All dollar amounts are presented in millions except share, per share and per Sailing Day amounts.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial Statements and the accompanying financial statement notes of the Company appearing elsewhere in this Quarterly Report on Form 10-Q for the three month and six month periods ended September 30, 2012.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements, including those relating to our capital needs, business strategy, expectations and intentions. Statements that use the terms "believe", "anticipate", "expect", "plan", "estimate", "intend" and similar expressions of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise. For these statements and all other forward-looking statements, we claim the protection of the Safe Harbor for Forward-Looking Statements contained in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy or are otherwise beyond our control and some of which might not even be anticipated. Forward-looking statements reflect our current views with respect to future events and because our business is subject to such risks and uncertainties, actual results, our strategic plan, our financial position, results of operations and cash flows could differ materially from those described in or contemplated by the forward-looking statements contained in this report.
Important factors that contribute to such risks include, but are not limited to, those factors set forth under "Risk Factors" on our Form 10-K filed with the Securities and Exchange Commission on June 8, 2012 as well as the following: the continuing effects of the economic downturn in our markets; the weather conditions on the Great Lakes; and our ability to maintain and replace our vessels as they age. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.

Overview
Business
Rand Logistics, Inc. (formerly Rand Acquisition Corporation) was incorporated in the State of Delaware on June 2, 2004.
On March 3, 2006, we acquired all of the outstanding shares of capital stock of Lower Lakes Towing Ltd. ("Lower Lakes Towing"), a Canadian corporation which, with its subsidiary Lower Lakes Transportation Company ("Lower Lakes Transportation"), provides bulk freight shipping services throughout the Great Lakes region, and at the time of acquisition, 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 ten vessels to our fleet through acquisition transactions and we retired two smaller vessels. During 2011, we acquired three articulated tug and barge units and two bulk carriers. In this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to Rand, we, us and the Company include Rand and its direct and indirect subsidiaries, and references to Lower Lakes' business or the business of Lower Lakes mean the combined businesses of Lower Lakes Towing, Lower Lakes Transportation, Grand River and our additional operating subsidiary, Black Creek Shipping Company, Inc. ("Black Creek").

Our shipping business is operated in Canada by Lower Lakes Towing and in the United States by Lower Lakes Transportation. Lower Lakes Towing was organized in March 1994 under the laws of Canada to provide marine transportation services to dry bulk goods suppliers and purchasers operating in ports on the Great Lakes that were restricted in their ability to receive larger vessels. Lower Lakes has grown from its origin as a small tug and barge operator to a full service shipping company with a fleet of sixteen cargo-carrying vessels. We have grown to become one of the largest bulk shipping companies operating on the Great Lakes and the leading service provider in the River Class market segment, which we define as vessels less than 650 feet in overall length. We transport limestone, coal, iron ore, salt, grain and other dry bulk commodities for customers in the construction, electric utility, integrated steel and food industries, and anticipate carrying over 23 million tons of dry bulk commodities in the 2012 sailing season.
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 Canadian and U.S. flagged vessels in compliance with the Coasting Trade Act in Canada and the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones Act, in the United States.
Lower Lakes' fleet consists of five self-unloading bulk carriers and four conventional bulk carriers in Canada and seven 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 for the three month period ended September 30, 2012 compared to the three month period ended September 30, 2011 Selected Financial Information (Unaudited)

                                         Three months      Three months
                                        ended September   ended September
            (USD in 000's)                 30, 2012          30, 2011        $ Change     % Change
Revenue:
Freight and related revenue            $        39,040   $        35,164   $    3,876        11.0  %
Fuel and other surcharges              $        11,107   $        12,840   $   (1,733 )     (13.5 )%
Outside voyage charter revenue         $           424   $           392   $       32         8.2  %
Total                                  $        50,571   $        48,396   $    2,175         4.5  %

Expenses:
Outside voyage charter fees            $           423   $           390   $       33         8.5  %
Vessel operating expenses              $        31,986   $        31,255   $      731         2.3  %
Repairs and maintenance                $           270   $           206   $       64        31.1  %

Sailing Days:                                    1,185             1,190           (5 )      (0.4 )%

Number of vessels in operation:                     15                14            1         7.1  %

Per day in whole USD:
Revenue per Sailing Day:
Freight and related revenue            $        32,945   $        29,550   $    3,395        11.5  %
Fuel and other surcharges              $         9,373   $        10,790   $   (1,417 )     (13.1 )%

Expenses per Sailing Day:
Vessel operating expenses              $        26,992   $        26,265   $      727         2.8  %
Repairs and maintenance                $           228   $           173   $       55        31.8  %

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

                                   Freight and       Fuel and other    Outside voyage                    Vessel operating
 (USD in 000's)   Sailing Days   related revenue       surcharges          charter       Total revenue       expenses
Three month
period ended           1,190    $      35,164      $      12,840      $           392   $      48,396   $      31,255
September 30,
2011
Changes in three
month period
ended September
30, 2012:
Change
attributable to                          (363 )              (75 )                  -            (438 )          (260 )
weaker Canadian
dollar
Net decrease
attributable to          (47 )         (1,452 )             (767 )                             (2,219 )        (1,104 )
vessel incident
Net increase
attributable to
customer demand           42            5,691               (891 )                              4,800           2,095
and pricing
(excluding
currency impact)
Changes in
outside voyage
charter revenue                                                                    32              32
(excluding
currency impact)
Sub-total                 (5 )  $       3,876      $      (1,733 )    $            32   $       2,175   $         731
Three month
period ended
September 30,
2012                   1,185    $      39,040      $      11,107      $           424   $      50,571   $      31,986

Total revenue during the three month period ended September 30, 2012 was $50.6 million, an increase of $2.2 million, or 4.5%, compared to $48.4 million during the three month period ended September 30, 2011. This increase was primarily attributable to higher freight revenue, partially offset by reduced fuel surcharges and a weaker Canadian dollar.
During the three month period ended September 30, 2012, U.S.-flagged vessels industry-wide experienced a 7.0% decrease in overall customer demand compared to the three month period ended September 30, 2011. Other than aggregates, for which U.S.-flagged shipments increased 7.5%, overall industry tonnage decreased for all of the major commodities during the three month period ended September 30, 2012 compared to the three month period ended September 30, 2011. Certain commodities that we transport were impacted by the drought conditions experienced during the three month period ended September 30, 2012. Freight and other related revenue generated from Company-operated vessels increased $3.8 million, or 11.0%, to $39.0 million during the three month period ended September 30, 2012 compared to $35.2 million during the three month period ended September 30, 2011. Excluding the impact of currency changes, freight revenue increased 12.1% during the three month period ended September 30, 2012 compared to the three month period ended September 30, 2011. This increase in revenue was attributable to contractual price increases and a shift in customer and commodity mix. Freight revenue was also positively impacted by the additional Sailing Days gained from the vessel acquired in the three month period ended December 31, 2011, offset by the loss of 47 Sailing Days due to mechanical repairs required following an incident that occurred in the three month period ended June 30, 2012 and the loss of 36 Sailing Days due to the reduced grain crop. Tonnage hauled by our operated vessels for the three month period ended September 30, 2012 increased 3.4% compared to the three month period ended September 30, 2011.
Management believes that each of our vessels should achieve approximately 92 Sailing Days in an average second fiscal quarter, assuming no major repairs, incidents and vessel lay-ups. The Company's vessels sailed an average of approximately 79 Sailing Days during the three month period ended September 30, 2012 compared to an average of 85 Sailing Days during the three month period ended September 30, 2011. We operated fifteen vessels during the three month period ended September 30, 2012, including the bulker vessel acquired in the three month period ended December 31, 2011, compared to fourteen vessels during the three month period ended September 30, 2011. During the three month period ended September 30, 2012, the Company did not sail the tug/barge vessel it acquired during the three month period ended December 31, 2011, since that vessel was undergoing conversion and modification to a standard Great Lakes-capable self-unloading vessel.
Freight and related revenue per Sailing Day increased $3,395, or 11.5%, to $32,945 per Sailing Day in the three month period ended September 30, 2012 compared to $29,550 per Sailing Day during the three month period ended September 30, 2011.

This increase was attributable to contractual price increases and a shift in customer and commodity mix, partially offset by a weaker Canadian dollar and slightly reduced backhauls due to reduced salt carriage caused by an abnormally dry winter in the Great Lakes region.
All of our customer contracts have fuel surcharge provisions whereby changes in our fuel costs are passed on to our customers. Such increases and decreases in fuel surcharges impact margin percentages, but do not significantly impact our margin dollars. Fuel and other surcharges decreased $1.7 million, or 13.5%, to $11.1 million during the three month period ended September 30, 2012 compared to $12.8 million during the three month period ended September 30, 2011. This decrease was attributable to a net reduction in Sailing Days, a shift in commodities carried and the associated fuel surcharge levied, a lower fuel cost upon which the surcharge is based and a weaker Canadian dollar. Fuel and other surcharges per Sailing Day decreased by $1,417, or 13.1%, to $9,373 per Sailing Day during the three month period ended September 30, 2012 compared to $10,790 per Sailing Day during the three month period ended September 30, 2011. Vessel operating expenses increased $0.7 million, or 2.3%, to $32.0 million during the three month period ended September 30, 2012 compared to $31.3 million during the three month period ended September 30, 2011. This increase was primarily attributable to an additional vessel acquired in the fiscal year ended March 31, 2012 that we sailed during the three month period ended September 30, 2012, and was partially offset by lower fuel prices, a reduction in Sailing Days due to vessel-incident related repairs, bulker layups due to the shortage in the grain market, and, to a lesser extent, the weaker Canadian dollar. Vessel operating expenses per Sailing Day increased $727, or 2.8%, to $26,992 per Sailing Day during the three month period ended September 30, 2012 from $26,265 per Sailing Day during the three month period ended September 30, 2011. Repairs and maintenance expenses, which primarily consist of expensed winter work, increased $0.1 million to $0.3 million during the three month period ended September 30, 2012 from $0.2 million during the three month period ended September 30, 2011. Repairs and maintenance per Sailing Day increased $55 to $228 per Sailing Day during the three month period ended September 30, 2012 from $173 per Sailing Day during the three month period ended September 30, 2011. This increase was primarily due to repair work undertaken while certain vessels were laid up due to the grain shortage experienced in the three month period ended September 30, 2012.
Our general and administrative expenses increased $0.7 million to $3.2 million during the three month period ended September 30, 2012 compared to $2.5 million for the three month period ended September 30, 2011. These costs increased due to $0.3 million of legal costs, the write off of $0.1 million financing costs incurred with the execution of a new credit agreement and compensation costs primarily related to higher engineering and IT headcount. Our general and administrative expenses represented 8.1% of freight revenues during the three month period ended September 30, 2012, an increase from 7.0% of freight revenues during the three month period ended September 30, 2011. During the three month period ended September 30, 2012, $1.0 million of our general and administrative expenses was attributable to our parent company and $2.2 million was attributable to our operating companies.
Depreciation expense increased $0.7 million to $3.6 million during the three month period ended September 30, 2012 compared to $2.9 million during the three month period ended September 30, 2011. The increase in depreciation expense was primarily attributable to two bulker vessels acquired in the fiscal year ended March 31, 2012 that we sailed during the three month period ended September 30, 2012 and other winter 2012 capital expenditures, offset by a weaker Canadian dollar.
Amortization of drydock costs increased $0.2 million to $0.9 million during the three month period ended September 30, 2012 from $0.7 million during the three month period ended September 30, 2011 due to an increased number of vessels drydocked during the 2012 winter, offset by a weaker Canadian dollar in the three month period ended September 30, 2012. During the three month period ended September 30, 2012, the Company amortized the deferred drydock costs of twelve of its fifteen operated vessels, compared to nine vessels during the three month period ended September 30, 2011.
As a result of the items described above, during the three month period ended September 30, 2012, the Company's operating income decreased $0.2 million to $9.9 million compared to operating income of $10.1 million during the three month period ended September 30, 2011. Operating income plus depreciation, amortization of drydock costs and amortization of intangibles increased 4.3%, or $0.6 million, to $14.7 million during the three month period ended September 30, 2012 from $14.1 million during the three month period ended September 30, 2011. Interest expense decreased $0.2 million to $2.2 million during the three month period ended September 30, 2012 from $2.4 million during the three month period ended September 30, 2011. This decrease in interest expense was primarily attributable

to the capitalization of interest associated with the debt incurred to modify our most recent vessel acquisition, offset by higher interest charges from a higher average debt balance.
As a result of the Third Amended and Restated Credit Agreement discussed below, we recognized a loss on extinguishment of debt of $3.3 million during the three month period ended September 30, 2012, which comprised the unamortized deferred financing costs in connection with previously existing financing arrangements. We recorded a gain on interest rate swap contracts of $0.3 million in the three month period ended September 30, 2012 compared to a nominal gain during the three month period ended September 30, 2011. Such gains were due to the recording of the fair value of our two interest rate swaps at the end of each such period.
Our income before income taxes was $4.6 million during the three month period ended September 30, 2012 compared to income before income taxes of $7.7 million during the three month period ended September 30, 2011.
Our provision for income tax expense was $1.7 million during the three month period ended September 30, 2012 compared to a tax expense of $1.3 million during the three month period ended September 30, 2011. Our effective tax rate was an expense of 37.5% for the three month period ended September 30, 2012 compared to an expense of 16.2% for the three month period ended September 30, 2011. The tax rate for the three month period ended September 30, 2011 was lower due to the tax benefit associated with the reduction of the valuation allowance related to the net U.S. Federal deferred tax assets, including net operating losses. The remaining valuation allowance was reversed as of March 31, 2012 and accordingly, for the three month period ended September 30, 2012, this reduction was not available. Furthermore, the effective tax rate for the current period is higher than the statutory rate due to earnings recognized for tax but not reported in current earnings.

Our net income before preferred stock dividends was $2.9 million during the three month period ended September 30, 2012 compared to $6.5 million during the three month period ended September 30, 2011.

We accrued $0.8 million for dividends on our preferred stock during the three month period ended September 30, 2012 compared to $0.7 million during the three month period ended September 30, 2011. The dividends accrued at a rate of 12.0% during the three month period ended September 30, 2012 and September 30, 2011. The dividend rate increased to a cap of 12.0% effective July 1, 2011. Our net income applicable to common stockholders was $2.1 million during the three month period ended September 30, 2012 compared to net income of $5.8 million during the three month period ended September 30, 2011. The Canadian dollar weakened by 1.5% compared to the U.S. dollar, averaging approximately $1.006 USD per CDN during the three month period ended September 30, 2012 compared to approximately $1.021 USD per CDN during the three month period ended September 30, 2011. The Company's balance sheet translation rate increased from $1.003 USD per CDN at March 31, 2012, to $1.017 USD per CDN at September 30, 2012.
During the three month period ended September 30, 2012, the Company operated an average of six vessels in the US and nine vessels in Canada. The percentage of our total freight and other revenue, fuel and other surcharge revenue, vessel operating expenses, repairs and maintenance costs and combined depreciation and amortization costs approximate the percentage of vessels operated by country. Our outside voyage charter revenue and costs relate solely to our Canadian subsidiary and approximately half of our general and administrative costs are incurred in Canada. Approximately half of our interest expense is incurred in Canada, and approximately half of our gain on interest rate swap contracts was realized in Canada, consistent with our percentage of overall indebtedness by country. All of our preferred stock dividends are accrued in the US.

Results of Operations for the six month period ended September 30, 2012 compared to the three month period ended September 30, 2011 Selected Financial Information (Unaudited)

                                       Six months ended Six months ended
                                        September 30,    September 30,
            (USD in 000's)                   2012             2011         $ Change      % Change
Revenue:
Freight and related revenue            $       75,367   $       65,858   $     9,509        14.4  %
Fuel and other surcharges              $       23,582   $       24,172   $      (590 )      (2.4 )%
Outside voyage charter revenue         $        1,234   $          702   $       532        75.8  %
Total                                  $      100,183   $       90,732   $     9,451        10.4  %

Expenses:
Outside voyage charter fees            $        1,245   $          697   $       548        78.6  %
Vessel operating expenses              $       65,143   $       59,831   $     5,312         8.9  %
Repairs and maintenance                $          657   $        1,032   $      (375 )     (36.3 )%

Sailing Days:                                   2,359            2,255           104         4.6  %

Number of vessels in operation:                    15               14             1         7.1  %

Per day in whole USD:
Revenue per Sailing Day:
Freight and related revenue            $       31,949   $       29,205   $     2,744         9.4  %
Fuel and other surcharges              $        9,997   $       10,719   $      (722 )      (6.7 )%

Expenses per Sailing Day:
Vessel operating expenses              $       27,615   $       26,533   $     1,082         4.1  %
Repairs and maintenance                $          279   $          458   $      (179 )     (39.1 )%

The following table summarizes the changes in the components of our revenue and vessel operating expenses as a result of changes in Sailing Days during the six month period ended September 30, 2012 compared to the six month period ended September 30, 2011.

                                   Freight and       Fuel and other     Outside voyage                     Vessel operating
 (USD in 000's)   Sailing Days   related revenue       surcharges          charter        Total revenue        expenses
Six month period
ended September        2,255    $      65,858      $      24,172      $         702      $       90,732   $      59,831
30, 2011
Changes in six
month period
ended September
30, 2012:
Change
attributable to                        (1,371 )             (391 )              (34 )            (1,796 )        (1,143 )
weaker Canadian
dollar
Net decrease
attributable to          (85 )         (2,205 )           (1,298 )                               (3,503 )          (716 )
vessel incident
Net increase
attributable to
customer demand          189           13,085              1,099                                 14,184           7,171
and pricing
(excluding
currency impact)
Changes in
outside voyage
charter revenue                                                                 566                 566
(excluding
currency impact)
Sub-total                104    $       9,509      $        (590 )    $         532      $        9,451   $       5,312
Six month period
ended September
30, 2012               2,359    $      75,367      $      23,582      $       1,234      $      100,183   $      65,143

Total revenue during the six month period ended September 30, 2012 was $100.2 million, an increase of $9.5 million, or 10.4%, compared to $90.7 million during the six month period ended September 30, 2011. This increase was primarily attributable to higher freight revenue and a modest increase in outside charter hire, partially offset by reduced fuel surcharges and the effect of the weaker Canadian dollar.
During the six month period ended September 30, 2012, U.S.-flagged vessels industry-wide experienced a 2.7% decrease in overall customer demand compared to the six month period ended September 30, 2011. Other than aggregates, for which U.S.-flagged shipments increased 11.0%, overall industry tonnage decreased for all of the major commodities during the six month period ended September 30, 2012 compared to the six month period ended September 30, 2011. Freight and other related revenue generated from Company-operated vessels increased $9.5 million, or 14.4%, to $75.4 million during the six month period ended September 30, 2012 compared to $65.9 million during the six month period ended September 30, 2011. Excluding the impact of currency changes, freight revenue increased 16.5% during the six month period ended September 30, 2012 compared to the six month period ended September 30, 2011. This increase was attributable to a net 104 additional Sailing Days, resulting in a 10.4% increase in tonnage hauled by our operated vessels, and contractual price increases. Management believes that each of our vessels should achieve approximately 183 Sailing Days in an average first half of a fiscal year, assuming no major repairs, incidents or vessel layups and normal drydocking cycle times performed . . .