UNITED
STATES SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549


F
O R M  20-F





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





For the
fiscal year ended December 31, 2007





Commission
file number 001-09987












B + H   O C E
A N   C A R R I E R S   L T D.


(Exact
name of Registrant as specified in its charter)





Liberia


(Jurisdiction
of incorporation or organization)





3rd
Floor, Par La Ville Place


14 Par La
Ville Road


Hamilton HM 08,
Bermuda


(Address
of principal executive offices)





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


Name of
each exchange


Title of each
class                                                                               on which
registered


Common
Stock, par value $0.01 per
share                                                    
American Stock Exchange








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





Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:                NONE





The
number of shares outstanding of the registrant's common stock, $.01 par value,
at December 31, 2007 was 6,964,745 shares.


Indicate
by check mark if the registrant is a well-know seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes X                      No
____
 
 If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 
 Yes X                      No
____
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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
X                     No
____
 
 Note –
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
 
 Large
accelerated filer
____             Accelerated
filer ____ Non-accelerated filer
X
 
 Indicate
by check mark which basis of accounting the registrant has used to prepare the
statements included in this filing:
 
 International Financial Reporting
Standards as issued
 US GAAP
X                            by
the International Accounting Standards BoardOther Other
 
 If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow:
  Item 17
                      Item
18 X
 
 If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act.):
  Yes                        No
X








Item 1.
            Identity
      of Directors, Senior Management and Advisers
            1Item 2.
            Offer
      Statistics and Expected Timetable
            1Item 3.
            Key
      Information
            1Item 4.
            Information
      on the Company
            16Item 5.
            Operating
      and Financial Review and Prospects
            29Item 6.
            Directors,
      Senior Management and Employees
            46Item 7.
            Major
      Shareholders and Related Party Transactions
            49Item 8.
            Financial
      Information
            54Item 9.
            The
      Offer and Listing
            55Item 10.
            Additional
      Information
            56Item 11.
            Quantitative
      and Qualitative Disclosures About Market Risk
            57Item 12.
            Description
      of Securities Other than Equity Securities
            58Item 13.
            Defaults,
      Dividend Arrearages and Delinquencies
            58Item 14.
            Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
            58Item 15.
            Controls
      and Procedures
            58Item 16A.
            Audit
      Committee Financial Expert
            59Item 16B.
            Code
      of Ethics
            59Item 16C.
            Principal
      Accountant Fees and Services
            59Item 16D.
            Exemptions
      from the Listing Standards for Audit Committees
            59Item 16E.
            Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
            60Item 17
            Financial
      Statements
            61Item 18.
            Financial
      Statements
            61Item 19.
            Exhibits
            62








PART
      IItem
      1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot
      applicableItem
      2. OFFER STATISTICS AND EXPECTED TIMETABLENot
      applicableItem
      3.  KEY INFORMATIONA.
      Selected financial dataThe
      following selected consolidated financial data of the Company and its
      subsidiaries are derived from and should be readin
      conjunction with the Consolidated Financial Statements and notes thereto
      appearing elsewhere in this annual report.Income
      Statement Data:
              
              Year
      ended December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Voyage,
      time and bareboat charter revenues
              
              $
              111,835,094
              
              
              $
              95,591,276
              
              
              $
              71,388,561
              
              
              $
              51,362,910
              
              
              $
              55,156,875Other
      operating income
              
              
              581,737
              
              
              
              1,287,775
              
              
              
              514,491
              
              
              
              -
              
              
              
              -Voyage
      expenses
              
              
              (27,882,163
              )
              
              
              (14,792,322
              )
              
              
              (6,033,470
              )
              
              
              (9,663,653
              )
              
              
              (19,373,318
              )Vessel
      operating expenses
              
              
              (39,366,478
              )
              
              
              (34,159,942
              )
              
              
              (26,369,749
              )
              
              
              (19,742,875
              )
              
              
              (25,089,187
              )Depreciation
      and amortization
              
              
              (21,542,550
              )
              
              
              (16,812,342
              )
              
              
              (11,917,359
              )
              
              
              (7,763,640
              )
              
              
              (9,024,806
              )Gain
      (loss) on sale of vessels
              
              
              -
              
              
              
              -
              
              
              
              828,115
              
              
              
              (4,682,965
              )
              
              
              (16,187,604
              )General
      and administrative expenses
              
              
              (7,349,371
              )
              
              
              (5,254,323
              )
              
              
              (3,797,613
              )
              
              
              (3,755,136
              )
              
              
              (3,897,885
              )Income
      (loss) from operations
              
              
              16,276,269
              
              
              
              25,860,122
              
              
              
              24,612,976
              
              
              
              5,754,641
              
              
              
              (18,415,925
              )Gain
      on retirement of 9 7/8 First PreferredShip
      Mortgage Notes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,803,965Minority
      interest in net loss of consolidated subsidiary
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              23,866Interest
      expense, net
              
              
              (9,619,621
              )
              
              
              (8,298,750
              )
              
              
              (4,383,627
              )
              
              
              (1,328,896
              )
              
              
              (1,504,191
              )Income
      from investment in Nordan OBO 2 Inc.
              
              
              790,288
              
              
              
              1,262,846Loss
      on derivative instruments
              
              
              (4,670,192
              )Other
      expense
              
              
              (757,567
              )
              
              
              (49,905
              )
              
              
              (130,704
              )
              
              
              (1,730
              )
              
              
              -Net
      income (loss)
              
              $
              2,019,177
              
              
              $
              18,774,313
              
              
              $
              20,098,645
              
              
              $
              4,424,015
              
              
              $
              (13,092,285
              )Basic
      earnings (loss) per share (1)
              
              $
              0.29
              
              
              $
              2.67
              
              
              $
              3.44
              
              
              $
              1.15
              
              
              $
              (3.41
              )Diluted
      earnings (loss) per share (2)
              
              $
              0.29
              
              
              $
              2.59
              
              
              $
              3.30
              
              
              $
              1.00
              
              
              $
              (3.41
              )Dividends
      declared per share
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -(1) Based
      on weighted average number of shares outstanding of 6,994,843 in 2007,
      7,027,343 in 2006, 5,844,301 in 2005, 3,839,242 in 2004 and 3,835,269 in
      2003.(2) Based
      on the weighted average number of shares outstanding, increased in 2007,
      2006, 2005 and 2004 by the net effects of stock options using
      thetreasury
      stock method and by the assumed distribution of all shares to BHM under
      the 1998 agreement (See Item 7). The denominator for the
      dilutedearnings
      per share calculation is 7,031,210 in 2007, 7,237,453 in 2006, 6,092,522
      in 2005, 4,404,757 in 2004 and 3,835,269 in 2003.Year
      ended December 31,Balance
      Sheet Data:
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Current
      assets
              
              $
              97,408,642
              
              
              $
              85,870,618
              
              
              $
              65,719,790
              
              
              $
              19,344,004
              
              
              $
              6,534,213Total
      assets
              
              $
              405,833,474
              
              
              $
              366,822,444
              
              
              $
              281,423,286
              
              
              $
              82,902,304
              
              
              $
              70,830,212Current
      liabilities
              
              $
              83,142,107
              
              
              $
              63,688,354
              
              
              $
              44,305,700
              
              
              $
              20,073,194
              
              
              $
              17,024,634Long-term
      liabilities
              
              $
              190,254,745
              
              
              $
              167,153,908
              
              
              $
              117,063,472
              
              
              $
              18,465,472
              
              
              $
              13,310,674Working
      capital (deficit)
              
              $
              14,266,535
              
              
              $
              22,182,264
              
              
              $
              21,414,090
              
              
              $
              (729,190
              )
              
              $
              (10,490,421
              )Shareholders'
      equity
              
              $
              132,436,622
              
              
              $
              135,980,182
              
              
              $
              120,054,114
              
              
              $
              44,363,637
              
              
              $
              40,494,904





B.
Capitalization and indebtedness





Not applicable





C.
            Reasons
      for the offer and use of proceeds





Not
applicable





D.
Risk factors





You
should consider carefully the following factors as well as other information set
forth in this report. Some of the following risks relate principally to the
industry in which the Company operates and its business in general. Other risks
relate principally to the securities market and ownership of its stock. Any of
the risk factors could significantly and negatively affect its business,
financial condition or operating results and the trading price of its stock. You
could lose all or part of your investment.





Industry
Specific Risk Factors





The
cyclical nature of the international shipping industry may lead to volatile
changes in charter rates and vessel values, which may adversely affect its
earnings





The
shipping industry is generally known to be cyclical. Vessel values and charter
freight rates fluctuate widely and frequently, and the Company expects they will
continue to do so in the future. Growth within the largest economies will
normally contribute to an increase in the ton-mile demand in global seaborne
trade.





The
operations of the Company on a worldwide basis may increase the volatility of
the Company’s business





The
operations of the Company are conducted primarily outside the United States and
therefore may be affected by currency fluctuations and by changing economic,
political and governmental conditions in the countries where its vessels operate
and are registered. Future hostilities or other political instability in the
regions in which the Company conducts its operations could affect the Company’s
trade patterns and could adversely affect the Company’s business and results of
operations.  Although the substantial majority of the Company’s
revenues and expenses have historically been denominated in United States
dollars, there can be no assurance that the portion of the Company’s business
conducted in other currencies will not increase in the future, which could
expand the Company’s exposure to losses arising from currency
fluctuations.





The
Company is subject to regulation and liability under environmental laws that
could require significant expenditures and affect its cash flows and net
income





The
Company’s operations are subject to extensive regulation in the form of local,
national and foreign laws, as well as international treaties and conventions
that can subject us to material liabilities for environmental
events.





The
operation of its vessels is affected by the requirements set forth in the
International Management Code for the Safe Operation of Ships and Pollution
Prevention (the “ISM Code”). The ISM Code requires shipowners and bareboat
charterers to develop and maintain an extensive “Safety Management System” that
includes the adoption of a safety and environmental protection policy setting
forth instructions and procedures for safe operation and describing procedures
for dealing with emergencies. The failure of a shipowner or bareboat charterer
to comply with the ISM Code may subject such party to increased liability, may
decrease available insurance coverage for the affected vessels, and may result
in a denial of access to, or detention in, certain ports. Currently, each of the
vessels in its fleet is ISM Code-certified.





The
United States Oil Pollution Act of 1990,  (“OPA90”), provides that
owners, operators and bareboat charterers are strictly liable for the discharge
of oil in U.S. waters, including the 200 nautical mile zone off the U.S. coasts.
OPA90 provides for unlimited liability in some circumstances, such as a vessel
operator’s gross negligence or willful misconduct. However, in most cases OPA90
limits liability to the greater of $1,200 per gross ton or $10 million per
vessel. OPA90 also permits states to set their own penalty limits. Most states
bordering navigable waterways impose unlimited liability for discharges of oil
in their waters.





The
International Maritime Organization, or IMO, has adopted a similar liability
scheme that imposes strict liability for oil spills, subject to limits that do
not apply if the release is caused by the vessel owner’s intentional or reckless
conduct.





The U.S.
has established strict deadlines for phasing-out single-hull oil tankers, and
both the IMO and the European Union have proposed similar phase-out periods.
Under OPA90, all oil tankers that do not have double hulls will be phased out by
2015 and will not be permitted to come to United States ports or trade in United
States waters.  Two of the Company’s product tankers, or approximately
11% by deadweight ton (“DWT”) of the Company’s combined fleet, will be
prohibited from carrying crude oil and oil products in U.S. waters by August
2010, with the phase out of such tankers occurring over the course of the period
from August 2009 until August 2010.





In December 2003, the IMO adopted
a proposed amendment to the International Convention for the Prevention of
Pollution from Ships to accelerate the phase out of single-hull and
non-qualifying double sided tankers from 2015 to 2010 unless the relevant flag
states extend the date to 2015. This amendment took effect in April 2005.
The Company expects that its double sided medium range (“MR”) tanker and its
double sided Panamax product tanker will be unable to carry crude oil and
petroleum products in many markets commencing between 2009 and
2010.  Moreover, the IMO or other regulatory bodies may adopt further
regulations in the future that could adversely affect the useful lives of its
tankers as well as the Company’s ability to generate income from them. Also, new
IMO regulation came into force as of January 1, 2007 requiring vegetable oils to
be carried on IMO type 2 chemical tankers.  This regulation
effectively excluded the Company’s six MR ships from this trade.  The
Company therefore decided to convert these ships to meet the new requirements
for both IMO Annex II and also Annex I, which regulates petroleum
products.  Four of the ships were converted in 2006 and 2007. The
Company then decided to sell one MR product tanker and to convert the two
remaining MR tankers to  bulk carriers. The Company is also converting
a Panamax product tanker to a bulk carrier. Two of these conversions were in
process at December 31, 2007.





The
Panama Canal Authority (PCA) recently issued an Advisory announcing that it may
exercise its authority to deny the transit of a single-hull oil tanker which has
been granted a Flag State exemption from the phase-out provisions of MARPOL (the
International Convention for the Prevention of Pollution from Ships). If it does
allow such transit, all additional costs or resources provided to minimize the
risk of environmental damage will be charged to the vessel. The PCA will
evaluate each ship on a case-by-case basis.





These
requirements can affect the resale value or useful lives of the Company’s
vessels. As a result of accidents such as the November 2002 oil spill relating
to the loss of the M/T
Prestige, a 26-year old single-hull tanker, the Company believes that
regulation of the tanker industry will continue to become more stringent and
more expensive for the Company and its competitors. Substantial violations of
applicable requirements or a catastrophic release from one of the Company’s
vessels could have a material adverse impact on its financial condition and
results of operations as well as its reputation in the crude oil and refined
petroleum products sectors, and could therefore negatively impact its ability to
obtain charters in the future.





The
Company’s vessels are subject to inspection by a classification
society





The hull
and machinery of every commercial vessel must be classed by a classification
society authorized by its country of registry. The classification society
certifies that a vessel is safe and seaworthy in accordance with the applicable
rules and regulations of the country of registry of the vessel and the Safety of
Life at Sea Convention. The Company’s fleet is currently enrolled with the
American Bureau of Shipping, Bureau Veritas, Det Norske Veritas, Class NKK and
Lloyds.





A vessel
must undergo Annual Surveys, Intermediate Surveys and Special Surveys. In lieu
of a Special Survey, a vessel’s machinery may be on a continuous survey cycle,
under which the machinery would be surveyed periodically over a five-year
period. The Company’s vessels are on Special Survey cycles for hull inspection
and continuous survey cycles for machinery inspection. Every vessel is also
required to be drydocked every two to three years for inspection of the
underwater parts of such vessel.





If any
vessel does not maintain its class or fails any Annual Survey, Intermediate
Survey or Special Survey, the vessel will be unable to trade between ports and
will be unemployable and the Company could be in violation of certain covenants
in its loan agreements. This would negatively impact its revenues.





Maritime
claimants could arrest its vessels, which could interrupt its cash
flow





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





In
addition, in some jurisdictions, such as South Africa, under the “sister ship”
theory of liability, a claimant may arrest both the vessel which is subject to
the claimant’s maritime lien and any “associated” vessel, which is any vessel
owned or controlled by the same owner. Claimants could try to assert “sister
ship” liability against one vessel in its fleet for claims relating to another
of its ships.





Governments
could requisition the Company’s vessels during a period of war or emergency,
resulting in loss ofearnings





A
government could requisition for title or seize the Company’s vessels.
Requisition for title occurs when a government takes control of a vessel and
becomes the owner. Also, a government could requisition its vessels for hire.
Requisition for hire occurs when a government takes control of a vessel and
effectively becomes the charterer at dictated charter rates. Generally,
requisitions occur during a period of war or emergency. Government requisition
of one or more of its vessels may negatively impact its revenues.







The
shipping business is subject to the effect of world events





Terrorist
attacks such as the attacks on the United States on September 11, 2001, and
the continuing response of the United States to these attacks, as well as the
threat of future terrorist attacks, continue to cause uncertainty in the world
financial markets and may affect the Company’s business, results of operations
and financial condition. The recent conflict in Iraq may lead to additional acts
of terrorism and armed conflict around the world, which may contribute to
further economic instability in the global financial markets. These
uncertainties could also adversely affect its ability to obtain additional
financing on terms acceptable to us or at all.





Terrorist
attacks, such as the attack on the vessel Limburg in October 2002,
may in the future also negatively affect the Company’s operations and financial
condition and directly impact the Company’s vessels or
customers.  Future terrorist attacks could result in increased
volatility of the financial markets in the United States and globally and could
result in an economic recession in the United States or the world. Any of these
occurrences could have a material adverse impact on its operating results,
revenue and costs.


Company
Specific Risk Factors





The
Company’s business is dependent on the markets for product tankers and OBOs,
which can be cyclical





The
Company’s fleet consists of product tankers and ore/bulk/oil combination
carriers (“OBOs”). Thus, the Company is dependent upon the petroleum product
industry, the vegetable oil and chemical industries and the dry bulk industry as
its primary sources of revenue.  These industries have historically
been subject to substantial fluctuation as a result of, among other things,
economic conditions in general and demand for petroleum products, steel and iron
ore, coal, vegetable oil and chemicals, in particular.  Any material
seasonal fluctuation in the industry or any material diminution in the level of
activity therein could have a material adverse effect on the Company’s business
and operating results. The profitability of these vessels and their asset value
results from changes in the supply of and demand for such
capacity.  The factors affecting such supply and demand are described
in more detail under “Industry Specific Risk Factors” above.





Single
hull and double sided vessels are being phased out





Six of
the Company’s product tankers, or approximately 31% by DWT of its combined
fleet, are single hull or double sided vessels. Under the United States Oil
Pollution Act of 1990, all oil tankers that do not have double hulls will be
phased out over a 20-year period (1995-2015) based on size, age and place of
discharge, unless retrofitted with double-hulls, and will not be permitted to
come to United States ports or trade in United States waters. The European Union
has required the phase out of single hull vessels carrying “heavy oil” and as a
result its single hull vessels are prohibited from carrying this product to
European Union ports.  In addition, due to regulations adopted by the
IMO under Annex I (oil) of MARPOL single hull vessels carrying petroleum
products tankers must be phased out over the course of the period between 2005
and 2010. As a result of the MARPOL regulations, the Company expects that its
three remaining single hulled MR product tankers will be unable to carry crude
oil and petroleum products in many markets commencing between 2007 and
2009.  Two of the Company’s MR tankers were retrofitted with
double-hulls in 2006 and early 2007 and two more were completed during 2007. The
Company decided to sell one of the MR tankers and to convert the remaining MR
tanker and a Panamax product tanker to bulk carriers. These conversions are in
process at December 31, 2007.





The
Company’s fleet consists of second-hand vessels





All of
the vessels comprising the Company’s fleet were acquired
second-hand.  The Company intends to purchase additional second-hand
vessels.  In general, expenditures necessary for maintaining a vessel
in good operating condition increase as the age of the vessel
increases.  Moreover, second-hand vessels typically carry very limited
warranties with respect to their condition as compared to warranties available
for newer vessels.  Because of improvements in engine technology,
older vessels are typically less fuel efficient than newer vessels. Changes in
governmental regulations, safety or other equipment standards may require
expenditures for alterations to existing equipment or the addition of new
equipment to the vessels and restrict the cargoes that the vessels may
transport.  There can be no assurance that market conditions will
justify such expenditures or enable the Company to generate sufficient income or
cash flow to allow it to meet its debt obligations.





The
Company is subject to financial risks related to the purchase of additional
vessels





The
Company’s current business strategy includes the acquisition of newer,
high-quality second-hand vessels.  Such vessels will likely be
purchased at what are now historically high vessel prices.  If charter
rates fall in the future, the Company may not be able to recover its investments
in the new ships or even satisfy its payment obligations on its debt facilities
that will be increased to finance the purchase of such new
vessels.  There can also be no assurance that such acquisitions will
be available on terms favorable to the Company or that, if acquired, such
second-hand vessels will have sufficient useful lives or carry adequate
warranties.





The
Company may be subject to loss and liability for which it may not be fully
insured





The
operation of any ocean-going vessel carries an inherent risk, without regard to
fault, of catastrophic marine disaster, mechanical failure, collision and
property losses to the vessel.  Also, the business of the Company is
affected by the risk of environmental accidents, the risk of cargo loss or
damage, the risk of business interruption because of political action in foreign
countries, labor strikes and adverse weather conditions, all of which could
result in loss of revenues, increased costs or loss of reputation.





The
Company maintains, and intends to continue to maintain, insurance consistent
with industry standards against these risks. The Company procures hull and
machinery insurance, protection and indemnity insurance, which includes
environmental damage and pollution insurance coverage and war risk insurance for
its fleet. The Company does not maintain insurance against loss of hire for its
product tankers, which covers business interruptions that result in the loss of
use of a vessel.  There can be no assurance that all risks will be
adequately insured against, that any particular claim will be paid out of such
insurance or that the Company will be able to procure adequate insurance
coverage at commercially reasonable rates in the future. More stringent
environmental and other regulations may result in increased costs for, or the
lack of availability of, insurance against the risks of environmental damage,
pollution, damages asserted against the Company or the loss of income resulting
from a vessel being removed from operations.  The Company’s insurance
policies contain deductibles for which the Company will be responsible and
limitations and exclusions which may increase its costs or lower its
revenue.





The
Company places a portion of its Hull and Machinery insurance with Northampton
Assurance Ltd (“NAL”), the great majority of which NAL reinsures with market
underwriters. NAL is a subsidiary of Northampton Holdings Ltd., a major
stockholder. Although the reinsurers are investment grade insurance companies,
it is possible that they might default in the settlement of a
claim.  Although the Company believes that NAL is adequately
capitalized, in the event the reinsurers default, NAL, as primary insurer, may
be unable in turn to settle the Company’s claim.


Moreover,
even if insurance proceeds are paid to the Company to cover the financial losses
incurred following the occurrence of one of these events, there can be no
assurance that the Company’s business reputation, and therefore its ability to
obtain future charters, will not be materially adversely affected by such
event.  Such an impact on the Company’s business reputation could have
a material adverse effect on the Company’s business and results of
operations.  The Company may not be able to obtain adequate insurance
coverage for its fleet in the future and the insurers may not pay particular
claims.





Risks
involved with operating ocean-going vessels could affect the Company’s business
and reputation, which would adversely affect its revenues and stock
price





The
operation of an ocean-going vessel carries inherent risks. These risks include
the possibility of:





·
            marine
      disaster;


·
            piracy;


·
            environmental
      accidents;


·
            cargo
      and property losses or damage; and


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





Any of
these circumstances or events could increase the Company’s costs or lower its
revenues. The involvement of its vessels in an oil spill or other environmental
disaster may harm its reputation as a safe and reliable vessel operator and lead
to a loss of customers and revenue.





The
Company may suffer adverse consequences from the fluctuation in the market value
of its vessels





The fair
market value of its vessels may increase and decrease significantly depending on
a number of factors including:





·
            supply
      and demand for products, including crude oil, petroleum products,
      vegetable oil, ores, coal and
grain;


·
            general
      economic and market conditions affecting the shipping
      industry;


·
            competition
      from other shipping companies;


·
            types
      and sizes of vessels;


·
            other
      modes of transportation;


·
            cost
      of building new vessels;


·
            governmental
      or other regulations;


·
            prevailing
      level of charter rates; and


·
            technological
      advances.





If the
Company sells vessels at a time when vessel prices have fallen, the sale may be
at less than the vessel’s carrying amount on its financial statements, resulting
in a loss and a reduction in earnings.





In
addition, the Company’s mortgage indebtedness at December 31, 2007 of $200.3
million is secured by mortgages on the existing fleet of vessels of the Company
and its subsidiaries. If the market value of its fleet declines, the Company may
not be in compliance with certain provisions of its existing credit facilities
and the Company may not be able to refinance its debt or obtain additional
financing. If the Company is unable to pledge additional collateral, its lenders
could accelerate its debt and foreclose on its fleet.





The
Company’s vessels may suffer damage and the Company may face unexpected
drydocking costs, which could affect its cash flow and financial
condition





If the
Company’s vessels suffer damage, they may need to be repaired at a drydocking
facility. The costs of drydock repairs are unpredictable and can be substantial.
The Company may have to pay drydocking costs that its insurance does not cover.
The loss of earnings while these vessels are being repaired and repositioned, as
well as the actual cost of these repairs, would decrease its
earnings.





Purchasing
and operating previously owned, or secondhand, vessels may result in increased
operating costs and vessels off-hire, which could adversely affect its
earnings





The
Company’s inspection of secondhand vessels prior to purchase does not provide us
with the same knowledge about their condition and cost of required (or
anticipated) repairs that the Company would have had if these vessels had been
built for and operated exclusively by us. Generally, the Company does not
receive the benefit of warranties on secondhand vessels.





In
general, the costs to maintain a vessel in good operating condition increase
with the age of the vessel. As of December 31, 2007, the average age of the
vessels in its fleet was 20 years.  Older vessels are typically less
fuel efficient and more costly to maintain than more recently constructed
vessels due to improvements in engine technology. Cargo insurance rates increase
with the age of a vessel, making older vessels less desirable to
charterers.





Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
its vessels and may restrict the type of activities in which the vessels may
engage. The Company cannot assure that, as its vessels age, market conditions
will justify those expenditures or enable us to operate its vessels profitably
during the remainder of their useful lives. If the Company sell vessels, the
Company is not certain that the price for which the Company sells them will
equal at least their carrying amount at that time.





The
Company is an international company and primarily conducts its operations
outside the United States. Changing economic, political and governmental
conditions in the countries where the Company are engaged in business or where
its vessels are registered affect us. In the past, political conflicts,
particularly in the Arabian Gulf, resulted in attacks on vessels, mining of
waterways and other efforts to disrupt shipping in the area. For example, in
October 2002, the vessel Limburgwas attacked by
terrorists in Yemen. Acts of terrorism and piracy have also affected vessels
trading in regions such as the South China Sea. Following the terrorist attack
in New York City on September 11, 2001, and the military response of the
United States, the likelihood of future acts of terrorism may increase, and the
Company’s vessels may face higher risks of being attacked in the Middle East
region. In addition, future hostilities or other political instability in
regions where the Company’s vessels trade could affect its trade patterns and
adversely affect its operations and performance.





The
market for product tanker and OBO charters is highly competitive





The
ownership of the world’s product tanker fleet is fragmented. Competition in the
industry among vessels approved by major oil companies is primarily based on
price, but also vessel specification and age. There are approximately 1,100
crude oil and product tankers worldwide of between 25,000 and 50,000 DWT.
Tankers are typically owned in groups or pools comprising up to about 25
vessels.





The OBO
industry is also fragmented and competition is also primarily based on price,
but also vessel specification and age.  There are approximately 78
OBOs worldwide of between 50,000 and 100,000 DWT.  In this size range,
the largest ownership group has nine vessels.  Otherwise vessels are
owned in groups of six vessels or less.





The
Company competes principally with other vessel owners through the global tanker
and dry bulk charter market, which is comprised of shipbrokers representing both
charterers and ship owners. Charterparties are quoted on either an open or
private basis. Requests for quotations on an open charter are usually made by
major oil companies on a general basis to a large number of vessel operators.
Competition for open charters can be intense and involves vessels owned by
operators such as other major oil companies, oil traders and independent ship
owners. Requests for quotations on a private basis are made to a limited number
of vessel operators and are greatly influenced by prior customer relationships.
The Company bids for both open and private charters.





Competition
generally intensifies during times of low market activity when several vessels
may bid to transport the same cargo. Many of the Company’s competitors have
greater financial strength and capital resources, as well as younger
vessels.





The
Company may be dependent on the spot market for charters





The
Company’s vessels are operated on a mix of time charters and spot market
voyages. The spot charter market is highly competitive and spot charter rates
are subject to greater fluctuation than time charter rates.  There can
be no assurance that the Company will be successful in keeping its vessels fully
employed in the spot market or that future spot charter rates will be sufficient
to enable the Company’s vessels to be operated profitably.





The
Company is dependent upon certain significant customers





At December 31, 2007, the Company’s
largest five accounts receivable balances represented 86% of total accounts
receivable. At December 31, 2006, the Company’s largest three accounts
receivable represented 74% of total accounts receivable. The allowance for
doubtful accounts was $336,000 at December 31, 2007 and $120,000 at December 31,
2006. To date, the Company’s actual losses on past due receivables have not
exceeded our estimate of bad debts.





The
Company will depend entirely on B+H Management Ltd. (“BHM”) to manage and
charter its fleet





The
Company subcontracts the commercial and most of the technical management of its
fleet, including crewing, maintenance and repair to BHM, an affiliated company
with which the Company is under common control.  The loss of BHM’s
services or its failure to perform its obligations to the Company could
materially and adversely affect the results of its operations. Although the
Company may have rights against BHM if it defaults on its obligations to the
Company, you will have no recourse against BHM. Further, the Company expects
that it will need to seek approval from lenders to change its
manager.





BHM
is a privately held company and there is little or no publicly available
information about it





The
ability of BHM to continue providing services for its benefit will depend in
part on its own financial strength. Circumstances beyond its control could
impair BHM’s financial strength, and because it is privately held it is unlikely
that information about its financial strength would become public unless BHM
began to default on its obligations. As a result, an investor in the Company’s
shares might have little advance warning of problems affecting BHM, even though
these problems could have a material adverse effect on us.





The
Company’s Chairman and Chief Executive Officer has affiliations with BHM which
could create conflicts of interest





The
Company’s majority shareholders, which are affiliated with Mr. Michael S.
Hudner, own 50.1% of the Company and also own BHM.  Mr. Hudner is
also BHM’s Chairman and Chief Executive Officer. These responsibilities and
relationships could create conflicts of interest between us, on the one hand,
and BHM, on the other hand. These conflicts may arise in connection with the
chartering, purchase, sale and operations of the vessels in its fleet versus
vessels managed by other companies affiliated with BHM and Mr. Hudner. In
particular, BHM may give preferential treatment to vessels that are beneficially
owned by related parties because Mr. Hudner and members of his family may
receive greater economic benefits.





If
the Company fails to manage its planned growth properly, the Company may not be
able to successfully expand its market share





The
Company intends to increase substantially the size of its fleet via
acquisitions.  This will impose significant additional
responsibilities on its management and staff, and the management and staff of
BHM, and may necessitate that the Company, and they, increase the number of
personnel. BHM may have to increase its customer base to provide continued
employment for the vessels to be acquired.





The
      Company’s growth will depend on:





·
            locating
      and acquiring suitable vessels;


·
            identifying
      and consummating acquisitions or joint
ventures;


·
            integrating
      any acquired business successfully with its existing
      operations;


·
            enhancing
      its customer base;


·
            managing
      its expansion; and


·
            obtaining
      required financing.





Growing
any business by acquisition presents numerous risks such as undisclosed
liabilities and obligations, difficulty experienced in obtaining additional
qualified personnel and managing relationships with customers and suppliers and
integrating newly acquired operations into existing infrastructures. The Company
cannot give any assurance that the Company will be successful in executing its
growth plans or that the Company will not incur significant expenses and losses
in connection therewith.





There
is no assurance that the Company will be able to pay dividends





The
Company has a policy of investment for future growth and does not anticipate
paying cash dividends on the common stock in the foreseeable future. Declaration
and payment of any dividend is subject to the discretion of its Board of
Directors. The timing and amount of dividend payments will be dependent upon its
earnings, financial condition, cash requirements and availability, fleet renewal
and expansion, restrictions in its loan agreements, the provisions of Liberia
law affecting the payment of distributions to shareholders and other factors. If
there is a substantial decline in the petroleum product market or bulk charter
market, its earnings would be negatively affected thus limiting its ability to
pay dividends. Liberia law generally prohibits the payment of dividends other
than from surplus or while a company is insolvent or would be rendered insolvent
upon the payment of such dividend.  The current floating rate
facilities restrict the Company from paying dividends.





Servicing
future debt would limit funds available for other purposes such as the payment
of dividends





To
finance its future fleet expansion program, the Company expects to incur secured
debt. The Company will need to dedicate a portion of its cash flow from
operations to pay the principal and interest on its debt. These payments limit
funds otherwise available for working capital, capital expenditures and other
purposes. The need to service its debt may limit funds available for other
purposes, including distributing cash to its shareholders, and its inability to
service debt could lead to acceleration of its debt and foreclosure on its
fleet.





The
Company’s loan agreements contain restrictive covenants that may limit the
Company’s liquidity and corporate activities





The
Company’s loan agreements impose operating and financial restrictions on us.
These restrictions may limit its ability to:





·
            incur
      additional indebtedness;


·
            create
      liens on its assets;


·
            sell
      capital stock of its subsidiaries;


·
            engage
      in mergers or acquisitions;


·
            make
      capital expenditures;


·
            change
      the management of its vessels or terminate or materially amend the
      management agreement relating to each vessel;
  and


·
            sell
      its vessels.





Therefore,
the Company may need to seek permission from its lender in order to engage in
some corporate actions. The Company’s lender’s interests may be different from
ours, and the Company cannot guarantee that the Company will be able to obtain
its lender’s permission when needed. This may prevent us from taking actions
that are in its best interest.





The
Company is a holding company, and the Company depends on the ability of its
subsidiaries to distribute funds to us in order to satisfy its financial
obligations or to make dividend payments





The
Company is a holding company and its subsidiaries, which are all wholly-owned by
us, conduct all of their operations and own all of their operating assets. The
Company has no significant assets other than the equity interests in its
wholly-owned subsidiaries. As a result, its ability to make dividend payments
depends on its subsidiaries and their ability to distribute funds to us. If the
Company is unable to obtain funds from its subsidiaries its Board of Directors
may exercise its discretion not to pay dividends.





The
Company may not generate sufficient gross revenue to operate profitably or to
service its indebtedness





The
Company had net income of $2.0 million on gross revenue of $112.4 million in
2007. Income from vessel operations was $16.3 million for the year-end December
31, 2007. At December 31, 2007, the Company had approximately $200.3 million in
indebtedness.  There can be no assurance that future charter rates
will be sufficient to generate adequate revenues or that the Company will be
able to maintain efficiency levels to permit the Company to operate profitably
or to service its indebtedness.





The
creditworthiness and performance of its time charterers may affect its financial
condition and its ability to obtain additional debt financing and pay
dividends





The
Company’s income is derived from the charter of its vessels.  Any
defaults by any of its charterers could adversely impact its financial
condition, including its ability to service its debt and pay
dividends.  In addition, the actual or perceived credit quality of its
charterers, and any defaults by them, may materially affect its ability to
obtain the additional capital resources that the Company will require purchasing
additional vessels or may significantly increase its costs of obtaining such
capital. The Company’s inability to obtain additional financing at all or at a
higher than anticipated cost may materially affect its results of operation and
its ability to implement its business strategy.





As
the Company expands its business, the Company will need to improve its
operations and financial systems, staff and crew; if the Company cannot improve
these systems or recruit suitable employees, its performance may be adversely
affected





The
Company’s current operating and financial systems may not be adequate as the
Company implements its plan to expand the size of its fleet, and its attempts to
improve those systems may be ineffective. In addition, as the Company expands
its fleet, the Company will have to rely on BHM to recruit suitable additional
seafarers and shoreside administrative and management personnel. The Company
cannot assure you that BHM will be able to continue to hire suitable employees
as the Company expands its fleet. If BHM’s unaffiliated crewing agent encounters
business or financial difficulties, the Company may not be able to adequately
staff its vessels. If the Company is unable to operate its financial and
operations systems effectively or to recruit suitable employees as the Company
expand its fleet, its performance may be adversely affected.





In
the highly competitive international shipping industry, the Company may not be
able to compete for charters with new entrants or established companies with
greater resources





The
Company employs its vessels in a highly competitive market that is capital
intensive and highly fragmented. Competition arises primarily from other vessel
owners some of whom have substantially greater resources than the Company does.
Competition for the transportation of dry bulk and liquid cargo can be intense
and depends on price, location, size, age, condition and the acceptability of
the vessel and its managers to the charterers. Due in part to the highly
fragmented market, competitors with greater resources could enter and operate
larger fleets through consolidations or acquisitions that may be able to offer
better prices and fleets.





The
Company may be unable to attract and retain key management personnel and other
employees in the shipping industry, which may negatively affect the
effectiveness of its management and its results of operations





The
Company’s success depends to a significant extent upon the abilities and efforts
of its management team. The Company has no employment contract with its Chairman
and Chief Executive Officer, Michael S. Hudner, or any other key individual;
instead all management services are provided by BHM, Ltd. The Company’s success
will depend upon BHM’s ability to hire and retain key members of its management
team. The loss of any of these individuals could adversely affect its business
prospects and financial condition. Difficulty in hiring and retaining personnel
could adversely affect its results of operations.





The
Company is subject to the reporting requirements of Sarbanes Oxley





Effective
for its first fiscal year ending on or after July 15, 2009, the Company is
subject to full compliance with all provisions of the Sarbanes Oxley Act of
2002.  As directed by Section 404 of the Sarbanes-Oxley Act of 2002
(“Section 404”), the Securities and Exchange Commission adopted rules requiring
public companies to include a report of management on the Company’s internal
control over financial reporting in their annual reports on Form
20-F.  Such a report is required to contain an assessment by
management of the effectiveness of a company’s internal controls over financial
reporting. In addition, the independent registered public accounting firm
auditing a public company’s financial statements must attest to and report on
the effectiveness of the Company’s internal controls over financial reporting.
While the Company would expend significant resources in developing the necessary
documentation and testing procedures required by Section 404, there is a risk
that the Company would not comply with all of the requirements imposed by
Section 404. If the Company fails to implement required new or improved
controls, the Company may be unable to comply with the requirements of Section
404 in a timely manner. This could result in an adverse reaction in the
financial markets due to a loss of confidence in the reliability of its
financial statements, which could cause the market price of its common stock to
decline and make it more difficult for us to finance its
operations.





The
Company may have to pay tax on United States source income, which would reduce
its earnings





Under the
United States Internal Revenue Code of 1986, or the Code, 50% of the gross
shipping income of a vessel-owning or chartering corporation, such as the
Company and its subsidiaries, that is attributable to transportation that begins
or ends, but that does not begin and end, in the United States is characterized
as United States source shipping income and as such is subject to a four percent
United States federal income tax without allowance for deduction, unless that
corporation qualifies for exemption from tax under Section 883 of the Code
and the Treasury Regulations promulgated thereunder in August 2003. Such
Treasury Regulations became effective on January 1, 2005, for calendar year
taxpayers such as the Company and its subsidiaries.





The
Company expects that it will qualify for this statutory tax exemption and the
Company will take this position for United States federal income tax return
reporting purposes. If the Company is not entitled to this exemption under
Section 883 for any taxable year, it would be subject for those years to a
4% United States federal income tax on its U.S. source shipping income. The
imposition of this taxation could have a negative effect on its business and
would result in decreased earnings available for distribution to its
shareholders.





U.S.
tax authorities could treat us as a “passive foreign investment company,” which
could have adverse U.S. federal income tax consequences to U.S.
holders





A foreign
corporation will be treated as a “passive foreign investment company,” or PFIC,
for U.S. federal income tax purposes if either (1) at least 75% of its
gross income for any taxable year consists of certain types of “passive income”
or (2) at least 50% of the average value of the corporation’s assets
produce or are held for the production of those types of “passive income.” For
purposes of these tests, “passive income” includes dividends, interest, and
gains from the sale or exchange of investment property and rents and royalties
other than rents and royalties which are received from unrelated parties in
connection with the active conduct of a trade or business. For purposes of these
tests, income derived from the performance of services does not constitute
“passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous
U.S. federal income tax regime with respect to the income derived by the PFIC,
the distributions they receive from the PFIC and the gain, if any, they derive
from the sale or other disposition of their shares in the PFIC.





Based on
its proposed method of operation, the Company does not believe that the Company
will be a PFIC with respect to any taxable year. In this regard, the Company
intends to treat the gross income the Company derives or are deemed to derive
from its time chartering activities as services income, rather than rental
income. Accordingly, the Company believes that its income from time chartering
activities does not constitute “passive income,” and the assets that the Company
owns and operates in connection with the production of that income do not
constitute passive assets.





There is,
however, no direct legal authority under the PFIC rules addressing its proposed
method of operation. Accordingly, no assurance can be given that the U.S.
Internal Revenue Service, or IRS, or a court of law will accept its position,
and there is a risk that the IRS or a court of law could determine that the
Company is a PFIC. Moreover, no assurance can be given that the Company would
not constitute a PFIC for any future taxable year if there were to be changes in
the nature and extent of its operations.





If the
IRS were to find that the Company is or has been a PFIC for any taxable year,
its U.S. shareholders will face adverse U.S. tax consequences. Under the PFIC
rules, unless those shareholders make an election available under the Code
(which election could itself have adverse consequences for such shareholders, as
discussed below under “Tax Considerations—U.S. Federal Income Taxation of U.S.
Holders”), such shareholders would be liable to pay U.S. federal income tax at
the then prevailing income tax rates on ordinary income plus interest upon
excess distributions and upon any gain from the disposition of its common
shares, as if the excess distribution or gain had been recognized ratably over
the shareholder’s holding period of its common shares.





The
Company may not be exempt from Liberian taxation, which would materially reduce
its net income and cash flow by the amount of the applicable tax





The
Republic of Liberia enacted a new income tax law generally effective as of
January 1, 2001 (the “New Act”), which repealed, in its entirety, the prior
income tax law in effect since 1977 pursuant to which the Company and its
Liberian subsidiaries, as non-resident domestic corporations, were wholly exempt
from Liberian tax.





In
2004, the Liberian Ministry of Finance issued regulations pursuant to which a
non-resident domestic corporation engaged in international shipping such as
ourselves will not be subject to tax under the New Act retroactive to January 1,
2001 (the “New Regulations”). In addition, the Liberian Ministry of Justice
issued an opinion that the New Regulations were a valid exercise of the
regulatory authority of the Ministry of Finance. Therefore, assuming that the
New Regulations are valid, the Company and its Liberian subsidiaries will be
wholly exempt from tax as under Prior Law.





If the
Company were subject to Liberian income tax under the New Act, the Company and
its Liberian subsidiaries would be subject to tax at a rate of 35% on its
worldwide income. As a result, its net income and cash flow would be materially
reduced by the amount of the applicable tax. In addition, shareholders would be
subject to Liberian withholding tax on dividends at rates ranging from 15% to
20%.





The
Company is incorporated in the Republic of the Liberia, which does not have a
well-developed body of corporate law





The
Company’s corporate affairs are governed by its Articles of Incorporation and
By-laws and by the Liberia Business Corporations Act, or BCA.  The
provisions of the BCA resemble provisions of the corporation laws of a number of
states in the United States. However, there have been few judicial cases in the
Republic of the Liberia interpreting the BCA. The rights and fiduciary
responsibilities of directors under the law of the Republic of the Liberia are
not as clearly established as the rights and fiduciary responsibilities of
directors under statutes or judicial precedent in existence in certain United
States jurisdictions. Shareholder rights may differ as well. While the BCA does
specifically incorporate the non-statutory law, or judicial case law, of the
State of Delaware and other states with substantially similar legislative
provisions, its public shareholders may have more difficulty in protecting their
interests in the face of actions by the management, directors or controlling
shareholders than would shareholders of a corporation incorporated in a United
States jurisdiction.





Because
most of its employees are covered by industry-wide collective bargaining
agreements, failure of industry groups to renew those agreements may disrupt its
operations and adversely affect its earnings





All of
the seafarers on the ships in its fleet are covered by industry-wide collective
bargaining agreements that set basic standards. The Company cannot assure you
that these agreements will prevent labor interruptions. Any labor interruptions
could disrupt its operations and harm its financial performance.











Item
4.  INFORMATION ON THE COMPANY.





A.
History and development of the Company





B+H Ocean
Carriers Ltd. (the "Company"*) was organized on April 28, 1988 to engage in the
business of acquiring, investing in, owning, operating and selling vessels for
dry bulk and liquid cargo transporta­tion. As of December 31, 2007, the
Company owned and operated seven MR product tankers, two Panamax product tankers
and six OBOs. The Company also owns a 50% interest in a company which is the
disponent owner of a 1992-built 75,000 DWT Combination Carrier, effected through
a lease structure. Each vessel accounts for a significant portion of the
Company’s revenues.





The
Company’s fleet of product tankers consist of “handy-size” vessels which are
between 30,000 and 50,000 summer dead­weight tons ("DWT"), and are able, by
reason of their smaller size, to trans­port commodities to and from most
ports in the world, includ­ing those located in less developed third-world
countries.  The Company’s Panamax product tankers are 61,000 and
68,500 DWT. Product tankers are single-deck oceangoing vessels designed to carry
simulta­neously a number of segregated liquid bulk commodi­ties, such as
refined petroleum products, vegetable oils, caustic soda and molasses. The
Company’s fleet of OBOs are between 74,000 and 98,000 DWT. OBOs are combination
carriers used to trans­port liquid, iron ore or bulk products such as coal,
grain, bauxite, phosphate, sugar, steel products and other dry bulk
commodities.





The
Company is organized as a corporation in Liberia, and its princi­pal
executive office is located at ParLaVille Place, 14 Par-La-Ville Road, Hamilton
HM 08, Bermuda (telephone number (441) 295-6875).























*
            When
      referred to in the context of vessel ownership, the “Company” shall mean
      the wholly-owned subsidiaries of B+H Ocean Carriers Ltd. that are
      registered owners.











·
            Recent acquisitions,
      disposals and other significant
  transactions





On
January 29, 2007, the Company, through a wholly-owned subsidiary, entered into a
$27 million term loan facility to finance the acquisition of the M/V SAKONNET,
which vessel it had acquired in January 2006 under an unsecured financing
agreement.





In June
2007, the Company, through a wholly-owned subsidiary, acquired a 45,000 DWT
product tanker built in 1990 for $19.6 million. On October 25, 2007, the Company
drew down an additional $19.6 million on one of its senior secured term loans to
finance the purchase price.





On
September 7, 2007, the Company, through a wholly-owned subsidiary, entered into
an $25,500,000 million term loan facility to finance the conversions of three of
its MR product tankers to double hulled vessels. On December 7, 2007, the
facility was amended to allow for an additional $8.5 million to finance the
fourth MR conversion.





On
October 25, 2007 the Company entered into an amended and restated $26.7 floating
rate loan facility (the “amended loan facility”). The amended loan facility made
available an additional $19.6 million for the purpose of acquiring the M/T CAPT.
THOMAS J HUDNER and changed the payment terms for the $7.1 million balance of
the loan (“Tranche 1”).





On
February 26, 2008, the Company, through a wholly-owned subsidiary, sold the M/T
ACUSHNET for $7.8 million. The book value of the vessel of approximately $20.4
million was classified as held for sale at December 31, 2007.





On March
27, 2008, the Company, through a wholly-owned subsidiary, sold the OBO SACHUEST
for $31.3 million. The book value of the vessel of approximately $4.6 million
was classified as held for sale at December 31, 2007.





·
            Prior year
      acquisitions, disposals and other significant
      transactions





In
January 2006, the Company, through a wholly-owned subsidiary, acquired a
1993-built, 83,000 DWT Combination Carrier for $36.4 million through an existing
lease structure.  The acquisition also included the continuation of a
five-year Time Charter which commenced in October 2005.  The Company
purchased the vessel and terminated the lease in January 2007.





Also in
January 2006, the Company, through a wholly-owned subsidiary, acquired a 50%
shareholding in a company which is the disponent owner of a 1992-built 75,000
DWT Combination Carrier, effected through a lease structure.  The
terms of the transaction were based on a vessel value of $30.4 million. The
vessel was fixed on a three-year charter commencing in February
2006.  The charter includes a 50% profit sharing arrangement above a
guaranteed minimum daily rate. On September 5, 2006, the Company, entered into
an $8 million term loan facility agreement to finance a portion of the purchase
price.





In June
2006, the Company, through a wholly-owned subsidiary, acquired a 61,000 DWT
Panamax product tanker built in 1988 for $12.55 million. On October 17, 2006,
the Company entered into a $12 million senior secured term loan to finance a
portion of the purchase price.





On May
25, 2005, the Company completed a private placement of 3,243,243 shares of
Common Stock of the Company at a price of $18.50 per share, for aggregate gross
proceeds of approximately $60 million. The newly issued shares traded over the
counter in Norway until the Company obtained a listing on the Oslo Stock
Exchange on April 12, 2006.





On
February 4, 2005, the Company, through a wholly-owned subsidiary, acquired
three 83,000 DWT OBO (Ore/Bulk/Oil), combination tanker/bulk carriers built in
1993 and 1994, for a total of $110.2 million. Two of the vessels are time
chartered for five years at $26,600, $24,600, $23,600, $22,600 and $20,600 per
day for the first through fifth years, respectively. The third vessel is time
chartered for five years at $26,000, $24,000, $23,000, $22,000 and $20,000,
respectively, for years one through five. The Company has a profit sharing
arrangement with the charterers which entitles the Company to 35% of the
charterer’s profits from this vessel for years 2 through 5. In conjunction with
the sale, the Company entered into a floating rate loan facility totaling $102
million. See ITEM 5B.





On June
15, 2005, the Company, through a wholly-owned subsidiary, acquired a 74,800 DWT
OBO built in 1992 for $33.25 million. The vessel is time chartered for three
years at $23,500 per day. On November 8, 2005, the Company completed an
additional drawdown on its floating rate facility to finance a portion of the
purchase price. See ITEM 5 B.





On June
20, 2005, the Company, through a wholly-owned subsidiary, sold the vessel M/T
COMMUTER for $8.5 million to an unaffiliated party. The excess of the sales
proceeds over the book value of the vessel of $0.8 million is included in the
Consolidated Statements of Income for the year ended December 31,
2005.





On August
19, 2005, the Company, through a wholly-owned subsidiary, acquired a 68,500 DWT
Panamax product tanker built in 1991 for $24.3 million. The vessel is time
chartered for three years at $23,500 per day. On November 8, 2005, the Company
completed an additional drawdown on its floating rate facility to finance a
portion of the purchase price. See ITEM 5B.





B.
Business overview





Management of the
Company





The
shipowning activities of the Company are managed by BHM under a Management
Services Agreement (the “Management Agreement") dated June 27, 1988 and amended
on October 10, 1995, subject to the oversight and direction of the Company's
Board of Directors.





The
shipowning activities of the Company entail three separate functions, all under
the overall control and responsibility of BHM: (1) the shipowning function,
which is that of an investment manager and includes the purchase and sale of
vessels and other shipping interests; (2) the marketing and operations function
which involves the deployment and operation of the vessels; and (3) the vessel
technical management function, which encompasses the day-to-day physical
maintenance, operation and crewing of the vessels.





BHM
employs Navinvest Marine Services (USA) Inc. ("NMS"), a Connecticut corporation,
under an agency agreement, to assist with the performance of certain of its
financial reporting and administrative duties under the Management
Agreement.





The
Management Agreement may be terminated by the Company in the following
circumstances: (i) certain events involving the bankruptcy or insolvency of BHM;
(ii) an act of fraud, embezzlement or other serious criminal activity by Michael
S. Hudner with respect to the Company; (iii) gross negligence or willful
misconduct by BHM; or (iv) a change in control of BHM.




Marketing and operations of
vessels





The
Company’s vessels are time chartered to Product Transport Corp. Ltd,
(“PROTRANS”), a Bermuda Corporation and wholly-owned subsidiary of the Company,
on an open rate basis as described hereunder.





BHM is
the manager of PROTRANS and has delegated certain administrative, marketing and
operational functions to NMS and Product Transport (S) Pte. Ltd, a Singapore
corporation, under agency agreements.





PROTRANS
subcharters the vessels on a voyage charter or time charter basis to third party
charterers. Under a voyage charter, PROTRANS agrees to provide a vessel for the
transport of cargo between specific ports in return for the payment of an agreed
freight per ton of cargo or an agreed lump sum amount. Voyage costs, such as
canal and port charges and bunker (fuel) expenses, are the responsibility of
PROTRANS.  A single voyage charter (generally three to ten weeks) is
commonly referred to as a spot market charter, and a voyage charter involving
more than one voyage is commonly referred to as a consecutive voyage
charter.  Under a time charter, PROTRANS places a vessel at the
disposal of a subcharterer for a given period of time in return for the payment
of a specified rate per DWT capacity per month or a specified rate of hire per
day. Voyage costs are the responsibility of the subcharterer. In both voyage
charters and time charters, operating costs (such as repairs and maintenance,
crew wages and insurance premiums) are the responsibility of the
shipown­er.





Voyage
and time charters can be for varying periods of time, ranging from a single trip
to terms approximating the useful life of a vessel, depending on the evaluation
of market trends by PROTRANS and by subcharterers.  Long-term charters
afford greater assurance that the Company will be able to cover their costs
(including depreciation, debt service, and operating costs), and afford
subcharterers greater stability of transporta­tion
costs.  Operating or chartering a vessel in the spot market affords
both PROTRANS and subcharterers greater speculative opportunities, which may
result in high rates when ships are in demand or low rates (possibly
insufficient to cover costs) when ship availability exceeds
demand.  Charter rates are affected by world economic condi­tions,
international events, weather condi­tions, strikes, govern­ment
policies, supply and demand, and many other factors beyond the control of
PROTRANS and the Company.





Vessel Technical
Management





At
December 31, 2007, BHM was the technical manager of all of the Company's
vessels, under technical management agreements. BHM employs B+H Equimar
Singapore Pte. Ltd. ("BHES"), a Singapore corporation, under agency agreements
to assist with certain of its duties under the technical management agreements.
The vessel technical manager is responsible for all technical aspects of
day-to-day vessel operations, including physical maintenance, provisioning and
crewing, and receives compensation of $13,296 per MR product tanker per month
and $16,099 per Panamax product tanker or OBO per month, which may be adjusted
annually for any increases in the Consumer Price Index.  Such
supervision includes the establishment of operating budgets and the review of
actual operating expenses against budgeted expenses on a regular
basis.





Insurance and
Safety





The
business of the Company is affected by a number of risks, including mechanical
failure of the vessels, collisions, property loss to the vessels, cargo loss or
damage and business interruption due to political circumstances in foreign
countries, hostilities and labor strikes. In addition, the operation of any
ocean-going vessel is subject to the inherent possibility of catastrophic marine
disaster, including oil spills and other environmental mishaps, and the
liabilities arising from owning and operating vessels in international trade.
The Oil Pollution Act ‘90 (“OPA 90”), by imposing potentially unlimited
liability upon owners, operators and bareboat charterers for certain oil
pollution accidents in the United States, has made liability insurance more
expensive for ship owners and operators and has also caused insurers to consider
reducing available liability coverage.





The
Company maintains hull and machinery and war risks insurance, which include the
risk of actual or constructive total loss, protection and indemnity insurance
with mutual assurance associations and loss of hire insurance on the four OBOs.
The Company believes that its current insurance coverage is adequate to protect
it against most accident-related risks involved in the conduct of its business
and that it maintains appropriate levels of environmental damage and pollution
insurance coverage. Currently, the available amount of coverage for pollution is
$1 billion per vessel per incident. However, there can be no assurance that all
risks are adequately insured against, that any particular claim will be paid or
that the Company will be able to procure adequate insurance coverage at
commercially reasonable rates in the future.





Competition





The
product tanker industry is fragmented. Competition in the industry among vessels
approved by major oil companies is primarily based on price. There are
approximately 1100 crude oil and product tankers worldwide of between 30,000 and
50,000 DWT. Tankers are typically owned in groups or pools controlling up to 30
tankers.





The OBO
industry is also fragmented and competition is also primarily based on price,
but also vessel specification and age. There are approximately 80 OBOs worldwide
of between 50,000 and 100,000 DWT. In this size range, the largest ownership
group has nine vessels. Otherwise vessels are owned in groups of four or
less.





The
Company competes principally with other handysize vessel owners through the
global tanker charter market, which is comprised of tanker brokers representing
both charterers and ship owners. Charterparties are quoted on either an open or
private basis. Requests for quotations on an open charter are usually made by
major oil companies on a general basis to a large number of vessel operators.
Competition for open charters can be intense and involves vessels owned by
operators such as other major oil companies, oil traders and independent ship
owners. Requests for quotations on a private basis are made to a limited number
of vessel operators and are greatly influenced by prior customer relationships.
The Company bids for both open and private charters.





Competition
generally intensifies during times of low market activity when several vessels
may bid to transport the same cargo. In these situations, the Company's customer
relationships are paramount, often allowing the Company the opportunity of first
refusal on the cargo. The Company believes that it has a significant competitive
advantage in the handysize tanker market as a result of the quality and type of
its vessels and through its close customer relationships, particularly in the
Atlantic and in the Indo-Asia Pacific Region. Some of the Company’s competitors,
however, have greater financial strength and capital resources.





Seasonality





Although
the Company's liquid cargo trade is affected by season­al oil uses, such as
heating in winter and increased automobile use in summer, the volume of liquid
cargo transported generally remains the same through the year, with rates firmer
in midwinter and midsummer and softer in the spring.




Inspection by Classification
Society





The hull
and machinery of every commercial vessel must be classed by a classification
society authorized by its country of registry. The classification society
certifies that a vessel is safe and seaworthy in accordance with the applicable
rules and regulations of the country of registry of the vessel and the Safety of
Life at Sea Convention. The Company’s fleet is currently enrolled with the
American Bureau of Shipping, Bureau Veritas, Det Norske Veritas,Class NKK and
Lloyds.





A vessel
must be inspected by a surveyor of the classi­fi­ca­tion society
every year ("Annual Survey"), every two and a half years ("Inter­mediate
Survey") and every five years ("Special Survey").  In lieu of a
Special Survey, a shipowner has the option of arranging with the classification
society for the vessel's machin­ery to be on a continuous survey cycle,
under which the machinery would be surveyed over a five-year
period.  The Company's vessels are on Special Survey cycles for hull
inspection and continu­ous survey cy­cles for machinery
inspection.  Every vessel 15 years and older is also re­quired to
be drydocked at least twice in a five-year period for inspection of
under­water parts of the vessel.





If any
defects are found in the course of a survey or drydocki­ng, the
clas­sification survey­or will require immediate rectification or issue
a "condition of class" under which the appropriate repairs must be carried out
within a prescribed time limit. The hull Special Survey includes measurements of
the thickness of the steel structures in the hull of the
vessel.  Should the thickness be found to be less than class
require­ments, steel renewals will be prescribed.  Substantial
expense may be incurred on steel renewal to pass a Special Survey if the vessel
has suffered excessive cor­rosion.





In
January 1997, BHES was awarded its International Safety Management (“ISM”)
Document of Compliance by Lloyd's Register, certifying that BHES complied with
the requirements of the International Management Code for the Safe Operation of
Ships and for Pollution Prevention (ISM Code). Following the award of the
Document of Compliance (“DOC”), each individual vessel in the fleet under
management was audited by Lloyds Register for compliance with the documented
BHES management procedures on which the DOC is based. After the audit, each
vessel was awarded a ship specific Safe Management Certificate (“SMC”). Both the
DOC and the SMC are subject to annual internal and external audits over a 5-year
period. A successful renewal audit of the DOC was conducted by Lloyds Register
on February 7, 2002. However, the Company entered into a Master Service
Agreement (“MSA”) with the American Bureau of Shipping on April 27, 2000. To
conform to the MSA and to streamline a periodic revision of our safety
procedures, American Bureau of Shipping was requested to undertake an audit of
the Company’s compliance with the ISM Code. This audit was successfully
completed on November 8, 2002 and new DOC’s were issued by American Bureau of
Shipping.





Regulation





The
business of the Company and the operation of its vessels are materially affected
by government regulation in the form of international conventions, national,
state and local laws and regulations in force in the jurisdictions in which the
vessels operate, as well as in the country or countries of their registration.
Because such conventions, laws and regulations are subject to revision, it is
difficult to predict what legislation, if any, may be promulgated by any country
or authority. The Company also cannot predict the ultimate cost of complying
with such conventions, laws and regulations, or the impact thereof on the resale
price or useful life of its vessels. Various governmental and quasi-governmental
agencies require the Company to obtain certain permits, licenses and
certificates with respect to the operation of its vessels. Subject to the
discussion below and to the fact that the required permits, licenses and
certificates depend upon a number of factors, the Company believes that it has
been and will be able to obtain all permits, licenses and certificates material
to the conduct of its operations.





The
Company believes that the heightened environmental and quality concerns of
insurance underwriters, regulators and charterers will impose greater inspection
and safety requirements on all vessels in the tanker market. The Company’s
vessels are subject to both scheduled and unscheduled inspections by a variety
of governmental and private interests, each of whom may have a different
perspective and standards. These interests include Coast Guard, port state,
classification society, flag state administration (country of registry) and
charterers, particularly major oil companies which conduct vetting inspections
and terminal operators.





Environmental
Regulation-IMO.  On March 6, 1992, the International
Maritime Organization (“IMO”) adopted regulations under Annex I (oil) of MARPOL
(the International Convention for the Prevention of Pollution from Ships) that
set forth new pollution prevention requirements applicable to tankers. These
regulations required that crude tankers of 20,000 DWT and above and product
tankers of 30,000 DWT and above, which did not have protective segregated
ballast tanks (PL/SBT) and which were 25 years old, were to be fitted with
double sides and double bottoms. Product tankers of 30,000 DWT and above, which
did have SBT, were exempt until they reached the age of 30.  From July
6, 1993 all newbuilding tankers were required to be of double hull construction.
In addition, existing tankers were subject to an Enhanced Survey
Program.





On
September 1, 2002, revised MARPOL regulations for the phase-out of single hull
tankers took effect.  Under these revised regulations, single hull
crude tankers of 20,000 DWT and above and single hull product carriers of 30,000
DWT and above were to be phased out by certain scheduled dates between
2003-2015, depending on age, type of oil carried and vessel construction. The
Revised Regulations applied only to tankers carrying petroleum products and thus
did not apply to tankers carrying noxious liquid substances, vegetable or animal
oils or other non-petroleum liquids.





Under
further revisions to the MARPOL regulations, which were adopted on December 4,
2003, the final phasing out date for Category 1 tankers (principally those not
fitted with PL/SBT) was brought forward to 2005 from 2007 and the final phasing
out date for Category 2 tankers (principally those fitted with PL/SBT) was
brought forward to 2010 from 2015. The Condition Assessment Scheme (CAS) was
also to be made applicable to all single hull tankers of 15 years or older,
rather than just to Category 1 tankers continuing to trade after 2005 and to
Category 2 tankers continuing to trade after 2010. Flag states were permitted to
allow continued operation of Category 2 tankers beyond 2010 subject to
satisfactory results from the CAS and provided that the continued operation did
not extend beyond 2015 or the date on which the vessel reached 25 years of age.
Flag states were also permitted to allow continued operation of Category 2
tankers beyond 2010 if they were fitted with qualifying double sides or double
bottoms, provided that the continued operation did not extend beyond the date on
which the vessel reached 25 years of age.  Notwithstanding these
rights of flag states to allow continued operation beyond 2010, Port States were
permitted to deny entry by single hull tankers after 2010 and tankers with
qualifying double sides or double bottoms after 2015.





New
MARPOL regulations were also introduced in respect of the carriage of Heavy
Grade Oil (HGO). HGO includes crude oil having a density higher than 900kg/m3 at
15 degrees C and fuels oils having a density higher than 900kg/m3 at 15 degrees
C or a kinematic viscosity higher than 180mm2/s at 50 degrees C. Notwithstanding
these regulations, any party to MARPOL would be entitled to deny entry of single
hull tankers carrying HGO, which had been otherwise allowed to carry such cargo
under MARPOL, into the ports and offshore terminals under its jurisdiction. From
October 21, 2003 and subject to certain exceptions, all HGO to or from European
Union ports must be carried in tankers of double hull construction





The phase
out dates for the purposes of carriage of petroleum products under MARPOL, for
the vessels currently owned by the Company, are set out in the table
below.  In October 2004, a revision was adopted to MARPOL Annex II
where noxious liquid substances (NLS) such as all vegetable oils will be
required to be carried on vessels complying with the International Bulk Chemical
Code (IBC).  The revision comes into force on January 1,
2007.  These regulatory changes have led the Company to believe that
structural modifications to its existing fleet may provide the best solution to
the phase-out issues for single hull tankers. Accordingly, four of the Company’s
MR tankers were retrofitted with double-hulls in 2006 and 2007 and one is
currently being converted to a bulk carrier.





In short,
the IMO regulations, which have been adopted by over 150 nations, including many
of the jurisdictions in which our tankers operate, provide for, among other
things, phase-out of single-hulled tankers and more stringent inspection
requirements; including, in part, that:





·
            tankers
      between 25 and 30 years old must be of double-hulled construction or of a
      mid-deck design with double-sided construction, unless: (1) they have wing
      tanks or double-bottom spaces not used for the carriage of oil, which
      cover at least 30% of the length of the cargo tank section of the hull or
      bottom; or (2) they are capable of hydrostatically balanced loading
      (loading less cargo into a tanker so that in the event of a breach of the
      hull, water flows into the tanker, displacing oil upwards instead of into
      the sea);


·
            tankers
      30 years old or older must be of double-hulled construction or mid-deck
      design with double sided construction;
and


·
            all
      tankers are subject to enhanced
inspections.





Also,
under IMO regulations, a tanker must be of double-hulled construction or a
mid-deck design with double-sided construction or be of another approved design
ensuring the same level of protection against oil pollution if the
tanker:





·
            is
      the subject of a contract for a major conversion or original construction
      on or after July 6, 1993;


·
            commences
      a major conversion or has its keel laid on or after January 6, 1994;
      or


·
            completes
      a major conversion or is a newbuilding delivered on or after July 6,
      1996.





The IMO
has also negotiated international conventions that impose liability for oil
pollution in international waters and a signatory’s territorial
waters.  In September 1997, the IMO adopted Annex VI to the MARPOL
Convention to address air pollution from ships.  Annex VI was ratified
in May 2004, and will become effective May 19, 2005.  Annex VI, when
it becomes effective, will set limits on sulfur oxide and nitrogen oxide
emissions from ship exhausts and prohibit deliberate emissions of ozone
depleting substances, such as chlorofluorocarbons.  Annex VI also
includes a global cap on the sulfur content of fuel oil and allows for special
areas to be established with more stringent controls on sulfur
emissions.  Vessels built before 2002 are not obligated to comply with
regulations pertaining to nitrogen oxide emissions. The Company believes that
all our vessels are currently compliant in all material respects with these
regulations. Additional or new conventions, laws and regulations may be adopted
that could adversely affect our business, cash flows, results of operations and
financial condition.





The IMO
also has adopted the International Convention for the Safety of Life at Sea, or
SOLAS Convention, which imposes a variety of standards to regulate design and
operational features of ships.  SOLAS standards are revised
periodically. We believe that all our vessels are in substantial compliance with
SOLAS standards.





Under the International Safety
Management Code for the Safe Operation of Ships and for Pollution Prevention, or
ISM Code, promulgated by the IMO, the party with operational control of a vessel
is required to develop an extensive safety management system that includes,
among other things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for operating its vessels safely and
describing procedures for responding to emergencies.  In 1994, the ISM
Code became mandatory with the adoption of Chapter IX of SOLAS.  We
intend to rely on the safety management system that BHM has
developed.





The ISM Code requires that vessel
operators obtain a safety management certificate for each vessel they
operate.  This certificate evidences compliance by a vessel’s
management with code requirements for a safety management system.  No
vessel can obtain a certificate unless its operator has been awarded a document
of compliance, issued by each flag state, under the ISM Code.  We
believe that has all material requisite documents of compliance for its offices
and safety management certificates for vessels in our fleet for which the
certificates are required by the IMO. BHM will be required to review these
documents of compliance and safety management certificates
annually.





Noncompliance with the ISM Code and
other IMO regulations may subject the shipowner to increased liability, may lead
to decreases in available insurance coverage for affected vessels and may result
in the denial of access to, or detention in, some ports.  For example,
the U.S. Coast Guard and European Union authorities have indicated that vessels
not in compliance with the ISM Code will be prohibited from trading in U.S. and
European Union ports.





Environmental Regulation-OPA
90/CERCLA.  OPA 90 established an extensive regulatory and
liability regime for environmental protection and cleanup of oil spills. OPA 90
affects all owners and operators whose vessels trade with the United States or
its territories or possessions, or whose vessels operate in the waters of the
United States, which include the United States territorial sea and the two
hundred nautical mile exclusive economic zone of the United States. The
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
applies to the discharge of hazardous substances, which the Company’s vessels
are capable of carrying.





Under OPA
90, vessel owners, operators and bareboat (or “demise”) charterers are
“responsible parties” who are jointly, severally and strictly liable (unless the
spill results solely from the act or omission of a third party, an act of God or
an act of war) for all oil spill containment and clean-up costs and other
damages arising from oil spills caused by their vessels. These other damages are
defined broadly to include (i) natural resource damages and the costs of
assessment thereof, (ii) real and personal property damages, (iii) net
loss of taxes, royalties, rents, fees and other lost natural resources damage,
(v) net cost of public services necessitated by a spill response, such as
protection from fire, safety or health hazards, (iv) loss of profits or
impairment of earning capacity due to injury, destruction or loss of real
property, personal property and natural resources, and (v) loss of
subsistence use of natural resources. OPA 90 limits the liability of responsible
parties to the greater of $1,200 per gross ton or $10 million per tanker that is
over 3,000 gross tons and $600 per gross ton or $500,000 for non-tanker vessels
(subject to possible adjustment for inflation). CERCLA, which applies to owners
and operators of vessels, contains a similar liability regime and provides for
cleanup, removal and natural resource damages. Liability under CERCLA is limited
to the greater of $300 per gross ton or $5 million. These limits of liability
would not apply if the incident were proximately caused by violation of
applicable United States federal safety, construction or operating regulations,
or by the responsible party’s gross negligence or willful misconduct, or if the
responsible party fails or refuses to report the incident or to cooperate and
assist in connection with the oil removal activities. OPA and CERCLA each
preserve the right to recover damages under other laws, including maritime tort
law.  OPA 90 specifically permits individual states to impose their
own liability regimes with regard to oil pollution incidents occurring within
their boundaries, and some states that have enacted legislation providing for
unlimited liability for oil spills. In some cases, states, which have enacted
such legislation, have not yet issued implementing regulations defining tanker
owners’ responsibilities under these laws. Moreover, OPA 90 and CERCLA preserve
the right to recover damages under existing law, including maritime tort law.
The Company intends to comply with all applicable state regulations in the ports
where its vessels call.





The
Company currently maintains and plans to continue to maintain pollution
liability insurance for its vessels in the amount of $1 billion. A catastrophic
spill could exceed the insurance coverage available, in which event there could
be a material adverse effect on the Company.  OPA 90 does not by its
terms impose liability on lenders or the holders of mortgages on
vessels.





Under OPA
90, with certain limited exceptions, all newly built or converted tankers
operating in United States waters must be built with double-hulls, and existing
vessels that do not comply with the double-hull requirement must be phased out
over a 20-year period (1995-2015) based on size, age and place of discharge,
unless retrofitted with double-hulls. Notwithstanding the phase-out period, OPA
90 currently permits existing single-hull tankers to operate until the year 2015
if their operations within United States waters are limited to discharging at
the Louisiana Off-Shore Oil Platform, or off-loading by means of lightering
activities within authorized lightering zones more than 60 miles
offshore.





OPA 90
expands the preexisting financial responsibility requirements for vessels
operating in United States waters and requires owners and operators of vessels
to establish and maintain with the Coast Guard evidence of financial
responsibility sufficient to meet the limit of their potential strict liability
under OPA 90. In December 1994, the Coast Guard enacted regulations
requiring evidence of financial responsibility in the amount of $1,500 per gross
ton for tankers, coupling the OPA limitation on liability of $1,200 per gross
ton with the CERCLA liability limit of $300 per gross ton. Under the
regulations, such evidence of financial responsibility may be demonstrated by
insurance, surety bond, self-insurance or guaranty. Under OPA 90 regulations, an
owner or operator of more than one tanker will be required to demonstrate
evidence of financial responsibility for the entire fleet in an amount equal
only to the financial responsibility requirement of the tanker having the
greatest maximum strict liability under OPA 90/CERCLA. The Company has provided
requisite guarantees from a Coast Guard approved mutual insurance organization
and received certificates of financial responsibility from the Coast Guard for
each vessel required to have one.





The Coast
Guard’s regulations concerning certificates of financial responsibility provide,
in accordance with OPA 90 and CERCLA, that claimants may bring suit directly
against an insurer or guarantor that furnishes certificates of financial
responsibility; and, in the event that such insurer or guarantor is sued
directly, it is prohibited from asserting any defense that it may have had
against the responsible party and is limited to asserting those defenses
available to the responsible party and the defense that the incident was caused
by the willful misconduct of the responsible party. Certain insurance
organizations, which typically provide guarantees for certificates of financial
responsibility, including the major protection and indemnity organizations which
the Company would normally expect to provide guarantees for a certificate of
financial responsibility on its behalf, declined to furnish evidence of
insurance for vessel owners and operators if they are subject to direct actions
or required to waive insurance policy defenses.





Owners or
operators of tankers operating in the waters of the United States were required
to file vessel response plans with the Coast Guard, and their tankers were
required to be operating in compliance with their Coast Guard approved plans by
August 18, 1993. Such response plans must, among other things,
(i) address a “worst case” scenario and identify and ensure, through
contract or other approved means, the availability of necessary private response
resources to respond to a “worst case discharge,” (ii) describe crew
training and drills, and (iii) identify a qualified individual with full
authority to implement removal actions. The Company has vessel response plans
approved by the Coast Guard for tankers in its fleet operating in the waters of
the United States. The Coast Guard has announced it intends to propose similar
regulations requiring certain tank vessels to prepare response plans for the
release of hazardous substances.





As
discussed above, OPA does not prevent individual states from imposing their own
liability regimes with respect to oil pollution incidents occurring within their
boundaries, including adjacent coastal waters.  In fact, most U.S.
states that border a navigable waterway have enacted environmental pollution
laws that impose strict liability on a person for removal costs and damages
resulting from a discharge of oil or a release of a hazardous
substance.  These laws may be more stringent than U.S. federal
law.





The phase out dates for the purposes of
carriage of petroleum products under OPA 90, for the vessels currently owned by
the Company, are set out in the table below.





VESSEL
              (as
      of MARCH 31, 2008)
            HULL
            DATE
      BUILT
            DWT
            PHASE
      OUT FOR CARRIAGE OF
              PETROLEUM
      PRODUCTSMARPOL/
              EU
            
            OPA 90M/T
      AGAWAM
            DH
            Jun-82
            38,937
            N/A
            
            N/AM/T
      ALGONQUIN(1)
            DH
            Jan-83
            40,454
            N/A
            
            N/AM/T
      ANAWAN
            DH
            Aug-81
            38,937
            N/A
            
            N/AM/T
      AQUIDNECK
            DH
            Sep-81
            38,937
            N/A
            
            N/AM/T
      PEQUOD
            DH
            Jan-82
            38,238
            N/A
            
            N/AM/T
      SACHEM(2)
            DH
            Mar-88
            60,959
            N/A
            
            N/AM/T
      SAGAMORE(3)
            DS
            Feb-91
            68,536
            Feb-10
            
            Feb-15M/T
      CAPT THOMAS J HUDNER
            DS
            May-90
            44,999
            May-10
            
            May-15OBO
      SACHUEST
            DH
            Sep-86
            98,000
            N/A
            
            N/AOBO
      RIP HUDNER
            DH
            Jul-94
            83,155
            N/A
            
            N/AOBO
      BONNIE SMITHWICK
            DH
            Dec-93
            83,155
            N/A
            
            N/AOBO
      SEAROSE G
            DH
            Apr-94
            83,155
            N/A
            
            N/AOBO
      ROGER M JONES
            DH
            Nov-92
            74,868
            N/A
            
            N/AOBO
      SAKONNET
            DH
            May-93
            83,155
            N/A
            
            N/AOBO
      SEAPOWET (4)
            DH
            Sep-92
            75,000
            N/A
            
            N/A





1.
            Conversion
      to dry bulk carrier in progress. Completion date expected to be July
      2008.


2.
            Conversion
      to dry bulk carrier in progress. Completion date expected to be April
      2008.


3.
            Vessel
      must comply with Reg.13F by Feb-10.


4.
            50%
      owner of the entity which is the disponent owner through a bareboat
      charter party..





Environmental
Regulation-Other.Although the United States is not a party to
these conventions, many countries have ratified and follow the liability scheme
adopted by the IMO and set out in the International Convention on Civil
Liability for Oil Pollution Damage, 1969, as amended (the “CLC”) and the
Convention for the Establishment of an International Fund for Oil Pollution of
1971, as amended (“Fund Convention”). Under these conventions, a vessel’s
registered owner is strictly liable for pollution damage caused on the
territorial waters of a contracting state by discharge of persistent oil,
subject to certain complete defenses. Under an amendment to the 1992 Protocol
that became effective on November 1, 2003, for vessels of 5,000 to 140,000 gross
tons (a unit of measurement for the total enclosed spaces within a vessel),
liability will be limited to approximately $6.88 million plus $962.24 for each
additional gross ton over 5,000.  For vessels of over 140,000 gross
tons, liability will be limited to approximately $136.89 million.  As
the convention calculates liability in terms of a basket of currencies, these
figures are based on currency exchange rates on January 19,
2005.  Under the 1969 Convention, the right to limit liability is
forfeited where the spill is caused by the owner’s actual fault; under the 1992
Protocol, a shipowner cannot limit liability where the spill is caused by the
owner’s intentional or reckless conduct.  Vessels trading in
jurisdictions that are parties to these conventions must provide evidence of
insurance covering the liability of the owner.  In jurisdictions where
the International Convention on Civil Liability for Oil Pollution Damage has not
been adopted, various legislative schemes or common law govern, and liability is
imposed either on the basis of fault or in a manner similar to that
convention.  We believe that our protection and indemnity insurance
will cover the liability under the plan adopted by the IMO.





Additional U.S. Environmental
Requirements.The U.S. Clean Air Act of 1970, as amended by
the Clean Air Act Amendments of 1977 and 1990 (the “CAA”), requires the EPA to
promulgate standards applicable to emissions of volatile organic compounds and
other air contaminants.  Our vessels are subject to vapor control and
recovery requirements for certain cargoes when loading, unloading, ballasting,
cleaning and conducting other operations in regulated port areas.  Our
vessels that operate in such port areas are equipped with vapor control systems
that satisfy these requirements.  The CAA also requires states to
draft State Implementation Plans, or SIPs, designed to attain national
health-based air quality standards in primarily major metropolitan and/or
industrial areas.  Several SIPs regulate emissions resulting from
vessel loading and unloading operations by requiring the installation of vapor
control equipment.  As indicated above, our vessels operating in
covered port areas are already equipped with vapor control systems that satisfy
these requirements.  Although a risk exists that new regulations could
require significant capital expenditures and otherwise increase our costs, we
believe, based on the regulations that have been proposed to date, that no
material capital expenditures beyond those currently contemplated and no
material increase in costs are likely to be required.




The Clean
Water Act (“CWA”) prohibits the discharge of oil or hazardous substances into
navigable waters and imposes strict liability in the form of penalties for any
unauthorized discharges.  The CWA also imposes substantial liability
for the costs of removal, remediation and damages.  State laws for the
control of water pollution also provide varying civil, criminal and
administrative penalties in the case of a discharge of petroleum or hazardous
materials into state waters.  The CWA complements the remedies
available under the more recent OPA and CERCLA, discussed above.





The
National Invasive Species Act (“NISA”) was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through
ballast water taken on by ships in foreign ports.  NISA established a
ballast water management program for ships entering U.S.
waters.  Under NISA, mid-ocean ballast water exchange is voluntary,
except for ships heading to the Great Lakes, Hudson Bay, or vessels engaged in
the foreign export of Alaskan North Slope crude oil.  However, NISA’s
exporting and record-keeping requirements are mandatory for vessels bound for
any port in the United States.  Although ballast water exchange is the
primary means of compliance with the act’s guidelines, compliance can also be
achieved through the retention of ballast water onboard the ship, or the use of
environmentally sound alternative ballast water management methods approved by
the U.S. Coast Guard.  If the mid-ocean ballast exchange is made
mandatory throughout the United States, or if water treatment requirements or
options are instituted, the costs of compliance could increase for ocean
carriers.





European Union Tanker
Restrictions.In July 2003, in response to the MT Prestige oil
spill in November 2002, the European Union adopted legislation that accelerates
the IMO single hull tanker phase-out timetable and, by 2010 will prohibit all
single-hulled tankers used for the transport of oil from entering into its ports
or offshore terminals.  The European Union, following the lead of
certain European Union nations such as Italy and Spain, has also banned, as of
October 21, 2003, all single-hulled tankers carrying heavy grades of oil,
regardless of flag, from entering or leaving its ports or offshore terminals or
anchoring in areas under its jurisdiction.  Commencing in 2005,
certain single-hulled tankers above 15 years of age will also be restricted from
entering or leaving European Union ports or offshore terminals and anchoring in
areas under European Union jurisdiction.  The European Union is also
considering legislation that would: (1) ban manifestly sub-standard vessels
(defined as those over 15 years old that have been detained by port authorities
at least twice in a six-month period) from European waters and create an
obligation of port states to inspect vessels posing a high risk to maritime
safety or the marine environment; and (2) provide the European Union with
greater authority and control over classification societies, including the
ability to seek to suspend or revoke the authority of negligent
societies.  It is impossible to predict what legislation or additional
regulations, if any, may be promulgated by the European Union or any other
country or authority.





In
jurisdictions where the CLC has not been adopted, various legislative schemes or
common law govern, and liability is imposed either on the basis of fault or in a
manner similar to the CLC.





C.
Organizational Structure





The Company owns each of its vessels
through separate wholly-owned subsidiaries incorporated in Liberia and the
Marshall Islands. The operations of the Company’s vessels are managed by B+H
Management Ltd., under a management agreement. See ITEM 7.





As of
March 31, 2008, the Company’s subsidiaries are as follows:





B+H
      OCEAN CARRIERS LTD.
            ParentCLIASHIP
      HOLDINGS LTD.
            100%
      Wholly-ownedSubsidiaries:ALGONQUIN
      SHIPPING CORP
            100%
      Wholly-owned
            Owns
      M/T ALGONQUINSACHUEST
      SHIPPING LTD.
            100%
      Wholly-owned
            Owns
      M/V SACHUESTTJH
      SHIPHOLDING LTD.
            100%
      Wholly-owned
            Owns
      M/T CAPT. THOMAS J. HUDNERBOSS
      TANKERS LTD.
            100%
      Wholly-ownedSubsidiaries:AGAWAM
      SHIPPING CORP.
            100%
      Wholly-owned
            Owns
      M/T AGAWAMANAWAN
      SHIPPING CORP.
            100%
      Wholly-owned
            Owns
      M/T ANAWANAQUIDNECK
      SHIPPING CORP.
            100%
      Wholly-owned
            Owns
      M/T AQUIDNECKISABELLE
      SHIPHOLDINGS CORP.
            100%
      Wholly-owned
            Owns
      M/T PEQUODOBO
      HOLDINGS LTD.
            100%
      Wholly-ownedSubsidiaries:BHOBO
      ONE LTD.
            100%
      Wholly-owned
            Owns
      M/V BONNIE SMITHWICKBHOBO
      TWO LTD.
            100%
      Wholly-owned
            Owns
      M/V RIP HUDNERBHOBO
      THREE LTD.
            100%
      Wholly-owned
            Owns
      M/V SEAROSE GRMJ
      SHIPPING LTD.
            100%
      Wholly-owned
            Owns
      M/V ROGER M JONESSAGAMORE
      SHIPPING CORP.
            100%
      Wholly-owned
            Owns
      M/T SAGAMORESEASAK
      OBO HOLDINGS LTD.
            100%
      Wholly-ownedSubsidiaries:SAKONNET
      SHIPPING LTD.
            100%
      Wholly-owned
            Owner
      of M/V SAKONNETSEAPOWET
      TRADING LTD.
            100%
      Wholly-owned
            Disponent
      Owner of 50% of M/V SEAPOWET (1)SACHEM
      SHIPPING LTD.
            100%
      Wholly-owned
            Owns
      M/T SACHEM








(1)
Disponent owner of M/V SEAPOWET as 50% owner of Nordan OBO II Ltd. which is
disponent owner through a bareboat charter party.








D.
Property, Plant and Equipment





Fleet





Each of
the Company’s vessels is owned by a separate wholly-owned subsidiary, except as
noted in the table above.





Other





Pursuant
to the terms of the Management Agreement and as part of the services provided to
the Company thereunder, BHM furnishes the Company with office space and
administrative services at its offices in Hamilton, Bermuda.





Item
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS





A.
            Operating
      results





The
following is a discussion of our financial condition and results of operations
for the years ended December 31, 2007, 2006 and 2005. You should read this
section together with the consolidated financial statements including the notes
to those financial statements for the periods mentioned above.





We are a provider of international
liquid and dry bulk seaborne transportation services, carrying petroleum
products, crude oil, vegetable oils and dry bulk cargoes. The Company operates a
fleet consisting of six MR product tankers, two Panamax product tankers and
seven combination carriers. The MR product tankers are all medium range or
“handy-size” vessels which are between 30,000 and 50,000 summer deadweight tons
(“DWT”), and are able, by reason of their small size, to transport commodities
to and from most ports in the world, including those located in less developed
third-world countries.  The Panamax product tankers are 61,000 and
68,500 DWT. Product tankers are single-deck oceangoing vessels designed to carry
simultaneously a number of segregated liquid bulk commodities, such as petroleum
products and vegetable oils.  The combination carriers, known as an
OBOs (oil-bulk-ore carrier), are between 74,000 and 98,000 DWT
(Aframax).  Combination carriers can operate as tankers or as bulk
carriers.  They can be used to transport liquid cargo including crude,
fuel oils and clean petroleum products (CPP), and they can also be used to
transport dry bulk commodities, such as iron ore, coal, and grain.





The Company’s fleet operates under a
mix of time and voyage charters.  Our product tankers carry primarily
petroleum products and vegetable oils and our OBOs carry crude oil, petroleum
products, iron ore and coal.  Historically, we deploy our fleet on
both time charters, which can last from a few months to several years, and spot
market charters, which generally last from several days to several weeks. Under
spot market voyage charters, we pay voyage expenses such as port, canal and fuel
costs. A time charter is generally a contract to charter a vessel for a fixed
period of time at a specified daily rate. Under time charters, the charterer
pays voyage expenses such as port, canal and fuel costs. Under both types of
charters, we pay for vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oil, insurance, maintenance and
repairs. We are also responsible for the vessel's intermediate and special
survey costs.





Vessels operating on time charters
provide more predictable cash flows, but can, in a strong market, yield lower
profit margins than vessels operating in the spot market. Vessels operating in
the spot market generate revenues that are less predictable but may enable us to
capture increased profit margins during periods of improvements in tanker rates
although we are exposed to the risk of declining tanker rates, which may have a
materially adverse impact on our financial performance. We are constantly
evaluating the appropriate balance between the number of our vessels deployed on
time charter and the number employed on the spot market.





For discussion and analysis purposes
only, we evaluate performance using time charter equivalent, or TCE revenues.
TCE revenues are voyage revenues minus direct voyage expenses. Direct voyage
expenses primarily consist of port, canal and fuel costs that are unique to a
particular voyage, which would otherwise be paid by a charterer under a time
charter, as well as commissions. We believe that presenting voyage revenues on a
TCE basis enables a proper comparison to be made between vessels deployed on
time charter or those deployed on the spot market.





Our voyage revenues are recognized
ratably over the duration of the voyages and the lives of the charters, while
vessel operating expenses are recognized on the accrual basis.  We
calculate daily TCE rates by dividing TCE revenues by voyage days for the
relevant time period.  We also generate demurrage revenue, which an owner
charges a charterer for exceeding an agreed upon time to load or discharge a
cargo.





We
depreciate our vessels on a straight-line basis over their estimated useful
lives determined to be 30 years from the date of their initial delivery from the
shipyard. Depreciation is based on cost less the estimated residual value. We
capitalize the total costs associated with special surveys, which take place
every five years and amortize them on a straight-line basis over 60 months.
Regulations and/or incidents may change the estimated dates of next
drydockings.





Twelve
      Months Ended December 31, 2007 versus December 31,
  2006





2007
              
              
              2006Gross
      revenue
              
              $
              112,416,831
              
              
              $
              96,879,000Voyage
      expenses
              
              
              (27,882,163
              )
              
              
              (14,792,000
              )Net
      revenue
              
              
              84,534,668
              
              
              
              82,087,000Gross
      voyage revenue
              
              
              42,909,357
              
              
              
              18,662,000Less:
      direct voyage expenses
              
              
              (20,505,424
              )
              
              
              (9,294,000
              )Time
      charter equivalent ("TCE") revenue
              
              
              22,403,933
              
              
              
              9,368,000Time
      charter revenue
              
              
              68,925,737
              
              
              
              76,929,000Less:
      brokerage commissions
              
              
              (2,113,286
              )
              
              
              (1,226,000
              )Time
      charter revenue
              
              
              66,812,451
              
              
              
              75,703,000Less:
      other voyage expenses
              
              
              (5,263,453
              )
              
              
              (4,272,000
              )Other
              
              
              581,737
              
              
              
              1,288,000Net
      revenue
              
              $
              84,534,668
              
              
              $
              82,087,000Days
      revenue on voyage
              
              
              1,763
              
              
              
              746Days
      revenue on time charter
              
              
              2,870
              
              
              
              3,7194,633
              
              
              
              4,465TCE
      rate
              
              $
              12,708
              
              
              $
              12,558Average
      time charter rate
              
              $
              24,016
              
              
              $
              20,685Net
      revenue per day
              
              $
              18,246
              
              
              $
              18,385


Revenues





Revenues from voyage and time charters
increased $16.2 million or 17% from 2006. The increase is due to a 4% increase
in the number of total on-hire days from 2006 to 2007 and due to the fact that
there were 1,017 (136%) more voyage days in 2007 than in 2006. Revenue from
voyage charters is recorded on a gross basis, before voyage expenses. The TCE
rate increased $151 per day (1%). Approximately 34% of the increase in voyage
charter days is due to acquisitions in 2006 and 2007. The M/T Sachem, purchased
in June 2006, was on time charter from its acquisition to February of 2007, but
on voyage charters thereafter. The Capt. Thomas J. Hudner, which was acquired in
June 2007, spent the remainder of the year in the spot market. Another 16% of
the increase in voyage charter days was attributable to vessels positioned for
conversion during 2007. Voyage charters allowed the Company more flexibility
with respect to this positioning. Finally, the spot market provided the best
employment for the Company’s MR fleet, post conversion. At December 31, 2007,
five of the Company’s seven MR product tankers were employed in the voyage
charter market and one on a short term time charter. The six combination
carriers and one of its Panamax product tankers were employed on long-term time
charters. The remaining MR tanker and Panamax tanker are being converted to bulk
carriers.





Other
revenue primarily includes $0.5 million earned in respect of the profit sharing
arrangement with the charterer of one of the OBOs acquired in 2005.





Voyage
expenses





Voyage expenses consist of port, canal
and fuel costs that are unique to a particular voyage and commercial overhead
costs, including commercial management fees paid to BHM. Under a time charter,
the Company does not incur port, canal or fuel costs. Voyage expenses increased
$13.1 million, or 88%, to $27.9 million for the twelve month period ended
December 31, 2007 compared to $14.8 million for the comparable period of 2006.
This is due to the increase in voyage days from 746 in 2006 to 1,763 in 2007.
Direct voyage expenses on a per day basis decreased 7% or $827 per day,
predominantly due to decreases in port charges.





Vessel
operating expenses





The increase in vessel operating
expenses is due to the increase in the number of vessels, as noted above. Vessel
operating expenses increased $5.3 million (15%) from 2006 to 2007. Approximately
$3.3 million (63%) of the increase related to vessels acquired in June 2006 and
June 2007. In addition, there was an increase in average daily operating
expenses of $402 per day for a total of $2.1 million.





Depreciation
and amortization





Depreciation increased by $0.2 million,
or 2%, to $15.2 million for the twelve months ended December 31, 2007 compared
to $14.9 million for the prior period. Amortization of deferred charges, which
includes amortization of conversion costs, special surveys and debt issuance
costs increased $4.5 million due predominantly to the completed conversions of
three MR tankers to double hull and to additional amortization of special survey
costs incurred in 2007.





2007
            
            2006Depreciation
      of vessels
            $         15,201,000
            
            $            14,959,000Amortization
      of special survey costs
            4,020,000
            
            1,195,000Amortization
      of vessel conversion costs
            1,714,000
            
            258,000Amortization
      of debt issuance costs
            607,000
            
            401,000Total
      depreciation and amortization
            $         21,542,000
            
            $            16,813,000





General
and administrative expenses





General and administrative expenses
include all of our onshore expenses and the fees that BHM charges for
administration. Management fees increased by $1.0 million, or 84%, to $2.3
million for the twelve month period ended December 31, 2007 compared to $1.2
million for the prior period. The increase is due to the issuance of 60,000
shares of common stock to BHM resulting in compensation expense of $1.1 million.
Fees for consulting and professional fees and other expenses increased $1.1
million or 26%. The increase is partly attributable to the issuance of 2,500 shares of the
Company’s common stock to each director, resulting in compensation expense of
$0.4 million. Another $0.4 million of the increase is attributable to an
increase in legal fees, and the balance includes increases in charitable
contributions and mortgagees interest insurance premiums.





Interest
Expense and Interest Income





The $2.1 million (19%) increase in
interest expense is due to the increase in outstanding debt. The average
long-term debt balance for 2007 was approximately $175.9 million, as compared to
approximately $143.8 million for 2006. The Company entered into a new loan
agreement totaling $34.0 million on September 7, 2007 to finance conversions of
four of its MR tankers, of which $8.5 million was drawn down in October. The
Company also drew an additional $19.6 million on its Cliaship Holdings facility
to finance the purchase of the MR tanker acquired in June 2007.





Both the interest paid on the Company’s
debt and the interest earned on its cash balances are based on LIBOR. Interest
income for 2007 of $3.1 million represented an increase of $0.7 million or 31%
of the prior year’s interest income of $2.4 million. The increase in interest
income is due to the fact that the Company had a higher average cash balance
during 2007 as compared to 2006. In addition, average LIBOR rates of 5.25% for
2007 were approximately 3% higher than the 2006 average of 5.1%.





Equity
in income of Nordan OBO II





Equity in income of Nordan OBO II of
$0.8 million represents income from the Company’s 50% interest in an entity
which is the disponent owner of a 1992-built 75,000 DWT combination carrier
through a bareboat charter party which was acquired in March 2006. The decrease
from 2006 of $0.5 million is due to the fact that the ship was offhire for
special survey work during a portion of 2007.





Loss
on fair value of derivatives





During 2007, the Company entered into
interest rate swap agreements to mitigate the risk associated with variable rate
debt. Two of these interest rate swap agreements do not qualify for hedge
accounting under US GAAP and, as such, the changes in the fair value of these
swaps are reflected in the Company’s Statements of Income. For the years ended
December 31, 2007 and 2006, the Company recognized aggregate losses of $1.3
million and gains of $0.3 million, respectively, on these non-qualifying swap
agreements. The aggregate fair value of these non-qualifying swap agreements is
a liability of $0.9 million at December 31, 2007 and an asset of $0.3 million at
December 31, 2006. The other swap agreements have been designated as cash flow
hedges by the Company and as such, the changes in the fair value of these swaps
are reflected as a component of other comprehensive income. The fair value of
these cash flow hedges are liabilities of $828,000 at December 31, 2007 and an
asset of $18,000 at December 31, 2006.





In 2007 and 2006, the Company bought
put options costing a total of $11.1 million to mitigate the risk associated
with the possibility of falling time charter rates. These put options do not
qualify for special hedge accounting under US GAAP and, as such, the aggregate
changes in the fair value of these option contracts are reflected in the
Company’s Consolidated Statements of Income. The aggregate unrealized loss on
the value of the contracts totaled $3.4 million at December 31, 2007 and $0.3
million at December 31, 2006.





Loss
on investment





The Company invested in an oil drilling
operation during 2007. The investment of $0.6 million was written off in the
4th
quarter, when it was determined the wells would not result in any
production.





Twelve
      Months Ended December 31, 2006 versus December 31,
  2005




2006
              
              
              2005Gross
      revenue
              
              $
              96,879,000
              
              
              $
              71,903,000Voyage
      expenses
              
              
              (14,792,000
              )
              
              
              (6,033,000
              )Net
      revenue
              
              
              82,087,000
              
              
              
              65,870,000Gross
      voyage revenue
              
              
              18,662,000
              
              
              
              5,871,000Less:
      direct voyage expenses
              
              
              (9,294,000
              )
              
              
              (1,621,000
              )Time
      charter equivalent (TCE) revenue
              
              
              9,368,000
              
              
              
              4,250,000Time
      charter revenue
              
              
              76,929,000
              
              
              
              65,518,000Less:
      brokerage commissions
              
              
              (1,226,000
              )
              
              
              (1,202,000
              )Time
      charter revenue
              
              
              75,703,000
              
              
              
              64,316,000Less:
      other voyage expenses
              
              
              (4,272,000
              )
              
              
              (3,210,000
              )Other
              
              
              1,288,000
              
              
              
              514,000Net
      revenue
              
              $
              82,087,000
              
              
              $
              65,870,000Days
      revenue on voyage
              
              
              746
              
              
              
              201Days
      revenue on time charter
              
              
              3,719
              
              
              
              3,5274,465
              
              
              
              3,728TCE
      rate
              
              $
              12,558
              
              
              $
              21,144Average
      time charter rate
              
              $
              20,685
              
              
              $
              18,576Net
      revenue per day
              
              $
              18,385
              
              
              $
              17,669


Time
      Charter Equivalent (“TCE”) revenues, which is voyage revenues less voyage
      expenses, serves as an industry standard for measuring and managing fleet
      revenue and comparing results between geographical regions and among
      competitors.





Revenues





Revenues from voyage and time charters
increased $24.2 million or 34% from 2005. The increase is due to a 20% increase
in the number of total on-hire days from 2005 to 2006 and due to the fact that
there were 545 more voyage days in 2006 than in 2005. Revenue from voyage
charters is recorded on a gross basis, before voyage expenses. TCE increased
$716 per day (4%). The number of voyage charter days increased after all of the
MR tankers came off time charters during 2006 and were scheduled for conversion
to double hull. Voyage charters allowed the Company more flexibility with
respect to positioning for the conversions. Also, a combination carrier
scheduled for special survey work was operated on voyage charters after the
expiration of the two year time charter it was on since it was acquired in 2004.
At December 31, 2006, the Company’s six MR product tankers were employed in the
voyage charter market. The six combination carriers and two Panamax product
tankers were employed on long-term time charters.





Other
revenue primarily includes $0.8 million earned in respect of the combination
carrier acquired in 2006, in lieu of timecharter revenue, from the January 15,
2006 effective date of the purchase until the closing date and $0.5 million
representing settlement proceeds from the various insurance claims.





Voyage
expenses





Voyage expenses consist of port, canal
and fuel costs that are unique to a particular voyage and commercial overhead
costs, including commercial management fees paid to BHM. Under a time charter,
the Company does not incur port, canal or fuel costs. Voyage expenses increased
$8.8 million, or 145%, to $14.8 million for the twelve month period ended
December 31, 2006 compared to $6.0 million for the comparable period of 2005.
This is due to the increase in voyage days from 201 in 2005 to 746 in 2006.
Direct voyage expenses on a per day basis increased 54% or $4,400 per day,
predominantly due to increases in port charges and bunkers. However, these
increases are intrinsic in the gross voyage revenue rates, as indicated by the
TCE rate discussed above.





Vessel
operating expenses





The increase in vessel operating
expenses is due to the increase in the number of vessels, as noted above. Vessel
operating expenses increased $7.8 million (30%) from 2005 to 2006. The increase
in total operating days of 1,036 (27%) accounted for approximately $6.9 million
of the increase. In addition, there was an increase in average daily operating
expenses of $380 per day for a total of $1.8 million. This was offset by a
decrease in expenses for intermediate drydocking of approximately $0.9
million.





Depreciation
and amortization





Depreciation and amortization, which
includes depreciation of vessels as well as amortization of special surveys and
debt issuance costs, increased by $4.9 million, or 41%, to $16.8 million for the
twelve months ended December 31, 2006 compared to $11.9 million for the prior
period. The increase is due to the increase in the number of vessels comprising
the Company’s fleet, the completed conversion of one MR tanker to a double hull
and the additional amortization of special survey costs incurred in
2006.




2006
              
              2005Depreciation
      of vessels
              $         14,959,000
              
              $            10,199,000Amortization
      of special survey costs
              1,195,000
              
              1,475,000Amortization
      of vessel conversion costs
              258,000
              
              -Amortization
      of debt issuance costs
              401,000
              
              243,000Total
      depreciation and amortization
              $         16,813,000
              
              $            11,917,000


General
and administrative expenses





General and administrative expenses
include all of our onshore expenses and the fees that BHM charges for
administration. Management fees increased by $0.3 million, or 36%, to $1.2
million for the twelve month period ended December 31, 2006 compared to $0.9
million for the prior period. The increase is due to the increase in the number
of vessels and therefore the number of months during which fees were incurred
also increased. Fees for consulting and professional fees and other expenses
increased $1.1 million or 39%. The increase is comprised of increases in travel
expenses, consulting fees and director and officer insurance
premiums.





Interest
Expense and Interest Income





The $5.1 million (90%) increase in
interest expense is due to the increase in outstanding debt. The total long-term
debt balance outstanding at December 31, 2006 was $201.9 million, as compared to
$149.7 million at December 31, 2005 and $29.3 million at December 31, 2004. The
Company incurred $12 million in new mortgage debt on October 12, 2006 for the
acquisition of one vessel purchased in June 2006 and $8 million of additional
new borrowings on September 5, 2006 to finance the acquisition of a 50% share in
Nordan OBO 2 Inc. The Company also issued $25 million of Floating Rate Bonds in
December 2006, of which $5 million were subscribed to by the Company. Both the
interest paid on the Company’s debt and the interest earned on its cash balances
are based on LIBOR. Interest income for 2006 of $2.4 million represented an
increase of $1.2 million or 95% of the prior year’s interest income of $1.2
million. The increase in interest income is due to the fact that the Company had
an average of $54.8 million in cash during 2006 as compared to $43.1 in 2005. In
addition, average LIBOR rates of 5.1% for 2006 were approximately 1.7% higher
than the 2005 average of 3.4%.





Equity
in income of Nordan OBO II





Equity in income of Nordan OBO II of
$1.3 million represents income from the Company’s 50% interest in an entity
which is the disponent owner of a 1992-built 75,000 DWT combination carrier
through a bareboat charter party which was acquired in March 2006.





Gain
on fair value of interest rate swaps





During 2006, the Company entered into
three interest rate swap agreements to mitigate the risk associated with the
variable rate debt. Two of these interest rate swap agreements do not qualify
for hedge accounting under US GAAP and as such, the changes the fair value of
these swaps are reflected in the Company’s Consolidated Statements of Income.
For the year ended December 31, 2006, the Company recognized aggregate gains of
$0.3 million on these non-qualifying swap agreements. The aggregate fair value
of these non-qualifying swap agreements is $0.3 million at December 31, 2006.
The third swap agreement has been designated as a cashflow hedge by the Company
and as such, the changes in the fair value of this swap are reflected as a
component of other comprehensive income. The fair value of this cashflow hedge
is $18,000 at December 31, 2006.





Loss
on value of put option contracts





In 2006, the Company bought put options
to mitigate the risk associated with the possibility of falling time charter
rates. These put options do not qualify for special hedge accounting under US
GAAP and as such, the aggregate changes in the fair value of these option
contracts is reflected in the Company’s statement of operations. The aggregate
unrealized loss on the value of the contracts totaled $0.3 million at December
31, 2006.





B.
            Liquidity
      and capital resources





The
Company requires cash to service its debt, fund the equity portion of
investments in vessels, fund working capital and maintain cash reserves against
fluctuations in operating cash flow. Net cash flow generated by continuing
operations has historically been the main source of liquidity for the Company.
Additional sources of liquidity have also included proceeds from asset sales and
refinancings.





The
Company’s ability to generate cash flow from operations will depend upon the
Company’s future performance, which will be subject to general economic
conditions and to financial, business and other factors affecting the operations
of the Company, many of which are beyond its control.





The
Company’s fleet consists of product tankers and OBOs thus, the Company is
dependent upon the petroleum product, vegetable oil and chemical industries and
the bulk products market as its primary sources of revenue.  These
industries have historically been subject to substantial fluctuation as a result
of, among other things, economic conditions in general and demand for petroleum
products, vegetable oil, ore, bulk, and chemicals in particular.  Any
material seasonal fluctuation in the industry or any material diminution in the
level of activity therein could have a material adverse effect on the Company’s
business and operating results.  The profitability of product tankers
and their asset value results from changes in the supply of and demand for such
capacity.  The supply of such capacity is a function of the number of
new vessels being constructed and the number of older vessels that are laid-up
or scrapped.  The demand for product tanker capacity is influenced by
global and regional economic conditions, increases and decreases in industrial
production and demand for petroleum products, vegetable oils and chemicals,
developments in international trade and changes in seaborne and other
transportation patterns.  The nature, timing and degree of change in
these industry conditions are unpredictable as a result of the many factors
affecting the supply of and demand for capacity. Although there can be no
assurance that the Company’s business will continue to generate cash flow at or
above current levels, the Company believes that the current market rates are
sustainable which increases the likelihood that it will generate cash flow at
levels sufficient to service its liquidity requirements in the
future.





Cash at
December 31, 2007, amounted to $61.6 million, a decrease of $16.8 million as
compared to December 31, 2006. The decrease in the cash balance is
attributable to net inflows from operations of $40.9 million and inflows from
financing activities of $10.6 million. These inflows were offset by outflows for
investing activities of $68.3 million, primarily related to the conversion of
existing vessels and the acquisition of an additional vessel. Approximately
$27.0 million of the Company’s cash is anticipated to be used in 2008 to convert
three of the Company’s tankers to bulk carriers. The remaining cash is expected
to be used for operating activities and additional fleet expansion.





During
the year ended December 31, 2007, inflows for financing activities were
primarily attributable to mortgage proceeds of $88.7 million to finance the
acquisition of an MR product tanker and the vessel acquired under an unsecured
debt facility in 2006, as well as to finance the conversion of four of the
Company’s MR product tankers to fully double hulled vessels. The Company also
issued treasury shares for the total option price of $0.2 million. This total
was offset by the payment of mortgage principal of $38.9 million, payments for
equity and debt issuance costs of $1.6 million, payment of unsecured debt of
$31.4 million and the purchase of an aggregate of 381,096 shares of common stock
for treasury, for an aggregate price of $6.4 million.





During
the year ended December 31, 2007, outflows for investing activities were
attributable to the purchase of one MR product tanker for $19.6 million, to
vessel conversion costs of $39.1 million, the investment in put contracts of
$10.0 million and to other investments of $0.2 million. This is offset by a net
decrease in the investment in Nordan OBO 2 Inc. of $0.6 million.





The Company had working capital
totaling $14.3 million at December 31, 2007 as compared to $22.2 million at
December 31, 2006. It is important to note that it is customary for shipping
companies and their lenders to exclude the current portion of long-term debt in
any working capital analysis. Excluding the current portion of long-term debt,
the Company had working capital of $51.1 million at December 31, 2007 as
compared to $62.0 million at December 31, 2006.





Trade accounts receivable increased
$2.2 million at December 31, 2007 over 2006. The increase is predominantly
attributable to the amount of demurrage revenue earned during the year.
Demurrage revenue accounted for $8.9 million of revenue in 2007 and $2.2 million
in 2006. Demurrage balances are typically outstanding for six months to one year
and frequently require greater collection efforts. The Company has evaluated its
demurrage receivable balance and believes that amounts deemed doubtful are
properly included in the allowance for doubtful accounts.





At December 31, 2007, the Company’s
largest five accounts receivable balances represented 86% of total accounts
receivable. At December 31, 2006, the Company’s largest three accounts
receivable represented 74% of total accounts receivable. The allowance for
doubtful accounts was $336,000 at December 31, 2007 and $120,000 at December 31,
2006. To date, the Company’s actual losses on past due receivables have not
exceeded our estimate of bad debts.





During 2007, revenues from one customer
accounted for $35.6 million (31.6%) of total revenues. Revenue from one customer
accounted for $32.9 million (34.0%) of total revenues in 2006. In 2005, revenues
from three significant customers accounted for $23.9 million (32.0%), $13.5
million (18.1%) and $9.8 million (13.1%) of total revenues,
respectively.





Inventories increased $0.9 million
predominantly due to the fact that seven of the Company’s vessels owned their
inventory at December 31, 2007 versus six at December 31, 2006. Bunker inventory
is owned by the shipowner when the vessel is on a voyage or offhire, but is
owned by the charterer when the vessel is on time charter.





Vessels and capital improvements, net
of accumulated depreciation, amounted to approximately $282.5 million at
December 31, 2007, an increase of $20.8 million as compared with December 31,
2006. The increase is attributable to the purchase of one MR product tanker for
a total of $19.6 million, to the investment in conversion projects of $39.1
million and to the investment in capital improvements of $8.0 million. This was
offset by the reclass of vessels held for sale of $25.0 million to current
liabilities and to depreciation and amortization of special survey and
conversion costs totaling $20.9 million.





At December 31, 2007, the Company is
party to put option agreements which are designed to mitigate the risk
associated with changes in charter rates. These put option agreements, which
were entered into during 2006 and 2007, do not qualify for hedge accounting
under SFAS No. 133; and the changes in their fair value is therefore recorded in
operations. At December 31, 2007 and 2006, the aggregate fair value of these
non-qualifying put options is $7.3 million and $0.7 million, respectively and is
reflected within Fair Value of Derivative Instruments on the accompanying
balance sheets. During the years ended December 31,





2007 and
2006, the Company recorded $3.4 million and $0.3 million of expense in the
consolidated statements of income related to the change in fair
value.





Other assets increased $1.0 million as
a result of debt issuance costs incurred relating to the new loans, as detailed
below.





Accounts payable increased $23.7
million and accrued liabilities decreased $0.8 million from December 31, 2006 to
December 31, 2007. The net increase in accounts payable and accrued liabilities
is due to the conversions of three tankers to double hulled vessels which were
financed under an installment plan with the shipyard and to the conversion of
two vessels to bulk carriers which are ongoing at December 31,
2007.





Deferred
income of $6.6 million at December 31, 2007 represents a decrease of $0.8
million as compared to 2006. The decrease is predominantly due to the fact that
the M/T SACHEM was on timecharter at the end of 2006, but is being converted to
a bulk carrier at the end of 2007.





During 2007 and 2006, the Company
entered into interest rate swap agreements to mitigate the risk associated with
its variable rate debt. The aggregate fair value of these non-qualifying swap
agreements is a liability of $0.9 million at December 31, 2007. As of December
31, 2006, the fair value of these swaps was an asset of $0.3
million.





On
January 24, 2007, the Company, through a wholly-owned subsidiary, entered into a
$27 million term loan facility to refinance the acquisition of the M/T SAKONNET,
acquired in January 2006 under an unsecured financing agreement.





The loan
is payable in four quarterly installments of $825,000 beginning on April 30,
2007, twelve quarterly installments of $1,000,000 and sixteen quarterly
installments of $750,000.





Interest
on the Reducing Revolving and Term Loan facility is equal to LIBOR plus 0.875%.
Expenses associated with the loan of $395,000 were capitalized and will be
amortized over the 8 year term of the loan.





The loan
facility contains certain restrictive covenants and mandatory prepayment in the
event of the total loss or sale of a vessel. It also requires minimum value
adjusted equity of $50 million, a minimum value adjusted equity ratio (as
defined) of 30% and an EBITDA to fixed charges ratio of at least 125%. The
Company is also required to maintain liquid assets, as defined, in an amount
equal to the greater of $15.0 million or 6% of the aggregate indebtedness of the
Company on a consolidated basis, positive working capital and adequate insurance
coverage. At December 31, 2007, the Company was in compliance with these
covenants.





On
September 7, 2007, the Company, through a wholly-owned subsidiary, entered into
a $25,500,000 million term loan facility to finance the conversions of three of
its MR product tankers to double hulled vessels. On December 7, 2007, the
facility was amended to allow for an additional $8.5 million to finance the
fourth MR conversion.





The
facility contains certain restrictive covenants on the Company and requires
mandatory prepayment in the event of the total loss or sale of a vessel and a
loan to value ratio of 120%. The facility requires minimum value adjusted equity
of $50 million, a minimum value adjusted equity ratio (as defined) of 30% and an
EBITDA to fixed charges ratio of at least 115% if 75% of the vessels are on
fixed charters of twelve months or more and 120% if 50% of the vessels are on
fixed charters of twelve months or more and 125% at all times otherwise. The
Company is also required to maintain liquid assets, as defined, in an amount
equal to the greater of $15.0 million or 6% of the aggregate indebtedness of the
Company on a consolidated basis, positive working capital and adequate insurance
coverage. At December 31, 2007, the Company was in compliance with these
covenants.





The loan
is repayable in sixteen quarterly installments of varying amounts, beginning on
March 7, 2007 and a balloon payment on March 7, 2012. Interest on the facility
is equal to LIBOR plus 2.0%. Expenses associated with the loan of $586,000 were
capitalized and will be amortized over the four year term of the
loan.





In order
to mitigate a portion of the risk associated with the variable rate interest on
this loan, the Company entered into an interest rate swap agreement to hedge the
interest on $25.5 million of the loan. Under the terms of the swap, which the
Company has designated as a cash flow hedge, interest is converted from variable
to a fixed rate of 4.910%.





On
October 25, 2007 the Company entered into an amended and restated $26,700,000
floating rate loan facility (the “amended loan facility”). The amended loan
facility made available an additional $19.6 million for the purpose of acquiring
the M/T CAPT. THOMAS J HUDNER and changed the payment terms for the $7.1 million
balance of the loan.





The
amended loan facility is apportioned into two tranches, Tranche A being payable
in full on the April 30, 2009. Tranche B is payable in thirteen quarterly
installments of $812,500 beginning on July 30, 2009 and a balloon payment of
$9,037,500 due on October 30, 2012. Interest on the facility is equal to LIBOR
plus 1.0%.





Expenses
associated with the amended loan facility of approximately $344,000, were
capitalized and are being amortized over the five-year period of the
loan.





The
facility contains certain restrictive covenants on the Company and requires
mandatory prepayment in the event of the total loss or sale of a vessel and a
loan to value ratio of 120%. The facility requires minimum value adjusted equity
of $50 million, a minimum value adjusted equity ratio (as defined) of 30% and an
EBITDA to fixed charges ratio of at least 115% if 75% of the vessels are on
fixed charters of twelve months or more, 120% if 50% of the vessels are on fixed
charters of twelve months or more and 125% at all times otherwise. The Company
is also required to maintain liquid assets, as defined, in an amount equal to
the greater of $15.0 million or 6% of the aggregate indebtedness of the Company
on a consolidated basis, positive working capital and adequate insurance
coverage. At December 31, 2007, the Company was in compliance with these
covenants.





Management
does not expect to incur expense for in-water survey, drydock and related repair
work performed during 2008. The expenses for drydock and related repair work
totaled $0.5 million in 2007 for three vessels, $0.1 million for one vessel in
2006 and $0.9 million in 2005. At December 31, 2007 there were two vessels in
the shipyard being converted to bulk carriers. The capitalized costs for
scheduled classification survey and related vessel upgrades were $8.0 million
for five vessels in 2007, $7.1 million for three vessels in 2006 and $2.1
million in 2005 for two vessels. Such capitalized costs are depreciated over the
remaining useful life of the respective vessels.





Management does not believe that
inflation has had any material impact on the Company's operations although
certain of the Company's operating expenses (e.g., crewing, insurance and
docking costs) are subject to fluctuation as a result of market
forces.  Inflationary pressures on bunker (fuel) costs are not
expected to have a material effect on the Company's future operations because
voyage charter rates are generally sensitive to the price of
bunkers.  However, a short-term fluctuation in bunker costs can impact
the profitability of a voyage charter, which commenced prior to such
fluctuation.  Also, the Company is responsible for the bunker costs of
its vessels while they are off hire.





Critical accounting
policies





Basis
of accounting:





The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States of
America or US GAAP. The preparation of those financial statements requires us to
make estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or
conditions.





Critical
accounting policies are those that reflect significant judgments or
uncertainties, and potentially result in materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies that involve a high degree of judgment
and the methods of their application. For a description of all of our
significant accounting policies, see Note 2 to the consolidated financial
statements.





Principles
of consolidation:





The
accompanying Consolidated Financial Statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany transactions and
accounts have been eliminated in consolidation.





Revenue
recognition, trade accounts receivable and concentration of credit
risk:





Revenues from voyage and time charters
are recognized in proportion to the charter-time elapsed during the reporting
periods. Charter revenue received in advance is recorded as a liability until
charter services are rendered.





Under a voyage charter, the Company
agrees to provide a vessel for the transport of cargo between specific ports in
return for the payment of an agreed freight per ton of cargo or an agreed lump
sum amount. Voyage costs, such as canal and port charges and bunker (fuel)
expenses, are the Company’s responsibility. Voyage revenues and voyage expenses
include estimates for voyage charters in progress which are recognized on a
percentage-of-completion basis by prorating the estimated final voyage profit
using the ratio of voyage days completed through year end to the total voyage
days.





Under a time charter, the Company
places a vessel at the disposal of a charterer for a given period of time in
return for the payment of a specified rate per DWT capacity per month or a
specified rate of hire per day. Voyage costs are the responsibility of the
charterer. Revenue from time charters in progress is calculated using the daily
charter hire rate, net of brokerage commissions, multiplied by the number of
on-hire days through the year-end. Revenue recognized under long-term variable
rate time charters is equal to the average daily rate for the term of the
contract.





The Company’s financial instruments
that are exposed to concentrations of credit risk consist primarily of cash
equivalents and trade receivables. The Company maintains its cash accounts with
various high quality financial institutions in the United States, the United
Kingdom and Norway. The Company performs periodic evaluations of the relative
credit standing of these financial institutions. At various times throughout the
year, the Company may maintain certain US bank account balances in excess of
Federal Deposit Insurance Corporation limits. The Company does not believe that
significant concentration of credit risk exists with respect to these cash
equivalents.





Trade accounts receivable are recorded
at the invoiced amount and do not bear interest. The allowance for doubtful
accounts is the Company’s best estimate of the total losses likely in its
existing accounts receivable. The allowance is based on historical write-off
experience and patterns that have developed with respect to the type of
receivable and an analysis of the collectibility of current amounts. Past due
balances that are not specifically reserved for are reviewed individually for
collectibility. Specific accounts receivable invoices are charged off against
the allowance when the Company determines that collection is unlikely. Credit
risk with respect to trade accounts receivable is limited due to the long
standing relationships with significant customers and their relative financial
stability. The Company performs ongoing credit evaluations of its customers’
financial condition and maintains allowances for potential credit losses when
necessary. The Company does not have any off-balance sheet credit exposure
related to its customers.





Vessels,
capital improvements and depreciation:





Vessels are stated at cost, which
includes contract price, acquisition costs and significant capital expenditures
made within nine months of the date of purchase. Depreciation is provided using
the straight-line method over the remaining estimated useful lives of the
vessels, based on cost less salvage value. The estimated useful lives used are
30 years from the date of construction. When vessels are sold, the cost and
related accumulated depreciation are reversed from the accounts, and any
resulting gain or loss is reflected in the accompanying Consolidated Statements
of Income.





Capital
improvements to vessels made during special surveys are capitalized when
incurred and amortized over the 5-year period until the next special survey. The
capitalized costs for scheduled classification survey and related vessel
upgrades were $8.0 million for five vessels in 2007, $7.1 million for three
vessels in 2006 and $2.1 million in 2005 for two vessels. Such capitalized costs
are depreciated over the remaining useful life of the respective vessels.
Conversion costs are capitalized and will be amortized over the period remaining
to 30 years.





Payments
for special survey costs are characterized as operating activities on the
Consolidated Statements of Cash Flows. Amortization of special survey costs is
characterized as amortization of deferred charges on the Consolidated Statements
of Income and of Cash Flows. Amortization of special survey costs was previously
included in depreciation and amortization on the Consolidated Statements of
Income and of Cash Flows. Conversion costs are capitalized and will be amortized
over the period remaining to 30 years.





Repairs
and maintenance:





Expenditures for repairs and
maintenance and interim drydocking of vessels are charged against income in the
year incurred. Repairs and maintenance expense approximated $2.2 million,$1.9
million and $1.8 million for the years ended December 31, 2007, 2006 and 2005,
respectively. Interim drydocking expense was approximately $0.5 million, $0.1
million and $0.9 million for the years ended December 31, 2007, 2006 and 2005,
respectively.





Impairment
of long-lived assets:





The Company is required to review its
long-lived assets for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. Upon the occurrence of
an indicator of impairment, long-lived assets are measured for impairment when
the estimate of undiscounted future cash flows expected to be generated by the
asset is less than its carrying amount. Measurement of the impairment loss is
based on the asset grouping and is calculated based upon comparison of the fair
value to the carrying value of the asset grouping.





Derivatives
and hedging activities:





The Company accounts for derivatives in
accordance with the provisions of SFAS No. 133, as amended, “Accounting for Derivative
Instruments and Hedging Activities,” (“SFAS No. 133”). The Company uses
derivative instruments to reduce market risks associated with its operations,
principally changes in interest rates and changes in charter rates. Derivative
instruments are recorded as assets or liabilities and are measured at fair
value.





Derivatives designated as cash flow
hedges pursuant to SFAS No. 133 are recorded on the balance sheet at fair value
with the corresponding changes in fair value recorded as a component of
accumulated  other comprehensive income (equity). At December 31,
2007, the Company is party to two interest rate swap agreements that qualify as
cash flow hedges; the aggregate fair value of these cash flow hedges are a
liability of $0.8 million at December 31, 2007 and an asset of $18,183 at
December 31, 2006. See NOTE 7-BONDS PAYABLE.





Derivatives that do not qualify for
hedge accounting pursuant to SFAS No. 133 are recorded on the balance sheet at
fair value with the corresponding changes in fair value recorded in operations.
At December 31, 2007 and 2006, the Company is party to two interest rate swap
agreements having an aggregate notional value of $47.4 million, which do not
qualify for hedge accounting pursuant to SFAS No. 133. These swap agreements
were entered into to hedge debt tranches of 5.07%, expiring in December 2010.
The aggregate fair value of these two non-qualifying swap agreements is a
liability of $0.9 million at December 31, 2007 and an asset of $0.3 million at
December 31, 2006, which is reflected within Fair Value of Derivative
Instruments on the accompanying balance sheet and is recorded as income (loss)
from changes in fair value in the consolidated statements of
operations.





Additionally, at December 31, 2007, the
Company is party to put option agreements which are designed to mitigate the
risk associated with changes in charter rates. These put option agreements,
which were entered into during 2007 and 2006, do not qualify for hedge
accounting under SFAS No. 133; and the changes in their fair value is therefore
recorded in operations. At December 31, 2007 and 2006, the aggregate fair value
of these non-qualifying put options is $7.3 million and $0.7 million,
respectively and is reflected within Fair Value of Derivative Instruments on the
accompanying balance sheet. During the years ended December 31, 2007 and 2006,
the Company recorded $3.4 million and $0.3 million of expense in the
consolidated statements of operations related to the change in fair value of
these instruments.





The
Company is exposed to credit loss in the event of non-performance by the counter
party to the interest rate swap agreements; however, the Company does not
anticipate non-performance by the counter party.





The Company is party to foreign
currency exchange contracts which are designed to mitigate the risk associated
with changes in foreign currency exchange rates. These contracts, which were
entered into during 2007, do not qualify for hedge accounting under SFAS No.
133; and the changes in their fair value is therefore recorded in operations. At
December 31, 2007, the aggregate fair value of these non-qualifying foreign
exchange contracts is $30,000 and is reflected within Fair Value of Derivative
Instruments on the accompanying balance sheet and statements of
income.




Recent accounting
pronouncements:





During 2006, the Company adopted the
requirements of Statement of Financial Accounting Standards No. 123R “Accounting
for Stock Based Compensation” (“SFAS No. 123R”). The adoption of SFAS No. 123R
did not materially impact the Company’s 2006 statement of operations due to the
fact that all of the Company’s previously existing stock options were fully
vested at December 31, 2005 with no new options issued in 2006. Additionally,
shares issued under the Company’s performance plan, vest immediately upon
granting and have historically been reflected in operations.





In September 2006, the FASB issued
Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,”
(“SFAS No. 157”) which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS No. 157 is applicable for the Company as of
January 1, 2008, the first day of fiscal 2008. The FASB issued FASB Staff
Position FAS 157-b, “Effective Date of FASB Statement No. 157,” which deferred
the effective date of the Statement for certain non-financial assets and
liabilities until fiscal 2009. The Company does not expect the adoption of SFAS
No. 157 to have a material impact on its consolidated balance sheets and results
of operations.





In February 2007, the FASB issued
Statement of Financial Accounting Standards No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure many financial instruments and certain
other items at fair value and establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities.
SFAS No. 159 is effective for the Company beginning January 1, 2008. The Company
does not expect the adoption of SFAS No. 159 to have a material impact on its
consolidated balance sheets and results of operations.





In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 141 (Revised 2007), “Business
Combinations,” (“SFAS No. 141R”), which makes certain modifications to the
accounting for business combinations. Theses changes include (1) the requirement
for an acquirer to recognize all assets acquired and liabilities assumed at
their fair value on the acquisition date; (2) the requirement for an acquirer to
recognize assets or liabilities arising from contingencies at fair value as of
that acquisition date; and (3) the requirement that an acquirer expense all
acquisition related costs. This Statement is required to be applied
prospectively to business combinations for which the acquisition date is on or
after the beginning of fiscal 2009. The Company does not expect the adoption of
SFAS No. 141 to have a material impact on its consolidated balance sheets and
results of operations.





In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests
in Consolidated Financial Statements,” (“SFAS No. 160”) which requires
noncontrolling (minority) interests in subsidiaries to be initially measured at
fair value and presented as a separate component of shareholders’ equity.
Current practice is to present noncontrolling interests as a liability or other
item outside of equity. This Statement is required to be applied prospectively
after the beginning of fiscal 2009, although the presentation and disclosure
requirements are required to be applied on a retrospective basis. The Company
does not expect the adoption of SFAS No. 160 to have a material impact on its
consolidated balance sheets or results of operations.





C.
Research and development, patents and licenses, etc.





Not
applicable








D.
Trend information





The Company’s fleet of product tankers
consists of four double hull Medium Range (MR) tankers of about 40,000 DWT, and
one double sided Long Range (LR) Panamax tanker. Three of the MRs are currently
operated in the spot market, one is on a short-term time charter and one is
being converted to a dry bulk carrier. One of the Panamax tankers is on a time
charter with original length of three years and one is being converted to a dry
bulk carrier.





The Company’s operates seven OBOs of
74,000 to 98,000 DWT. All seven of these OBOs are currently on time charters
with original length of two years or more.





The Company expects to operate these
vessels in both the voyage (spot) markets and on long-term time charters as the
existing time charters expire.





E.
Off-balance sheet arrangements





The Company periodically enters into
interest rate swaps to manage interest costs and the risk associated with
increases in variable interest rates. As of December 31, 2007, the Company had
interest rate swaps aggregating notional amounts of $82.9 million designed to
hedge debt tranches within a range of 4.76% to 5.07%, expiring from December
2010 to December 2013. The Company pays fixed-rate interest amounts and receives
floating rate interest amounts based on three month LIBOR settings (for a term
equal to the swaps’ reset periods). Two of the swap agreements have been
designated as cash flow hedges by the Company and as such, the changes in the
fair value of these swaps are reflected as a component of other comprehensive
income. The aggregate fair value of swap agreements designated as cash flow
hedges are liabilities of $828,000 at December 31, 2007 and an asset of $18,000
at December 31, 2006. The aggregate fair value of non-qualifying swap agreements
is a liability of $0.9 million at December 31, 2007 and an asset of $0.3 million
at December 31, 2006.





F.
Tabular disclosure of contractual obligations





At December 31, 2007, the Company’s
contractual obligations consist of the OBO Holdings, Ltd., the Cliaship Holdings
Corp., the Seapowet Trading Ltd. and the Sachem Shipping Ltd. floating rate
facilities and the B+H Ocean Carriers, Ltd. Open Bond Issue 2006/2013. The
mortgage interest rates are stated as a margin (which varies from 1% to 4%) over
LIBOR. The aggregate maturities, including an estimate of the interest payable
are as follows:





Principal
              
              
              Interest1
              
              
              Total2008
              
              $
              36,808,000
              
              
              $
              5,850,000
              
              
              $
              42,658,0002009
              
              
              46,155,000
              
              
              
              3,985,000
              
              
              
              50,140,0002010
              
              
              38,390,000
              
              
              
              2,843,000
              
              
              
              41,233,0002011
              
              
              55,104,000
              
              
              
              1,801,000
              
              
              
              56,905,0002012
              
              
              17,167,000
              
              
              
              689,000
              
              
              
              17,856,000Thereafter
              
              
              6,678,000
              
              
              
              344,000
              
              
              
              7,022,000$
              200,302,000
              
              
              $
              15,512,000
              
              
              $
              215,814,000


1 Interest
is calculated using the 3 month LIBOR rate in effect at March 31, 2008 (due to
the fact that there was a significant drop in interest rates in the first
quarter of 2008) and the balance outstanding for the period. The Company does
not expect changes in the rate to have a material impact on the Company’s
financial statements due to the mitigation of some of such risk resulting from
interest rate swaps.


G.
Safe harbor





This
Annual Report contains certain statements, other than statements of historical
fact, that constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. When used herein, the words “anticipates,”
“believes,” “seeks,” “intends,” “plans,” or “projects” and similar expressions
are intended to identify forward-looking statements. The forward-looking
statements express the current beliefs and expectations of management and
involve a number of known and unknown risks and uncertainties that could cause
the Company’s future results, performance or achievements to differ
significantly from the results, performance or achievements expressed or implied
by such forward-looking statements. Important factors that could cause or
contribute to such difference include, but are not limited to, those set forth
in this Annual Report and the Company’s filings with the Securities and Exchange
Commission. Further, although the Company believes that its assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this Annual Report will prove to be
accurate.





Item
6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES





A.
Directors and senior management





The
directors and executive officers of the Company are as
follows:





Name
            Age
            Position with the
CompanyMichael
      S. Hudner
            61
            Chairman
      of the Board, President and Chief Executive Officer and Class A
      DirectorTrevor
      J. Williams
            65
            Vice
      President and Class A DirectorR.
      Anthony Dalzell
            63
            Treasurer
      and Chief Financial Officer and Class B DirectorCharles
      L. Brock
            65
            Class
      B DirectorJohn
      M. LeFrere
            63
            Class
      A DirectorAnthony
      J. Hardy
            68
            Class
      A DirectorPer
      Ditlev-Simonsen
            75
            Class
      B DirectorO.
      Michael Lewis
            58
            Class
      B Director








All directors and executive officers of
the Company were first elected in June 1988 except Mr. LeFrere, who was elected
director in December 1995, Mr. Dalzell, who was appointed to his position as
Treasurer and Chief Financial Officer in March 1997 and elected as director in
June 1997, Messrs. Hardy and Ditlev-Simonsen, who were elected directors in
February 1998 and Mr. Lewis, who was elected at the 2006 Annual Meeting of
Shareholders.





Pursuant to the Company­'s Articles
of Incorporation, the Board of Direc­tors is divided into two classes of at
least three persons each.  Each class is elected for a two-year
term.  The Class A directors will serve until the 2008 annual meeting
and the Class B directors will serve until the 2009 annual meeting of
shareholders.  Officers are appointed by the Board of Directors and
serve until their succes­sors are appointed and qualified.





Michael S. HudnerMichael S.
Hudner has been President and Chief Executive Officer and a director of the
Company since 1988 and Chairman of the Board of the Company since October 1993.
He is also President and a director of BHM, a director of Protrans and has a
controlling ownership interest, and is President and a director of NMS. Since
1978, Mr. Hudner, in his capacity as a partner in B+H Company ("BHC"), and its
predecessor, was primarily responsible for the acquisition and financing of over
100 bulk carriers, product tankers and crude oil tankers for BHC and its
affiliates and joint ventures (including all the vessels owned by the Company).
Mr. Hudner is a member of the New York Bar, and is a member of the Council of
the American Bureau of Shipping. Mr. Hudner is a US citizen and resides in Rhode
Island, United States.





Trevor J. WilliamsMr.
Williams has been principally engaged since 1985 as President and Director of
Consolidated Services Limited, a Bermuda-based firm providing management
services to the shipping industry. He is a director of PROTRANS and has been for
more than five years a director and Vice President of the Company and BHM. Mr.
Williams is a British citizen and resides in Bermuda.





R. Anthony DalzellMr. Dalzell
has been affiliated with BHM since October 1995. He was appointed Treasurer and
Chief Financial Officer of the Company in March 1997. Mr. Dalzell was Managing
Director of Ugland Brothers Ltd., a U.K. based shipowner and shipmanager from
March 1982 until March 1988. From April 1988 until December 1992, he was General
Manager of NMS and Secretary and a Vice President of the Company. From June 1993
until October 1995, Mr. Dalzell was affiliated with B+H Bulk Carriers Ltd. Mr.
Dalzell is a British citizen and resides in the United Kingdom.





Charles L. BrockMr. Brock has
been a member of the law firm of Brock Partners since April 1995 which firm
acted as United States counsel for the Company from 1995 to 2000 and since June
2002, a member of the investment banking firm of Brock Capital Group. Mr. Brock
is a US citizen and resides in East Hampton, New York, United
States.





John M. LeFrereMr. LeFrere
has been a private investor and consultant to several major corporations since
March 1996. From February 1993 to March 1996, he was a Managing Director of
Bankers Trust Company of New York in charge of equity research for the Capital
Markets Division. Mr. LeFrere is President of J. V. Equities Corp., an
investment banking firm and a partner in several research and investment banking
firms. Mr. LeFrere is a US citizen and resides in Florida, United
States.





Anthony J. HardyMr. Hardy has
been Chairman since 1986 of A.J. Hardy Limited of Hong Kong, a consulting firm
to the shipping industry. Prior thereto, he was Chairman (1972-1986) and
Managing Director (1965-1981) of the Wallem Group of Companies, a major
international shipping group headquartered in Hong Kong. Mr. Hardy has devoted
40 years to many aspects of the shipping industry, such as shipbroking, ship
management, offshore oil rigs, and marine insurance. He was Chairman of the Hong
Kong Shipowners Association (1970-1973). Mr. Hardy is a British citizen and
resides in Hong Kong.





Per Ditlev-SimonsenMr.
Ditlev-Simonsen is Chairman of the Board of Eidsiva Rederi ASA, an Oslo Stock
Exchange listed shipping company with its main interests in bulk, car and ro-ro
carriers. Mr. Ditlev-Simonsen has more than 35 years experience in international
shipping and offshore drilling. In the years 1991-1996, he was Chairman of the
Board of Christiana Bank og Kreditkasse, Norway’s second largest commercial bank
and one of the world’s largest shipping banks. Mr. Ditlev-Simonsen, the Mayor of
Oslo since 1995, has served as a member of the Norwegian Parliament and the Oslo
City Council, and as Chairman of the Conservative Party in Oslo. He was also
Minister of Defense in the Norwegian Government from October 1989 to November
1990. Mr. Ditlev-Simonsen is a Norwegian citizen and resides in Oslo,
Norway.





O. Michael Lewis Mr. Lewis was
the Senior Partner of London law firm Peachey & Co from 1997 to 2005 having
been a partner since 1979. Mr Lewis specialised in advising international
shipping groups. Mr. Lewis is a trustee of the Boris Karloff Charitable
Foundation.





No family relationships exist between
any of the executive officers and directors of the Company.





B.
            Compensation





The Company does not pay salaries or
provide other direct compensa­tion to its executive
officers.  Directors who are not officers of the Company are entitled
to receive annual fees of $30,000, and the Chairman of the Audit Committee is
entitled to receive an additional fee of $2,000 per month.  Each
director was also awarded 2,500 shares of the Company’s stock during 2007.
Certain direc­tors and executive officers of the Company earn compensation
indirectly through entities which provide services to the Compa­ny. (See
Item 7).




C.           Board
practices





The By-Laws of the Company provide for
an Audit Committee of the Board of Directors consisting of two or more directors
of the Company designated by a majority vote of the entire Board. The Audit
Committee consists of directors who are not officers of the Company and who are
not and have not been employed by the Manager or by any person or entity under
the control of, controlled by, or under common control with, the Manager. The
Audit Committee is currently comprised of Messrs. Brock (Chairman),
Ditlev-Simonsen and Lewis and is currently charged under the By-Laws with
reviewing the following matters and advising and consulting with the entire
Board of Directors with respect thereto:  (a) the preparation of the
Company’s annual financial statements in collaboration with the Company’s
independent registered  public accounting firm;  (b) the
performance by the Manager of its obligations under the Management Services
Agreement with the Company; and  (c) all agreements between the
Company and the Manager, any officer of the Company, or affiliates of the
Manager or any such officer. The Audit Committee, like most independent Board
committees of public companies, does not have the explicit authority to veto any
actions of the entire Board of Directors relating to the foregoing or other
matters; however, the Company’s senior management, recognizing their own
fiduciary duty to the Company and its shareholders, is committed not to take any
action contrary to the recommendation of the Audit Committee in any matter
within the scope of its review. See also “Item 6.A. Directors and senior
management.”





D. Employees





The Company employed, as of December
31, 2007, four non-salaried individuals on a part-time basis as officers of the
Company and, through its vessel-owning subsidiaries, utilizes the services of
ap­proximately 212 officers and crew.  The Company's vessels are
manned principally by crews from the Philippines, Pakistan, Croatia, Turkey and
India.





E.  Share
ownership





See “Item
7.A.  Major shareholders.”


Item
7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS





A.
            Major
      shareholders





The following table sets forth
information as of June 5, 2008, concerning the beneficial ownership of the
common stock of the Company by (i) the only persons known by the Company's
management to own beneficially more than 5% of the outstanding shares of common
stock, (ii) each of the Company's directors and executive officers, and
(iii) all executive officers and directors of the Company as a
group:







Name
      of Beneficial Owner
            Number
      of Shares
              Beneficially
              Owned
            Percent
      of
              Common
              Stock
      (a)Northampton
      Holdings Ltd.
            2,011,926
            29.30%Michael
      S. Hudner (b)
            3,686,809
            53.69%Fundamental
      Securities International Ltd.
            1,415,243
            20.61%Devonport
      Holdings Ltd. (c)
            1,415,243
            20.61%Harbor
      Holdings Corp. (d)
            202,500
            2.95%Charles
      L. Brock
            2,500
            0.04%R.
      Anthony Dalzell (e)
            57,140
            0.83%Dean
      Investments Ltd.
            54,540
            0.83%John
      M. LeFrere
            2,500
            0.04%Anthony
      J. Hardy
            2,500
            0.04%Per
      Ditlev-Simonsen
            —
            *Trevor
      J. Williams (f)
            3,486,809
            50.78%O.
      Michael Lewis
            2,500
            0.04%HBK
      Investments L.P. (g)
            532,400
            7.80%Caiano
      Ship AS (g)
            1,146,667
            16.70%Goldman
      Sachs International/Orkla Finans (g)
            561,130
            8.2%All
      executive officers and directors as a group (8 persons)
            3,699,309
            53.87%


*Less
than 1%




(a)
            As
      used herein, the term beneficial ownership with respect to a security is
      defined by Rule 13d-3 under the Exchange Act as consisting of sole or
      shared voting power (including the power to vote or direct the vote)
      and/or sole or shared investment power (including the power to dispose or
      direct the disposition) with respect to the security through any contract,
      arrangement, understanding, relationship, or otherwise, including a right
      to acquire such power(s) during the next 60 days. Unless otherwise noted,
      beneficial ownership consists of sole ownership, voting, and investment
      power with respect to all shares of common stock shown as beneficially
      owned by them.




(b)
            Comprised
      of shares shown in the table as held by Northampton Holdings Ltd. (“NHL”),
      Fundamental Securities International Ltd. (“Fundamental”), Harbor Holdings
      Ltd.. (“Harbor”) and Dean Investments (“Dean”). Mr. Hudner is a general
      partner in the partnership which is the ultimate parent of Fundamental and
      a general partner in the ultimate owner of the general partner of
      B+H/Equimar 95 Associates, L.P. (“95 Associates”), which is a 60.6% owner
      of NHL. Fundamental is a 30.3% shareholder of NHL. Mr. Hudner and a trust
      for the benefit of his family own Harbor, a Connecticut corporation.
      Anthony Dalzell is a beneficial owner of Dean Investments, a Cayman
      Islands corporation.  Mr. Dalzell and Dean Investments executed
      a Voting Agreement, dated as of September 29, 2006 (the “Voting
      Agreement”), with the other entities noted above. Under the Voting
      Agreement, Mr. Dalzell and Dean Investments agreed to vote Shares as
      determined by the majority in interest of the group.Accordingly,
      Mr. Hudner may be deemed to share voting and dispositive power as an
      indirect beneficial owner of the shares held by NHL, Fundamental, Harbor
      and Dean.




(c)
            Devonport
      Holdings Ltd. is a general partner of the partnership that is the ultimate
      parent of Fundamental and is also a general partner in the ultimate owner
      of the general partner of 95
Associates.




(d)
            Comprised
      of shares reissued by the Company during 2007, upon exercise of options
      granted to B+H Management Ltd.




(e)
            Includes
      57,040 shares held by Dean.




(f)
            Comprised
      of shares shown in the table for NHL, Fundamental, Dean and 2,500 shares
      held individually. Mr. Williams is president and a director of Fundamental
      and the president and a director of 95 Associates. Accordingly,
      Mr. Williams may be deemed to share voting and dispositive power as
      an indirect beneficial owner of the shares held by NHL, Fundamental and
      Dean.




(g)  Per
VPS Registered Shareholder list.








B.
Related party transactions





BHM/NMS/BHES/PROTRANS





The
shipowning activities of the Company are managed by an affiliate, B+H Management
Ltd. (“BHM”) under a Management Services Agreement (the “Management Agreement")
dated June 27, 1988 and amended on October 10, 1995, subject to the oversight
and direction of the Company's Board of Directors.





The
shipowning activities of the Company entail three separate functions, all under
the overall control and responsibility of BHM: (1) the shipowning function,
which is that of an investment manager and includes the purchase and sale of
vessels and other shipping interests; (2) the marketing and operations function
which involves the deployment and operation of the vessels; and (3) the vessel
technical management function, which encompasses the day-to-day physical
maintenance, operation and crewing of the vessels.





BHM
employs Navinvest Marine Services (USA) Inc. ("NMS"), a Connecticut corporation,
under an agency agreement, to assist with the performance of certain of its
financial reporting and administrative duties under the Management
Agreement.





The
Management Agreement may be terminated by the Company in the following
circumstances: (i) certain events involving the bankruptcy or insolvency of BHM;
(ii) an act of fraud, embezzlement or other serious criminal activity by Michael
S. Hudner, Chief Executive Officer, President, Chairman of the Board and
significant shareholder of the Company, with respect to the Company; (iii) gross
negligence or willful misconduct by BHM; or (iv) a change in control of
BHM.





Mr. Hudner is President of BHM and the
sole shareholder of NMS.  BHM is technical manager of the Company’s
wholly-owned vessels under technical management agreements. BHM employs B&H
Equimar Singapore (PTE) Ltd., (“BHES”), to assist with certain duties under the
technical management agreements.  BHES is a wholly-owned subsidiary of
BHM.





Currently, the Company pays BHM a
monthly rate of $6,476 per vessel for general, administrative and accounting
services, which may be adjusted annually for any increases in the Consumer Price
Index. During the years ended December 31, 2007, 2006 and 2005, the Company paid
BHM fees of approximately $1,126,000, $970,000 and $797,000, respectively for
these services. The total fees vary due to the change in the number of fee
months resulting from changes in the number of vessels owned during each
period.





The Company also pays BHM a monthly
rate of $13,296 per MR product tanker and $16,099 per Panamax product tanker or
OBO for technical management services, which may be adjusted annually for any
increases in the Consumer Price Index. Vessel technical managers coordinate all
technical aspects of day to day vessel operations including physical
maintenance, provisioning and crewing of the vessels. During the years ended
December 31, 2007, 2006 and 2005, the Company paid BHM fees of approximately
$2,539,000, $2,360,000 and $2,040,000, respectively for these services.
Technical management fees are included in vessel operating expenses in the
Consolidated Statements of income. The total fees have steadily increased due to
the vessel acquisitions in 2007, 2006 and 2005.





The Company engages BHM to provide
commercial management services at a monthly rate of $10,545 per vessel, which
may be adjusted annually for any increases in the Consumer Price Index. BHM
obtains support services from Protrans (Singapore) Pte. Ltd., which is owned by
BHM. Commercial managers provide marketing and operations services. During the
years ended December 31, 2007, 2006 and 2005, the Company paid BHM fees of
approximately $1,835,000, $1,558,000 and $1,238,000, respectively, for these
services. Commercial management fees are included in voyage expenses in the
Consolidated Statements of Income. The total fees increased in 2006 and 2007 due
to the increase in the number of fee months resulting from the increase in the
number of vessels owned.





The Company engaged Centennial Maritime
Services Corp. (“Centennial”), a company affiliated with the Company through
common ownership, to provide manning services at a monthly rate of $1,995 per
vessel and agency services at variable rates, based on the number of crew
members placed on board. During the years ended December 31, 2007, 2006 and
2005, the Company paid Centennial manning fees of approximately $662,000,
$519,000 and $370,000, respectively. Manning fees are included in vessel
operating expenses in the Consolidated Statements of Income.





BHM received arrangement fees of
$196,000 in connection with the financing of the M/T CAPT. THOMAS J HUDNER in
October 2007, $340,000 in connection with the financing of the four MR
conversions in December 2007 and $270,000 in connection with the financing of
the OBO SAKONNET in January 2007. BHM received brokerage commissions of $85,000
in connection with the sale of the M/T COMMUTER in August 2005. The Company also
paid BHM standard industry chartering commissions of $717,000 in 2007, $672,000
in 2006 and $333,000 in 2005 in respect of certain time charters in effect
during those periods. Clearwater Chartering Corporation, a company affiliated
through common ownership, was paid $1,362,000, $1,062,000 and $1,194,000 in
2007, 2006 and 2005, respectively for standard industry chartering commissions.
Brokerage commissions are included in voyage expenses in the Consolidated
Statements of Income.





During 2007, 2006 and 2005, the Company
paid fees of $501,000, $501,000 and $60,000 to J.V. Equities, Inc. for
consulting services rendered. J.V. Equities is controlled by John LeFrere, a
director of the Company.





During 2007, 2006 and 2005, the Company
paid fees of $186,000, $36,000 and $49,334, respectively, to R. Anthony Dalzell
or to Dean Investments for consulting services rendered. Dean Investments is
deemed to be controlled by R. Anthony Dalzell, the Chief Financial Officer, Vice
President and a director of the Company.





During 1998, the Company’s Board of
Directors approved an agreement with BHM whereby up to 110,022 shares of common
stock of the Company will be issued to BHM for distribution to individual
members of management, contingent upon certain performance criteria. The Company
will issue the shares of common stock to BHM at such time as the specific
requirements of the agreement are met. During 2007, 2,275 shares, bringing the
total to 64,522 shares, have been issued from treasury stock where these shares
were held for this purpose. Compensation cost of $34,000, $259,000 and $102,000,
based on the market price of the shares at the date of issue, was included as
management fees to related parties in the Consolidated Statement of Operations
for the years ended December 31, 2007, 2006 and 2005, respectively.





Effective
December 31, 2000, the Company granted 600,000 stock options, with a value of
$78,000 to BHM as payment for services in connection with the acquisition of the
Notes. The exercise price is the fair market value at the date of grant and the
options are exercisable over a ten-year period. At December 31, 2007 all of the
options have been exercised.





Information
regarding these stock options is as follows:





Shares
              
              Option
      PriceOutstanding
      at January 1, 2007
              
              200,690
              
              $             1.00Granted
              
              -
              
              -Exercised
              
              200,690
              
              $     
             1.00Canceled
              
              -
              
              -Outstanding
      at December 31, 2007
              
              -





As a
result of BHM's possible future management of other shipowning companies and
BHM's possible future involvement for its own account in other shipping
ventures, BHM may be subject to conflicts of interest in connection with its
management of the Company. To avoid any potential conflict of interest, the
management agreement between BHM and the Company provides that BHM must provide
the Company with full disclosure of any disposition of handysize bulk carriers
by BHM or any of its affiliates on behalf of persons other than the
Company.





For the
policy year ending February 20 2008, the Company placed the following insurance
with Northampton Assurance Ltd (“NAL”):





·
            65%
      of its Hull & Machinery (“H&M”) insurance for claims in excess of
      minimum $120/125,000 each incident, which insurance NAL fully
      reinsured.


·
            70%
      of its H&M insurance on 6 vessels of up to $50,000 in excess of
      $120/125,000 each incident; and


·
            70%
      of its H&M insurance on 1 vessel up to $100,000 in excess of
      $120/125,000 each incident.





For the
policy period ending February 20, 2007, the Company placed 60% of its 
H&M insurance for machinery claims in excess of claims of $125,000 each
incident with NAL, up to a maximum of $50,000 each incident on six
vessels. It also placed an average of 37.5% of its H&M insurance for
machinery claims in excess of $125,000 each incident with NAL up to a maximum of
$37,500 each incident on one vessel. In addition, the Company
placed  (a) 75% of its H&M insurance in excess of between
$125,000 and  $220,000 each incident  and (b) 100% of
its Loss of Hire insurance in excess of 14 or 21 days deductible with
NAL, which risks NAL fully reinsured with third party
carriers.





For the
policy period ending February 20, 2006, the Company placed 100% of its 
H&M insurance in excess of claims of $125,000 each incident with NAL, up to
a maximum of an average of $64,750 each incident on one  vessel,
up to  an average of $42,500 each incident on six  vessels and up
to an average of $61,250 each incident on one vessel. In addition, the Company
placed  (a) 75% of its H&M insurance in excess of between
$125,000 and  $220,000 each incident  and (b) 100% of
its Loss of Hire insurance in excess of 14 or 21 days deductible with
NAL, which risks NAL fully reinsured with third party
carriers.





For the
periods ending December 31, 2007, 2006 and 2005, vessel operating expenses on
the Consolidated Statements of Income include approximately $896,000, $972,000
and $1,033,000, respectively, of insurance premiums paid to NAL (of which
$813,000, $884,000 and $851,000, respectively, was ceded to reinsurers) and
approximately $188,000, $185,000, and $189,000, respectively, of brokerage
commissions paid to NAL.








The
Company had accounts payable to NAL of $135,000 and $295,000 at December 31,
2007 and 2006, respectively. NAL paid consulting fees of $174,000 during each of
the three years ending December 31, 2007 to a company deemed to be controlled by
Mr. Dalzell.





The Company believes that the terms of
all transactions between the Company and the existing officers, directors,
shareholders and any of their affiliates described above are no less favorable
to the Company than terms that could have been obtained from third
parties.





C.
            Interests
      of experts and counsel





Not applicable





Item
8. FINANCIAL INFORMATION





A.
            Consolidated
      statements and other financial
information





See Item 18.





A.7.
Legal proceedings





There are no material pending legal
proceedings to which the Company or any of its subsidiaries is a party or of
which any of its or their property is the subject, other than ordinary routine
litigation incidental to the Company's business.





A.8.
Policy on dividend distributions





The Company has a policy of investment
for future growth and does not anticipate paying cash dividends on the common
stock in the foreseeable future.  The payment of cash dividends on
shares of common stock will be within the discretion of the Company’s Board of
Directors and will depend upon the earnings of the Company, the Company’s
capital requirements and other financial factors which are considered relevant
by the Company’s Board of Directors. Both the Cliaship and the OBO Holdings Ltd.
loan facilities restrict the payment of dividends.





B.
Significant changes





Not
applicable





Item
9.  THE OFFER AND LISTING





A. Offer and listing
details





The following table sets forth, for the
last six months, the high and low sales price, for the two most recent fiscal
years, the quarterly high and low sales prices and for the prior five fiscal
years, the annual high and low sales price for a share of Common Stock on the
American Stock Ex­change:







Sales price
            High
            Low1st
      Quarter
            19.60
            14.612nd
      Quarter
            18.85
            17.003rd
      Quarter
            18.82
            14.754th
      Quarter
            20.40
            12.09July
            18.82
            17.10August
            18.00
            14.75September
            18.28
            16.10October
            20.40
            16.00November
            16.91
            12.09December
            15.36
            13.2320061st
      Quarter
            20.55
            18.212nd
      Quarter
            20.00
            17.303rd
      Quarter
            18.00
            15.754th
      Quarter
            16.30
            13.80Annual2005
            24.40
            9.502004
            27.43
            7.602003
            16.65
            6.502002
            8.20
            4.902001
            6.25
            0.40




As of
December 31, 2007, there were 185 record holders of Common Stock, 145 of whom,
holding approximately 78% of the outstanding shares of Common Stock, had
registered addresses in the United States.





B.
            Plan
      of distribution





Not applicable





C.
Markets





The Company's Common Stock has been
publicly held and listed for trading on the American Stock Exchange since the
completion of the Company's public offering in August 1988.  The
symbol for the Company's Common Stock on the American Stock Exchange is
"BHO."  The Company also has a Secondary listing on the Oslo Stock
Exchange under BHOC.





Item
10.  ADDITIONAL INFORMATION





A.
            Share
      capital





Not applicable





B.
            Memorandum
      and articles of association





The
      Articles of Incorporation of the Company as amended July 25, 1988, were
      filed as Ex­hibit 3.1 to the Company's Registra­tion
      State­ment on Form S-1, Registration No. 33-22811 (“the Registration
      Statement”). The Amendment adopted October 11, 1995 to the Articles of
      Incorporation of the Company, was filed as Exhibit 1.1(i) to the Company’s
      Annual Report on Form 20-F for the fiscal year ended December 31,
      1995.  The Amendment adopted October 21, 1998 to the Articles of
      Incorporation, was filed as Exhibit 1.2(ii) to the Company’s Annual Report
      on Form 20-F for the fiscal year ended December 31,
  1998.





The
      By-Laws of the Company, were filed as Exhibit 3.2 to the Registration
      Statement. The Amendment adopted October 11, 1995 to the By-Laws of the
      Company, was filed as Exhibit 1.2(i) to the Company’s Annual Report on
      Form 20-F for the fiscal year ended December 31, 1995. The Amendment
      adopted October 21, 1998 to the By-Laws of the Company, was filed as
      Exhibit 1.2(iii) to the Company’s Annual Report on Form 20-F for the
      fiscal year ended December 31,
1998.





C.
            Material
      contracts





Material contracts are listed as
exhibits and described elsewhere in the text.





D.
Exchange controls





Currently,
there are no governmental laws, decrees or regulations in Liberia, the country
in which the Company is incorporated, which restrict the export or import of
capital (including foreign exchange controls), or which affect the remittance of
dividends or other payments to nonresident holders of the securities of Liberian
corporations.  Also, there are no limitations currently imposed by
Liberian law or by the Company's Articles of Incorporation and By-Laws on the
right of nonresident or foreign owners to hold or vote the Company's Common
Stock.





E.
Taxation





United
States shareholders of the Company are not subject to any taxes under existing
laws and regulations of Liberia.  There is currently no reciprocal tax
treaty between Liberia and the United States regarding income tax withholding on
dividends.





F.
Dividends and paying agents





Not
applicable





G.
Statements by experts





Not
applicable





H. Documents on display





We are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended.  In accordance with these requirements we file
reports and other information with the SEC.  These materials,
including this annual report and the accompanying exhibits, may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington D.C. 20459.  You may obtain
information on the operation of the public reference room by calling 1 (800)
SEC-0330, and you may obtain copies at prescribed rates from the Public
Reference Section of the Commission at its principal office in Washington, D.C.
20549.  The SEC maintains a website (http://www.sec.gov)
that contains reports, proxy and information statements and other information
that we and other registrant’s have filed electronically with the
SEC.  In addition, documents referred to in this annual report may be
inspected at our offices located at 3rd Floor, Par La Ville Place, 14 Par La
Ville Road, Hamilton HM 08, Bermuda.





Item
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The
carrying amounts reported in the Consolidated Balance Sheets for cash and cash
equivalents, trade accounts receivable, accounts payable and accrued liabilities
approximate their fair value due to the short-term maturities. The carrying
amount reported in the Consolidated Balance Sheets for long-term debt
approximates its fair value due to variable interest rates, which approximate
market rates.





Credit Risk. The Company’s
financial instruments that are exposed to concentrations of credit risk consist
primarily of cash equivalents and trade receivables. The Company maintains its
cash accounts with various major financial institutions in the United States,
the United Kingdom and Norway. The Company performs periodic evaluations of the
relative credit standing of these financial institutions and limits the amount
of credit exposure with any one institution.





Credit risk with respect to trade
accounts receivable is limited due to the long standing relationships with
significant customers and their relative financial stability. The Company
performs ongoing credit evaluations of its customers’ financial condition and
maintains allowances for potential credit losses.





At December 31, 2007, the Company’s
five largest accounts receivable balances represented 86% of total accounts
receivable. At December 31, 2006, the Company’s three largest accounts
receivable balances represented 74% of total accounts receivable. The allowance
for doubtful accounts was $336,000 at December 31, 2007 and $120,000 at December
31, 2006. To date, the Company’s actual losses on past due receivables have not
exceeded their estimate of bad debts.





Interest Rate
Fluctuation.    The Company’s debt contains interest
rates that fluctuate with LIBOR. Increasing interest rates could adversely
impact future earnings. The Company does not expect this rate to fluctuate
dramatically, however slight increases can be expected. The Company does not
expect rate changes to have a material adverse effect on its liquidity and
capital resources due to the mitigation of such risk resulting from interest
rate swaps.





Foreign Exchange Rate
Risk.    The Company generates all of its revenues in
U.S. dollars but the Company incurs a portion of its expenses in currencies
other than U.S. dollars. For accounting purposes, expenses incurred in foreign
currencies are translated into U.S. dollars at exchange rates prevailing at the
date of transaction.  Resulting exchange gains and/or losses on
settlement or translation are included in the accompanying Consolidated
Statements of Income.





Inflation.    Although
inflation has had a moderate impact on its trading fleet’s operating and voyage
expenses in recent years, management does not consider inflation to be a
significant risk to operating or voyage costs in the current economic
environment. However, in the event that inflation becomes a significant factor
in the global economy, inflationary pressures would result in increased
operating, voyage and financing costs.





Asset/Liability Risk
Management.The Company
continuously measures and quantifies interest rate risk and foreign exchange
risk, in each case taking into account the effect of hedging activity. The
Company uses derivatives as part of its asset/liability management program in
order to reduce interest rate exposure arising from changes in interest rates.
The Company does not use derivative financial instruments for the purpose of
generating earnings from changes in market conditions or for speculative
purposes. Before entering into a derivative transaction, the Company determines
that there is a high correlation between the change in value of, or the cash
flows associated with, the hedged asset or liability and the value of, or the
cash flows associated with, the derivative instrument





Item
12.                      DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES





Not
Applicable





PART
II





Item
13.                      DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES





Not Applicable




Item
14. MATERIAL MODIFICATIONS TO THE
RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS








Item
15.                      CONTROLS
AND PROCEDURES





A.
            The
      management of B+H Ocean Carriers, Ltd. is responsible for establishing and
      maintaining adequate internal control over financial reporting. This
      internal control system was designed to provide reasonable assurance to
      the company’s management and board of directors regarding the preparation
      and fair presentation of published financial
  statements.




All
      internal control systems, no matter how well designed, have inherent
      limitations. Therefore, even those systems determined to be effective can
      provide only reasonable assurance with respect to financial statement
      preparation and presentation




B+H
      Ocean Carriers, Ltd. management assessed the effectiveness of the
      company’s internal control over financial reporting as of December 31,
      2007. In making this assessment, it used the criteria set forth by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
      Internal Control—Integrated Framework. Based on our assessment, we believe
      that, as of December 31, 2007, the company’s internal control over
      financial reporting is effective based on those
  criteria.





This
      annual report does not include an attestation report of the Company’s
      registered public accounting firm regarding internal control over
      financial reporting. Management’s report was not subject to attestation by
      the Company’s registered public accounting firm pursuant to temporary
      rules of the Securities and Exchange Commission that permit the Company to
      provide only management’s report in the annual
  report.





B.
            Subsequent
      to the date of management’s evaluation, there were no significant changes
      in the Company’s internal controls or in other factors that could
      significantly affect the internal controls, including any corrective
      actions with regard to significant deficiencies and material
      weaknesses.


Item
16A. Audit Committee Financial Expert


The Company’s Board of Directors has
determined that Charles Brock who is the Chairman of the Audit Committee, is
duly qualified as a Financial Expert.





Item
16B. Code of Ethics





The Company has adopted a Code of
Ethics that applies to all officers, directors and employees (collectively, the
“Covered Persons”). The Company expects each of the Covered Persons to act in
accordance with the highest standards of personal and professional integrity in
all aspects of their activities, to comply with all applicable laws, rules and
regulations, to deter wrongdoing, and to abide by the Code of
Ethics.





Any change to or waiver of the Code of
Ethics for Covered Persons must be approved by the Board and disclosed promptly
to the Company’s shareholders.





The Company undertakes to provide a
copy of the Code of Ethics, free of charge, upon written request to the
Secretary at the following address: B+H Ocean Carriers, Ltd, 3rd Floor,
Par La Ville Place, 14 Par La Ville Road, Hamilton HM 08, Bermuda, Attention:
Deborah Paterson.





Item
16C. Principal Accounting Fees and Services





Fees, including reimbursements for
expenses, for professional services rendered by Ernst & Young LLP for the
audit of the Company’s financial statements for the years ended December 31,
2007 and 2006 were $144,000 and $109,100, respectively. Ernst & Young LLP
does not provide other services to the Company.





Item
16D. Exemptions from the Listing Standards for Audit Committees.





Not applicable





Item
16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers.





Date
              #
      of Shares Acquired
              Share
      Price
              Total
      Cost12-Mar-07
              14,400
              $          17.5500
              $          252,72415-Mar-07
              111,650
              17.3892
              1,941,50925-Apr-07
              50,000
              18.0101
              900,50310-Oct-07
              134,000
              17.0400
              2,283,36419-Nov-07
              4,700
              13.4774
              63,34420-Nov-07
              3,600
              13.1182
              47,22621-Nov-07
              3,400
              13.2499
              45,05023-Nov-07
              1,500
              13.7152
              20,57326-Nov-07
              4,200
              14.2452
              59,83027-Nov-07
              4,200
              14.0509
              59,01428-Nov-07
              4,200
              13.1794
              55,35330-Nov-07
              4,200
              14.0509
              59,0143-Dec-07
              3,600
              13.4186
              48,3074-Dec-07
              40
              13.5238
              5415-Dec-07
              1,900
              13.9520
              26,5096-Dec-07
              3,600
              13.9510
              50,2247-Dec-07
              3,600
              13.8510
              49,86410-Dec-07
              3,550
              14.0511
              49,88111-Dec-07
              3,550
              13.9229
              49,42612-Dec-07
              250
              13.9350
              3,48414-Dec-07
              3,550
              14.2111
              50,44917-Dec-07
              2,729
              14.2514
              38,89218-Dec-07
              2,729
              14.2914
              39,00119-Dec-07
              2,729
              14.2142
              38,79020-Dec-07
              2,729
              14.2514
              38,89221-Dec-07
              2,729
              14.2563
              38,90524-Dec-07
              3,200
              14.2959
              45,74724-Dec-07
              300
              14.0500
              4,21526-Dec-07
              261
              14.1544
              3,694381,096
              
              $       6,364,324











Item
      17.
            FINANCIAL
      STATEMENTS





The
      Company has elected to furnish the financial statements and related
      information specified in Item 18.





Item
      18.
            FINANCIAL
      STATEMENTS.





The following
Consolidated Financial Statements of the Company and its subsidiaries appear at
the end of this Annual Report:




Page No.Consolidated
      Financial Statements:Report
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Balance Sheets at December 31, 2007 and 2006
            F-3Consolidated
      Statements of Income for the Years EndedDecember 31, 2007, 2006 and
      2005
            F-4Consolidated
      Statements of Stockholders’ Equityfor the Years Ended December
      31, 2007, 2006 and 2005
            F-5Consolidated
      Statements of Cash Flows for the Years EndedDecember 31, 2007, 2006 and
      2005
            F-6Notes
      to Consolidated Financial Statements
            F-7





Item
      19. EXHIBITS.





I.
            Loan
      Agreement between Sakonnet Shipping Ltd. and The Bank of Nova Scotia Asia,
      Ltd. dated January 24, 2007.





II.
            $25,500,000
      Term Loan Facility Agreement for Boss Tankers, Ltd. provided by Bank of
      Scotland dated September 7, 2007.





III.
            $26,700,000
      Term Loan Facility Agreement between Nordea Bank Norge ASA and Cliaship
      Holdings Ltd. dated October 25,
2007.





The
following documents were filed as Exhibits to the 2006 Annual Report on Form
20-F of B+H Ocean Carriers Ltd., incorporated herein by reference:





Loan Agreement between B+H Ocean
Carriers Ltd. and Norsk Tillitsmann ASA on behalf of Bondholders in the bond
issue FRN B+H Ocean Carriers Ltd. Open Bond Issue 2006/2013 dated December 6,
2006.





$8,000,000 Term Loan Facility
Agreement for Seapowet Trading Ltd. provided by Nordea Bank Norge ASA dated
September 5, 2006.





$202,000,000 Reducing Revolving
Credit Facility Agreement between Nordea Bank Norge ASA and OBO Holdings Ltd.
dated August 29, 2006.





Loan Agreement providing for a Senior
Secured Term Loan of up to $12,000,000 to be made available to Sachem Shipping
Ltd. and B+H Ocean Carriers Ltd. by DVB Bank America NV dated October 10,
2006.




















SIGNATURES





The
      registrant hereby certifies that it meets all of the requirements for
      filing on Form 20-F and that it has duly caused and authorized the
      undersigned to sign this annual report on its
  behalf.





B+H
      OCEAN CARRIERS LTD.


(Registrant)








Date:May 19,
      2008
            
            By:/s/Michael S.
      Hudner


Chairman
      of the Board, President and Chief
      Executive Officer








Item
18.  FINANCIAL STATEMENTS.
 
 
 
 
 B+H
Ocean Carriers Ltd.
 Index to Consolidated Financial
Statements
 
 
 Report
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Balance Sheets as of December 31, 2007 and 2006
              F-3Consolidated
      Statements of Income for the three years ended December 31,
      2007
              F-4Consolidated
      Statements of Shareholders’ Equity for the three years ended December 31,
      2007.
              F-5Consolidated
      Statements of Cash Flows for the three years ended December 31,
      2007.
              F-6Notes
      to Consolidated Financial Statements
              F-7
 
 
 
  F-1
  Report
of Independent Registered Public Accounting Firm
 
 
 
 To the
Board of Directors and Shareholders of
 B+H Ocean
Carriers Ltd.
 
 We have
audited the accompanying consolidated balance sheets of B+H Ocean Carriers
Ltd.  as of December 31, 2007 and 2006, and the related consolidated
statements of income, shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2007.  These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of B+H Ocean Carriers
Ltd. at December 31, 2007 and 2006 and the consolidated results of its
operations and its cash flows for the each of the three years in the period
ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles.
 
 
 Ernst & Young LLP
 Providence,
RI
 May 19,
2008
  F-2
  B+H Ocean Carriers Ltd.
 Consolidated Balance Sheets
 December 31, 2007 and 2006


ASSETS20072006CURRENT ASSETS:Cash and cash equivalents$61,604,868$78,391,028Marketable equity securities982,300990,105Trade accounts receivable, less allowance for doubtful accountsof $336,000 and $120,000 in 2007 and 2006, respectively4,748,2622,532,710Vessels held for sale24,984,092Inventories3,406,8562,547,776Prepaid expenses and other current assets1,682,2641,408,999Total current assets97,408,64285,870,618Vessels, at cost:Vessels344,351,597312,999,593Less - Accumulated depreciation(61,888,379)(51,312,468)282,463,218261,687,125Investment in Nordan OBO 2 Inc.9,991,68610,576,398Investment in debt securities5,000,0005,000,000Fair value of derivative instruments7,325,6221,070,559Other assets3,644,3062,617,744Total assets$405,833,474$366,822,444LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES:Accounts payable$35,178,817$11,457,925Accrued liabilities3,111,2423,877,579Accrued interest1,232,1311,090,477Current portion of mortgage payable and unsecured debt36,807,60139,765,472Deferred income6,578,0167,346,190Other liabilities234,300150,711Total current liabilities83,142,10763,688,354Fair value of derivative liability1,760,149-Mortgage payable163,494,596118,450,000Unsecured debt-23,703,908Floating rate bonds payable25,000,00025,000,000Commitments and contingencies (Note 7)--SHAREHOLDERS' EQUITY:Preferred stock, $0.01 par value; 20,000,000 shares authorized;no shares issued and outstanding--Common stock, $0.01 par value; 30,000,000 shares authorized;7,557,268 shares issued, 6,866,615 and 6,964,745 sharesoutstanding as of December 31, 2007 and 2006, respectively75,57275,572Paid-in capital93,863,09493,861,215Retained earnings50,699,42948,680,252Accumulated other comprehensive (loss) income(824,786)18,183Treasury stock(11,376,687)(6,655,040)Total shareholders' equity132,436,622135,980,182Total liabilities and shareholders' equity$405,833,474$366,822,444The accompanying notes are an integral part of these consolidated financial statements.F- 3      B+H Ocean Carriers Ltd.Consolidated Statements of IncomeFor the years ended December 31, 2007, 2006 and 2005 200720062005Revenues:Voyage and time charter revenues$111,835,094$95,591,276$71,388,561Other revenue581,7371,287,775514,491Total revenues112,416,83196,879,05171,903,052Operating expenses:Voyage expenses27,882,16314,792,3226,033,470Vessel operating expenses, drydocking and survey costs39,366,47834,159,94226,369,749Depreciation15,201,22014,958,34210,199,359Amortization of deferred charges6,341,3301,854,0001,718,000Gain on sale of vessels--(828,115)General and administrative:Management fees to related party2,252,6081,223,496898,490Consulting and professional fees, and other expenses5,096,7634,030,8272,899,123Total operating expenses96,140,56271,018,92947,290,076Income from vessel operations16,276,26925,860,12224,612,976Other income (expense):Interest expense(12,740,894)(10,676,048)(5,604,637)Interest income3,121,2732,377,2981,221,010Income from investment in Nordan OBO 2 Inc.790,2881,262,846-Loss on fair value of derivatives(4,670,192)--Other losses(757,567)(49,905)(130,704)Total other expenses, net(14,257,092)(7,085,809)(4,514,331)Net income$2,019,177$18,774,313$20,098,645Basic earnings per common share$0.29$2.67$3.44Diluted earnings per common share$0.29$2.59$3.30Weighted average number of common shares outstanding:Basic6,994,8437,027,3435,844,301Diluted7,031,2107,237,4536,092,522    The accompanying notes are an integral part of these consolidated financial statements.F- 4 B+H Ocean Carriers Ltd.Consolidated Statements of Shareholders' Equity  Accumulated OtherCommonTreasuryPaid-inRetainedComprehensiveStockStockCapitalEarningsIncomeTotalBalance, December 31, 200443,140(3,025,466)37,538,6699,807,294-44,363,637Net income---20,098,645-20,098,645Common stock issued (3)32,432-56,643,497-56,675,9298,065 Treasury shares issued (1)-48,24053,382--101,62261,540 Treasury shares issued (2)-254,778(193,238)--61,54070,170 Treasury shares acquired (4)-(1,247,259)---(1,247,259)Balance, December 31, 200575,572(3,969,707)94,042,31029,905,939-120,054,114Net income---18,774,313-18,774,313Change in fair value of cash flow hedge18,18318,183Comprehensive income---18,774,31318,18318,792,496Common stock issued (3)--(234,649)--(234,649)13,855 Treasury shares issued (1)-93,960165,133--259,09330,770 Treasury shares issued (2)-142,349(111,579)--30,770161,800 Treasury shares acquired (4)-(2,921,642)---(2,921,642)Balance, December 31, 200675,572(6,655,040)93,861,21548,680,25218,183135,980,182Net income---2,019,177-2,019,177Change in fair value of cash flow hedge----(842,969)(842,969)Comprehensive income2,019,177(842,969)1,176,208Common stock issued (3)-(45,646)--(45,646)Treasury shares issued (1)-16,87816,634--33,512Treasury shares issued (2)-1,088,239(887,549)--200,690Treasury shares issued (5)-537,560918,440--1,456,000Treasury shares acquired (4)-(6,364,324)---(6,364,324)Balance, December 31, 200775,572(11,376,687)93,863,09450,699,429(824,786)132,436,622 Shares outstanding at December 31, 2007, 2006 and 2005 totaled 6,866,615, 6,964,745 and 7,081,920, respectively. (1)Treasury shares issued per 1998 Agreement, see NOTE 5. (2)Pursuant to a program to repurchase up to 600,000 shares for reissuance to B+H Management Ltd. (“BHM”) when options are exercised. See NOTE 5. (3)Expenses related to private placement of shares in 2005, see NOTE 3. (4)Pursuant to a program to repurchase up to 10% of the Company’s shares, which was authorized by the Board of Directors in October 2005. (5)Shares granted to BHM and to the Board of Directors.  The accompanying notes are an integral part of these consolidated financial statements.F- 5 B+H Ocean Carriers Ltd.Consolidated Statements of Cash FlowsFor the years ended December 31, 2007, 2006 and 2005 200720062005CASH FLOWS FROM OPERATING ACTIVITIES:Net income$2,019,177$18,774,313$20,098,645Adjustments to reconcile net income to net cash provided by operating activities:Vessel depreciation15,201,22014,958,34210,199,748Amortization of deferred charges6,341,3301,854,0001,717,611Gain on sale of vessels--(828,115)Loss on value of interest rate swaps1,250,395--Loss on value of put contracts3,419,797Increase (reduction) in allowance for uncollectible accounts216,000(109,000)92,000Other losses, net128,70749,905130,704Compensation expense recognized under stock awards1,489,512--Changes in assets and liabilities:(Increase) decrease  in trade accounts receivable(2,431,552)(165,138)3,194,932Increase in inventories(859,080)(1,692,690)(84,705)Increase in prepaid expenses and other current assets(341,350)(198,084)(444,088)Increase (decrease) in accounts payable23,720,8927,432,006(1,305,109)(Decrease) increase in accrued liabilities(766,337)2,129,670(550,915)Increase in accrued interest141,654635,857186,778(Decrease) increase in deferred income(768,174)1,930,7744,116,002Increase (decrease) in other liabilities83,58990,875(16,250)Payments for special surveys(7,984,217)(7,100,744)(2,084,866)Total adjustments38,842,38619,815,77314,323,727Net cash provided by operating activities40,861,56338,590,08634,422,372CASH FLOWS FROM INVESTING ACTIVITIES:Purchase and investment in vessels(19,600,000)(16,190,000)(167,750,000)Proceeds from sale of vessels--7,918,810Investment in conversion to double hull vessels(39,107,941)(7,881,467)-Investment in Nordan OBO II Inc.(790,288)(14,326,398)-Dividends from Nordan OBO II Inc.1,375,0003,750,000-Investment in put option contracts(10,008,075)(1,055,813)-Purchase of debt securities-(5,000,000)-Purchase of equity securities(163,455)(469,006)(500,000)Net cash used in investing activities(68,294,759)(41,172,684)(160,331,190)CASH FLOWS FROM FINANCING ACTIVITIES:Payments for debt financing costs(1,526,501)(1,481,505)(1,318,385)Issuance of common stock, net of issuance costs(45,646)(234,649)56,675,929Purchase of treasury stock(6,364,324)(2,921,642)(1,247,259)Issuance of treasury shares200,690289,863163,162Proceeds from mortgage financing88,700,00022,263,000145,000,000Proceeds from issuance of floating rate bonds-25,000,000-Payments of unsecured debt(31,402,960)(1,356,092)-Payments of mortgage principal(38,914,223)(21,413,000)(24,600,000)Net cash provided by financing activities10,647,03620,145,975174,673,447Net (decrease) increase in cash and cash equivalents(16,786,160)17,563,37748,764,629Cash and cash equivalents, beginning of year78,391,02860,827,65112,063,022Cash and cash equivalents, end of year$61,604,868$78,391,028$60,827,651
Supplemental schedule of noncash financing and investing transactions (NOTE 9).The accompanying notes are an integral part of these consolidated financial statements.F- 6
NOTE 1-ORGANIZATIONB+H Ocean Carriers Ltd. (the "Company"), a Liberian Corporation, was incorporated in April 1988 and was initially capitalized on June 27, 1988. The Company is engaged in the business of acquiring, investing in, owning,operating and selling product tankers and bulk carriers. In August 1988, the Company completed a public offering of 4,000,000 shares of its common stock. In May 2005, the Company made a private offering of 3,243,243 shares of itscommon stock. See NOTE 3.As of December 31, 2007, the Company owned and operated seven medium range and two panamax product tankers and six OBO (Ore/Bulk/Oil) combination carriers. The Company also owns a 50% interest in the disponentowner of a combination carrier through its interest in Nordan OBO II (“Nordan”), which was acquired in March 2006. The Company accounts for its interest in Nordan  under  the equity method. As of December 31, 2006, the Companyowned and operated six product tankers, two panamax product tankers and six combination carriers.NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:Basis of accounting:The accompanying Consolidated Financial Statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. A summary of significant accountingpolicies follows.
Principles of consolidation:


The
accompanying Consolidated Financial Statements include the accounts of the
Company and its wholly-owned subsidiaries, including Cliaship Holdings Ltd.
(“Cliaship”), OBO Holdings Ltd. (“OBO Holdings”), Product Transport Corporation
Ltd. (“Protrans”), Boss Tankers, Ltd. (Boss), and Seasak Holdings Ltd.
(“Seasak”).  Additionally, the 2007 and 2006 consolidated financial
statements reflect the Company’s equity investment and related earnings
associated with Nordan. All significant intercompany transactions and accounts
have been eliminated in consolidation.
 
 Revenue
recognition, trade accounts receivable and concentration of credit
risk:
 
 Revenues from voyage and time charters
are recognized in proportion to the charter-time elapsed during the reporting
periods. Charter revenue received in advance is recorded as deferred income
until charter services are rendered.
 
 Under a voyage charter, the Company
agrees to provide a vessel for the transport of cargo between specific ports in
return for the payment of an agreed freight per ton of cargo or an agreed lump
sum amount. Voyage costs, such as canal and port charges and bunker (fuel)
expenses, are the Company’s responsibility. Voyage revenues include estimates
for voyage charters in progress which are recognized on a
percentage-of-completion basis using the ratio of voyage days completed through
year end to the total voyage days.
 
 Under a time charter, the Company
places a vessel at the disposal of a charterer for a given period of time in
return for the payment of a specified rate of hire per day. Voyage costs are the
responsibility of the charterer. Revenue from time charters in progress is
calculated using the daily charter hire rate, net of brokerage commissions,
multiplied by the number of on-hire days through year-end. Revenue recognized
under long-term variable rate time charters is equal to the average daily rate
for the term of the contract.
 
 The Company’s financial instruments
that are exposed to concentrations of credit risk consist primarily of cash
equivalents and trade receivables. The Company maintains its cash accounts with
various high quality financial institutions in the United States, the United
Kingdom and Norway. The Company performs periodic evaluations of the relative
credit standing of these financial institutions. At various times throughout the
year, the Company may maintain certain US bank account balances in excess of
Federal Deposit Insurance Corporation limits. The Company does not believe that
significant concentration of credit risk exists with respect to these cash
equivalents.
 
 Trade accounts receivable are recorded
at the invoiced amount and do not bear interest. The allowance for doubtful
accounts is the Company’s best estimate of the total losses likely in its
existing accounts receivable. The allowance is based on historical write-off
experience and patterns that have developed with respect to the type of
receivable and the analysis of collectibility of current amounts. Past due
balances that are not specifically reserved for are reviewed individually for
collectibility. Specific accounts receivable invoices are charged off against
the allowance when the Company determines that collection is unlikely. Credit
risk with respect to trade accounts receivable is limited due to the long
standing relationships with significant customers and their relative financial
stability. The Company performs ongoing credit evaluations of its customers’
financial condition and maintains allowances for potential credit losses when
necessary. The Company does not have any off-balance sheet credit exposure
related to its customers.
 
 At December 31, 2007, the Company’s
five largest accounts receivable balances represented 86% of total accounts
receivable. At December 31, 2006, the Company’s three largest accounts
receivable balances represented 74% of total accounts receivable. The allowance
for doubtful accounts was $336,000 at December 31, 2007 and $120,000 at December
31, 2006. To date, the Company’s actual losses on past due receivables have not
exceeded its estimate of bad debts.
 
 During 2007, revenues from one customer
accounted for $35.6 million (31.6%) of total revenues. Revenue from one customer
accounted for $32.9 million (34.0%) of total revenues in 2006. In 2005, revenues
from three significant customers accounted for $23.9 million (32.0%), $13.5
million (18.1%) and $9.8 million (13.1%) of total revenues,
respectively.
 
 Basic
and diluted net income per common share:
 
 Basic net income per common share is
computed by dividing the net income for the year by the weighted average number
of common shares outstanding in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 128 (“SFAS No. 128”), Earnings per Share. Diluted
earnings per share (“EPS”) is calculated by dividing net income for the year by
the weighted average number of common shares, increased by potentially dilutive
securities. Diluted EPS reflects the net effect on shares outstanding, using the
treasury stock method, of the stock options granted to BHM in 2000 and the
treasury shares held to satisfy the 1998 agreement discussed in NOTE
5.
  2007
                
                2006
                
                2005Weighted
      average number of shares outstanding - basic
                
                6,994,843
                
                7,027,343
                
                5,844,301Net
      effect of outstanding stock options
                
                36,367
                
                207,834
                
                232,090Stock
      compensation shares not issued
                
                -
                
                2,276
                
                16,131Weighted
      average number of shares outstanding - diluted
                
                7,031,210
                
                7,237,453
                
                6,092,522
  Cash
and cash equivalents:
 
 Cash and cash equivalents include cash,
certain money market accounts and overnight deposits with a maturity of 90 days
or less when acquired.
 
 Marketable
Securities:
 
 Marketable
equity securities are recorded at fair value determined on the basis of quoted
market price. Such investments are classified as trading securities in
accordance with SFAS No. 115, Accounting For Investments In Debt
And Equity Securities(“SFAS No. 115”). Changes in the fair value of such
investments are recorded in other income in the Consolidated Statements of
Income.
 
 Marketable
debt securities are recorded at cost which approximates fair value and are
classified as trading securities in accordance with SFAS No. 115.
 
 Fair
value of financial instruments:
 
 The
following method and assumptions were used to estimate the fair value of
financial instruments included in the following categories:
 
 The carrying amounts reported in the
accompanying Consolidated Balance Sheets for cash and cash equivalents and
accounts receivable approximate their fair values due to the current maturities
of such instruments.
 
 The carrying amounts reported in the
accompanying Consolidated Balance Sheets for short-term debt approximates its
fair value due to the current maturity of such instruments coupled with interest
at variable rates that are periodically adjusted to reflect changes in overall
market rates. The carrying amount of the Company’s variable rate long-term debt
approximates fair value.
 
 Vessels,
capital improvements and depreciation:
 
 Vessels are stated at cost, which
includes contract price, acquisition costs and significant capital expenditures
made within nine months of the date of purchase. Depreciation is provided using
the straight-line method over the remaining estimated useful lives of the
vessels, based on cost less salvage value. The estimated useful lives used are
30 years from the date of construction. When vessels are sold, the cost and
related accumulated depreciation are eliminated from the accounts, and any
resulting gain or loss is reflected in the accompanying Consolidated Statements
of Income.
 
 Capital
improvements to vessels made during special surveys are capitalized when
incurred and amortized over the 5-year period until the next special survey. The
capitalized costs for scheduled classification survey and related vessel
upgrades were $8.0 million for five vessels in 2007, $7.1 million for three
vessels in 2006 and $2.1 million in 2005 for two vessels. Such capitalized costs
are depreciated over the remaining useful life of the respective vessels.
Conversion costs are capitalized and will be amortized over the period remaining
to 30 years.
 
 Payments
for special survey costs are characterized as operating activities on the
Consolidated Statements of Cash Flows. Amortization of special survey costs is
characterized as amortization of deferred charges on the Consolidated Statements
of Income and of Cash Flows. Amortization of special survey costs was previously
included in depreciation and amortization on the Consolidated Statements of
Income and of Cash Flows. Conversion costs are capitalized and will be amortized
over the period remaining to 30 years.
 
 Repairs
and maintenance:
 
 Expenditures for repairs and
maintenance and interim drydocking of vessels are charged against income in the
year incurred. Repairs and maintenance expense approximated $2.2 million,$1.9
million and $1.8 million for the years ended December 31, 2007, 2006 and 2005,
respectively. Interim drydocking expense was approximately $0.5 million, $0.1
million and $0.9 million for the years ended December 31, 2007, 2006 and 2005,
respectively.
 
 Impairment
of long-lived assets:
 
 The Company is required to review its
long-lived assets for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. Upon the occurrence of
an indicator of impairment, long-lived assets are measured for impairment when
the estimate of undiscounted future cash flows expected to be generated by the
asset is less than its carrying amount. Measurement of the impairment loss is
based on the asset grouping and is calculated based upon comparison of the fair
value to the carrying value of the asset grouping.
 
 Segment
Reporting:
 
 The Company has determined that it
operates in one reportable segment, the international transport of dry bulk and
liquid cargo.
 
 Inventories:
 
 Inventories consist of engine and
machinery lubricants and bunkers (fuel) required for the operation and
maintenance of each vessel. Inventories are valued at cost, using the first-in,
first-out method. Expenditures on other consumables are charged against income
when incurred.
 
 Taxation:
 
 The Company is not subject to corporate
income taxes on its profits in Liberia because its income is derived from
non-Liberian sources. The Company is not subject to corporate income tax in
other jurisdictions.
 
 Derivatives
and hedging activities:
 
 The Company accounts for derivatives in
accordance with the provisions of SFAS No. 133, as amended, “Accounting for Derivative
Instruments and Hedging Activities,” (“SFAS No. 133”). The Company uses
derivative instruments to reduce market risks associated with its operations,
principally changes in interest rates and changes in charter rates. Derivative
instruments are recorded as assets or liabilities and are measured at fair
value.
 
 Derivatives designated as cash flow
hedges pursuant to SFAS No. 133 are recorded on the balance sheet at fair value
with the corresponding changes in fair value recorded as a component of
accumulated  other comprehensive income (equity). At December 31,
2007, the Company is party to two interest rate swap agreements that qualify as
cash flow hedges; the aggregate fair value of these cash flow hedges is a
liability of $0.8 million at December 31, 2007 and an asset of $18,183 at
December 31, 2006. See NOTE 7-BONDS PAYABLE.
 
 Derivatives that do not qualify for
hedge accounting pursuant to SFAS No. 133 are recorded on the balance sheet at
fair value with the corresponding changes in fair value recorded in operations.
At December 31, 2007 and 2006, the Company is party to two interest rate swap
agreements having an aggregate notional value of $47.4 million, which do not
qualify for hedge accounting pursuant to SFAS No. 133. These swap agreements
were entered into to hedge debt tranches of 5.07%, expiring in December 2010.
The aggregate fair value of these two non-qualifying swap agreements is a
liability of $0.9 million at December 31, 2007 and an asset of $0.3 million at
December 31, 2006, which is reflected within Fair Value of Derivative
Instruments on the accompanying balance sheet and is recorded as income (loss)
from changes in fair value in the consolidated statements of
operations.
 
 Additionally, at December 31, 2007, the
Company is party to put option agreements which are designed to mitigate the
risk associated with changes in charter rates. These put option agreements,
which were entered into during 2007 and 2006, do not qualify for hedge
accounting under SFAS No. 133; and the changes in their fair value is therefore
recorded in operations. At December 31, 2007 and 2006, the aggregate fair value
of these non-qualifying put options is $7.3 million and $0.7 million,
respectively and is reflected within Fair Value of Derivative Assets on the
accompanying balance sheet. During the years ended December 31, 2007 and 2006,
the Company recorded $3.4 million and $0.3 million of expense in the
consolidated statements of operations related to the change in fair value of
these instruments.
 
 The
Company is exposed to credit loss in the event of non-performance by the counter
party to the interest rate swap agreements; however, the Company does not
anticipate non-performance by the counter party.
 
 The Company is party to foreign
currency exchange contracts which are designed to mitigate the risk associated
with changes in foreign currency exchange rates. These contracts, which were
entered into during 2007, do not qualify for hedge accounting under SFAS No.
133; and the changes in their fair value is therefore recorded in operations. At
December 31, 2007, the aggregate fair value of these non-qualifying foreign
exchange contracts is $30,000 and is reflected within Fair Value of Derivative
Assets on the accompanying balance sheet and statements of income.
 
 Use
of estimates:
 
 The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America 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 financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates and assumptions.
 
 Term
loan issuance costs:
 
 Term loan issuance costs are amortized
over the life of the obligation using the straight-line method, which
approximates the interest method.
 
 Recent
accounting pronouncements:
 
 In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities. SFAS No. 159 is effective for the Company beginning
January 1, 2008. The Company does not expect the adoption of SFAS No. 159 to
have a material impact on its consolidated balance sheets and results of
operations.
 
 In December 2007, the FASB issued SFAS
No. 141 (Revised 2007), “ Business Combinations,” (“SFAS No. 141R”), which makes
certain modifications to the accounting for business combinations. Theses
changes include (1) the requirement for an acquirer to recognize all assets
acquired and liabilities assumed at their fair value on the acquisition date;
(2) the requirement for an acquirer to recognize assets or liabilities arising
from contingencies at fair value as of that acquisition date; and (3) the
requirement that an acquirer expense all acquisition related costs. This
Statement is required to be applied prospectively to business combinations for
which the acquisition date is on or after the beginning of fiscal 2009. The
Company does not expect the adoption of SFAS No. 141R to have a material impact
on its consolidated balance sheets and results of operations.
 
 In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, (“SFAS
No. 160”) which requires noncontrolling (minority) interests in subsidiaries to
be initially measured at fair value and presented as a separate component of
shareholders’ equity. Current practice is to present noncontrolling interests as
a liability or other item outside of equity. This Statement is required to be
applied prospectively after the beginning of fiscal 2009, although the
presentation and disclosure requirements are required to be applied on a
retrospective basis. The Company does not expect the adoption of SFAS No. 160 to
have a material impact on its consolidated balance sheets or results of
operations.
 
 NOTE
3-ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS:
 
 On May
25, 2005, the Company executed a private placement of 3,243,243 shares of Common
Stock of the Company at a price of $18.50 per share, for aggregate gross
proceeds of approximately $60 million. The newly issued shares traded over the
counter in Norway until the Company obtained a listing on the Oslo Stock
Exchange on April 12, 2006. The proceeds from the private placement have been
and are expected to continue to be used for the acquisition of vessels,
refinancing of debt and general working capital purposes.
 
 Vessel
acquisitions and related amendments of loan facility:
 
 On
January 29, 2007, the Company, through a wholly-owned subsidiary, entered into a
$27 million term loan facility to finance the acquisition of the M/V SAKONNET,
which vessel it had acquired in January 2006 under an unsecured financing
agreement.
 
 In June
2007, the Company, through a wholly-owned subsidiary, acquired a 45,000 DWT
product tanker built in 1990 for $19.6 million. On October 25, 2007, the Company
drew down an additional $19.6 million on one of its senior secured term loans to
finance the purchase price as noted below.
 
 On
September 7, 2007, the Company, through a wholly-owned subsidiary, entered into
a $25,500,000 million term loan facility to finance the conversions of three of
its MR product tankers to double hulled vessels. On December 7, 2007, the
facility was amended to allow for an additional $8.5 million to finance the
fourth MR conversion.
 
 On
October 25, 2007 the Company entered into an amended and restated $26.7 million
floating rate loan facility (the “amended loan facility”). The amended loan
facility made available an additional $19.6 million for the purpose of acquiring
the M/T CAPT. THOMAS J HUDNER and changed the payment terms for the $7.1 million
balance of the loan (“Tranche 1”).
 
 In
January 2006, the Company, through a wholly-owned subsidiary, acquired a
1993-built, 83,000 DWT Combination Carrier for $36.4 million through an existing
lease structure.  The acquisition also included the continuation of a
five-year time charter which commenced in October 2005.  The Company
made a down payment of $3.6 million and a entered into an agreement to recorded
a corresponding liability
 
 Also in January 2006, the Company,
through a wholly-owned subsidiary, acquired a 50% shareholding in Nordan which
is the disponent owner of a 1992-built 75,000 DWT combination carrier, effected
through a lease structure.  The terms of the transaction were based on
a vessel value of $30.4 million. The vessel was fixed on a three-year charter
commencing in February 2006.  The charter includes a 50% profit
sharing arrangement above a guaranteed minimum daily rate. On September 5, 2006,
the Company, entered into an $8 million term loan facility agreement to finance
a portion of the purchase price. See NOTE 6-MORTGAGE PAYABLE
 
 In June
2006, the Company, through a wholly-owned subsidiary, acquired a 61,000 DWT
Panamax product tanker built in 1988 for $12.55 million. On October 17, 2006,
the Company entered into a $12 million senior secured term loan to finance a
portion of the purchase price. See NOTE 6-MORTGAGE PAYABLE.
 
 On
February 4, 2005, the Company, through a wholly-owned subsidiary, acquired
three 83,000 DWT combination tanker/bulk carriers built in 1993 and 1994, for a
total of $110.2 million. Two of the vessels are time chartered for five years at
$26,600, $24,600, $23,600, $22,600 and $20,600 per day for the first through
fifth years, respectively. The third vessel is time chartered for five years at
$26,000, $24,000, $23,000, $22,000 and $20,000, respectively, for years one
through five. The Company has a profit sharing arrangement with the charterers
which entitles the Company to 35% of the charterer’s profits from this vessel
for years 2 through 5. In conjunction with the acquisition, the Company entered
into a floating rate loan facility totaling $102 million. This loan facility was
refinanced on August 29, 2006, when the Company entered into a $202.0 million
floating rate loan facility. See NOTE 6-MORTGAGE PAYABLE
 
 On June
15, 2005, the Company, through a wholly-owned subsidiary, acquired a 74,800 DWT
combination carrier built in 1992 for $33.25 million. The vessel is time
chartered for three years at $23,500 per day. On November 8, 2005, the Company
completed an additional drawdown on its floating rate facility to finance a
portion of the purchase price. See NOTE 6-MORTGAGE PAYABLE.
 
 On August
19, 2005, the Company, through a wholly-owned subsidiary, acquired a 68,500 DWT
Panamax product tanker built in 1991 for $24.3 million. The vessel is time
chartered for three years at $23,500 per day commencing January 2006. On
November 8, 2005, the Company completed an additional drawdown on its floating
rate facility to finance a portion of the purchase price. See NOTE 6-MORTGAGE
PAYABLE.
 
 Vessel
disposals:
 
 On June
20, 2005, the Company, through a wholly-owned subsidiary, sold the vessel M/T
COMMUTER for $8.5 million to an unaffiliated party. The excess of the sales
proceeds over the book value of the vessel of $0.8 million is included in the
Consolidated Statements of Income for the year ended December 31,
2005.
 
 NOTE
4-OTHER ASSETS:
 
 Other
assets is comprised of the following:
 2007
              
              2006Debt
      financing and related fees, net
              
              $        3,367,728
              
              $   2,470,631Other
      assets
              
              276,578
              
              147,113Total
      other assets
              
              $        3,644,306
              
              $    2,617,744
  Mortgage
commitment and related fees incurred in connection with the Company’s loan
facilities are being amortized over the terms of the respective
loans.
 
 NOTE
5-RELATED PARTY TRANSACTIONS:
 
 The
shipowning activities of the Company are managed by an affiliate, B+H Management
Ltd. (“BHM”) under a Management Services Agreement (the “Management Agreement")
dated June 27, 1988 and amended on October 10, 1995, subject to the oversight
and direction of the Company's Board of Directors.
 
 The
shipowning activities of the Company entail three separate functions, all under
the overall control and responsibility of BHM: (1) the shipowning function,
which is that of an investment manager and includes the purchase and sale of
vessels and other shipping interests; (2) the marketing and operations function
which involves the deployment and operation of the vessels; and (3) the vessel
technical management function, which encompasses the day-to-day physical
maintenance, operation and crewing of the vessels.
 
 BHM
employs Navinvest Marine Services (USA) Inc. ("NMS"), a Connecticut corporation,
under an agency agreement, to assist with the performance of certain of its
financial reporting and administrative duties under the Management
Agreement.
 
 The
Management Agreement may be terminated by the Company in the following
circumstances: (i) certain events involving the bankruptcy or insolvency of BHM;
(ii) an act of fraud, embezzlement or other serious criminal activity by Michael
S. Hudner, Chief Executive Officer, President, Chairman of the Board and
significant shareholder of the Company, with respect to the Company; (iii) gross
negligence or willful misconduct by BHM; or (iv) a change in control of
BHM.
 
 Mr. Hudner is President of BHM and the
sole shareholder of NMS.  BHM is technical manager of the Company’s
wholly-owned vessels under technical management agreements. BHM employs B&H
Equimar Singapore (PTE) Ltd., (“BHES”), to assist with certain duties under the
technical management agreements.  BHES is a wholly-owned subsidiary of
BHM.
 
 Currently, the Company pays BHM a
monthly rate of $6,476 per vessel for general, administrative and accounting
services, which may be adjusted annually for any increases in the Consumer Price
Index. During the years ended December 31, 2007, 2006 and 2005, the Company paid
BHM fees of approximately $1,126,000, $970,000 and $797,000, respectively, for
these services. These fees are included in management fees to related party in
the Consolidated Statements of Income. The total fees vary due to the change in
the number of fee months resulting from changes in the number of vessels owned
during each period.
 
 The Company also pays BHM a monthly
rate of $13,296 per MR product tanker and $16,099 per Panamax product tanker or
OBO for technical management services, which may be adjusted annually for any
increases in the Consumer Price Index. Vessel technical managers coordinate all
technical aspects of day to day vessel operations including physical
maintenance, provisioning and crewing of the vessels. During the years ended
December 31, 2007, 2006 and 2005, the Company paid BHM fees of approximately
$2,539,000, $2,360,000 and $2,040,000, respectively, for these services.
Technical management fees are included in vessel operating expenses in the
Consolidated Statements of Operations. The total fees have  increased
due to the vessel acquisitions in 2007, 2006 and 2005.
 
 The Company engages BHM to provide
commercial management services at a monthly rate of $10,545 per vessel, which
may be adjusted annually for any increases in the Consumer Price Index. BHM
obtains support services from Protrans (Singapore) Pte. Ltd., which is owned by
BHM. Commercial managers provide marketing and operations services. During the
years ended December 31, 2007, 2006 and 2005, the Company paid BHM fees of
approximately $1,835,000, $1,558,000 and $1,238,000, respectively, for these
services. Commercial management fees are included in voyage expenses in the
Consolidated Statements of Income. The total fees have  increased due
to the vessel acquisitions in 2007, 2006 and 2005.
 
 The Company engaged Centennial Maritime
Services Corp. (“Centennial”), a company affiliated with the Company through
common ownership, to provide manning services at a monthly rate of $1,995 per
vessel and agency services at variable rates, based on the number of crew
members placed on board. During the years ended December 31, 2007, 2006 and
2005, the Company paid Centennial manning fees of approximately $662,000,
$519,000 and $370,000, respectively. Manning fees are included in vessel
operating expenses in the Consolidated Statements of Income.
 
 BHM received arrangement fees of
$196,000 in connection with the financing of the M/T CAPT. THOMAS J HUDNER in
October 2007, $340,000 in connection with the financing of the four MR
conversions in December 2007 and $270,000 in connection with the financing of
the OBO SAKONNET in January 2007. BHM received brokerage commissions of $85,000
in connection with the sale of the M/T COMMUTER in August 2005. The Company also
paid BHM standard industry chartering commissions of $717,000 in 2007, $672,000
in 2006 and $333,000 in 2005 in respect of certain time charters in effect
during those periods. Clearwater Chartering Corporation, a company affiliated
through common ownership, was paid $1,362,000, $1,062,000 and $1,194,000 in
2007, 2006 and 2005, respectively for standard industry chartering commissions.
Brokerage commissions are included in voyage expenses in the Consolidated
Statements of Income.
 
 During 2007, 2006 and 2005, the Company
paid fees of $501,000, $501,000 and $60,000 to J.V. Equities, Inc. for
consulting services rendered. J.V. Equities is controlled by John LeFrere, a
director of the Company.
 
 During 2007, 2006 and 2005, the Company
paid fees of $186,000, $36,000 and $49,334, respectively, to R. Anthony Dalzell
or to Dean Investments for consulting services rendered. Dean Investments is
deemed to be controlled by R. Anthony Dalzell, the Chief Financial Officer, Vice
President and a director of the Company.
 
 During 1998, the Company’s Board of
Directors approved an agreement with BHM whereby up to 110,022 shares of common
stock of the Company will be issued to BHM for distribution to individual
members of management, contingent upon certain performance criteria. The Company
will issue the shares of common stock to BHM at such time as the specific
requirements of the agreement are met. During 2007, 2,275 shares, bringing the
total to 64,522 shares, have been issued from treasury stock where these shares
were held for this purpose. Compensation cost of $34,000, $259,000 and $102,000,
based on the market price of the shares at the date of issue, was included as
management fees to related parties in the Consolidated Statement of Income for
the years ended December 31, 2007, 2006 and 2005 respectively.
 
 Effective
December 31, 2000, the Company granted 600,000 stock options, with a value of
$78,000 to BHM as payment for services in connection with the acquisition of
bonds originally issued by the Company. The exercise price is the fair market
value at the date of grant and the options are exercisable over a ten-year
period. At December 31, 2007 all of the options have been
exercised.
 
 Information
regarding these stock options is as follows:
 Shares
                
                Option
      PriceOutstanding
      at January 1, 2007
                
                200,690
                
                $             1.00Granted
                
                -
                
                -Exercised
                
                200,690
                
                $             1.00Canceled
                
                -
                
                -Outstanding
      at December 31, 2007
                
                -
  As a
result of BHM's possible future management of other shipowning companies and
BHM's possible future involvement for its own account in other shipping
ventures, BHM may be subject to conflicts of interest in connection with its
management of the Company. To avoid any potential conflict of interest, the
management agreement between BHM and the Company provides that BHM must provide
the Company with full disclosure of any disposition of handysize bulk carriers
by BHM or any of its affiliates on behalf of persons other than the
Company.
 
 For the
policy year ending February 20 2008, the Company placed the following insurance
with Northampton Assurance Ltd (“NAL”):
 
 ·
              65%
      of its Hull & Machinery (“H&M”) insurance for claims in excess of
      minimum $120/125,000 each incident, which insurance NAL fully
      reinsured.
 ·
              70%
      of its H&M insurance on 6 vessels of up to $50,000 in excess of
      $120/125,000 each incident; and
 ·
              70%
      of its H&M insurance on 1 vessel up to $100,000 in excess of
      $120/125,000 each incident.
 
 For the
policy period ending February 20, 2007, the Company placed 60% of its 
H&M insurance for machinery claims in excess of claims of $125,000 each
incident with NAL, up to a maximum of $50,000 each incident on six
vessels. It also placed an average of 37.5% of its H&M insurance for
machinery claims in excess of $125,000 each incident with NAL up to a maximum of
$37,500 each incident on one vessel. In addition, the Company
placed  (a) 75% of its H&M insurance in excess of between
$125,000 and  $220,000 each incident  and (b) 100% of
its Loss of Hire insurance in excess of 14 or 21 days deductible with
NAL, which risks NAL fully reinsured with third party
carriers.
 
 For the
policy period ending February 20, 2006, the Company placed 100% of its 
H&M insurance in excess of claims of $125,000 each incident with NAL, up to
a maximum of an average of $64,750 each incident on one  vessel,
up to  an average of $42,500 each incident on six  vessels and up
to an average of $61,250 each incident on one vessel. In addition, the Company
placed  (a) 75% of its H&M insurance in excess of between
$125,000 and  $220,000 each incident  and (b) 100% of
its Loss of Hire insurance in excess of 14 or 21 days deductible with
NAL, which risks NAL fully reinsured with third party
carriers.
 
 For the
periods ending December 31, 2007, 2006 and 2005, vessel operating expenses on
the Consolidated Statements of Income include approximately $896,000, $972,000
and $1,033,000, respectively, of insurance premiums paid to NAL (of which
$813,000, $884,000 and $851,000, respectively, was ceded to reinsurers) and
approximately $188,000, $185,000, and $189,000, respectively, of brokerage
commissions paid to NAL.
 
 The
Company had accounts payable to NAL of $135,000 and $295,000 at December 31,
2007 and 2006, respectively. NAL paid consulting fees of $174,000 during each of
the three years ending December 31, 2007 to a company deemed to be controlled by
Mr. Dalzell.
 
 The Company believes that the terms of
all transactions between the Company and the existing officers, directors,
shareholders and any of their affiliates described above are no less favorable
to the Company than terms that could have been obtained from third
parties.
 
 NOTE
6-MORTGAGE PAYABLE:
 
 On
January 24, 2007, the Company, through a wholly-owned subsidiary, entered into a
$27 million term loan facility to refinance the acquisition of the M/T SAKONNET,
acquired in January 2006 under an unsecured financing agreement.
 
 The loan
is payable in four quarterly installments of $825,000 beginning on April 30,
2007, twelve quarterly installments of $1,000,000 and sixteen quarterly
installments of $750,000.
 
 Interest
on the facility is equal to LIBOR plus 0.875%. Expenses associated with the loan
of $395,000 were capitalized and will be amortized over the 8 year term of the
loan.
 
 The loan
facility contains certain restrictive covenants and mandatory prepayment in the
event of the total loss or sale of a vessel. It also requires minimum value
adjusted equity of $50 million, a minimum value adjusted equity ratio (as
defined) of 30% and an EBITDA to fixed charges ratio of at least 125%. The
Company is also required to maintain liquid assets, as defined, in an amount
equal to the greater of $15.0 million or 6% of the aggregate indebtedness of the
Company on a consolidated basis, positive working capital and adequate insurance
coverage. At December 31, 2007, the Company was in compliance with these
covenants.
 
 On
September 7, 2007, the Company, through a wholly-owned subsidiary, entered into
a $25,500,000 million term loan facility to finance the conversions of three of
its MR product tankers to double hulled vessels. On December 7, 2007, the
facility was amended to allow for an additional $8.5 million to finance the
fourth MR conversion.
 
 The
facility contains certain restrictive covenants on the Company and requires
mandatory prepayment in the event of the total loss or sale of a vessel and a
loan to value ratio of 120%. The facility requires minimum value adjusted equity
of $50 million, a minimum value adjusted equity ratio (as defined) of 30% and an
EBITDA to fixed charges ratio of at least 115% if 75% of the vessels are on
fixed charters of twelve months or more and 120% if 50% of the vessels are on
fixed charters of twelve months or more and 125% at all times otherwise. The
Company is also required to maintain liquid assets, as defined, in an amount
equal to the greater of $15.0 million or 6% of the aggregate indebtedness of the
Company on a consolidated basis, positive working capital and adequate insurance
coverage. At December 31, 2007, the Company was in compliance with these
covenants.
 
 The loan
is repayable in sixteen quarterly installments of varying amounts, beginning on
March 7, 2007 and a balloon payment on March 7, 2012. Interest on the facility
is equal to LIBOR plus 2.0%. Expenses associated with the loan of $586,000 were
capitalized and will be amortized over the term of the loan.
 
 In order
to mitigate a portion of the risk associated with the variable rate interest on
this loan, the Company entered into an interest rate swap agreement to hedge the
interest on $25.5 million of the loan. Under the terms of the swap, which the
Company has designated as a cash flow hedge, interest is converted from variable
to a fixed rate of 4.910%.
 
 On
October 25, 2007 the Company entered into an amended and restated $26,700,000
floating rate loan facility (the “amended loan facility”). The amended loan
facility made available an additional $19.6 million for the purpose of acquiring
the M/T CAPT. THOMAS J HUDNER and changed the payment terms for the $7.1 million
balance of the loan.
 
 The
amended loan facility is apportioned into two tranches, Tranche A being payable
in full on April 30, 2009. Tranche B is payable in thirteen quarterly
installments of $812,500 beginning on July 30, 2009 and a balloon payment of
$9,037,500 due on October 30, 2012. Interest on the facility is equal to LIBOR
plus 1.0%.
 
 Expenses
associated with the amended loan facility amounted to approximately $351,000,
which are capitalized and are being amortized over the five-year period of the
loan.
 
 The
facility contains certain restrictive covenants on the Company and requires
mandatory prepayment in the event of the total loss or sale of a vessel and a
loan to value ratio of 120%. The facility requires minimum value adjusted equity
of $50 million, a minimum value adjusted equity ratio (as defined) of 30% and an
EBITDA to fixed charges ratio of at least 115% if 75% of the vessels are on
fixed charters of twelve months or more, 120% if 50% of the vessels are on fixed
charters of twelve months or more and 125% at all times otherwise. The Company
is also required to maintain liquid assets, as defined, in an amount equal to
the greater of $15.0 million or 6% of the aggregate indebtedness of the Company
on a consolidated basis, positive working capital and adequate insurance
coverage. At December 31, 2007, the Company was in compliance with these
covenants.
 
 On
October 18, 2005 the Company, through certain wholly-owned subsidiaries entered
into a $138,100,000 Reducing Revolving and Term Loan Facilities Agreement which
amended the agreement entered into on February 23, 2005. The amendment made
available an additional $43.0 million for the purpose of acquiring the OBO ROGER
M JONES and the M/T SAGAMORE.
 
 On August
29, 2006 the Company, through certain wholly-owned subsidiaries entered into a
$202,000,000 Reducing Revolving and Term Loan Facilities Agreement which amended
the agreement entered into on October 18, 2005.
 
 The
facility is payable in ten quarterly installments of $5,450,000 beginning on
December 15, 2006, ten quarterly installments of $5,100,000 beginning on June
15, 2009 and a balloon payment of $21,500,000 due on December 15,
2011.
 
 Interest
on the facility is equal to LIBOR plus 1.0%. Expenses associated with the
incremental borrowing on the loan of $670,000 were capitalized and will be
amortized over the 5 year term of the loan.
 
 The
facility contains certain restrictive covenants and mandatory prepayment in the
event of the total loss or sale of a vessel. It also requires a minimum value
adjusted equity of $50 million, a minimum value adjusted equity ratio (as
defined) of 30% and an EBITDA to fixed charges ratio of at least 125%. The
Company is also required to maintain liquid assets, as defined, in an amount
equal to the greater of $15.0 million or 6% of the aggregate indebtedness of the
Company on a consolidated basis, positive working capital and adequate insurance
coverage. At December 31, 2006, the Company was in compliance with these
covenants.
 
 On
September 5, 2006, the Company, through a wholly-owned subsidiary, entered into
an $8 million term loan facility to finance the acquisition of its 50% interest
in an entity which is the disponent owner of the OBO SEAPOWET through a bareboat
charter party.
 
 The
facility contains certain restrictive covenants on the Company and requires
mandatory prepayment in the event of the total loss or sale of a vessel. The
facility requires a minimum value adjusted equity of $50 million, a minimum
value adjusted equity ratio (as defined) of 30% and an EBITDA to fixed charges
ratio of at least 125%. The Company is also required to maintain liquid assets,
as defined, in an amount equal to the greater of $15.0 million or 6% of the
aggregate indebtedness of the Company on a consolidated basis, positive working
capital and adequate insurance coverage. At December 31, 2007, the Company was
in compliance with these covenants.
 
 The loan
is repayable in sixteen quarterly installments of $500,000, beginning on
December 7, 2006. Interest on the facility is equal to LIBOR plus 1.75%.
Expenses associated with the loan of $221,000 were capitalized and will be
amortized over the 4 year term of the loan.
 
 On
October 10, 2006, the Company, through a wholly-owned subsidiary, entered into a
$12 million term loan facility to finance the acquisition of the M/T
SACHEM.
 
 The
facility contains certain restrictive covenants on the Company, which among
other things, restrict the payment of dividends and restrict leverage,
investment and capital expenditures without consent of the lender. In addition,
the agreement requires mandatory prepayment in the event of the total loss or
sale of a vessel. The facility requires a minimum value adjusted equity of $50
million, a minimum value adjusted equity ratio (as defined) of 30% and an EBITDA
to fixed charges ratio of at least 125%. The Company is also required to
maintain liquid assets, as defined, in an amount equal to the greater of $15.0
million or 6% of the aggregate indebtedness of the Company on a consolidated
basis, positive working capital and adequate insurance coverage. At December 31,
2007, the Company was in compliance with these covenants.
 
 The loan
is repayable in sixteen quarterly installments of $550,000, beginning on January
17, 2007 and a balloon payment of $3,200,000 due on January 17, 2011. Interest
on the facility is currently equal to LIBOR plus 1.25%. At such time as the
vessel is fixed on a minimum two year charter at a sufficient rate (determined
by the Administrative Agent), the applicable margin is reduced to 1.0% for the
remainder of the term of such employment. Expenses associated with the loan of
$135,000 were capitalized and will be amortized over the 4 year term of the
loan. On January 17, 2008 the lender agreed to postpone two principal payments
and add the total to the balloon payment due on January 17, 2011.
  As of December 31, 2007, the aggregate
maturities, including an estimate of the interest payable are as
follows:
 Principal
                
                Interest1
                
                Total2008
                $      36,808,000
                
                $        5,850,000
                
                $     42,658,0002009
                46,155,000
                
                3,985,000
                
                50,140,0002010
                38,390,000
                
                2,843,000
                
                41,233,0002011
                55,104,000
                
                1,801,000
                
                56,905,0002012
                17,167,000
                
                689,000
                
                17,856,000Thereafter
                6,678,000
                
                344,000
                
                7,022,000$    200,302,000
                
                $      15,512,000
                
                $   215,814,000
  1Interest is calculated
using the 3 month LIBOR rate in effect at March 31, 2008 (due to the fact that
there was a significant drop in interest rates in the first quarter of 2008) and
the balance outstanding for the period.
 
 NOTE
7-BONDS PAYABLE:
 
 On December 12, 2006, the Company
issued $25 million of unsecured bonds of which the Company subscribed a total of
$5 million. The net proceeds of the bonds will be used for general corporate
purposes, including but not limited to: (i) product tanker conversion project
(six vessels), (ii) conversion of the M/T SACHEM and M/T SAGAMORE to full double
hull, (iii) acquisition of additional OBOs, (iv) acquisition of further product
tankers, (v) continuance of share buy-back, and (vi) balance of equity payment
on the OBO SAKONNET.
 
 Interest on the bonds is equal to LIBOR
plus 4%, payable quarterly in arrears. The bonds are in denominations of
$100,000 each and rank pari passu. The term of the bond issue is seven years,
payable in full on the maturity date. In order to mitigate the risk of interest
rate volatility associated with the variable interest rate on these bonds, the
Company entered into an interest rate swap agreement to hedge $10 million of
these bonds. Under the term of the interest rate swap agreement, which has
similar attributes to the debt, the interest rate on the $10 million is
converted from a variable rate to a fixed rate of 4.995%. The Company has
designated this interest rate swap agreement as a cash flow hedge pursuant to
SFAS No. 133. At December 31, 2007 and 2006, the fair value of this interest
rate swap was a liability of $355,948 and an asset of $18,183,
respectively.
 
 All or a portion of the bonds may be
redeemed at any time between June 2010 and June 2011 at 104.5%, between June
2011 and June 2012 at 103.25%, between June 2012 and June 2013 at 102.25% and
between June 2013 and the maturity date at 101.00%.
 
 The bond
facility contains certain restrictive covenants which restrict the payment of
dividends. The facility requires a minimum value adjusted equity ratio (as
defined) of 25%. At December 31, 2007, the Company was in compliance with these
covenants.
 
 NOTE
8-COMMITMENTS AND CONTINGENCIES:
 
 As discussed in NOTE 5, the Company’s
Board of Directors approved an agreement with BHM whereby up to 110,022 shares
of common stock of the Company will be issued to BHM for distribution to
individual members of management, contingent upon certain performance criteria.
The Company will issue the shares of common stock to BHM at such time as the
specific requirements of the agreement are met. During 2007, an additional 2,275
shares, bringing the total to 64,522 shares, have been issued from treasury
stock being held for this purpose.
 
 The
Company has entered into contracts for the conversion of two single hull MR
Product Tankers and one Panamax product tanker to bulk carriers. Carrying out
such conversions completely eliminates the present regulatory phaseout dates
applicable to these vessels. The Company expects to complete all three
conversions in 2008.
 
 NOTE
9-SUPPLEMENTAL CASH FLOW INFORMATION:
 
 The Company re-issued 2,275 shares from
treasury stock in 2007, 13,855 shares in 2006 and 8,065 in 2005 in accordance
with the agreement discussed in NOTE 5. Compensation cost of $34,000, $259,000
and $102,000 based on the market price of the shares at the date of issue was
included as management fees to related parties in the accompanying Consolidated
Statements of Income during the years ended December 31, 2007, 2006 and 2005,
respectively. The excess of the market value of the shares at the date of
issuance over the cost of the shares to the Company was charged to paid in
capital.
 
 The Company re-issued 200,690 shares
from treasury in 2007 in accordance with the option plan described in NOTE 5.
The Company re-issued 20,000 shares from treasury as compensation to BHM and
2,500 shares from treasury for each director. Compensation cost of $1,092,000
and $364,000 based on the market price of the shares at the date of issue was
included as management fees and general and administrative expenses,
respectively, in the accompanying Consolidated Statements of Operations during
2007.
 
 Cash paid for interest was $12,256,000,
$9,971,000 and $5,347,000 during the years ended December 31, 2007, 2006 and
2005, respectively.
 
 NOTE
10-SUBSEQUENT EVENTS:
 
 On
February 26, 2008, the Company, through a wholly-owned subsidiary, sold the M/T
ACUSHNET for $7.8 million. The net  book value of the vessel of
approximately $4.6 million was classified as held for sale at December 31,
2007.
 
 On March
27, 2008, the Company, through a wholly-owned subsidiary, sold the OBO SACHUEST
for $31.3 million. The net book value of the vessel of approximately $20.4
millionwas classified as held for sale at December 31, 2007.