement;

•vessel scheduling;

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

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

•vessel hire management;

•vessel surveying; and

•vessel performance monitoring.

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

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

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

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

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

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

• rates of contracts of affreightment and charterhire;

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

• weather conditions;

• vessel incidents;

• levels of vessel operating expenses;

• depreciation and amortization expenses;

• financing costs; and 

• fluctuations in foreign exchange rates.

Critical Accounting Policies

Rand's significant accounting policies are presented in Note 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.

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Vessel acquisitions

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

Intangible assets and goodwill

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

Trademarks and trade names	10 years straight-line
Customer relationships and contracts	15 years straight-line

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

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

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 nine month period ended December 31, 2011.

Impairment of goodwill

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

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Income taxes

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

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

Stock-based compensation

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

Recently Issued Pronouncements

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

In December 2010, the FASB issued Accounting Standards Update (“ASU”)No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350)—Intangibles—Goodwill and Other” (“ASU 2010-28”). ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years beginning on or after December 15, 2010. The adoption of ASU 2010-28 became effective for the Company on April 1, 2011 and it did not have any impact on the Company’s consolidated financial statements.

Disclosure of supplementary pro forma information for business combinations

In December 2010, the FASB issued ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”), which addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in ASU 2010-29 also expand the supplemental pro forma disclosure to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after December 15, 2010. The Company adopted ASU 2010-29 effective April 1, 2011.

Amendments to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards

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In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) — Fair Value Measurement”(“ASU 2011-04”), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The amendments are not expected to have a significant impact on companies that apply U.S. GAAP. This standard is effective for interim and annual periods beginning after December 15, 2011 and will be applied prospectively. The Company is currently evaluating the impact of adoption of ASU 2011-04 on the consolidated financial statements.

Presentation of comprehensive income

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”(“ASU 2011-05”). ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued ASU No. 2011-12, "Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05" ("ASU 2011-12"), to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. The Company will adopt this guidance in the first quarter of fiscal 2013. The adoption of ASU 2011-05 and the deferrals in ASU 2011-12 are not expected to have a material impact on the Company's consolidated financial statements.

Testing goodwill for impairment

On September 15, 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”).  ASU 2011-08 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test prescribed by current accounting principles. The quantitative impairment test is required if an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not(a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. An entity can choose to perform the qualitative assessment on none, some or all of its reporting units.  An entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative goodwill impairment test, and then resume performing the qualitative assessment in any subsequent period.  ASU2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted.  The Company is currently reviewing the effects of ASU 2011-08.

Disclosures about offsetting assets and liabilities

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

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Item 3. 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.

Item 4. Controls and Procedures.

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

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

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There has been no material change to our Risk Factors from those presented in our Form 10-K for the fiscal year ended March 31, 2011.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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Item 4. Reserved.

None.

Item 5. Other Information.

None.

Item 6. 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.
*101.INS	XBRL Instance Document
*101.SCH	XBRL Taxonomy Extension Schema Document
*101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB	XBRL Taxonomy Extension Label Linkbase Document
*101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
* As provided in Rule 406T of Regulation S-T, this information is deemed furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

53

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:	February 9, 2012	/s/ Laurence S. Levy
		Laurence S. Levy
		Chairman of the Board and Chief
		Executive Officer (Principal Executive Officer)
Date:	February 9, 2012	/s/ Joseph W. McHugh, Jr.
		Joseph W. McHugh, Jr.
		Chief Financial Officer (Principal Financial and Accounting Officer)

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Exhibit Index

31.1	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.
*101.INS	XBRL Instance Document
*101.SCH	XBRL Taxonomy Extension Schema Document
*101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB	XBRL Taxonomy Extension Label Linkbase Document
*101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
* As provided in Rule 406T of Regulation S-T, this information is deemed furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

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