UNITED
STATES
   SECURITIES
AND EXCHANGE COMMISSION
   WASHINGTON,
DC 20549
   FORM
20-F
   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
   OR
  x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the fiscal year ended December 31, 2008
  OR
   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  
 For
the transition period from to
  OR
   SHELL
COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  
 Date
of event requiring this shell company report
   For
the transition period from to
  
 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)
  Mr.
Michael S. Hudner
 Tel:  441-295-6875,
Fax: 441-295-6796
 (Name,Telephone,E-mail
and/or Facsimile number and address of Company Contact Person)
 
 
 Securities
registered or be registered pursuant to Section 12(b) of the Act:
 
 Title of each
class                                                       Name
of each exchange on which registered
 Common Stock, par value $.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
 
 Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual report.
5,555,426 shares of common stock were outstanding at December 31,
2008.
 
 Indicate
by check mark if the registrant is a well known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 
 Yes o          No
x
 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 o          No
x
  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 (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
o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 
 Yes  o        No
x
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one)
 
 Large
accelerated filer o                                                                                                          Accelerated
filer o                                           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
Board      o                                                                                                
Other  o
 
 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  o                 Item
18  o
 
 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  o                                                  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
              18Item
      5.
              Operating
      and Financial Review and Prospects
              33Item
      6.
              Directors,
      Senior Management and Employees
              47Item
      7.
              Major
      Shareholders and Related Party Transactions
              50Item
      8.
              Additional
      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
              59Item
      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
              60Item
      16E.
              Purchases
      of Equity Securities by the Issuer and Affiliated
Purchases
              60Item
      16F.
              Change
      in Registrant’s Certifying Accountant
              60Item
      16G.
              Corporate
      Governance
              60Item
      17.
              Financial
      Statements
              61Item
      18
              Financial
      Statements
              61Item
      19.
              Exhibits
              61
 
    PART I
 
 Item
1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
 Not Applicable.
 
 Item
2.    OFFER STATISTICS AND EXPECTED TIMETABLE
 
 Not Applicable.
 
   Item
      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 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Voyage,
      time and bareboat charter revenues
                  
                  $
                  104,018,073
                  
                  
                  $
                  110,917,094
                  
                  
                  $
                  95,591,276
                  
                  
                  $
                  71,388,561
                  
                  
                  $
                  51,362,910Other
      operating income
                  
                  
                  890,842
                  
                  
                  
                  1,499,737
                  
                  
                  
                  1,287,775
                  
                  
                  
                  514,491
                  
                  
                  
                  -Voyage
      expenses
                  
                  
                  (28,097,799
                  )
                  
                  
                  (27,882,163
                  )
                  
                  
                  (14,792,322
                  )
                  
                  
                  (6,033,470
                  )
                  
                  
                  (9,663,653
                  )Vessel
      operating expenses
                  
                  
                  (46,845,031
                  )
                  
                  
                  (39,366,478
                  )
                  
                  
                  (34,159,942
                  )
                  
                  
                  (26,369,749
                  )
                  
                  
                  (19,742,875
                  )Depreciation,
      amortization and impairment
                  
                  
                  (32,563,838
                  )
                  
                  
                  (21,542,550
                  )
                  
                  
                  (16,812,342
                  )
                  
                  
                  (11,917,359
                  )
                  
                  
                  (7,763,640
                  )Gain
      (loss) on sale of vessels
                  
                  
                  13,262,590
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  828,115
                  
                  
                  
                  (4,682,965
                  )General
      and administrative expenses
                  
                  
                  (6,035,828
                  )
                  
                  
                  (7,349,371
                  )
                  
                  
                  (5,254,323
                  )
                  
                  
                  (3,797,613
                  )
                  
                  
                  (3,755,136
                  )Income
      from operations
                  
                  
                  4,629,009
                  
                  
                  
                  16,276,269
                  
                  
                  
                  25,860,122
                  
                  
                  
                  24,612,976
                  
                  
                  
                  5,754,641Interest
      expense, net
                  
                  
                  (10,093,310
                  )
                  
                  
                  (9,619,621
                  )
                  
                  
                  (8,298,750
                  )
                  
                  
                  (4,383,627
                  )
                  
                  
                  (1,328,896
                  )Income
      from investment in Nordan OBO 2 Inc.
                  
                  
                  3,933,495
                  
                  
                  
                  790,288
                  
                  
                  
                  1,262,846
                  
                  
                  
                  -
                  
                  
                  
                  -Gain
      (Loss) on derivative instruments
                  
                  
                  15,291,859
                  
                  
                  
                  (4,670,192
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Other
      expense
                  
                  
                  2,104,063
                  
                  
                  
                  (757,567
                  )
                  
                  
                  (49,905
                  )
                  
                  
                  (130,704
                  )
                  
                  
                  (1,730
                  )Net
      income
                  
                  $
                  15,865,116
                  
                  
                  $
                  2,019,177
                  
                  
                  $
                  18,774,313
                  
                  
                  $
                  20,098,645
                  
                  
                  $
                  4,424,015Basic
      earnings per share (1)
                  
                  $
                  2.36
                  
                  
                  $
                  0.29
                  
                  
                  $
                  2.67
                  
                  
                  $
                  3.44
                  
                  
                  $
                  1.15Diluted
      earnings per share (2)
                  
                  $
                  2.36
                  
                  
                  $
                  0.29
                  
                  
                  $
                  2.59
                  
                  
                  $
                  3.30
                  
                  
                  $
                  1.00(1) Based
      on weighted average number of shares outstanding of 6,723,832 in 2008,
      6,994,843 in 2007, 7,027,343 in 2006, 5,844,301 in 2005
  and3,839,242
      in 2004.(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 and 4,404,757 in 2004. There were no options
      outstandingat
      December 31, 2008.Year
      ended December 31,Balance
      Sheet Data:
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Current
      assets
                  
                  
                  57,301,712
                  
                  
                  
                  97,408,642
                  
                  
                  
                  85,870,618
                  
                  
                  
                  65,719,790
                  
                  
                  
                  19,344,004Total
      assets
                  
                  
                  354,789,344
                  
                  
                  
                  400,833,474
                  
                  
                  
                  366,822,444
                  
                  
                  
                  281,423,286
                  
                  
                  
                  82,902,304Current
      liabilities
                  
                  
                  208,641,819
                  
                  
                  
                  83,142,107
                  
                  
                  
                  63,688,354
                  
                  
                  
                  44,305,700
                  
                  
                  
                  20,073,194Long-term
      liabilities
                  
                  
                  4,982,914
                  
                  
                  
                  185,254,745
                  
                  
                  
                  167,153,908
                  
                  
                  
                  117,063,472
                  
                  
                  
                  18,465,472Working
      capital (deficit)
                  
                  
                  (151,340,107
                  )
                  
                  
                  14,266,535
                  
                  
                  
                  22,182,264
                  
                  
                  
                  21,414,090
                  
                  
                  
                  (729,190
                  )Shareholders'
      equity
                  
                  
                  141,164,611
                  
                  
                  
                  132,436,622
                  
                  
                  
                  135,980,182
                  
                  
                  
                  120,054,114
                  
                  
                  
                  44,363,637
    
  B.
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
downturns in the product tanker and bulk charter markets may have an adverse
effect on shipping company earnings and affect compliance with loan
covenants
  Charter
rates for product tankers and bulk carriers have declined sharply since the
middle of 2008.  The decline in charter rates in the product tanker
and bulk carrier markets has resulted in a commensurate decline in the
industrywide vessel values, affecting cash flows, liquidity and compliance with
the covenants contained in loan agreements for most shipping
companies.
 
 
 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 ship owners 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 and double-sided
oil tankers, and both the IMO and the European Union have proposed similar
phase-out periods. Under OPA90, 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.  One of the Company’s product
tankers, representing approximately 8.5% by deadweight ton (“DWT”) of its
combined fleet, is a double-sided tanker and as such will be prohibited from
carrying crude oil and oil products in U.S. waters or certain other countries by
February 2010 unless an exemption is obtained from the vessel’s flag state, in
which case the prohibition would be deferred until February 2015. While the
Company currently believes it will obtain such an exemption, it is possible that
such an exemption will not be obtained.
 
 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 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, and one
supramax tanker was converted to a bulk carrier in 2008. The Company then
decided to sell one MR product tanker and to convert the remaining MR tankers to
bulk carriers; one of these MR tankers was sold in January 2009 and the other MR
tanker’s conversion was completed in January 2009. The supramax tanker SACHEM
was converted to a bulk carrier in May 2008.  The Company may also
convert a Panamax product tanker to a double-hull product tanker in
2010.
 
 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, in
London on July 7, 2005 and in Mumbai on November 26, 2008 and the continuing
response of the United States and others to these attacks, as well as the threat
of future terrorist attacks in the United States or elsewhere, continue to cause
uncertainty in the world financial markets and may affect the Company’s
business, results of operations and financial condition. The continuing presence
of the United States and other armed forces in Iraq and Afghanistan 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. In the past, political conflicts
have also resulted in attacks on vessels, mining of waterways and other efforts
to disrupt international shipping, particularly in the Arabian Gulf region. Acts
of terrorism and piracy have also affected vessels trading in regions such as
the South China Sea. Any of these occurrences could have a material adverse
impact on our operating results, revenues and costs.
 
 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.
 
 The
general decline in the bulk and product carrier charter market has adversely
affected our revenues, earnings and profitability
 
 The
Baltic Drybulk Index, or BDI, declined from a high of 11,793 in May 2008 to a
low of 663 in December 2008, which represents a decline of 94%. The BDI fell
over 70% during the month of October alone. Over the comparable period of May
through December 2008, the high and low of the Baltic Panamax Index and the
Baltic Capesize Index represent a decline of 96% and 99%, respectively. The
Baltic Clean Tankers Index (BCTI), a measure of international clean tanker
routes and a selection of basket and individual TCEs, dropped from 839 points
before the end of 2008 to 465 points as at June 30, 2009 According to industry
sources, the average spot market rate for an MR product tanker transporting
38,000 tons of gasoline reached a low of $7,000 per day, on June 2009, compared
to a high of $20,000 reached during 2008.  The decline in charter
rates is due to various factors, including the unavailability of trade financing
and the worldwide recession. The decline in charter rates in the drybulk market
also affects the value of our vessels, which follows the trends of charter
rates, and earnings on our charters, and similarly, affects our cash flows and
liquidity.
 
 Charter
hire rates for bulk carriers and product tankers have decreased, which may
adversely affect our earnings
 
  The bulk
shipping industry and product tanker sectors are cyclical with attendant
volatility in charter hire rates and profitability. For example, the degree of
charter hire rate volatility among different types of bulk carriers and product
tankers has varied widely. After reaching historical highs in mid-2008, charter
hire rates for Panamax and Capesize bulk carriers reached near historically low
levels in December 2008, began improving in January and February 2009 and then
deteriorated in the latter half of March 2009. Because we charter some of our
vessels pursuant to spot market voyage charters, or spot charters, we are
exposed to changes in spot market charter rates for bulk carriers and such
changes may affect our earnings and the value of our bulk carriers at any given
time.  We may not be able to successfully charter our vessels in the
future or renew existing charters at rates sufficient to allow us to meet our
obligations. Because the factors affecting the supply and demand for vessels are
outside of our control and are unpredictable, the nature, timing, direction and
degree of changes in industry conditions are also unpredictable.
  
 Factors
that influence demand for vessel capacity include:
 Supply and demand for energy resources, commodities, semi-finished and finished
consumer and industrial products;
 
 Changes in the exploration or production of energy resources, commodities,
semi-finished and finished consumer and industrial products;
 
 The
location of regional and global exploration, production and manufacturing
facilities;
 
 The
location of consuming regions for energy resources, commodities, semi-finished
and finished consumer and industrial products;
 
 The
globalization of production and manufacturing;
 
 Global
and regional economic and political conditions, including armed conflicts and
terrorist activitities; embargoes and strikes;
 
 Developments
in international trade;
 
 Changes
in seaborne and other transportation patterns, including the distance cargo is
transported by sea;
 
 Environmental
and other regulatory developments;
 
 Currency
exchange rates; and
 
 Weather.
  The
factors that influence the supply of vessel capacity include:
 The
number of newbuilding deliveries;
 Port and canal congestion;
 
 The scrapping rate of older vessels;
  Vessel casualties; and
  The number of vessels that are out of service.
  We
anticipate that the future demand for our vessels will be dependent upon
continued economic growth in the world’s economies, including China and India,
seasonal and regional changes in demand, changes in the capacity of the global
carrier fleet and the sources and supply of cargoes to be transported by sea.
The capacity of the global carrier fleet seems likely to increase and economic
growth may not continue. Adverse economic, political, social or other
developments could have a material adverse effect on our business and operating
results.
 
 Disruptions
in world financial markets and the resulting governmental action in the United
States and in other parts of the world could have a further material adverse
impact on our results of operations, financial condition and cash flows, and
could cause the market price of our common stock to decline
  The
United States and other parts of the world are exhibiting deteriorating economic
trends and have been in a recession. For example, the credit markets in the
United States have experienced significant contraction, de-leveraging and
reduced liquidity, and the United States federal government and state
governments have implemented and are considering a broad variety of governmental
action and/or new regulation of the financial markets. Securities and futures
markets and the credit markets are subject to comprehensive statutes,
regulations and other requirements. The Securities and Exchange Commission,
other regulators, self-regulatory organizations and exchanges are authorized to
take extraordinary actions in the event of market emergencies, and may effect
changes in law or interpretations of existing laws.
  Recently,
a number of financial institutions have experienced serious financial
difficulties and, in some cases, have entered bankruptcy proceedings or are in
regulatory enforcement actions. The uncertainty surrounding the future of the
credit markets in the United States and the rest of the world has resulted in
reduced access to credit worldwide.
 
 We face risks attendant to changes in
economic environments, changes in interest rates, and instability in the banking
and securities markets around the world, among other factors. Major market
disruptions and the current adverse changes in market conditions and regulatory
climate in the United States and worldwide may adversely affect our business or
impair our ability to borrow amounts under our credit facilities or any future
financial arrangements. We cannot predict how long the current market conditions
will last. However, these recent and developing economic and governmental
factors, together with the concurrent decline in charter rates and vessel
values, may have a material adverse effect on our results of operations,
financial condition or cash flows, have caused the price of our common stock on
the American Stock Exchange to decline and could cause the price of our common
stock to decline further.
 
 A
further economic slowdown in the Asia Pacific region could exacerbate the effect
of recent slowdowns in the economies of the United States and the European Union
and may have a material adverse effect on the Company’s business, financial
condition and results of operations.
 
 The
Company anticipates a significant number of the port calls made by its vessels
will continue to involve the loading or discharging of bulk commodities in ports
in the Asia Pacific region. As a result, further negative changes in economic
conditions in any Asia Pacific country, particularly in China, may exacerbate
the effect of recent slowdowns in the economies of the United States and the
European Union and may have a material adverse effect on its business, financial
condition and results of operations, as well as its future prospects. In recent
years, China has been one of the world’s fastest growing economies in terms of
gross domestic product, which has had a significant impact on shipping demand.
For the year ended December 31, 2008, the growth of China’s gross domestic
product from the prior year ended December 31, 2007 was approximately 9%,
compared with a growth rate of 11.2% over the same two year period ended
December 31, 2007, and its growth in the fourth quarter of 2008 fell to an
annualized rate of 6.8%. It is likely that China and other countries in the Asia
Pacific region will continue to experience slowed or even negative economic
growth in the near future. Moreover, the current economic slowdown in the
economies of the United States, the European Union and other Asian countries may
further adversely affect economic growth in China and elsewhere. China has
recently announced a $586.0 billion stimulus package aimed in part at increasing
investment and consumer spending and maintaining export growth in response to
the recent slowdown in its economic growth. The Company’s business, financial
condition and results of operations, as well as our future prospects, will
likely be materially and adversely affected by a further economic downturn in
any of these countries.
 
 
 Acts of piracy on ocean-going vessels
have recently increased in frequency, which could adversely affect our
business
  Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia. Throughout 2008, the frequency of piracy incidents has increased
significantly, particularly in the Gulf of Aden off the coast of Somalia. For
example, in November 2008, the MV Sirius Star, a tanker
vessel not affiliated with us, was captured by pirates in the Indian Ocean while
carrying crude oil estimated to be worth $100 million. If these piracy attacks
result in regions in which our vessels are deployed being characterized by
insurers as “war risk” zones, as the Gulf of Aden temporarily was in May 2008,
or Joint War Committee (JWC) “war and strikes” listed areas, premiums payable
for such coverage could increase significantly and such insurance coverage may
be more difficult to obtain. Crew costs, including those due to employing
onboard security guards, could increase in such circumstances. In addition,
while we believe the charterer remains liable for charter payments when a vessel
is seized by pirates, the charterer may dispute this and withhold charter hire
until the vessel is released. A charterer may also claim that a vessel seized by
pirates was not “on-hire” for a certain number of days and it is therefore
entitled to cancel the charter party, a claim that we would dispute. We may not
be adequately insured to cover losses from these incidents, which could have a
material adverse effect on us. In addition, detention hijacking as a result
of an act of piracy against our vessels, or an increase in cost, or
unavailability of insurance for our vessels, could have a material adverse
impact on our business, financial condition, results of operations and cash
flows.
 
 Rising
fuel prices may adversely affect our profits
  While we
do not bear the cost of fuel (bunkers) under our time and bareboat charters,
fuel is a significant, if not the largest, expense in our shipping operations
when vessels are under spot charter. Changes in the price of fuel may adversely
affect our profitability. The price and supply of fuel is unpredictable and
fluctuates based on events outside our control, including geopolitical
developments, supply and demand for oil and gas, actions by OPEC and other oil
and gas producers, war and unrest in oil producing countries and regions,
regional production patterns and environmental concerns. Further, fuel may
become much more expensive in the future, which may reduce the profitability and
competitiveness of our business versus other forms of transportation, such as
truck or rail.
 
 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, bulk carriers 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.
 
 
 The
Company is in technical default of a financial covenant contained in certain
loan agreements as of December 31, 2008, and is currently in discussions with
certain lenders for waiver of such technical default and potential additional
defaults on other covenants
 
 Loan
agreements require that the Company comply with certain financial and other
covenants. Due to weak market conditions the Company has been unable to comply
with a particular covenant in four loan agreements which require that Total
Value Adjusted Equity should represent not less than 30% of Total Value Adjusted
Assets. At December 31, 2008, the actual ratio was 28.5% or 1.5% below the
minimum requirement.  Although the banks concerned have advised the Company
by e-mail in each case that a waiver has been approved, which the Company
believes on advice of counsel is binding, the Company is seeking to confirm the
waivers in definitive written agreements.   The Company does not
expect that it will be able to meet all prospective financial covenants of these
four loan agreements, especially if current market conditions continue. 
Accordingly, the Company is in negotiations with its lenders to obtain waivers
of future potential technical breaches of covenants and restructure the
loans.  Until and unless these potential technical defaults are
waived, the lenders have the right to cancel the commitment and demand
repayment.  Therefore, the Company has reclassified the following four
loan agreement as current:
 
 2) $30
million term loan facility with DVB Group Merchant Bank, DVB as agent, dated May
13, 2008 (amount re-classified of $9.5 million).  The Company has been
informed by DVB Merchant Bank that it has approved the waiver to reduce the
Value Adjusted Equity ratio from the required 30% to 20% effective December 31,
2008 through January 1, 2010.  Confirmation of the final waiver is expected
in the near term.
 
 3) $26.7
million term loan facility with Nordea Bank Norge ASA, dated October 25, 2007
(amount re-classified of $9.6 million). The Company has been informed by Nordea
Bank that it has approved the waiver to reduce the Value Adjusted Equity ratio
from the required 30% to 20% effective December 31, 2008 through January 1,
2010.  Confirmation of the final waiver is expected in the near
term.
 
 4) $8
million term loan facility with Nordea Bank Norge ASA, dated September 5, 2006
(amount re-classified $1.5 million).  The Company has been informed by
Nordea Bank that it has approved the waiver to reduce the Value Adjusted Equity
ratio from the required 30% to 20% effective December 31, 2008 through January
1, 2010.  Confirmation of the final waiver is expected in the near
term.
 
 In
addition, these potential technical defaults might trigger certain
cross-default provisions or potential defaults under material adverse change
covenants within the remaining loan documents.  As a result the Company
reclassified its remaining long term debt of $48.9 million as current at
December 31, 2008.  This additional reclassification applies to three debt
agreements as follows:
 
 1)
$34,000,000 term loan facility with Bank of Scotland dated December 7, 2007
(amount reclassified of $16.6 million);
 
 2)
$27,300,000 term loan facility with Bank of Nova Scotia dated January 24, 2007
(amount reclassified of $16.8 million); and
 
 3)  $25,000,000
Unsecured Bonds with Norsk Tillitsmann ASA, as Loan Trustee, dated December 12,
2006 (amount reclassified of $15.5 million).
 
 A
violation of the Company’s financial covenants may constitute an event of
default under its credit facilities, which would, unless waived by its lenders,
provide its lenders with the right to require the Company to refrain from
declaring and paying dividends and borrowing additional funds under the credit
facility, post additional collateral, enhance its equity and liquidity, increase
its interest payments, pay down its indebtedness to a level where it are in
compliance with its loan covenants, sell vessels in its fleet, reclassify its
indebtedness as current liabilities and accelerate its indebtedness and
foreclose their liens on its vessels, which would impair the Company’s ability
to continue to conduct its business. A total of $175.8 million of indebtedness
has been reclassified as current liabilities in the Company’s audited
consolidated balance sheet for the year ended December 31, 2008, included in
this report.
 
 If
current market conditions continue, the Company does not expect that it will be
able to meet all financial covenants of its credit facilities in the foreseeable
future in the absence of further agreement with its lenders.  The
Company is currently in discussions with its lenders to restructure its
facilities including amendments to certain financial covenants, although the
Company cannot assure you that it will be successful reaching an agreement with
its lenders.  In addition, in connection with any waiver or amendment
to the Company’s credit facilities, its lenders may impose additional operating
and financial restrictions on it or modify the terms of its credit
facility.  These restrictions may limit the Company’s ability to,
among other things, pay dividends in the future, make capital expenditures or
incur additional indebtedness, including through the issuance of guarantees. In
addition, its lenders may require the payment of additional fees, require
prepayment of a portion of its indebtedness to them, accelerate the amortization
schedule for its indebtedness and increase the interest rates they charge it on
its outstanding indebtedness. If the Company’s indebtedness is accelerated, it
would be very difficult in the current financing environment for the Company to
refinance its debt or obtain additional financing and it could lose its vessels
if its lenders foreclose their liens.
   Double
sided vessels are being phased out
 
 One of
the Company’s product tankers, or approximately 8.5% by DWTof its combined fleet,
is a double-sided vessel. 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 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 and
double-sided vessels carrying petroleum products tankers will be phased out over
the course of the period between 2005 and 2010 unless, in the case of
double-sided vessels an exemption is obtain from the flag state. As a result of
the MARPOL regulations, the Company expects that its remaining Panamax product
tanker will be unable to carry crude oil and petroleum products in many markets
after 2010 unless it obtains an exemption.The Company currently
expects that it will obtain such an exemption, which will permit the vessel to
trade until February 2015. While the Company currently believes that it will
obtain such an exemption, it is possible that it will not.
 
 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.
 
 If
the Company acquires additional vessels and those vessels are not delivered on
time or are delivered with significant defects, the Company’s earnings and
financial condition could suffer.
 
 The
Company expects to acquire additional vessels in the future. A delay in the
delivery of any of these vessels to the Company or the failure of the contract
counterparty to deliver a vessel at all could cause it to breach its obligations
under a related time charter and could adversely affect its earnings, its
financial condition and the amount of dividends, if any, that it pays in the
future. The delivery of these vessels could be delayed or certain events may
arise which could result in the Company not taking delivery of a vessel, such as
a total loss of a vessel, a constructive loss of a vessel, or substantial damage
to a vessel prior to delivery. In addition, the delivery of any of these vessels
with substantial defects could have similar consequences.
 
 
 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 may be purchased at
relatively high vessel prices.  If charter rates remain low or fall in
the future, the Company may not be able to recover its investment 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 or that financing for such
acquisitions will be available.
 
 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 and for one of its bulk carriers, 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
 ·
              the
      cost of retrofitting or modifying second hand vessels as a result of
      charterer requirements, technological advances in vessel design or
      equipment, or otherwise.
 
 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, 2008 of $175.8
million is secured by mortgages on the existing fleet of vessels of the Company
and its subsidiaries. As a result of the general decline in the market value of
vessels and consequently of its fleet, the Company was not in compliance with
certain provisions of its existing credit facilities at December 31, 2008, 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.  In addition, space at drydocking facilities is sometimes
limited and not all drydocking facilities are conveniently
located.  The Company may be unable to find space at a suitable
drydocking facility or our vessels may be forced to travel to a drydocking
facility that is not conveniently located to our vessels’
positions.  The loss of earnings while these vessels are forced to
wait for space or to steam to more distant drydocking facilities would decrease
our 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, 2008, the average age of the
vessels in its fleet was 19.9 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
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 of between 25,000 and 50,000 DWT worldwide.
Product Tankers are typically operated in groups or pools consisting of 10 to 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 76
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. Charter parties 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, 2008, the Company’s
largest five accounts receivable balances represented 92% of total accounts
receivable. At December 31, 2007, the Company’s largest five accounts receivable
balances represented 86% of total accounts receivable. The allowance for
doubtful accounts was approximately $253,000 and $336,000 at December 31, 2008
and 2007, respectively. 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, shareholders 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 66.7% 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 may substantially increase the size of its fleet via
acquisitions.  This may impose additional responsibilities on its
management and staff, and the management and staff of BHM. This may necessitate
that the Company and BHM 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 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 $15.9 million on gross revenue of $104.0 million in
2008. Income from vessel operations was $4.6 million for the year-end December
31, 2008. At December 31, 2008, the Company had approximately $175.8 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
Company’s charterers may terminate or default on their charters, which could
adversely affect results of operations and cash flow
 
 The terms
of the Company’s charters vary as to which events or occurrences will cause a
charter to terminate or give the charterer the option to terminate the charter,
but these generally include a total or constructive total loss of the related
vessel, the requisition for hire of the related vessel or the failure of the
related vessel to meet specified performance criteria. In addition, the ability
of each of its charterers to perform its obligations under a charter will depend
on a number of factors that are beyond its control. These factors may include
general economic conditions, the condition of a specific shipping market sector,
the charter rates received for specific types of vessels and various operating
expenses. The costs and delays associated with the default by a charterer of a
vessel may be considerable and may adversely affect the Company’s business,
results of operations, cash flows and financial condition.
 
 The
Company cannot predict whether our charterers will, upon the expiration of their
charters, recharter its vessels on favorable terms or at all. If the Company’s
charterers decide not to recharter its vessels, the Company may not be able to
recharter them on terms similar to the terms of current charters.
 
 If the
Company receives lower charter rates under replacement charters or are unable to
recharter all of the Company’s vessels, the Company’s business, results of
operations, cash flows and financial condition may be adversely
affected.
 
 In
addition, in depressed market conditions, the Company’s charterers may no longer
need a vessel that is currently under charter or may be able to obtain a
comparable vessel at lower rates. As a result, charterers may seek to
renegotiate the terms of their existing charter parties or avoid their
obligations under those contracts. Should counterparty fail to honor its
obligations under agreements with the Company, the Company could sustain
significant losses which could have a material adverse effect on the Company’s
business, results of operations, cash flows and financial
condition.
 
 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. 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 December 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 can not maintain the required 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 is 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, above 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, 2008, the Company owned and
operated four MR product tankers, one Panamax product tanker, two bulk carriers
and five OBOs. The Company also owns a 50% interest in a company which is the
disponent owner of a 1992-built 72,389 DWT Combination Carrier, effected through
a lease structure. Each vessel accounts for a significant portion of the
Company’s revenues.  On July 29, 2008, the Company, through a
wholly-owned subsidiary, entered into an agreement to acquire an Accommodation
Field Development Vessel (“AFDV”) upon completion of the construction of the
vessel for $35.9 million, the vessel is expected to be delivered in the 1st
quarter of 2010.
 
 
 The
Company’s fleet of MR 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 tanker is 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 84,000 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
  Loan
agreements require that the Company comply with certain financial and other
covenants. Due to weak market conditions the Company has been unable to comply
with a particular covenant in four loan agreements which require that Total
Value Adjusted Equity should represent not less than 30% of Total Value Adjusted
Assets.  At December 31, 2008, the actual ratio was 28.5% or 1.5% below the
minimum requirement. Although the banks concerned have advised the Company by
e-mail in each case that a waiver has been approved, which the Company believes
on advice of counsel is binding, the Company is seeking to confirm the waivers
in definitive written agreements.   The Company does not expect
that it will be able to meet all prospective financial covenants of these four
loan agreement, especially if current market conditions continue. 
Accordingly, the Company is in negotiations with its lenders to obtain waivers
of future potential technical breaches of covenants and restructure the
loans.  Until and unless these potential technical defaults are
waived, the lenders have the right to cancel the commitment and demand
repayment.  Therefore, the Company has reclassified the following four
loan agreement as current:
 1) $202
million reducing revolving credit facility with Nordea Bank Norge ASA, or Nordea
Bank, as Agent, dated August 29, 2006 (amount re-classified of $57.2
million).  The agreement requires that any modification to the
financial covenants requires approval by the majority of lenders or
66.67%.  The Company requested that the Value Adjusted Equity ratio be
reduced from the required 30% to 20% effective December 31, 2008 through January
1, 2010, in the form of a waiver.  The Company has been informed by
the Agent that banks representing greater than 66.67% of the loans have approved
the waiver.  Confirmation of the final waiver is expected in the near
term.
 
 2) $30
million term loan facility with DVB Group Merchant Bank, DVB as agent, dated May
13, 2008 (amount re-classified of $9.5 million).  The Company has been
informed by DVB Merchant Bank that it has approved the waiver to reduce the
Value Adjusted Equity ratio from the required 30% to 20% effective December 31,
2008 through January 1, 2010.  Confirmation of the final waiver is expected
in the near term.
 
 3) $26.7
million term loan facility with Nordea Bank Norge ASA, dated October 25, 2007
(amount re-classified of $9.6 million). The Company has been informed by Nordea
Bank that it has approved the waiver  to reduce the Value Adjusted
Equity ratio from the required 30% to 20% effective December 31, 2008 through
January 1, 2010.  Confirmation of the final waiver is expected in the near
term.
 
 4) $8
million term loan facility with Nordea Bank Norge ASA; dated September 5, 2006
(amount re-classified $1.5 million).  The Company has been informed by
Nordea Bank that it has approved the waiver to reduce the Value Adjusted Equity
ratio from the required 30% to 20% effective December 31, 2008 through January
1, 2010.  Confirmation of the final waiver is expected in the near term.
 In addition, these potential technical
defaults might trigger certain cross-default provisions or potential defaults
under material adverse change covenants within the remaining loan
documents.  As a result the Company reclassified its remaining long term
debt of $48.9 million as current at December 31, 2008.  This additional
reclassification applies to three debt agreements as
follows:
 1)
$34,000,000 term loan facility with Bank of Scotland dated December 7, 2007
(amount reclassified of $16.6 million);
 
 2)
$27,300,000 term loan facility with Bank of Nova Scotia dated January 24, 2007
(amount reclassified of $16.8 million); and
 
 3)  $25,000,000
Unsecured Bonds with Norsk Tillitsmann ASA, as Loan Trustee, dated December 12,
2006 (amount reclassified of $15.5 million).
 
 A
violation of the Company’s financial covenants may constitute an event of
default under its credit facilities, which would, unless waived by its lenders,
provide its lenders with the right to require the Company to refrain from
declaring and paying dividends and borrowing additional funds under the credit
facility, post additional collateral, enhance its equity and liquidity, increase
its interest payments, pay down its indebtedness to a level where it are in
compliance with its loan covenants, sell vessels in its fleet, reclassify its
indebtedness as current liabilities and accelerate its indebtedness and
foreclose their liens on its vessels, which would impair the Company’s ability
to continue to conduct its business. A total of $175.8 million of indebtedness
has been reclassified as current liabilities in the Company’s audited
consolidated balance sheet for the year ended December 31, 2008, included in
this report.
 
 If
current market conditions continue, the Company does not expect that it will be
able to meet all financial covenants of its credit facilities in the foreseeable
future in the absence of further agreement with its lenders.  The
Company is currently in discussions with its lenders to restructure its
facilities including amendments to certain financial covenants, although the
Company cannot assure you that it will be successful reaching an agreement with
its lenders.  In addition, in connection with any waiver or amendment
to the Company’s credit facilities, its lenders may impose additional operating
and financial restrictions on it or modify the terms of its credit
facility.  These restrictions may limit the Company’s ability to,
among other things, pay dividends in the future, make capital expenditures or
incur additional indebtedness, including through the issuance of guarantees. In
addition, its lenders may require the payment of additional fees, require
prepayment of a portion of its indebtedness to them, accelerate the amortization
schedule for its indebtedness and increase the interest rates they charge it on
its outstanding indebtedness. If the Company’s indebtedness is accelerated, it
would be very difficult in the current financing environment for the Company to
refinance its debt or obtain additional financing and it could lose its vessels
if its lenders foreclose their liens.
 
 
 On
January 15, 2009, the Company, through a wholly-owned subsidiary, sold the M/V
ALGONQUIN for $18.0 million. No gain or loss was recorded as the carrying value
was written down to estimated fair value during 2008, resulting in an impairment
charge of $7.4 million during 2008.  Accordingly an impairment charge
of $7.4 million was included in the Consolidated Statements of Income for the
Year Ended December 31, 2008.
 
 On July 29, 2008, the Company, through
a wholly-owned subsidiary, Straits Offshore Ltd. (“straits”), entered into an
agreement to acquire an Accommodation Field Development Vessel (“AFDV”) upon
completion of the construction of the vessel for $35.9 million. On September 4,
2008, an amendment was agreed under which the price was increased by $2.6
million to $38.5 million to provide for the purchase of additional equipment.
The purchase is secured by a $25.8 million letter of credit, which is secured,
inter alia, by the common shares of such wholly-owned subsidiary and its
contracted rights relating to the AFDV. In addition, Straits has placed an
order for a 300T crane and an eight point mooring system for the AFDV at a cost
of Euros 3.4 million (approximately $4.8 million) and SGD $3.1 million
(approximately $2.2 million), respectively. The vessel is expected to be
delivered in the first quarter of 2010.
 
 On May
13, 2008, the Company, through a wholly-owned subsidiary, entered into a $30
million term loan facility to finance the previously completed conversion of M/V
SACHEM to a bulk carrier. The loan was secured by the vessel, by an assignment
of a time charter and by certain put option contracts entered into by the
Company to mitigate the risk associated with the possibility of falling time
charter rates.
 
 On February 26, 2008, the Company,
through a wholly-owned subsidiary, sold M/T ACUSHNET for $7.8 million. The book
value of the vessel of approximately $4.6 million was classified as held for
sale at December 31, 2007. A realized gain of $3.0 million is reflected in the
Consolidated Statements of Income for the year ended December 31,
2008.
 
 On March
27, 2008, the Company, through a wholly-owned subsidiary, sold M/V SACHUEST for
$31.3 million. The book value of the vessel of approximately $20.4 million was
classified as held for sale at December 31, 2007. A realized gain of $10.3
million is reflected in the Consolidated Statements of Income for the year ended
December 31, 2008.
 
 ·
              Prior
      year acquisitions, disposals and other significant
      transactions
 
 On
January 24, 2007, the Company, through a wholly-owned subsidiary, entered into a
$27 million term loan facility to finance the acquisition of M/V SAKONNET, which
it 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 under 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
a $25.5 million term loan facility to finance the conversion 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 a fourth MR product
tanker 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
M/T CAPT. THOMAS J HUDNER and changed the payment terms for the $7.1 million
balance of the loan.
 
 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.
 
 In
January 2006, the Company, through a wholly-owned subsidiary, also acquired a
50% shareholding in a company which is the disponent owner of a 1992-built
72,389 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.
 
 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
 
 One of
the Company’s vessels is 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, 2008, 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 $13,844 per MR product tanker per month
and $16,762 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 (“OPA90”), 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 all its
vessels. 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 1,100 crude oil and product tankers worldwide of between 25,000
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 76 OBOs
worldwide, 39 of which are between 50,000 and 100,000 DWT. In this size range,
the largest ownership group has an estimated six vessels. Other 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 five
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 2, 2007 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 came 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 two were
converted to a bulk carrier in 2008.
 
 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 became effective May 19, 2005.  Annex VI, set limits
on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits
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-OPA90/CERCLA.  OPA90 established an extensive
regulatory and liability regime for environmental protection and cleanup of oil
spills. OPA90 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
OPA90, 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. OPA90 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.  OPA90 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, OPA90 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.  OPA90 does not by its
terms impose liability on lenders or the holders of mortgages on
vessels.
 
 Under
OPA90, 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,
OPA90 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.
 
 OPA90
expands the pre-existing 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 OPA90. 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 OPA90 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 OPA90/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 OPA90 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 OPA90, for the vessels currently owned by
the Company, are set out in the table below.
 
 VESSEL
                (as
      of MARCH 31, 2009)
              HULL
              DATE
      BUILT
              DWT
              PHASE
      OUT FOR CARRIAGE OF
                PETROLEUM
      PRODUCTSMARPOL/
                EU
              
              OPA90M/T
      AGAWAM
              DH
              Jun-82
              39,077
              N/A
              
              N/AM/T
      ANAWAN
              DH
              Aug-81
              38,993
              N/A
              
              N/AM/T
      AQUIDNECK
              DH
              Sep-81
              39,112
              N/A
              
              N/AM/T
      PEQUOD
              DH
              Jan-82
              39,238
              N/A
              
              N/AM/V
      SACHEM
              
              Mar-88
              55,791
              N/A
              
              N/AM/T
      SAGAMORE(1)
              DS
              Feb-91
              68,536
              Feb-15
              
              Feb-15M/V
      CAPT THOMAS J HUDNER
              
              May-90
              44,999
              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 (2)
              DH
              Sep-92
              72,389
              N/A
              
              N/A
 
 1.
              Vessel
      must comply with Reg.13F to Annex I of MARPOL by February 2015 (with the
      extension)
 2.
              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.
 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.
  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.  The EPA and the state of California, however,
have each proposed more stringent regulations of air emissions from ocean-going
vessels. On July 24, 2008, the California Air Resources Board of the State
of California, or CARB, approved clean-fuel regulations applicable to all
vessels sailing within 24 miles of the California coastline whose itineraries
call for them to enter any California ports, terminal facilities, or internal or
estuarine waters. The new CARB regulations require such vessels to use low
sulfur marine fuels rather than bunker fuel. By July 1, 2009, such vessels
are required to switch either to marine gas oil with a sulfur content of no more
than 1.5% or marine diesel oil with a sulfur content of no more than 0.5%. By
2012, only marine gas oil and marine diesel oil fuels with 0.1% sulfur will be
allowed. In the event our vessels were to travel within such waters, these new
regulations would require significant expenditures on low-sulfur fuel and would
increase our operating costs.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 U.S.
Environmental Protection Agency, or EPA, historically exempted the discharge of
ballast water and other substances incidental to the normal operation of vessels
in U.S. waters from CWA permitting requirements. However, on March 31,
2005, a U.S. District Court ruled that the EPA exceeded its authority in
creating an exemption for ballast water. On September 18, 2006, the court
issued an order invalidating the exemption in the EPA’s regulations for all
discharges incidental to the normal operation of a vessel as of
September 30, 2008, and directed the EPA to develop a system for regulating
all discharges from vessels by that date. The District Court’s decision was
affirmed by the Ninth Circuit Court of Appeals on July 23, 2008. The Ninth
Circuit’s ruling meant that owners and operators of vessels traveling in U.S.
waters would soon be required to comply with the CWA permitting program to be
developed by the EPA or face penalties. In response to the invalidation and
removal of the EPA’s vessel exemption by the Ninth Circuit, the EPA has enacted
rules governing the regulation of ballast water discharges and other discharges
incidental to the normal operation of vessels within U.S. waters. Under the new
rules, which took effect February 6, 2009, commercial vessels 79 feet in
length or longer (other than commercial fishing vessels), or Regulated Vessels,
are required to obtain a CWA permit regulating and authorizing such normal
discharges. This permit, which the EPA has designated as the Vessel General
Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP,
incorporates the current U.S. Coast Guard requirements for ballast water
management as well as supplemental ballast water requirements, and includes
limits applicable to 26 specific discharge streams, such as deck runoff, bilge
water and gray water. For each discharge type, among other things, the VGP
establishes effluent limits pertaining to the constituents found in the
effluent, including best management practices, or BMPs, designed to decrease the
amount of constituents entering the waste stream. Unlike land-based discharges,
which are deemed acceptable by meeting certain EPA-imposed numerical effluent
limits, each of the 26 VGP discharge limits is deemed to be met when a Regulated
Vessel carries out the BMPs pertinent to that specific discharge stream. The VGP
imposes additional requirements on certain Regulated Vessel types, that emit
discharges unique to those vessels. Administrative provisions, such as
inspection, monitoring, recordkeeping and reporting requirements are also
included for all Regulated Vessels. On August 31, 2008, the District Court
ordered that the date for implementation of the VGP be postponed from
September 30, 2008 until December 19, 2008. This date was further
postponed until February 6, 2009 by the District Court. Although the VGP
became effective on February 6, 2009, the VGP  application procedure, known
as the Notice of Intent, or NOI, has yet to be finalized. Accordingly, Regulated
Vessels will effectively be covered under the VGP from February 6, 2009
until June 19, 2009, at which time the “eNOI” electronic filing interface
will become operational. Thereafter, owners and operators of Regulated Vessels
must file their NOIs prior to September 19, 2009, or the Deadline. Any
Regulated Vessel that does not file an NOI by the Deadline will, as of that
date, no longer be covered by the VGP and will not be allowed to discharge into
U.S. navigable waters until it has obtained a VGP. Any Regulated Vessel that was
delivered on or before the Deadline will receive final VGP permit coverage on
the date that the EPA receives such Regulated Vessel’s complete NOI. Regulated
Vessels delivered after the Deadline will not receive VGP permit coverage until
30 days after their NOI submission. Our fleet is composed entirely of Regulated
Vessels, and we intend to submit NOIs for each vessel in our fleet as soon after
June 19, 2009 as practicable. In addition, pursuant to §401 of the CWA
which requires each state to certify federal discharge permits such as the VGP,
certain states have enacted additional discharge standards as conditions to
their certification of the VGP. These local standards bring the VGP into
compliance with more stringent state requirements, such as those further
restricting ballast water discharges and preventing the introduction of
non-indigenous species considered to be invasive. The VGP and its state-specific
regulations and any similar restrictions enacted in the future will increase the
costs of operating in the relevant waters.
 
 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.The European Union requires acceleration of 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 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.  Certain single-hulled tankers above 15 years of age
are also 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.
  Greenhouse
Gas Regulation.In February 2005, the Kyoto Protocol to the
United Nations Framework Convention on Climate Change, or the Kyoto Protocol,
entered into force. Pursuant to the Kyoto Protocol, adopting countries are
required to implement national programs to reduce emissions of certain gases,
generally referred to as greenhouse gases, which are suspected of contributing
to global warming. Currently, the emissions of greenhouse gases from
international shipping are not subject to the Kyoto Protocol. However, the
European Union has indicated that it intends to propose an expansion of the
existing European Union emissions trading scheme to include emissions of
greenhouse gases from vessels. In the United States, the Attorneys General from
16 states and a coalition of environmental groups in April 2008 filed a petition
for a writ of mandamus, or petition, with the DC Circuit Court of Appeals, or
the DC Circuit, to request an order requiring the EPA to regulate greenhouse gas
emissions from ocean-going vessels under the Clean Air Act. Although the DC
Circuit denied the petition in June 2008, any future passage of climate control
legislation or other regulatory initiatives by the IMO, European Union or
individual countries where we operate that restrict emissions of greenhouse
gases could entail financial impacts on our operations that we cannot predict
with certainty at this time.
 
 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. MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS.
 
 As of
March 31, 2009, the Company’s subsidiaries are as follows:
 
 B+H
      OCEAN CARRIERS LTD.
              ParentCLIASHIP
      HOLDINGS LTD.
              100%
      Wholly-ownedSubsidiaries:TJH
      SHIPHOLDING LTD.
              100%
      Wholly-owned
              Owns
      M/V 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/V SACHEMSTRAITS
      OFFSHORE LTD
              100%
      Wholly-owned
              To
      own newbuilding SAFECOM 1
 (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, 2008, 2007 and 2006. 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 four MR product tankers, one
Panamax product tankers, three bulk carriers and five combination carriers. The
MR product tankers are all medium range or “handy-size” vessels which are
between 30,000 and 50,000 DWT 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 tanker is 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 84,000 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, and they can also
be used to transport major dry bulk commodities, such as iron ore, coal, and
grain. The three bulk carriers carry mainly bulk commodities such as
fertilizers, steel, sugars, cement, coal and iron ore etc and range in size from
35,000 to 55,000 DWT.
 
 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, 2008 versus December 31,
  2007
 2008
                    
                    
                    2007Total
      revenues
                    
                    $
                    104,908,915
                    
                    
                    $
                    112,416,831Voyage
      expenses
                    
                    
                    (28,097,799
                    )
                    
                    
                    (27,882,163
                    )Net
      revenues
                    
                    
                    76,811,116
                    
                    
                    
                    84,534,668Gross
      voyage revenues
                    
                    
                    35,639,274
                    
                    
                    
                    42,909,357Less:
      direct voyage expenses
                    
                    
                    (20,145,639
                    )
                    
                    
                    (20,505,424
                    )Time
      charter equivalent ("TCE") revenues
                    
                    
                    15,493,635
                    
                    
                    
                    22,403,933Time
      charter revenues
                    
                    
                    68,378,799
                    
                    
                    
                    68,007,737Less:
      brokerage commissions
                    
                    
                    (3,070,656
                    )
                    
                    
                    (2,113,286
                    )Time
      charter revenues
                    
                    
                    65,308,143
                    
                    
                    
                    65,894,451Less:
      other voyage expenses
                    
                    
                    (4,881,504
                    )
                    
                    
                    (5,263,453
                    )Other
                    
                    
                    890,842
                    
                    
                    
                    1,499,737Net
      revenues
                    
                    $
                    76,811,116
                    
                    
                    $
                    84,534,668Days
      revenues on voyage
                    
                    
                    1,097
                    
                    
                    
                    1,763Days
      revenues on time charter
                    
                    
                    2,983
                    
                    
                    
                    2,8704,080
                    
                    
                    
                    4,633TCE
      rate
                    
                    $
                    14,124
                    
                    
                    $
                    12,708Average
      time charter rate
                    
                    $
                    22,923
                    
                    
                    $
                    23,696Net
      revenues per day
                    
                    $
                    18,826
                    
                    
                    $
                    18,246
   Revenues
 
 Revenues from voyage and time charters
decreased $7.5 million or 6.7% from 2007. The decrease is due to a 553 days (or
12%) decrease in the number of total on-hire days from 2007 to 2008. The impact
of this decrease was offset by an increase in the TCE rate of $1,416 per day
(11%). The decrease in on-hire days is due to the sale of the M/T ACUSHNET in
February 2008 and the OBO SACHUEST in March 2008. Offhire for conversions was
555 days in 2008 and 577 days in 2007. Offhire for scheduled drydockings was 148
days in 2008 and 14 days in 2007.
 
 At December 31, 2008, three of the
Company’s MR product tankers were employed in the voyage charter market and one
on a short term time charter. The five combination carriers and the Panamax
product tanker were employed on long-term time charters. The two bulk carriers
were on short time charter and one MR product tanker was being converted to a
bulk carrier.
 
 Other
revenue of $0.9 million represents the Company’s portion of the profit sharing
arrangement with the charterer of one of the Company’s 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
$0.2 million, or 0.8%, to $28.1 million for the year ended December 31, 2008
compared to $27.9 million for the comparable period of 2007. This is
predominantly due to an increase in bunker costs.
 
 Vessel
operating expenses
 
 The increase in vessel operating
expenses of $7.5 million is due in part to $1.9 million of intermediate
drydocking expense compared to $0.5 million in 2007. In addition, there was an
increase in average daily operating expenses of $2,239 per day. This increase
was predominantly due to increases in crew related costs, bunkers on offhire,
upgrading expenses and repairs and maintenance costs.
 
 Depreciation
and amortization
 
 Depreciation increased by $1.2 million,
or 8.2%, to $16.4 million due to the conversion of the M/V SACHEM and partially
offset by the sale of two ships in the first half of the year. Amortization of
special surveys increased $0.9 million to $2.6 million for the year ended
December 31, 2008 due to the fact that there were two special surveys completed
during 2008 and there was a full year of depreciation expense on the four
converted vessels. Amortization of debt issuance costs increased $0.4 million
due predominantly to costs associated with new loans in 2007 and 2008 and due to
the write-off of costs related to loan prepayments. Amortization of vessel
conversion costs increased $1.1 million due to the fact there was a full year of
depreciation in 2008 as compared to a partial year depreciation in
2007.
 
 2008
                    
                    
                    2007Depreciation
      of vessels
                    
                    $
                    16,444,000
                    
                    
                    $
                    15,201,000Amortization
      of special survey costs
                    
                    
                    2,568,000
                    
                    
                    
                    1,714,000Amortization
      of vessel conversion costs
                    
                    
                    5,135,000
                    
                    
                    
                    4,020,000Amortization
      of debt issuance costs
                    
                    
                    1,052,000
                    
                    
                    
                    607,000Total
      depreciation and amortization
                    
                    $
                    25,199,000
                    
                    
                    $
                    21,542,000Impairment
      charge
                    
                    
                    7,365,000
                    
                    
                    
                    -Total
      impairment charge
                    
                    $
                    7,365,000
                    
                    
                    $
                    -
 General
and administrative expenses
 
 General and administrative expenses
include all of our onshore expenses and the fees that BHM charges for
administration. Management fees decreased by $1.1 million, or 47%, to $1.2
million for the twelve month period ended December 31, 2008 compared to $2.3
million for the prior period. The decrease is due to the one-time issuance in
2007 of 60,000 shares of common stock to BHM resulting in compensation expense
of $1.1 million in 2007. Fees for consulting and professional fees and other
expenses decreased $0.3 million or 5%. The decrease is primarily attributable to
the one-time issuance of 2,500 shares of the Company’s common stock to each
director in 2007, resulting in compensation expense of $0.4
million.
   Interest
expense and interest income
 
 The $1.5 million (12%) decrease in
interest expense is due to the decrease in interest rates and to the reduction
in mortgage indebtedness from $200.3 million at December 31, 2007 to $160.3
million at December 31, 2008.
 
 Both the interest paid on the Company’s
debt and the interest earned on its cash balances are based on LIBOR. Interest
income for 2008 of $1.2 million represented a decrease of $1.9 million or 63% of
the prior year’s interest income of $3.1 million. The decrease in interest
income is due to the fact that the Company had a higher average cash balance
during 2007 as compared to 2008. In addition, average LIBOR rates of 5.25% for
2007 were approximately 49% higher than the 2008 average rate of
2.67%.
 
 Equity
in income of Nordan OBO 2
 
 Equity in income of Nordan OBO 2
of $3.9 million represents income from the Company’s 50% interest in an entity
which is the disponent owner of a 1992-built 72,389 DWT combination carrier
through a bareboat charter party which was acquired in March 2006. The increase
from 2007 of $3.1 million consists primarily of $2.5 million representing the
Company’s 50% share of a deposit forfeited when the buyer under contract to
purchase MV SEAPOWET failed to take delivery of the vessel.
 
 Loss
on fair value of interest rate swaps
 
 During 2006 and 2007, the Company
entered into five interest rate swap agreements to mitigate the risk associated
with its variable rate debt. As of December 31, 2008, one of these interest rate
swap agreements did not qualify for hedge accounting under US GAAP and, as such,
the change in the fair value of this swap is reflected within gain (loss) on
value of interest rate swaps in the accompanying Consolidated Statements of
Income. For the year ended December 31, 2008, the Company recognized aggregate
losses of $0.8 million on this non-qualifying swap. For the year ended December
31, 2007, two of the Company’s interest rate swap agreements did not qualify for
hedge accounting.  For 2007, the Company recognized aggregate losses
of $1.3 million related to these swaps which are reflected within gain (loss) on
value of interest rate swaps on the accompanying Consolidated Statements of
Income.
 
 As
of December 31, 2008, the fair value of the non-qualifying swap agreement was a
liability of $0.5 million.  As of December 31, 2007, the aggregate
fair value of the two non-qualifying swap agreements was a liability of $0.9
million. The remaining 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. As of December 31, 2008,
there were four interest rate swap agreements designated as cash flow hedges
with an aggregate fair value of liability $4.4 million.  As of
December 31, 2007, there were three interest rate swap agreements designated as
cash flow hedges with an aggregate fair value of liability $0.8
million.
 
 Gain
on fair value of put option contracts
 
 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 did not
qualify for special hedge accounting under US GAAP and, as such, the aggregate
changes in the fair value of these option contracts were reflected in the
Company’s Consolidated Statements of Income. The put options were sold or
settled during 2008. The aggregate realized gain on the sale of the put options
totaled $16.1 million at December 31, 2008. The aggregate unrealized loss on the
value of the put options totaled $3.4 million at December 31, 2007.
 
  Gain
on fair value of foreign exchange contracts
 
 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, did not qualify for hedge
accounting under SFAS No. 133; and the changes in their fair value is therefore
recorded in loss on other investments in the Company’s Consolidated Statements
of Income. At December 31, 2008, the aggregate fair value of these
non-qualifying foreign exchange contracts was a liability of $57,000 and was
reflected within Fair Value of Derivative liability on the accompanying
Consolidated Balance Sheet.
 
 Other
gains and losses
 
 Other losses consist primarily of $0.2
million of losses from trading marketable securities. Other losses in 2007
consist of the write off of the $0.6 million investment in an unsuccessful oil
drilling operation.
 
 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
                    
                    
                    68,007,737
                    
                    
                    
                    76,929,000Less:
      brokerage commissions
                    
                    
                    (2,113,286
                    )
                    
                    
                    (1,226,000
                    )Time
      charter revenue
                    
                    
                    65,894,451
                    
                    
                    
                    75,703,000Less:
      other voyage expenses
                    
                    
                    (5,263,453
                    )
                    
                    
                    (4,272,000
                    )Other
                    
                    
                    1,499,737
                    
                    
                    
                    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
                    
                    $
                    23,696
                    
                    
                    $
                    20,685Net
      revenue per day
                    
                    $
                    18,246
                    
                    
                    $
                    18,385
 
 
 Revenues
 
 Revenues from voyage and time charters
increased $15.5 million or 16% 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 $1.4 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
                    
                    
                    1,714,000
                    
                    
                    
                    1,195,000Amortization
      of vessel conversion costs
                    
                    
                    4,020,000
                    
                    
                    
                    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 2
 
 Equity in income of Nordan OBO 2
of $0.8 million represents income from the Company’s 50% interest in an entity
which is the disponent owner of a 1992-built 72,389 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 option agreements,
which were entered into during 2007 and 2006, do not qualify for special hedge
accounting under SFAS No. 133; and, as such, the aggregate changes in the fair
value of these option contracts are reflected within gain (loss) on fair value
of derivatives on the accompanying Consolidated Statements of
Income.  As discussed above, at December 31, 2008, the put option
contracts were sold or settled.  The aggregate unrealized loss on the
value of the contracts at December 31, 2007 and 2006 totaled $3.4 million and
$0.3 million, respectively.
 
 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.
 
 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.
 
 As a
result of the industry-wide decline in the value of vessels, the ratio of the
Company’s vessel total value adjusted equity to total value adjusted assets was
28.5% at December 31, 2008, lower than the 30% ratio required under certain of
the loan agreements.  The Company may also be in technical default of
other covenants contained in the Company’s loan agreements. These constitute
potential events of default and could result in the lenders requiring immediate
repayment of the loans.  The Company has been advised by its lenders
that it has agreed to waive the total value adjusted equity to total value
adjusted assets ratio default. Accordingly, management does not expect that the
lenders will demand payment of the loans before their maturity.  The
Company may seek relief from other covenants in the future, subject to further
modifications of the terms of the loans.  Notwithstanding the waivers,
the Company plans to classify all or a portion of the related debt as current.
In addition, the Company may seek to raise additional liquidity from other
strategic alternatives.
 
 The
Company’s independent registered public accounting firm issued their opinion on
the Company’s financial statements contained elsewhere in this report with an
explanatory paragraph that expresses doubt about the Company’s ability to
continue as a going concern.  The Company’s financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of its potential inability to
continue as a going concern.
 
 The
Company’s fleet consists of product tankers, bulk carriers and OBOs;
accordingly, 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, other 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 it will generate cash flow at levels
sufficient to service its liquidity requirements in the future.
 
 Cash at
December 31, 2008, amounted to $30.5 million, a decrease of $31.1 million as
compared to December 31, 2007. The decrease in the cash balance is
attributable to net inflows from investing activities of $16.8 million, which
were offset by outflows from operating activities of $0.8 million and outflows
from financing activities of $47.2 million.
 
 During
the year ended December 31, 2008, inflows from investing activities were
primarily attributable to an investment in vessel conversion costs of $34.3
million, an investment in the Accommodation Field Development Vessel of $6.8
million and to the investment in Nordan OBO 2 of $3.9 million.  This
was offset by proceeds from the sale of M/T ACUSHNET in February 2008 and M/V
SACHUEST in May 2008 for a total of $38.1 million, to the proceeds from the sale
or settlement of put contracts of $21.8 million and to the net redemption of
marketable securities of $0.5 million.
 
 During
the year ended December 31, 2008, outflows from financing activities included
$70.0 million in payments of mortgage principal and investment in the Company’s
outstanding bonds of $2.2 million. The Company also acquired treasury shares for
$4.7 million and paid debt issuance costs of $0.3 million. These costs were
offset by mortgage proceeds of $30.0 million to finance the conversion of one of
the Company’s product tankers to bulk carrier. The company had total loan
prepayments of $19.2 million due to the sale of M/T SACHUEST and the prepayment
of a portion of the Sachem loan (see NOTE 6 to Consolidated Financial
Statements).
 
  The
Company had a working capital deficit of $151.3 million at December 31, 2008 as
compared to a positive working capital of $14.3 million at December 31,
2007.  The decrease of working capital during 2008 is primarily due
to the reclassification of $126.8 million from long term debt to current
mortgage payable as a result of a technical breach in certain loan
agreements as outlined in Note 3.  The decrease also
includes the reduction of long-term debt, cash payments related to the
conversion of certain vessels and upgrades of the accommodation barge. 
Management continues to tighten spending to reserve sufficient capital to serve
its debt obligations.  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 totaling $24.5 million at
December 31, 2008 as compared to $51.1 million at December 31,
2007.
   Our loan
agreements require that we maintain certain financial and other covenants. A
violation of these covenants constitutes an event of default under our credit
facilities, which would, unless waived by our lenders, provide our lenders with
the right to require us to post additional collateral, enhance our equity and
liquidity, increase our interest payments, pay down our indebtedness to a level
where we are in compliance with our loan covenants, sell vessels in our fleet,
reclassify our indebtedness as current liabilities and accelerate our
indebtedness, which would impair our ability to continue to conduct our
business. A total of $126.8 million of indebtedness has been reclassified as
current liabilities in our audited consolidated balance sheet for the year ended
December 31, 2008 as a result of a technical breach of a certain covenant
contained in four loan agreements.
 
 Trade accounts receivable decreased by
$2.2 million from December 31, 2007 to December 31, 2008. The decrease is
predominantly attributable to the reduction in the number of voyage days during
the year.
 
 At December 31, 2008, the Company’s
largest five accounts receivable balances represented 92% of total accounts
receivable. At December 31, 2007, the Company’s largest five accounts receivable
balances represented 86% of total accounts receivable. The allowance for
doubtful accounts was $253,000 and $336,000 at December 31, 2008 and 2007,
respectively. To date, the Company’s actual losses on past due receivables have
not exceeded its estimate of bad debts.
 
 Revenue from one customer accounted for
$34.5 million (33.1%) of total revenues in 2008. 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.
 
 Inventories decreased $0.6 million
primarily due to the fact that there were only five ships on voyage charters or
offhire at December 31, 2008 versus seven at December 31, 2007. 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 $282.2 million at
December 31, 2008. The increase in vessels at a cost of $14.4 million was due to
the conversions to bulk carriers and the investment in SAFECOM 1, partially
offset by the cost of the two vessels sold during 2008 and the impairment charge
on the vessel delivered to the buyer in January 2009. This was offset by
depreciation and amortization of special survey and conversion costs totaling
$7.7 million.
 
 At December 31, 2008, the put option
contracts were sold or settled. The aggregate realized gain on the sale of
contracts totaled $16.1 million for the year ending December 31,
2008.
 
 Other assets decreased $0.8 million as
a result of amortization and write-off of debt issuance costs.
 
 Accounts payable decreased $15.4
million and accrued liabilities increased $2.5 million from December 31, 2007 to
December 31, 2008. The net decrease in accounts payable and accrued liabilities
is due to the fact that final payment was made toward conversions of three
tankers to double hulled vessel in 2007 which were financed under an installment
plan with the shipyard and to the conversion of two vessels to bulk carriers
which had been fully paid for at December 31, 2008.
 
 Deferred
income of $6.8 million at December 31, 2008 represents an increase of $0.2
million as compared to 2007. The increase is due to numerous changes in the
timing of charter hire and freight payments.
 
 Expenses
for drydock and related repair work totaled $1.9 million for one vessel in 2008,
$0.5 million for three vessels in 2007 and $0.1 million for one vessel in 2006.
At December 31, 2008 and 2007 there were one and two vessels, respectively, in
the shipyard being converted to bulk carriers. The capitalized cost of scheduled
classification survey and related vessel upgrades was $7.7 million for seven
vessels in 2008, $8.0 million for five vessels in 2007 and $7.1 million for
three vessels in 2006. Such capitalized costs are depreciated over the remaining
useful life of the respective vessels.
  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 Consolidated Financial
Statements.
 
 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, trade receivables and derivative
contracts (interest rate swaps). 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 U.S. 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 five year period until the next special survey.
Capitalized costs for scheduled classification survey and related vessel
upgrades are depreciated over the remaining useful life of the respective
vessels. Conversion costs are capitalized and depreciated 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.
 
 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).  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.
 
 Recent
accounting pronouncements
 
 In May 2008, the Financial Accounting
Standards Board (“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 162, The
Hierarchy of Generally Accepted Accounting Principles, (“SFAS No
162”).  The Statement identified the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with generally accepted
accounting principles in the United States. The Statement is effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles.”  We do not anticipate
the adoption of SFAS No. 162 to have a material impact on the Company’s results
of operations or financial position.
 
 In March 2008, the FASB issued SFAS No.
161, Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133 (“SFAS No. 161”).  SFAS No. 161 requires entities to
provide greater transparency through additional disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, results of operations, and cash flows.  SFAS No.
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company is currently evaluating
the potential impact of adopting SFAS No. 161 on the Company’s disclosures of
its derivative instruments and hedging activities.
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations
(revised 2007), (“SFAS No.141(R)”).  SFAS No. 141 (R) amends SFAS No.
141, Business Combinations, and provides
revised guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any noncontrolling interest in the
acquiree.  It also provides disclosure requirements to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination.  SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008 and is to be applied
prospectively.   We do not anticipate the adoption of SFAS No.
141(R) to have a material impact on the Company’s results of operations or
financial position.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51,
(“SFAS No.160”), which establishes accounting and reporting standards pertaining
to ownership interest in subsidiaries held by parties other than the parent, the
amount of net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest, and the valuation of any
retained noncontrolling equity investment when a subsidiary is
deconsolidated.  SFAS No. 160 also establishes disclosure requirements
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners.  SFAS No. 160 is effective
for fiscal years beginning on or after December 15, 2008.  We do not
anticipate the adoption of SFAS No. 160 to have a material impact on the
Company’s results of operations or financial position.
 
 C.
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. The MRs are currently operating
on voyages or on short term time charters. The Panamax tanker is employed on a
long term time charter with redelivery in January 2011.
 
 The Company operates six OBOs of 72,000
to 84,000 DWT. Five of these vessels are currently employed on long term time
charters with redelivery dates in the range from March 2011 through October
2012.  The sixth, in which the Company has a 50% interest, is
operating in the spot market.
 
 The Company’s two bulk carriers are
currently employed on short term time charters.
 
 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.
 
 D.
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, 2008, the Company had
interest rate swaps having an aggregate notional amount of $83.0 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). As of December 31, 2008, four 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 the swap agreements
designated as cash flow hedges are liabilities of $4.4 million.  As of
December 31, 2007, three of the swap agreements were designated as cash flow
hedges.  The aggregate fair value of the swap agreements designated as
cash flow hedges were liabilities of $0.8 million.  As of December 31,
2008, the fair value of the non-qualifying swap agreement was a liability of
$0.5 million.  As of December 31, 2007, the aggregate fair value of
the two non-qualifying swap agreements was a liability of $0.9
million.
 
 
 F.
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
              62
              Chairman
      of the Board, President and Chief Executive Officer and Class A
      DirectorTrevor
      J. Williams
              66
              Vice
      President and Class A DirectorR.
      Anthony Dalzell
              64
              Treasurer
      and Chief Financial Officer and Class B DirectorCharles
      L. Brock
              66
              Class
      B DirectorJohn
      M. LeFrere
              64
              Class
      A DirectorAnthony
      J. Hardy
              70
              Class
      A DirectorPer
      Ditlev-Simonsen
              76
              Class
      B DirectorO.
      Michael Lewis
              59
              Class
      B Director
 
 
 Messrs. Hudner and Brock 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 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 2009 annual meeting
and the Class B directors will serve until the 2010 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, he 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 U.S. 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 Director of Excel Maritime Carriers Ltd., a publicly quoted
Company.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 ship owner and ship manager 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 U.S. 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 is a partner in several research and investment banking
firms. Mr. LeFrere is a U.S. 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
50 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) and is currently Chairman of the Hong
Kong Maritime Museum. 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 specialized 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
B. Related Party Transactions).
 
 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, 2008, 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 290 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 May 12, 2009, 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:
 
 Number
 Name
      of Beneficial Owner
              of
      Shares
                Beneficially
                Owned
              Percent
      of
                Common
                Stock
      (a)Northampton
      Holdings Ltd.
              2,011,926
              36.22%Michael
      S. Hudner (b)
              3,693,414
              66.48%Fundamental
      Securities International Ltd.
              1,421,848
              25.59%Devonport
      Holdings Ltd. (c)
              1,421,848
              25.59%Harbor
      Holdings Corp. (d)
              202,500
              3.65%Charles
      L. Brock
              2,500
              0.05%R.
      Anthony Dalzell (e)
              57,140
              1.03%Dean
      Investments Ltd.
              57,140
              1.03%John
      M. LeFrere
              2,500
              0.05%Anthony
      J. Hardy
              2,500
              0.05%Per
      Ditlev-Simonsen
              —
              *Trevor
      J. Williams (f)
              3,695,914
              66.53%O.
      Michael Lewis
              2,500
              0.05%Caiano
      Ship AS (g)
              1,162,467
              20.92%All
      executive officers and directors as a group (8 persons)
              3,705,914
              66.71%
 
  *      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 Investments”) a Cayman
      Islands corporation. 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
      Investments.
  (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
      57,140 shares held by Dean
Investments.
  (f)
              Comprised
      of shares shown in the table for NHL, Fundamental, Dean Investments 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
Investments.
  (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 $6,743 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, 2008, 2007 and 2006, the Company paid
BHM fees of approximately $1,200,000, $1,126,000 and $970,000, 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 $13,844 per MR product tanker and $16,762 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, 2008, 2007 and 2006, the Company paid BHM fees of approximately
$2,540,000, $2,539,000 and $2,360,000, 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 $10,980 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, 2008, 2007 and 2006, the Company paid BHM fees of
approximately $1,896,000, $1,835,000 and $1,558,000, 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, 2008, 2007 and
2006, the Company paid Centennial manning fees of approximately $777,000,
$662,000 and $519,000, respectively. Manning fees are included in vessel
operating expenses in the Consolidated Statements of Income.
 
 BHES provides office space and
administrative services to Straits, a wholly-owned subsidiary and owner of the
AFDV to be delivered in the first quarter of 2010, for SGD 5,000 (approximately
$3,468) per month. The total paid to BHES for these services was $13,000 in
2008.
 
 BHM received arrangement fees of
$232,000 in connection with the financing of the accommodation barge SAFECOM1 in
January 2009 and $300,000 in connection with the financing of M/T SACHEM in May
2008 . BHM received brokerage commissions of $77,500 in connection with the sale
of the M/T ACUSHNET in February 2008, $313,000 in connection with the sale of
the M/T SACHUEST in March 2008 and $180,000 in connection with the sale of the
M/T ALGONQUIN in January 2009. The Company also paid BHM standard industry
chartering commissions of $720,000 in 2008, $717,000 in 2007 and $672,000 in
2006 in respect of certain time charters in effect during those periods.
Clearwater Chartering Corporation, a company affiliated through common
ownership, was paid $1,176,000, $1,362,000 and $1,062,000 in 2008, 2007 and
2006, respectively, for standard industry chartering commissions. Brokerage
commissions are included in voyage expenses in the Consolidated Statements of
Income.
 
 During each of 2008, 2007 and 2006, the
Company paid fees of $501,000 to J.V. Equities, Inc. for consulting services
rendered. J.V. Equities is controlled by John LeFrere, a director of the
Company.
 
 During each of 2008, 2007 and 2006, the
Company paid fees of $56,000, $186,000 and $36,000 respectively, to R. Anthony
Dalzell, Chief Financial Officer, Vice President and a director of the Company,
or to a Company deemed to be controlled by Mr. Dalzell for consulting
services.
 
 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
issued the shares of common stock to BHM at such time as the specific
requirements of the agreement were met. During 2007, 2,275 shares, bringing the
total to 64,522 shares, were issued from treasury stock. Compensation cost of
$34,000 and $259,000, based on the market price of the shares at the date of
issue, were included as management fees to related parties in the Consolidated
Statement of Operations for the years ended December 31, 2007 and 2006,
respectively. All shares in the plan were vested at December 31,
2007.
 
 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 were exercised.  There were no options outstanding at December
31, 2008.
 
 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, 2009, the Company placed the following
insurance with Northampton Assurance Ltd (“NAL”):
 
 ·
              66.5% of
      its Hull & Machinery (“H&M”) insurance for claims in excess of
      minimum $120/125,000 each incident, which insurance NAL fully
      reinsured.
 ·
              67.5%
      of its H&M insurance (Machinery claims only) on 6 vessels of up
      to $50,000 in excess of $120/125,000 each incident;
  and
 ·
              67.5%
      of its H&M insurance (Machinery claims only) on 1 vessel up to
      $100,000 in excess of $120/125,000 each
  incident.
 
 For
the policy year ending February 20, 2008, the Company placed the following
insurance with 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 (Machinery Claims only) on 6 vessels of
      up to $50,000 in excess of $120/125,000 each incident;
  and
 ·
              70%
      of its H&M insurance (Machinery claims only) 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
periods ending December 31, 2008, 2007 and 2006, vessel operating expenses on
the Consolidated Statements of Income include approximately $982,000, $896,000
and $972,000, respectively, of insurance premiums paid to NAL (of which
$915,000, $813,000 and $884,000, respectively, was ceded to reinsurers) and
approximately $196,000, $188,000, and $185,000, respectively, of brokerage
commissions paid to NAL.
 
 The
Company had accounts payable to NAL of $397,000 and $135,000 at December 31,
2008 and 2007, respectively. NAL paid fees of $174,000 during each of the three
years ending December 31, 2008 to a company deemed to be controlled by Mr.
Dalzell for consulting service.
 
 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 16. Financial
Statements
 
 A.7.
Legal proceedings
 
 There are no material pending legal
proceedings to which the Company or any of its subsidiaries is a party to or of
which any of its or their property is the subject of, 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:
 Sale
      PriceTime
      Period
                    
                    High
                    
                    
                    Low20081st
      Quarter
                    
                    
                    14.98
                    
                    
                    
                    9.522nd
      Quarter
                    
                    
                    11.94
                    
                    
                    
                    9.663rd
      Quarter
                    
                    
                    11.70
                    
                    
                    
                    6.734th
      Quarter
                    
                    
                    8.65
                    
                    
                    
                    1.81July
                    
                    
                    11.70
                    
                    
                    
                    10.25August
                    
                    
                    11.10
                    
                    
                    
                    9.03September
                    
                    
                    9.88
                    
                    
                    
                    6.73October
                    
                    
                    8.65
                    
                    
                    
                    3.00November
                    
                    
                    4.75
                    
                    
                    
                    2.00December
                    
                    
                    3.70
                    
                    
                    
                    1.8120071st
      Quarter
                    
                    
                    19.60
                    
                    
                    
                    14.612nd
      Quarter
                    
                    
                    18.85
                    
                    
                    
                    17.003rd
      Quarter
                    
                    
                    18.82
                    
                    
                    
                    14.754th
      Quarter
                    
                    
                    20.40
                    
                    
                    
                    12.09Annual2006
                    
                    
                    20.55
                    
                    
                    
                    13.802005
                    
                    
                    24.40
                    
                    
                    
                    9.502004
                    
                    
                    27.43
                    
                    
                    
                    7.602003
                    
                    
                    16.65
                    
                    
                    
                    6.502002
                    
                    
                    8.20
                    
                    
                    
                    4.90
   As of
December 31, 2008, there were over 300 record holders of Common
Stock.
 
  
  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 (now NYSE
Amex) 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 had a secondary listing on the Oslo
Stock Exchange under BHOC until it withdrew from listing on September 23,
2008.
 
 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,
trade receivables and derivative contracts (interest rate swaps).  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. The Company is
exposed to credit risk in the event of non-performance by counter parties to
derivative instruments; however, the Company limits its exposure by diversifying
among counter parties with high credit ratings.
 
 Due to the long standing relationships
with significant customers, their relative financial stability, and the fact
that customers generally pay in advance, credit risk with respect to trade
accounts receivable is limited. The Company performs ongoing credit evaluations
of its customers’ financial condition and maintains allowances for potential
credit losses.
 
 At December 31, 2008, the Company’s
largest five accounts receivable represented 92% of total accounts receivable.
At December 31, 2007, the Company’s largest five accounts receivable balances
represented 86% of total accounts receivable. The allowance for doubtful
accounts was $253,000 and $336,000 at December 31, 2008 and 2007,
respectively.  To date, the Company’s actual losses on past due
receivables have not exceeded our 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. The Company is party to interest swap agreements where it receives a
floating interest rate and in exchange pays a fixed interest rate for a certain
period. Contracts which meet the strict criteria for hedge accounting are
accounted for as cash flow hedges. A cash flow hedge is a hedge of the exposure
to variability in cash flows that is attributable to a particular risk
associated with a recognized asset or liability, or a highly probable forecasted
transaction that could affect profit or loss. The effective portion of the gain
or loss on the hedging instrument is recognized directly as a component of Other
comprehensive income in equity, while the ineffective portion, if any, is
recognized immediately in current period earnings.
 
 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
 
 On
October 8, 2008 there was a repudiatory breach by the time charterer of M/V
SACHEM and the Company withdrew the vessel from the Time charterer’s
service.  As a result of this breach and its effect on the security
provided to the mortgagee bank by the time charter, the bank reserved its
rights under the finance documents. On October 28, 2008, the Company agreed to
prepay $12.5 million of the loan and in consideration the bank agreed to waive
its rights under the finance documents arising in relation to this event and to
release the assignment of certain put options.
 
  See Item
1 – Company Specific Risk Factors – Discussion Concerning Certain Loan
Agreements and Item 3. Operating and Financial Review Prospectus – B. Liquidity
and Capital Resources.
  
 
 
 Item
      14.
              MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
 
 Not
      Applicable
 
 Item
15.  CONTROLS AND PROCEDURES
 
 A.
              The
      management of the Company 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. Management assessed the effectiveness of the
      Company’s internal control over financial reporting as of December 31,
      2008. 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 under those
      criteria, management of the Company believes that, as of December 31,
      2008, the Company’s internal control over financial reporting is
      effective.
 
 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:
Secretary.
 
 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,
2008, 2007 and 2006 were $159,000, $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
 
 
 Itim
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
  (a)
      Total Number of shares (or units) purchased
                    
                    
                    (b)
      Average Price Paid per Share (or units)
                    
                    
                    (c)
      Total Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
                    
                    
                    (d)Maximum
      Number (or Approximate Dollar Value) of Shares that May Yet Be
      Purchased Under the Plans or ProgramsMONTH
      # 1     (1/1/08 to 1/31/08)
                    
                    
                    2,800
                    
                    
                    
                    14.88MONTH
      # 2     (2/1/08 to 2/28/08)
                    
                    
                    3,800
                    
                    
                    
                    11.03MONTH
      # 3       (3/1/08 to
      3/31/08)
                    
                    
                    7,471
                    
                    
                    
                    11.15MONTH
      # 9      (9/1/08 to 9/30/08)
                    
                    
                    13,380
                    
                    
                    
                    10.82MONTH
      # 10 (10/1/08 to 10/31/08)
                    
                    
                    27,000
                    
                    
                    
                    8.68MONTH
      # 11 (11/1/08 to 11/30/08)
                    
                    
                    736,260
                    
                    
                    
                    4.00
                    
                    
                    
                    736,260
                    
                    
                    
                    2,945,040MONTH
      #12      (12/1/08 to
    12/31/08)
                    
                    
                    520,478
                    
                    
                    
                    2.39Total
                    
                    
                    1,311,189
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    2,945,040
 
 Item
16F.  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
 
 Not
applicable
 
 
 Item
16G. CORPORATE GOVERNANCE
 
 Section
801 of the NYSE American Stock Exchange Company Guide has established specific
exemptions from its listing standards for controlled companies, i.e., companies
of which more than 50% of the voting power is held by an individual, a group or
another entity.  The Company is a “controlled company” by virtue of
the fact that Michael S. Hudner, Trevor Williams and R. Anthony Dalzell, each an
officer and a director of the Company, jointly control a majority interest in
the stock of the Company.  Messrs. Hudner and Williams, together with
certain other entities, have filed a Schedule 13D with the SEC on March 20,
2007, affirming that as members of a group they share voting power of over 50.5%
of the Company’s outstanding voting stock.  Mr. Dalzell and an
affiliated entity have agreed to cause their beneficially owned shares to be
voted with Messrs. Hudner and Williams.  Please see Item 7. Major
Shareholders and Related Party Transactions.
  The
Company has elected to rely upon certain of the exemptions provided in Part 8 of
the NYSE American Stock Exchange Company Guide.  Specifically, the
Company will rely on exceptions to the requirements that listed companies (i)
have a majority of independent directors, (ii) select, or recommend for the
Board’s selection, director nominees by a majority of independent directors or a
nominating committee comprised solely of independent directors, and (iii)
determine officer compensation by a majority of independent directors or a
compensation committee comprised solely of independent
directors.  Notwithstanding the above, the Company’s current practices
include (i) selecting director nominees by the full Board of Directors, and (ii)
determining officer compensation by a majority of independent
directors.
  Other
than the above, the Company has followed and intends to continue to follow the
applicable corporate governance standards under the NYSE American Stock Exchange
Company Guide.
  In
accordance with Section 610 of the NYSE American Stock Exchange Company Guide,
the Company will post this annual report on Form 20-F on the Company’s website
at www.bhocean.com.  In addition, the Company will provide hard copies
of the annual report free of charge to shareholders upon request.
  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 as of December 31, 2008 and 2007
              F-3Consolidated
      Statements of Income for the three years endedDecember 31, 2008, 2007 and
      2006
              F-4Consolidated
      Statements of Shareholders’ Equityfor the three years ended
      December 31, 2008, 2007 and 2006
              F-5Consolidated
      Statements of Cash Flows for the three years endedDecember 31, 2008, 2007 and
      2006
              F-6Notes
      to Consolidated Financial Statements
              F-7
 
 
 
 Item 19.
      EXHIBITS.
 
 I.
              Loan Agreement between Sachem
      Shipping Ltd. and DVB Bank., dated May 13,
2008.
 II.
              Sachem
      Shipping Letter dated October 28,
2008.
 III.
              Sakonnet
      Shipping Side Letter dated November 24,
2008.
 IV.
              Nordea
      Bank Addendum 1 dated October 10,
2008.
 V.
              Straits
      Offshore Letter of Credit Agreement dated July 31,
  2008.
  
  
 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:  June
      30,  2009
              By:
      /s/Michael S. Hudner
 Chairman
      of the Board, President and
 Chief Executive Officer
 
 
  
  CERTIFICATION
PURSUANT TO SECTION 302 (RULES 13A - 14(A) AND 15D - 14(A)) OF THE
SARBANES-OXLEY ACT OF 2002
 
 I,
Michael S. Hudner, certify that:
 
 1.   I
have reviewed this annual report on Form 20-F of B+H Ocean Carriers
Ltd.;
 
 2.   Based
on my knowledge, this report  does not  contain any untrue
statement of a material fact or  omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this report;
 
 3.   Based
on my knowledge, the
financial  statements,  and  other  financial
information included in this report, fairly present in all material respects the
financial  condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this report.
 
 4.   The
company’s other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and
have:
 
 (a)
              Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the Company, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
 (b)
              Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
 (c)
              Evaluated
      the effectiveness of the Company’s disclosure controls and procedures and
      presented in this annual report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and
 (d)
              Disclosed
      in this report any change in the Company’s internal control over financial
      reporting that occurred during the period covered by this report that has
      materially affected, or is reasonably likely to materially affect the
      Company’s internal control over financial reporting;
  and
 
 5.   The
Company’s other certifying officers and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the Company’s
auditors and the audit committee of the Company’s board of
directors:
 
 (a)
              All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over reporting which are reasonably likely
      to adversely affect the Company’s ability to record, process, summarize
      and report financial information;
and
 (b)
              Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the Company’s internal controls
      over financial reporting.
 
 Date:  June
30,
2009                                                            By:    /s/
Michael S. Hudner
 Michael S. Hudner
 Chairman of the Board, President
and
 Chief Executive Officer
  
  
 CERTIFICATION
PURSUANT TO SECTION 302 (RULES 13A - 14(A) AND 15D - 14(A)) OF THE
SARBANES-OXLEY ACT OF 2002
 
 I, R.
Anthony Dalzell, certify that:
 
 1.   I
have reviewed this annual report on Form 20-F of B+H Ocean Carriers
Ltd.;
 
 2.   Based
on my knowledge, this report  does not  contain any untrue
statement of a material fact or  omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this report;
 
 3.   Based
on my knowledge, the
financial  statements,  and  other  financial
information included in this report, fairly present in all material respects the
financial  condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this report.
 
 4.   The
company’s other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and
have:
 
 (e)
              Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the Company, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
 (f)
              Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
 (g)
              Evaluated
      the effectiveness of the Company’s disclosure controls and procedures and
      presented in this annual report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and
 (h)
              Disclosed
      in this report any change in the Company’s internal control over financial
      reporting that occurred during the period covered by this report that has
      materially affected, or is reasonably likely to materially affect the
      Company’s internal control over financial reporting;
  and
 
 5.   The
Company’s other certifying officers and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the Company’s
auditors and the audit committee of the Company’s board of
directors:
 
 (c)
              All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over reporting which are reasonably likely
      to adversely affect the Company’s ability to record, process, summarize
      and report financial information;
and
 (d)
              Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the Company’s internal controls
      over financial reporting.
 
 
 Date:  June 30, 2009                                                       By:    /s/R.
Anthony Dalzell
 R. Anthony Dalzell  Treasurer and Chief Financial Officer
 
   
 CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
 
 In
connection with the Annual Report on Form 20-F of B+H Ocean Carriers Ltd.; (the
“Company”) for the year ending December 31, 2008 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Michael S. Hudner,
Chairman of the Board, President and Chief Executive Officer and Class A
Director of the Company, certify, pursuant to 18 U.S.C.  1350, as
adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
 
 (1) 
      The Report fully complies with the requirements of Section 13(a) or 15(d),
      of the Securities Exchange Act of 1934;
and
 
 (2)
              The
      information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the
      Company.
 
 
 Date: 
June 30,
2009                                    By:    /s/
Michael S. Hudner
  Michael S. Hudner
 Chairman of the Board, President and
 Chief Executive Officer
 
  
  CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
 
 In
connection with the Annual Report on Form 20-F of B+H Ocean Carriers Ltd.; (the
“Company”) for the year ending December 31, 2008 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, R. Anthony
Dalzell, Treasurer and Chief Financial Officer and Class A Director of the
Company, certify, pursuant to 18 U.S.C.  1350, as adopted pursuant to
906 of the Sarbanes-Oxley Act of 2002, that:
 
 (1)The
      Report fully complies with the requirements of Section 13 (a) or 15(d), of
      the Securities Exchange Act of 1934;
and
 
 (2)The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
 
 
 
 
 
 Date:  June
30,
2009                                                      By:    /s/R.
Anthony Dalzell
 
 R. Anthony Dalzell
 Treasurer and Chief Financial 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, 2008 and 2007
                F-3Consolidated
      Statements of Income for the three years ended December 31, 2008, 2007 and
      2006
                F-4Consolidated
      Statements of Shareholders’ Equity for the three years ended December 31,
      2008, 2007 and 2006
                F-5Consolidated
      Statements of Cash Flows for the three years ended December 31, 2008, 2007
      and 2006.
                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, 2008 and 2007, and the related consolidated statements of
income, shareholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2008.  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, 2008 and 2007 and the consolidated results of its
operations and its cash flows for the each of the three years in the period
ended December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As more fully described in Note 3,
the Company’s inability to comply with financial covenants under its current
loan agreements as of December 31, 2008, its negative working capital position,
and other matters discussed in Note 3 raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regards
to these matters also are described in Note 3. The December 31, 2008
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
 
 
 
 /s/ Ernst & Young LLP
 Providence,
RI
 June 30,
2009
 
  F-2
  B+H
Ocean Carriers Ltd.
 Consolidated
Balance Sheets
 December
31, 2008 and 2007
 ASSETS
                      
                      2008
                      
                      
                      2007CURRENT
      ASSETS:Cash
      and cash equivalents
                      
                      $
                      30,483,501
                      
                      
                      $
                      61,604,868Marketable
      equity securities
                      
                      
                      233,779
                      
                      
                      
                      982,300Trade
      accounts receivable, less allowance for doubtful accounts
                        of
      $252,633 and $336,392 in 2008 and 2007, respectively
                      
                      
                      2,534,775
                      
                      
                      
                      4,748,262Vessels
      held for sale
                      
                      
                      17,735,000
                      
                      
                      
                      24,984,092Inventories
                      
                      
                      2,828,070
                      
                      
                      
                      3,406,856Prepaid
      expenses and other current assets
                      
                      
                      3,486,587
                      
                      
                      
                      1,682,264Total
      current assets
                      
                      
                      57,301,712
                      
                      
                      
                      97,408,642Vessels,
      at cost:Vessels
                      
                      
                      358,800,247
                      
                      
                      
                      344,351,597Less
      - Accumulated depreciation
                      
                      
                      (76,596,657
                      )
                      
                      
                      (61,888,379
                      )282,203,590
                      
                      
                      
                      282,463,218Investment
      in Nordan OBO 2 Inc.
                      
                      
                      12,425,181
                      
                      
                      
                      9,991,686Fair
      value of derivative instruments
                      
                      
                      -
                      
                      
                      
                      7,325,622Other
      assets
                      
                      
                      2,858,861
                      
                      
                      
                      3,644,306Total
      assets
                      
                      $
                      354,789,344
                      
                      
                      $
                      400,833,474LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                      
                      $
                      19,800,733
                      
                      
                      $
                      35,178,817Accrued
      liabilities
                      
                      
                      5,611,280
                      
                      
                      
                      3,111,242Accrued
      interest
                      
                      
                      510,754
                      
                      
                      
                      1,232,131Current
      portion of mortgage payable and unsecured debt
                      
                      
                      160,291,230
                      
                      
                      
                      36,807,601Floating
      rate bonds payable
                      
                      
                      15,500,000
                      
                      
                      
                      -Deferred
      income
                      
                      
                      6,818,299
                      
                      
                      
                      6,578,016Other
      liabilities
                      
                      
                      109,523
                      
                      
                      
                      234,300Total
      current liabilities
                      
                      
                      208,641,819
                      
                      
                      
                      83,142,107Fair
      value of derivative liability
                      
                      
                      4,982,914
                      
                      
                      
                      1,760,149Mortgage
      payable
                      
                      
                      -
                      
                      
                      
                      163,494,596Floating
      rate bonds payable
                      
                      
                      -
                      
                      
                      
                      20,000,000Commitments
      and contingencies (Note 8)
                      
                      
                      -
                      
                      
                      
                      -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, 5,555,426 and 6,866,615 sharesoutstanding
      as of December 31, 2008 and 2007, respectively
                      
                      
                      75,572
                      
                      
                      
                      75,572Paid-in
      capital
                      
                      
                      93,863,094
                      
                      
                      
                      93,863,094Retained
      earnings
                      
                      
                      66,564,545
                      
                      
                      
                      50,699,429Accumulated
      other comprehensive loss
                      
                      
                      (3,226,799
                      )
                      
                      
                      (824,786
                      )Treasury
      stock
                      
                      
                      (16,111,801
                      )
                      
                      
                      (11,376,687
                      )Total
      shareholders' equity
                      
                      
                      141,164,611
                      
                      
                      
                      132,436,622Total
      liabilities and shareholders' equity
                      
                      $
                      354,789,344
                      
                      
                      $
                      400,833,474
 F-3
  
 
 
 B+H
Ocean Carriers Ltd.
 Consolidated
Statements of Income
 For
the years ended December 31, 2008, 2007 and 2006
 2008
                      
                      
                      2007
                      
                      
                      2006Revenues:Voyage
      and time charter revenues
                      
                      $
                      104,018,073
                      
                      
                      $
                      110,917,094
                      
                      
                      $
                      95,591,276Other
      revenue
                      
                      
                      890,842
                      
                      
                      
                      1,499,737
                      
                      
                      
                      1,287,775Total
      revenues
                      
                      
                      104,908,915
                      
                      
                      
                      112,416,831
                      
                      
                      
                      96,879,051Operating
      expenses:Voyage
      expenses
                      
                      
                      28,097,799
                      
                      
                      
                      27,882,163
                      
                      
                      
                      14,792,322Vessel
      operating expenses, drydocking and survey costs
                      
                      
                      46,845,031
                      
                      
                      
                      39,366,478
                      
                      
                      
                      34,159,942Depreciation
                      
                      
                      16,443,807
                      
                      
                      
                      15,201,220
                      
                      
                      
                      14,958,342Amortization
      of deferred charges
                      
                      
                      8,755,356
                      
                      
                      
                      6,341,330
                      
                      
                      
                      1,854,000Impairment
      charge on vessel
                      
                      
                      7,364,675
                      
                      
                      
                      -
                      
                      
                      
                      -Gain
      on sale of vessels
                      
                      
                      (13,262,590
                      )
                      
                      
                      -
                      
                      
                      
                      -General
      and administrative:Management
      fees to related party
                      
                      
                      1,199,581
                      
                      
                      
                      2,252,608
                      
                      
                      
                      1,223,496Consulting
      and professional fees, and other expenses
                      
                      
                      4,836,247
                      
                      
                      
                      5,096,763
                      
                      
                      
                      4,030,827Total
      operating expenses
                      
                      
                      100,279,906
                      
                      
                      
                      96,140,562
                      
                      
                      
                      71,018,929Income
      from vessel operations
                      
                      
                      4,629,009
                      
                      
                      
                      16,276,269
                      
                      
                      
                      25,860,122Other
      income (expense):Interest
      expense
                      
                      
                      (11,249,461
                      )
                      
                      
                      (12,740,894
                      )
                      
                      
                      (10,676,048
                      )Interest
      income
                      
                      
                      1,156,151
                      
                      
                      
                      3,121,273
                      
                      
                      
                      2,377,298Income
      from investment in Nordan OBO 2 Inc.
                      
                      
                      3,933,495
                      
                      
                      
                      790,288
                      
                      
                      
                      1,262,846Gain
      (loss) on fair value of derivatives
                      
                      
                      16,055,794
                      
                      
                      
                      (3,419,797
                      )
                      
                      
                      (321,690
                      )Gain
      (loss) on value of interest rate swaps
                      
                      
                      (763,935
                      )
                      
                      
                      (1,250,395
                      )
                      
                      
                      318,253Loss
      on other investments
                      
                      
                      (240,937
                      )
                      
                      
                      (757,567
                      )
                      
                      
                      (46,468
                      )Gain
      on debt extinguishment
                      
                      
                      2,345,000
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      other income (expense), net
                      
                      
                      11,236,107
                      
                      
                      
                      (14,257,092
                      )
                      
                      
                      (7,085,809
                      )Net
      income
                      
                      $
                      15,865,116
                      
                      
                      $
                      2,019,177
                      
                      
                      $
                      18,774,313Basic
      earnings per common share
                      
                      $
                      2.36
                      
                      
                      $
                      0.29
                      
                      
                      $
                      2.67Diluted
      earnings per common share
                      
                      $
                      2.36
                      
                      
                      $
                      0.29
                      
                      
                      $
                      2.59Weighted
      average number of common shares outstanding:Basic
                      
                      
                      6,723,832
                      
                      
                      
                      6,994,843
                      
                      
                      
                      7,027,343Diluted
                      
                      
                      6,723,832
                      
                      
                      
                      7,031,210
                      
                      
                      
                      7,237,453
 
 
  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
      OtherCommon
                      
                      
                      Treasury
                      
                      
                      Paid-in
                      
                      
                      Retained
                      
                      
                      ComprehensiveStock
                      
                      
                      Stock
                      
                      
                      Capital
                      
                      
                      Earnings
                      
                      
                      Income
      (Loss)
                      
                      
                      TotalBalance,
      December 31, 2005
                      
                      
                      75,572
                      
                      
                      
                      (3,969,707
                      )
                      
                      
                      94,042,310
                      
                      
                      
                      29,905,939
                      
                      
                      
                      -
                      
                      
                      
                      120,054,114Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      18,774,313
                      
                      
                      
                      -
                      
                      
                      
                      18,774,313Change
      in fair value of cash flow hedge
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      18,183
                      
                      
                      
                      18,183Comprehensive
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      18,774,313
                      
                      
                      
                      18,183
                      
                      
                      
                      18,792,496Common
      stock issued (3)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (234,649
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (234,649
                      )Treasury
      shares issued (1)
                      
                      
                      -
                      
                      
                      
                      93,960
                      
                      
                      
                      165,133
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      259,093Treasury
      shares issued (2)
                      
                      
                      -
                      
                      
                      
                      142,349
                      
                      
                      
                      (111,579
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      30,770Treasury
      shares acquired (4)
                      
                      
                      -
                      
                      
                      
                      (2,921,642
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (2,921,642
                      )Balance,
      December 31, 2006
                      
                      
                      75,572
                      
                      
                      
                      (6,655,040
                      )
                      
                      
                      93,861,215
                      
                      
                      
                      48,680,252
                      
                      
                      
                      18,183
                      
                      
                      
                      135,980,182Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,019,177
                      
                      
                      
                      -
                      
                      
                      
                      2,019,177Change
      in fair value of cash flow hedge
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (842,969
                      )
                      
                      
                      (842,969
                      )Comprehensive
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,019,177
                      
                      
                      
                      (842,969
                      )
                      
                      
                      1,176,208Common
      stock issued (3)
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      (45,646
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (45,646
                      )Treasury
      shares issued (1)
                      
                      
                      -
                      
                      
                      
                      16,878
                      
                      
                      
                      16,634
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      33,512Treasury
      shares issued (2)
                      
                      
                      -
                      
                      
                      
                      1,088,239
                      
                      
                      
                      (887,549
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      200,690Treasury
      shares issued (5)
                      
                      
                      -
                      
                      
                      
                      537,560
                      
                      
                      
                      918,440
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,456,000Treasury
      shares acquired (4)
                      
                      
                      -
                      
                      
                      
                      (6,364,324
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (6,364,324
                      )Balance,
      December 31, 2007
                      
                      
                      75,572
                      
                      
                      
                      (11,376,687
                      )
                      
                      
                      93,863,094
                      
                      
                      
                      50,699,429
                      
                      
                      
                      (824,786
                      )
                      
                      
                      132,436,622Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15,865,116
                      
                      
                      
                      -
                      
                      
                      
                      15,865,116Change
      in fair value of cash flow hedge
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (2,402,013
                      )
                      
                      
                      (2,402,013
                      )Comprehensive
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      15,865,116
                      
                      
                      
                      (2,402,013
                      )
                      
                      
                      13,463,103Treasury
      shares acquired (4)
                      
                      
                      -
                      
                      
                      
                      (4,735,114
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (4,735,114
                      )Balance,
      December 31, 2008
                      
                      
                      75,572
                      
                      
                      
                      (16,111,801
                      )
                      
                      
                      93,863,094
                      
                      
                      
                      66,564,545
                      
                      
                      
                      (3,226,799
                      )
                      
                      
                      141,164,611
 
 Shares
outstanding at December 31, 2008, 2007 and 2006 totaled 5,555,426, 6,866,615 and
6,964,745, 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.
 (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.
 
 
 
 
  
 
 
 B+H
Ocean Carriers Ltd.
 Consolidated
Statements of Cash Flows
 For the years ended
December 31, 2008, 2007 and 2006
 2008
                      
                      
                      2007
                      
                      
                      2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                      
                      
                      15,865,116
                      
                      
                      $
                      2,019,177
                      
                      
                      $
                      18,774,313Adjustments
      to reconcile net income to net cash (used in) provided by operating
      activities:Vessel
      depreciation
                      
                      
                      16,443,807
                      
                      
                      
                      15,201,220
                      
                      
                      
                      10,471,342Amortization
      of deferred charges
                      
                      
                      8,755,356
                      
                      
                      
                      6,341,330
                      
                      
                      
                      6,341,000Impairment
      charge on vessel
                      
                      
                      7,364,675Gain
      on sale of vessels
                      
                      
                      (13,262,590
                      )
                      
                      
                      -
                      
                      
                      
                      -Loss
      on value of interest rate swaps
                      
                      
                      763,935
                      
                      
                      
                      1,250,395
                      
                      
                      
                      -Gain
      (loss) on value of put contracts
                      
                      
                      (14,494,776
                      )
                      
                      
                      3,419,797(Reduction)
      increase in allowance for uncollectible accounts
                      
                      
                      (83,759
                      )
                      
                      
                      216,000
                      
                      
                      
                      (109,000
                      )Other
      losses, net
                      
                      
                      326,194
                      
                      
                      
                      128,707
                      
                      
                      
                      49,905Compensation
      expense recognized under stock awards
                      
                      
                      -
                      
                      
                      
                      1,489,512
                      
                      
                      
                      -Gain
      on debt extinguishment
                      
                      
                      (2,345,000
                      )Changes
      in assets and liabilities:Decrease
      (increase)  in trade accounts receivable
                      
                      
                      2,297,246
                      
                      
                      
                      (2,431,552
                      )
                      
                      
                      (165,138
                      )Decrease
      (increase) in inventories
                      
                      
                      578,786
                      
                      
                      
                      (859,080
                      )
                      
                      
                      (1,692,690
                      )Increase
      in prepaid expenses and other current assets
                      
                      
                      (1,804,323
                      )
                      
                      
                      (341,350
                      )
                      
                      
                      (198,084
                      )(Decrease)
      increase in accounts payable
                      
                      
                      (15,378,084
                      )
                      
                      
                      23,720,892
                      
                      
                      
                      7,432,006Increase
      (decrease)  in accrued liabilities
                      
                      
                      2,500,038
                      
                      
                      
                      (766,337
                      )
                      
                      
                      2,129,670(Decrease)
      increase in accrued interest
                      
                      
                      (721,377
                      )
                      
                      
                      141,654
                      
                      
                      
                      635,857Increase
      (decrease) in deferred income
                      
                      
                      240,283
                      
                      
                      
                      (768,174
                      )
                      
                      
                      1,930,774(Decrease)
      increase in other liabilities
                      
                      
                      (124,777
                      )
                      
                      
                      83,589
                      
                      
                      
                      90,875Payments
      for special surveys
                      
                      
                      (7,691,627
                      )
                      
                      
                      (7,984,217
                      )
                      
                      
                      (7,100,744
                      )Total
      adjustments
                      
                      
                      (16,635,993
                      )
                      
                      
                      38,842,386
                      
                      
                      
                      19,815,773Net
      cash (used in) provided by operating activities
                      
                      
                      (770,877
                      )
                      
                      
                      40,861,563
                      
                      
                      
                      38,590,086CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      and investment in vessels
                      
                      
                      (6,829,373
                      )
                      
                      
                      (19,600,000
                      )
                      
                      
                      (16,190,000
                      )Proceeds
      from sale of vessels
                      
                      
                      38,116,601
                      
                      
                      
                      -
                      
                      
                      
                      -Investment
      in vessel conversion
                      
                      
                      (34,336,062
                      )
                      
                      
                      (39,107,941
                      )
                      
                      
                      (7,881,467
                      )Investment
      in Nordan OBO II Inc.
                      
                      
                      (3,933,495
                      )
                      
                      
                      (790,288
                      )
                      
                      
                      (14,326,398
                      )Dividends
      from Nordan OBO II Inc.
                      
                      
                      1,500,000
                      
                      
                      
                      1,375,000
                      
                      
                      
                      3,750,000Investment
      in put option contracts
                      
                      
                      -
                      
                      
                      
                      (10,008,075
                      )
                      
                      
                      (1,055,813
                      )Proceeds
      from sale of put option contracts
                      
                      
                      21,787,494
                      
                      
                      
                      -
                      
                      
                      
                      -Purchase
      of marketable equity securities
                      
                      
                      (2,123,942
                      )
                      
                      
                      (163,455
                      )
                      
                      
                      (469,006
                      )Redemption
      of marketable equity securities, net
                      
                      
                      2,664,367
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      cash provided (used) in investing activities
                      
                      
                      16,845,590
                      
                      
                      
                      (68,294,759
                      )
                      
                      
                      (36,172,684
                      )CASH
      FLOWS FROM FINANCING ACTIVITIES:Payments
      for debt financing costs
                      
                      
                      (294,999
                      )
                      
                      
                      (1,526,501
                      )
                      
                      
                      (1,481,505
                      )Issuance
      of common stock, net of issuance costs
                      
                      
                      -
                      
                      
                      
                      (45,646
                      )
                      
                      
                      (234,649
                      )Purchase
      of treasury stock
                      
                      
                      (4,735,114
                      )
                      
                      
                      (6,364,324
                      )
                      
                      
                      (2,921,642
                      )Issuance
      of treasury shares
                      
                      
                      -
                      
                      
                      
                      200,690
                      
                      
                      
                      289,863Purchase
      of debt securities
                      
                      
                      (2,155,000
                      )
                      
                      
                      -
                      
                      
                      
                      (5,000,000
                      )Proceeds
      from mortgage financing
                      
                      
                      30,000,000
                      
                      
                      
                      88,700,000
                      
                      
                      
                      22,263,000Proceeds
      from issuance of floating rate bonds
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      25,000,000Payments
      of unsecured debt
                      
                      
                      -
                      
                      
                      
                      (31,402,960
                      )
                      
                      
                      (1,356,092
                      )Payments
      of mortgage principal
                      
                      
                      (70,010,967
                      )
                      
                      
                      (38,914,223
                      )
                      
                      
                      (21,413,000
                      )Net
      cash (used) provided by financing activities
                      
                      
                      (47,196,080
                      )
                      
                      
                      10,647,036
                      
                      
                      
                      15,145,975Net
      (decrease) increase in cash and cash equivalents
                      
                      
                      (31,121,367
                      )
                      
                      
                      (16,786,160
                      )
                      
                      
                      17,563,377Cash
      and cash equivalents, beginning of year
                      
                      
                      61,604,868
                      
                      
                      
                      78,391,028
                      
                      
                      
                      60,827,651Cash
      and cash equivalents, end of year
                      
                      $
                      30,483,501
                      
                      
                      $
                      61,604,868
                      
                      
                      $
                      78,391,028
  
 
 
 
 NOTE
1 -- ORGANIZATION
 
 B+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, OBO (Ore/Bulk/Oil), an Accommodation Field Development Vessel
(“AFDV”)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 its common
stock.
 
 As of December 31, 2008, the Company
owned and operated four medium range and one panamax product tankers, five OBO
(Ore/Bulk/Oil) combination carriers and three bulk carriers. Through its
subsidiary,  Straits Offshore Ltd, the Company  entered into
an agreement to purchase an Accommodation Field Development Vessel which was
under construction in Malaysia and due to be delivered to the Company in first
quarter 2010. The Company also owns a 50% interest in the disponent owner of a
combination carrier through its interest in Nordan OBO 2 Inc (“Nordan”), which
was acquired in March 2006. The Company accounts for its interest in Nordan
under the equity method. As of December 31, 2007, the Company owned and operated
seven medium range and 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 accounting policies
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”), Seasak Holdings Ltd. (“Seasak”)
and Straits Offshore Ltd. (“Straits”).  Additionally, the 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.
 
 Reclassification
 
 Certain
reclassifications have been made to prior periods to conform to current period
presentation.
 
 Revenue
recognition, trade accounts receivable and concentration of credit
risk:
 
 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 mainly in the United Kingdom and
Norway. The Company performs periodic evaluations of the relative credit
standing of these financial institutions. 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 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, 2008, the Company’s
largest five accounts receivable balances represented 92% of total accounts
receivable. At December 31, 2007, the Company’s largest five accounts receivable
balances represented 86% of total accounts receivable. The allowance for
doubtful accounts was approximately $253,000 and $336,000 at December 31, 2008
and 2007, respectively. To date, the Company’s actual losses on past due
receivables have not exceeded its estimate of bad debts.
 
 During 2008, revenues from one customer
accounted for $34.5 million (33.1%) of total revenues. Revenue from one customer
accounted for $35.6 million (31.6%) of total revenues in 2007.  In
2006, revenue from one customer accounted for $32.9 million (34.0%) of total
revenues.   During the years ended December 31, 2008, 2007 and
2006, revenues from three significant customers accounted for $53.4 million
(51.4%), $23.9 million (32.0%) and $13.5 million (18.1%) 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.
 2008
                      
                      
                      2007
                      
                      
                      2006Weighted
      average number of shares outstanding - basic
                      
                      
                      6,723,832
                      
                      
                      
                      6,994,843
                      
                      
                      
                      7,027,343Net
      effect of outstanding stock options
                      
                      
                      -
                      
                      
                      
                      36,367
                      
                      
                      
                      207,834Stock
      compensation shares not issued
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,276Weighted
      average number of shares outstanding - diluted
                      
                      
                      6,723,832
                      
                      
                      
                      7,031,210
                      
                      
                      
                      7,237,453
 
 Cash
and cash equivalents:
 
 Cash and cash equivalents include cash,
certain money market accounts and overnight deposits with an original 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.
 
 Fair
value of financial instruments:
 
 The
following methods 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 $7.7 million for five vessels in 2008, $8.0 million for three
vessels in 2007 and $7.1 million in 2006 for two vessels. Three special surveys
were in process at December 31, 2008.  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 Cash Flows.
 
 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 $4.3 million,$2.2
million and $1.9 million for the years ended December 31, 2008, 2007 and 2006,
respectively. Interim drydocking expense was approximately $1.9 million, $0.5
million and $0.1 million for the years ended December 31, 2008, 2007 and 2006,
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. During the 3rd quarter
of 2008, the Company recorded an impairment charge of $7.4 related to the M/V
Algonquin.
 
 As a result of this impairment charge
and the decline in dry bulk carrier time charter rates, the Company determined
that an indicator of impairment existed with respect to its dry bulk
carriers.  Accordingly, the Company performed an impairment analysis
on those two vessels.  No indicators of impairment were present
related to the other vessels in the Company’s fleet.  The Company
compared the undiscounted cash flows to the carrying values for each bulk
carrier to determine if the vessels were recoverable. The analysis was performed
using historical average time charter rates as well as management’s estimation
and judgment in forecasting future rates and operating results.  These
estimates are consistent with the plans and forecasts used by management to
conduct its business. The analysis indicated that the carrying value of the
vessels was recoverable.
 
 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, 2008, the
Company is party to four interest rate swap agreements that qualify as cash flow
hedges; the aggregate fair value of these cash flow hedges is a liability of
$4.4 million.  At December 31, 2007, the Company was party to three
interest rate swap agreements that qualified as cash flow hedges; the aggregate
fair value of these cash flow hedges was a liability of $0.8
million.
 
 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, 2008, the Company is party to one interest rate swap agreement
having an aggregate notional value of $8.8 million, which does not qualify for
hedge accounting pursuant to SFAS No. 133. This swap agreement was entered into
to hedge debt tranches of 4.96%, expiring in December 2010. The fair value of
this non-qualifying swap agreement is a liability of $0.5 million.  At
December 31, 2007, the Company was party to two interest rate swap agreements
which did not qualify for hedge accounting.  The aggregate fair value
of these non-qualifying swap agreements was a liability of $0.9 million. These
are both reflected within Fair Value of Derivative Instruments on the
accompanying Consolidated Balance Sheets and are recorded as Gain (Loss) on
value of interest rate swaps in the Consolidated Statements of
Income.
 
 Additionally, at December 31, 2007, the
Company was 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, did not qualify for hedge
accounting under SFAS No. 133; and the changes in their fair value are therefore
recorded in Gain (Loss) on fair value of derivatives on the Income Statement. At
December 31, 2007, the aggregate fair value of these non-qualifying put options
was $7.3 million (favorable to the company) and was reflected within Fair Value
of Derivative Instruments on the accompanying Consolidated Balance Sheet.The put option contracts were sold or settled during 2008. The aggregate
realized gain on the sale of contracts totaled $16.1 million for the year ended
December 31, 2008. The aggregate unrealized loss on the value of the contracts
at December 31, 2007 totaled $3.4 million.
 
 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, 2008, the aggregate fair value of these non-qualifying foreign
exchange contracts is a liability of $57,000 and is reflected within Fair Value
of Derivative liability on the accompanying Consolidated Balance
Sheets.
 
 Fair
value measurements:
 
 The Company adopted SFAS No. 157, Fair Value Measurements, (“SFAS No.
157”) effective January 1, 2008.  SFAS No. 157 defines fair value as
the price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the
measurement date.  SFAS No. 157 also describes three levels of inputs
that may be used to measure fair value:
  Level 1 –
quoted prices in active markets for identical assets and
liabilities
 Level 2 –
observable inputs other than quoted prices in active markets for identical
assets and liabilities
 Level 3 –
unobservable inputs in which there is little or no market data available, which
require the reporting entity to develop its own assumptions
  The fair
value of the Company’s financial assets and liabilities measured at fair value
on a recurring basis were as follows:
 
 Fair Value Measurements at Reporting Date UsingQuoted
      Prices in Active
                      
                      
                      Significant
      Other
                      
                      
                      SignificantMarkets
      for Identical Assets
                      
                      
                      Observable
      Inputs
                      
                      
                      Unobservable
      InputsDescription
                      
                      12/31/08
                      
                      
                      Level 1
                      
                      
                      Level 2
                      
                      
                      Level 3Marketable
      securities
                      
                      $
                      233,779
                      
                      
                      $
                      233,779
                      
                      
                      
                      -
                      
                      
                      
                      -Interest
      rate hedge
                      
                      
                      (4,926,097
                      )
                      
                      
                      
                      
                      
                      
                      (4,926,097
                      )
                      
                      
                      -Foreign
      currency contracts
                      
                      
                      (56,817
                      )
                      
                      
                      
                      
                      
                      
                      (56,817
                      )
                      
                      
                      -Total
                      
                      $
                      (4,749,135
                      )
                      
                      $
                      233,779
                      
                      
                      $
                      (4,982,914
                      )
                      
                      
                      -The
      total fair value consist of :

                          1)
      Assets: $233,779 2) Liabilities:
$4,982,914
 
 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 May 2008, the Financial Accounting
Standards Board (“FASB”) issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, (“SFAS No. 162”), The Statement identified
the sources of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements that are
presented in conformity with generally accepted accounting principles in the
United States.  The Statement is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.”  We do not anticipate the adoption of
SFAS No. 162 to have a material impact on the Company’s results of operations or
financial position.
 
 In March 2008, the FASB issued SFAS No.
161, Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement No.
133 (“SFAS No. 161”).  SFAS No. 161 requires entities to
provide greater transparency through additional disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, results of operations, and cash flows.  SFAS No.
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company is currently evaluating
the potential impact of adopting SFAS No. 161 on the Company’s disclosures of
its derivative instruments and hedging activities.
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (revised 2007),
(“SFAS No. 141(R)”).   SFAS No. 141(R) amends SFAS No. 141, Business Combinations, and
provides revised guidance for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed, and any noncontrolling interest in the
acquiree.  It also provides disclosure requirements to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination.  SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008 and is to be applied
prospectively.  The Company is currently evaluating the potential
impact of adopting SFAS No. 141(R) on its consolidated financial position and
results of operations.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51, (“SFAS
No 160”) which establishes accounting and reporting standards pertaining to
ownership interest in subsidiaries held by parties other than the parent, the
amount of net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest, and the valuation of any
retained noncontrolling equity investment when a subsidiary is
deconsolidated.  SFAS No. 160 also establishes disclosure requirements
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners.  SFAS No. 160 is effective
for fiscal years beginning on or after December 15, 2008.  We do not
anticipate the adoption of SFAS No. 160 to have a material impact on the
Company’s results of operations or financial position.
   
 NOTE
3 -- GOING CONCERN
  As of
December 31, 2008, the Company was not in compliance with a particular covenant
contained in four loan agreements relating to $114 million of the Company’s
debt.  The covenant requires that Total Value Adjusted Equity (as
defined in the respective loan agreements) should represent not less than 30% of
Total Value Adjusted Assets (as defined) (the “VAE Ratio”).   At
December 31, 2008, the actual ratio was 28.5% or 1.5% below the minimum
requirement.  Although the banks concerned have advised the Company by
e-mail in each case that a waiver has been approved, which the Company believes
on advice of counsel is binding, the Company is seeking to confirm the waivers
in definitive written agreements.   The Company does not expect
that it will be able to meet all financial covenants of these four loan
agreements and certain of its other credit facilities in periods subsequent to
December 31, 2008 in the absence of further agreements with its lenders,
especially if current market conditions continue.   Accordingly,
the Company is currently in negotiations with its lenders to obtain waivers of
future potential technical breaches of covenants and restructure the
loans.   Until and unless these potential technical defaults are
waived, the lenders have the right to cancel the commitment and demand
repayment.  Management expects that lenders will not demand repayment
of the loans before their maturity, provided the Company pays loan installments
and accrued interest on their scheduled basis.  Notwithstanding the
waivers of the VAE Ratio defaults on the four loan agreements referred to above,
the Company has reclassified its long term debt under those loan agreements,
amounting to $77.8 million, as current as discussed in Note 7 to the
consolidated financial statements.  In addition to the potential
future technical defaults on other financial covenants which affect most of the
Company’s credit facilities, this reclassification triggers the cross default or
material adverse change clauses in the remaining outstanding
debt.  The Company, therefore, has reclassified the remaining $48.9
million of long term debt to current.
  While management expects to be able to
service all of its loans in accordance with current loan agreements, management
does not expect that cash generated from current operations would be sufficient
to repay the balance should the lenders demand total repayment.  In
addition, the Company may seek to raise additional liquidity from other
strategic alternatives.  However, there can be no assurances that
these efforts to restructure the loans or raise additional liquidity will be
successful.  In
connection with any waiver or amendment to the Company’s credit facilities, its
lenders may impose additional operating and financial restrictions on it or
modify the terms of its credit facility.  These restrictions may limit
the Company’s ability to, among other things, pay dividends in the future, make
capital expenditures or incur additional indebtedness, including through the
issuance of guarantees. In addition, its lenders may require the payment of
additional fees, require prepayment of a portion of its indebtedness to them,
accelerate the amortization schedule for its indebtedness and increase the
interest rates they charge it on its outstanding
indebtedness.
 
 The consolidated financial statements
have been prepared assuming the Company will continue as a going
concern.  Accordingly, the financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts, the amounts and classification of liabilities, or any other adjustments
that may result should the Company be unable to continue as a going concern,
other than the current classification of debt discussed in Note 7.
 
 NOTE 4 -- ACQUISITIONS AND OTHER
SIGNIFICANT TRANSACTIONS Vessel acquisitions and related amendments of
loan facility:
 
 On July 29, 2008, Straits entered into
an agreement to acquire an Accommodation Field Development Vessel (“AFDV”) upon
completion of the construction of the vessel for $35.9 million. On September 12,
2008, an amendment was agreed under which the price was increased by $2.6
million to $38.5 million to provide for additional equipment. The purchase is
secured by a $25.8 million letter of credit, which is secured, inter alia, by
the Company. The vessel is expected to be delivered in the first quarter of
2010. In addition, Straits has placed an order for a 300T crane and an 8 point
mooring system for the AFDV at a cost of Euros 3.4 million (approximately $4.8
million) and SGD $3.1 million (approximately $2.2 million),
respectively.
 
 On May 13, 2008, the Company, through a
wholly-owned subsidiary, entered into a $30 million term loan facility to
finance the previously completed conversion of M/V SACHEM to a bulk carrier. The
loan was secured by the vessel and by certain put option contracts entered into
by the Company tomitigate
the risk associated with the possibility of falling time charter rates.In October 2008 there was a repudiatory breach by the time charterer of
M/V SACHEM and the Company withdrew the vessel from the time charterer’s
service.  As a result of this breach and its effect on the security
provided to the mortgagee bank by the time charter, the bank reserved its
rights under the finance documents. On October 28, 2008, the Company agreed to
prepay $12.5 million of the loan and in consideration the bank agreed to waive
its rights under the finance documents arising in relation to this event of
default and to release the assignment of certain put
options.
 
 On
February 26, 2008, the Company, through a wholly-owned subsidiary, sold M/T
ACUSHNET for $7.8 million. The book value of the vessel of approximately $4.6
million was classified as held for sale at December 31, 2007.  A realized gain of $3.0 million is
reflected in the Consolidated Statements of Income.
 
 On March
27, 2008, the Company, through a wholly-owned subsidiary, sold M/V SACHUEST for
$31.3 million. The book value of the vessel of approximately $20.4 million was
classified as held for sale at December 31, 2007.  A realized gain of $10.3 is reflected
in the Consolidated Statements of Income.
 
 ·
                Prior year
      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 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 $25.5 million term loan facility to finance the conversion 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 a 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.
 
 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 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 72,389 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 included 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
 
 NOTE
5 -- OTHER ASSETS
 
 “Other
Assets” is comprised of the following:
 
 2008
                      
                      
                      2007Debt
      financing and related fees, net
                      
                      $
                      2,610,659
                      
                      
                      $
                      3,367,728Other
      assets
                      
                      
                      248,202
                      
                      
                      
                      276,578Total
      other assets
                      
                      $
                      2,858,861
                      
                      
                      $
                      3,644,306
 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
6-- 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 as 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 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 $6,743 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, 2008, 2007 and 2006, the Company paid
BHM fees of approximately $1,200,000, $1,126,000 and $970,000, 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.  General administrative and activity services are included in
Management fees to related party on the Consolidated Statements of
Income.
 
 The Company also pays BHM a monthly
rate of $13,844 per MR product tanker and $16,762 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, 2008, 2007 and 2006, the Company paid BHM fees of approximately
$2,540,000, $2,539,000 and $2,360,000, respectively, for these services.
Technical management fees are included in vessel operating expenses in the
Consolidated Statements of Income.
 
 The Company engages BHM to provide
commercial management services at a monthly rate of $10,980 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, 2008, 2007 and 2006, the Company paid BHM fees of
approximately $1,896,000, $1,835,000 and $1,558,000, respectively, for these
services. Commercial management fees are included in voyage expenses in the
Consolidated Statements of Income.
 
 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, 2008, 2007 and
2006, the Company paid Centennial manning fees of approximately $777,000,
$662,000 and $519,000, respectively. Manning fees are included in vessel
operating expenses in the Consolidated Statements of Income.
 
 BHES provides office space and
administrative services to Straits, a wholly-owned subsidiary and owner of the
AFDV to be delivered in the first quarter of 2010, for SGD5,000
(approximately$3,468) per month. The total paid to BHES for these services was
$13,000 in 2008.
 
 BHM received arrangement fees of
$232,000 in connection with the financing of the accommodation barge SAFECOM1 in
January 2009 and $300,000 in connection with the financing of M/T SACHEM in May
2008. BHM received brokerage commissions of $77,500 in connection with the sale
of the M/T ACUSHNET in February 2008, $313,000 in connection with the sale of
the M/V SACHUEST in March 2008 and $180,000 in connection with the sale of the
M/V ALGONQUIN in January 2009. The Company also paid BHM standard industry
chartering commissions of $720,000 in 2008, $717,000 in 2007 and $672,000 in
2006 in respect of certain time charters in effect during those periods.
Clearwater Chartering Corporation, a company affiliated through common
ownership, was paid $1,176,000, $1,362,000 and $1,062,000 in 2008, 2007 and
2006, respectively for standard industry chartering commissions. Brokerage
commissions are included in voyage expenses in the Consolidated Statements of
Income.
 
 During each of 2008, 2007 and 2006, the
Company paid fees of $501,000 to J.V. Equities, Inc. for consulting services
rendered. J.V. Equities is controlled by John LeFrere, a director of the
Company.
 
 During each of 2008, 2007 and 2006, the
Company paid fees of $56,000, $186,000 and $36,000 respectively, to R. Anthony
Dalzell, Chief Financial Officer, Vice President and a director of the Company,
or to a company deemed to be controlled by Mr. Dalzell for consulting
services
 
 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 were issued to BHM for distribution to individual members
of management, contingent upon certain performance criteria. The Company issued
the shares of common stock to BHM at the time the specific requirements of the
agreement were met. During 2007, 2,275 shares, bringing the total to 64,522
shares, had been issued from treasury stock where these shares were held for
this purpose. Compensation cost of $34,000 and $259,000, 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 and 2006, respectively. All shares in the plan were vested at
December 31, 2007.
 
 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 had 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,
2009, the Company placed the following insurance with Northampton Assurance Ltd
(“NAL”):
 
 ·
                66.5% of
      its Hull & Machinery (“H&M”) insurance for claims in excess of
      minimum $120/125,000 each incident, which insurance NAL fully
      reinsured.
 ·
                67.5%
      of its H&M insurance (Machinery claims only) on 6 vessels of up
      to $50,000 in excess of $120/125,000 each incident;
  and
 ·
                67.5%
      of its H&M insurance (Machinery claims only) on 1 vessel up to
      $100,000 in excess of $120/125,000 each
  incident.
 
 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 (Machinery Claims only) on 6 vessels of
      up to $50,000 in excess of $120/125,000 each incident;
  and
 ·
                70%
      of its H&M insurance (Machinery claims only) 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
periods ending December 31, 2008, 2007 and 2006, vessel operating expenses on
the Consolidated Statements of Income include approximately $982,000, $896,000
and $972,000, respectively, of insurance premiums paid to NAL (of which
$915,000, $813,000 and $884,000, respectively, was ceded to reinsurers) and
approximately $196,000, $188,000, and $185,000, respectively, of brokerage
commissions paid to NAL.
 
 The
Company had accounts payable to NAL of $397,000 and $135,000 at December 31,
2008 and 2007, respectively. NAL paid consulting fees of $174,000 during each of
the three years ending December 31, 2008 to a Company deemed to be controlled by
Mr. Dalzell for consulting services.
 
  
 NOTE
7-- MORTGAGE PAYABLE
 
 $27,300,000 term loan facility, dated
January 24, 2007
 
 On
January 24, 2007, the Company, through a wholly-owned subsidiary, entered into a
$27 million term loan facility to refinance the acquisition of M/V SAKONNET,
acquired in January 2006 under an unsecured financing agreement.
 
 The loan
is payable in four quarterly installments of $816,000 beginning on April 30,
2007 followed by twelve quarterly installments of $989,000 and finally sixteen
quarterly installments of $742,000 ending on January 30, 2015.
 
 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 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, 2008, the Company was in
compliance with these covenants.
 
 $34,000,000
term loan facility, dated December 7, 2007
 
 On
September 7, 2007, the Company, through a wholly-owned subsidiary, entered into
a $25.5 million term loan facility to finance the conversion 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 a 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, 2008, the Company was in compliance with these
covenants.
 
 The loan
is repayable in 16 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 are being 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%.
 
 $26,700,000
term loan facility, dated October 25, 2007
 
 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.
 
 On
February 26, 2008, the Company, through a wholly-owned subsidiary, sold M/T
ACHUSHNET for $7.8 million.  On March 27, 2008, the Company, through a
wholly-owned subsidiary, sold M/V SACHUEST for $31.3 million and paid the loan
down by $6,700,000.  The loan is payable in thirteen quarterly
installments of $812,500, the first on July 30, 2009, and one final payment of
$687,500 in October 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. As of December 31, 2008, the Company was not in compliance with the
minimum value adjusted equity ratio. The ratio was 28.5% versus the required
minimum of 30%.  The Company requested and Nordea agreed to reduce the
Value Adjusted Equity ratio from the required 30% to 20% effective December 31,
2008 through January 1, 2010.  Confirmation of the final waiver is
expected in the near term.  All other financial covenants for this
loan are in compliance.
 
 
 $202,000,000
term loan facility, dated August 29, 2006
 
 On
October 18, 2005 the Company, through wholly-owned subsidiaries entered into a
$138,100,000 Reducing Revolving Credit Facility 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 M/V ROGER M JONES
and  M/T SAGAMORE.
 
 On August
29, 2006 the Company, through wholly-owned subsidiaries entered into a
$202,000,000 Reducing Revolving Credit Facility Agreement which amended the
agreement entered into on October 18, 2005.
 
 The creditfacility contains certain restrictive
covenants, which were the subject of an amendment under the Addendum to the
Facility dated October 10, 2008, and mandatory prepayment in the event of the
total loss or sale of a vessel. The facility as amended requires that 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 115% if 75% of
the vessels are on a fixed charter of twelve months or more, 120% if 50% of the
vessels are on a 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 million and 6% of the aggregate
indebtedness of the Company on a consolidated basis, positive working capital
and adequate insurance coverage.  As of December 31, 2008, the Company
was not in compliance with the minimum value adjusted equity ratio. The ratio
was 28.5% versus the required minimum of 30%.  All other financial
covenants for this loan are in compliance.
  The
agreement requires that any modification to the financial covenants requires
approval by the majority of lenders or 66.67%.  The Company requested
that Nordea, as Agent, seek approval from the lenders to reduce the Value
Adjusted Equity ratio from the required 30% to 20% effective December 31, 2008
through January 1, 2010, in the form of a waiver.  The Company has
been informed by the Agent that banks representing greater than 66.7% have
approved the waiver.  Confirmation of the final waiver is expected in
the near term.
  
 The
facility is payable in ten quarterly installments of $5,450,000, the first on
December 15, 2006, ten quarterly installments of $5,100,000, the first 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 are being
amortized over the 5 year term of the loan.
 
 
 
 $8,000,000
term loan facility, dated September 5, 2006
 
 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 M/V SEAPOWET.
 
  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 115% if 75% of the vessels are on a fixed charter of twelve
months or more, 120% if 50% of the vessels are on a 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.  As of December 31, 2008, the Company was not in compliance
with the minimum value adjusted equity ratio. The ratio was 28.5% versus the
required minimum of 30%.   The Company requested and Nordea
agreed to reduce the Value Adjusted Equity ratio from the required 30% to 20%
effective December 31, 2008 through January 1, 2010.  Confirmation of the
final waiver is expected in the near term.  All other financial
covenants for this loan are in compliance.
   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 are being amortized over the 4 year term of
the loan.
  
 
 $30,000,000
term loan facility, dated May 13, 2008
 
 On May 13, 2008, the Company, through a
wholly-owned subsidiary, entered into a $30 million term loan facility to
finance the previously completed conversion of M/V SACHEM to a bulk carrier and
to refinance a previous loan dated October 12, 2006. The loan was secured by the
vessel, by an assignment of a time charter and by an assignment of certain put
option contracts entered into by the Company tomitigate the risk associated with the
possibility of falling time charter rates.
 
 In
October 2008 there was a repudiatory breach by the time charterer of M/V SACHEM
and the Company withdrew the vessel from the time charterer’s
service.  As a result of this breach and its effect on the security
provided to the mortgagee bank by the time charter, the bank reserved its
rights under the finance documents. On October 28, 2008, the Company agreed to
prepay $12.5 million of the loan and in consideration the bank agreed to waive
its rights under the finance documents arising in relation to this event of
default and to release the assignment of certain put options.
 
 The
facility contains certain financial covenants on the Company and requires
mandatory prepayment in the event of the total loss or sale of the
vessel.  The facility requires minimum value adjusted equity of $50
million, a minimum value adjusted equity ratio (as defined) of 30% and positive
working capital.  In addition, the Company is required to maintain
liquid assets, as defined, in an amount equal to the greater of $15 million or
6% of its long term debt.  As of December 31, 2008, the Company was
not in compliance with the minimum value adjusted equity ratio. The ratio was
28.5% versus the required minimum of 30%.  The Company requested and
DVB Group Merchant Bank agreed to reduce the Value Adjusted Equity ratio from
the required 30% to 20% effective December 31, 2008 through January 1,
2010.  Confirmation of the final waiver is expected in the near
term.  All other financial covenants for this loan are in
compliance.
 .
  The loan
is repayable in 13 quarterly installments of $750,000, beginning on February 17,
2009 and a balloon payment of $2,750,000 due on May 16, 2012. 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
$200,000 were capitalized and will be amortized over the 4 year term of the
loan.
 
  
 NOTE
8 – 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 were to be used for general corporate
purposes, including but not limited to: (i) conversion of single hull or double
sided tankers, (ii) acquisition of further vessels and (iii) continuance of
share buy-back.
 
 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, 2008 and 2007, the fair value of this interest
rate swap was a liability of $1,400,400 and $355,948 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%.
 
 During the 4th quarter of 2008, the
Company repurchased the unsecured bonds with a face value of $4.5 million and
realized a $2.3 million gain.
 
 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, 2008, the Company was in compliance with these
covenants.
 
 
 NOTE
9 -- 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 were issued to BHM for distribution to individual
members of management, contingent upon certain performance criteria. The Company
issued the shares of common stock to BHM at the time the specific requirements
of the agreement were 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 a contract
for the conversion of one single hull MR product tanker to bulk carrier.
Carrying out such conversion completely eliminates the present regulatory
phase-out dates applicable to the vessel. The conversion commenced in 2008 and
was completed in January 2009.
 
 On July 31, 2008 (as amended September
12, 2008), the Company, through a wholly-owned subsidiary, entered into an
agreement to acquire an AFDV upon completion of the construction of the vessel
for $38.5 million. The purchase is secured by a $25.8 million Letter of Credit,
which is secured, inter alia, by the Company. The vessel is expected to be
delivered in the first quarter of 2010.
 
 NOTE
10 -- SUPPLEMENTAL CASH FLOW INFORMATION
 
 Cash paid for interest was $11,884,000,
$12,256,000 and $9,971,000 during the years ended December 31, 2008, 2007 and
2006, respectively.
 
 NOTE
11 -- SUBSEQUENT EVENTS
 
 On
January 15, 2009, the Company, through a wholly-owned subsidiary, sold the M/V
ALGONQUIN for $18.0 million. No gain or loss was recorded as the carrying value
was written down to estimated fair value during 2008, resulting in an impairment
charge of 7.4 million during 2008.
 
 During the first quarter of 2009, the
Company purchased additional unsecured bonds with a face value of $2.0 million
and realized a $1.4 million gain.  As a result of this debt
extinguishment, total bonds payable at March 31, 2009 was $13.5
million.