UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
      20-F








oREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934





OR




xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the fiscal year ended December 31, 2008





OR





o  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. . . . . . . . . . . . .
..





Commission file number 001-33976





OMEGA NAVIGATION
ENTERPRISES, INC.


(Exact
name of Registrant as specified in its charter)





Omega Navigation
Enterprises, Inc.


(Translation
of Registrant's name into English)





Republic of the Marshall
Islands


(Jurisdiction
of incorporation or organization)





24 Kaningos
Street,Piraeus 185 34
Greece


(Address
of principal executive offices)





George
Kassiotis


Tel:  + 30 210 413
9130, Fax: + 30 210 422 0230


E-mail:
gkassiotis@omeganavigation.com


(Name,
Telephone, E-mail and/or Facsimile number and Address of


Company
Contact Person)





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








Title of each class which
      registered
            Name of each exchange on which
      registeredClass
      A Common stock, $0.01 par value
            Nasdaq
      Global Market





Securities
registered or to be 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:





As of December 31, 2008,
there were 12,183,019 shares of Class A common stock and 3,140,000 shares of
Class B common stock of the registrant issued and
outstanding.





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


o 
Yes   xNo


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.


o 
Yes   xNo


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.


x 
YesoNo





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


o 
Yes  o  
No





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 xNon-accelerated filer     o





Indicate by check mark which basis of accounting the
registrant has used to prepare the financial statements included in this
filing:





U.S. GAAP  x
            International Financial Reporting Standards as issued by the
      International Accounting StandardsoOther  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.


o  Item
17oItem 18





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).


o Yes  x 
No








TABLE
OF CONTENTS




PART
      I
            1ITEM
      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
            22ITEM
      4A – UNRESOLVED STAFF COMMENTS
            35ITEM
      5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
            35ITEM
      6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
            52ITEM
      7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
            56ITEM
      8 - FINANCIAL INFORMATION
            58ITEM
      9 - THE OFFER AND LISTING
            58ITEM
      10 - ADDITIONAL INFORMATION
            59ITEM
      11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
            66ITEM
      12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
            68PART
      II
            68ITEM
      13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
            68ITEM
      14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
            68ITEM
      15 - CONTROLS AND PROCEDURES
            68ITEM
      16A. AUDIT COMMITTEE FINANCIAL EXPERT
            69ITEM
      16B.  CODE OF ETHICS
            69ITEM
      16C.  PRINCIPAL ACCOUNTANT FEES AND RELATED
    SERVICES
            69ITEM
      16D.  EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT
      COMMITTEES
            69ITEM
      16E.  PURCHASES OF EQUITY SECURITIES BY ISSUER AND AFFILIATED
      PURCHASES
            69ITEM
      16G.  CORPORATE GOVERNANCE
            70PART
      III
            70ITEM
      17 - FINANCIAL STATEMENTS
            70ITEM
      18 - FINANCIAL STATEMENTS
            70ITEM
      19 -EXHIBITS
            70INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS
            F-1








iv




CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS






Matters
discussed in this document may constitute forward-looking
statements.




The
Private Securities Litigation Reform Act of 1995 provides safe harbour
protections for forward-looking statements in order to encourage companies to
provide prospective information about their business. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements, which
are other than statements of historical facts.




Please
note in this annual report, "we", "us", "our", the "Company", and "Omega" all
refer to Omega Navigation Enterprises, Inc. and its subsidiaries.




Omega
Navigation Enterprises, Inc., or the Company, desires to take advantage of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
and is including this cautionary statement in connection with this safe harbor
legislation. This document and any other written or oral statements made by us
or on our behalf may include forward-looking statements, which reflect our
current views with respect to future events and financial performance. The words
"believe", "anticipate", "intends", "estimate", "forecast", "project", "plan",
"potential", "will", "may", "should", "expect" and similar expressions identify
forward-looking statements.




The
forward-looking statements in this document are based upon various assumptions,
many of which are based, in turn, upon further assumptions, including without
limitation, managements examination of historical operating trends, data
contained in our records and other data available from third parties. Although
we believe that these assumptions were reasonable when made, because these
assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond our
control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections.




In
addition to these important factors and matters discussed elsewhere herein and
in the documents incorporated by reference herein, important factors that, in
our view, could cause actual results to differ materially from those discussed
in the forward-looking statements include the strength of world economies and
currencies, general market conditions, including fluctuations in charter hire
rates and vessel values, changes in the demand for product tanker capacity,
changes in the Company's operating expenses, including bunker prices, vessels
breakdowns and instances of off-hires, availability of financing and
refinancing, drydocking and insurance costs, changes in governmental rules and
regulations, changes in income tax legislation or actions taken by regulatory
authorities, potential liability from pending or future litigation, general
domestic and international political conditions, potential disruption of
shipping routes due to accidents or political events, and other important
factors described from time to time in the reports filed by the Company with the
Securities and Exchange Commission.











v







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 INFORMATION




A.
Selected Financial Data




The
following table sets forth our selected consolidated financial data as of
December 31, 2005, 2006, 2007 and 2008 for the period from February 28, 2005
(date of inception) through December 31, 2005 and for the years ended December
31, 2006, 2007 and 2008. We refer you to the notes to our consolidated financial
statements for a discussion of the basis on which our consolidated financial
statements are presented. The information provided below should be read in
conjunction with Item 5 "Operating and Financial Review and Prospects" and the
consolidated financial statements, related notes and other financial information
included herein.




In
September 2006, we decided to dispose of our drybulk carrier fleet and sell it
to an unrelated third party. Such operations, which have been eliminated from
the ongoing operations and cash flows of the company, are now presented as
discontinued operations in the consolidated statements of income.




As
      of and for the year ended December 31,As
      of December 31, 2005 and for the period from February 28, 2005 through
      December 31, 2005
            
            2006
            
            2007
            
            2008





(Expressed
in thousands of U.S. Dollars – except share, per share data and average daily
results)





INCOME
      STATEMENT DATAContinuing
      operationsVoyage
      revenues
                  
                  $
                  -
                  
                  
                  $
                  26,867
                  
                  
                  $
                  69,890
                  
                  
                  $
                  77,713Voyage
      expenses
                  
                  
                  -
                  
                  
                  
                  (341
                  )
                  
                  
                  (930
                  )
                  
                  
                  (1,032
                  )Vessel
      operating expenses
                  
                  
                  -
                  
                  
                  
                  (5,669
                  )
                  
                  
                  (13,121
                  )
                  
                  
                  (15,486
                  )Depreciation
      and amortization
                  
                  
                  -
                  
                  
                  
                  (7,236
                  )
                  
                  
                  (17,557
                  )
                  
                  
                  (18,868
                  )Management
      fees
                  
                  
                  -
                  
                  
                  
                  (568
                  )
                  
                  
                  (1,110
                  )
                  
                  
                  (1,243
                  )Options'
      premium
                  
                  
                  -
                  
                  
                  
                  (200
                  )
                  
                  
                  (200
                  )
                  
                  
                  -General
      and administrative expenses (including $457 and $1,355 of non cash
      compensation expenses in 2007 and 2008 respectively)
                  
                  
                  (754
                  )
                  
                  
                  (2,354
                  )
                  
                  
                  (5,088
                  )
                  
                  
                  (6,085
                  )Foreign
      currency gains/(losses)
                  
                  
                  3
                  
                  
                  
                  (33
                  )
                  
                  
                  (90
                  )
                  
                  
                  44Operating
      income/(loss)
                  
                  
                  (751
                  )
                  
                  
                  10,466
                  
                  
                  
                  31,794
                  
                  
                  
                  35,043Interest
      and finance costs
                  
                  
                  (1
                  )
                  
                  
                  (7,483
                  )
                  
                  
                  (18,579
                  )
                  
                  
                  (14,385
                  )Interest
      income
                  
                  
                  12
                  
                  
                  
                  1,837
                  
                  
                  
                  1,821
                  
                  
                  
                  711Change
      in fair value of warrant
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,071
                  
                  
                  
                  3,156Loss
      on derivative instruments
                  
                  
                  -
                  
                  
                  
                  (255
                  )
                  
                  
                  (1,221
                  )
                  
                  
                  (13,586
                  )Income/(loss)
      from continuing operations
                  
                  $
                  (740
                  )
                  
                  $
                  4,565
                  
                  
                  $
                  14,886
                  
                  
                  $
                  10,939





1





Discontinued
      operationsIncome/(loss)
      from discontinued operations of the dry-bulk carrier fleet (including a
      gain on sale of vessel of $1,012 in 2005, a gain on extinguishment of debt
      of $5,000 in 2006, and an impairment loss on disposal of the drybulk
      carrier vessels of $1,686 in 2006).
                  
                  $
                  5,118
                  
                  
                  $
                  9,563
                  
                  
                  $
                  (155
                  )
                  
                  $
                  20Net
      income
                  
                  $
                  4,378
                  
                  
                  $
                  14,128
                  
                  
                  $
                  14,731
                  
                  
                  $
                  10,959Earnings/
      (Loss) per share from continuing operationsEarnings/
      (Loss)per class A shares basic
                  
                  $
                  (0.23
                  )
                  
                  $
                  0.42
                  
                  
                  $
                  0.98
                  
                  
                  $
                  0.71Earnings/
      (Loss)per class A shares diluted
                  
                  $
                  (0.23
                  )
                  
                  $
                  0.42
                  
                  
                  $
                  0.95
                  
                  
                  $
                  0.69Earnings/
      (Loss)per class B shares basic and diluted
                  
                  $
                  (0.23
                  )
                  
                  $
                  0.30
                  
                  
                  $
                  0.98
                  
                  
                  $
                  0.71Earnings
      per share from continuing and discontinued operationsEarnings
      per class A shares basic
                  
                  $
                  1.68
                  
                  
                  $
                  1.29
                  
                  
                  $
                  0.97
                  
                  
                  $
                  0.71Earnings
      per class A shares diluted
                  
                  $
                  1.68
                  
                  
                  $
                  1.29
                  
                  
                  $
                  0.94
                  
                  
                  $
                  0.69Earnings
      per class B shares basic and diluted
                  
                  $
                  1.39
                  
                  
                  $
                  0.93
                  
                  
                  $
                  0.97
                  
                  
                  $
                  0.71Weighted
      average number of Class A common shares basic
                  
                  
                  10,000
                  
                  
                  
                  8,689,452
                  
                  
                  
                  12,010,000
                  
                  
                  
                  12,057,717Weighted
      average number of Class A common shares diluted
                  
                  
                  10,000
                  
                  
                  
                  8,689,452
                  
                  
                  
                  12,488,976
                  
                  
                  
                  12,610,219Weighted
      average number of Class B common shares basic and diluted
                  
                  
                  3,140,000
                  
                  
                  
                  3,140,000
                  
                  
                  
                  3,140,000
                  
                  
                  
                  3,140,000Cash
      dividends
                  
                  $
                  -
                  
                  
                  $
                  1.00
                  
                  
                  $
                  2.00
                  
                  
                  $
                  2.00BALANCE
      SHEET DATACash
      and cash equivalents
                  
                  $
                  5,058
                  
                  
                  $
                  3,862
                  
                  
                  $
                  8,893
                  
                  
                  $
                  16,811Restricted
      cash (current and non-current)
                  
                  
                  500
                  
                  
                  
                  6,477
                  
                  
                  
                  5,498
                  
                  
                  
                  5,297Total
      current assets
                  
                  
                  5,738
                  
                  
                  
                  88,974
                  
                  
                  
                  10,838
                  
                  
                  
                  18,638Total
      fixed assets
                  
                  
                  85,491
                  
                  
                  
                  350,631
                  
                  
                  
                  506,223
                  
                  
                  
                  500,221Total
      assets
                  
                  
                  92,392
                  
                  
                  
                  443,831
                  
                  
                  
                  522,485
                  
                  
                  
                  525,296Short
      term debt, sellers' notes and current portion of long-term
      debt
                  
                  
                  74,994
                  
                  
                  
                  49,133
                  
                  
                  
                  781
                  
                  
                  
                  138Total
      current liabilities
                  
                  
                  77,984
                  
                  
                  
                  54,509
                  
                  
                  
                  7,440
                  
                  
                  
                  14,992Long-term
      debt
                  
                  
                  -
                  
                  
                  
                  188,944
                  
                  
                  
                  322,565
                  
                  
                  
                  335,112Total
      stockholders' equity
                  
                  $
                  14,408
                  
                  
                  $
                  200,097
                  
                  
                  $
                  184,874
                  
                  
                  $
                  166,604CASH
      FLOW DATA
                    (Continuing
      operations)Net
      cash provided by operating activities
                  
                  $
                  345
                  
                  
                  $
                  15,002
                  
                  
                  $
                  33,956
                  
                  
                  $
                  40,055Net
      cash used in investing activities
                  
                  
                  -
                  
                  
                  
                  (358,067
                  )
                  
                  
                  (165,178
                  )
                  
                  
                  (12,820
                  )Net
      cash provided by/ (used in) financing activities
                  
                  
                  8,989
                  
                  
                  
                  338,427
                  
                  
                  
                  92,875
                  
                  
                  
                  (19,317
                  )EBITDA
      (1)
                  
                  $
                  (751
                  )
                  
                  $
                  17,702
                  
                  
                  $
                  50,422
                  
                  
                  $
                  57,068Net
      cash provided by operating activities
                  
                  $
                  9,571
                  
                  
                  $
                  22,730
                  
                  
                  $
                  33,261
                  
                  
                  $
                  40,055Net
      cash used in investing activities
                  
                  
                  (43,364
                  )
                  
                  
                  (358,067
                  )
                  
                  
                  (83,710
                  )
                  
                  
                  (12,820
                  )Net
      cash provided by/ (used in) financing activities
                  
                  
                  38,851
                  
                  
                  
                  334,141
                  
                  
                  
                  55,480
                  
                  
                  
                  (19,317
                  )EBITDA
      (1)
                  
                  $
                  12,260
                  
                  
                  $
                  32,578
                  
                  
                  $
                  50,395
                  
                  
                  $
                  57,088





2





FLEET
      DATAPanamax
      tankersAverage
      number of vessels (2)
                
                
                -
                
                
                
                2
                
                
                
                5
                
                
                
                6Number
      of vessels at end of period
                
                
                -
                
                
                
                4
                
                
                
                6
                
                
                
                6Average
      age of fleet (in years)
                
                
                -
                
                
                
                2
                
                
                
                2
                
                
                
                3Ownership
      days (3)
                
                
                -
                
                
                
                753
                
                
                
                1,989
                
                
                
                2,196Available
      days (4)
                
                
                -
                
                
                
                753
                
                
                
                1,989
                
                
                
                2,186Operating
      days (5)
                
                
                -
                
                
                
                753
                
                
                
                1,989
                
                
                
                2,186Fleet
      utilization (6)
                
                
                -
                
                
                
                100
                %
                
                
                100
                %
                
                
                100
                %Handymax
      tankersAverage
      number of vessels (2)
                
                
                -
                
                
                
                1
                
                
                
                2
                
                
                
                2Number
      of vessels at end of period
                
                
                -
                
                
                
                2
                
                
                
                2
                
                
                
                2Average
      age of fleet (in years)
                
                
                -
                
                
                
                0
                
                
                
                1
                
                
                
                2Ownership
      days (3)
                
                
                -
                
                
                
                369
                
                
                
                730
                
                
                
                732Available
      days (4)
                
                
                -
                
                
                
                369
                
                
                
                730
                
                
                
                732Operating
      days (5)
                
                
                -
                
                
                
                369
                
                
                
                730
                
                
                
                732Fleet
      utilization (6)
                
                
                -
                
                
                
                100
                %
                
                
                100
                %
                
                
                100
                %AVERAGE
      DAILY RESULTSPanamax
      tankersTime
      charter equivalent (TCE) rate (7)
                
                $
                -
                
                
                $
                25,096
                
                
                $
                25,013
                
                
                $
                25,029Daily
      vessel operating expenses (8)
                
                $
                -
                
                
                $
                5,191
                
                
                $
                4,959
                
                
                $
                5,406Handymax
      tankersTime
      charter equivalent (TCE) rate (7)
                
                $
                -
                
                
                $
                20,675
                
                
                $
                20,786
                
                
                $
                20,772Daily
      vessel operating expenses (8)
                
                $
                -
                
                
                $
                4,768
                
                
                $
                4,463
                
                
                $
                4,938








(1)
            EBITDA
      represents net income before interest, taxes, depreciation and
      amortization. EBITDA is a non-GAAP measure and does not represent and
      should not be considered as an alternative to net income or cash flow from
      operations, as determined by U.S. GAAP. Our calculation of EBITDA may not
      be comparable to that reported by other companies. EBITDA is included here
      because it is a basis upon which we assess our liquidity position, because
      it is used by our lenders as a measure of our compliance with certain loan
      covenants, and because we believe that it presents useful information to
      investors regarding our ability to service and/or incur
      indebtedness.




The
following tables reconcile net cash from operating activities, as reflected in
the consolidated statement of cash flows for the period from February 28, 2005
(date of inception) through December 31, 2005 and for the years ended December
31, 2006, 2007 and 2008, to EBITDA:






Year
      ended December 31,Continuing Operations
                
                For
      the period from February 28, 2005 through December 31,
2005
                
                
                2006
                
                
                2007
                
                
                2008Net
      cash from operating activities
                
                $
                345
                
                
                $
                15,002
                
                
                $
                33,956
                
                
                $
                40,055Net
      increase in current and non current assets
                
                
                -
                
                
                
                973
                
                
                
                532
                
                
                
                285Net
      increase/ (decrease) in current liabilities excluding bank debt and
      sellers credit
                
                
                (1,085
                )
                
                
                (3,465
                )
                
                
                (886
                )
                
                
                466Stock
      based compensation
                
                
                -
                
                
                
                -
                
                
                
                (457
                )
                
                
                (1,355
                )Write
      off of option's premium
                
                
                -
                
                
                
                (200
                )
                
                
                (200
                )
                
                
                -Change
      in fair value of warrant
                
                
                -
                
                
                
                -
                
                
                
                1,071
                
                
                
                3,156Payments
      for drydocking costs
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                538Net
      interest expense
                
                
                (11
                )
                
                
                5,588
                
                
                
                16,713
                
                
                
                14,591Amortization
      of financing costs
                
                
                -
                
                
                
                (196
                )
                
                
                (307
                )
                
                
                (668
                )EBITDA
                
                $
                (751
                )
                
                $
                17,702
                
                
                $
                50,422
                
                
                $
                57,068









3







Year
      ended December 31,Continuing and Discontinued
      operations
                
                For
      the period from February 28, 2005 through December 31,
2005
                
                
                2006
                
                
                2007
                
                
                2008Net
      cash from operating activities
                
                $
                9,571
                
                
                $
                22,730
                
                
                $
                33,261
                
                
                $
                40,055Net
      increase in current and non current assets
                
                
                180
                
                
                
                987
                
                
                
                360
                
                
                
                285Net
      increase/ (decrease) in current liabilities excluding bank debt and
      sellers credit
                
                
                (2,868
                )
                
                
                (2,476
                )
                
                
                (134
                )
                
                
                486Gain/(impairment
      loss) from sale of vessels
                
                
                1,012
                
                
                
                (1,685
                )
                
                
                -
                
                
                
                -Gain
      on extinguishment of debt
                
                
                -
                
                
                
                5,000
                
                
                
                -
                
                
                
                -Stock
      based compensation
                
                
                -
                
                
                
                -
                
                
                
                (457
                )
                
                
                (1,355
                )Write
      off of option's premium
                
                
                -
                
                
                
                (200
                )
                
                
                (200
                )
                
                
                -Change
      in fair value of warrant
                
                
                -
                
                
                
                -
                
                
                
                1,071
                
                
                
                3,156Payment
      for drydocking costs
                
                
                360
                
                
                
                -
                
                
                
                -
                
                
                
                538Net
      interest expense
                
                
                4,137
                
                
                
                8,564
                
                
                
                16,841
                
                
                
                14,591Amortization
      of financing costs
                
                
                (132
                )
                
                
                (342
                )
                
                
                (347
                )
                
                
                (668
                )EBITDA
                
                $
                12,260
                
                
                $
                32,578
                
                
                $
                50,395
                
                
                $
                57,088








(2)
            Average
      number of vessels is the number of vessels that constituted our fleet for
      the relevant period, as measured by the sum of the number of days each
      vessel was a part of our fleet during the period divided by the number of
      calendar days in the period.




(3)
            Ownership
      days are the aggregated number of days in a period during which each
      vessel in our fleet has been owned by us. Ownership days are an indicator
      of the size of our fleet over a period and affect both the amount of
      revenues and the amount of expenses that we record during a
      period.




(4)
            Available
      days are the number of our ownership days less the aggregate number of
      days that our vessels are off-hire due to scheduled repairs or repairs
      under guarantee, vessel upgrades or special surveys. The shipping industry
      uses available days to measure the number of days in a period during which
      vessels should be capable of generating
  revenues.




(5)
            Operating
      days are the number of available days in a period less the aggregate
      number of days that our vessels are off-hire due to unforeseen
      circumstances. The shipping industry uses operating days to measure the
      aggregate number of days in a period during which vessels actually
      generate revenues.




(6)
            We
      calculate fleet utilization by dividing the number of operating days
      during a period by the number of our available days during the period. The
      shipping industry uses fleet utilization to measure a company's efficiency
      in finding suitable employment for its vessels and minimizing the number
      of days that its vessels are off-hire for reasons other than scheduled
      repairs or repairs under guarantee, vessel upgrades, special surveys or
      vessel positioning.




(7)
            Time
      charter equivalent, or TCE, is a measure of the average daily revenue
      performance of a vessel on a per voyage basis. Our method of calculating
      TCE is consistent with industry standards and is determined by dividing
      voyage revenues (net of voyage expenses) by available days for the
      relevant time period. Time charter equivalent revenue and TCE are not
      measures of financial performance under U.S. GAAP and may not be
      comparable to similarly titled measures of other companies. Voyage
      expenses primarily consist of port, canal and fuel costs that are unique
      to a particular voyage, which would otherwise be paid by the charterer
      under a time charter contract, as well as commissions. Currently, we do
      not incur port and canal charges and fuel costs as part of our vessels'
      overall expenses, because all of our vessels are employed under time
      charters that require the charterer to bear all voyage expenses, except
      for commissions. TCE is a standard shipping industry performance measure
      used primarily to compare period-to-period changes in a shipping company's
      performance despite changes in the mix of charter types (i.e., spot
      charters, time charters and bareboat charters) under which the vessels may
      be employed between the periods. The following table reflects the
      calculation of our TCE rate for the period from February 28, 2005 (date of
      inception) through December 31, 2005 and for the years ended December 31,
      2006, 2007 and 2008 (in thousands of U.S. dollars, except for TCE rate,
      which is expressed in U.S. dollars, and available
  days).








4







Year
      ended December 31,For
      the period from February 28, 2005 through December 31,
2005
                
                
                2006
                
                
                2007
                
                
                2008Panamax
      tankersVoyage
      revenues
                
                $
                -
                
                
                $
                19,141
                
                
                $
                54,508
                
                
                $
                62,214Less:
      Voyage expenses
                
                
                -
                
                
                
                (244
                )
                
                
                (722
                )
                
                
                (829
                )Less:
      Profit share
                
                
                -
                
                
                
                -
                
                
                
                (4,034
                )
                
                
                (6,671
                )Time
      charter equivalent revenues
                
                $
                -
                
                
                $
                18,897
                
                
                $
                49,752
                
                
                $
                54,714Available
      days
                
                
                -
                
                
                
                753
                
                
                
                1,989
                
                
                
                2,186Time
      charter equivalent (TCE) rate
                
                $
                -
                
                
                $
                25,096
                
                
                $
                25,013
                
                
                $
                25,029Handymax
      tankersVoyage
      revenues
                
                $
                -
                
                
                $
                7,726
                
                
                $
                15,382
                
                
                $
                15,499Less:
      Voyage expenses
                
                
                -
                
                
                
                (97
                )
                
                
                (208
                )
                
                
                (203
                )Less:
      Profit share
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (91
                )Time
      charter equivalent revenues
                
                $
                -
                
                
                $
                7,629
                
                
                $
                15,174
                
                
                $
                15,205Available
      days
                
                
                -
                
                
                
                369
                
                
                
                730
                
                
                
                732Time
      charter equivalent (TCE) rate
                
                $
                -
                
                
                $
                20,675
                
                
                $
                20,786
                
                
                $
                20,772






(8)
            Daily
      vessel operating expenses, which include crew wages and related costs, the
      cost of insurance, expenses relating to repairs and maintenance (excluding
      drydocking), the cost of spares and consumable stores, tonnage taxes and
      other miscellaneous expenses, are calculated by dividing vessel operating
      expenses by ownership days for the relevant period. For the year ended
      December 31, 2007 the balance of vessel operating expenses includes pre
      delivery expenses amounted to $0.8 million for the Panamax product
      tankers. For the year ended December 31, 2006 the balance of vessel
      operating expenses includes pre delivery expenses amounted to $0.4 million
      for the Panamax product tankers and $0.4 million for the Handymax product
      tankers.




B.
Capitalization and Indebtedness




Not
applicable.




C.
Reasons For the Offer and Use of Proceeds




Not
applicable.




D.
Risk Factors






5




Some of
the following risks relate principally to the industry in which we operate and
our business in general. The risks and uncertainties described below are not the
only ones we face.  Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations.  If any of the following risks occur, our business,
financial condition, operating results and cash flows could be materially
adversely affected and the trading price of our securities could
decline.




Industry
Specific Risk Factors




Charter
rates for product tankers have declined significantly and may decrease in the
future, which may adversely affect our earnings




The
product tanker sector is cyclical with volatility in charter hire rates and
industry profitability. The degree of charter hire rate volatility among
different types of product tankers has varied widely and after reaching
historical highs in mid-2008, declined significantly from those historical high
levels. If the shipping industry is depressed in the future when our charters
expire or at a time when we may want to sell a vessel, our revenues, earnings,
available cash flow and ability to pay dividends may be adversely affected. In
addition, a further decline in charter hire rates likely will cause the value of
our vessels to decline further. Four of our charters are scheduled to expire
during 2009. We cannot assure you that we will be able to successfully
charter our vessels in the future or renew our existing charters at rates
sufficient to allow us to operate our business profitably, meet our obligations
or pay dividends to our shareholders. Our ability to re-charter our vessels on
the expiration or termination of our current charters, the charter rates payable
under any replacement charters and vessel values will depend upon, among other
things, economic conditions in the product tanker market at that time, changes
in the supply and demand for vessel capacity and changes in the supply and
demand for oil and oil products. The factors affecting the supply and
demand for product tankers are outside of our control and are unpredictable. The
nature, timing, direction and degree of changes in industry conditions are also
unpredictable.




The
factors that influence the demand for vessel capacity include:




·
              demand for oil and oil
products;
 
 ·
              supply of oil and oil
products;
 
 ·
              regional availability of refining
  capacity;
  ·
                the globalization of
manufacturing;
 
 ·
                global and regional economic and political
    conditions;
 
 ·
                developments in international
trade;


·
            changes in seaborne and other transportation patterns, including
      changes in the distances over which cargoes are
    transported;







·
            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;





·
            the
      scrapping rate of older vessels;





·
            the
      price of steel and vessel
equipment;






6







·
            changes
      in environmental and other regulations that may limit the useful lives of
      vessels;





·
            the
      number of vessels that are out of service;
and





·
            port
      or canal congestion.




If the
number of new vessels delivered exceeds the number of vessels being scrapped and
lost, vessel capacity will increase. If the supply of vessel capacity increases
but the demand for vessel capacity does not increase correspondingly, charter
rates and vessel values could materially decline.




The
value of our vessels may fluctuate, which may adversely affect our
liquidity




Vessel
values can fluctuate substantially over time due to a number of different
factors, including:




·
            general
      economic and market conditions affecting the shipping
      industry;




·
            competition
      from other shipping companies;




·
            the
      types and sizes of available
vessels;




·
            the
      availability of other modes of
transportation;




·
            increases
      in the supply of vessel capacity;




·
            the
      cost of newbuildings;




·
            prevailing
      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, changes in applicable environmental or other regulations or
      standards, or otherwise.




In
addition, as vessels grow older, they generally decline in value. Due to the
cyclical nature of the product tanker market, if for any reason we sell vessels
at a time when prices have fallen, we could incur a loss and our business,
results of operations, cash flows, financial condition and ability to pay
dividends could be adversely affected.




The
market value of our vessels have declined and may further decrease, which could
lead to a default under our credit facilities, the loss of our vessels and/or we
may incur a loss if we sell vessels following a decline in their market
value




The fair
market values of our vessels have generally experienced high volatility and have
recently declined significantly. If the market value of our fleet declines
further, we may not be in compliance with certain provisions of our credit
facilities and we may not be able to refinance our debt or obtain additional
financing. Including the requirement that the market value of the vessels in our
fleet is at least 120% of the aggregate outstanding principal balance of our
borrowings under our credit facilities. If we are unable to comply with
covenants under our credit facilities and are not able to obtain covenant
waivers or modifications, our lenders could require us to post additional
collateral, enhance our equity and liquidity, increase our interest payments or
pay down our indebtedness to a level where we are in compliance with our
covenants, sell vessels in our fleet, or they could accelerate our
indebtedness, which would impair our ability to continue to conduct our
business.  In addition, if we were unable to obtain waivers, we could
be required to reclassify all of our indebtedness as current liabilities, which
would be significantly in excess of our cash and other current assets, and which
could trigger further defaults under our credit facilities.  If our
indebtedness was accelerated in full or in part, it would be very difficult in
the current financing environment for us to refinance our debt or obtain
additional financing and we could lose our vessels if our lenders foreclose
their liens, which would adversely affect our ability to conduct our business.
Furthermore, if we find it necessary to sell our vessels at a time when vessel
prices are low, we will recognize losses and a reduction in our earnings, which
could affect our ability to raise additional capital necessary for us to comply
with our loan agreements. In addition, if we sell one or more of our
vessels at a time when vessel prices have fallen and before we have recorded an
impairment adjustment to our consolidated financial statements, the sale may be
less than the vessel's carrying value on our consolidated financial statements,
resulting in a loss and a reduction in earnings. Furthermore, if vessel values
fall significantly we may have to record an impairment adjustment in our
financial statements which could adversely affect our financial results and
ability to pay dividends.






7




An
over-supply of tanker capacity may lead to reductions in charter hire rates and
profitability





The
market supply of tankers is affected by a number of factors such as demand for
energy resources, oil, and petroleum products, waiting days in ports, as well as
strong overall economic growth in parts of the world economy including Asia.
Furthermore, the extension of refinery capacity in India and the Middle East up
to 2011 will exceed the immediate consumption in these areas, and an increase in
exports of refined oil products is expected as a result. Factors that tend to
decrease tanker supply include the conversion of tankers to non-tanker purposes
and the phasing out of single-hull tankers due to legislation and environmental
concerns. An over-supply of tanker capacity may result in a reduction of charter
hire rates. If a reduction occurs, upon the expiration or termination of our
vessels' current charters, we may only be able to recharter our vessels at
reduced or unprofitable rates or we may not be able to charter these vessels at
all, which could lead to a material adverse effect on our results of operations
and ability to pay dividends.




Our
substantial operations outside the United States expose us to political,
governmental and economic instability, which could harm our
operations




Because
our operations are primarily conducted outside of the United States, they may be
affected by economic, political and governmental conditions in the countries
where we are engaged in business or where our vessels are
registered.  Future hostilities or political instability in regions
where we operate or may operate could have a material adverse effect on the
growth of our business, results of operations and financial condition and our
ability to pay dividends. In addition, tariffs, trade embargoes and other
economic sanctions by the United States or other countries against countries
where our vessels trade may limit trading activities with those countries, which
could also harm our business, financial condition, results of operations and
ability to pay dividends.




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 our business, financial condition and
results of operations





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 further reduce global demand for
refined petroleum products and have a material adverse effect on our business,
financial condition and results of operations, as well as our 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. This rate of growth declined significantly in the second half of 2008
and 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. Our 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.





We
are subject to certain risks with respect to our counterparties on contracts,
and failure of such counterparties to meet their obligations could cause us to
suffer losses or otherwise adversely affect our business




We enter
into, among other things, charter parties, joint ventures, credit facilities
with banks and interest rate swap agreements. Such agreements subject us to
counterparty risks. The ability of each of our counterparties to perform its
obligations under a contract with us will depend on a number of factors that are
beyond our control and may include, among other things, general economic
conditions, the condition of the shipping sector, the overall financial
condition of the counterparty, charter rates received for specific types of
product tankers and various expenses. Should a counterparty fail to honor its
obligations under agreements with us, we could sustain significant losses which
could have a material adverse effect on our business, financial condition,
results of operations, cash flows and ability to pay dividends.






8







We are subject to complex laws and
regulations, including environmental regulations that can adversely affect the
cost, manner or feasibility of doing business





Our
operations are subject to numerous laws and regulations in the form of
international conventions and treaties, national, state and local laws and
national and international regulations in force in the jurisdictions in which
our vessels operate or are registered, which can significantly affect the
ownership and operation of our vessels. These requirements include, but are not
limited to, the International Convention on Civil Liability for Oil Pollution
Damage of 1969, the International Convention for the Prevention of Pollution
from Ships of 1975, the International Maritime Organization, or IMO,
International Convention for the Prevention of Marine Pollution of 1973, the IMO
International Convention for the Safety of Life at Sea of 1974, the
International Convention on Load Lines of 1966, the U.S. Oil Pollution Act of
1990, or OPA, the U.S. Clean Air Act, the U.S. Clean Water Act and the U.S.
Marine Transportation Security Act of 2002. Compliance with such laws,
regulations and standards, where applicable, may require installation of costly
equipment or operational changes and may affect the resale value or useful lives
of our vessels. We may also incur additional costs in order to comply with other
existing and future regulatory obligations, including, but not limited to, costs
relating to air emissions, the management of ballast waters, maintenance and
inspection, elimination of tin-based paint, development and implementation of
emergency procedures and insurance coverage or other financial assurance of our
ability to address pollution incidents. These costs could have a material
adverse effect on our business, results of operations, cash flows and financial
condition. A failure to comply with applicable laws and regulations may result
in administrative and civil penalties, criminal sanctions or the suspension or
termination of our operations. Environmental laws often impose strict liability
for remediation of spills and releases of oil and hazardous substances, which
could subject us to liability without regard to whether we were negligent or at
fault. Under OPA, for example, owners, operators and bareboat charterers are
jointly and severally strictly liable for the discharge of oil within the
200-mile exclusive economic zone around the United States. An oil spill could
result in significant liability, including fines, penalties, criminal liability
and remediation costs for natural resource damages under other federal, state
and local laws, as well as third-party damages. We are required to satisfy
insurance and financial responsibility requirements for potential oil (including
marine fuel) spills and other pollution incidents. Although we have arranged
insurance to cover certain environmental risks, there can be no assurance that
such insurance will be sufficient to cover all such risks or that any claims
will not have a material adverse effect on our business, results of operations,
cash flows and financial condition.


We
currently maintain, for each of our vessels, pollution liability coverage
insurance of $1 billion per incident. If the damages from a catastrophic spill
exceeded our insurance coverage, it could have a material adverse effect on our
business, financial condition, results of operations and ability to pay
dividends.





We
are subject to international safety regulations and the failure to comply with
these regulations may subject us to increased liability, may adversely affect
our insurance coverage and may result in a denial of access to, or detention in,
certain ports





The
operation of our vessels is affected by the requirements set forth in the IMO
International Management Code for the Safe Operation of Ships and Pollution
Prevention, or ISM Code.  The ISM Code requires shipowners, ship
managers 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 it
to increased liability, may invalidate existing insurance or decrease available
insurance coverage for the affected vessels and may result in a denial of access
to, or detention in, certain ports.  As of the date of this annual
report, each of our vessels is ISM code-certified.






9







Our
vessels may suffer damage due to the inherent operational risks of the seaborne
transportation industry and we may experience unexpected drydocking costs, which
may adversely affect our business, financial condition and ability to pay
dividends





Our
vessels and their cargoes will be at risk of being damaged or lost because of
events such as marine disasters, bad weather, business interruptions caused by
mechanical failures, grounding, fire, explosions and collisions, human error,
war, terrorism, piracy and other circumstances or events. These hazards may
result in death or injury to persons, loss of revenues or property,
environmental damage, higher insurance rates, damage to our customer
relationships, delay or rerouting. If our vessels suffer damage, they may need
to be repaired at a drydocking facility. The costs of drydock repairs are
unpredictable and may be substantial. We may have to pay drydocking costs that
our insurance does not cover in full. The loss of earnings while these vessels
are being repaired and repositioned, as well as the actual cost of these
repairs, would decrease our earnings. In addition, space at drydocking
facilities is sometimes limited and not all drydocking facilities are
conveniently located. We 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.





Our
insurance may not be adequate to cover our losses that may result from our
operations due to the inherent operational risks of the seaborne transportation
industry





We carry
insurance to protect us against most of the accident-related risks involved in
the conduct of our business, including marine hull and machinery insurance,
protection and indemnity insurance, which includes pollution risks, crew
insurance and war risk insurance. However, we may not be adequately insured to
cover losses from our operational risks, which could have a material adverse
effect on us.  Additionally, our insurers may refuse to pay particular
claims and our insurance may be voidable by the insurers if we take, or fail to
take, certain action, such as failing to maintain certification of our vessels
with applicable maritime regulatory organizations. Any significant uninsured or
under-insured loss or liability could have a material adverse effect on our
business, results of operations, cash flows and financial condition. In
addition, we may not be able to obtain adequate insurance coverage at reasonable
rates in the future during adverse insurance market conditions.




As a
result of the September 11, 2001 attacks, the U.S. response to the attacks and
related concern regarding terrorism, insurers have increased premiums and
reduced or restricted coverage for losses caused by terrorist acts generally.
Accordingly, premiums payable for terrorist coverage have increased
substantially and the level of terrorist coverage has been significantly
reduced.




In
addition, while we carry loss of hire insurance to cover 100% of our fleet, we
may not be able to maintain this level of coverage. Accordingly, any loss of a
vessel or extended vessel off-hire, due to an accident or otherwise, could have
a material adverse effect on our business, results of operations, financial
condition and ability to pay dividends.




Because
we obtain some of our insurance through protection and indemnity associations,
we may also be subject to calls in amounts based not only on our own claim
records, but also the claim records of other members of the protection and
indemnity associations




We may be
subject to calls in amounts based not only on our claim records but also the
claim records of other members of the protection and indemnity associations
through which we receive insurance coverage for tort liability, including
pollution-related liability. Our payment of these calls could result in
significant expense to us, which could have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to
pay dividends.




Labor
interruptions could disrupt our business




Our
vessels are manned by masters, officers and crews that are employed by third
parties. If not resolved in a timely and cost-effective manner, industrial
action or other labor unrest could prevent or hinder our operations from being
carried out as we expect and could have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to
pay dividends.






10







Maritime
claimants could arrest one or more of our vessels, which could interrupt our
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 a vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek
to obtain security for its claim by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our vessels could cause
us to default on a charter, interrupt our cash flow and require us to pay large
sums of money to have the arrest or attachment 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 attempt to assert "sister ship"
liability against one vessel in our fleet for claims relating to another of our
vessels.





Governments
could requisition our vessels during a period of war or emergency, resulting in
a loss of earnings




A
government could requisition one or more of our vessels for title or for hire.
Requisition for title occurs when a government takes control of a vessel and
becomes her owner, while requisition for hire occurs when a government takes
control of a vessel and effectively becomes her charterer at dictated charter
rates. Generally, requisitions occur during periods of war or emergency,
although governments may elect to requisition vessels in other circumstances.
Although we would be entitled to compensation in the event of a requisition of
one or more of our vessels, the amount and timing of payment would be uncertain.
Government requisition of one or more of our vessels may negatively impact our
business, financial condition, results of operations and ability to pay
dividends.





Terrorist
attacks and international hostilities can affect the seaborne transportation
industry, which could adversely affect our business





We
conduct most of our operations outside of the United States, and our business,
results of operations, cash flows, financial condition and ability to pay
dividends may be adversely affected by changing economic, political and
government conditions in the countries and regions where our vessels are
employed or registered. Moreover, we operate in a sector of the economy that is
likely to be adversely impacted by the effects of political instability,
terrorist or other attacks, war or international hostilities. Terrorist attacks
in 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, continues to cause
uncertainty in the world's financial markets and may affect our business,
operating results and financial condition. The continuing presence of 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 our 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 and the Gulf of Aden off the coast of Somalia. Any of these
occurrences could have a material adverse impact on our operating results,
revenues and costs.




Terrorist
attacks on vessels, such as the October 2002 attack on the M.V. Limburg, a very large crude
carrier not related to us, may in the future also negatively affect our
operations and financial condition and directly impact our vessels or our
customers. Future terrorist attacks could result in increased volatility and
turmoil of the financial markets in the United States and globally. Any of these
occurrences could have a material adverse impact on our revenues and
costs.





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 and the first quarter of 2009, the frequency of piracy
incidents has increased significantly, particularly in the Gulf of Aden off the
coast of Somalia. If these piracy attacks result in regions in which our vessels
are deployed being characterized by insurers as "war risk" zones 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. In addition, crew costs, including due to employing onboard
security guards, could increase in such circumstances. 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 ability to pay
dividends.






11







Disruptions
in world financial markets and the resulting governmental action in the United
States and in other parts of the world could have a material adverse impact on
our results of operations, financial condition and cash flows, and could cause
the market price of our common stock to further 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, deleveraging 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 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
trading price of our common shares on the Nasdaq Global Market to decline and
could cause the price of our common shares to continue to decline.




Company
Specific Risk Factors




Our board of directors has
determined to suspend the payment of cash dividends as a result of market
conditions in the international shipping industry. We cannot assure you that our
board of directors will pay dividends in the future




On May
13, 2009, our board of directors determined to suspend our common stock dividend
in order to increase our cash flow and enhance internal growth
capabilities. We can give no assurance that dividends will be paid in the
future.





Certain
provisions of Marshall Islands law may prohibit us from paying
dividends




Marshall
Islands law generally prohibits the declaration and payment of dividends other
than from surplus. Marshall Islands law also prohibits the declaration and
payment of dividends while a company is insolvent or would be rendered insolvent
by the payment of such a dividend. We may not have sufficient surplus in the
future to pay dividends.






12







We
will not be able to take advantage of favorable opportunities in the current
spot market with respect to vessels employed on medium- to long-term time
charters




All of
the vessels in our fleet are employed under medium to long-term time charters,
with remaining terms (under existing charter party agreements or under
replacement charter party agreements that we have entered into) ranging between
1 and 40 months.  Although medium and long-term time charters provide
relatively steady streams of revenue, vessels committed to medium and long-term
charters may not be available for spot voyages during periods of increasing
charter hire rates, when spot voyages might be more profitable. Recently,
charter hire rates for product tankers have reached near historically low
levels. If our vessels become available for employment in the spot market or
under new charters during periods when market prices have fallen, we may have to
employ our vessels at depressed market prices, which would lead to reduced or
volatile earnings.  We cannot assure you that future charter hire
rates will enable us to operate our vessels profitably or to pay you
dividends.





We
depend upon a few significant customers for a large part of our revenues and the
loss of one or more of these customers could adversely affect our financial
performance




We expect
to derive a significant part of our revenue from a small number of
customers.  For the year 2008, we derived 100% of our revenues
from three customers.  If one or more of these customers is unable to
perform under one or more charters with us and we are not able to find a
replacement charter, or if a customer exercises certain rights to terminate the
charter, we could suffer a loss of revenues that could materially adversely
affect our business, financial condition, results of operations and cash
available for distribution as dividends to our shareholders.





Our
charterers may terminate or default on their charters, which could adversely
affect our results of operations and cash flow




Our
charters may terminate earlier than the dates indicated in the section "Our
Fleet" in "Item 4 – Information on the Company." The terms of our 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 our charterers to
perform its obligations under a charter will depend on a number of factors that
are beyond our 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 our business, results of operations, cash
flows, financial condition and ability to pay dividends.




We cannot
predict whether our charterers will, upon the expiration of their charters,
recharter our vessels on favorable terms or at all. If our charterers decide not
to recharter our vessels, we may not be able to recharter them on terms similar
to the terms of our current charters or at all. In the future, we may also
employ our vessels on the spot charter market, which is subject to greater rate
fluctuation than the time charter market.




If we
receive lower charter rates under replacement charters or are unable to
recharter all of our vessels, our business, results of operations, cash flows,
financial condition and ability to pay dividends may be adversely
affected.





In
addition, in depressed market conditions such as those existing in the early
part of 2009, our 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 a counterparty
fail to honor its obligations under agreements with us, we could sustain
significant losses which could have a material adverse effect on our business,
results of operations, cash flows, financial condition and ability to pay
dividends.






13




Our ability to obtain additional
debt financing may depend on the performance of our then existing charters and
the creditworthiness of our charterers




The
actual or perceived credit quality of our charterers, and any defaults by them,
may materially affect our ability to obtain the additional capital resources
that we will require to purchase additional vessels or may significantly
increase our costs of obtaining that capital. Our inability to obtain additional
financing or our ability to obtain additional financing at higher than
anticipated costs may materially and adversely affect our business, results of
operations, cash flows and financial condition and ability to pay
dividends.





We
depend on our Managers to manage our fleet and the loss of their services could
adversely affect our operations




We
currently have a total of thirteen employees including our senior executive
officers. We subcontract the technical management of the vessels in our
fleet, including crewing, maintenance and repair, to third party technical
managers. Therefore, the loss of these technical managers' services or their
failure to perform their obligations to us could materially and adversely affect
our business, financial condition, results of operations and ability to pay
dividends. Furthermore, we may be unable to retain a suitable replacement
manager under favorable terms.Further, we expect that
we will need to seek approval from our lenders to change our vessels' technical
managers.




The
ability of our managers to continue providing services for our benefit will
depend in part on their own financial strength. Circumstances beyond our control
could impair our technical managers' financial strength.





We
may have difficulty managing our planned growth through acquisitions of
additional vessels




We intend
to continue to grow our business through selective acquisitions of additional
vessels. Our future growth will primarily depend on:





·
            locating
      and acquiring suitable vessels;


·
            identifying
      and consummating acquisitions or joint ventures;


·
            integrating
      any acquired business successfully with our existing
      operations;


·
            enlarging
      our customer base;


·
            managing
      our expansion; and


·
            obtaining
      required financing on acceptable
terms.





During
periods in which charter hire rates are high, vessel values generally are high
as well, and it may be difficult to identify vessels for acquisition at
favorable prices.  In addition, growing any business by acquisition
presents numerous risks, such as undisclosed liabilities and obligations, the
possibility that indemnification agreements will be unenforceable or
insufficient to cover potential losses and difficulties associated with imposing
common standards, controls, procedures and policies, obtaining additional
qualified personnel, managing relationships with customers and integrating newly
acquired assets and operations into existing infrastructure. We cannot give any
assurance that we will be successful in executing our growth plans or that we
will not incur significant expenses and losses in connection with our future
growth.




Restrictions
under our credit facilities could restrict our ability to pay
dividends




We may
have to limit the amount of dividends that we declare and pay in the
future or may not be able to declare and pay dividends at all if we do not
repay amounts drawn under our credit facilities if there is a default under the
credit facilities, if the declaration or payment of a dividend would result in a
default or breach of a loan covenant, or if the aggregate market value of our
vessels falls below a certain point in relation to the amounts borrowed under
our credit facilities.





We
cannot assure you that we will be able to borrow amounts under our credit
facilities and restrictive covenants in our credit facilities may impose
financial and other restrictions on us




Our
ability to borrow amounts under our credit facilities is subject to the
execution of definitive documentation relating to the facilities, including
security documents, satisfaction of certain customary conditions precedent and
compliance with terms and conditions included in the loan documents. Prior to
each drawdown, we will be required, among other things, to provide the lenders
with acceptable valuations of the vessels in our fleet confirming that they are
sufficient to satisfy minimum security requirements. To the extent that we are
not able to satisfy these requirements, including as a result of a decline in
the value of our vessels, we may not be able to draw down the full amount under
our credit facilities without obtaining a waiver or consent from the lenders. We
will also not be permitted to borrow amounts under the facilities if we
experience a change of control.




14







Our
credit facilities also impose operating and financial restrictions on us. These
restrictions may limit our ability to, among other things:





·
            make
      capital expenditures if we do not repay amounts drawn under the credit
      facilities, if there is a default under the credit facilities or if the
      capital expenditure would result in a default or breach of a loan
      covenant;


·
            incur
      additional indebtedness, including through the issuance of
      guarantees;


·
            change
      the flag, class or management of our vessels;


·
            create
      liens on our assets;


·
            sell
      our vessels;


·
            merge
      or consolidate with, or transfer all or substantially all our assets to,
      another person; and


·
            enter
      into a new line of business.





Therefore,
we may need to seek permission from our lenders in order to engage in some
corporate actions. Our lenders' interests may be different from ours and we
cannot guarantee that we will be able to obtain our lenders' permission when
needed. This may limit our ability to pay dividends to you, finance our future
operations, make acquisitions or pursue business opportunities.





The
market values of our vessels have decreased, which could cause us to breach
covenants in our credit facilities and adversely affect our operating
results





We
believe that the market value of the vessels in our fleet is in excess of
amounts required under our credit facilities. However, if the market values of
our vessels decrease further, we may breach some of the covenants contained in
the financing agreements relating to our indebtedness at the time, including
covenants in our credit facilities. If we do breach such covenants and we are
unable to remedy the relevant breach, our lenders could accelerate our debt and
foreclose on our fleet. In addition, if the book value of a vessel is impaired
due to unfavorable market conditions or a vessel is sold at a price below its
book value, we would incur a loss that could adversely affect our operating
results.





If
the recent volatility in LIBOR continues, it could affect our profitability,
earnings and cash flow





LIBOR has
recently been volatile, with the spread between LIBOR and the prime lending rate
widening significantly at times. These conditions are the result of the recent
disruptions in the international credit markets. Because the interest rates
borne by our outstanding indebtedness fluctuate with changes in LIBOR, if this
volatility were to continue, it would affect the amount of interest payable on
our debt, which in turn, could have an adverse effect on our profitability,
earnings and cash flow. Recently, however, lenders have insisted on provisions
that entitle the lenders, in their discretion, to replace published LIBOR as the
base for the interest calculation with their cost-of-funds rate. If we are
required to agree to such a provision in future loan agreements, our lending
costs could increase significantly, which would have an adverse effect on our profitability,
earnings and cash flow.




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




We
have financed the purchase of our fleet with secured indebtedness drawn
under our credit facilities. While we intend to refinance amounts drawn with the
net proceeds of future equity offerings, we cannot assure you that we will be
able to do so on terms that are acceptable to us or at all.  If we are
not able to refinance these amounts with the net proceeds of equity offerings on
terms acceptable to us or at all, we will have to dedicate a portion of our cash
flow from operations to pay the principal and interest of this indebtedness. If
we are not able to satisfy these obligations, we may have to undertake
alternative financing plans.  The actual or perceived credit quality
of our charterers, any defaults by them under our charter contracts, and
declines in the market value of our fleet, among other things, may materially
affect our ability to obtain alternative financing.  In addition, debt
service payments and covenants under our senior and junior secured credit
facilities or alternative financing may limit funds otherwise available for
working capital, capital expenditures and other purposes, such as the payment of
dividends. If we are unable to meet our debt obligations, or if we otherwise
default under our credit facilities or an alternative financing arrangement, our
lenders could declare the debt, together with accrued interest and fees, to be
immediately due and payable and foreclose on our fleet, which could result in
the acceleration of other indebtedness that we may have at such time and the
commencement of similar foreclosure proceedings by other lenders.






15







Unless
we set aside reserves or are able to borrow funds for vessel replacement, at the
end of a vessel's useful life our revenue will decline, which would adversely
affect our business, results of operations and financial condition




Unless we
maintain reserves or are able to borrow funds for vessel replacement we will be
unable to replace the vessels in our fleet upon the expiration of their
remaining useful lives, which we expect to range from 19 years to 25, depending
on the date the vessel is delivered to us, based on a 25 year estimated useful
life from the date of the vessel's initial delivery from the shipyard. Our cash
flows and income are dependent on the revenues earned by the chartering of our
vessels to customers. If we are unable to replace the vessels in our fleet upon
the expiration of their useful lives, our business, results of operations,
financial condition and ability to pay dividends will be materially and
adversely affected. Any reserves set aside for vessel replacement would not be
available for dividends.




Purchasing
and operating secondhand vessels may result in increased operating costs and
reduced fleet utilization




Our
current business strategy includes additional, strategic growth through the
acquisition of high quality secondhand vessels.  While we have the
right to inspect previously owned vessels prior to our purchase of them, such an
inspection does not provide us with the same knowledge about their condition
that we would have if these vessels had been built for and operated exclusively
by us. Secondhand vessels may have conditions or defects that we were not aware
of when we bought the vessel and which may require us to incur costly repairs to
the vessel.  If this were to occur, such hidden defects or problems,
when detected, may be expensive to repair, and if not detected, may result in
accidents or other incidents for which we may become liable to third
parties.  Repairs may require us to put a vessel into drydock which
would reduce our fleet utilization.  Furthermore, we usually do 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. Older vessels are typically less fuel-efficient than
more recently constructed vessels due to improvements in engine
technology.





Governmental
regulations, safety and other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
some of our vessels and may restrict the type of activities in which these
vessels may engage. We cannot assure you that, as our vessels age, market
conditions will justify those expenditures or enable us to operate our vessels
profitably during the remainder of their useful lives.





If
the Handymax product tankers that we have agreed to purchase are not delivered
on time or delivered with significant defects, our business, results of
operations and financial condition could
suffer


We have
entered into an agreement with Hyundai Mipo Dockyard in South Korea for the
construction of five Handymax (MR1) product tankers.  Four of these vessels
are scheduled to be delivered in 2010 and the fifth vessel in 2011.  A
delay in the delivery of these vessels to us or the failure of Hyundai Mipo
Dockyard to deliver a vessel at all, could adversely affect our business,
results of operations and financial condition and the amount of dividends that
we pay in the future. The delivery of these vessels could be delayed or certain
events may arise which could result in us not taking delivery of a
vessel.






16







We have
also entered into an agreement to purchase one Handymax (MR2) product tanker
expected to be delivered in 2010.On April 8, 2009 we
entered into a settlement agreement with the seller to cancel this purchase
based on which we have to pay a cancellation fee of $3.0 million. At the same
time, we entered into a joint venture agreement for the purpose of purchasing
and operating the aforementioned product tanker. The purchase of this vessel by
the joint venture is subject to financing arrangements that need to be placed
prior to July 31, 2009.





If
we are unable to operate our vessels profitably, we may be unsuccessful in
competing in the highly competitive international tanker market




The
operation of tanker vessels and transportation of crude and petroleum products
is extremely competitive. Competition arises primarily from other tanker owners,
including major oil companies as well as independent tanker companies, some of
whom have substantially greater resources. Competition for the transportation of
oil and oil products can be intense and depends on price, location, size, age,
condition and the acceptability of the tanker and its operators to the
charterers. We will have to compete with other tanker owners, including major
oil companies as well as independent tanker companies. Due in part to the highly
fragmented market, competitors with greater resources could enter the products
tanker and container vessel shipping markets and operate larger fleets through
consolidations or acquisitions and may be able to offer lower charter rates and
higher quality vessels than we are able to offer.




Our
market share may decrease in the future. We may not be able to compete
profitably as we expand our business into new geographic regions or provide new
services. New markets may require different skills, knowledge or strategies than
we use in our current markets, and the competitors in those new markets may have
greater financial strength and capital resources than we do.





We
may be unable to attract and retain key management personnel and other
employees in the shipping industry, which may negatively impact the
effectiveness of our management and results of operations




Our
success depends to a significant extent upon the abilities and efforts of our
management team. We have entered into employment contracts with our President
and Chief Executive Officer, Mr. George Kassiotis, our Chief Operating Officer,
Mr. Charilaos Loukopoulos, and our Chief Financial Officer, Mr. Gregory
McGrath. Our success will depend upon our ability to hire and retain key members
of our management team and to hire new members as may be necessary. The loss of
any of these individuals could materially adversely affect our business, results
of operations and financial condition and our ability to pay dividends.
Difficulty in hiring and retaining replacement personnel could have a similar
effect. We do not maintain "key man" life insurance on any of our
officers.





Risks
associated with operating ocean-going vessels could affect our business and
reputation, which could adversely affect our revenues and stock
price




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





·
            marine
      disaster;


·
            environmental
      accidents;


·
            cargo
      and property losses or damage;


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


·
            piracy.




Any of
these circumstances or events could increase our costs or lower our
revenues.  The loss or damage to any of our vessels will have a
material adverse effect on our business, results of operations, financial
condition and our ability to pay dividends.  In addition to any
economic cost, the involvement of our vessels in an environmental disaster may
harm our reputation.






17







The
shipping industry has inherent operational risks that may not be adequately
covered by our insurance




We
procure insurance for our fleet against risks commonly insured against by vessel
owners and operators. Our current insurance includes hull and machinery
insurance, war risks insurance, protection and indemnity insurance, which
includes environmental damage and pollution insurance, and insurance against
loss of hire, which covers business interruptions that result in the loss of use
of a vessel.  We can give no assurance that we are adequately insured
against all risks or that our insurers will pay a particular claim. Even if our
insurance coverage is adequate to cover our losses, we may not be able to timely
obtain a replacement vessel in the event of a loss. Furthermore, we may not be
able to maintain or obtain adequate insurance coverage at reasonable rates for
our fleet. We may also be subject to calls, or premiums, in amounts based not
only on our own claim records but also the claim records of all other members of
the protection and indemnity associations through which we receive indemnity
insurance coverage for tort liability.  Our insurance contracts also
contain clauses for deductibles, limitations and exclusions which may increase
our costs.





The
operation of tankers involves certain unique operational risks





The
operation of tankers has unique operational risks associated with the
transportation of oil. An oil spill may cause significant environmental
damage, and a catastrophic spill could exceed the insurance coverage
available. Compared to other types of vessels, tankers are exposed to a
higher risk of damage and loss by fire, whether ignited by a terrorist attack,
collision, or other cause, due to the high flammability and high volume of the
oil transported in tankers.




If we are
unable to adequately maintain or safeguard our vessels we may be unable to
prevent these events. Any of these circumstances or events could negatively
impact our business, financial condition and results of operations. In addition,
the loss of any of our vessels could harm our reputation as a safe and reliable
vessel owner and operator.





The
aging of our fleet may result in increased operating costs in the future, which
could adversely affect our earnings




In
general, the cost of maintaining a vessel in good operating condition increases
with the age of the vessel. Our current fleet, including the vessel owned by the
50% controlled joint venture, has an average age of approximately 3.4
years.  As our fleet ages, we will incur increased
costs.  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 our vessels
and may restrict the type of activities in which our vessels may engage. We
cannot assure you that, as our vessels age, market conditions will justify those
expenditures or enable us to operate our vessels profitably during the remainder
of their useful lives.





Our
operating results from our fleet are subject to seasonal fluctuations, which may
adversely affect our operating results and ability to pay dividends




We
operate our vessels in markets that have historically exhibited seasonal
variations in demand and, as a result, in charter rates. This seasonality may
result in quarter-to-quarter volatility in our operating results. The tanker
sector is typically stronger in the fall and winter months in anticipation of
increased consumption of oil and petroleum products in the northern hemisphere
during the winter months. As a result, our revenues may be weaker during the
fiscal quarters ended June 30 and September 30, and, conversely, revenues may be
stronger in fiscal quarters ended December 31 and March 31. This seasonality
could materially affect our operating results and cash available for dividends
in the future.




We
may have to pay tax on United States source income, which would reduce our
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 ourselves
and our subsidiaries, that is attributable to transportation that begins or
ends, but that does not both begin and end, in the United States is
characterized as United States source shipping income and such income is subject
to a 4% 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.






18







We expect
that we and each of our subsidiaries will qualify for this statutory tax
exemption and we have taken this position for United States federal income tax
return reporting purposes. However, there are factual circumstances beyond our
control that could cause us to lose the benefit of this tax exemption in the
future and thereby become subject to United States federal income tax on our
United States source income. For example, if beneficial owners of our Class A
common stock that own 5% or more of our Class A common stock were to own 50% or
more of the outstanding shares of our Class A common stock on more than half the
days during the taxable year we might not be able to qualify for the exemption
under Code Section 883.  However, we may still be able to qualify for
the exemption under such circumstances if a sufficient number of five percent or
greater shareholders were able to establish that they are "qualified
shareholders" for purpose of Section 883 to preclude non-qualified five percent
shareholders from owning 50% or more of the outstanding shares of our Class A
common stock on more than half of the days in the year. The requirements to
establish that one or more of our shareholders is a "qualified shareholder" for
purposes of Section 883 are onerous and we cannot assure you that we would be
able to obtain the required information from sufficient five percent
shareholders.  Due to the factual nature of the issues involved, we
can give no assurances on our tax-exempt status or that of any of our
subsidiaries.





If we or
our subsidiaries are not entitled to this exemption under Section 883 for
any taxable year, we or our subsidiaries would be subject for those years to a
4% United States federal income tax on our U.S.-source shipping
income.  The imposition of this taxation could have a negative effect
on our business and would result in decreased earnings available for
distribution to our shareholders.





United
States tax authorities could treat us as a "passive foreign investment company",
which could have adverse United States federal income tax consequences to United
States holders




A foreign
corporation will be treated as a "passive foreign investment company," or PFIC,
for United States 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." United States stockholders of a PFIC are
subject to a disadvantageous United States 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
our current and proposed method of operation, we do not believe that we are,
have been or will be a PFIC with respect to any taxable year. In this regard, we
intend to treat the gross income we derive or are deemed to derive from our time
chartering activities as services income, rather than rental income.
Accordingly, we believe that our income from our time chartering activities does
not constitute "passive income," and the assets that we own and operate 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 our method of
operation. We believe there is substantial legal authority supporting our
position consisting of case law and United States Internal Revenue Service, or
IRS, pronouncements concerning the characterization of income derived from time
charters and voyage charters as services income for other tax
purposes.  However, we note that there is also authority which
characterizes time charter income as rental income rather than services income
for other tax purposes. Accordingly, no assurance can be given that the IRS or a
court of law will accept our position, and there is a risk that the IRS or a
court of law could determine that we are a PFIC. Moreover, no assurance can be
given that we would not constitute a PFIC for any future taxable year if there
were to be changes in the nature and extent of our operations.




If the
IRS were to find that we are or have been a PFIC for any taxable year, our
United States stockholders will face adverse United States tax consequences.
Under the PFIC rules, unless those stockholders make an election available under
the Code (which election could itself have adverse consequences for such
stockholders), such stockholders would be liable to pay United States 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 our
common stock, as if the excess distribution or gain had been recognized ratably
over the stockholder's holding period of our common stock. Please see the
section of this annual report entitled "Taxation" under Item 10E for a more
comprehensive discussion of the United States federal income tax consequences if
we were to be treated as a PFIC.






19







Because
we generate all of our revenues in Dollars but may incur a significant portion
of our expenses in other currencies, exchange rate fluctuations could hurt our
results of operations




We
generate all of our revenues in Dollars but we may incur significant operating
expenses in currencies other than Dollars. This difference could lead to
fluctuations in net income due to changes in the value of the Dollar relative to
the other currencies, in particular the Euro. Expenses incurred in foreign
currencies against which the Dollar falls in value can increase, resulting in a
decrease in our operating results.





We
are a holding company, and we depend on the ability of our subsidiaries to
distribute funds to us in order to satisfy our financial obligations and to make
dividend payments




We are a
holding company and our subsidiaries conduct all of our operations and own all
of our operating assets. We have no significant assets other than the equity
interests in our subsidiaries. As a result, our ability to make dividend
payments depends on our subsidiaries and their ability to distribute funds to
us. The ability of a subsidiary to make these distributions could be affected by
a claim or other action by a third party, including a creditor, or by Marshall
Islands law, which regulates the payment of dividends by
companies.  If we are unable to obtain funds from our subsidiaries,
our board of directors may exercise its discretion not to declare or pay
dividends.  We do not intend to obtain funds from other sources to pay
dividends.




Risks
Relating to our Common Shares




The market price of our
common shares has fluctuated widely and the market price of our common shares
may fluctuate in the future





The
market price of our common shares has fluctuated widely since we became a public
company in April 2006 and may continue to do so as a result of many factors,
including our actual results of operations and perceived prospects, the
prospects of our competition and of the shipping industry in general and in
particular the product tanker sector, differences between our actual financial
and operating results and those expected by investors and analysts, changes in
analysts' recommendations or projections, changes in general valuations for
companies in the shipping industry, particularly the product tanker sector,
changes in general economic or market conditions and broad market fluctuations.





Our
common shares have recently traded below $5.00 per share, and the last reported
sale price on The Nasdaq Global Market on May 20, 2009 was $3.95 per share.
If the market price of our common shares remains below $5.00 per share, under
stock exchange rules, our shareholders will not be able to use such shares as
collateral for borrowing in margin accounts. This inability to continue to use
our common shares as collateral may depress demand as certain investors are
restricted from investing in shares priced below $5.00 and lead to sales of such
shares creating downward pressure on and increased volatility in the market
price of our common shares.  In addition, in order to maintain the
listing of our common shares on The Nasdaq Global Market, our stock price will
need to comply with NASDAQ's minimum share price requirements.





There
may not be an active market for our common shares, which may cause our common
shares to trade at a discount and make it difficult to sell the common shares
you purchase




We cannot
assure you that an active trading market for our common shares will be
sustained. We cannot assure you of the price at which our common shares will
trade in the public market in the future or that the price of our shares in the
public market will reflect our actual financial performance. You may not be able
to resell your common shares at or above their current market price.
Additionally, a lack of liquidity may result in wide bid-ask spreads, contribute
to significant fluctuations in the market price of our common shares and limit
the number of investors who are able to buy the common shares.






20




The
products tanker and container vessel sectors have been highly unpredictable and
volatile. The market price of our common shares may be similarly
volatile.





We
are incorporated in the Marshall Islands, which does not have a well-developed
body of corporate law




Our
corporate affairs are governed by our amended and restated articles of
incorporation and by-laws and by the Marshall Islands Business Corporations Act,
or the 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 Marshall Islands interpreting the BCA. The rights and
fiduciary responsibilities of directors under the laws of the Marshall Islands
are not as clearly established as the rights and fiduciary responsibilities of
directors under statutes or judicial precedent in existence in the United
States. The rights of shareholders of the Marshall Islands may differ from the
rights of shareholders of companies incorporated in the United States. While the
BCA provides that it is to be interpreted according to the laws of the State of
Delaware and other states with substantially similar legislative provisions,
there have been few, if any, court cases interpreting the BCA in the Marshall
Islands and we can not predict whether Marshall Islands courts would reach the
same conclusions as United States courts. Thus, you may have more difficulty in
protecting your interests in the face of actions by our management, directors or
controlling shareholders than would shareholders of a corporation incorporated
in a United States jurisdiction which has developed a relatively more
substantial body of case law.





Because
we are incorporated under the laws of the Marshall Islands, it may be difficult
to serve us with legal process or enforce judgments against us, our directors or
our management




We are
incorporated under the laws of the Marshall Islands, and all of our assets are
located outside of the United States.  Our business is operated
primarily from our offices in Piraeus, Greece.  In addition, our
directors and officers generally are non-residents of the United States, and all
or a substantial portion of the assets of these non-residents are located
outside the United States.  As a result, it may be difficult or
impossible for you to bring an action against us or against these individuals in
the United States if you believe that your rights have been infringed under
securities laws or otherwise. Even if you are successful in bringing an action
of this kind, the laws of the Marshall Islands and of other jurisdictions may
prevent or restrict you from enforcing a judgment against our assets or the
assets of our directors and officers.





A
significant shareholder, owned by our President and Chief Executive Officer,
effectively controls the outcome of matters on which our shareholders are
entitled to vote




Our
significant shareholder, ONE Holdings, which is wholly-owned by our President
and Chief Executive Officer, Mr. George Kassiotis, owns, directly or
indirectly, approximately 20.6% of our outstanding common shares. While ONE
Holdings has no agreement, arrangement or understanding relating to the voting
of its shares of our common stock, it will effectively control the outcome of
matters on which our shareholders are entitled to vote, including the election
of directors, the adoption or amendment of provisions in our certificate of
incorporation or bylaws and possible mergers, corporate control contests and
other significant corporate transactions. This concentration of ownership may
have the effect of delaying, deferring or preventing a change in control, a
merger, consolidation, takeover or other business combination. This
concentration of ownership could also discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, which
could in turn have an adverse effect on the market price of our common stock.
The interests of ONE Holdings may be different from your interests.





Future
sales of our common stock could cause the market price of our common stock to
decline




Sales of
a substantial number of additional shares of our common stock in the public
market, or the perception that these sales could occur, may depress the market
price for our common stock. These sales could also impair our ability to raise
additional capital through the sale of our equity securities in the
future.






21




Anti-takeover
provisions in our organizational and other documents could make it difficult for
our shareholders to replace or remove our current board of directors or have the
effect of discouraging, delaying or preventing a merger or acquisition, which
could adversely affect the market price of our common stock




Several
provisions of our amended and restated articles of incorporation and bylaws
could make it difficult for our shareholders to change the composition of our
board of directors in any one year, preventing them from changing the
composition of management. In addition,
the same provisions may discourage, delay or prevent a merger or acquisition
that shareholders may consider favorable.




These
provisions include:




·
            authorizing
      our board of directors to issue "blank check" preferred stock without
      shareholder approval;


·
            providing
      for a classified board of directors with staggered, three year
      terms;


·
            prohibiting
      cumulative voting in the election of directors;


·
            authorizing
      the removal of directors only for cause and only upon the affirmative vote
      of the holders of a majority of the outstanding shares of our common stock
      entitled to vote for the directors;


·
            prohibiting
      shareholder action by written consent unless the written consent is signed
      by all shareholders entitled to vote on the action;


·
            limiting
      the persons who may call special meetings of shareholders;


·
            establishing
      advance notice requirements for nominations for election to our board of
      directors or for proposing matters that can be acted on by shareholders at
      shareholder meetings.





In
addition, in 2008 our board of directors adopted a shareholder rights plan that
allows our board of directors to significantly dilute the shareholdings of any
person or group of persons that acquire more than 15% of our total outstanding
common stock.





These
anti-takeover provisions, could substantially impede the ability of public
shareholders to benefit from a change in control and, as a result, may adversely
affect the market price of our common stock and your ability to realize any
potential change of control premium.





ITEM
4 - INFORMATION ON THE COMPANY




A.
History and development of the Company




We are
Omega Navigation Enterprises, Inc., a holding company incorporated under the
laws of the Marshall Islands on February 28, 2005. Prior to our initial
public offering we issued 10,000 shares of Class A common stock and 3,140,000
shares of Class B common stock to our shareholders. In April, 2006, we completed
our initial public offering and issued an additional 12,000,000 Class A common
shares.  Our Class A common shares are listed on the Nasdaq Global
Market and on the Singapore Exchange Securities Trading Limited. Our executive
offices are located at 24 Kaningos Street, Piraeus 185 34 Greece. Our telephone
number is (30) 210 413-9130.




B.
Business Overview




We own
and operate a fleet of six double hull Panamax (LR1) product tankers and two Ice
Class 1A double hull Handysize (MR1) product tankers. We also participate in a
50% controlled joint venture, which owns and operates a double hull Handymax
(MR2) product tanker, that was delivered in April 2009.




In June
2007, we entered into agreements with Hyundai Mipo Dockyard in South Korea for
the construction of five Handysize (MR1) product tankers and additionally in May
2008 we entered into an agreement to purchase one Handymax (MR2) product tanker.
We generate revenues by employing the vessels in our fleet on long–term time
charters with durations of approximately three years from the commencement of
the charter.  For the eight wholly-owned vessels in our fleet, we
provide the commercial management in-house through a wholly-owned subsidiary and
we have entered into technical management agreements for our vessels with
unaffiliated third parties. For the vessel owned by the 50% controlled joint
venture, we provide the technical management of the vessel.




22




Our
Fleet




Product
Tankers




We
currently own and operate a fleet of six double hull Panamax (LR1) product
tankers, four of which are classed as Ice Class vessels, and two Ice Class 1A
double hull Handymax (MR1) product tankers. We also participate in a 50%
controlled joint venture, which owns and operates a double hull Handymax (MR2)
product tanker, that was delivered in April 2009. As of December 31, 2008 our
fleet had a combined cargo-carrying capacity of 512,358 dwt and an average age
of approximately 2.9 years. Currently our fleet, including the vessel owned by
the 50% controlled joint venture, has a combined cargo capacity of 559,358 dwt
and an average age of approximately 3.4 years. We have also entered into
agreements with the Hyundai Mipo Dockyard in South Korea for the construction of
five additional Handymax (MR1) product tankers. Four of these vessels are
scheduled to be delivered in 2010 and the fifth in 2011. Finally, we have agreed
to purchase one additional Handymax (MR2) product tanker, that is currently
under construction at Hyundai Mipo Dockyard in South Korea and is scheduled to
be delivered in the third quarter 2010. On April 8, 2009, we
entered into (i) a settlement agreement with the seller to cancel the purchase
of the additional Handymax (MR2) product tanker that we had agreed to purchase
in May 2008, based on which we have to pay a cancellation fee of $3.0 million
and (ii) a joint venture agreement which was established for the purposes of
purchasing and operating the aforementioned product tanker. The settlement
agreement and the joint venture agreement are subject to several financing
arrangements that need to be in place prior to July 31, 2009.





We have
entered into time charters for the eight double hull product tankers in our
fleet.  We will share a portion of our charterers' excess, if any,
earnings from the employment of our two Handymax (MR1) product tankers and
equally share on four of our six Panamax product tankers above a predetermined
daily base charter rate. Long-term time charter plus 100% of any trading income
in excess of the daily rate, have been also arranged for the Handymax (MR2)
product tanker, owned by the 50% controlled joint venture. We have entered into
long-term time charter plus 50% of the earnings in excess of the daily charter
rate, for the one Handymax (MR2) that we have agreed to purchase and is
currently under construction. In case that the joint venture agreement will
become effective this time charter will be cancelled and replaced by a long-term
time charter plus 100% of any trading income in excess of the daily rate.
Finally, we have entered into a long-term time charter for the one of the five
Handymax (MR1) product tankers that is currently under
construction.




All of
the vessels in our fleet are double hull in order to meet the International
Maritime Organization regulations banning all single hull tankers by 2010 or
2015, depending on the port or flag state. Our product tankers are designed to
transport several different refined petroleum products simultaneously in
segregated, coated cargo tanks. These cargoes typically include gasoline, jet
fuel, kerosene, naphtha, gas oil and heating oil. Ice class product tankers are
constructed in compliance with Finnish-Swedish Ice Class Rules, with
strengthened hulls, a sufficient level of propulsive power for transit through
ice-covered routes and specialized machinery and equipment for cold climates. We
believe that we are well positioned to take advantage of premium rates
associated with the employment of ice class vessels trading on ice capped
routes, particularly during periods of severe weather conditions. Ice class
tankers can also operate in warmer, non-icy climates alongside other tankers,
offering maximum flexibility without significant operational
limitations.




Drybulk
Carriers




In
addition to the product tankers in our current fleet, we owned and operated two
Handymax drybulk carriers during 2006 that we sold in January 2007. In September
2006, we decided to dispose of and sell our drybulk carrier fleet to an
unrelated third party. Such operations, which have been eliminated from the
ongoing operations and cash flows of the company following the sale of the
drybulk carrier fleet, are now presented as discontinued operations in the
consolidated statement of income for the period from February 28, 2005 (date of
inception) through December 31, 2005 and for the years ended December 31, 2006,
2007 and 2008.




23




The table below provides summary information
about the vessels in our fleet as of December 31, 2008 and the terms of their
employment:




Vessel
                            Sister
                              Ships
      (1)
                            Year
                              Built
                            Deadweight
                              (dwt)
                            Type
                            Delivery
                              Date
                            Daily
                              Hire
      Rate (2)
                            
                            Approximate
      RedeliveryCURRENT
      FLEETPanamax
      Product
                              TankersOmega
      Queen
                            A
                            2004
                            74,999
                            LR1
                            May-06
                            $26,500
                            
                            May-09Omega
      King
                            A
                            2004
                            74,999
                            LR1
                            Jun-06
                            $26,500
                            
                            May
      09Omega
      Lady Sarah
                            B
                            2004
                            71,500
                            LR1
      – Ice Class 1C
                            Jun-06
                            $24,000/
                              $25,500
                            (3)
                            Q3-12Omega
      Lady Miriam
                            B
                            2003
                            71,500
                            LR1
      – Ice Class 1C
                            Aug-06
                            $24,000/
                              $25,500
                            (3)
                            Q4-12Omega
      Emmanuel
                            C
                            2007
                            73,000
                            LR1
      – Ice Class 1A
                            Mar-07
                            $25,500
                            (4)
                            Apr-10Omega
      Theodore
                            C
                            2007
                            73,000
                            LR1
      – Ice Class 1A
                            Apr-07
                            $25,500
                            (4)
                            May-10Handymax
      Product TankersOmega
      Prince
                            D
                            2006
                            36,680
                            MR1-Ice
      Class 1A
                            Jun-06
                            $21,000
                            (5)
                            Jun-09Omega
      Princess
                            D
                            2006
                            36,680
                            MR1-Ice
      Class 1A
                            Jul-06
                            $21,000
                            (5)
                            Jul-09TOTAL
      (DWT):
                            
                            512,358





HANDYMAX
      VESSELS UNDER CONSTRUCTION(6)TBN1
                E
                2010
                37,000
                MR1
                Mar-10
                Confidential
                
                Mar-13TBN2
                E
                2010
                37,000
                MR1
                Jul-10TBN3
                E
                2010
                37,000
                MR1
                Sep-10TBN4
                E
                2010
                37,000
                MR1
                Dec-10TBN5
                E
                2011
                37,000
                MR1
                Feb-11TOTAL
      (DWT):
                
                
                185,000





VESSELS
OWNED THROUGH 50% JOINT VENTURE(9)


Omega
      Duke
              F
              2009
              47,000
              MR2
              Apr-09
              $21,135
              (7)
              Apr-12








VESSELS
THAT WE HAVE AGREED TO PURCHASE(9)


TBN2
              F
              2010
              47,000
              MR2
              Jul-10
              $21,135
              (8)
              Jul-13TOTAL
      (DWT):
              
              94,000





(1)
                        Each
      vessel is a sister ship of each other vessel that has the same
      letter.(2)
                        This
      table shows gross charter rates and does not include brokers' commissions,
      which are 1.25% of the daily time charter rate.(3)
                        In
      third and fourth quarter of 2009 the Omega Lady Sarah and Omega lady
      Miriam will enter into a new charter with ST Shipping at a rate of
      $25,500, plus any additional income under profit sharing agreements,
      according to which charter earnings in excess of $25,500 per day will be
      divided equally between Omega Navigation and ST
  Shipping.(4)
                        Plus
      any additional income under profit sharing arrangements, according to
      which charter earnings in excess of $ 25,500 per day will be divided
      equally between Omega Navigation and ST Shipping. When the vessels trade
      in ice conditions, the profit sharing between owners and the charterers is
      65/35% respectively.(5)
                        Plus
      any additional income under profit sharing provisions of the charter
      agreements with D/S Norden A/S.(6)
                        We
      have entered into an agreement to purchase five additional newbuilding
      Handymax (MR1) product tankers, four of which are scheduled to be
      delivered in 2010 and the fifth in
2011.


24





(7)
              Omega
      Duke was delivered on April 24, 2009. On April 8, 2009 the agreement for
      the purchase of the vessel as well as the time charter agreement was
      cancelled and the vessel was purchased by a 50% controlled joint venture.
      The joint venture has entered into a five year time charter agreement on a
      daily rate of $16,500 plus 100% of any trading income in excess of the
      daily hire.(8)
              Plus
      50% of any trading income in excess of daily hire.(9)
              See
      Item 5 B for more discussion in respect with these
  vessels.




Our
Customers




Our
assessment of a charterer's financial condition and reliability is an important
factor in negotiating employment for our vessels. For the year ended
December 31, 2008, three of our customers accounted for 100% of our voyage
revenues. These customers were D/S Norden A/S, ST Shipping & Transport
(Glencore International AG) and A/S Dampskibsselskabet Torm.




Management
of Our Fleet




Our
wholly-owned subsidiary, Omega Management, Inc., is responsible for
commercially managing the vessels in our fleet, including obtaining employment
for our vessels, negotiating charters, and managing relationships.  We
are responsible for the strategic management of our fleet, including locating,
obtaining financing for, purchasing and selling vessels and formulating and
implementing our overall business strategy.




The
technical management of six of the product tankers in our fleet is provided by
V. Ships Management Limited, or V. Ships, two by Bernhard Schulte Ship
Management Pvt, Ltd (formerly Eurasia International (L) Limited) and we are the
technical managers of the vessel owned by the 50% controlled joint venture. We
are reviewing the performance of the third party technical managers of our
product tankers on a continuous basis and may add or change technical managers
from time to time, or assume the technical management internally.




With
respect to our wholly-owned vessels, our product tanker managers are responsible
for managing day-to-day vessel operations, performing general vessel
maintenance, ensuring regulatory and classification society compliance, oil
majors vetting procedures, supervising the maintenance and general efficiency of
vessels, arranging our hire of qualified officers and crew, arranging and
supervising drydocking and repairs, purchasing supplies, spare parts and new
equipment for vessels, appointing supervisors and technical consultants and
providing technical support. These services are provided directly by us with
respect to our 50% joint venture vessel. We acquire insurance for all product
tankers in our fleet, including marine hull and machinery insurance and
protection and indemnity insurance (including pollution risks and crew
insurance) and war risk insurance.




Under the
management agreements, our product tanker managers present us with an annual
budget for the following 12 months for each vessel and prepare and present us
with its estimate of the working capital requirements of each
vessel.  The manager requests the funds required to run the vessels
for the ensuing month, including the payment of any occasional or extraordinary
items of expenditure, such as emergency repair costs, scheduled drydocking and
special survey costs as well as additional insurance premiums, bunkers or
provisions. We pay each manager on a monthly basis for the operating costs
incurred by our product tankers based on an annual budget and adjusted for
actual operating costs incurred in that month. The management fees charged by V.
Ships for the year ended December 31, 2006, 2007 and 2008 amounted to $451,043,
$900,094 and $993,362, respectively. The management fees charged by Bernhard
Schulte Ship Management Pvt, Ltd for the year ended December 31, 2006, 2007 and
2008 amounted to $117,260, $210,128 and $249,859, respectively.




The
International Product Tanker Industry




The
international seaborne transportation industry represents the most efficient and
we believe safest method of transporting large volumes of crude oil and refined
petroleum products such as gasoline, diesel, fuel oil, gas oil and jet fuel, as
well as edible oils and chemicals. Over the past five years, seaborne
transportation of refined petroleum products has grown substantially over the
period, although has declined during 2008.




Freight
rates in the refined petroleum product tanker shipping industry are determined
by the supply of product tankers and the demand for crude oil and refined
petroleum products transportation. Factors that affect the supply of product
tankers and the demand for transportation of crude oil and refined petroleum
products include:


25


Demand:




·
            In
      general, the strength of the global economy and in particular China's
      economic growth has increased
demand;




·
            The
      increase in the distance petroleum products are transported due to the
      increased exports from new refineries in the Middle East and Asia and the
      expected lack of growth in the refining capacity of the refineries in the
      U.S. and Europe; and




·
            Increasing
      global production and consumption of refined petroleum products and in
      particular the increase in Russian exports from the Baltic and Caspian
      regions.




Supply:




·
            Shipyards
      where new ships are constructed are fully booked through 2010, limiting
      the number of new product tankers that will enter the market in coming
      years;




·
            The
      phase-out of single hull tankers under more stringent regulatory and
      environmental protection laws and regulations will reduce the overall
      supply of vessels;




·
            The
      implementation of stringent safety and security measures has effectively
      reduced the supply of product tankers that are available for hire at any
      particular time;




·
            Major
      energy companies are selective in the employment of product tankers and
      have strict vetting standards for approval of vessels for trading;
      and




·
            Reclassification
      of vessels that can be used for transportation of vegetable and other
      edible oils begun in January 1,
2007.




Seasonality




The
demand for product tankers has historically fluctuated depending on the time of
year.  Demand for product tankers is influenced by many factors,
including general economic conditions, but it is primarily related to demand for
petroleum products in the areas of greatest consumption.  Accordingly,
demand for product tankers generally rises during the winter months and falls
during the summer months in the Northern hemisphere.  Moreover, these
are generalized trading patterns that vary from year to year and there is no
guarantee that similar patterns will continue in the future.




Environmental
and Other Regulations




Government
regulation significantly affects the ownership and operation of our fleet. We
are subject to various international conventions, laws and regulations in force
in the countries in which our vessels may operate or are registered. Compliance
with such laws, regulations and other requirements can entail significant
expense, including vessel modification and implementation of certain operating
procedures. We cannot predict the ultimate cost of complying with these
requirements, or the impact of these requirements on the resale value or useful
lives of our vessels.




A variety
of governmental and private entities subject our vessels to both scheduled and
unscheduled inspections. These entities include the local port authorities
(applicable national authorities such as the U.S. Coast Guard and harbor
masters), classification societies, flag state administration (country of
registry) and charterers, particularly terminal operators, and oil companies.
Some of these entities require us to obtain permits, licenses, certificates and
other authorizations for the operation of our fleet. Our failure to maintain
necessary permits or approvals could require us to incur substantial costs or
temporarily suspend operation of one or more of the vessels in our
fleet.




26




Heightened
levels of environmental and quality concerns among insurance underwriters,
regulators and charterers have led to greater inspection and safety requirements
on all vessels and may accelerate the scrapping of older vessels throughout the
industry. Increasing environmental concerns have created a demand for vessels
that conform to stricter environmental standards. We are required to maintain
operating standards for all of our vessels emphasizing operational safety,
quality maintenance, continuous training of our officers and crews and
compliance with applicable local, national and international environmental laws
and regulations. We believe that the operation of our vessels is in substantial
compliance with applicable environmental laws and regulations and that our
vessels have all material permits, licenses, certificates or other
authorizations necessary for the conduct of our operations; however, because
such laws and regulations are frequently changed and may impose increasingly
stricter requirements, we cannot predict the ultimate cost of complying with
these requirements, or the impact of these requirements on the resale value or
useful lives of our vessels.  In addition, a future serious arine
incident that results in significant oil pollution or otherwise causes
significant adverse environmental impact could result in additional legislation
or regulation that could negatively affect our profitability.




International
Maritime Organization (IMO)




The
International Maritime Organization, or IMO (the United Nations agency for
maritime safety and the prevention of pollution by ships), has adopted the
International Convention for the Prevention of Marine Pollution from Ships,
1973, as modified by the Protocol of 1978 relating thereto, which has been
updated through various amendments (the "MARPOL Convention"). The MARPOL
Convention implements environmental standards including oil leakage or spilling,
garbage management, as well as the handling and disposal of noxious liquids,
harmful substances in packaged forms, sewage and air emissions. These
regulations, which have been implemented in many jurisdictions in which our
vessels operate, provide, in part, that:




·
            25-year
      old tankers must be of double-hull 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);




·
            30-year
      old tankers must be of double-hull construction or mid-deck design with
      double-sided construction; and




·
            all
      tankers will be subject to enhanced
inspections.






Also,
under IMO regulations, a newbuild tanker of 5,000 dwt and above must be of
double hull 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.




Effective
September 2002, the IMO accelerated its existing timetable for the phase-out of
single-hull oil tankers. At that time, these regulations required the phase-out
of most single- hull oil tankers by 2015 or earlier, depending on the age
of the tanker and whether it has segregated ballast tanks.  Currently
all of our tankers, including the tankers under construction, are of double hull
construction.




Under the
regulations, the flag state may allow for some newer single-hull ships
registered in its country that conform to certain technical specifications to
continue operating until the 25th anniversary of their delivery. Any port state,
however, may deny entry of those single-hull tankers that are allowed to operate
until their 25th anniversary to ports or offshore terminals. These regulations
have been adopted by over 150 nations, including many of the jurisdictions in
which our tankers operate.




27




Ballast
Water Requirements




The IMO
adopted an International Convention for the Control and Management of Ships'
Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM
Convention's implementing regulations call for a phased introduction of
mandatory ballast water exchange requirements (beginning in 2009), to be
replaced in time with mandatory concentration limits. The BWM Convention will
not enter into force until 12 months after it has been adopted by 30 states, the
combined merchant fleets of which represent not less than 35% of the gross
tonnage of the world's merchant shipping.




Air
Emissions




In
September 1997, the IMO adopted Annex VI to the MARPOL Convention to
address air pollution from ships.  Effective in May 2005, Annex VI
sets limits on sulfur oxide and nitrogen oxide emissions from all commercial
vessel exhausts and prohibits deliberate emissions of ozone depleting substances
(such as halons and chlorofluorocarbons), emissions of volatile compounds from
cargo tanks, and the shipboard incineration of specific
substances.  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.  We believe 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 require the installation of expensive emission control
systems and that could adversely affect our business, cash flows, results of
operations and financial condition.




In
October 2008, the IMO adopted amendments to Annex VI regarding particulate
matter, nitrogen oxide and sulfur oxide emission standards which are expected to
enter into force on July 1, 2010.  The amended Annex VI would reduce
air pollution from vessels by, among other things, (i) implementing a
progressive reduction of sulfur oxide, emissions from ships, with the global
sulfur cap reduced initially to 3.50% (from the current cap of 4.50%), effective
from January 1, 2012, then progressively to 0.50%, effective from January 1
2020, subject to a feasibility review to be completed no later than 2018; and
(ii) establishing new tiers of stringent nitrogen oxide emissions standards for
new marine engines, depending on their date of installation.  Once
these amendments become effective, we may incur costs to comply with these
revised standards.




Safety
Requirements




The IMO
has also adopted the International Convention for the Safety of Life at Sea, or
SOLAS Convention, and the International Convention on Load Lines, 1966, or LL
Convention, which impose a variety of standards to regulate design and
operational features of ships. SOLAS Convention and LL Convention standards are
revised periodically. We believe that all our vessels are in substantial
compliance with SOLAS Convention and LL Convention standards.




Under
Chapter IX of SOLAS, the requirements contained in 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
upon the safety management system that we and our third-party technical managers
have 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 ISM Code requirements for a safety management system. No vessel
can obtain a safety management certificate unless its operator has been awarded
a document of compliance, issued by each flag state, under the ISM Code. We have
obtained documents of compliance for their offices and safety management
certificates for the vessels in our fleet for which such certificates are
required by the IMO. These documents of compliance and safety management
certificates are renewed as required.




28




Noncompliance
with the ISM Code and other IMO regulations may subject the shipowner or
bareboat charterer 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 (EU) authorities have indicated that vessels not in compliance with the
ISM Code will be prohibited from trading in U.S. and EU ports.




Oil
Pollution Liability




Although
the U.S. is not a party to these conventions, many countries have ratified and
follow the liability plan adopted by the IMO and set out in the International
Convention on Civil Liability for Oil Pollution Damage of 1969, as amended in
2000, or the CLC. Under this convention and depending on whether the country in
which the damage results is a party to the CLC, a vessel's registered owner is
strictly liable for pollution damage caused in the territorial waters of a
contracting state by discharge of persistent oil, subject to certain complete
defenses. The limits on liability outlined in the 1992 Protocol use the
International Monetary Fund currency unit of Special Drawing Rights, or SDR.
Under an amendment to the 1992 Protocol that became effective on ovember 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 4.51 million SDR, or $6.80 million, plus 631 SDR, or $950.74, for
each additional gross ton over 5,000. For vessels over 140,000 gross tons,
liability will be limited to 89.77 million SDR, or $135.26 million. The exchange
rate between SDRs and U.S. Dollars was 0.663694 SDR per U.S. dollar on March 24,
2009.  The right to limit liability is forfeited under the CLC where
the spill is caused by the owner's actual fault and under the 1992 Protocol
where the spill is caused by the owner's intentional or reckless conduct.
Vessels trading to states that are parties to these conventions must provide
evidence of insurance covering the liability of the owner. 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 that of the CLC. We believe that our insurance will cover the
liability under the plan adopted by the IMO.




The IMO
continues to review and introduce new regulations.  It is difficult to
accurately predict what additional regulations, if any, may be passed by the IMO
in the future and what effect, if any, such regulations might have on our
operations.




In 2005,
the European Union adopted a directive on ship-source pollution, imposing
criminal sanctions for intentional, reckless or negligent pollution discharges
by ships.  The directive could result in criminal liability for
pollution from vessels in waters of European countries that adopt implementing
legislation.  Criminal liability for pollution may result in
substantial penalties or fines and increased civil liability
claims.




United
States Requirements




U.S.
Oil Pollution Act of 1990 and Comprehensive Environmental Response, Compensation
and Liability Act




In 1990,
the U.S. Congress enacted OPA to establish an extensive regulatory and liability
regime for environmental protection and cleanup of oil spills. OPA affects all
owners and operators whose vessels trade with the U.S. or its territories or
possessions, or whose vessels operate in the waters of the U.S., which include
the U.S. territorial sea and the 200 nautical mile exclusive economic zone
around the U.S. The Comprehensive Environmental Response, Compensation and
Liability Act, or CERCLA, imposes liability for clean-up and natural resource
damage from the release of hazardous substances (other than oil) whether on land
or at sea. Both OPA and CERCLA impact our operations.




Under
OPA, vessel owners, operators and bareboat 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 containment and clean-up costs and other damages arising from oil spills
from their vessels. These other damages are defined broadly to
include:




·
            natural
      resource damages and related assessment
costs;




·
            real
      and personal property damages;




·
            net
      loss of taxes, royalties, rents, profits or earnings
    capacity;






29






·
            net
      cost of public services necessitated by a spill response, such as
      protection from fire, safety or health
hazards;




·
            loss
      of profits or impairment of earning capacity due to injury, destruction or
      loss of real property, personal property and natural resources;
      and




·
            loss
      of subsistence use of natural
resources.






Under
amendments to OPA that became effective on July 11 2006, the liability of
responsible parties is limited, with respect to tanker vessels, to the greater
of $1,900 per gross ton or $16.0 million per vessel that is over 3,000 gross
tons, (subject to periodic adjustment for inflation).  The act
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some tates have enacted legislation providing for unlimited liability for
discharge of pollutants within their waters. In some cases, states that have
enacted this type of legislation have not yet issued implementing regulations
defining tanker owners' responsibilities under these laws. CERCLA, which applies
to owners and operators of vessels, contains a similar liability regime and
provides for clean-up, removal and natural resource damages relating to the
discharge of hazardous substances (other than oil). Liability under CERCLA is
limited to the greater of $300 per gross ton or $5.0 million for vessels
carrying a hazardous substance as cargo or residue and the greater of $300 per
gross ton or $0.5 million for any other vessel.




These limits of liability do not apply, however,
where the incident is caused by violation of applicable U.S. federal safety,
construction or operating regulations, or by the responsible party's gross
negligence or willful misconduct. These limits also do not apply if the
responsible party fails or refuses to report the incident or to cooperate and
assist in connection with the substance removal activities. OPA and CERCLA each
preserve the right to recover damages under existing law, including maritime
tort law. We believe that we are in substantial compliance with OPA, CERCLA and
all applicable state regulations in the ports where our vessels
call.




OPA also
requires owners and operators of vessels to establish and maintain with the U.S.
Coast Guard evidence of financial responsibility sufficient to meet the limit of
their potential strict liability under the act.  U.S. Coast Guard
regulations currently require evidence of financial responsibility in the amount
of $2,200 per gross ton for tankers, coupling the OPA limitation on liability of
$1,900 per gross ton with the CERCLA liability limit of $300 per gross
ton.  Under the regulations, evidence of financial responsibility may
be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA
regulations, an owner or operator of more than one tanker is required to
demonstrate evidence of financial responsibility for the entire fleet in an
amount equal only to the financial responsibility requirement of the tanker
having the greatest maximum strict liability under OPA and CERCLA. We have
provided such evidence and received certificates of financial responsibility
from the U.S. Coast Guard for each of our vessels required to have
one.




We insure
each of our vessels with pollution liability insurance in the maximum
commercially available amount of $1.0 billion. A catastrophic spill could exceed
the insurance coverage available, in which event there could be a material
adverse effect on our business.




Under
OPA, with certain limited exceptions, all newly-built or converted vessels
operating in U.S. waters must be built with double-hulls, and existing vessels
that do not comply with the double-hull requirement will be prohibited from
trading in U.S. waters over a 20-year period (1995-2015) based on size, age and
place of discharge, unless retrofitted with double-hulls.  All of our
vessels currently meet the double-hull requirements of OPA.




Owners or
operators of tankers operating in the waters of the United States must file
vessel response plans with the U.S. Coast Guard, and their tankers are required
to operate in compliance with their U.S. Coast Guard approved plans. These
response plans must, among other things:




·
            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";




·
            describe
      crew training and drills; and






30






·
            identify
      a qualified individual with full authority to implement removal
      actions.




We have
obtained vessel response plans approved by the U.S. Coast Guard for our vessels
operating in the waters of the U.S.




In
addition, 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.




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




The Clean
Water Act, or 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. The CWA complements the remedies
available under the more recent OPA and CERCLA, discussed above.




Effective
February 6, 2009, the EPA, regulates the discharge of ballast water and other
substances incidental to the normal operation of vessels in U.S. waters using a
Vessel General Permit, or VGP, system pursuant to the CWA, in order to combat
the risk of harmful foreign organisms that can travel in ballast water carried
from foreign ports. A VGP is required for commercial vessels 79 feet in length
or longer (other than commercial fishing vessels). Compliance could require the
installation of equipment on our vessels to treat ballast water before it is
discharged or the implementation of other port facility disposal arrangements or
procedures at potentially substantial cost, and/or otherwise restrict our
vessels from entering U.S. waters.




Ballast
water is also addressed under the U.S. National Invasive Species Act, or NISA.
 U.S. Coast Guard regulations adopted under NISA impose mandatory ballast
water management practices for all vessels equipped with ballast water tanks
entering U.S. waters.




European
Union Tanker Restrictions




In
response to the MT Prestige oil spill in November 2002, the European Union
adopted legislation that prohibits all single-hull tankers from entering into
its ports or offshore terminals by 2010 or earlier depending on age. The
European Union has also banned all single-hull tankers carrying heavy grades of
oil from entering or leaving its ports or offshore terminals or anchoring in
areas under its jurisdiction. Commencing in 2005, certain single-hull tankers
above 15 years of age will also be restricted from entering or leaving European
Union ports or offshore terminals and anchoring in areas under European Union
jurisdiction.




The
European Union has also adopted legislation that would: (1) strengthen
regulation against 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 difficult to accurately
predict what legislation or additional regulations, if any, may be promulgated
by the European Union or any other country or authority.






31




Greenhouse
Gas Regulation




In
February 2005, the Kyoto Protocol to the United Nations Framework
Convention on Climate Change, which we refer to as 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 U.S., the EPA has begun the process of declaring greenhouse gases to be
dangerous pollutants, which may be followed by future federal regulation of
greenhouse gases. Any passage of climate control legislation or other regulatory
initiatives by the IMO, EU, the .S. or other countries where we operate
that restrict emissions of greenhouse gases could require us to make significant
financial expenditures we cannot predict with certainty at this
time.




Vessel
Security Regulations




Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the U.S.
Maritime Transportation Security Act of 2002, or MTSA, came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created a new chapter
of the convention dealing specifically with maritime security. The new chapter
became effective in July 2004 and imposes various detailed security obligations
on vessels and port authorities, most of which are contained in the
International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS
Code is designed to protect ports and international shipping against terrorism.
After July 1, 2004, to trade internationally, a vessel must obtain an
International Ship Security Certificate, or ISSC, from a recognized security
organization approved by the vessel's flag state. Among the various requirements
are:




·
            on-board
      installation of automatic identification systems to provide a means for
      the automatic transmission of safety-related information from among
      similarly equipped ships and shore stations, including information on a
      ship's identity, position, course, speed and navigational
      status;




·
            on-board
      installation of ship security alert systems, which do not sound on the
      vessel but only alerts the authorities on
shore;




·
            the
      development of vessel security
plans;




·
            ship
      identification number to be permanently marked on a vessel's
      hull;




·
            a
      continuous synopsis record kept onboard showing a vessel's history
      including, name of the ship and of the state whose flag the ship is
      entitled to fly, the date on which the ship was registered with that
      state, the ship's identification number, the port at which the ship is
      registered and the name of the registered owner(s) and their registered
      address; and




·
            compliance
      with flag state security certification
  requirements.




The U.S.
Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have
on board, as of July 1, 2004, a valid ISSC attesting to the vessel's compliance
with SOLAS security requirements and the ISPS Code. We have implemented the
various security measures addressed by MTSA, SOLAS and the ISPS Code, and our
fleet is in compliance with applicable security requirements.




Inspection
by Classification Societies






32




Every
seagoing vessel must be "classed" by a classification society. The
classification society certifies that the vessel is "in class," signifying that
the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the
vessel's country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order,
acting on behalf of the authorities concerned.




The
classification society also undertakes on request other surveys and checks that
are required by regulations and requirements of the flag state. These surveys
are subject to agreements made in each individual case and/or to the regulations
of the country concerned.




For
maintenance of the class, regular and extraordinary surveys of hull, machinery,
including the electrical plant, and any special equipment classed are required
to be performed as follows:




Annual Surveys:
For seagoing ships, annual surveys are conducted for the hull and the machinery,
including the electrical plant, and where applicable for special equipment
classed, at intervals of 12 months from the date of commencement of the class
period indicated in the certificate.




Intermediate
Surveys: Extended annual surveys are referred to as intermediate surveys
and typically are conducted two and one-half years after commissioning and each
class renewal. Intermediate surveys may be carried out on the occasion of the
second or third annual survey.




Class Renewal
Surveys: Class renewal surveys, also known as special surveys, are
carried out for the ship's hull, machinery, including the electrical plant, and
for any special equipment classed, at the intervals indicated by the character
of classification for the hull. At the special survey, the vessel is thoroughly
examined, including audio-gauging to determine the thickness of the steel
structures. Should the thickness be found to be less than class requirements,
the classification society would prescribe steel renewals. The classification
society may grant a one-year grace period for completion of the special survey.
Substantial amounts of money may have to be spent for steel renewals to pass a
special survey if the vessel experiences excessive wear and tear. In lieu of the
special survey every four or five years, depending on whether a grace period was
granted, a shipowner has the option of arranging with the classification society
for the vessel's hull or machinery to be on a continuous survey cycle, in which
every part of the vessel would be surveyed within a five-year
cycle.




At an
owner's application, the surveys required for class renewal may be split
according to an agreed schedule to extend over the entire period of class. This
process is referred to as continuous class renewal.




All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years.




Most
vessels are also dry-docked every 30 to 36 months for inspection of the
underwater parts and for repairs related to inspections. If any defects are
found, the classification surveyor will issue a "recommendation" which must be
rectified by the ship owner within prescribed time limits.




Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as "in class" by a classification society which is a member of the
International Association of Classification Societies. All our vessels are
certified as being "in class" by the American Bureau of Shipping, Lloyds
Register of Shipping and Det Norske Veritas. All new and secondhand vessels that
we purchase must be certified prior to their delivery under our standard
contracts and memorandum of agreement. If the vessel is not certified on the
date of closing, we have no obligation to take delivery of the
vessel.




Risk of Loss and Liability
Insurance




General




The
operation of any vessel includes risks such as mechanical failure, collision,
property loss, cargo loss or damage and business interruption due to political
circumstances in foreign countries, hostilities and labor strikes. In addition,
there is always an inherent possibility of marine disaster, including oil spills
and other environmental mishaps, and the liabilities arising from owning and
operating vessels in international trade. OPA, which imposes virtually unlimited
liability upon owners, operators and demise charterers of vessels trading in the
United States exclusive economic zone for certain oil pollution accidents in the
United States, has made liability insurance more expensive for ship owners and
operators trading in the United States market.




33






While we
maintain hull and machinery insurance, war risks insurance, protection and
indemnity coverage, increased value insurance and freight, demurrage and defense
coverage, we may not be able to achieve or maintain this level of coverage
throughout a vessel's useful life. While we believe that our present insurance
coverage is adequate, not all risks can be insured, and there can be no
guarantee that any specific claim will be paid, or that we will always be able
to obtain adequate insurance coverage at reasonable rates.




Hull
and Machinery and War Risks Insurance




We
maintain marine hull and machinery and war risks insurance, which covers the
risk of actual or constructive total loss, for all of our vessels. Our vessels
are each covered up to at least fair market value with deductibles of $75,000
per vessel per incident.  We also maintain increased value coverage
for each of our vessels.  Under this increased value coverage, in the
event of total loss of a vessel, we are entitled to recover amounts not
recoverable under our hull and machinery policy due to
under-insurance.




Loss
of Hire Insurance




We
maintain insurance against loss of hire for each of our vessels currently
operating under a time charter or a voyage charter for the term of the
charter.  This insurance generally provides coverage against business
interruption for periods of more than 14 days following a loss under our hull
and machinery policy or other business interruption.  Our loss of hire
insurance provides coverage for each covered vessel for up to 90 days during any
calendar year.




Protection
and Indemnity Insurance




Protection
and indemnity insurance is provided by mutual protection and indemnity
associations, or P&I Clubs, which insure our third party liabilities in
connection with our shipping activities. This includes third-party liability and
other related expenses resulting from the injury or death of crew, passengers
and other third parties, the loss or damage to cargo, claims arising from
collisions with other vessels, damage to other third-party property, pollution
arising from oil or other substances and salvage, towing and other related
costs, including wreck removal. Protection and indemnity insurance is a form of
mutual indemnity insurance, extended by protection and indemnity mutual
associations, or "clubs."




Our
current protection and indemnity insurance coverage for pollution is
$1.0 billion per vessel per incident. The 13 P&I Clubs that comprise
the International Group insure approximately 90% of the world's commercial
tonnage and have entered into a pooling agreement to reinsure each association's
liabilities.




The
International Group of P&I Clubs exists to arrange collective insurance and
reinsurance for P&I Clubs, to represent the views of shipowners and
charterers who belong to those Clubs on matters of concern to the shipping
industry and to provide a forum for the exchange of information.  Each
of the constituent P&I Clubs is an independent, non-profit making mutual
insurance association or "Club," providing cover for its shipowner and charterer
members against liabilities of their respective businesses.  Each Club
is controlled by its members through a board of directors (or Committee) elected
from the membership; the Board (or Committee) retains responsibility for
strategic and policy issues but delegates to full-time managers the technical
running of the Club.




Although
the Clubs compete with each other for business, they have found it beneficial to
pool their larger risks under the auspices of the International
Group.  This pooling is regulated by a contractual agreement which
defines the risks that are to be pooled and exactly how these are to be shared
between the participating Clubs.  The pool provides a mechanism for
sharing all claims in excess of $5.0 million up to a limit of about $5.4
billion.  For a layer of claims between $50.0 million and $2.03
billion the International Group's Clubs purchase reinsurance from the commercial
market.  The pooling system provides participating Clubs with
reinsurance protection at cost to much higher levels than would normally be
available in the commercial reinsurance market.






34






As a
member of a P&I Club, which is a member of the International Group, we are
subject to calls payable to the associations based on the group's claim records
as well as the claim records of all other members of the individual associations
and members of the pool of P&I Club comprising the International
Group.




Competition




The
international product tanker business fluctuates in line with the main patterns
of trade changes in the supply and demand for these refined petroleum
products.  We operate in markets that are highly competitive and based
primarily on supply and demand.  We compete for charters on the basis
of price, vessel location, size, age and condition of the vessel, as well as on
our reputation as an owner and operator. We compete with other owners of
Aframax, Handymax and Panamax product tankers.  The sector in which we
operate is highly fragmented and is divided among numerous independent product
tanker owners.




C.
Organizational Structure




We own or
will own our vessels through separate wholly-owned subsidiaries that are
incorporated in the Marshall Islands and which are listed on Exhibit 8.1 to this
annual report.  We provide commercial management for our vessels
through our wholly-owned subsidiary, Omega Management, Inc.




D.
Property, plant and equipment




We do not
own any real estate property or any other material assets other than the vessels
in our fleet.  We lease our office space at Piraeus, Greece from a
company affiliated with Target Marine S.A., and have annual lease payments for
2006, 2007 and 2008 of Euro 33,000, Euro 47,720 and Euro 53,140, respectively,
or approximately $41,694, $65,320 and $78,532, respectively.




ITEM
4A – UNRESOLVED STAFF COMMENTS




None.




ITEM
5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS




The
following management's discussion and analysis of the results of our operations
and our financial condition should be read in conjunction with the financial
statements and the notes to those statements included elsewhere in this annual
report. This discussion includes forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
such as those set forth in the "Risk Factors" section and elsewhere in this
report. The operating results of the drybulk carriers that were disposed of in
January 2007 are presented at the consolidated statement of income as income
from discontinued operations of the drybulk carrier fleet.




A.
Operating Results




Factors
Affecting Our Results of Operations




The
principal factors that affect our financial position, results of operations and
cash flows include:




·
            charter
      market rates;




·
            periods
      of charter hire;




·
            vessel
      operating expenses and voyage costs, which are incurred primarily in
      Dollars;




·
            depreciation
      expenses, which are a function of the cost of our vessels, significant
      vessel improvement costs and our vessels' estimated useful lives;
      and




·
            financing
      costs related to our indebtedness under our credit facilities and
      derivative agreements.








35




Voyage
Revenues




The
primary factors affecting our voyage revenues are driven primarily by the number
of vessels in our fleet, the number of days during which our vessels operate and
the amount of daily time charter hire rates that our vessels earn under
charters, that, in turn, are affected by a number of other factors,
including:




·
            our
      decisions relating to vessel acquisitions and
  disposals;




·
            the
      amount of time that we spend positioning
  vessels;




·
            the
      amount of time that our vessels spend in drydock undergoing
      repairs;




·
            maintenance
      and upgrade work;




·
            the
      age, condition and specifications of our
  vessels;




·
            levels
      of supply and demand in the product tanker shipping industry;
      and




·
            other
      factors affecting spot market charter rates for product
      tankers.






Voyage
Expenses




We incur voyage expenses that include port and canal charges, fuel
(bunker) expenses and brokerage commissions payable to unaffiliated parties.
Port and canal charges and bunker expenses primarily increase in periods during
which vessels are employed on voyage charters because these expenses are for the
account of the vessel owner. Currently, we do not incur port and canal charges
and bunker expenses as part of our vessels' overall expenses, because all of our
vessels are employedunder time
charters that require the charterer to bear all voyage expenses, except for
brokerage commissions.




As is
common in the shipping industry, we pay commissions to third party shipbrokers
in connection with the chartering of our vessels. The amount of commissions
payable for the product tankers is 1.25% of the total daily charter hire rate
received under a charter and depends on a number of factors, including, among
other things, the number of shipbrokers involved in arranging the charter and
the amount of commissions charged by brokers related to the
charterer.




Vessel
Operating Expenses




Vessel
operating expenses primarily consist of payments to our technical managers for
crew wages and related costs, expenses relating to repairs and maintenance, the
cost of spares and consumable stores, tonnage taxes and other miscellaneous
expenses as well as the cost of insurances. Our vessel operating expenses have
increased as a result of the enlargement of our fleet. Other factors beyond our
control, some of which may affect the shipping industry in general, including,
for instance, developments relating to market price for insurances, may also
cause these expenses to increase.




General
and Administrative Expenses




We incur
general and administrative expenses, including our onshore vessel related
expenses such as legal and professional expenses, and other general vessel
expenses. Our general and administrative expenses also include our payroll
expenses, including those relating to our executive officers, and
rent.




Management
Fees




We pay
management fees for the technical management of our wholly-owned fleet, which
includes managing day-to-day vessel operations, performing general vessel
maintenance, ensuring regulatory and classification society compliance,
supervising the maintenance and general efficiency of vessels, arranging the
employment and transportation of officers and crew, arranging and supervising
dry docking and repairs, purchasing of spares and other consumable stores and
other duties related to the operation of our vessels.






36




Depreciation
and Amortization




We
depreciate the cost of our vessels on a straight-line basis over the estimated
useful life of each vessel, which is 25 years from the date of initial
delivery from the shipyard, after considering the estimated salvage
value.  Each vessel's salvage value is equal to the product of its
lightweight tonnage and estimated scrap rate at the date of the vessel's
delivery.Our
depreciation charges have increased due to the enlargement of our fleet, which
has also led to an increase of ownership days.




Interest and Finance Costs,
net




We have
historically incurred interest expense and financing costs in connection with
the debt incurred to partially finance the acquisition of vessels. As of
December 31, 2006, we had $142.9 million of indebtedness outstanding under our
term credit facility and $96.0 million of indebtedness outstanding under our
revolving credit facility. As of December 31, 2007, we had $180.0 million of
indebtedness outstanding under our term credit facilities, $141.8 million of
indebtedness outstanding under our revolving credit facility and $2.4 million of
indebtedness outstanding under our bridge loan facility. As of December 31,
2008, we had $336.6 million of indebtedness outstanding under our term credit
facilities.  The amount of outstanding indebtedness of the term credit
facilities include credit facilities relating to the financing of the
acquisition of the seven newbuilding vessels that amounted to $40.1 million and
$51.4 million as of December 31, 2007 and 2008, respectively. Interest and
finance costs relating to the amounts drawn under the credit facilities during
the construction of the five newbuilding vessels will be capitalized as vessels'
cost.  For additional information regarding our credit facilities,
please see "Liquidity and Capital Resources," below.




Lack
of Historical Operating Data for Vessels Before their Acquisition




Consistent
with shipping industry practice, other than inspection of the physical condition
of the vessels and examinations of classification society records, there is no
historical financial due diligence process when we acquire vessels. Accordingly,
we do not obtain the historical operating data for the vessels from the sellers
because that information is not material to our decision to make acquisitions,
nor do we believe it would be helpful to potential investors in our common
shares in assessing our business or profitability. Most vessels are sold under a
standardized agreement, which, among other things, provides the buyer with the
right to inspect the vessel and the vessel's classification society records. The
standard agreement does not give the buyer the right to inspect, or receive
copies of, the historical operating data of the vessel. Prior to the delivery of
a purchased vessel, the seller typically removes from the vessel all records,
including past financial records and accounts related to the vessel. In
addition, the technical management agreement between the seller's technical
manager and the seller is automatically terminated and the vessel's trading
certificates are revoked by its flag state following a change in
ownership.




Consistent
with shipping industry practice, we treat the acquisition of a vessel (whether
acquired with or without charter) as the acquisition of an asset rather than a
business. Although vessels are generally acquired free of charter, we may, in
the future, acquire some vessels with time charters. Where a vessel has been
under a voyage charter, the vessel is delivered to the buyer free of charter,
and it is rare in the shipping industry for the last charterer of the vessel in
the hands of the seller to continue as the first charterer of the vessel in the
hands of the buyer. In most cases, when a vessel is under time charter and the
buyer wishes to assume that charter, the vessel cannot be acquired without the
charterer's consent and the buyer entering into a separate direct agreement with
the charterer to assume the charter. The purchase of a vessel itself does not
transfer the charter, because it is a separate service agreement between the
vessel owner and the charterer.




When we
purchase a vessel and assume or renegotiate a related time charter, we must take
the following steps before the vessel will be ready to commence
operations:




·
            obtain
      the charterer's consent to us as the new
owner;




·
            obtain
      the charterer's consent to a new technical
  manager;




·
            obtain
      the charterer's consent to a new flag for the
  vessel;




·
            arrange
      for a new crew for the vessel;




·
            replace
      all hired equipment on board, such as gas cylinders and communication
      equipment;




37




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




·
            register
      the vessel under a flag state and perform the related inspections in order
      to obtain new trading certificates from the flag
  state;




·
            implement
      a new planned maintenance program for the vessel;
  and




·
            ensure
      that the new technical manager obtains new certificates for compliance
      with the safety and vessel security regulations of the flag
      state.




The following discussion is intended to help
you understand how acquisitions of vessels affect our business and results of
operations.




Our
business is comprised of the following main elements:




·
            employment
      and operation of our product tanker vessels and, prior to their sale in
      January 2007, our drybulk carriers;
and




·
            management
      of the financial, general and administrative elements involved in the
      conduct of our business and ownership of our product tanker vessels and,
      prior to their sale in January 2007, our drybulk
  carriers.




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




·
            vessel
      maintenance and repair;




·
            crew
      selection and training;




·
            vessel
      spares and stores supply;




·
            contingency
      response planning;




·
            onboard
      safety procedures auditing;




·
            accounting;




·
            vessel
      insurance arrangement;




·
            vessel
      chartering;




·
            vessel
      hire management;




·
            vessel
      surveying; and




·
            vessel
      performance monitoring.




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




·
            management
      of our financial resources, including banking relationships, i.e., administration of
      bank loans and bank accounts;




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




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




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




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




·
            rates
      and periods of charter hire;




·
            levels
      of vessel operating expenses;




·
            depreciation
      expenses; and




·
            financing
      costs.




38






Critical
Accounting Policies




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 U.S. GAAP. The preparation of those financial statements
requires us to make estimates and judgments that affect the reported amounts 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 and
conditions.





Critical
accounting policies are those that reflect significant judgments of
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, because they generally involve a
comparatively higher degree of judgment in their application.





Revenue
recognition: The Company generates its revenues from charterers for the
charter hire of its vessels. Vessels are chartered using either voyage charters,
where a contract is made in the spot market for the use of a vessel for a
specific voyage for a specified charter rate, or time charters, where a contract
is entered into for the use of a vessel for a specific period of time and a
specified daily charter hire rate. If a charter agreement exists, and collection
of the related revenue is reasonably assured, revenue is recognized, as it is
earned rateably over the duration of the period of each voyage or time charter.
A voyage is deemed to commence upon the completion of discharge of the vessel's
previous cargo and is deemed to end upon the completion of discharge of the
current cargo. Profit sharing represents the Company's portion on the excess of
the actual net daily charter rate earned by the Company's charterers from the
employment of the Company's vessels over a predetermined base daily charter
rate, as agreed between the Company and its charterers; such profit sharing is
recognized in revenue when mutually settled. Demurrage income represents
payments by the charterer to the vessel owner when loading or discharging time
exceeded the stipulated time in the voyage charter and is recognized as
incurred. Deferred revenue represents cash received on charter agreement prior
to the balance sheet date and is related to revenue not meeting the criteria for
recognition.





Impairment of long
lived assets: The Company applies SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The standard requires that, long-lived assets and certain identifiable
intangibles held and used or disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. When the estimate of undiscounted projected
operating cash flows, excluding interest charges, expected to be generated by
the use of the asset is less than its carrying amount, the Company should
evaluate the asset for an impairment loss. The Company determines the fair value
of its assets based on management estimates and assumptions and by making use of
available market data and taking into consideration third party
valuations.





The
Company evaluates the carrying amounts (primarily for vessels and related
drydocking and special survey costs) and periods over which long lived assets
are depreciated to determine if events have occurred which would require
modification of their carrying values or useful lives. In evaluating useful
lives and carrying values of long lived assets, management reviews certain
indicators of potential impairment, such as undiscounted projected operating
cash flows, vessel sales and purchases and overall market
conditions.





The
current economic and market conditions, including the significant disruptions in
the global credit markets are having broad effects on participants in a wide
variety of industries. Since mid-August 2008 the product tanker vessel values
have declined both as a result of a slowdown in the availability of global
credit and the decrease in charter rates; conditions that the Company considers
indicators of a potential impairment.




The
Company determines undiscounted projected operating cash flows for each vessel
and compares it to the vessel's carrying value. The projected net operating cash
flows are determined by considering the charter revenues from existing time
charters for the fixed fleet days and an estimated daily time charter equivalent
for the unfixed days (based on the most recent 10 years average historical one
year time charter rates) over the remaining estimated life of each vessel, net
of brokerage commissions, expected outflows for scheduled vessels' maintenance
and vessel operating expenses assuming an average annual inflation rate of 3%.
In the Company's exercise the fleet utilization is assumed to be 99% for the
first 15 years of the life of the vessel and 98% thereafter. Additional off hire
is assumed for the periods each vessel is expected to undergo her scheduled
maintenance (drydocking and special surveys). The cash flows were based on the
conditions that existed at the balance sheet date and were not affected by
subsequent decisions.






39







No
impairment loss was identified or recorded for 2007 or 2008 and the Company has
not identified any other facts or circumstances that would require the write
down of vessel values. However, the current assumptions used and the estimates
made are highly subjective, and could be negatively impacted by further
significant deterioration in charter rates or vessel utilization over the
remaining life of the vessels which could require the Company to record a
material impairment charge in future periods.





Vessel's
depreciation: Depreciation is computed using the straight-line method
over the estimated useful life of the vessels, after considering the estimated
salvage value. Each vessel's salvage value is equal to the product of ts
lightweight tonnage and estimated scrap rate at the date of the vessel's
delivery. Management estimates the useful life of the Company's vessels to be 25
years from the date of initial delivery from the shipyard. Second hand vessels
are depreciated from the date of their acquisition through their remaining
estimated useful life. When regulations place limitations over the ability of a
vessel to trade on a worldwide basis, its useful life is adjusted at the date
such regulations become effective.





Accounting and
measurement of derivative instruments: SFAS No. 133 "Accounting for
Derivative Instruments and Certain Hedging Activities," require all derivative
instruments be recorded on the balance sheet as either an asset or liability
measured at its fair value, with changes in fair value recognised currently in
earnings unless specific hedge accounting criteria are met. As derivative
instruments have not been designated as hedging instruments, changes in their
fair values are reported in current period earnings. The off-balance sheet risk
in outstanding derivative agreements involves the risk of a counter party not
performing under the terms of the contract. The Company monitors its positions,
the credit ratings of counterparties and the level of contracts it enters into
with any one party. The Company has a policy of entering into contracts with
parties that meet stringent qualifications and, given the high level of credit
quality of its derivative counterparty, the Company does not believe it is
necessary to obtain collateral arrangements.





Financial instruments
with characteristics of both liabilities and equity: SFAS No. 150
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity" establishes standards for the accounting for certain
financial instruments with characteristics of both liabilities and equity.
Certain obligations to issue a variable number of shares are financial
instruments that embody unconditional obligations, or financial instruments
other than outstanding shares that embody conditional obligation, that the
issuers must or may settle by issuing variable number of equity shares. These
obligations also must be classified as liabilities if, at inception, the
monetary values of the obligations are based solely or predominantly on any one
of the following: 1) a fixed monetary amount known at inception, 2) variations
in something other than the fair value of the issuer's equity shares, or 3)
variations inversely related to changes in the fair value of the issuer's equity
shares. Freestanding financial instruments indexed to or potentially settled in
the issuer's shares for which equity classification is precluded by SFAS No. 150
initially and subsequent should be measured at fair value. Subsequent changes in
fair value are recognized in earnings.





Deferred Dry-dock
costs: The Company follows the deferral method of accounting for
dry-docking costs whereby actual costs incurred are deferred and are amortized
on a straight-line basis over the period through the date the next dry-docking
is scheduled to become due. Unamortized dry-docking costs of vessels that are
sold are written off and included in the calculation of the resulting gain or
loss in the period of the vessel's sale. During September 2008 Omega Lady Miriam entered her
scheduled drydock.





Allowance for
non-collectible accounts: At each balance sheet date, all potentially
uncollectible accounts are assessed individually for purposes of determining the
appropriate provision for doubtful accounts.






40





Year
Ended December 31, 2008 compared with the Year Ended December 31,
2007





OPERATING
FLEET – Our fleet, in 2008, was comprised of eight product tankers, including
two Handymax MR's and six Panamax vessels.  The two Handymax MR's and
four of the Panamax vessels were purchased in 2006 with a combination of debt
and proceeds from our initial public offering. The vessels were delivered to us
between May and August of 2006.  The other two Panamax vessels were
purchased in 2007 and were delivered to us in March and April of 2007,
respectively.  The results from operations for these vessels in 2007
and 2008 are in Continuing Operations.  Discontinued operations relate
to the results of operations of our bulk carriers that we agreed to sell in 2006
and were delivered to their new owners in 2007.





CONTINUING
OPERATIONS





VOYAGE
REVENUES – Voyage revenues were $77.7 million in 2008 versus $69.9 million in
2007, an increase of 11%.  The increase was primarily due to an
increase in the number of ship operating days for the product tankers from 2,719
days in 2007 to 2,918 in 2008, an increase of 199 days or 7%.  On
average, we operated 6.0 Panamax vessels and 2.0 Handymax MR's in 2008 versus
5.4 Panamax vessels and 2.0 Handymax MR's in 2007.  Voyage revenues
for 2008 and 2007 also include revenue from profit sharing of $6.8 million and
$4.0 million, respectively.





VOYAGE
EXPENSES – Voyage expenses, which include mainly brokerage commissions on voyage
revenues, were $1.0 million in 2008 versus $0.9 million in 2007, an increase of
11%. This increase is due primarily to the respective increase in voyage
revenues, as commissions are calculated as a percentage of gross
hire.





VESSEL
OPERATING EXPENSES – Vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oils, insurance, maintenance and
repairs, were $15.5 million in 2008 versus $13.1 million in 2007, an increase of
18%.  This increase was primarily related to the operation of a larger
fleet in 2008 versus 2007, when we operated a fleet of 8.0 compared to 7.4
vessels, respectively. The increase in crew wages and the increased cost of
spares incurred as a result of repairs and maintenance effected during the
drydocking for one vessel in our fleet.





DEPRECIATION
AND AMORTIZATION – Depreciation and amortization, which primarily includes
depreciation of vessels, was $18.9 million in 2008 versus $17.6 million in
2007.  The increase of 7% reflected the operation of an average of 8.0
vessels in 2008 versus 7.4 vessels in 2007.





MANAGEMENT
FEES – Management fees relate to the fees paid to V. Ships and Eurasia for the
technical management of our vessels.  These fees were $1.2 million in
2008 versus $1.1 million in 2007.  This increase of 9.1% related to
the operation of a larger fleet in 2008 than 2007 as well as 7% annual increase
of the management fees in 2008 compared to 2007. This increase was partially
offset by the fact that in 2007 extra fees were charged by V. Ships as for
management services rendered prior to the acquisition of Omega Emmanuel andOmega Theodore.





GENERAL
AND ADMINISTRATIVE EXPENSES – General and Administrative Expenses were $6.1
million in 2008 versus $5.1 million in 2007, reflecting an increase of 20%. The
increase is mainly attributable to a $0.9 million increase of non cash charges
relating to the fair value of the restricted shares granted. The grant date fair
value of the restricted shares is being recognized rateably over the vesting
period. Also during 2008 there was an increase of wages that was partially
offset by the decrease of the cash bonus received by the Officers and the
decrease of the audit fees. The amount of audit and consulting fees was higher
in 2007 mainly due to Sarbanes-Oxley compliance requirements.





INTEREST
AND FINANCE COSTS - Interest and Finance costs for 2008 were $14.4 million
versus $18.6 million in 2007, a decrease of $4.2 million or 23%.  The
decrease reflects the decrease of average interest rate by 32% in 2008 compared
to 2007. The decrease resulted from the lower interest rates was partially
offset by the higher amount of outstanding debt relating mainly to the financing
of the two handymax (MR2) product tankers that we have agreed to
purchase.




INTEREST
INCOME – Interest Income was $0.7 million in 2008 versus $1.8 million in 2007, a
decrease of 61%, relating mainly to lower interest rates and
balances.






41







CHANGE IN
FAIR VALUE OF WARRANTS - This gain was $3.2 million in 2008 versus $1.1 million
in 2007 and is related to the changes in fair values of the warrants issued to
the seller of the Ice Class 1A Panamax newbuildings, which we took delivery of
in March and April of 2007, as partial compensation for the vessels. The
increase of the amount of gain relates mainly to the decrease of our share price
on December 31, 2008 compared to December 31, 2007.





LOSS ON
DERIVATIVE INSTRUMENTS – For the year ended December 31, 2008, realized loss
from the interest rate swaps amounted to $0.9 million and unrealized loss was
$12.7 million. For the year ended December 31, 2007, realized gain from the
interest rate swap amounted to $0.04 million and the net unrealized loss on the
interest rate collar option amounted to $1.3 million. The increase of the loss
on derivative instruments relates primarily to the significant decrease of the
forward interest rates as of December 31, 2008 compared to December 31, 2007. On
March 27, 2008 we entered into two interest rate swap agreements with NIBC and
BTMU in order to hedge our exposure to fluctuations in interest rates on our
junior secured credit facility. The notional amount of each agreement is $21.3
million and the interest rate is fixed at 2.96% per annum. Furthermore, on April
15, 2008 we entered into a restructuring agreement amending the initial rate
collar option with HSH. Under the amended agreement, we have entered into a
participation swap with a gradual alignment factor. The notional amount of the
swap is $150.0 million and the cap has been set at 5.1%, with the floor being at
2.5% and the gradual aligned participation at a maximum of 2.6% when the three
months LIBOR drops below 2.5%. Finally, on November 10, 2008 we entered into an
interest rate swap agreement with Lloyds Bank in order to hedge our exposure to
fluctuations in interest rates.The interest rate is
fixed at 2.585% per annum and the notional amount was $100.0 million as of
December 31, 2008.





INCOME
FROM CONTINUING OPERATIONS – Income from continuing operations for 2008 was
$10.9 million versus $14.9 million in 2007.  The decrease of $4.0
million, or 27%, primarily is related to the significant increase of the loss on
derivative instruments by $12.4 million, that was partially offset by (i) the
increase of operating income by $3.2 million due primarily to the increase of
the size of our fleet from an average of 7.4 vessels in 2007 to 8.0 vessels in
2008, (ii) the decrease of interest and finance costs and interest income by
$3.1 million and (iii) the increase of gain from change in fair value of
warrants by $2.1 million.





Year
Ended December 31, 2007 compared with the Year Ended December 31,
2006





OPERATING
FLEET – Our fleet, in 2007, was comprised of eight product tankers, including
two Handymax MR's and six Panamax vessels.  The two Handymax MR's and
four of the Panamax vessels were purchased in 2006 with a combination of debt
and proceeds from our initial public offering. The vessels were delivered to us
between May and August of 2006.  The other two Panamax vessels were
purchased in 2007 and were delivered to us in March and April of 2007,
respectively.  The results from operations for these vessels in 2007
are in Continuing Operations.  The results from operations for the
vessels purchased in 2006 are in Continuing Operations in 2006.  Our
fleet also included two drybulk carriers, which were agreed to be sold in
September of 2006 and delivered to the new owners in January of
2007.  Due to the agreement to sell the bulk carriers, the results of
operations of these vessels are shown in Discontinued Operations in both 2007
and 2006.





CONTINUING
OPERATIONS





VOYAGE
REVENUES – Voyage revenues were $69.9 million in 2007 versus $26.9 million in
2006, an increase of 160%.  The increase was primarily due to an
increase in the number of ship operating days for the product tankers from 1,122
days in 2006 to 2,719 days in 2007, an increase of 1,597 days or
142%.  On average, we operated 5.4 Panamax vessels and 2.0 Handymax
MR's in 2007 versus 2.1 Panamax vessels and 1.0 Handymax MR's in
2006.  Voyage revenues for 2007 also include revenue from profit
sharing of $4.0 million, while no such revenue were recognized in 2006, as the
recognition criteria were not met.





VOYAGE
EXPENSES – Voyage expenses, which include mainly brokerage and address
commissions on voyage revenues, were $0.9 million in 2007 versus $0.3 million in
2006, an increase of 200%. This increase is due primarily to the respective
increase in voyage revenues, as commissions are calculated as a percentage of
gross hire.


42








VESSEL
OPERATING EXPENSES – Vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oils, insurance, maintenance and
repairs, were $13.1 million in 2007 versus $5.7 million in 2006, an increase of
130%.  This increase was primarily related to the operation of a
larger fleet in 2007 versus 2006, when we operated a fleet of 7.4 compared to
3.1 vessels, respectively.





DEPRECIATION
AND AMORTIZATION – Depreciation and amortization, which primarily includes
depreciation of vessels, was $17.6 million in 2007 versus $7.2 million in
2006.  The increase of 144% reflected the operation of an average of
7.4 vessels in 2007 versus 3.1 vessels in 2006.





MANAGEMENT
FEES – Management fees relate to the fees paid to V. Ships and Eurasia for the
technical management of our vessels.  These fees were $1.1 million in
2007 versus $0.6 in 2006.  This increase of 83% related to the
operation of a larger fleet in 2007 than 2006.  The increase is not in
line with the increase in vessel operating days (142%) as in 2006 extra fees
were charged by V. Ships and Eurasia as for management services rendered prior
to the acquisition of the Company's fleet.





OPTIONS'
PREMIUM – On February, 2006, the company entered into four option agreements to
acquire four Ice Class 1A double hull Panamax product Tankers. In order to
conclude such option agreements the Company paid a non refundable fee of $0.1
million per agreement. In November and December, 2006, two of the options
expired without being exercised and the respective fees of $0.2 million were
charged in the accompanying 2006 consolidated statement of income. The remaining
two option agreements, which expired on April 30 and May 31, 2007, remained
unexercised and the respective fees of $0.2 million were written off in the
2007 consolidated statement of income.





GENERAL
AND ADMINISTRATIVE EXPENSES – General and Administrative Expenses were $5.1
million in 2007, reflecting an increase of $2.4 million or 112% compared to
2006. The increase is mainly attributable to a $1.2 million increase in wages
and other compensation costs, resulting mainly from the increase in personnel
umber and months of employment compared to 2006, bonuses granted to the officers
and employees of the Company and a $0.6 million increase in audit and
consultancy fees mainly due to Sarbanes-Oxley compliance
requirements.





INTEREST
AND FINANCE COSTS - Interest and Finance costs for 2007 were $18.6 million
versus $7.5 million in 2006, an increase of $11.1 million or
148%.  The increase reflects a full year of interest of debt, which
was drawn down between May and August of 2006 when the six product tankers
were  acquired.  Also, additional debt was drawn in 2007 to
partially finance the purchase of the two newbuilding Panamax tankers delivered
in March and April of 2007.





INTEREST
INCOME – Interest Income was $1.8 million in 2007, the same as in 2006, and
reflected interest income received on cash balances during the
year.





CHANGE IN
FAIR VALUE OF WARRANTS - This gain was $1.1 million and is related to the
changes in fair values of the warrants issued to the seller of the Ice Class 1A
Panamax newbuildings, which we took delivery of in March and April of 2007, as
partial compensation for the vessels.





LOSS ON
DERIVATIVE INSTRUMENTS – For the year ended December 31, 2007, realized gain
from the interest rate swap amounted to $0.04 million and the net unrealized
loss on the interest rate collar option amounted to $1.3 million.  For
the year ended December 31, 2006, realized gain from the interest rate swap
amounted to $0.06 million and the net unrealized loss on the interest rate
collar option amounted to $0.3 million.





INCOME/LOSS
FROM CONTINUING OPERATIONS – Income from continuing operations for 2007 was
$14.9 million versus a loss of $4.6 million in 2006.  The increase of
$10.3 million, or 224%, primarily is related to the increase of the size of the
fleet from an average of 3.1 vessels in 2006 to 7.4 vessels in 2007 and the
recognition in 2007 of revenue from profit sharing of $4.0 million discussed
above.





Income
from the ownership and operation of the drybulk vessels for 2007 and 2006 is
shown below in "Discontinued Operations."


43





DISCONTINUED
OPERATIONS





INCOME/LOSS
FROM DISCONTINUED OPERATIONS – For the year ended December 31, 2007, loss from
discontinued operations was $0.2 million versus income of $9.6 million in
2006.  Gain from discontinued operations in 2006 reflected a full year
of operation for the two drybulk carriers which were delivered to the new owners
in January 2007 and a gain on extinguishment of debt that was partially offset
by the $1.7 million impairment loss recognized as a result of the disposal of
the drybulk carrier fleet.





NET
INCOME – Net income was $14.7 million in 2007 compared with net income of $14.1
million in 2006.  The increase of $0.6 million or 4% is primarily
attributed to the combined effect of increased operating days in 2007 (operating
days in 2007 were 2,725 versus a total, including both product tankers and
drybulk vessels, of 1,852 days in 2006), the recognition in 2007 of revenue from
profit sharing of $4.0 million discussed above partly offset by increased
financing costs in 2007.





B.
Liquidity and Capital Resources





We
operate in a capital intensive market. We have financed the acquisition of our
fleet with proceeds from our initial public offering, long-term debt and
internally generated cash. Our main uses of funds have been capital expenditure
for the acquisition of new vessels, repayment of bank loans and payment of
dividends.





Vessels
acquisitions and vessels under construction





Two handymax product tankers
that we had agreed to purchase in May 2008:





On May 9,
2008, we entered into Memorandum of Agreements with an unrelated third party to
acquire two newbuilding double hull Handymax (MR2) product tankers for a
consideration of $55.5 million per vessel ($111.0 million in total). The vessels
each have a capacity of approximately 47,000 dwt, the first one was delivered in
April 2009 and the other is currently under construction at Hyundai Mipo
Shipyard, South Korea expected to be delivered in the third quarter of 2010. As
at December 31, 2008, we had paid an advance, representing 10% of the total
purchase price, amounting to $11.1 million, from cash available from operations
nd the proceeds under a loan facility concluded in this respect with Lloyds TSB
Bank PLC, as further discussed below. In 2009, the following events occurred
with respect to:




a) Omega
Duke





(i) On
April 8, 2009, we entered into a settlement agreement with the seller to cancel
the Memorandum of Agreement and the time charter agreement for Omega Duke, by paying a
settlement fee of $3.0 million. Such amount was paid on April 24, 2009 and both
parties were released from further liabilities regarding the Memorandum of
agreement and the time charter agreement.





(ii)
Through our wholly-owned subsidiary Omnicrom Holdings Ltd., or Omnicrom, we have
entered into a joint venture agreement with Topley Corporation, or Topley, which
is a wholly-owned subsidiary of Glencore International AG. Omnicrom and Topley
each own 50% of Stone Shipping Ltd, or Stone, that is a joint venture holding
company. Stone owns 100% of Blizzard Navigation Inc., or Blizzard, that is the
shipowning company of Omega
Duke. Blizzard entered into a Memorandum of Agreement with the seller for
the purchase of Omega
Duke for a consideration of $45.0 million. Omega Duke was delivered to
Blizzard on April 24, 2009. The purchase of the vessel was financed by the loan
agreement with Lloyds bank discussed below and by equal equity contributions of
the joint venturers that amounted to $11.3 million, or $5.6 million each.
Blizzard has entered into a five year charter agreement on a daily hire of
$16,500 plus 100% of any trading income in excess. In the event that additional
equity is required, Topley and Omnicrom are each expected to invest an amount
equal to 50% of the required funding. The joint venture is expected to declare a
dividend on a quarterly basis, in amounts substantially equal to any available
cash from operations after cash expenses and discretionary reserves and is
expected to  be distributed equally between Omnicrom and
Topley.


44





b) Vessel to be delivered
during the third quarter 2010





(i) On
April 8, 2009, we entered into a settlement agreement with the seller to cancel
the Memorandum of Agreement and the time charter agreement, of the second vessel
that we agreed to purchase on May 2008. The effectiveness of the settlement
agreement is subject to several financing arrangements that need to be in place
prior to July 31, 2009. The financing arrangements relate mainly to equity
contributions from the joint venturers and the payment of the settlement
fee.





(ii) On
April 8, 2009, as supplemented on April 24, 2009, we entered, through Omnicrom,
into a joint venture agreement with Topley. Omnicrom and Topley are expected to
each own 50% of Onest Shipping Ltd, or Onest, which is expected to be a joint
venture holding company. Onest is expected to own 100% of Tornado Navigation
Inc., or Tornado, which is expected to be shipowning company of the vessel. This
agreement is subject to several financing arrangements that need to be in place
prior to July 31, 2009.





Pursuant
to the terms of the joint venture agreement, Omnicrom and Topley are expected to
procure a novation agreement transferring all rights and obligations of the
shipbuilding contract from the seller, an unaffiliated third party, to Tornado
is executed. In case the builder refuses to sign the novation agreement the
seller expects to enter into a Memorandum of Agreement with Tornado for the sale
of the vessel. Upon signing of the novation agreement or the Memorandum of
Agreement, Omnicrom and Topley are expected to contribute the required equity.
The acquisition of the vessel is expected to be financed by equal equity
contributions of the joint venturers and the loan facility with Lloyds bank
described below. In the event that additional equity is required, Topley and
Omnicrom are each expected to invest an amount equal to 50% of the required
funding.





Any cost
associated with the predelivery finance is expected to be financed from Topley
with interest of Libor plus margin that is expected to be repaid to Topley after
the delivery of the vessel from cash flows from operations.





Tornado
has entered into a five year time party agreement with ST Shipping on a daily
hire of $16,500 plus 100% of any trading income in excess. The time charter
agreement is expected to become effective upon the effectiveness of the joint
venture agreement.





The joint
venture is expected to declare dividends on a quarterly basis, in amounts
substantially equal to any available cash from operations after cash expenses
and discretionary reserves and is expected to be distributed equally between
Omnicrom and Topley provided that no dividends shall be paid unless and until
the outstanding indebtedness of the loan provided by Topley has been fully
paid.





Five handymax product
tankers under construction





On June
15, 2007, we entered into five shipbuilding contracts with Hyundai Mipo
Dockyard, in South Korea, to construct and acquire five new building double hull
Handymax (MR1) product tankers, each with a capacity of 37,000 dwt. The
contractual purchase price of the five new buildings is $44.2 million per vessel
($221.2 million in total). An amount of up to 75% of the market value of the
vessels at the time of delivery is expected to be financed from the proceeds of
the loan facilities described below and the remaining amount is expected to be
financed from cash available from operations. The amount of $44.2 million per
vessel is payable as follows:




·
            10%
      by July 5, 2007 (already paid)


·
            10%
      by December 15, 2007 (already paid)


·
            20%
      after confirmation that steel cutting is
done


·
            20%
      after confirmation that the first keel block has been
  laid


·
            20%
      after confirmation that the vessel has been
  launched


·
            20%
      at the delivery of the vessel




On
September 8, 2008 we entered into a joint venture agreement with Topley, which
is a wholly-owned subsidiary of Glencore International AG. Based on the
agreement, each party is expected to initially contribute five (5) newbuilding
double hull handymax product tanker vessels thus forming a fleet of 10
newbuilding vessels, with the aim of establishing a major participant in the
ownership and operation of product tankers. All ten vessels have a capacity of
37,000 dwt each and are currently under construction in Hyundai Mipo shipyard.
The Company expects to contribute the five vessels described above, by novating
the existing shipbuilding contracts into 5 new shipowning companies wholly-owned
by the joint venture Company, MegaCore Shipping Ltd., or MegaCore. Each
shareholder is expected to fully fund through MegaCore any required equity
needed to pay all obligations under the shipbuilding contract and any financing
until the delivery of its respective vessels. The objective of the joint
venturers is that, following delivery of the vessels the equity contribution of
the Company and Topley is expected to be equal.






45




We expect
to transfer our current debt financing arrangements in respect of the above five
newbuilding vessels into MegaCore. We expect to continue to guarantee the
performance of the loans under the predelivery period. During the predelivery
period of each vessel only the cost of supervision of the vessels as well as the
running expenses of MegaCore are expected to be split equally between the two
joint venturers. After the delivery of each vessel the shipowning companies
shall declare and pay quarterly dividends to the Company and Topley that are
expected to be substantially equal to available cash from operations during the
previous quarter after cash expenses and discretionary reserves. Dividends are
expected to be equal for the two joint venturers.




As of
December 31, 2008, the Company has neither signed the novation agreements
regarding the shipbuilding contracts nor has transferred its current financing
arrangements to the new shipowning companies. The shipowning companies as well
as MegaCore have been established in 2008 but no equity has been contributed
from the Company.








Credit
Facilities





HSH
Nordbank Senior Secured Term Loan and Revolving Facility





We
financed the acquisition of our fleet with advances under a term loan that we
had in place prior to our initial public offering for an amount of $39.0
million.  Contemporaneously with the closing of our initial public
offering, the net proceeds of which amounted to $186.7 million, we repaid our
outstanding debt that amounted to $38.5 million, with advances under the term
loan portion of a new, $295.0 million senior secured credit facility with HSH
Nordbank that we entered into upon the closing of our initial public offering in
April 2006.  This facility consisted of (1) a term loan of $145.0
million that was used to refinance the previously obtained term loan facility of
$38.5 million and (2) a revolving line of credit of $150.0
million.  Draw downs up to December 31, 2006 under the term loan
facility and the revolving facility totaled $144.4 million and $97.1 million,
respectively.  At December 31, 2006, the outstanding principal balance
of the facility amounted to $238.9 million and the undrawn portion of the
revolving credit facility amounted to $54.0 million.





On March
21, 2007, a second supplement amending this facility was signed in connection
with the financing of the acquisition of the tanker vessels Omega Emmanuel and Omega
Theodore.  Under the amended facility, HSH Nordbank agreed to
make available to us an aggregate amount of $94.3 million, which would be made
available by (i) re-committing for re-borrowing again (once only) an amount of
$38.1 million from the term loan facility amount that we had repaid on the same
date relating to the drybulk carriers that we have sold and (ii) drawing an
amount of $56.2 million from the revolving facility.  These amounts
were to be combined and comprise two tranches, one for each of the above two
vessels, in each case of $47.2 million per vessel.





Pursuant
to the above supplement, on March 26, 2007, we drew down an amount of $19.0
million from the term loan facility and $28.1 million from the revolving
facility in order to partly finance the acquisition of the Omega Emmanuel and on April
25, 2007, we drew down an amount of $19.0 million from the term loan facility
and $28.1 million from the revolving facility in order to partly finance the
acquisition of the Omega
Theodore.  As of December 31, 2007, the outstanding balance of
the term loan and the revolving facility was $139.9 million and $141.8 million,
respectively.





On March
26, 2008, we paid an instalment of $0.8 million under the revolving portion of
the revolving facility.





On March
27, 2008, a third supplement, amending the principal agreement of our $295.0
million senior secured credit facility with HSH Nordbank, was
signed.  Under the amended agreement, HSH agreed to make available to
us a term loan facility of up to $242.7 million, comprised of (1) an amount of
$139.9 million that was used to refinance the then outstanding balance of $139.9
million under the original term loan facility and (2) an amount of $102.8
million to partially finance the repayment of the revolving credit
facility.


46








Pursuant
to the third supplement, the interest rate margin was reduced and the financial
covenants of the loan were amended as follows: (a) the ratio of fleet market
value to total debt was changed from 135% to 120%, (b) the calculation of
leverage ratio was amended from Total Debt to Total Capitalization, to Total Net
Debt to Total Net Capitalization. According to the amended agreement, the
leverage ratio may be temporarily increased to between 65% and 70%, compared to
a previous maximum of 65%, provided that it will thereafter be reduced to 65%
within six months after the end of the quarter that it first exceeded 65%, (c)
we should maintain a ratio of EBITDA to interest payable on a four trailing
quarter basis of not less than 2:00 to 1:00 instead of 3:00 to 1:00, which was
required by the original agreement.  The facility is scheduled to be
repaid in one amount on April 12, 2011. As of December 31, 2008, the outstanding
balance of the term loan facility was $242.7 million.





Our
credit facility with HSH contains a "Market Disruption Clause" requiring us to
compensate the banks for any increases to their funding costs caused by
disruptions to the market which the bank may unilaterally trigger. While we have
reserved our rights regarding the ability of HSH to invoke such clause
commencing January 30, 2009 we are paying the market disruption rate that is
0.21% higher than LIBOR. At this time we do not know when our lender will stop
charging us the Market Disruption rate.





On April
15, 2008, we entered into a restructuring agreement amending the initial rate
collar option with HSH.  Under the amended agreement we entered into a
participation swap with gradual alignment factor.  The notional amount
of the swap is $150.0 million and the cap has been set at 5.1% with the floor
being at 2.5% and the gradual aligned participation at a maximum of 2.6% when
the three months LIBOR drops below 2.5%. On July 22, 2008 the maturity date of
the swap was amended from April 4, 2011 to April 14, 2011.





HSH
Nordbank Bridge Loan Facility





On April
25, 2007, we entered into an agreement with HSH Nordbank for a $2.4 million
bridge facility to finance the remainder of the purchase price of the Omega Emmanuel and Omega Theodore.  We
drew down the total amount on April 25, 2007, shortly before the delivery of
Omega
Theodore.  This bridge loan facility was repaid in full on
March 28, 2008, with proceeds drawn under our junior secured credit facility
with BTMU and NIBC, described below.





BTMU
/ NIBC Junior Secured Credit Facility





On March
27, 2008, we entered into a junior secured credit facility with BTMU and NIBC
for the purpose of (i) partially prepaying the $295.0 million senior secured
credit facility with HSH Nordbank described above, (ii) repaying the HSH bridge
loan facility and (iii) for working capital purposes.  The amount of
the junior secured credit facility was $42.5 million and was drawn down on March
28, 2008.  The facility will be repaid in one amount on April 12,
2011.  The junior secured credit facility bears interest at LIBOR plus
margin.





The
junior secured credit facility contains financial covenants calculated on a
consolidated basis requiring us to maintain (i) minimum cash of $5.0 million,
(ii) minimum interest coverage ratio on a four trailing quarter basis of
2.00:1.00, (iii) a leverage ratio maximum of 70%, (iv) a ratio of fair market
value to combined senior secured credit facility, junior secured credit facility
and swap exposure, in case of early termination, of 120%.





The
junior facility is secured by owners' guarantees, second priority, cross
collateralized mortgages, second priority pledge/assignment of earnings account
and retention account, second priority assignment of insurances in respect to
the vessels, second priority pledge of the time charter contracts currently in
place for the vessels, and second priority assignment of each of the vessels
earnings.





On March
27, 2008, we entered into two interest rate swap agreements with NIBC and BTMU
in order to hedge our exposure to fluctuations in the interest rate on our
junior secured credit facility.  The notional amount of each agreement
is $21.25 million, or $42.5 million in total, and interest rate is fixed at
2.96% per annum with NIBC and 2.9625% per annum with BTMU.  The
effective date of the agreements are March 28, 2008 and their duration is three
years. The agreements are secured under  second preferred
mortgages.


47





Bremer
Landesbank Loan Facilities





On July
4, 2007, we entered into a secured loan facility with Bremer Landesbank
Kreditanstalt Oldenburg Girozentrale, or Bremer, of up to $19.9 million to
partially finance the first construction instalment (representing the 10% of the
total purchase price) made on July 5, 2007, amounting to $22.1 million of the
five newbuilding vessels.





On August
24, 2007, we, through our two wholly-owned subsidiaries that are to become the
owners of two of the five Handymax (MR1) product tankers currently under
construction, entered into a secured loan facility with Bremer of up to $55.3
million for the purpose of (i) the partial repayment of the outstanding loan
facility with Bremer discussed above and (ii) to partly finance the acquisition
cost during the construction period of the two of the five product tankers
described above.  The loan amount will be drawn in two tranches, one
for each vessel under construction, which will be available in five advances to
be drawn on the payment dates of the instalments under the shipbuilding
contracts and will bear interest at LIBOR plus margin.  The interest
of the first two advances, which will be deferred until the third instalment to
the shipyard is due, will be considered as a part of the loan and will bear
interest thereon until full repayment of the loan upon delivery of the
vessels.





On August
31, 2007, we drew down the first advance of the pre-delivery facility for both
vessels ($4.0 million per vessel) and used it for the repayment of the previous
loan facility with Bremer, discussed above.  On December 13, 2007, we
drew down the second advance of pre-delivery facility for both vessels ($4.0
million per vessel) to partially finance the second construction instalment for
the two vessels, made on December 13, 2007, amounting to $8.8 million
(representing 10% of their total purchase price).  The draw down of
the following advances will take place on the dates of the third, fourth and
fifth installments falling due under the shipbuilding contracts signed on June
15, 2007 in partial payment of the construction instalments under the contracts.
As of December 31, 2008 we had $16.1 million principal balance outstanding and
the amount of deferred interest was $0.7 million. The facility contains
financial covenants calculated on a consolidated basis providing for a) minimum
liquidity of $5.0 million and b) a leverage ratio, calculated as total debt to
total capitalization, of maximum 70%. The facility is secured by a) first
priority assignment of all rights under the relevant two shipbuilding contracts
signed on June 15, 2007, b) first priority assignment of all rights under the
relative refund guarantees and c) corporate guarantee. Furthermore, we are
permitted to pay dividends so long as an event of default has not occurred and
will not occur upon the payment of such dividend.





On
February, 2, 2009, we entered into a post-delivery term loan facility with
Bremer of up to $66.3 million representing 75% of the vessels' price on delivery
or the fair market value of those vessels at delivery, whichever is less, for
the purpose of repayment of the pre-delivery facility as well as financing the
sixth instalment to the shipyard. The loan will be drawn at the vessels'
delivery dates and will be repayable in 40 quarterly instalments and a balloon
instalment equal to $14.7 million per vessel. Repayment will commence three
months after delivery of the vessels. The loan will bear interest at LIBOR plus
margin. We will pay commitment fees of 0.2% per annum on the post delivery loan
remaining undrawn. The loan agreement will be secured by a) first priority
mortgages over the vessels, b) first priority assignment of each vessels
insurances, c) corporate guarantee, d) first priority assignment of each of the
vessels' earnings account and retention accounts and e) manager's undertakings.
Furthermore the loan agreement contains financial covenants calculated on a
consolidated basis, that will require the Company to maintain: a) liquidity of
not less than $5.0 million, b) a ratio f total net debt to total net
capitalization of not more than 70%, c) a ratio of market value of the secured
vessels to outstanding net debt of the secured vessels shall be in excess of
120%.





Bank
of Scotland Loan Facility





On
September 7, 2007, we entered into a senior secured loan facility up to a
maximum of $70.0 million with Bank of Scotland to partly finance the
construction and acquisition cost of another two of the five Handymax (MR1)
product tankers that we have agreed to construct and purchase.  This
facility will be drawn down in two tranches, each in six advances.  We
drew down the first advance on September 20, 2007 as a reimbursement for the
first instalment made in July, 2007 under the shipbuilding contracts in an
amount equal to $ 4.0 million per vessel.  On December 13, 2007, we
drew down the second advance for both vessels ($4.0 million per vessel) to
partially finance the second construction instalment amounting to $8.8 million
(representing 10% of their total purchase price).  In respect of each
tranche, the remaining advances will be drawn on the payment dates and in
partial payment of the instalments under the shipbuilding contracts and will
cover up to the lesser of $35.0 million and the 75% of the fair market value of
each vessel on delivery date.  Each tranche will be repaid in 40 equal
quarterly instalments commencing 3 months after the relevant vessel's delivery
date plus a balloon payment of $14.7 million.  The senior secured
credit facility bears interest at LIBOR plus margin. As of December 31, 2008 we
had $16.1 million principal balance outstanding and the amount of deferred
interest was $0.7 million.


48





The
facility contains financial covenants calculated on a consolidated basis
providing for a) minimum liquidity of $5.0 million b) a leverage ratio,
calculated as total debt to total capitalization, of maximum 70%, c) minimum
interest coverage ratio on a four trailing quarter basis of 2.00:1.00 and d)
working capital of not less than $1.0 million. After the vessels have been
delivered the ratio of fair market value of the secured vessels to outstanding
debt should not be less than 125%. Prior to the newbuildings' delivery the
facility is secured by a) first priority assignment of all rights under the
relevant two shipbuilding contracts signed on June 15, 2007, b) first priority
assignment of all rights under the relative refund guarantees and c) corporate
guarantee. Upon delivery of the newbuildings the term loan facility will be
secured by a) first priority mortgages over the vessels, b) first priority
assignment of each vessel's insurances, c) Corporate guarantee, d) first
priority assignment of vessels' charter agreements and e) pledge over each of
the vessels' earnings account and retention accounts. Furthermore, we are
permitted to pay dividends so long as an event of default has not occurred and
will not occur upon the payment of such dividend.





National
Bank of Greece Facility





On
November 20, 2007, we entered into a senior secured loan facility with the
National Bank of Greece for an amount of up to the lesser of $33.2 million or
75% of the fair market value of the fifth vessel that we have agreed to purchase
on its delivery date.  The loan will be available in six advances; the
first of which was drawn down on November 21, 2007 as a reimbursement for the
first instalment on the vessel made in July, 2007 under the shipbuilding
contract in an amount equal to $4.0 million.  On December 13, 2007, we
drew down the second advance equal to $4.0 million, to partially finance the
second construction instalment for the newbuilding vessel, made on December 13,
2007, amounting to $4.4 million (representing 10% of its total purchase
price).  The remaining advances are to be drawn on the payment dates
of the instalments under the shipbuilding contract.  The loan will
bear interest at LIBOR plus margin.  The loan will be repayable in 40
equal quarterly instalments plus a balloon instalment equal to $13.3
million.  Repayment will commence three months after delivery of the
vessel. As of December 31, 2008 we had $8.0 million principal balance
outstanding.





The
facility contains financial covenants calculated on a consolidated basis
providing for a) minimum liquidity of $0.5 million per fleet vessel b) a
leverage ratio, calculated as total debt to total capitalization, of maximum
70%, c) minimum interest coverage ratio on a four trailing quarter basis of
2.00:1.00. After the vessel has been delivered the ratio of fair market value of
the secured vessel to outstanding debt should not be less than 120%. The
facility is secured, prior to the newbuildings' delivery by a) first priority
assignment of all rights under the relevant shipbuilding contract signed on June
15, 2007 b) first priority assignment of all rights under the relative refund
guarantee and c) corporate guarantee. Upon delivery of the newbuildings the term
loan facility, is secured by a) first priority mortgages over the vessels, b)
first priority assignment of each vessel's insurances, c) Corporate guarantee,
d) first priority assignment of vessels' charter agreements and e) pledge over
each of the vessels' earnings account and retention accounts and e) manager's
undertaking. Furthermore, we are permitted to pay dividends so long as an event
of default has not occurred and will not occur upon the payment of such
dividend.





Lloyds
TSB Bank PLC





On May 9,
2008, we entered into an agreement to purchase two newbuilding Handymax (MR2)
product tankers for $55.5 million each. Payment terms provide for a 10% advance
payment and the balance of 90% at the respective deliveries.  On May
28, 2008, we entered into a pre-delivery loan facility with Lloyds TSB Bank PLC
of up to $9.9 million to finance 90% of the advance payment to the seller that
amounts to $11.1 million.  The facility is repayable by a bullet
payment at the delivery date and bears interest at a rate of LIBOR plus
margin.  The loan will be secured by i) Memorandum of Agreement
assignment, ii) shares charge and iii) Corporate Guarantee and contains
financial covenants calculated on a consolidated basis that will require the
Company to maintain: a) a ratio of EBITDA to interest payable of not less than
2:1, b) a ratio of total net debt to total net capitalization of not more than
0.70:1, c) working capital of not less than $1.0 million and d) liquidity of not
less than (A) $0.5 million per vessel if the average remaining time charter
coverage in respect of  both vessels is more than 1 year, (B) $0.75
million per vessel if the average remaining time charter coverage in respect of
both Vessels is more than six months and less or equal to one year; and (C) 5%
of the outstanding indebtedness if the average remaining time charter coverage
in respect of both vessels is less or equal to six months, but in any event not
less than $0.75 million per vessel. As of December 31, 2008, the outstanding
balance of the credit facility was $9.9 million as of December 31,
2008.


49





On May
28, 2008, we also entered into a post-delivery credit facility to fund the
balance of the acquisition cost of the same two vessels in an amount of the
lesser of $83.25 million and 75% of the fair market value of the vessels on
their delivery dates.  The loan facility will be repayable in 40 equal
quarterly instalments plus a balloon instalment of $18.3 million per vessel
together with the final instalment.  Repayment will commence three
months after the delivery of the vessels.  Amounts under the facility
will bear interest at LIBOR plus margin.  Also, the credit facility
contains financial covenants that will require the Company to maintain: i) a
ratio of EBITDA to interest payable of not less than 2:1, ii) a ratio of total
net debt to total net capitalization of not more than 0.70:1, iii) working
capital of not less than $1.0 million and iv) liquidity of not less than (a)
$0.5 million per vessel if the average remaining time charter coverage in
respect of  both vessels is more than 1 year, (b) $0.75 million per
vessel if the average remaining time charter coverage in respect of both Vessels
is more than six months and less or equal to one year; and (c) 5% of the
outstanding indebtedness if the average remaining time charter coverage in
respect of both vessels is less or equal to six months, but in any event not
less than $0.75 million per vessel. The loan will be secured by a) first
priority mortgage over each security vessel, b) first priority assignments of
accounts, c) first priority general assignment in relation to security vessels'
earnings, insurances and employment, and d) corporate guarantee.





On
November 10, 2008 we entered into an interest rate swap agreement with Lloyds
Bank in order to hedge our exposure to fluctuations in interest rate. The
interest rate is fixed at 2.585% per annum and the notional amount was $100.0
million as of December 31, 2008. The effective date of the agreement is November
12, 2008 until May 12, 2011.





As
further discussed above, on April 8, 2009 we have entered into two joint venture
agreements. The joint venture agreement relating to Omega Duke was effective on
April 24, 2009 and part of the predelivery loan facility, amounting to $5.0
million, was fully repaid on April 23, 2009. The joint venture agreement
relating to the second vessel that is expected to be delivered during the third
quarter of 2010 is not yet effective. As a result the predelivery and
postdelivery facilities, signed in May 2008, are still valid for the second
vessel.





On April
24, 2009 the joint venture shipowning companies, Blizzard and Tornado, have
entered into a senior secured loan facility with Lloyds bank. The facility is
divided in two tranches. The first tranche amounts to $33.8 million for the
financing of the acquisition of Omega Duke and was drawn down
on April 24, 2009. The second tranch is to be applied to Tornado and will amount
to the lower of $33.8 million and 75% of the market value of the relevant vessel
on delivery. The second tranche will be drawn down as follows: a) a maximum
amount of $6.3 million upon the signing of the novated building contract, b) a
maximum amount of $9.2 million toward payment of the third instalment of the
novated building contract, c) a maximum amount of $9.2 million toward payment of
the fourth instalment of the novated building contract and d) delivery advance
in repaying the predelivery advances and part of the purchase price under the
novated shipbuilding contract.





The first
tranche is repayable in 29 quarterly instalments and a balloon payment in the
maximum amount of $19.0 million. The second tranche is repayable in 28 equal
quarterly instalments and a balloon payment payable together with the 28th
instalment.





The
facility bears interest at LIBOR plus margin, commitment fees of 0.7% and annual
agency fees of $15,000. The facility is secured by (i) first priority mortgage,
(ii) first priority assignment of insurances, (iii) first priority assignment of
earnings of the vessel plus any time charter exceeding 12 months, (iv) first
priority pledge over vessel earnings accounts, (v) first priority pledge over
the shares of Stone, Topley and Omnicrom, (vi) Omnicrom's guarantee for 50% of
the loan and Omega's guarantee for 100% of Omnicrom's obligations. The facility
contains financial covenants calculated on Omega's and Glencore's consolidated
financial statements. Also a ratio of market value of the secured vessel to
outstanding net debt of the secured vessel shall be in excess of 125%. The bank
has provided a waiver of the security value coverage up to and including the 2nd
anniversary of the delivery date of each vessel.





The
facility, signed on April 24, 2009, will become effective for the second vessel
when the joint venture agreement will become effective.





Furthermore,
on April 23, 2009, we terminated the fixed rate swap agreement that had entered
into with Lloyds Bank on November 10, 2008. Concurrently we entered into (i) an
interest rate swap with a notional amount of $66.3 million at a fixed rate of
2.655% per annum effective since February 12, 2009 and (ii) an interest rate
swap with a notional amount of $33.8 million at a fixed rate of 2.655% per annum
effective since April 24, 2009. The second swap was novated to Blizzard on April
24, 2009. The duration for both swaps is until May 12, 2011.





50





Cash
Flows





Our cash
and cash equivalents increased to $16.8 million in the year ended December 31,
2008 from $8.9 million in the year ended December 31, 2007.  Working
capital is current assets minus current liabilities including the current
portion of long-term debt.  Our working capital was $3.6 million as of
December 31, 2008 versus $3.4 million as of December 31, 2007. We believe that
we have sufficient working capital for our present requirements.





NET CASH
PROVIDED BY OPERATING ACTIVITIES – was $40.1 million in 2008 versus $33.3
million in 2007.  The increase is primarily attributable to an
increase in the size of the fleet from an average of 7.4 operating vessels in
2007 to an average of 8.0 operating vessels in 2008, as well as the increase of
the amount of profit sharing received. In 2006 net cash provided by operating
activities was $22.7 million and we operated an average of 3.1
vessels.





NET CASH
USED IN INVESTING ACTIVITIES – was $12.8 million in 2008 relating to 10% advance
payment for the acquisition of two (MR2) newbuilding vessels.





Net cash
used in investing activities was $83.7 million in 2007 consisting of $120.3
million paid for the acquisition of Omega Emmanuel and Omega Theodore, $81.5 million
received from the sale of our two drybulk product carriers and $44.9 million
advance payment for the acquisition of the five newbuilding vessels currently
under construction.





Net cash
used in investing activities was $358.1 million in 2006 which reflects $357.5
million paid for the acquisition of six product tankers and $0.4 million payment
of a non refundable fee in order to enter into four option agreements to
purchase four Ice Class 1A Panamax product tankers and $0.2 million relating to
other fixed assets acquisition.





NET CASH
USED IN FINANCING ACTIVITIES – was $19.3 million in 2008 primarily consisting of
$156.6 million of proceeds drawn under our credit facilites, repayment of $144.3
million of our credit facilities, $30.4 million of cash dividend paid during the
year, $1.4 million paid as to financing fees and $0.2 million decrease of
restricted cash.





Net cash
provided by financing activities was $55.5 million in 2007 mainly consisting of
$156.8 million of proceeds drawn under our credit facilities to fund part of the
acquisition cost of Omega
Emmanuel, Omega
Theodore and the five newbuilding vessels, the repayment of $71.4 million
of our credit facilities (including a $38.1 million repayment of the term loan
facility relating to the drybulk vessels sold), $30.3 million of cash dividend
paid during the year, $1.0 million decrease of restricted cash and $0.6 million
paid as financing costs.





Net cash
provided by financing activities was $334.1 million in 2006 mainly consisting of
$187.9 million in proceeds from our initial public offering, of which $28
million were used to repay debt relating to our drybulk carriers, $241.5 million
proceeds drawn down under credit facilities, $6.0 million increase of restricted
cash, the repayment of $41.6 million of indebtedness under credit facilities,
$31.0 million payment relating to sellers' credit for the acquisition of drybulk
carriers, $15.1 million of cash dividend paid during the year, $1.4 million
payment of financing costs and $0.2 million payment of stockholder's short term
financing.





C.
Research and development, Patents and Licenses




Not
applicable.




D.
Trend Information




Not
applicable.




E.
Off Balance Sheet Arrangements




We do not
have any off-balance sheet arrangements.




F.
Tabular disclosure of contractual obligations




At
December 31, 2008 we had the following contractual obligations:


51





Payments
      due by periodTotal
                              
                              
                              less
      than 1 year
                              
                              
                              1-3
      years
                              
                              
                              3-5
      years
                              
                              
                              more
      than 5 years(in
      thousands of $)Long-term
      debt (1)
                              
                              
                              336,612
                              
                              
                              
                              138
                              
                              
                              
                              290,730
                              
                              
                              
                              5,676
                              
                              
                              
                              40,068Shipbuilding
      contracts (2)
                              
                              
                              176,940
                              
                              
                              
                              35,388
                              
                              
                              
                              141,552
                              
                              
                              
                              -
                              
                              
                              
                              -Vessel
      acquisitions (3)
                              
                              
                              99,900
                              
                              
                              
                              49,950
                              
                              
                              
                              49,950
                              
                              
                              
                              -
                              
                              
                              
                              -Periodic
      Survey fees (4)
                              
                              
                              454
                              
                              
                              
                              140
                              
                              
                              
                              224
                              
                              
                              
                              90
                              
                              
                              
                              -Operating
      leases (5)
                              
                              
                              13
                              
                              
                              
                              13
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Total
                              
                              
                              613,919
                              
                              
                              
                              85,629
                              
                              
                              
                              482,456
                              
                              
                              
                              5,766
                              
                              
                              
                              40,068





(1) Refer
to Item 18 for a complete description of our credit facilities. The analysis
above reflects our debt maturities, following the postdelivery credit facility
with Bremer for the financing of two of the five newbuilding double hull
Handymax (MR1) product tankers, currently under construction, signed on February
2, 2009.The analysis
above does not reflect the joint venture agreements we entered into with Topley
in April 2009 and the amendments on the loan agreement with Lloyds. Based on
these agreements and after Omega Duke was delivered in
April 2009, the company paid the amount of $ 4.9 million to Lloyds.





(2) In
June 2007, we entered into five shipbuilding contracts with Hyundai Mipo
Dockyard, in South Korea, to construct and acquire five newbuilding double hull
Handymax (MR1) product tankers, each with a capacity of 37,000 dwt. Four of
these tankers are scheduled for delivery in 2010 and the fifth scheduled for
delivery in February 2011.





(3) On
May 9, 2008, we entered into two memoranda of agreement for the purchase of two
newbuilding double hull Handymax (MR2) product tankers for a consideration of
$55.5 million per vessel. The agreement to purchase the first vessel, Omega Duke was cancelled and
the vessel was acquired on April 24, 2009 by a joint venture in which we have
50% participation for a consideration of $45.0 million. The second vessel, which
is currently under construction at Hyundai Mipo Dockyard, South Korea is
expected to be delivered in the third quarter of 2010.





(4) We
have entered into fee agreements with DNV, American Bureau of Shipping as well
as Lloyds Register for periodic surveys of our vessels. The fee agreement with
DNV is effective for three years and the fee agreements with American Bureau of
Shipping and Lloyds Register are effective for five years.





(5) In
June 2005 and August 2006, we entered into rental agreements to lease office
spaces in Piraeus, Greece. These agreements were amended in April 1, 2008. The
termination date, according to the amended agreements, is February 2009 and it
was extended without written notice, on a monthly basis and the same amount of
rental. The amount reflected in the table represents the Dollar equivalent of
lease payments in Euros calculated assuming a $/Euro exchange rate of
$1.392/Euro on December 31, 2008.




G.
Safe Harbor




See
section "forward looking statements" at the beginning of this annual
report.




ITEM
6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES




A.
Directors and Senior Management




Set forth
below are the names, ages and positions of our directors, executive officers and
key employees.  Our board of directors is elected annually on a
staggered basis, and each director elected holds office until his successor
shall have been duly elected and qualified, except in the event of his death,
resignation, removal or the earlier termination of his term of
office.  Officers are elected from time to time by vote of our board
of directors and hold office until a successor is elected.




Name
              Age
              PositionRobert
      J. Flynn
              56
              Chairman
      and Class A DirectorGeorge
      Kassiotis
              37
              President,
      Chief Executive Officer and Class C DirectorCharilaos
      Loukopoulos
              40
              Executive
      Vice President, Chief Operating Officer, General Counsel and Class C
      DirectorGregory
      McGrath
              58
              Chief
      Financial OfficerNicolas
      Borkmann
              47
              Class
      B DirectorDr.
      Chiang Hai Ding
              70
              Class
      A DirectorKevin
      Harding
              50
              Class
      C DirectorShariq
      Azhar
              54
              Class
      A DirectorMatthew
      W. McCleery
              39
              Class
      B DirectorHuang
      Yuan Chiang
              50
              Class
      B Director
  _____________________________





Our board
of directors is divided into three classes, as nearly equal in number as
possible, with each director serving a three-year term and one class being
elected at each year's annual meeting of shareholders. Class C Directors'
term expires in 2009. Class A Directors' term expires in 2010. Class B
Directors' term expires in 2011.




Biographical
information with respect to each of our directors, executives and key personnel
is set forth below.






52







Robert J. Flynn
(Chairman and Class A Director) serves as our Chairman and as a
Director.  Since 2000, Mr. Flynn has been the president of Mallory
Jones Lynch Flynn & Assoc. Inc., or MJLF.  Mr. Flynn joined MJLF
in 1979 and has been involved in all aspects of oil tanker chartering, sales and
purchase, new building contracting and special project related
business.  Although we do not currently do business with MJLF, we may
enter into transactions with MJLF or engage MJLF for brokerage services. From
1987 to 1999, Mr. Flynn served on the board of directors of Association of
Shipbrokers and Agents, or ASBA, and from 1995 to 1997 was the president of
ASBA.  Mr. Flynn worked also at Maritime Overseas Corporation from
1991 to 1992.  From 1974 to 1979, Mr. Flynn served as a commissioned
officer with the U.S. Coast Guard.  He is a member of The American
Bureau of Shipping, and serves as a Director of the Coast Guard
Foundation.  Mr. Flynn holds a bachelor degree from the U.S. Coast
Guard Academy.





George Kassiotis
(President, Chief Executive Officer and Class C Director)has served as our
President, Chief Executive Officer and Director since our inception in February
2005. Prior to joining us, since 1996 Mr. Kassiotis was the commercial director
of Target Marine S.A. and since 1999 he led, as a senior executive director, the
development of Target's business and oversaw its growth and expansion. In this
capacity, Mr. Kassiotis was responsible for vessel sale and purchase, project
development, financing and other transactions effected by other shipowning
affiliates of Target, including the development of Horizon Tankers Ltd., which
contracted twelve newbuilding product tankers since 2002. Mr. Kassiotis comes
from a shipping family and has been involved in various sectors of the shipping
industry, under the family business for 15 years. Mr. Kassiotis raduated from
the Universite de Paris, Pantheon - Sorbonne, France in 1993, where he studied
international business law, and holds a Masters degree in law from the
University of London, England.





Charilaos
Loukopoulos (Executive Vice President, Chief Operating Officer, General Counsel
and Class C Director) has served as our Executive Vice President, Chief Operating Officer, General
Counsel and Director since our inception in February 2005. Prior to joining our
Company, since 1996, Mr. Loukopoulos was employed by Target Marine where he
acted as a general counsel and Insurance and Claims Director. In this capacity,
Mr. Loukopoulos was responsible for the administrative and legal supervision of
all of Target's departments, overseeing all the Target operations. Prior to
that, after being admitted to the Athens Bar Association in 1993, Mr.
Loukopoulos worked as an attorney in a shipping law firm based in Piraeus. He
has lectured on shipping law and vessel sale & purchase contracts at the
Institute of Chartered Shipbrokers' Greek branch. He graduated from the
University of Thessaloniki, Greece in 1992, having studied law and holds a
Masters degree in Shipping law from the University of Southampton,
England.


Gregory A.
McGrath (Chief Financial Officer) has served as our Chief Financial
Officer since June 2005.  He previously served as Vice President of
Finance and Administration at American Eagle Tankers, Inc., Ltd., an Aframax and
VLCC owner and operator, from 1995 to 2004 and as Vice President of Public
Affairs from 2004 to 2005.  Mr. McGrath served as Vice President,
Finance and Administration with Marine Transport Lines, Inc. from 1990 to
1995.  Prior to that, Mr. McGrath spent 16 years with Mobil Oil
Corporation (now Exxon Mobil Corporation) in various financial, shipping and
supply and distribution positions. Mr. McGrath is a director of Shoreline Mutual
Insurance Co. and several subsidiaries of American Eagle Tankers, Inc.,
Ltd.  Mr. McGrath holds a Bachelor of Arts degree
from Fairfield University, Connecticut and holds and a Masters in Business
Administration degree from Pace University, New York.




Dr. Chiang Hai
Ding (Class ADirector)
serves as a Director.  He worked in Neptune Orient Lines Ltd. as an
economic advisor to the Chairman and the Chief Executive Officer from 1995
to 2002. He had also  worked at Citibank from 1973 to 1978. Dr
Chiang has had a varied career. He has been a university lecturer, an
elected Member of Parliament, and a Singapore Ambassador, serving in Malaysia,
Germany, The European Communities, The USSR and Egypt. He also worked as the
executive director in two NGOs for the elderly and as an Independent Director in
a few publicly-listed companies in Singapore. Dr Chiang
has a BA from the National University Singapore and a Ph.D. from the Australia
National University. In 2001 he took a Graduate Diplomacy in Gerontology from
Simon Fraser University in Vancouver, BC, Canada. Dr.
Chiang Hai Ding’s son is a partner of the Singapore affiliate of Ernst &
Young Global. Ernst & Young (Hellas) Certified Auditors Accountants S.A.,
our independent auditors, and the Singapore affiliate of Ernst & Young
Global are members of the Ernst & Young Global network.  Dr.
Chiang Hai Ding has advised us that his son is not and will not be directly or
indirectly involved in providing any services to us during his employment at the
Singapore or any other affiliate of Ernst & Young Global for so long as Dr.
Chiang Hai Ding remains our director.




53







Nicolas
Borkmann(Class BDirector)
serves as a Director. Mr. Borkmann has been a senior broker at ACM Shipping
Ltd., London, since 2000 where his responsibilities include competitive
shipbroking for tankers both in respect of chartering of all sizes, as well as
in the S&P market for large ships, and the wet freight derivative broking
activities of ACM.  Prior to joining ACM, Mr. Borkmann was a
commercial director of Frachtcontor Junge & Co, Hamburg from 1996 to 1999,
where he was responsible for shipbroking for tankers and commercial management
and chartering of tankers and combination carriers.





Kevin
Harding(Class CDirector)
serves as a Director. Mr. Harding is currently acting as a consultant within the
shipping industry. Since 2005, Mr. Harding has been a director of Sextant
Consultancy Ltd. where he served as a shipping consultant. Since 2008, Mr.
Harding has been a director of Pareefers where he provides general shipping
advice to the other board members of Pareefers. From 1992 to 2005, he was the
Senior Vice President of Star Reefers UK Ltd., a Siem Industries company,
responsible for chartering and sale and purchases of vessels and overseeing
operations and financial management. From 1978 to 1992 Mr. Harding served as a
manager with Associated Container Transportation Limited (London), where he
managed international trade operations.





Shariq
Azhar(Class A
Director)serves as a
Director.  Since 2008 Mr. Azhar has been the Chief Executive Officer
of Oman International Development & Investment Co. SAOG, a leading Muscat
Securities Market listed Omani investment company engaged in investment
activities across a diversity of sectors, geographies and asset classes. 
Prior to this, he was the Director General of Injaz Mena Investment Co. PSC, an
Abu Dhabi based investment bank focused on global private equity, real estate,
capital  markets and corporate finance activities.  Among other
positions held over some 25 years in banking and finance, Mr. Azhar served
as Executive Vice President of Abu Dhabi Commercial Bank heading the bank's
wholesale businesses including corporate banking, investment
banking, commercial banking, institutional banking and treasury.
Earlier in his career he served as General Manager of Mashreqbank USA, as Vice
President of Chase Manhattan Bank in New York and as Senior Research Analyst at
the Federal Reserve Bank of New York, the US central bank.  He is a
director on the boards of several companies.  Mr. Azhar holds an MBA
in Finance from the Stern School of Business at New York
University.




Matthew W.
McCleery(Class BDirector)
serves as a Director. Since 2002, Mr. McCleery has been the president of Blue
Sea Capital, Inc., a provider of ship finance advisory services. Since 2000, Mr.
McCleery has been the president of Marine Money International, a provider of
maritime finance transactional information and maritime company analysis. He
joined Marine Money International in 1996 as a managing editor. Mr. McCleery
also serves as a managing director of Marine Money Consulting Partners, the
financial advisory and consulting company that provides shipowners with advisory
services in capital raising, debt financing and business combination
transactions. Mr. McCleery previously served on the board of directors of
FreeSeas, Inc., a bulk shipping company, which is also a publicly traded company
with securities registered under the Securities Exchange Act of 1934. Mr.
McCleery holds a Juris Doctor degree from the University of Connecticut School
of Law.





Huang Yuan Chiang
(Class BDirector)
serves as a Director. Mr. Huang is a lawyer by training and he has had a career
in Investment Banking spanning 12 years. He has held senior management positions
at various international banks including Standard Chartered Bank, HSBC, Bankers
Trust and Deutsche Bank. His areas of specialization were in the areas of
mergers and acquisitions and corporate finance and his last position at Bankers
Trust was Managing Director, heading the Mergers & Acquisition Division for
Bankers Trust for Singapore, Malaysia, Indonesia, Thailand, Philippines and
India. Apart from Omega Navigation Enterprises Inc., Mr. Huang holds board
positions in several other listed and private companies. Mr. Huang has degrees
in law and economics.




No family
relationships exist among any of the Executive Officers and
Directors.






54




B.
Compensation




The
aggregate annual compensation paid to our executive officers, Messrs. Kassiotis,
Loukopoulos and McGrath, amounted to approximately $1.3 million for the year
ended December 31, 2008. In March 2008, pursuant to the Company's Stock
Incentive Plan, the officers were granted an aggregate of 53,357 restricted
common shares that will become vested rateably over three years. In March 2008
the officers received bonus compensation, relating to 2007 performance, which
amounted to $0.85 million and consisted of cash and immediately vested shares.
The actual amount of cash paid was $0.2 million and the number of immediately
vested shares issued was 42,059. In February, 2009, the Board of Directors
approved the reward of the executive officers by means of a bonus and incentive
stock compensation. The executive officers were awarded to receive an amount
equal to $0.03 million in cash and 54,342 shares of immediately vested Class A
common stock. Also the Board has approved an additional compensation of one
month's salary to the executive officers that amounted to $0.1 million. In
February 2009, pursuant to the Company's Stock Incentive Plan, the officers were
granted an aggregate of 108,685 restricted common shares that will become vested
rateably over three years.  Executive officers who also serve as
directors do not receive additional compensation for their services as
directors.




We do not
have a retirement plan for our executive officers or directors. Under the
respective employment agreements between us and Messrs. Kassiotis,
Loukopoulos and McGrath, we will be required to make an aggregate lump sum
payment of $1.3 million to our executive officers, in addition to their
respective base salary, until the end of the contract term, for early
termination of employment during its term or in the event that we materially
breach the terms of the respective employment agreements. Such an amount will be
increased by an aggregate amount of approximately $0.6 million in the case where
the term of the employment agreements is xtended prior to the occurrence of
material breach. In addition, in the event of a change of control of our Company
(as defined in the amended and restated articles of incorporation) during the
term of the employment agreements, we will be required to pay to the executives
an amount equal to the equivalent of two to three years their annual base
salary, over and above the lump sum described above.




Non-employee
directors receive annual compensation in the aggregate amount of $30,000 plus
reimbursement of their out-of-pocket expenses. In addition, non-employee
directors who serve as audit committee members and compensation committee
members receive an additional annual fee of $7,500 and $2,500,
respectively.  In lieu of any other compensation, Mr. Robert J.
Flynn, the Chairman of our board of directors, receives annual compensation in
the amount of $150,000. In July, 2007, pursuant to the Company's Stock Incentive
Plan, the non-executive directors were granted an aggregate of 6,000 restricted
common shares that vest after one year.  In July, 2008, pursuant to
the Company's Stock Incentive Plan, the non-executive directors were granted an
aggregate of 10,500 restricted common shares that vest after one
year.




C.  Board
Practices





We have
established an audit committee that is responsible for, among other things,
making recommendations concerning the engagement of our independent public
accountants, reviewing with the independent public accountants the plans and
results of the audit engagement, approving professional services provided by the
independent public accountants, reviewing the independence of the independent
public accountants, considering the range of audit and non-audit fees, reviewing
the adequacy of our internal accounting controls, and reviewing the annual and
quarterly financial statements.  The members of our audit committee,
each of whom is an independent director, are Messrs. McCleery, Azhar, Harding
and Huang. In addition, we have established a compensation committee that is
responsible for establishing executive officers' compensation and benefits. The
members of our compensation committee are Messrs. Borkmann, Harding, McCleery,
each an independent director, and Mr. Loukopoulos.




There are
no service contracts between us and any of our directors providing for benefits
upon termination of their employment or service.




D.
Employees




As of
December 31, 2008, we employed 169 employees, consisting of 13shore-based personnel
based in Athens, Greece, and 156 seagoing employees.  We have entered
into employment agreements with Messrs George Kassiotis, Charilaos Loukopoulos
and Greg McGrath. Our shore-based employees are not covered by industry-wide
collective bargaining agreements that set basic standards of
employment.






55




The
following table presents the number of shore-based personnel and the number of
seagoing personnel employed by our vessel owning subsidiaries during the periods
indicated.




2008
              
              
              2007
              
              
              2006Shore-based
              
              
              13
              
              
              
              9
              
              
              
              9Seagoing
              
              
              156
              
              
              
              178
              
              
              
              163Total
              
              
              169
              
              
              
              187
              
              
              
              172




E.
Share Ownership




The
common shares beneficially owned by our directors and senior managers are
disclosed in "Item 7 - Major Shareholders and Related Party Transactions"
below.




Equity
Incentive Plan




We have
adopted an equity incentive plan, or the Plan, which entitles our officers, key
employees and directors to receive options to acquire Class A common
stock.  Under the Plan, a total of 1,500,000 shares of Class A common
stock has been reserved for issuance.  The Plan is administered by our
board of directors.  Under the terms of the Plan, our board of
directors is able to grant new options exercisable at a price per share to be
determined by our board of directors.  The exercise price of initially
issued options are equal to the average daily closing price for our Class A
common stock over the 20 trading days following the closing of our initial
public offering.  Under the terms of the Plan, no options may be
exercised until at least two years after the closing of our initial public
offering in April 2006.  Any shares received on exercise of the
options may not be able to be sold until three years after the closing of our
initial public offering.  All options expire ten years from the
date of grant.  The Plan expires ten years from the closing of
our initial public offering.  On February 8, 2007, March 20, 2008 and
February 4, 2009, we granted an aggregate of 54,138, 95,416 and 163,027
restricted shares, respectively, to our Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer. On July 26, 2007 and July 31, 2008, we
granted an aggregate of 6,000 and 10,500 restricted shares to our non-executive
directors. On March 20, 2008 and February 4, 2009 we granted an aggregate of
8,815 and 25,109 restricted shares to some employees. During 2008 3,650
restricted shares were forfeited.




ITEM
7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




A.
Major Shareholders




The
following table sets forth as of May 21, 2009, information regarding
(i) the owners of more than five percent of our common stock that we are
aware of and (ii) the total amount of common stock owned by all of our
officers and directors, individually and as a group.  All of the
shareholders, including the shareholders listed in this table, are entitled to
one vote for each share of common stock held.




Title
      of Class
              Identity
      of Person or
                  Group
              Number
      of Shares Owned
              Percent
      of Class(1)Class
      A Common Stock, par value $0.01
              George
      Kassiotis(2)
              3,218,386
              20.38%MHR
      Fund management LLC(3)
              1,358,100
              8.60%All
      Directors and officers as a group(4)
              3,292,810
              20.85%






56




____________


(1)
            Does
      not include unvested restricted shares granted pursuant to the Plan to our
      Chief Executive Officer, Chief Operating Officer Chief Financial Officer,
      non-executive directors and
employees.


(2)
            Our
      Chief Executive Officer, Mr. Kassiotis, beneficially owns 3,150,000 shares
      indirectly through ONE Holdings, Inc.  Mr. Kassiotis is the sole
      shareholder of ONE Holdings, Inc.


(3)
            Based
      on the SEC filings of the Shareholder dated as of February 13,
      2009.


(4)
            The
      number of shares owned and percent of class by all Directors and officers
      as a group are as of May 21, 2009.




The
Company's major shareholders and Officers and Directors do not have different
rights from other shareholders in the same class.  To our knowledge,
there are no arrangements, the operation of which may, at a subsequent date,
result in a change in control.




On April
13, 2009 we have issued 499,724 Class A common shares relating to warrants
issued to the seller of the Ice Class 1A Panamax newbuildings, which we took
delivery in March and April of 2007, as partial compensation for the
vessels.




B.
Related party transactions




Registration
Rights Agreement:We have entered into a registration rights agreement with One Holdings,
which is wholly-owned by Mr. Kassiotis, pursuant to which it will have the
right, under certain circumstances and subject to certain restrictions, to
require us to register under the Securities Act our Class A common stock held by
it. Under the registration rights agreement, One Holdings will have the right to
request us to register the sale of Class A common stock held by it and may
require us to make available shelf registration statements permitting sales of
shares into the market from time to time over an extended period. In addition,
One Holdings will have the ability to exercise certain piggyback registration
rights in connection with registered offerings requested by other shareholders
or initiated by us.  One Holdings, owns 10,000 shares of Class A
common stock that will be entitled to these registration rights. As of December
31, 2008, ONE Holdings also owned 3,140,000 shares of Class B common stock that
were converted into Class A common stock on April 7, 2009, that will be entitled
to these registration rights.




Cosmos
Maritime Corporation Inc: Within 2007, we paid $10,000 on behalf of
Cosmos Maritime Corporation Inc., or Cosmos, that is beneficially owned by our
Chief Executive Officer, for certain general and administrative expenses
incurred by Cosmos. The respective receivable was settled in February
2008.




Charter
party agreements for the vessels Omega
Emmanuel and Omega
Theodore, acquired within 2007 were arranged through a ship-brokerage
firm, in which a non-executive director of our Board of Directors acts as a
senior broker. The same ship-brokerage firm has arranged charter party
arrangements for the vessels Omega
Lady Miriam and Omega
Lady Sarah in 2008. We do not pay any commissions to the ship brokerage
firm.


Shoreline
Mutual Bermuda Ltd.: Under OPA, every ship entering U.S. waters has to
provide evidence of its ability to pay for the consequences of an oil pollution.
Following receipt of such evidence the US Coast Guard, or USCG, issues a
Certificate of Financial Responsibility, or COFR, which demonstrates the
vessel's compliance with the provisions of the Act. Shoreline Mutual Bermuda
Ltd., or Shoreline, issues on behalf of its members financial guarantees to
support the issuance of the COFRs for its members by the USCG. During 2007 and
2008, Shoreline provided the Company with financial guarantees needed to support
COFRs issued by USCG for Omega
Lady Sarah, Omega
Lady Miriam and Omega
Theodore. Our Chief Financial Officer is a non executive director of
Shoreline. During 2008 and 2007, Shoreline's charges amounted to $31,000 and
$22,000, respectively, for which we were reimbursed by the vessels' charterers,
as per the respective charter party agreements. The outstanding balance due as
of December 31, 2008 of $5,000 was fully paid in February
2009.




Marine
Money International is a maritime finance transactional information and
maritime company analysis provider, in which a non-executive director of our
Board of Directors acts as president. Within 2008 we paid an annual subscription
of $2,000 to Marine Money
International.




Worldscale
Assosiation (London) Limitedis a non-profit making organisation
providing information about rates of freight for tanker voyage charters. The
organization is under the control of a management committee, the members of
which are senior brokers from leading tanker broking firms in London. A
non-executive director of our Board of Directors acts as management committee
member. During 2008, we paid an annual subscription of $5,000 to
Worldscale.






57






C.
Interest of Experts and Counsel




Not
applicable.




ITEM
8 - FINANCIAL INFORMATION




A.  Consolidated
Statements and Other Financial Information




See Item
18.




Legal
Proceedings




The
ordinary course of our business exposes us to the risk of lawsuits for damages
or penalties relating to, among other things, personal injury, property casualty
and environmental contamination.  We are not aware of any litigation
in which we are currently involved, that individually and in the aggregate,
would be material to us.




Dividend
policy




Our
general policy has been to declare and pay quarterly dividends to shareholders
in amounts that are substantially equal to our available cash from operations
during the previous quarter after cash expenses (e.g., operating expenses and
debt service), discretionary reserves for (i) further vessel acquisitions, (ii)
contingent and other liabilities, such as drydocking and extraordinary vessel
maintenance and repair, and (iii) general corporate
purposes.  Declaration and payment of dividends is at the discretion
of our board of directors.




As a
result of market conditions in the international shipping industry as of April
20, 2009, our board of directors decided to temporarily suspend dividends. We
believe that this suspension will increase our cash flow and will enhance
internal growth capabilities. In addition, other external factors, such as our
lenders imposing restrictions on our ability to pay dividends under the terms of
our credit facilities, may limit our ability to pay dividends. The declaration
and payment of dividends, if any, in future quarters will be at the sole
discretion of our board of directors. Furthermore, our ability to pay dividends
is subject to our satisfaction of the financial covenants contained in our
credit agreements.  Under our credit facilities we are prohibited from
paying dividends if (i) an event of default has occurred or will occur as a
result of the payment of the dividend or (ii) the aggregate average fair market
value of our vessels to total debt (as defined in our senior secured credit
facility) is less than 125.0%.




ONE
Holdings, an entity wholly-owned by our President and Chief Executive Officer,
Mr. Georgios Kassiotis, owns 10,000 shares of Class A common stock and as of
December 31, 2008, owned 3,140,000 shares of Class B common stock, or our
subordinated shares. The subordination period of the Class B common shares
commenced upon the issuance of the shares of Class B common stock, which
occurred on March 16, 2006 and ended upon the Company's payment of the dividend
with respect to the fourth quarter of 2008.  Effective April 7, 2009,
all Class B common shares were converted into Class A common
shares.




B.
Significant changes




No
significant changes occurred except for those mentioned in item 4.




ITEM
9 - THE OFFER AND LISTING




Shares of
our Class A common stock commenced trading on the Nasdaq Global Market on April
7, 2006 under the symbol "ONAV".  Shares of our Class A common stock
also trade on the Singapore Exchange Securities Trading Limited under the symbol
"ONAV 50".






58






The high
and low closing prices of shares of our Class A common stock on the Nasdaq
Global Market since April 7, 2006 is as follows:




For
      the Period
              Low
              HighNovember
      2008
              5.34
              8.37December
      2008
              5.65
              6.79January
      2009
              6.52
              8.10February
      2009
              4.63
              7.70March
      2009
              3.40
              4.10April
      2009
              3.63
              4.552008First
      quarter 2008
              13.85
              16.96Second
      quarter 2008
              15.50
              21.66Third
      quarter 2008
              10.46
              16.28Fourth
      quarter 2008
              4.95
              12.20Year
      ended December 31, 2008
              4.95
              21.662007First
      quarter 2007
              $14.50
              $15.85Second
      quarter 2007
              $15.44
              $23.53Third
      quarter 2007
              $18.00
              $24.22Fourth
      quarter 2007
              $15.80
              $20.96Year
      ended December 31, 2007
              $14.50
              $24.222006Year
      ended December 31, 2006
              $13.15
              $16.60







ITEM
10 - ADDITIONAL INFORMATION




A.
Share Capital




Not
applicable.




B.
Memorandum and articles of association




Our
amended and restated articles of incorporation and bylaws have been filed as
exhibits 3.1 and 3.2 to our Registration Statement on form F-1 filed with the
Securities and Exchange Commission on March 17, 2006 with file number
333-132503.  Information regarding the rights, preferences and
restrictions attaching to each class of our common shares is described in
section "Description of Capital Stock" in our Registration Statement on Form F-1
and is incorporated by reference herein.




C.
Material Contracts




As of
December 31, 2008 we had long-term debt obligations under our credit facilities.
For a full description of our credit facilities, see "Summary of Contractual
Obligations" above.  Other than as described above, there were no
material contracts, other than contracts entered into in the ordinary course of
business, to which the Company was a party during the two year period
immediately preceding the date of this report.





D.
Exchange Controls




Under
Marshall Islands and Greek law, there are currently no restrictions on the
export or import of capital, including foreign exchange controls, or
restrictions that affect the remittance of dividends, interest or other payments
to non-resident holders of our shares of our Class A common stock.




E.
Taxation






59




Tax
Considerations




United
States Taxation




The
following discussion is based upon the provisions of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury
Department regulations, administrative rulings, pronouncements and judicial
decisions, all as of the date of this Annual Report.  This discussion
assumes that we do not have an office or other fixed place of business in the
United States. Unless the context otherwise requires, the reference to Company
below shall be meant to refer to both the Company and its vessel owning and
operating subsidiaries.





Taxation
of the Company's Shipping Income: In General





The
Company anticipates that it will derive substantially all of its gross income
from the use and operation of vessels in international commerce and that this
income will principally consist of freights from the transportation of cargoes,
hire or lease from time or voyage charters and the performance of services
directly related thereto, which the Company refers to as "shipping
income."





Shipping
income that is attributable to transportation that begins or ends, but that does
not both begin and end, in the United States will be considered to be 50%
derived from sources within the United States. Shipping income attributable to
transportation that both begins and ends in the United States will be considered
to be 100% derived from sources within the United States. The Company is not
permitted by law to engage in transportation that gives rise to 100%
U.S. source income. Shipping income attributable to transportation
exclusively between non-U.S. ports will be considered to be 100% derived
from sources outside the United States. Shipping income derived from sources
outside the United States will not be subject to U.S. federal income
tax.





Based
upon the Company's anticipated shipping operations, the Company's vessels will
operate in various parts of the world, including to or from U.S. ports.
Unless exempt from U.S. taxation under Section 883 of the Code, the
Company will be subject to U.S. federal income taxation, in the manner
discussed below, to the extent its shipping income is considered derived from
sources within the United States, which we refer to as U.S.-source shipping
income. In the absence of exemption from tax under Section 883, the
Company would have been effectively subject to a 4% tax on its gross U.S. source
shipping income which would have amounted to approximately $0.4 million for the
year ended December 31, 2008.





Application
of Code Section 883





Under the
relevant provisions of Section 883 of the Code and the final regulations
promulgated thereunder, or the final regulations, which became effective on
January 1, 2005 for calendar year taxpayers like ourselves and our subsidiaries,
a foreign corporation will be exempt from U.S. taxation on its U.S.-source
shipping income if:




(i)
            It
      is organized in a qualified foreign country which, as defined, is one that
      grants an equivalent exemption from tax to corporations organized in the
      United States in respect of the shipping income for which exemption is
      being claimed under Section 883, or the "country of organization
      requirement"; and




(ii)
            It
      can satisfy any one of the following two (2) stock ownership
      requirements:




·
            more
      than 50% of its stock, in terms of value, is beneficially owned by
      qualified shareholders which, as defined, includes individuals who are
      residents of a qualified foreign country, or the "50% Ownership Test";
      or




·
            a
      class of its stock or that of its 100% parent is "primarily and regularly"
      traded on an established securities market located in the United States,
      or the "Publicly-Traded Test".





The
U.S. Treasury Department has recognized the Marshall Islands, the Company's
country of organization, and the country of incorporation of each of the
Company's subsidiaries that earned shipping income during 2008, as a qualified
foreign country. Accordingly, the Company and each of the subsidiaries satisfies
the country of organization requirement.






60







For the
2008 tax year, the Company believes that it will be unlikely to satisfy the 50%
Ownership Test. Therefore, the eligibility of the Company and each subsidiary to
qualify for exemption under Section 883 is wholly dependent upon being able
to satisfy the Publicly-Traded Test.





Under the
final regulations, the Company's Class A common stock was "primarily traded" on
the Nasdaq Global Market during 2008.





Under the
final regulations, the Company's Class A common stock will be considered to be
"regularly traded" on the Nasdaq Global Market if such class of stock is listed
on the Nasdaq Global Market and in addition is traded on the Nasdaq Global
Market, other than in minimal quantities, on at least 60 days during the
taxable year and the aggregate number of shares of Class A common stock so
traded during the taxable year is at least 10% of the average number of shares
of Class A common stock issued and outstanding during such year. The Company has
satisfied the listing requirement as well as the trading frequency and trading
volume tests.





Notwithstanding
the foregoing, the final regulations provide, in pertinent part, that stock will
not be considered to be "regularly traded" on an established securities market
for any taxable year in which 50% or more of such stock is owned, actually or
constructively under specified stock attribution rules, on more than half the
days during the taxable year by persons, or 5% Shareholders, who each own 5% or
more of the value of stock, or the "5 Percent Override Rule."





Based on
its shareholdings during its 2008 taxable year, the Company believes that it is
not subject to the 5 Percent Override Rule for its 2008 taxable
year.  Therefore, the Company anticipates that it satisfies the
Publicly-Traded Test for its 2008 taxable year.




Taxation
in Absence of Internal Revenue Code Section 883 Exemption




To the
extent the benefits of Section 883 are unavailable with respect to any item of
U.S.-source shipping income, the Company and each of its subsidiaries would be
subject to a 4% tax imposed on such income by Section 887 of the Code on a gross
basis, without the benefit of deductions. Since under the sourcing rules
described above, no more than 50% of the Company's shipping income would be
treated as being derived from U.S. sources, the maximum effective rate of U.S.
federal income tax on the Company's shipping income would never exceed 2% under
the 4% gross basis tax regime.





Based on
its U.S.-source shipping income for 2008 and 2007, the Company would be subject
to U.S. federal income tax of approximately $0.4 million and $0.4 million,
respectively, under Section 887 in the absence of an exemption under Section
883.





Gain
on Sale of Vessels




Regardless
of whether we qualify for exemption under Section 883, we will not be
subject to U.S. federal income taxation with respect to gain realized on a sale
of a vessel, provided the sale is considered to occur outside of the United
States under U.S. federal income tax principles.  In general, a sale
of a vessel will be considered to occur outside of the United States for this
purpose if title to the vessel, and risk of loss with respect to the vessel,
pass to the buyer outside of the United States.  It is expected that
any sale of a vessel by us will be considered to occur outside of the United
States.




United
States Federal Income Taxation of U.S. Holders




As used
herein, the term "U.S. Holder" means a beneficial owner of Class A common stock
that is a U.S. citizen or resident, U.S. corporation or other U.S. entity
taxable as a corporation, an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or a trust if a court within
the United States is able to exercise primary jurisdiction over the
administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust.




If a
partnership holds our Class A common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our Class A common
stock, you are encouraged to consult your tax advisor.






61




Distributions




Subject
to the discussion of passive foreign investment companies below, any
distributions made by us with respect to our Class A common stock to a U.S.
Holder will generally constitute dividends, which may be taxable as ordinary
income or "qualified dividend income" as described in more detail below, to the
extent of our current or accumulated earnings and profits, as determined under
U.S. federal income tax principles. Distributions in excess of our earnings and
profits will be treated first as a nontaxable return of capital to the extent of
the U.S. Holder's tax basis in his Class A common stock on a dollar-for-dollar
basis and thereafter as capital gain. Because we are not a U.S. corporation,
U.S. Holders that are corporations will not be entitled to claim a dividends
received deduction with respect to any distributions they receive from us.
Dividends paid with respect to our Class A common stock will generally be
treated as "passive category income" or, in the case of certain types of U.S.
Holders, "general category income" for purposes of computing allowable foreign
tax credits for U.S. foreign tax credit purposes.




Dividends
paid on our Class A common stock to a U.S. Holder who is an individual,
trust or estate (a "U.S. Individual Holder") will generally be treated as
"qualified dividend income" that is taxable to such U.S. Individual Holders at
preferential tax rates (through 2010) provided that (1) we are not a
passive foreign investment company for the taxable year during which the
dividend is paid or the immediately preceding taxable year (which we do not
believe we are, have been or will be) (2) the common stock is readily tradable
on an established securities market in the United States (such as the Nasdaq
Global Market, on which our Class A common stock are listed), and (3) the
U.S. Individual Holder has owned the Class A common stock for more than
60 days in the 121-day period beginning 60 days before the date on
which the Class A common stock become ex-dividend. There is no assurance that
any dividends paid on our Class A common stock will be eligible for these
preferential rates in the hands of a U.S. Individual Holder. Legislation has
been previously introduced in the U.S. Congress which, if enacted in its present
form, would preclude our dividends from qualifying for such preferential rates
prospectively from the date of the enactment.




Special
rules may apply to any "extraordinary dividend," generally a dividend in an
amount which is equal to or in excess of ten percent of a shareholder's adjusted
basis (or fair market value in certain circumstances) in a share of Class A
common stock paid by us. If we pay an "extraordinary dividend" on our Class A
common stock and such dividend is treated as "qualified dividend income," then
any loss derived by a U.S. Individual Holder from the sale or exchange of such
Class A common stock will be treated as long-term capital loss to the extent of
such dividend.




Sale,
Exchange or other Disposition of Class A Common Stock




Assuming
we do not constitute a passive foreign investment company for any taxable year,
a U.S. Holder generally will recognize taxable gain or loss upon a sale,
exchange or other disposition of our Class A common stock in an amount equal to
the difference between the amount realized by the U.S. Holder from such sale,
exchange or other disposition and the U.S. Holder's tax basis in such stock.
Such gain or loss will be treated as long-term capital gain or loss if the U.S.
Holder's holding period is greater than one year at the time of the sale,
exchange or other disposition. Such capital gain or loss will generally be
treated as U.S. source income or loss, as applicable, for U.S. foreign tax
credit purposes. A U.S. Holder's ability to deduct capital losses is subject to
certain limitations.




Passive
Foreign Investment Company Status and Significant Tax Consequences




Special
U.S. federal income tax rules apply to a U.S. Holder that holds stock in a
foreign corporation classified as a passive foreign investment company for U.S.
federal income tax purposes. In general, we will be treated as a passive foreign
investment company with respect to a U.S. Holder if, for any taxable year in
which such holder held our Class A common stock, either:




·
            at
      least 75% of our gross income for such taxable year consists of passive
      income (e.g., dividends, interest, capital gains and rents derived other
      than in the active conduct of a rental business);
  or





·
            at
      least 50% of the average value of the assets held by the corporation
      during such taxable year produce, or are held for the production of,
      passive income (including cash).






62







For
purposes of determining whether we are a passive foreign investment company, we
will be treated as earning and owning our proportionate share of the income and
assets, respectively, of any of our subsidiary corporations in which we own at
least 25% of the value of the subsidiary's stock. Income earned, or deemed
earned, by us in connection with the performance of services would not
constitute passive income. By contrast, rental income would generally constitute
"passive income" unless we were treated under specific rules as deriving our
rental income in the active conduct of a trade or business.




Based on
our current operations and future projections, we do not believe that we have
been, are, nor do we expect to become, a passive foreign investment company with
respect to any taxable year. Although there is no legal authority directly on
point, and we are not relying upon an opinion of counsel on this issue, our
belief is based principally on the position that, for purposes of determining
whether we are a passive foreign investment company, the gross income we derive
or are deemed to derive from the time chartering and voyage chartering
activities of our wholly-owned subsidiaries should constitute services income,
rather than rental income. Correspondingly, such income should not constitute
passive income, and the assets that we or our wholly-owned subsidiaries own and
operate in connection with the production of such income, in particular, the
vessels, should not constitute passive assets for purposes of determining
whether we are a passive foreign investment company. We believe there is
substantial legal authority supporting our position consisting of case law and
Internal Revenue Service pronouncements concerning the characterization of
income derived from time charters and voyage charters as services income for
other tax purposes. However, there is also authority which characterizes time
charter income as rental income rather than services income for other tax
purposes.  In the absence of any legal authority specifically relating
to the statutory provisions governing passive foreign investment companies, the
Internal Revenue Service or a court could disagree with our position. In
addition, although we intend to conduct our affairs in a manner to avoid being
classified as a passive foreign investment company with respect to any taxable
year, we cannot assure you that the nature of our operations will not change in
the future. Under specified constructive ownership rules, if we are treated as a
passive foreign investment company, then a U.S. Holder will be treated as owning
his proportionate share of the stock of any our subsidiaries that are treated as
passive foreign investment companies.  The tax regimes discussed below
would also apply to any shares in a subsidiary passive foreign investment
company which are constructively owned by a U.S. Holder under these constructive
ownership rules.




As
discussed more fully below, if we were to be treated as a passive foreign
investment company for any taxable year, a U.S. Holder would be subject to
different taxation rules depending on whether the U.S. Holder makes an election
to treat us as a "Qualified Electing Fund," which election we refer to as a "QEF
election." As an alternative to making a QEF election, a U.S. Holder should be
able to make a "mark-to-market" election with respect to our Class A common
stock, as discussed below.




If we
were to be treated as a passive foreign investment company for any taxable year,
a U.S. Holder would also be subject to special U.S. federal income tax rules in
respect of such U.S. Holder's indirect interest in any of our subsidiaries that
are also treated as passive foreign investment companies. Such a U.S. Holder
would be permitted to make a QEF election in respect of any such subsidiary, so
long as we timely provided the information necessary to such election, which we
currently intend to do in such circumstances, but such a U.S. Holder would not
be permitted to make a mark-to-market election in respect of such U.S. Holder's
indirect interest in any such subsidiary. The application of the passive foreign
investment company rules is complicated and U.S. Holders are encouraged to
consult with their tax advisors regarding the application of such rules in their
circumstances.




Taxation
of U.S. Holders Making a Timely QEF Election




If a U.S.
Holder makes a timely QEF election, which U.S. Holder we refer to as an
"Electing Holder," the Electing Holder must report each year for U.S. federal
income tax purposes his pro rata share of our ordinary earnings and our net
capital gain, if any, for our taxable year that ends with or within the taxable
year of the Electing Holder, regardless of whether or not distributions were
received from us by the Electing Holder. The Electing Holder's adjusted tax
basis in the Class A common stock will be increased to reflect taxed but
undistributed earnings and profits. Distributions of earnings and profits that
had been previously taxed will result in a corresponding reduction in the
adjusted tax basis in the Class A common stock and will not be taxed again once
distributed. An Electing Holder would generally recognize capital gain or loss
on the sale, exchange or other disposition of our Class A common stock. A U.S.
Holder would make a QEF election with respect to any year that our company is a
passive foreign investment company by filing Internal Revenue Service
Form 8621 with his U.S. federal income tax return. If we were aware that we
were to be treated as a passive foreign investment company for any taxable year,
we would provide each U.S. Holder with all necessary information in order to
make the QEF election described above. A U.S. Holder who is treated as
constructively owning shares in any of our subsidiaries which are treated as
passive foreign investment companies would be required to make a separate QEF
election with respect to each such subsidiary.






63




Taxation
of U.S. Holders Making a "Mark-to-Market" Election




Alternatively,
if we were to be treated as a passive foreign investment company for any taxable
year and our Class A common stock is treated as "marketable stock," as we
believe is the case, a U.S. Holder would be allowed to make a "mark-to-market"
election with respect to our Class A common stock, provided the U.S. Holder
completes and files Internal Revenue Service Form 8621 in accordance with
the relevant instructions and related Treasury Regulations. If that election is
made, the U.S. Holder generally would include as ordinary income in each taxable
year the excess, if any, of the fair market value of the Class A common stock at
the end of the taxable year over such holder's adjusted tax basis in the Class A
common stock. The U.S. Holder would also be permitted an ordinary loss in
respect of the excess, if any, of the U.S. Holder's adjusted tax basis in the
Class A common stock over its fair market value at the end of the taxable year,
but only to the extent of the net amount previously included in income as a
result of the mark-to-market election. A U.S. Holder's tax basis in his Class A
common stock would be adjusted to reflect any such income or loss amount. Gain
realized on the sale, exchange or other disposition of our Class A common stock
would be treated as ordinary income, and any loss realized on the sale, exchange
or other disposition of the Class A common stock would be treated as ordinary
loss to the extent that such loss does not exceed the net mark-to-market gains
previously included by the U.S. Holder. A mark-to-market election would likely
not be available for any of our subsidiaries that are treated as passive foreign
investment companies.




Taxation
of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election




Finally,
if we were to be treated as a passive foreign investment company for any taxable
year, a U.S. Holder who does not make either a QEF election or a
"mark-to-market" election for that year, whom we refer to as a "Non-Electing
Holder," would be subject to special rules with respect to (1) any excess
distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on our Class A common stock in a taxable year in excess of
125% of the average annual distributions received by the Non-Electing Holder in
the three preceding taxable years, or, if shorter, the Non-Electing Holder's
holding period for the Class A common stock), and (2) any gain realized on
the sale, exchange or other disposition of our Class A common stock. Under these
special rules:




·
            the
      excess distribution or gain would be allocated rateably over the
      Non-Electing Holders' aggregate holding period for the Class A common
      stock;





·
            the
      amount allocated to the current taxable year and any taxable year before
      we became a passive foreign investment company would be taxed as ordinary
      income; and





·
            the
      amount allocated to each of the other taxable years would be subject to
      tax at the highest rate of tax in effect for the applicable class of
      taxpayer for that year, and an interest charge for the deemed deferral
      benefit would be imposed with respect to the resulting tax attributable to
      each such other taxable year.




These
penalties would not apply to a pension or profit sharing trust or other
tax-exempt organization that did not borrow funds or otherwise utilize leverage
in connection with its acquisition of our Class A common stock. If a
Non-Electing Holder who is an individual dies while owning our Class A common
stock, such holder's successor generally would not receive a step-up in tax
basis with respect to such stock.




United
States Federal Income Taxation of "Non-U.S. Holders"




A
beneficial owner of Class A common stock that is not a U.S. Holder (other than a
partnership) is referred to herein as a "Non-U.S. Holder".






64






Dividends
on Class A Common Stock




Non-U.S.
Holders generally will not be subject to U.S. federal income tax or withholding
tax on dividends received from us with respect to our Class A common stock,
unless that income is effectively connected with the Non-U.S. Holder's conduct
of a trade or business in the United States. If the Non-U.S. Holder is entitled
to the benefits of a U.S. income tax treaty with respect to those dividends,
that income is taxable only if it is attributable to a permanent establishment
maintained by the Non-U.S. Holder in the United States.




Sale,
Exchange or Other Disposition of Class A Common Stock




Non-U.S.
Holders generally will not be subject to U.S. federal income tax or withholding
tax on any gain realized upon the sale, exchange or other disposition of our
Class A common stock, unless:




·
            the
      gain is effectively connected with the Non-U.S. Holder's conduct of a
      trade or business in the United States. If the Non-U.S. Holder is entitled
      to the benefits of an income tax treaty with respect to that gain, that
      gain is taxable only if it is attributable to a permanent establishment
      maintained by the Non-U.S. Holder in the United States;
  or





·
            the
      Non-U.S. Holder is an individual who is present in the United States for
      183 days or more during the taxable year of disposition and other
      conditions are met.







If the
Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income
tax purposes, the income from the Class A common stock, including dividends and
the gain from the sale, exchange or other disposition of the stock that is
effectively connected with the conduct of that trade or business will generally
be subject to regular U.S. federal income tax in the same manner as discussed in
the previous section relating to the taxation of U.S. Holders. In addition, if
you are a corporate Non-U.S. Holder, your earnings and profits that are
attributable to the effectively connected income, which are subject to certain
adjustments, may be subject to an additional branch profits tax at a rate of
30%, or at a lower rate as may be specified by an applicable income tax
treaty.




Backup
Withholding and Information Reporting




In
general, dividend payments, or other taxable distributions, made within the
United States to you will be subject to information reporting requirements. Such
payments will also be subject to backup withholding tax if you are a
non-corporate U.S. Holder and you:




·
            fail
      to provide an accurate taxpayer identification
  number;





·
            are
      notified by the Internal Revenue Service that you have failed to report
      all interest or dividends required to be shown on your federal income tax
      returns; or





·
            in
      certain circumstances, fail to comply with applicable certification
      requirements.







Non-U.S.
Holders may be required to establish their exemption from information reporting
and backup withholding by certifying their status on Internal Revenue Service
Form W-8BEN, W-8ECI or W-8IMY, as applicable.




If you
sell your Class A common stock to or through a U.S. office or broker, the
payment of the proceeds is subject to both U.S. backup withholding and
information reporting unless you certify that you are a non-U.S. person, under
penalties of perjury, or you otherwise establish an exemption. If you sell your
Class A common stock through a non-U.S. office of a non-U.S. broker and the
sales proceeds are paid to you outside the United States then information
reporting and backup withholding generally will not apply to that payment.
However, U.S. information reporting requirements, but not backup withholding,
will apply to a payment of sales proceeds, even if that payment is made to you
outside the United States, if you sell your Class A common stock through a
non-U.S. office of a broker that is a U.S. person or has certain other contacts
with the United States.






65




Backup
withholding tax is not an additional tax. Rather, you generally may obtain a
refund of any amounts withheld under backup withholding rules that exceed your
income tax liability by filing a refund claim with the Internal Revenue
Service.




Marshall
Islands Tax Considerations




We are
incorporated in the Marshall Islands. Under current Marshall Islands law, we are
not subject to tax on income or capital gains, and no Marshall Islands
withholding tax will be imposed upon payments of dividends by us to our
stockholders.




F.
Dividends and paying agents




Not
applicable.




G.
Statement 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 100 F Street, N.E., Room
1580, Washington, D.C. 20549. 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 registrants have filed electronically with
the SEC. Our filings are also available on our website at
www.omeganavigation.com.  In addition, documents referred to in this
annual report may be inspected at our offices at 24 Kanigos Street, Piraeus 185
34 J3 00000, Greece.




I.
Subsidiary Information




Not
applicable.




ITEM
11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Foreign
Currency Risk




The
Company does not have a material currency exposure risk.




Inflation
Risk




We do 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.




Interest
Rate Risk




The
shipping industry is a capital intensive industry, requiring significant amounts
of investment. Much of this investment is provided in the form of long-term
debt. Our debt usually contains interest rates that fluctuate with the financial
markets. Increasing interest rates could adversely impact future
earnings.


66






Our
interest expense is affected by changes in the general level of interest rates,
particularly LIBOR. As an indication of the extent of our sensitivity to
interest rate changes, an increase of 100 basis points would have decreased our
net income and cash flows in the current year by approximately $2.9 million
based upon our $290.8 million weighted average debt level during
2008.




The table
below provides information about our long-term debt and derivative financial
instruments and other financial instruments at December 31, 2008 that are
sensitive to changes in interest rates.  See notes 7 and 8 to our
consolidated financial statements, which provide additional information with
respect to our existing debt agreements and derivative financial
instruments.  For debt obligations, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
For derivative financial instruments, the table presents notional amounts and
weighted average interest rates by expected maturity dates. Notional amounts are
used to calculate the contractual payments to be exchanged under the contracts.
Weighted average interest rates are based on implied forward rates in the yield
curve at the reporting date.





Expected
      maturity date2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                2013
                
                
                Thereafter(amounts
      in million of)Long-term
      debtVariable interest rate ($US)(1)
                
                
                0.1
                
                
                
                2.4
                
                
                
                288.4
                
                
                
                2.8
                
                
                
                2.8
                
                
                
                40.1Average
      interest rate
                
                
                1.17
                %
                
                
                1.52
                %
                
                
                1.85
                %
                
                
                -
                
                
                
                -
                
                
                
                -Interest
      rate derivativesa) Rate collar notional amount ($US)(2)
                
                
                150.0
                
                
                
                150.0
                
                
                
                150.0
                
                
                
                -
                
                
                
                -
                
                
                
                -Average
      pay rate
                
                
                5.10
                %
                
                
                4.95
                %
                
                
                4.125
                %
                
                
                -
                
                
                
                -
                
                
                
                -Average
      receive rate
                
                
                1.17
                %
                
                
                1.52
                %
                
                
                1.85
                %
                
                
                -
                
                
                
                -
                
                
                
                -b) Fixed rate swaps ($US)(3)
                
                
                42.5
                
                
                
                42.5
                
                
                
                42.5
                
                
                
                -
                
                
                
                -
                
                
                
                -Average
      pay rate
                
                
                2.96
                %
                
                
                2.96
                %
                
                
                2.96
                %
                
                
                -
                
                
                
                -
                
                
                
                -Average
      receive rate
                
                
                1.17
                %
                
                
                1.52
                %
                
                
                1.85
                %
                
                
                -
                
                
                
                -
                
                
                
                -c) Fixed rate swap ($US)(4)
                
                
                99.3
                
                
                
                90.5
                
                
                
                77.8
                
                
                
                -
                
                
                
                -
                
                
                
                -Average
      pay rate
                
                
                2.585
                %
                
                
                2.585
                %
                
                
                2.585
                %
                
                
                -
                
                
                
                -
                
                
                
                -Average
      receive rate
                
                
                1.17
                %
                
                
                1.52
                %
                
                
                1.85
                %
                
                
                -
                
                
                
                -
                
                
                
                -





(1) Refer
to Item 18 for a complete description of our credit facilities. The analysis
above reflects our debt maturities, following the post delivery credit facility
with Bremer, for the financing of the two of the five newbuilding double hull
Handymax (MR1) product tankers currently under construction, signed on February
2, 2009. The analysis above does not reflect the joint venture agreements we
entered into with Topley in April 2009 and the amendments on the loan agreement
with Lloyds. Based on these agreements and after Omega Duke was delivered in
April 2009 the company repaid the amount of $ 4.9 million to
Lloyds.




(2) In
March 2006, we entered into an interest rate swap agreement in order to
partially hedge our exposure to fluctuations in interest rates on its
variable-rate debt, according to which the Company exchanges LIBOR with a fixed
rate of 5.25% (pay fixed receive floating). The expiration date of the swap
agreement was in April 2007 and the notional amount at inception was $144.4
million, diminishing down to $142.9 million following our term loan's repayment
schedule.





The
termination date of the rate collar option is in April 2009.  On April
15, 2008, we entered into a restructuring agreement amending the initial rate
collar option with HSH which extended its duration up to April 4, 2011. Under
the amended agreement we entered into a participation swap with gradual
alignment factor. The notional amount of the swap is $150.0 million and the cap
has been set at 5.1% with the floor being at 2.5% and the gradual aligned
participation at maximum of 2.6% when the three months LIBOR drops below 2.5%.
On July 22, 2008 the agreement was amended and its duration was extended up to
April 14, 2011.


67








(3) On
March 27, 2008 we entered into two interest rate swap agreements with NIBC and
BTMU in order to hedge our exposure to fluctuations in interest rate on our
junior secured credit facility. The notional amount of each agreement is $21.3
million, $42.5 million in total, and interest rate is fixed at 2.96% per annum.
The effective date of the agreements is March 28, 2008 and their duration is
three years.





(4) On
November 10, 2008 we entered into an interest rate swap agreement with Lloyds
Bank in order to hedge our exposure to fluctuations in interest rate. The
interest rate is fixed at 2.585% per annum and the notional amount at inception
was $100.0 million diminishing down to $77.4 million. The annual notional amount
presented on the above table is the average of each year. The effective date of
the agreement is November 12, 2008 and its duration is until May 12, 2011. On
April 23, 2009, we terminated the fixed rate swap agreement that we had entered
into with Lloyds Bank on November 10, 2008 (Note 8). Concurrently we entered
into (i) an interest rate swap with a notional amount of $66.3 million at a
fixed rate of 2.655% per annum effective since February 12, 2009 and (ii) an
interest rate swap with a notional amount of $33.8 million at a fixed rate of
2.655% per annum effective since April 24, 2009. The second swap was novated to
Blizzard on April 24, 2009. The duration for both swaps is until May 12,
2011.








ITEM
12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES




Not
applicable.






PART
II




ITEM
13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES




None.




ITEM
14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS




None.




ITEM
15 - CONTROLS AND PROCEDURES




(A)
Disclosure Controls and Procedures




We
evaluated the effectiveness of the Company's disclosure controls and procedures
as of December 31, 2008.  Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective to provide reasonable
assurance that the information required to be disclosed by the Company in
reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.




(B)  Management's Annual
Report on Internal Controls over Financial Reporting




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange
Act. The Company's internal control over financial reporting is a process
designed under the supervision of the Company's Chief Executive Officer and
Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company's
financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States.




Management
has conducted an assessment of the effectiveness of the Company's internal
control over financial reporting based on the framework established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
has determined that the Company's internal control over financial reporting as
of December 31, 2008 is effective.


68







(C)  Attestation
Report of the Registered Public Accounting Firm




The
registered public accounting firm that audited the consolidated financial
statements, Ernst Young (Hellas) Certified Auditors Accountants S.A., has issued
an attestation report on the Company's internal control over financial
reporting, appearing under Item 18, and is incorporated herein by
reference.




(D)  Changes in Internal
Controls




Not
applicable.




ITEM
16A. Audit Committee Financial Expert




In
accordance with the rules of the Nasdaq Global Market, the exchange on which our
Class A common stock is listed, the Company has appointed an audit committee
whose members as of 2008 are Messrs. McCleery, Azhar, Harding and
Huang.  Mr. McCleery has been determined to be a financial expert and
independent according to Securities and Exchange Commission rules by the
Company's board of directors.




ITEM
16B.Code of Ethics




The
Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer and persons
performing similar functions. A copy of our code of ethics is available on our
website at www.omeganavigation.com.  We will also provide a hard copy
of our code of ethics free of charge upon written request of a
shareholder.  Shareholders may direct their requests to Mr. Charilaos
Loukopoulos at our offices at 24 Kanigos Street, Piraeus 185 34 J3 00000,
Greece.




ITEM
16C.  Principal Accountant Fees and Related Services




Audit
fees




Our
principal Accountants, Ernst and Young (Hellas), Certified Auditors Accountants
S.A have billed us for audit and other services as follows:




Stated
      in Euro2008
                
                
                2007
                
                
                2006Audit
      fees
                
                
                270,000
                
                
                
                409,500
                
                
                
                157,500All
      other fees
                
                
                1,180
                
                
                
                1,180
                
                
                
                1,500Total
                
                
                271,180
                
                
                
                410,680
                
                
                
                159,000







Audit
fees for 2008 relate to the audits of our 2008 consolidated financial statements
and internal control over financial reporting. Audit fees for 2007 relate to the
audits of our 2007 consolidated financial statements and internal control over
financial reporting and audit services provided in connection with SAS 100
reviews and registration statements. Audit fees for 2006 relate to the audit of
our 2006 consolidated financial statements and audit services provided in
connection with SAS 100 reviews. All other fees relate to access to Ernst &
Young Online, a service of Ernst & Young that provides web based access to
US GAAP and SEC related matters. There were no additional "Audit-Related Fees,"
or "Tax Fees" billed in 2008.




ITEM
16D.Exemption from the listing standards for Audit
committees




Not
applicable.




ITEM
16E.Purchases of Equity Securities by Issuer and Affiliated
purchases




None.




69







ITEM
16G.  Corporate Governance




We have
certified to Nasdaq that our corporate governance practices are in compliance
with, and are not prohibited by, the laws of the Republic of the Marshall
Islands. Therefore, we are exempt from many of Nasdaq's corporate governance
practices other than the requirements regarding the disclosure of a going
concern audit opinion, submission of a listing agreement, notification of
material non-compliance with Nasdaq corporate governance practices and the
establishment of an audit committee in accordance with Nasdaq Marketplace
Rules 5605(c)(3) and 5605(c)(2)(A)(ii). The practices we follow in lieu of
Nasdaq's corporate governance rules are as follows:





In lieu
of obtaining shareholder approval prior to the issuance of designated
securities, we will comply with provisions of the Marshall Islands Business
Corporations Act, or BCA, providing that the board of directors approves share
issuances.





As a
foreign private issuer, we are not required to solicit proxies or provide proxy
statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall
Islands law. Consistent with Marshall Islands law and as provided in our bylaws,
we will notify our shareholders of meetings between 15 and 60 days before
the meeting. This notification will contain, among other things, information
regarding business to be transacted at the meeting. In addition, our bylaws
provide that shareholders must give us between 90 and 120 days advance
notice to properly introduce any business at a meeting of
shareholders.





Other
than as noted above, we expect to be in compliance with all other Nasdaq
corporate governance standards applicable to U.S. domestic issuers.






PART
III




ITEM
17 - FINANCIAL STATEMENTS




See Item
18.




ITEM
18 - FINANCIAL STATEMENTS




The
following financial statements, together with the report of our independent
registered public accounting firm, Ernst & Young (Hellas) Certified Auditors
Accountants S.A. thereon, are set forth below on pages F-1 through F-36 and are
filed as a part of this annual report.





ITEM
19 -EXHIBITS




Exhibit
            Description1.1
            Amended
      and Restated Articles of Incorporation  (1)1.2
            Amended
      and restated by-laws of the Company (1)2.1
            Form
      of Share Certificate (2)4.1
            Vessel
      Management Agreement with the V. Ships (1)4.2
            Senior
      Secured Credit Facility Agreement (3)4.3
            Form
      of Registration Rights Agreement in favor of ONE Holdings
    (1)4.4
            Form
      of Stock Incentive Plan (1)4.5
            Form
      of Vessel Management Agreement with Eurasia (4)4.6
            Form
      of Bridge Loan Facility with HSH Nordbank (5)4.7
            Form
      of Second Supplement to Senior Secured Credit Facility Agreement with HSH
      Nordbank (5)4.8
            Form
      of Third Supplement to Senior Secured Credit Facility Agreement with HSH
      Nordbank (5)4.9
            Form
      of Junior Secured Credit Facility with BTMU and NIBC
(5)4.10
            Form
      of Credit Facility with Bremer, dated July 4, 2007
  (5)






70









4.11
            Form
      of Credit Facility with Bremer, dated August 24, 2007
  (5)4.12
            Form
      of Credit Facility with Bank of Scotland (5)4.13
            Form
      of Credit Facility with National Bank of Greece (5)4.14
            Form
      of Pre-Delivery Credit Facility with Lloyds TSB Bank PLC
    (5)4.15
            Form
      of Post-Delivery Credit Facility with Lloyds TSB Bank PLC
    (5)8.1
            Subsidiaries
      of the Company11.1
            Code
      of Ethics (4)12.1
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer12.2
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer13.1
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200213.2
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200215.1
            Consent
      of Independent Registered Public Accounting
Firm


____________


(1)
            Filed
      as an exhibit to the Company's Registration Statement on Form F-1 filed on
      March 17, 2006, File No. 333-132503 and incorporated by reference
      herein.


(2)
            Filed
      as an exhibit to the Company's Registration Statement on Form 8-A filed on
      April 4, 2006, File No. 000-51894 and incorporated by reference
      herein.


(3)
            Filed
      as an exhibit to the Company's post effective amendment to its
      Registration Statement filed Form F-1 filed on April 7, 2006, File No.
      333-132503 and incorporated by reference
herein.


(4)
            Filed
      as an exhibit to the Company's Annual Report on Form 20-F filed on April
      25, 2007 and incorporated by reference
herein.


(5)
            Filed
      as an exhibit to the Company's Annual Report on Form 20-F filed on June
      11, 2008 and incorporated by reference
herein.


71


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.











.
              OMEGA
      NAVIGATION ENTERPRISES, INCBy:  /s/ Gregory McGrathGregory
      McGrathChief
      Financial OfficerDated:
      May 21, 2009








72











OMEGA
      NAVIGATION ENTERPRISES, INC
                  
                  Audited
      consolidated financial statements as of December 31, 2008











OMEGA
NAVIGATION ENTERPRISES INC
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 PageReport
      of Independent Registered Public Accounting Firm
              
              F-2Report
      of Independent Registered Public Accounting Firm on Internal Control over
      Financial Reporting
              
              F-3Consolidated
      Balance Sheets as of December 31, 2008 and 2007
              
              F-4Consolidated
      Statements of Income for the years ended December 31, 2008, 2007 and
      2006
              
              F-5Consolidated
      Statements of Stockholders' Equity for the years ended December 31, 2008,
      2007 and 2006
              
              F-6Consolidated
      Statements of Cash Flows for the years ended December 31, 2008, 2007 and
      2006
              
              F-7Notes
      to Consolidated Financial Statements
              
              F-8
    F-1
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
   To the
Board of Directors and Stockholders of Omega Navigation Enterprises
Inc.
 
 We have
audited the accompanying consolidated balance sheets of Omega Navigation
Enterprises Inc. (the "Company") as of December 31, 2007 and 2008, and the
related consolidated statements of income, stockholders' 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as 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 Omega Navigation
Enterprises Inc. at December 31, 2007 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Omega Navigation Enterprises Inc.'s internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated May 15,
2009 expressed an unqualified opinion thereon.
 
 
 
 Ernst
& Young (Hellas) Certified Auditors Accountants S.A.
 
 
 Athens,
Greece
 May 15,
2009
  F-2




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL


CONTROL
OVER FINANCIAL REPORTING





To the
Board of Directors and Stockholders of Omega Navigation Enterprises
Inc.





We have
audited Omega Navigation Enterprises Inc.'s (the "Company") internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). The Company's
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management's
Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company's internal control over financial
reporting based on our audit.




We
conducted our audit 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 effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.




A
company's internal control over financial reporting is a process designed 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. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, Omega Navigation Enterprises Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on the COSO criteria..




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Omega
Navigation Enterprises Inc. as of December 31, 2007 and 2008 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2008 of Omega Navigation
Enterprises Inc. and our report dated May 15, 2009 expressed an unqualified
opinion thereon.







Ernst
& Young (Hellas) Certified Auditors Accountants S.A.


Athens,
Greece


May 15,
2009





F-3





OMEGA
      NAVIGATION ENTERPRISES, INC.
                                                                                                                                        CONSOLIDATED
      BALANCE SHEETS
                                                                                                                                        DECEMBER
      31, 2007 AND 2008
                                                                                                                                        (Expressed
      in thousands of U.S. Dollars – except share and per share
      data)Notes
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2007
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      8,893
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      16,811Accounts
      receivable, trade
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      179
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      596Inventories
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      501
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      602Prepayments
      and other
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      848
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      506Restricted
      cash
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      417
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      123Total
      current assets
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      10,838
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      18,638FIXED
      ASSETS:Vessels,
      net
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      461,251
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      442,485Property
      and equipment, net
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      103
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      64Advances
      for vessels under construction and acquisitions
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      4
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      44,869
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      57,672Total
      fixed assets
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      506,223
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      500,221OTHER
      NON-CURRENT ASSETS:Deferred
      charges
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      6
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      343
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,154Restricted
      cash
                                                                                                                                      
                                                                                                                                      2
      and 7
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5,081
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5,174Other
      non-current assets
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      -
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      109Total
      other non-current assets
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5,424
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      6,437Total
      assets
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      522,485
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      525,296LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Current
      portion of long-term debt
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      7
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      781
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      138Accounts
      payable
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      869
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,804Accrued
      and other current liabilities
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2,740
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,815Deferred  revenue
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2(q)
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,869
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,368Warrants
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      -
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      3,941Derivative
      liability
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      8
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,151
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5,839Dividends
      payable
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      30
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      87Total
      current liabilities
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      7,440
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      14,992NON
      - CURRENT LIABILITIES:Long
      - term debt, net of current portion
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      7
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      322,565
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      335,112Warrants
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      7,097
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      -Derivative
      liability
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      8
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      428
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      8,409Dividends
      payable
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      81
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      174Other
      long - term liabilities
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      -
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5Total
      non-current liabilities
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      330,171
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      343,700COMMITMENTS
      AND CONTINGENCIES:
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      -
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      -STOCKHOLDERS'
      EQUITY:Preferred
      stock, $0.01 par value; 25,000,000 shares authorised, none
                                                                                                                                        issued
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      -
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      -Common
      stock:Class
      A shares, par value $0.01 per share 75,000,000 shares authorised;
      12,070,138 shares  issued and outstanding as at December 31,
      2007, 12,183,019 shares  issued and outstanding as at December
      31, 2008
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      120
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      120Class
      B shares, par value $0.01 per share, 25,000,000 shares
                                                                                                                                        authorised;
      3,140,000 shares issued and outstanding as at December 31, 2007 and
      December 31, 2008
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      31
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      31Additional
      paid in capital
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      197,047
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      198,402Accumulated
      deficit
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (12,324
                                                                                                                                      )
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (31,949
                                                                                                                                      )Total
      stockholders' equity
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      184,874
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      166,604Total
      liabilities and stockholders' equity
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      522,485
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      525,296The
      accompanying notes are an integral part of these consolidated financial
      statements.





F-4








OMEGA
      NAVIGATION ENTERPRISES, INC.
                                                                                        CONSOLIDATED
      STATEMENTS OF INCOME
                                                                                        FOR
      THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
                                                                                        (Expressed
      in thousands of U.S. Dollars – except share and per share
      data)Notes
                                                                                      
                                                                                      
                                                                                      2006
                                                                                      
                                                                                      
                                                                                      2007
                                                                                      
                                                                                      
                                                                                      2008CONTINUING OPERATIONSRevenuesVoyage
      revenues
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      26,867
                                                                                      
                                                                                      
                                                                                      
                                                                                      69,890
                                                                                      
                                                                                      
                                                                                      
                                                                                      77,713ExpensesVoyage
      expenses
                                                                                      
                                                                                      
                                                                                      12
                                                                                      
                                                                                      
                                                                                      
                                                                                      (341
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (930
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,032
                                                                                      )Vessel
      operating expenses
                                                                                      
                                                                                      
                                                                                      12
                                                                                      
                                                                                      
                                                                                      
                                                                                      (5,669
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (13,121
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (15,486
                                                                                      )Depreciation
      and amortization
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (7,236
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (17,557
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (18,868
                                                                                      )Management
      fees
                                                                                      
                                                                                      
                                                                                      1
                                                                                      
                                                                                      
                                                                                      
                                                                                      (568
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,110
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,243
                                                                                      )Options'
      premium
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (200
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (200
                                                                                      )
                                                                                      
                                                                                      
                                                                                      -General
      and administrative expenses (including $457 and $1,355 of  non
      cash compensation expense in 2007 and 2008 respectively)
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (2,354
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (5,088
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (6,085
                                                                                      )Foreign
      currency gains / (losses)
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (33
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (90
                                                                                      )
                                                                                      
                                                                                      
                                                                                      44Operating
      Income
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      10,466
                                                                                      
                                                                                      
                                                                                      
                                                                                      31,794
                                                                                      
                                                                                      
                                                                                      
                                                                                      35,043Other
      income / (expenses)Interest
      and finance costs
                                                                                      
                                                                                      
                                                                                      13
                                                                                      
                                                                                      
                                                                                      
                                                                                      (7,483
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (18,579
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (14,385
                                                                                      )Interest
      income
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,837
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,821
                                                                                      
                                                                                      
                                                                                      
                                                                                      711Change
      in fair value of warrants
                                                                                      
                                                                                      
                                                                                      5
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,071
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,156Loss
      on derivative instruments
                                                                                      
                                                                                      
                                                                                      8
                                                                                      
                                                                                      
                                                                                      
                                                                                      (255
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,221
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (13,586
                                                                                      )Total
      other income / (expenses), net
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (5,901
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (16,908
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (24,104
                                                                                      )INCOME
      FROM CONTINUING OPERATIONS
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      4,565
                                                                                      
                                                                                      
                                                                                      
                                                                                      14,886
                                                                                      
                                                                                      
                                                                                      
                                                                                      10,939DISCONTINUED OPERATIONSIncome
      / (loss) from discontinued operations of the dry-bulk carrier fleet
      (including a gain on extinguishment of debt of $5,000 in
    2006)
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      11,249
                                                                                      
                                                                                      
                                                                                      
                                                                                      (155
                                                                                      )
                                                                                      
                                                                                      
                                                                                      20Impairment
      loss on disposal of dry bulk carrier vessels
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (1,686
                                                                                      )
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -INCOME
      / (LOSS) FROM DISCONTINUED OPERATIONS
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      9,563
                                                                                      
                                                                                      
                                                                                      
                                                                                      (155
                                                                                      )
                                                                                      
                                                                                      
                                                                                      20NET
      INCOME
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      14,128
                                                                                      
                                                                                      
                                                                                      
                                                                                      14,731
                                                                                      
                                                                                      
                                                                                      
                                                                                      10,959Earnings / (Loss) per common share, basic and
      diluted:
                                                                                      
                                                                                      
                                                                                      9-
      From
      continuing operationsEarnings
      per Class A common share, basic
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      0.42
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.98
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.71Earnings
      per Class A common share, diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      0.42
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.95
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.69Earnings
      per Class B common share, basic and diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      0.30
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.98
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.71Weighted
      average number of Class A common shares, basic
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      8,689,452
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,010,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,057,717Weighted
      average number of Class A common shares, diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      8,689,452
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,488,976
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,610,219Weighted
      average number of Class B common shares, basic and diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,140,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,140,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,140,000-
      From
      discontinued operationsEarnings
      / (loss) per Class A common share, basic and diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      0.87
                                                                                      
                                                                                      
                                                                                      
                                                                                      (0.01
                                                                                      )
                                                                                      
                                                                                      
                                                                                      -Earnings
      / (loss) per Class B common share, basic and diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      0.63
                                                                                      
                                                                                      
                                                                                      
                                                                                      (0.01
                                                                                      )
                                                                                      
                                                                                      
                                                                                      -Weighted
      average number of Class A common shares, basic
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      8,689,452
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,010,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,057,717Weighted
      average number of Class A common shares, diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      8,689,452
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,488,976
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,610,219Weighted
      average number of Class B common shares, basic and diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,140,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,140,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,140,000-
      From continuing and discontinued operationsEarnings
      per Class A common share, basic
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1.29
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.97
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.71Earnings
      per Class A common share, diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1.29
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.94
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.69Earnings
      per Class B common share, basic and diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      0.93
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.97
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.71Weighted
      average number of Class A common shares, basic
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      8,689,452
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,010,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,057,717Weighted
      average number of Class A common shares, diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      8,689,452
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,488,976
                                                                                      
                                                                                      
                                                                                      
                                                                                      12,610,219Weighted
      average number of Class B common shares, basic and diluted
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,140,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,140,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,140,000Theaccompanying notes are an integral part of these
      consolidated financial statements.





F-5








OMEGA
      NAVIGATION ENTERPRISES, INC.
              CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY
              FOR THE YEARS ENDED DECEMBER 31,
      2006, 2007 AND 2008
              (Expressed
      in thousands of U.S. Dollars – except share and per share
      data)  Class
      ACommon
      Stock
                                                                                                          
                                                                                                          
                                                                                                          Class
      B
                                                                                                            Common
      StockComprehensive
                                                                                                            Income
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          #
      of shares
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          Par
      value
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          #
      of shares
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          Par
      value
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          Additional
      Paid-in Capital
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          Retained
      Earnings/(Accumulated Deficit)
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          TotalBalance,
      December 31, 2005
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          10,000
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3,140,000
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          31
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          9,999
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          4,378
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          14,408-   Proceeds
      from initial public
                                                                                                            offering,net
      of related costs
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          12,000,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          120
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          186,591
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          186,711-   Net
      income
                                                                                                          
                                                                                                          
                                                                                                          14,128
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          14,128
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          14,128-   Dividends
      declared and paid
                                                                                                            ($1
      per share)
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (15,150
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (15,150
                                                                                                          )Comprehensive
      income
                                                                                                          
                                                                                                          $
                                                                                                          14,128Balance
      December 31, 2006
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          12,010,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          120
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3,140,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          31
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          196,590
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3,356
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          200,097-  Issuance
      of restricted shares
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          60,138
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          457
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          457-  Net
      income
                                                                                                          
                                                                                                          
                                                                                                          14,731
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          14,731
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          14,731-  Dividends
      declared ($2 per
                                                                                                            share)
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (30,411
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (30,411
                                                                                                          )Comprehensive
      income
                                                                                                          
                                                                                                          $
                                                                                                          14,731Balance
      December 31, 2007
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          12,070,138
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          120
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3,140,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          31
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          197,047
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (12,324
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          184,874-  Issuance
      of restricted shares,
                                                                                                            net
      of forfeitures
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          112,881
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,355
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,355-  Net
      income
                                                                                                          
                                                                                                          
                                                                                                          10,959
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          10,959
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          10,959-  Dividends
      declared ($2 per
                                                                                                            share)
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (30,584
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (30,584
                                                                                                          )Comprehensive
      income
                                                                                                          
                                                                                                          $
                                                                                                          10,959Balance
      December 31, 2008
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          12,183,019
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          120
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3,140,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          31
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          198,402
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (31,949
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          166,604
  The
      accompanying notes are an integral part of these consolidated financial
      statements.





F-6





OMEGA
      NAVIGATION ENTERPRISES, INC.
              CONSOLIDATED
      STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31,
      2006, 2007 AND 2008
              (Expressed
      in thousands of U.S. Dollars)  2006
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  2008Cash
      flows from operating activities:Net
      income from continuing operations
                                                                                                  
                                                                                                  $
                                                                                                  565
                                                                                                  
                                                                                                  
                                                                                                  14,886
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  10,939Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
      and amortization
                                                                                                  
                                                                                                  
                                                                                                  7,236
                                                                                                  
                                                                                                  
                                                                                                  17,557
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  18,868Amortization
      and write-off of loan fees
                                                                                                  
                                                                                                  
                                                                                                  197
                                                                                                  
                                                                                                  
                                                                                                  307
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  669Stock
      based compensation
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  457
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,355Unrealized
      loss on derivative instruments
                                                                                                  
                                                                                                  
                                                                                                  313
                                                                                                  
                                                                                                  
                                                                                                  1,266
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  12,669Options’
      premium
                                                                                                  
                                                                                                  
                                                                                                  200
                                                                                                  
                                                                                                  
                                                                                                  200
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Change
      in fair value of warrants
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  (1,071
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (3,156
                                                                                                  )(Increase)
      / Decrease in:Accounts
      receivable, trade
                                                                                                  
                                                                                                  
                                                                                                  (18
                                                                                                  )
                                                                                                  
                                                                                                  (150
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (417
                                                                                                  )Prepayments
      and other
                                                                                                  
                                                                                                  
                                                                                                  (452
                                                                                                  )
                                                                                                  
                                                                                                  (386
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  342Inventories
                                                                                                  
                                                                                                  
                                                                                                  (504
                                                                                                  )
                                                                                                  
                                                                                                  4
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (101
                                                                                                  )Other
      non-current assets
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (109
                                                                                                  )Increase
      / (Decrease) in:Accounts
      payable
                                                                                                  
                                                                                                  
                                                                                                  989
                                                                                                  
                                                                                                  
                                                                                                  (465
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  935Accrued
      and other current liabilities
                                                                                                  
                                                                                                  
                                                                                                  109
                                                                                                  
                                                                                                  
                                                                                                  1,849
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (905
                                                                                                  )Deferred
      revenue
                                                                                                  
                                                                                                  
                                                                                                  2,367
                                                                                                  
                                                                                                  
                                                                                                  (498
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (501
                                                                                                  )Other
      long-term liabilities
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5Payments
      for drydocking costs
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (538
                                                                                                  )Net
      cash provided by continuing operating activities
                                                                                                  
                                                                                                  
                                                                                                  15,002
                                                                                                  
                                                                                                  
                                                                                                  33,956
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  40,055Net
      cash provided by/ (used in) discontinued operating
    activities
                                                                                                  
                                                                                                  
                                                                                                  7,728
                                                                                                  
                                                                                                  
                                                                                                  (695
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  -Net
      cash provided by operating activities
                                                                                                  
                                                                                                  
                                                                                                  22,730
                                                                                                  
                                                                                                  
                                                                                                  33,261
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  40,055Cash
      flows from investing activities:Vessels
      acquisition and other vessels’ costs
                                                                                                  
                                                                                                  
                                                                                                  (357,495
                                                                                                  )
                                                                                                  
                                                                                                  (120,292
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (29
                                                                                                  )Advances
      for vessels under construction and vessels acquisitions
                                                                                                  
                                                                                                  
                                                                                                  (400
                                                                                                  )
                                                                                                  
                                                                                                  (44,865
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (12,783
                                                                                                  )Property
      and equipment acquisition
                                                                                                  
                                                                                                  
                                                                                                  (172
                                                                                                  )
                                                                                                  
                                                                                                  (21
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (8
                                                                                                  )Net
      cash used in investing activities-continuing operations
                                                                                                  
                                                                                                  
                                                                                                  (358,067
                                                                                                  )
                                                                                                  
                                                                                                  (165,178
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (12,820
                                                                                                  )Net
      cash provided by investing activities-discontinued
    operations
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  81,468
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Net
      cash used in investing activities
                                                                                                  
                                                                                                  
                                                                                                  (358,067
                                                                                                  )
                                                                                                  
                                                                                                  (83,710
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (12,820
                                                                                                  )Cash
      flows from financing activities:Capital
      contributions, net of related costs
                                                                                                  
                                                                                                  
                                                                                                  159,874
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Proceeds
      from bank credit facilities
                                                                                                  
                                                                                                  
                                                                                                  203,000
                                                                                                  
                                                                                                  
                                                                                                  156,760
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  156,574Proceeds
      from stockholder’s short-term financing
                                                                                                  
                                                                                                  
                                                                                                  69
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Payments
      of stockholder’s short-term financing
                                                                                                  
                                                                                                  
                                                                                                  (191
                                                                                                  )
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Financing
      costs
                                                                                                  
                                                                                                  
                                                                                                  (1,245
                                                                                                  )
                                                                                                  
                                                                                                  (537
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (1,418
                                                                                                  )Dividends
      paid
                                                                                                  
                                                                                                  
                                                                                                  (15,150
                                                                                                  )
                                                                                                  
                                                                                                  (30,300
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (30,434
                                                                                                  )Principal
      payments of bank credit facilities
                                                                                                  
                                                                                                  
                                                                                                  (2,161
                                                                                                  )
                                                                                                  
                                                                                                  (33,320
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (144,240
                                                                                                  )(Increase)
      / decrease in restricted cash
                                                                                                  
                                                                                                  
                                                                                                  (5,769
                                                                                                  )
                                                                                                  
                                                                                                  272
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  201Net
      cash provided by/ (used in) financing activities-continuing
      operations
                                                                                                  
                                                                                                  
                                                                                                  338,427
                                                                                                  
                                                                                                  
                                                                                                  92,875
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (19,317
                                                                                                  )Net
      cash used in financing activities-discontinued operations
                                                                                                  
                                                                                                  
                                                                                                  (4,286
                                                                                                  )
                                                                                                  
                                                                                                  (37,395
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  -Net
      cash provided by / (used in) financing activities
                                                                                                  
                                                                                                  
                                                                                                  334,141
                                                                                                  
                                                                                                  
                                                                                                  55,480
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (19,317
                                                                                                  )Net
      increase / (decrease) in cash and cash equivalents
                                                                                                  
                                                                                                  
                                                                                                  (1,196
                                                                                                  )
                                                                                                  
                                                                                                  5,031
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  7,918Cash
      and cash equivalents at beginning of year
                                                                                                  
                                                                                                  
                                                                                                  5,058
                                                                                                  
                                                                                                  
                                                                                                  3,862
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  8,893Cash
      and cash equivalents at end of year
                                                                                                  
                                                                                                  $
                                                                                                  3,862
                                                                                                  
                                                                                                  
                                                                                                  8,893
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  16,811Supplemental
      cash flow informationCash
      paid during the year for interest on bank loans
                                                                                                  
                                                                                                  $
                                                                                                  8,966
                                                                                                  
                                                                                                  
                                                                                                  17,199
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  13,719Cash
      paid during the year for interest on sellers’ notes
                                                                                                  
                                                                                                  $
                                                                                                  1,632
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Non-cash
      financing activitiesExtinguishment
      of sellers’ notes
                                                                                                  
                                                                                                  $
                                                                                                  (5,000
                                                                                                  )
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Issuance
      of warrants for vessels’ acquisition
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  $
                                                                                                  8,168
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
  The
      accompanying notes are an integral part of these consolidated financial
      statements





F-7
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)





1.           Basis
of presentation and general information:




The
accompanying consolidated financial statements include the accounts of Omega
Navigation Enterprises Inc. (“Omega”) and its wholly-owned subsidiaries
(collectively, the “Company”). Omega was incorporated on February 28, 2005
under the laws of Marshall Islands for the purpose of engaging in any lawful act
or activity under the Marshall Islands Business Corporations Act. On March 2,
2005, the Company commenced operations and preparation for an initial public
offering in the United States under the United States Securities Act of 1933, as
amended. In April 2006, the Company completed its initial public offering, the
net proceeds of which amounted to $186,711. The Company’s Class A shares are
listed on the Nasdaq National Market and on the Singapore Exchange Securities
Trading Limited.





The Company is currently engaged in the ocean
transportation services of crude and refined petroleum products and is the soleowner of all outstanding shares of the following
subsidiaries:





Ship-owning companies with vessels in operation at
      December 31, 2008Company
                Country
      of incorporation
                Vessel-owned
                Type
      of
                  vessel
                Acquisition/
      disposition
                  DateGalveston
      Navigation Inc.
                Marshall
      Islands
                OMEGA
      LADY MIRIAM
                Product
      Tanker
                August  2006Beaumont
      Navigation Inc.
                Marshall
      Islands
                OMEGA
      LADY SARAH
                Product
      Tanker
                June
      2006Carrolton
      Navigation Inc.
                Marshall
      Islands
                OMEGA
      PRINCE
                Product
      Tanker
                June  2006Decatur
      Navigation Inc.
                Marshall
      Islands
                OMEGA
      PRINCESS
                Product
      Tanker
                July  2006Elgin
      Navigation Inc.
                Marshall
      Islands
                OMEGA
      QUEEN
                Product
      Tanker
                May  2006Fulton
      Navigation Inc.
                Marshall
      Islands
                OMEGA
      KING
                Product
      Tanker
                June  2006Orange
      Navigation Inc.
                Marshall
      Islands
                OMEGA
      EMMANUEL
                Product
      Tanker
                March
      2007Baytown
      Navigation Inc.
                Marshall
      Islands
                OMEGA
      THEODORE
                Product
      Tanker
                April
      2007
  Ship-owning companies with vessels under
      construction at December 31, 2008Company
                  Country
      of incorporation
                  Vessel
      owned
                  Type
      of
                    vessel
                  Expected
      Year of deliveryTurneville
      Navigation Inc
                  Marshall
      Islands
                  Omega
      Duke
                  Product
      Tanker
                  2009Lemannville
      Navigation Inc
                  Marshall
      Islands
                  Under
      construction
                  Product
      Tanker
                  2010Tyler
      Navigation Inc
                  Marshall
      Islands
                  Under
      construction
                  Product
      Tanker
                  2010Pasedena
      Navigation Inc
                  Marshall
      Islands
                  Under
      construction
                  Product
      Tanker
                  2010Sunray
      Navigation Inc
                  Marshall
      Islands
                  Under
      construction
                  Product
      Tanker
                  2010Nederland
      Navigation Inc
                  Marshall
      Islands
                  Under
      construction
                  Product
      Tanker
                  2010Lakeview
      Navigation Inc
                  Marshall
      Islands
                  Under
      construction
                  Product
      Tanker
                  2011
  Ship-owning companies with vessels sold during the
      year 2007Company
                Country
      of incorporation
                Vessel-owned
                Type
      of
                  vessel
                Disposition
      DateAbilene
      Navigation Inc.
                Marshall
      Islands
                EKAVI
      I
                Bulk
      Carrier
                January
      2007Hamilton
      Navigation Inc.
                Marshall
      Islands
                ELECTRA
      I
                Bulk
      Carrier
                January
      2007
  Other group companiesCompany
                        Country
      of incorporation
                        ActivityOmega
      Management Inc.
                        Marshall
      Islands
                        Fleet
      commercial managementOmega
      Navigation (USA) LLC
                        USA
                        Company’s
      representative in United States









F-8
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)








1.
            Basis
      of presentation and general information
  (continued):





The
day-to-day operations of the Company’s vessels are managed by two unrelated
third party managers under separate management agreements with each
vessel-owning subsidiary, effective upon each vessel’s delivery, which
agreements provide for an annual
fixed management fee per vessel increased, where specified, by miscellaneous
management expenses while the vessel operating expenses are charged as incurred,
and, following either party’s prior written notice, can be terminated within one
to three months period from such notice.





During
the years ended December 31, 2006, 2007, 2008, four charterers individually
accounted for 10% or more of the Company’s voyage and time charter revenues as
follows:





Charterer
                  
                  2006
                  
                  2007
                  
                  2008
                  
                  Reportable
      segment (Note 15)A
                  
                  33%
                  
                  -
                  
                  -
                  
                  Dry
      bulk carriersB
                  
                  26%
                  
                  28%
                  
                  25%
                  
                  Product
      tankersC
                  
                  19%
                  
                  50%
                  
                  55%
                  
                  Product
      tankersD
                  
                  18%
                  
                  22%
                  
                  20%
                  
                  Product
      tankers





2.           Significant
accounting policies and recent accounting pronouncements:




(a)
            Principles
      of Consolidation: The accompanying consolidated financial
      statements have been prepared in accordance with U.S. generally accepted
      accounting principles and include the accounts of Omega Navigation
      Enterprises Inc. and those entities in which it has a controlling
      financial interest, including its wholly-owned and majority-owned
      subsidiaries referred to in Note 1 above (collectively, the “Company”).
      All significant intercompany balances and transactions have been
      eliminated in consolidation.





Omega
Navigation Enterprises Inc. determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is a voting
interest entity or a variable interest entity. Under Accounting Research
Bulletin No. 51, “Consolidated Financial Statements,” a voting interest entity
is an entity in which the total equity investment at risk is sufficient to
enable the entity to finance itself independently and provides the equity
holders with the obligation to absorb losses, the right to receive residual
returns and the right to make financial and operating decisions. The Holding
Company consolidates voting interest entities in which it owns all, or at least
a majority (generally, greater than 50%) of the voting interest.





Variable
interest entities (“VIE”) are entities as defined under SFAS No. 46(R),
“Consolidation of Variable Interest Entities,” that in general either do not
have equity investors with voting rights or that have equity investors that do
not provide sufficient financial resources for the entity to support its
activities. A controlling financial interest in a VIE is present when a company
absorbs a majority of an entity’s expected losses, receives a majority of an
entity’s expected residual returns, or both. The company with a controlling
financial interest, known as the primary beneficiary, is required to consolidate
the VIE. The Company evaluates all arrangements that may include a variable
interest in an entity to determine if it may be the primary beneficiary, and
would be required to include assets, liabilities and operations of a VIE in its
consolidated financial statements.





As
discussed more fully in Note 4.(a), in September 2008, the Company entered into
a joint venture agreement, in which the Company will have a variable interest;
however, the Company has, and will continue to consolidate, the five new
ship-owning companies it is contributing to the joint venture since each venture
investor is solely responsible for the financing and any variability of the
future cash flows (e.g. interest rate fluctuations, inability to timely meet
obligations to the yard resulting in penalties, etc) during the pre-delivery
period of its new building. As of December 31, 2008 there were no other
entities





F-9
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)





2.           Significant
accounting policies and recent accounting pronouncements
(continued):




for
the periods presented that were required to be included in the accompanying
consolidated financial statements.





(b)
            Use of
      Estimates: The preparation of consolidated financial statements in
      conformity with U.S. generally accepted accounting principles requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the consolidated financial statements and the
      reported amounts of revenues and expenses during the reporting
      period.  Actual results could differ from those
      estimates.





(c)
            Other
      Comprehensive Income:The Company
      follows the provisions of Statement of Financial Accounting Standards
      (“SFAS”) No. 130, “Reporting Comprehensive Income”, which requires
      separate presentation of certain transactions, which are recorded directly
      as components of stockholders’ equity. The Company has no such
      transactions which affect comprehensive income and, accordingly,
      comprehensive income equals net income for all periods
      presented.





(d)
            Foreign
      Currency Translation:The functional currency of the
      Company is the U.S. Dollar because the Company’s vessels operate in
      international shipping markets, and therefore primarily transact business
      in U.S. Dollars. The Company’s accounting records are maintained in U.S.
      Dollars. Transactions involving other currencies during the period
      presented are converted into U.S. Dollars using the exchange rates in
      effect at the time of the transactions. At the balance sheet date,
      monetary assets and liabilities, which are denominated in other
      currencies, are translated into U.S. Dollars at the period-end exchange
      rates. Resulting translation gains or losses are included in Foreign
      currency gains/ (losses) in the accompanying consolidated statements of
      income.





(e)
            Cash and
      Cash Equivalents:The Company
      considers highly liquid investments such as time deposits and certificates
      of deposit with an original maturity of three months or less to be cash
      equivalents.





(f)
            Restricted
      Cash:Restricted cash
      includes minimum liquid funds and deposits in so-called “retention
      accounts” that can only be used for the purposes of loan repayment as
      required under the Company’s borrowing arrangements, as well as deposits
      of dividends paid to unvested restricted
shares.





(g)
            Insurance
      Claims: The Company records insurance claim recoveries for insured
      losses incurred on damage to fixed assets. Insurance claim recoveries are
      recorded, net of any deductible amounts, at the time the Company’s fixed
      assets suffer insured damages, recovery is probable under the related
      insurance policies and the Company can make an estimate of the amount to
      be reimbursed following the insurance
claim.





(h)
            Inventories:
      Inventories consist of lubricants which are stated at the lower of cost or
      market. Cost is determined by the first-in, first-out
    method.





(i)
            Accounts
      Receivable, Trade:The amount shown
      as accounts receivable, trade, at each balance sheet date includes
      receivables from charterers for hire, freight and demurrage billings, net
      of a provision for doubtful accounts. At each balance sheet date, all
      potentially uncollectible accounts are assessed individually for purposes
      of determining the appropriate provision for doubtful accounts. No
      provision for doubtful accounts has been established as of December 31,
      2007 and 2008.





(j)
            Vessels:Vessels are stated at cost, which consists of the contract price
      and any material expenses incurred upon acquisition (initial repairs,
      improvements and delivery expenses, interest and on-site supervision costs
      incurred during the construction periods). Subsequent expenditures for
      conversions and major improvements are also capitalized when they
      appreciably extend the life, increase the earning capacity or improve the
      efficiency or safety of the vessels; otherwise these amounts are charged
      to expense as incurred.












F-10
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




2.           Significant
accounting policies and recent accounting pronouncements
(continued):




Depreciation is computed
using the straight-line method over the estimated useful life of the vessels,
after considering the estimated salvage value. Each vessel’s salvage value is
equal to the product of its lightweight tonnage and estimated scrap rate at the
date of the vessel’s delivery. Management estimates the useful life of the
Company’s vessels to be 25 years from the date of initial delivery from
the shipyard. Second hand
vessels are depreciated from the date of their acquisition through their
remaining estimated useful life. When regulations place limitations over the
ability of a vessel to trade on a worldwide basis, its useful life is adjusted
at the date such regulations become effective.





It
is the Company's policy to dispose off vessels and other fixed assets when
suitable opportunities occur and not necessarily to keep them until the end of
their useful life. The Company classifies assets and disposal groups as being
held for sale in accordance with SFAS No. 144 ‘‘Accounting for the Impairment or
the Disposal of Long-Lived Assets’’, when the following criteria are met: (i)
management possessing the necessary authority has committed to a plan to sell
the asset (disposal group); (ii)  the asset (disposal group) is
immediately available for sale on an “as is” basis; (iii) an active program to
find the buyer and other actions required to execute the plan to sell the asset
(disposal group) have been initiated; (iv) the sale of the asset (disposal
group) is probable, and transfer of the asset (disposal group) is expected to
qualify for recognition as a completed sale within one year; (v) the asset
(disposal group) is being actively marketed for sale at a price that is
reasonable in relation to its current fair value and actions required to
complete the plan indicate that it is unlikely that significant changes to the
plan will be made or that the plan will be withdrawn. Long-lived assets or
disposal groups classified as held for sale are measured at the lower of their
carrying amount or fair value less cost to sell. These assets are not
depreciated once they meet the criteria to be held for sale.





(k)
            Property
      and Equipment:Property and equipment consists of office furniture
      and equipment, computer software and hardware and leasehold improvements.
      The useful life of the office furniture and equipment is 5 years and of
      the computer software and hardware is 3 years. Leasehold improvements are
      depreciated over the remaining contractual term of the lease. Depreciation
      is calculated on a straight-line basis and amounted to $29, $60 and $46 in
      2006, 2007 and 2008 respectively.





(l)
            Reporting
      Discontinued Operations: The current and prior year periods results
      of operations and cash flows of assets classified as held for sale are
      reported as discontinued operations when it is determined that their
      operations and cash flows will be eliminated from the ongoing operations
      of the Company as a result of their disposal and that the Company will not
      have continuing involvement in the operation of these assets after their
      disposal.





(m)
            Accounting
      for Dry-Docking Costs:The Company
      follows the deferral method of accounting for dry-docking costs whereby
      actual costs incurred are deferred and are amortized on a straight-line
      basis over the period through the date the next dry-docking is scheduled
      to become due. Unamortized dry-docking costs of vessels that are sold are
      written off and included in the calculation of the resulting gain or loss
      in the period of the vessel’s sale.





(n)
            Impairment
      of Long-Lived Assets:The Company applies SFAS No. 144 “Accounting
      for the Impairment or Disposal of Long-lived Assets”, which addresses
      financial accounting and reporting for the impairment or disposal of
      long-lived assets. The standard requires that, long-lived assets and
      certain identifiable intangibles held and used or disposed of by an entity
      be reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of the assets may not be recoverable.
      When the estimate of undiscounted projected operating cash flows,
      excluding interest charges, expected to be generated by the use of the
      asset is less than its carrying amount, the Company should evaluate the
      asset for an impairment loss. The Company determines the fair value of its
      assets based on management estimates and assumptions and by making use of
      available market data and taking into consideration third party
      valuations.






The
Company evaluates the carrying amounts (primarily for vessels and related
drydocking and special survey costs) and periods over which long lived assets
are depreciated to determine if events have occurred which would require
modification of their carrying values or useful lives. In evaluating useful
lives and carrying values of long lived assets, management reviews certain
indicators of potential impairment, such as undiscounted projected operating
cash flows, vessel sales and purchases and overall market
conditions.







F-11
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)
  2.           Significant
accounting policies and recent accounting pronouncements
(continued):




The
current economic and market conditions, including the significant disruptions in
the global credit markets are having broad effects on participants in a wide
variety of industries. Since mid-August 2008 the product tanker vessel values
have declined both as a result of a slowdown in the availability of global
credit and the decrease in charter rates; conditions that the Company considers
indicators of a potential impairment.





The
Company determines undiscounted projected net operating cash flows for each
vessel and compares it to the vessel’s carrying value. The projected net
operating cash flows are determined by considering the charter revenues from
existing time charters for the fixed fleet days and an estimated daily time
charter equivalent for the unfixed days (based on the most recent 10 years
average historical one year time charter rates) over the remaining estimated
life of each vessel, net of brokerage commissions, expected outflows for
scheduled vessels’ maintenance and vessel operating expenses assuming an average
annual inflation rate of 3%. In the Company’s exercise the fleet utilization is
assumed to be 99% for the first 15 years of the life of the vessel and 98%
thereafter. Additional off hire is assumed for the periods each vessel is
expected to undergo her scheduled maintenance (drydocking and special surveys).
The cash flows were based on the conditions that existed at the balance sheet
date and were not affected by subsequent decisions (see Note 16(i) and
16(j)).





No
impairment loss was identified or recorded for 2006, 2007 or 2008 and the
Company has not identified any other facts or circumstances that would require
the write down of vessel values. However, the current assumptions used and the
estimates made are highly subjective, and could be negatively impacted by
further significant deterioration in charter rates or vessel utilization over
the remaining life of the vessels which could require the Company to record a
material impairment charge in future periods.





(o)
            Financing
      Costs:Arrangement fees,
      except as noted below, paid to lenders for obtaining new loans or
      refinancing existing ones are recorded as a contra to debt and are
      amortized to interest and finance costs over the life of the related debt
      using the effective interest method. Unamortized fees relating to loans
      repaid or refinanced are expensed in the period the repayment or
      refinancing is made. Arrangement fees paid to lenders for loans which the
      Company has not drawn down are capitalized as deferred financing costs and
      are amortized on a pro rata basis according to the loan availability
      terms. Loan commitment fees as well as agency and handling fees are
      charged to expense in the period
incurred.





(p)
            Concentration
      of Credit Risk: Financial instruments, which potentially subject
      the Company to significant concentrations of credit risk, consist
      principally of cash and trade accounts receivable. The Company places its
      temporary cash investments, consisting mostly of deposits, with high
      credit qualified financial institutions. The Company performs periodic
      evaluations of the relative credit standing of those financial
      institutions that are considered in the Company’s investment strategy. The
      Company limits its credit risk with accounts receivable by performing
      ongoing credit evaluations of its customers’ financial condition and
      generally does not require collateral for its accounts
      receivable.





(q)
            Accounting
      for Revenues and Related Expenses:The Company
      generates its revenues from charterers for the charter hire of its
      vessels. Vessels are chartered using either voyage charters, where a
      contract is made in the spot market for the use of a vessel for a specific
      voyage for a specified charter rate, or time charters, where a contract is
      entered into for the use of a vessel for a specific period of time and a
      specified daily charter hire rate. If a charter agreement exists, and
      collection of the related revenue is reasonably assured, revenue is
      recognized, as it is earned rateably over the duration of the period of
      each







voyage
or time charter. A voyage is deemed to commence upon the completion of discharge
of the vessel’s previous cargo and is deemed to end upon the completion of
discharge of the current cargo. Profit sharing represents the Company’s portion
on the excess of the actual net daily charter rate earned by the Company’s
charterers from the employment of the Company’s vessels over a predetermined
base daily charter rate, as agreed between the Company and its charterers; such
profit sharing is recognized in revenue when mutually settled. Demurrage income
represents payments by the charterer to the vessel owner when loading or
discharging time exceeded the stipulated time in the voyage charter and is
recognized as incurred. Deferred revenue represents cash received on charter
agreements prior to the balance sheet date and is related to revenue not meeting
the criteria for recognition.




F-12
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




2.           Significant
accounting policies and recent accounting pronouncements
(continued):




Voyage
expenses, primarily consisting of port, canal and bunker expenses that are
unique to a particular charter, are paid for by the charterer under time charter
arrangements or by the Company under voyage charter arrangements, except for
commissions, which are always paid for by the Company, regardless of charter
type. All voyage and vessel operating expenses are expensed as incurred, except
for commissions. Commissions paid to brokers are deferred and amortized over the
related voyage charter period to the extent revenue has been deferred since
commissions are earned as the Company’s revenues are earned.





(r)
            Repairs and
      Maintenance: All repair and maintenance expenses including
      underwater inspection expenses are expensed in the year incurred. Such
      costs are included in vessel operating expenses in the accompanying
      consolidated statements of income.





(s)
            Earnings/
      (Loss) Per Common Share:Basic earnings/
      (loss) per common share is computed by dividing income/ (loss) available
      to common stockholders by the weighted average number of common shares
      deemed outstanding during the period. Diluted earnings/ (loss) per common
      share reflect the potential dilution that could occur if securities or
      other contracts to issue common stock were exercised. As further discussed
      in Note 11, the Company, on March 11, 2006, amended and restated its
      articles of incorporation and authorized the issuance of preferred stock,
      as well as common stock with different participation rights in dividends.
      Accordingly, the Company follows the two-class presentation for purposes
      of both basic and diluted earnings/ (loss) per share calculations. The
      Company had no dilutive securities during the year ended December 31,
      2006, while for the year ended December 31, 2007 and 2008, diluted
      earnings/ (loss) per share reflect the potential dilution from the
      restricted stock granted by the Company under its equity incentive plan
      (Note 11) and from the warrants issued by the Company in order to
      partially finance vessels’ acquisition (Note
5).





(t)
            Pension and
      Retirement Benefit Obligation:Administrative personnel employed by
      Omega Management are covered by state-sponsored pension funds. Both
      employees and the Company are required to contribute a portion of the
      employees’ gross salary to the fund. Upon retirement, the state-sponsored
      pension funds are responsible for paying the employees retirement benefits
      and accordingly the Company has no such obligation. Employer’s
      contributions for the year
      ended December 31, 2006, 2007and 2008 amounted to$68,$136 and $161 respectively.Administrative personnel are entitled to an indemnity in case of
      dismissal or retirement unless they resign or are dismissed with cause.
      The majority of administrative personnel were hired in 2006. The Company’s
      liability on an actuarially determined basis, at December 31, 2007 and
      2008 amounted to $35 and $33,
respectively.





(u)
            Share Based
      Payments: According to SFAS No.123(R) “Share Based Payment” a
      public entity is required to measure the cost of employee services
      received in exchange for an award of equity instruments based on the
      grant-date fair value of the award (with limited exceptions). That cost
      will be recognized over the period during which an employee is required to
      provide service in exchange for the award – the requisite service period
      (usually the vesting period). No compensation cost is recognized for
      equity instruments for which employees do not render the requisite
      service. Employee share purchase plans will not result in recognition of
      compensation cost if certain conditions are met. A public company will
      initially measure the cost of employee services received in exchange for
      an award of liability instruments based on its current fair value; the
      fair value of that award will be re-measured subsequently at each
      reporting date through the settlement date. Changes in fair value during
      the requisite service period will be recognized as compensation cost over
      that period. The grant-date fair value of employee share options and
      similar instruments will be estimated using option-pricing models adjusted
      for the unique characteristics of those instruments (unless observable
      market prices for the same or similar instruments are available). If an
      equity award is modified after the grant date, incremental compensation
      cost will be recognized in an amount equal to the excess of the fair value
      of the modified award over the fair value of the original award
      immediately before the
modification.






F-13
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




2.           Significant
accounting policies and recent accounting pronouncements
(continued):


(v)
            Financial
      Instruments with Characteristics of Both Liabilities and Equity:
      SFAS No. 150 “Accounting for Certain Financial Instruments with
      Characteristics of Both Liabilities and Equity” establishes standards for
      the accounting for certain financial instruments with characteristics of
      both liabilities and equity. Certain obligations to issue a variable
      number of shares are financial instruments that embody unconditional
      obligations, or financial instruments other than outstanding shares that
      embody conditional obligation, that the issuers must or may settle by
      issuing variable number of equity shares. These obligations also must be
      classified as liabilities if, at inception, the monetary values of the
      obligations are based solely or predominantly on any one of the following:
      1) a fixed monetary amount known at inception, 2) variations in something
      other than the fair value of the issuer’s equity shares, or 3) variations
      inversely related to changes in the fair value of the issuer’s equity
      shares. Freestanding financial instruments indexed to or potentially
      settled in the issuer’s shares for which equity classification is
      precluded by SFAS No. 150 initially and subsequently should be measured at
      fair value. Subsequently changes in fair value are recognized in
      earnings.





(w)
            Derivative
      Instruments: SFAS No. 133 “Accounting for Derivative
      Instruments and Certain Hedging Activities” requires all derivative
      contracts to be recorded at fair value, as determined in accordance with
      SFAS 157 “Fair Value Measurements”, which is more fully discussed in Note
      8 to our consolidated financial statements. The changes in fair value of
      the derivative contracts are recognized in earnings unless specific
      hedging criteria are met. As derivative instruments have not been
      designated as hedging instruments, changes in their fair value are
      reported in current period earnings. The Company does not believe it is
      necessary to obtain collateral
arrangements.





(x)
            Fair Value
      Measurements:  The Company adopted as of January 1, 2008
      Financial Accounting Standards No. 157 (SFAS 157), “Fair Value
      Measurements,” which defines, and provides guidance as to the measurement
      of, fair value. This statement creates a hierarchy of measurement and
      indicates that, when possible, fair value is the price that would be
      received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants. SFAS No. 157 applies when assets
      or liabilities in the financial statements are to be measured at fair
      value, but does not require additional use of fair value beyond the
      requirements in other accounting principles. The statement was effective
      for the Company as of January 1, 2008, excluding certain non-financial
      assets and non-financial liabilities, for which the statement is effective
      for fiscal years beginning after November 15, 2008 and its adoption did
      not have a significant impact on the Company’s financial position or
      results of operations





Statement
of Financial Accounting Standards No. 159 (SFAS 159), “The Fair Value Option for
Financial Assets and Financial Liabilities,” permits companies to report certain
financial assets and financial liabilities at fair value.  SFAS 159
was effective for the Company as of January 1, 2008 at which time the Company
could elect to apply the standard prospectively and measure certain financial
instruments at fair value. The Company has evaluated the guidance contained in
SFAS 159, and has elected not to report any existing financial assets or
liabilities at fair value that are not already reported; therefore, the adoption
of the statement had no impact on its financial position and results of
operations.  The Company retains the ability to elect the fair value
option for certain future assets and liabilities acquired under this new
pronouncement.





(y)
            Segmental
      Reporting: SFAS No. 131 ‘‘Disclosure about Segments of an
      Enterprise and Related Information’’ requires descriptive information
      about its reportable operating segments. Operating segments, as defined,
      are components of an enterprise about which separate financial information
      is available that is evaluated regularly by the chief operating decision
      maker in deciding how to allocate resources and in assessing performance.
      The Company reports financial information and evaluates its operations and
      operating results by type of vessel and not by the length or type of ship
      employment for its customers. The Company does not use discrete financial
      information to evaluate the operating results for each such type of
      charter. Although revenue can be identified for different types of
      charters or for charters with different duration, management cannot and
      does not identify expenses, profitability or other financial information
      for these charters. Furthermore, when the Company charters a vessel to a
      charterer, the charterer is free to trade the vessel worldwide and, as a
      result, the disclosure of geographic information is impracticable.
      Accordingly, the reportable segments of the company are the Panamax
      product tankers segment, the Handymax product tankers segment and Dry bulk
      carriers segment. As discussed in Note 1 the Company has disposed of its
      dry bulk carriers segment.







F-14
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




2.           Significant
accounting policies and recent accounting pronouncements
(continued):





(z)
            Recent
      Accounting Pronouncements: In February 2008, the FASB issued Staff
      Position FASB 157-1 which amends SFAS No. 157 to exclude SFAS No. 13
      “Accounting for Leases” and other accounting pronouncements that address
      fair value measurements for purposes of lease classification or
      measurement under Statement 13, except in the case of a business
      combination. In addition, in February 2008, the FASB issued Staff Position
      FASB 157-2 which delays the effective date of SFAS No. 157 for
      non-financial assets and non-financial liabilities, except for items that
      are recognized or disclosed at fair value in the financial statements on a
      recurring basis (at least annually). The delay is intended to allow the
      Board and constituents additional time to consider the effect of various
      implementation issues that have arisen, or that may arise, from the
      application of SFAS No. 157. In March 2008, the FASB issued Staff Position
      FASB 157-3, to clarify the application of Statement 157 in a market that
      is not active and to provide and example to illustrate key considerations
      in determining the fair value of a financial asset when the market for
      that financial asset is inactive. In April 2009, the FASB issued FSP No.
      FAS 157-4, Determining Fair Value When the Volume and Level of Activity
      for the Asset or Liability Have Significantly Decreased and Identifying
      Transactions That Are Not Orderly (“FSP FAS 157-4”), which provides
      additional guidance for estimating fair value when there is no active
      market or where the activity represents distressed sales. These various
      FSP amendments to FAS 157 are effect beginning as early as January 1,
      2009, but the Company does not expect their adoption to have a material
      effect on its consolidated financial
statements.





In
March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”.
This standard applies to all entities and changes the disclosure requirements
for derivative instruments and hedging activities. Entities are required to
provide enhanced 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 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This standard is intended to
enhance the current disclosure framework in SFAS No. 133. To meet this
objective, this Standard requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS No. 161
is effective as of the beginning of an entity’s fiscal year that begins on or
after November 15, 2008. The Company will apply this statement beginning January
1, 2009 by disclosing the required information.





In
May 2008, the FASB issued SFAS No. 162 “The hierarchy of Generally Accepted
Accounting Principles”. The Statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States. The Company does not expect the adoption of SFAS No. 162 to
have a material effect on its consolidated financial statements.





In
June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities ("FSP
EITF 03-6-1"). FSP EITF 03-6-1 clarifies that all outstanding unvested
share-based payment awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders. Awards of this
nature are considered participating securities and the two-class method of
computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1
is effective for fiscal years beginning after December 15, 2008. We do not
expect the adoption of FSP EITF 03-6-1 to have any effect on our consolidated
statement of financial position, results of operations or cash
flows.




3.           Transactions
with related parties:







(a)
            Cosmos Maritime Corporation
      Inc (“Cosmos”): Within 2007, the Company paid $10 on behalf of
      Cosmos, that is beneficially owned by the Company’s Chief Executive
      Officer, for certain general and administrative expenses incurred by
      Cosmos. The respective receivable was settled in February
      2008.





(b)
            Charter
      party agreements for the vessels Omega Emmanuel and Omega Theodore,
      acquired within 2007 (Note 5), were arranged through a ship-brokerage
      firm, in which a non-executive director of the Company’s Board of
      Directors acts as a senior broker. The same ship-brokerage firm has
      arranged charter party arrangements for the vessels Omega Lady Miriam and
      Omega Lady Sarah in 2008. No commissions are paid by the Company to the
      ship brokerage firm.






F-15
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




3.           Transactions
with related parties (continued):


(c)
            Shoreline Mutual Bermuda Ltd.
      (“Shoreline”): Under the Oil Pollution Act 1990 (OPA '90) every
      ship entering U.S. waters has to provide evidence of its ability to pay
      for the consequences of an oil pollution. Following receipt of such
      evidence the US Coast Guard (“USCG”) issues a Certificate of Financial
      Responsibility (“COFR”), which demonstrates the vessel's compliance with
      the provisions of the Act. Shoreline issues on behalf of its members
      financial guarantees to support the issuance of the COFRs for its members
      by the USCG. During 2007 and 2008 Shoreline Mutual Bermuda Ltd provided to
      the Company financial guarantees needed to support COFRs issued by USCG
      for Omega Lady Sarah, Omega Lady Miriam and Omega Theodore. The Company's
      Chief Financial Officer is a non executive director of Shoreline. During
      2008 and 2007 Shoreline’s charges amounted to $31 and $22, respectively,
      for which the Company was reimbursed by the vessels’ charterers, as per
      the respective charter party agreements. The outstanding balance due as of
      December 31, 2008 of $5 was fully paid in February
  2009.




(d)
            Marine Money
      International is a maritime finance transactional information and
      maritime company analysis provider, in which a non-executive director of
      the Company’s Board of Directors acts as president. Within 2008 the
      Company paid an annual subscription of $2 to Marine Money
      International.




(e)
            Worldscale Assosiation
      (London) Limited “Worldscale” is a non-profit making organisation
      providing information about rates of freight for tanker voyage charters.
      The organization is under the control of a management committee, the
      members of which are senior brokers from leading tanker broking firms in
      London. A non-executive director of the Company’s Board of Directors acts
      as management committee member. Within 2008 the Company paid an annual
      subscription of $5 to Worldscale.




4.           Advances
for vessels’ under construction and acquisition:




The
amount in the accompanying consolidated balance sheets as of December 31, 2007
and 2008 is analyzed below:





2007
                      
                      2008-
      Advances for vessels acquisition
                      
                      -
                      
                      11,100-
      Pre-delivery instalments
                      
                      44,235
                      
                      44,235-
      Capitalized interest and other related costs
                      
                      634
                      
                      2,33744,869
                      
                      57,672








(a) Advances for vessels
under construction:




On
June 15, 2007, the Company entered into five shipbuilding contracts for the
acquisition of five new buildings double hull handymax product tankers, with a
capacity of 37,000 dwt each, four of which being scheduled for delivery in 2010
and the fifth within the first quarter of 2011. The contractual purchase price
is $44,235 per vessel ($221,175 in total) payable in six instalments, each of
the first two (2) instalments being equal to 10% of the vessels’ purchase price
and each of the next four (4) instalments being equal to 20% of the vessels’
purchase price. As at December 31, 2007 the Company has paid the first two
instalments totalling $44,235 (20% of the vessels’ total purchase price) and has
incurred $634 of additional costs. During 2008 no instalment was due and the
Company has incurred $1,703 of additional costs. On September 1, 2008 the
Company concluded an agreement to charter one of the above five newbuilding
product tankers for three years, with charterer’s option to extend for two
years, commencing on delivery of the vessel from the shipyard. The vessel is
expected to be delivered from Hyundai Mipo shipyard during the first quarter of
2010.





On
September 8, 2008 the Company has entered into a joint venture agreement with
Topley Corporation (“Topley”), which is a wholly-owned subsidiary of Glencore
International AG. Based on the agreement, each party will initially contribute
five (5) newbuilding double hull handymax product tanker vessels thus forming a
fleet of 10 newbuilding vessels, with the aim of establishing a major
participant in the ownership and operation of product tankers. All ten vessels
have a capacity of 37,000 dwt each and are currently under construction in
Hyundai Mipo shipyard.






F-16
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




4.           Advances
      for vessels’ under construction and acquisition
    (continued):




The
Company will contribute the five vessels described above, by novating the
existing shipbuilding contracts into 5 new shipowning companies wholly-owned by
the Joint Venture Company, MegaCore Shipping Ltd (“MegaCore”). Each joint
venturer will fully fund through MegaCore any required equity needed to pay all
obligations under the shipbuilding contracts and any financing until the
delivery of its respective vessels. The objective of the joint venturers is
that, following delivery of the vessels, the equity contribution of the Company
and Topley will be equal.





The
Company will transfer its current debt financing arrangements in respect of the
above five newbuilding vessels, discussed in Note 7, to MegaCore. The Company
will continue to guarantee the performance of their loans under the predelivery
period. During the predelivery period of each vessel only the cost of
supervision of the vessels as well as the running expenses of MegaCore will be
split equally between the two joint venturers. After the delivery of each vessel
the shipowning companies shall declare and pay quarterly dividends to the
Company and Topley that will be substantially equal to available cash from
operations during the previous quarter after cash expenses and discretionary
reserves. Dividends will be equal for the two joint venturers.





As
of December 31, 2008, the Company has neither signed the novation agreements
regarding the shipbuilding contracts nor has transferred its current financing
arrangements to the new shipowning companies. The shipowning companies as well
as MegaCore have been established in 2008 but no equity has been contributed
from the Company.







(b) Advances for vessels
acquisition




On
May 9, 2008, the Company entered into Memorandum of Agreements with an unrelated
third party to acquire two newbuilding double hull handymax product tankers, for
a consideration of $55,500 per vessel ($111,000 in total). As at December 31,
2008, the Company has paid an advance, representing 10% of the total purchase
price, amounting to $11,100, from cash available from operations and the
proceeds under a loan facility concluded in this respect with Lloyds TSB Bank
PLC, as further discussed in Note 7. Concurrently with the Memorandum of
Agreements, the Company entered into three years time charter agreements
commencing upon their delivery.





As
further discussed in Note 16 (i) and 16(j), on April 8, 2009, the Company has
entered into settlement agreements to cancel the Memorandum of Agreements as
well as the time charter agreements discussed above.





5.           Vessels,
net:





The
amounts in the accompanying consolidated balance sheets are analyzed as
follows:





Vessel
      Cost
                                        
                                        
                                        Accumulated
      Depreciation
                                        
                                        
                                        Net
      Book ValueBalance,
      December 31, 2006
                                        
                                        
                                        357,495
                                        
                                        
                                        
                                        (7,207
                                        )
                                        
                                        
                                        350,288-
      Vessel acquisitions
                                        
                                        
                                        128,460
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        128,460-
      Depreciation
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (17,497
                                        )
                                        
                                        
                                        (17,497
                                        )Balance,
      December 31, 2007
                                        
                                        
                                        485,955
                                        
                                        
                                        
                                        (24,704
                                        )
                                        
                                        
                                        461,251-
      Other vessels’ costs
                                        
                                        
                                        29
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        29-
      Depreciation
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (18,795
                                        )
                                        
                                        
                                        (18,795
                                        )Balance,
      December 31, 2008
                                        
                                        
                                        485,984
                                        
                                        
                                        
                                        (43,499
                                        )
                                        
                                        
                                        442,485





On
March 27, 2007 and April 26, 2007, the Company took delivery of two product
tanker vessels, named Omega Emmanuel and Omega Theodore. The acquisition of
these vessels was financed from the proceeds of bank credit facilities discussed
in Note 7, the net proceeds from the sale of the two dry bulk product carriers
and warrants issued by the Company, further discussed below. Total acquisition
cost recorded was $128,432, comprising of cash consideration of $120,000,
warrants’ fair value of $8,168 measured at delivery dates by using a binomial
model and additional pre-acquisition costs of $264.





The
warrants issued entitle the holders to a variable number of shares of Class A
common stock equal to the quotient of $4.5 million divided by the warrant share
price which shall be the greater of (i) the price equal to the average closing
price of the Company’s Class A common stock on








F-17
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)








5.           Vessels,
      net (continued):




the
Nasdaq Stock Market or such other stock exchange as the Class A common shares
may then be listed and have their primary trading market, during the 15 business
days immediately preceding the exercise date, less 8% of such average price, and
(ii) eighteen dollars US ($18.00). However, if the average closing price of the
Company’s Class A common shares on the primary trading market during the 15
business days immediately preceding the exercise date is less than $18.00,
the buyer shall pay to the seller, in cash, an amount equal to the lesser of (i)
the difference between the aggregate warrant share price and $4.5 million; and
(ii) $0.5 million, in addition to the issuance of the warrant shares upon
exercise of the warrant. The warrants may not be exercised for any security
other than the warrant shares and may not be exercised for cash, other than as
provided for above. The warrants shall remain outstanding until March 31, 2009
(Note 16 (h)). Furthermore the warrants do not give their holders (until their
exercise date) rights as shareholders of the Company, either at law or in
equity, including the right to vote, receive dividends, consent or receive
notices as a member with respect to any meeting of members for the election of
managers of the Company or for any other matter and they are non-transferable
without the Company’s prior written consent.





The
warrants are accounted for as a liability in the 2007 and 2008 consolidated
balance sheets with changes in fair value recognized in earnings at each
reporting date, in accordance with the requirements of SFAS No. 150 and EITF
00-19 “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock”. The Company uses binomial model
to measure the fair value of warrants at each reporting date. The fair value of
the warrants is derived principally from or corroborated by observable market
data. Inputs include Company’s share price, US zero coupon rate, dividend yield
and share price volatility. The difference in fair values from initial
measurement is separately reflected in the accompanying 2007 and 2008
consolidated statement of income. If the settlement of warrants were to occur at
December 31, 2008 the Company would issue 500,000 Class A common shares and
would pay in cash additional $1,000 that is the maximum amount of additional
cash payment based on the warrants’ agreement. The maximum number of shares that
could be required to be issued by the Company under the specific warrant terms
is 500,000.





All
of the Company’s vessels have been provided as collateral to secure the bank
credit facilities discussed in Note 7 and, as of December 31, 2008, were
operating under time charters which gradually expire up to August
2012.





Charters-out





The
future minimum revenues, before reduction for brokerage and address commissions,
expected to be recognized on non-cancelable time charters are as
follows:




Year
                    Amount2009
                    50,9452010
                    23,7922011
                    18,6152012
                    10,0982013
      and thereafter
                    -Net
      minimum charter payments
                    103,450





These
amounts do not assume any off-hire. The above amount of revenues relates only to
the eight vessels of the Company’s fleet and does not include vessels that were
under construction as of December 31, 2008.








6.           Deferred
charges:




The
amounts in the accompanying consolidated balance sheets are analyzed as
follows:





Financing
      costs
                                
                                
                                Drydock
      costs
                                
                                
                                TotalBalance,
      December 31, 2006
                                
                                
                                226
                                
                                
                                
                                -
                                
                                
                                
                                226-
      Additions
                                
                                
                                537
                                
                                
                                
                                -
                                
                                
                                
                                537-
      Amortization
                                
                                
                                (31
                                )
                                
                                
                                -
                                
                                
                                
                                (31
                                )- Financing fees
      presented as a contra to debt
                                
                                
                                (389
                                )
                                
                                
                                -
                                
                                
                                
                                (389
                                )Balance,
      December 31, 2007
                                
                                
                                343
                                
                                
                                
                                -
                                
                                
                                
                                343-
      Additions
                                
                                
                                1,418
                                
                                
                                
                                538
                                
                                
                                
                                1,956-
      Amortization
                                
                                
                                (66
                                )
                                
                                
                                (27
                                )
                                
                                
                                (93
                                )- Financing fees
      presented as a contra to debt
                                
                                
                                (1,052
                                )
                                
                                
                                -
                                
                                
                                
                                (1,052
                                )Balance,
      December 31, 2008
                                
                                
                                643
                                
                                
                                
                                511
                                
                                
                                
                                1,154






F-18
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




6.           Deferred
charges (continued):


Financing
fees presented as a contra to debt represent the portion of loan arrangement
fees relating to the outstanding portion of debt. The amortization of loan
financing costs is included in “Interest and finance costs” in
the accompanying consolidated statements of income, except for the amortization
of loan financing costs relating to the outstanding portion of debt of the five
new buildings discussed in Note 4 that amounts to $4 and $24 for 2007 and 2008,
respectively and is included in “Advances for vessels’ under construction and
acquisition” in the accompanying 2007 and 2008 consolidated balance
sheets.





Additions in dry dock costs of $538
relate to the scheduled drydockof vessel Omega Lady Myriam, which took
place within September 2008 which are amortised during the period through the
next drydocking, scheduled in 2013. The amortization of drydock costs is
included in “Depreciation
and amortization” in the accompanying consolidated statements of
income.






7.           Long-term
debt:




The
amount of long-term debt shown in the accompanying consolidated balance sheets
is analyzed as follows:





2007
                        
                        
                        2008Term
      loans
                        
                        
                        180,038
                        
                        
                        
                        336,612Revolving  facility
                        
                        
                        141,807
                        
                        
                        
                        -Bridge
      loan facility
                        
                        
                        2,433
                        
                        
                        
                        -324,278
                        
                        
                        
                        336,612Less
      unamortized financing fees
                        
                        
                        (932
                        )
                        
                        
                        (1,362
                        )Total
                        
                        
                        323,346
                        
                        
                        
                        335,250Less:
      Current portion of long-term debt
                        
                        
                        (781
                        )
                        
                        
                        (138
                        )Long
      -term debt, net of current portion
                        
                        
                        322,565
                        
                        
                        
                        335,112





The
movement of the Company’s bank debt during 2007 and 2008 per type and financial
institution is analysed as follows:








Movement
      in 2007Name
      of Financial Institution/ loan type
                                                                                                    
                                                                                                    Balance
      at December 31, 2006
                                                                                                    
                                                                                                    
                                                                                                    Drawdowns
                                                                                                    
                                                                                                    
                                                                                                    Capitalized
      interest
                                                                                                    
                                                                                                    
                                                                                                    Repayments
                                                                                                    
                                                                                                    
                                                                                                    Balance
      at December 31, 2007
                                                                                                    
                                                                                                    
                                                                                                    Unused
      portion
                                                                                                      (1)(I)
      HSH-
      Term loan
                                                                                                    
                                                                                                    
                                                                                                    142,906
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    38,102
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (41,089
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    139,919
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
      Revolving facility
                                                                                                    
                                                                                                    
                                                                                                    96,034
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    56,216
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (10,443
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    141,807
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
      Bridge loan
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,433
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,433
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --238,940
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    96,751
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (51,532
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    284,159
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -(III) Bremer (term
      loan)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    35,802
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    175
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (19,890
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    16,087
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    39,163(IV) Bank of Scotland
      (term loan)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    15,925
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    145
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    16,070
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    53,930(V) NBG (term
      loan)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    7,962
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    7,962
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25,214Total
                                                                                                    
                                                                                                    
                                                                                                    238,940
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    156,440
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    320
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (71,422
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    324,278
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    118,307





(1)
Based on the maximum notional amounts available under the loan
facilities







F-19
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




7.           Long-term
debt (continued):


Movement
      in 2008Name
      of Financial Institution/ loan type
                                                                                            
                                                                                            Balance
      at December 31, 2007
                                                                                            
                                                                                            
                                                                                            Drawdowns
                                                                                            
                                                                                            
                                                                                            Capitalized
      interest
                                                                                            
                                                                                            
                                                                                            Repayments
                                                                                            
                                                                                            
                                                                                            Balance
      at December 31, 2008
                                                                                            
                                                                                            
                                                                                            Unused
      portion
                                                                                              (1)(I)
      HSH-
      Term loan
                                                                                            
                                                                                            
                                                                                            139,919
                                                                                            
                                                                                            
                                                                                            
                                                                                            102,801
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            242,720
                                                                                            
                                                                                            
                                                                                            
                                                                                            --
      Revolving facility
                                                                                            
                                                                                            
                                                                                            141,807
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            (141,807
                                                                                            )
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            --
      Bridge loan
                                                                                            
                                                                                            
                                                                                            2,433
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            (2,433
                                                                                            )
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -284,159
                                                                                            
                                                                                            
                                                                                            
                                                                                            102,801
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            (144,240
                                                                                            )
                                                                                            
                                                                                            
                                                                                            242,720
                                                                                            
                                                                                            
                                                                                            
                                                                                            -(II) NIBC-BTMU (junior
      credit facility)
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            42,500
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            42,500
                                                                                            
                                                                                            
                                                                                            
                                                                                            -(III) Bremer (term
      loan)
                                                                                            
                                                                                            
                                                                                            16,087
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            672
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            16,759
                                                                                            
                                                                                            
                                                                                            
                                                                                            38,491
                                                                                            (2)(IV) Bank of Scotland
      (term loan)
                                                                                            
                                                                                            
                                                                                            16,070
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            701
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            16,771
                                                                                            
                                                                                            
                                                                                            
                                                                                            53,229(V) NBG (term
      loan)
                                                                                            
                                                                                            
                                                                                            7,962
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            7,962
                                                                                            
                                                                                            
                                                                                            
                                                                                            25,214(VI) Lloyds (term
      loan)
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            9,900
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            9,900
                                                                                            
                                                                                            
                                                                                            
                                                                                            73,350Total
                                                                                            
                                                                                            
                                                                                            324,278
                                                                                            
                                                                                            
                                                                                            
                                                                                            155,201
                                                                                            
                                                                                            
                                                                                            
                                                                                            1,373
                                                                                            
                                                                                            
                                                                                            
                                                                                            (144,240
                                                                                            )
                                                                                            
                                                                                            
                                                                                            336,612
                                                                                            
                                                                                            
                                                                                            
                                                                                            190,284





(1)
Based on the maximum notional amounts available under the loan
facilities


(2)
In 2009 the Company has entered into a post delivery agreement with Bremer of up
to $66,300 (Note 16(b)) and as a result the unused portion was increased by
$11,050 to $49,541.





(I)  HSH
Nordbank (“HSH”)





On
March 27, 2008, the Company completed, through a supplemental agreement, the
restructuring of its existing senior secured credit facility with HSH. As a
result of the restructuring, the senior secured credit facility was effectively
reduced from its then outstanding balance of $284.2 million to $242.7 million.
The Company agreed to repay the outstanding balance of the revolving credit
facility of $141,807 and HSH agreed to make available to the Company a term loan
facility of up to $242,720 comprising of (1) $139,919 representing the amount
outstanding under the term portion of the facility at the date of the
restructuring, (2) an additional amount of $102,801 to partially finance the
repayment of the revolving credit facility. The repayment of the remaining
balance of the revolving facility of $39,006 was financed by the Junior Facility
discussed below. The related revolving and bridge loan facilities’ deferred
financing costs of $112 were written off and included in “Interest and Finance
costs” in the accompanying 2008 consolidated statement of income.





The
amended facility with HSH provides for interest rate at LIBOR plus a margin, and
contains the following financial covenants calculated on a consolidated basis:
a) ratio of fleet market value to outstanding balance of the facility of 120%,
b) leverage ratio, calculated as total net debt to total net capitalization,
that may be temporarily increased to between 65% and 70%, provided that it will
thereafter be reduced to 65% within six months after the end of the quarter that
it first exceeded 65%, c) ratio of EBITDA to interest payable on a four trailing
quarter basis of not less than 2:00 to 1:00, d) minimum liquidity which is equal
to the higher of (i) $4.0 million and (ii) $500 multiplied by the number of
vessels with more






F-20
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)








7.           Long-term
      debt
(continued):




than
six months remaining charter employment and $750 multiplied by the number of
vessels with less than six months remaining charter employment, e) working
capital of not less than $1.0 million. The facility is secured by a) first
priority mortgage, b) pledge of accounts in credit, c) owners guarantee, d)
assignment of insurance and earnings of mortgaged vessels. The Company is
permitted to pay dividends under the credit facility so long as an event of
default has not occurred and will not occur upon payment of such dividend and at
any time that the fair market value of the secured vessels does not fall below
125% of the outstanding senior secured credit facility.





The
restructured credit facility with HSH has a term until April of 2011 and is non
amortizing.





(II)  NIBC Bank
N.V (“NIBC) and Bank of Tokyo-Mitsubishi UFJ Ltd.(“BTMU”):





On
March 27, 2008, the Company entered into a new $42.5 million junior facility
with NIBC Bank N.V. (“NIBC”) and Bank of Tokyo-Mitsubishi UFJ Ltd.
(“BTMU”)





The
junior facility of $42.5 million was used to fund the repayment of (i) the
revolving credit facility with HSH of $39,006, (ii) the bridge loan facility
with HSH of $2,433 and (iii) for working capital purposes. The facility bears
interest at LIBOR plus margin, commitment fee of 0.5% per annum payable
quarterly from signing of the junior facility and an annual agency fee in the
amount of $10.





The
junior facility contains financial covenants calculated on a consolidated basis
requiring the Company to maintain i) minimum cash of $5.0 million, ii) minimum
interest coverage ratio on a four trailing quarter basis of 2.00:1.00, iii) a
leverage ratio, calculated as total net debt to total net capitalization, of
maximum 70%, iv) a ratio of fair market value to combined senior secured credit
facility with HSH and junior facility of not less than 120%.





The
junior facility is secured by owners guarantee, second priority, cross
collateralized mortgages, second priority pledge/assignment of earnings account
and retention account, second priority assignment of insurances in respect to
the vessels, second priority pledge of the time charter contracts currently in
place for the vessels, second priority assignment of each of the vessels
earnings.





The
Company will not declare or pay any dividends, grant or repay any intercompany
loans or distribute any of its present or future assets, undertakings, rights or
revenues to any of its shareholders at any time that the fair market value of
the vessels in relation to the combined senior secured credit facility with HSH
and junior credit facility falls below 125% and in case an event of default has
occurred.





The
Junior Facility has a term until April of 2011 and is non
amortizing.





(III)  Bremer
Landesbank Kreditanstalt Oldenburg Girozentrale (“Bremer”):





On
July 4, 2007, the Company, entered into a secured loan facility with Bremer, of
$19,890 to partially finance the first construction instalment of its five
newbuildings discussed in Note 4. This loan was fully repaid on August 31, 2007,
through cash available from operations and new term loans obtained from Bremer
and other banks, as discussed below. On August 24, 2007, the Company entered
into a new secured loan facility with Bremer of up to $55,250 for the purpose of
(i) the partial repayment of the outstanding loan facility with Bremer discussed
above and (ii) to partly finance the acquisition cost during the construction
period of two of the Company’s newbuildings. Drawdowns under this loan are made
in accordance with the payment dates of the instalments under the shipbuilding
contracts and bear interest at LIBOR plus a margin and commitment fees of 0.2%
per annum on the undrawn portion of the loan. The interest of the first two
advances will be deferred until the third instalment to the shipyard is
due.





The
facility contains financial covenants calculated on a consolidated basis
providing for a) minimum liquidity of $5.0 million and b) a leverage ratio,
calculated as total debt to total capitalization, of maximum 70%. After the
vessels have been delivered the ratio of fair market value of the secured
vessels to outstanding debt should not be less than 120%. The facility is
secured by a) first priority assignment of all rights under the relevant two
shipbuilding contracts signed on June 15, 2007, b) first priority assignment of
all rights under the relative refund guarantees and c) corporate guarantee.
Furthermore, the Company is permitted to pay dividends so long as an event of
default has not occurred and will not occur upon the payment of such
dividend.






F-21
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




7.           Long-term
debt (continued):


As
further discussed in Note 16(b) the Company has entered into a senior secured
loan facility with Bremer of up to $66,300 representing the 75% of the vessels’
price on delivery or the fair market value of those vessels at delivery,
whichever is less, for the purposes of repayment of the pre-delivery facility as
well as financing of the remaining instalments to the shipyard.





(IV) Bank of
Scotland:





On
September 7, 2007 the Company entered into a senior secured loan facility, with
Bank of Scotland of up to the lesser of $70.0 million or 75% of the fair market
value of the vessels on delivery date, to partly finance the construction and
acquisition cost of two of the Company’s newbuildings. Drawdowns under this loan
are made in accordance with the payment dates of the instalments under the
shipbuilding contracts and bear interest at LIBOR plus a margin and commitment
fees of 0.3% per annum on the undrawn portion of the loan. The interest of the
first two advances under each tranche will be deferred until the date the
advance for the third instalment to the shipyard is drawn. The senior secured
loan facility will be repaid in 40 equal quarterly instalments of $506.75,
commencing 3 months after the relevant vessels’ delivery date plus a balloon
payment of $14,730.





The
facility contains financial covenants calculated on a consolidated basis
providing for a) minimum liquidity of $5.0 million b) a leverage ratio,
calculated as total debt to total capitalization, of maximum 70%, c) minimum
interest coverage ratio on a four trailing quarter basis of 2.00:1.00 and d)
working capital of not less than $1.0 million. After the vessels will have been
delivered, the ratio of fair market value of the secured vessels to outstanding
debt should not be less than 125%. Prior to the newbuildings’ delivery the
facility is secured by a) first priority assignment of all rights under the
relevant two shipbuilding contracts signed on June 15, 2007, b) first priority
assignment of all rights under the relative refund guarantees and c) corporate
guarantee. Upon delivery of the newbuildings the term loan facility will be
secured by a) first priority mortgages over the vessels, b) first priority
assignment of each vessel’s insurances, c) Corporate guarantee, d) first
priority assignment of vessels’ charter agreements and e) pledge over each of
the vessels’ earnings account and retention accounts. Furthermore, the Company
is permitted to pay dividends so long as an event of default has not occurred
and will not occur upon the payment of such dividend.





(V) National Bank of Greece
(“NBG”):





On
November 20, 2007, the Company entered into a senior secured loan facility, with
the NBG of up to the lesser of $33,176 or 75% of the fair market value of the
vessel on delivery date, to partly finance the construction and acquisition cost
of the remaining one of the Company’s newbuildings. Drawdowns under this loan
are made in accordance with the payment dates of the instalments under the
shipbuilding contracts and bear interest at LIBOR plus a margin and commitment
fees of 0.2% per annum on the undrawn portion of the loan. The loan is repayable
in 40 quarterly instalments ($497.65 each), commencing three months after
delivery of the vessel, plus a balloon instalment equal to $13,270.





The
facility contains financial covenants calculated on a consolidated basis
providing for a) minimum liquidity of $0.5 million per fleet vessel b) a
leverage ratio, calculated as total debt to total capitalization, of maximum
70%, c) minimum interest coverage ratio on a four trailing quarter basis of
2.00:1.00. After the vessel has been delivered the ratio of fair market value of
the secured vessel to outstanding debt should not be less than 120%. The
facility is secured, prior to the newbuildings’ delivery by a) first priority
assignment of all rights under the relevant shipbuilding contract signed on June
15, 2007 b) first priority assignment of all rights under the relative refund
guarantee and c) corporate guarantee. Upon delivery of the newbuildings the term
loan facility, is secured by a) first priority mortgages over the vessels, b)
first priority assignment of each vessel’s insurances, c) Corporate guarantee,
d) first priority assignment of vessels’ charter agreements and e) pledge over
each of the vessels’ earnings account and retention accounts and e) manager’s
undertaking. Furthermore, the Company is permitted to pay dividends so long as
an event of default has not occurred and will not occur upon the payment of such
dividend.





(VI) Lloyds TSB Bank PLC
(“Lloyds Bank”):





On
May 28, 2008, the Company entered into a predelivery term loan facility with
Lloyds Bank of up to $9,900 to finance the 90% of the advance payment for the
acquisition of the two double hull Handymax product tankers, discussed above.
The facility is repayable by a bullet payment upon delivery of the vessels and
bears interest at a rate of LIBOR plus margin. As further discussed in Note 4
the two vessels are expected to be delivered in the second quarter of 2009 and
the third quarter of 2010. An amount of $4,812 relating to the outstanding debt
of the vessel that is expected to be delivered in the second quarter of 2009, is
included in long-term debt, net of current portion, because as further discussed
below,






F-22
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




7.           Long-term
      debt
(continued):




the
Company has entered into a post delivery credit facility with Lloyds Bank that
will refinance the above balance on a long-term basis. The remaining balance of
the outstanding debt of the vessel that is expected to be delivered in the
second quarter of 2009, amounts to $138 and is presented as Current portion of
long-term debt, in the accompanying balance sheet, because it will be refinanced
under the post delivery facility but it will be payable until December 31,
2009.





The
term loan is secured by a) Memorandum of Agreement assignment, b) shares charge,
c) Corporate Guarantee and contains financial covenants calculated on a
consolidated basis that will require the Company to maintain: a) a ratio of
EBITDA to interest payable of not less than 2.00:1.00, b) a ratio of total net
debt to total net capitalization of not more than 0.70:1, c) working capital of
not less than $1 million, d) liquidity of not less than (i) $500 per vessel if
the average remaining time charter coverage in respect of  both
vessels is more than 1 year, (ii) $750 per vessel if the average remaining time
charter coverage in respect of both vessels is more than 6 months and less or
equal to 1 year; and (iii) 5% of the outstanding indebtedness if the average
remaining time charter coverage in respect of both vessels is less or equal to 6
months, but in any event not less than $750 per vessel. The total amount of pre
delivery loan facility was drawn down on May 28, 2008.





Furthermore
on May 28, 2008, the Company entered into a post delivery credit facility with
Lloyds Bank to be used to repay in accordance with the terms of the agreement
the predelivery term loan facility mentioned above and fund the acquisition cost
of the same two vessels in an amount of the lesser of $83,250 and 75% of the
fair market value of the vessels on their delivery dates. The facility will be
repayable in 40 quarterly installments of $582.3 per vessel plus a balloon
payment of $18,333 per vessel together with the final installment. Repayment
will commence three months after the vessels' delivery. Amounts under the
facility will bear interest at LIBOR plus margin and will contain financial
covenants that will require the Company to maintain: a) a ratio of EBITDA to
interest payable of not less than 2:1, b) a ratio of total net debt to total net
capitalization of not more than 0.70:1, c) working capital of not less than $1.0
million, d) a ratio of secured vessels’ market value to outstanding loan of not
less than 125% e) liquidity of not less than (i) $500 per vessel if the average
remaining time charter coverage in respect of both vessels is more than 1 year,
(ii) $750 per vessel if the average remaining time charter coverage in respect
of both vessels is more than 6 months and less or equal to 1 year; and (iii) 5%
of the outstanding indebtedness if the average remaining time charter coverage
in respect of both vessels is less or equal to 6 months, but in any event not
less than $750 per vessel. The facility will be secured by a) first priority
mortgage over the two vessels, b) first priority assignments of accounts, c)
first priority general assignment in relation to security vessels' earnings,
insurances and employment, and d) corporate guarantee. The Company pays on a
quarterly basis a commitment fee of 0.45% of the undrawn portion of the term
loan facility and an agency fee of $15 on an annual basis.





The
Company pays commitment fees on the undrawn portion of term loan facilities with
the lending banks, as discussed above, which for the years 2006, 2007 and 2008
amounted to $249, $173 and $526, respectively and are included in “Interest and
finance costs” in the accompanying consolidated statements of
income.  During 2008 the Company paid an upfront fee of $1,418 for
entering into the third supplemental agreement with HSH, the junior secured
credit facility and the credit facility with Lloyds Bank.





Total
interest incurred on long-term debt for the years ended December 31, 2006, 2007 and
2008 amounted to $9,082, $17,958 and $12,859, respectively (Note 13) and
is included in income/(loss) from discontinued operations and “Interest and
finance costs” in the accompanying consolidated statements of income. The
weighted average interest rate of the Company’s bank loans during 2006, 2007 and
2008 was 6.38%, 6.54% and 4.47%, respectively.





As
of December 31, 2008 the Company was in compliance with the financial covenants
required by the above loan facilities.











F-23
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




7.           Long-term
debt (continued):




The
annual principal payments required to be made after December 31, 2008 are as
follows:





Year
      ended December 31,
                                  
                                  Amount2009
                                  
                                  1382010
                                  
                                  2,3582011
                                  
                                  288,3712012
                                  
                                  2,8382013
      and thereafter
                                  
                                  42,907336,612




8.           Financial
instruments:




The
carrying values of cash, accounts receivable and accounts payable are reasonable
estimates of their fair values due to the short-term nature of those financial
instruments. The fair values of long-term bank loans approximate the recorded
values due to the variable interest rates payable. The fair value of the
interest rate swaps is determined based on observable Level 2 inputs, as defined
in SFAS No. 157 “Fair Value Measurements” (SFAS 157) derived principally from or
corroborated by observable market data. Inputs include quoted prices for similar
assets, liabilities (risk adjusted) and market-corroborated inputs, such as
market comparables, interest rates, yield curves and other items that allow
value to be determined.





On
March 27, 2008 the Company entered into two interest rate swap agreements with
NIBC and BTMU in order to hedge its exposure to fluctuations in interest rate on
its junior secured credit facility. The notional amount of each agreement is
$21,250 and interest rate is fixed at 2.96% per annum. The effective date of the
agreements is March 28, 2008 and their duration is three years.





On
April 15, 2008 the Company entered into a restructuring agreement amending the
initial rate collar option with HSH, which extended its duration up to April 4,
2011. On July 22, 2008 the agreement was amended and its duration was extended
up to April 14, 2011. Under the amended agreement the Company has entered into a
participation swap with gradual alignment factor. The notional amount of the
swap is $150.0 million and the cap has been set at 5.1% with the floor being at
2.5% and the gradual aligned participation at maximum of 2.6% when the three
months LIBOR drops below 2.5%.





On
November 10, 2008 the Company entered into an interest rate swap agreement with
Lloyds Bank in order to hedge its exposure to fluctuations in interest rate. The
interest rate is fixed at 2.585% per annum and the notional amount was $100.0
million as of December 31, 2008. The effective date of the agreement is November
12, 2008 and its expiration date is May 12, 2011.





The
Company entered into these financial instruments in order to partially hedge its
exposure to fluctuations in interest rates on its loans. These financial
instruments did not meet hedge accounting criteria. Accordingly, the changes in
their fair values are reported in earnings.





As
of and for the years ended December 31, 2006, 2007 and 2008, realized and
unrealized gains and losses per category of derivative are analyzed as
follows:





Realized
                    
                    UnrealizedGains/(Losses)
                    
                    Gains/(Losses)
                    
                    TotalJanuary
      1, 2006
                    
                    -
                    
                    -
                    
                    -Interest
      rate swap
                    
                    58
                    
                    30
                    
                    88Rate
      collar option
                    
                    -
                    
                    (343)
                    
                    (343)Effect
      on 2006 earnings
                    
                    58
                    
                    (313)
                    
                    (255)December
      31, 2006
                    
                    -
                    
                    (313)
                    
                    (313)Interest
      rate swap
                    
                    45
                    
                    (30)
                    
                    15Rate
      collar option
                    
                    -
                    
                    (1,236)
                    
                    (1,236)Effect
      on 2007 earnings
                    
                    45
                    
                    (1,266)
                    
                    (1,221)December
      31, 2007
                    
                    -
                    
                    (1,579)
                    
                    (1,579)Interest
      rate swaps
                    
                    (16)
                    
                    (3,746)
                    
                    (3,762)Rate
      collar option/Participation swap
                    
                    (901)
                    
                    (8,923)
                    
                    (9,824)Effect
      on 2008 earnings
                    
                    (917)
                    
                    (12,669)
                    
                    (13,586)--December
      31, 2008
                    
                    -
                    
                    (14,248)
                    
                    (14,248)





F-24
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)








8.           Financial
      instruments (continued):




The
above realized and unrealised loss from derivative instruments of $255, $1,221
and $13,586 are reflected as “Loss on derivative instruments” in the
accompanying consolidated statements of income. The fair values of the
derivative contracts as of December 31, 2007 and 2008 of $1,579 and $14,248,
respectively, are included under “Derivative liability”, current and non-current
in the accompanying consolidated balance sheets.




9.           Earnings/(loss)
per Share:




All
shares issued under the Company’s Incentive Plan (including non-vested shares)
are the Company’s class A common stock and have equal rights to vote and
participate in dividends upon their vesting. The right of Class B stockholders to
receive dividends were subordinated to the right of Class A stockholders
as further discussed in Notes 11 (a) and 16 (g). At the calculation of basic
earnings per share, non-vested shares are not considered outstanding until the
time-based vesting restriction has lapsed. Dividends declared during the year
2007 and 2008 for non-vested shares are deducted from the net income reported
for purposes of calculating net income available to common shareholders for the
computation of basic earnings per share.





For
purposes of calculating diluted earnings per share, dividends declared during
the period for non-vested shares are not deducted from the net income reported
since such calculation assumes non-vested shares were fully vested from the
grant date. The calculation of diluted earnings per share includes also the
shares assumed to be issued relating to warrants (Note 5). The number of shares
assumed to be issued was calculated based on the average market price over the
period of 15 business days immediately proceeding December 31, 2007 and 2008, as
per warrants’ terms. The denominator of the diluted earnings per share
calculation includes the incremental shares assumed issued under the treasury
stock method weighted for the period the shares were outstanding.




The
components of the calculation of the basic and diluted shares for the years
ended December 31, 2006, 2007 and 2008 are presented below:




2006
                            
                            
                            2007
                            
                            
                            2008Class
      A common stockWeighted
      average common shares outstanding, basic
                            
                            
                            8,689,452
                            
                            
                            
                            12,010,000
                            
                            
                            
                            12,057,717Add:
      Dilutive effect of non-vested shares
                            
                            
                            -
                            
                            
                            
                            29,661
                            
                            
                            
                            52,502Add:
      Dilutive effect of warrants
                            
                            
                            -
                            
                            
                            
                            449,315
                            
                            
                            
                            500,000Weighted
      average common shares outstanding, diluted
                            
                            
                            8,689,452
                            
                            
                            
                            12,488,976
                            
                            
                            
                            12,610,219Class
      B common stockWeighted
      average common shares outstanding, basic and diluted
                            
                            
                            3,140,000
                            
                            
                            
                            3,140,000
                            
                            
                            
                            3,140,000





The
components of the calculation of basic and diluted earnings/ (loss) per share
for years ended December 31, 2006, 2007 and 2008 are presented
below:











F-25
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)





9.           Earnings/(loss)
per Share (continued):




2006Continuing
      operations
                            
                            
                            Discontinued
      operations
                            
                            
                            TotalNet
      income
                            
                            
                            4,565
                            
                            
                            
                            9,563
                            
                            
                            
                            14,128-
      Less dividends paidClass
      A shares
                            
                            
                            (3,881
                            )
                            
                            
                            (8,129
                            )
                            
                            
                            (12,010
                            )Class
      B shares
                            
                            
                            (1,015
                            )
                            
                            
                            (2,125
                            )
                            
                            
                            (3,140
                            )Undistributed
      earnings/ (loss)
                            
                            
                            (331
                            )
                            
                            
                            (691
                            )
                            
                            
                            (1,022
                            )Allocation
      of undistributed earnings:To
      Class A shares-
      12,010,000 shares at $0.067 per share in total
                            
                            
                            (262
                            )
                            
                            
                            (548
                            )
                            
                            
                            (810
                            )To
      Class B shares-
      3,140,000 shares at $0.067 per share
                            
                            
                            (69
                            )
                            
                            
                            (143
                            )
                            
                            
                            (212
                            )To
      all Class A and Class B shares, pro rata, as if they were a single
      class
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Undistributed
      earnings/(loss)
                            
                            
                            (331
                            )
                            
                            
                            (691
                            )
                            
                            
                            (1,022
                            )







2007Continuing
      operations
                            
                            
                            Discontinued
      operations
                            
                            
                            TotalNet
      income/(loss)
                            
                            
                            14,886
                            
                            
                            
                            (155
                            )
                            
                            
                            14,731-
      Less dividends paid for non vested shares
                            
                            
                            (111
                            )
                            
                            
                            -
                            
                            
                            
                            (111
                            )Net
      income available to common shareholders
                            
                            
                            14,775
                            
                            
                            
                            (155
                            )
                            
                            
                            14,620-
      Less dividends paidClass
      A shares
                            
                            
                            (24,020
                            )
                            
                            
                            -
                            
                            
                            
                            (24,020
                            )Class
      B shares
                            
                            
                            (6,280
                            )
                            
                            
                            -
                            
                            
                            
                            (6,280
                            )Undistributed
      earnings/ (loss)
                            
                            
                            (15,525
                            )
                            
                            
                            (155
                            )
                            
                            
                            (15,680
                            )Allocation
      of undistributed earnings:To
      Class A shares-
      12,010,000 shares at $1.035 per share in total
                            
                            
                            (12,307
                            )
                            
                            
                            (123
                            )
                            
                            
                            (12,430
                            )To
      Class B shares-
      3,140,000 shares at $1.035 per share
                            
                            
                            (3,218
                            )
                            
                            
                            (32
                            )
                            
                            
                            (3,250
                            )To
      all Class A and Class B shares, pro rata, as if they were a single
      class
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Undistributed
      earnings/ (loss)
                            
                            
                            (15,525
                            )
                            
                            
                            (155
                            )
                            
                            
                            (15,680
                            )










2008Continuing
      operations
                              
                              
                              Discontinued
      operations
                              
                              
                              TotalNet
      income
                              
                              
                              10,939
                              
                              
                              
                              20
                              
                              
                              
                              10,959-
      Less dividends paid for non vested shares
                              
                              
                              (179
                              )
                              
                              
                              -
                              
                              
                              
                              (179
                              )Net
      income available to common shareholders
                              
                              
                              10,760
                              
                              
                              
                              20
                              
                              
                              
                              10,780-
      Less dividends paidClass
      A shares
                              
                              
                              (24,081
                              )
                              
                              
                              (44
                              )
                              
                              
                              (24,125
                              )Class
      B shares
                              
                              
                              (6,268
                              )
                              
                              
                              (12
                              )
                              
                              
                              (6,280
                              )Undistributed
      earnings/ (loss)
                              
                              
                              (19,589
                              )
                              
                              
                              (36
                              )
                              
                              
                              (19,625
                              )Allocation
      of undistributed earnings:To
      Class A shares-
      12,071,594 shares at $1.29 per share in total
                              
                              
                              (15,546
                              )
                              
                              
                              (29
                              )
                              
                              
                              (15,575
                              )To
      Class B shares-
      3,140,000 shares at $1.29 per share
                              
                              
                              (4,043
                              )
                              
                              
                              (7
                              )
                              
                              
                              (4,050
                              )To
      all Class A and Class B shares, pro rata, as if they were a single
      class
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Undistributed
      earnings/ (loss)
                              
                              
                              (19,589
                              )
                              
                              
                              (36
                              )
                              
                              
                              (19,625
                              )










F-26
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




9.           Earnings/(loss)
per Share (continued):


Basic
and diluted per share amounts:





2006
                      
                      2007
                      
                      2008Continuing
      Operations
                      Class
      A
                        shares
                      Class
      B
                        Shares
                      
                      Class
      A
                        shares
                      Class
      B
                        shares
                      
                      Class
      A
                        Shares
                      Class
      B
                        SharesBasicDistributed
      earnings
                      0.45
                      0.32
                      
                      2.00
                      2.00
                      
                      2.00
                      2.00Undistributed
      earnings/ (loss)
                      (0.03)
                      (0.02)
                      
                      (1.02)
                      (1.02)
                      
                      (1.29)
                      (1.29)Total
                      0.42
                      0.30
                      
                      0.98
                      0.98
                      
                      0.71
                      0.71








DilutedDistributed
      earnings
                      0.45
                      0.32
                      
                      1.93
                      2.00
                      
                      1.92
                      2.00Undistributed
      earnings/ (loss)
                      (0.03)
                      (0.02)
                      
                      (0.98)
                      (1.02)
                      
                      (1.23)
                      (1.29)Total
                      0.42
                      0.30
                      
                      0.95
                      0.98
                      
                      0.69
                      0.71





Discontinued
      OperationsBasicDistributed
      earnings
                      0.94
                      0.68
                      
                      -
                      -
                      
                      -
                      -Undistributed
      earnings/ (loss)
                      (0.07)
                      (0.05)
                      
                      (0.01)
                      (0.01)
                      
                      -
                      -Total
                      0.87
                      0.63
                      
                      (0.01)
                      (0.01)
                      
                      -
                      -





DilutedDistributed
      earnings
                      0.94
                      0.68
                      
                      -
                      -
                      
                      -
                      -Undistributed
      earnings/ (loss)
                      (0.07)
                      (0.05)
                      
                      (0.01)
                      (0.01)
                      
                      -
                      -Total
                      0.87
                      0.63
                      
                      (0.01)
                      (0.01)
                      
                      -
                      -





Continuing
      and Discontinued OperationsBasicDistributed
      earnings
                      1.39
                      1.00
                      
                      2.00
                      2.00
                      
                      2.00
                      2.00Undistributed
      earnings/ (loss)
                      (0.10)
                      (0.07)
                      
                      (1.03)
                      (1.03)
                      
                      (1.29)
                      (1.29)Total
                      1.29
                      0.93
                      
                      0.97
                      0.97
                      
                      0.71
                      0.71





DilutedDistributed
      earnings
                      1.39
                      1.00
                      
                      1.93
                      2.00
                      
                      1.92
                      2.00Undistributed
      earnings/ (loss)
                      (0.10)
                      (0.07)
                      
                      (0.99)
                      (1.03)
                      
                      (1.23)
                      (1.29)Total
                      1.29
                      0.93
                      
                      0.94
                      0.97
                      
                      0.69
                      0.71




10.        Commitments
and contingencies:




Various
claims, suits, and complaints, including those involving government regulations
and product liability, arise in the ordinary course of the shipping business. In
addition, losses may arise from disputes with charterers, agents, insurance and
other claims with suppliers relating to the operations of the Company’s vessels.
Currently, management is not aware of any such claims or contingent liabilities,
which should be disclosed, or for which a provision should be established in the
accompanying consolidated financial statements.





The
Company accrues for the cost of environmental liabilities when management
becomes aware that a liability is probable and is able to reasonably estimate
the probable exposure. Currently, management is not aware of any such claims or
contingent liabilities, which should be disclosed, or for which a provision
should be established in the accompanying consolidated financial statements. A
minimum of up to $1 billion of the liabilities associated with the individual
vessels actions, mainly for sea pollution, are covered by the Protection and
Indemnity (P&I) Club insurance.





Contracts for vessels under
construction: Refer to discussion made in Note 4, in connection with the
Company’s five newbuildings under construction.







F-27
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




10.        Commitments
and contingencies (continued):


Contracts for vessels
acquisitions: Refer to discussion made in Notes 4, 16(i) and 16(j) in
connection with the Company’s Memorandum of Agreement for the purchase of two
newbuildings.





Operating leases: On
June 29, 2005 and August 29, 2006 the Company entered into rental agreements, as
amended on April 1, 2008, with a lessor affiliated to Target Marine S.A. to
lease office space in Piraeus, Greece. The termination date of agreements,
following their amendment in April 2008 is February 28, 2009. The agreement is
extended without written notice on a monthly basis and the same amount of
rental. Neither the President and Chief Executive Officer nor any other director
or officer of the Company has any ownership interest in the lessor. The monthly
rental is Euro 4,500 ($US dollars 6,264 using the exchange rate of U.S.
dollar/Euro at December 31, 2008). Rental expense for years ended December 31,
2006, 2007 and 2008 amounted to $42, $65 and $79, respectively and is included
in general and administrative expenses in the accompanying consolidated
statements of income. The future minimum rentals payable under the above amended
non-cancellable operating leases for 2009, using the exchange rate of U.S.
dollar/Euro at December 31, 2008, will be approximately $13.





Employment
agreements: The Company, effective April 6, 2006 has signed employment
agreements with its executives, namely the Chief Executive Officer (“CEO”), the
Chief Operating Officer (“COO”) and the Chief Financial Officer (“CFO”), which
were amended on March 20, 2008. Under specific termination clauses in the
employment agreements, as amended, the Company is committed to pay to its
executives a lump sum of $1,300 in total, in addition to their base salary until
the end of the contract term, for early termination of employment within its
term or in the event there is a material breach by the Company of the terms of
the respective employment agreements. Such amount will be increased by
approximately $600 in total in the case


the
duration of the agreements is extended prior to the occurrence of such events.
Furthermore, in the event of a change of control (as defined in the Company’s
amended and restated articles of incorporation) during the term of the
employment agreements, the Company is committed to pay its executives the
equivalent of two to three years annual base salary, over and above the lump sum
described above.




Periodic survey fees:
The Company has entered into agreements with unrelated parties for the
performance of periodic surveys for its vessels. The agreements provide for a
fixed survey fee payable periodically throughout the duration of the agreements,
the last of which expires in February 2013. The future minimum period survey
fees payable under the above agreements for the years 2009, 2010, 2011, 2012 and
2013 will be $141, $112, $112, $87 and $3, respectively.




11.        Stock:




(a)
            Preferred
      stock and common stock: Under the amended and restated articles of
      incorporation, the Company’s authorized capital stock consists of
      25,000,000 shares of preferred stock, par value $0.01 per share and
      100,000,000 shares of common stock, par value $0.01 per share, divided
      into 75,000,000 shares of Class A common stock and 25,000,000 shares of
      Class B (or “subordinated shares”) common stock. Through the amended and
      restated articles of incorporation, the Company declared a reverse stock
      split and issued 1 Class A share for every 300 shares of the then
      outstanding common stock of 3,000,000 shares owned by its sole
      stockholder. Following this reverse stock split the total issued and
      outstanding common stock of the Company was 10,000 Class A shares, par
      value $0.01 per share. Furthermore, on March 16, 2006, the Company
      declared a stock split in the form of stock dividend and issued 314 Class
      B shares for each of its 10,000 Class A shares. Following this stock
      dividend, 10,000 of Class A shares and 3,140,000 of Class B shares were
      issued and outstanding. All share and per share data included in the
      accompanying consolidated financial statements have been restated to
      reflect both the reverse stock split and the stock dividend. The holders of the common shares
      are entitled to one vote on all matters submitted to a vote of
      stockholders and to receive all dividends, if any. The right of Class B
      stockholders to receive dividends is subordinated to the right of Class A
      stockholders. If the company has not sufficient cash available to a
      quarterly dividend of $0.50 per share (“base dividend”) to its Class A
      common stockholders, the right of Class B common stockholders to receive
      dividends will be subordinated to the right of Class A common stockholders
      to receive dividends during the subordination period. The subordination
      period commenced upon the issuance of the shares of Class B common stock
      upon completion of the initial public offering discussed below and ended
      on the first day after the quarter ending December 31, 2008, subject to
      preconditions, as defined in theCompany’s amended and restated
      articles of incorporation (see note 16(g)).In April 2006, the
      Company completed its initial public offering and issued 12,000,000 shares
      of common stock with par value $0.01 per share.  The net
      proceeds of the public offering amounted to
  $186,711.






F-28
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




11.        Stock
(continued):


(b)
            Additional
      paid-in capital:The amounts shown in the accompanying consolidated
      balance sheets, as additional paid-in capital, represent (i) payments made
      by the stockholders at various dates to finance vessel acquisitions in
      excess of the amounts of bank loans obtained, third party financing and
      advances for working capital purposes and (ii) payments made by the
      stockholders in excess of the par value of common stock purchased by
      them.





(c)
            Dividends:
      During the years ended December 31, 2007 and 2008, the Company declared
      dividends of $30,411 and $30,584
respectively.





(d)
            Equity
      Incentive plan: In February 2006, the Company adopted an equity
      incentive plan which entitles the Company to grant its officers, key
      employees and directors with options to acquire the Company’s common stock
      or restricted stock. A total of 1.5 million shares of common stock are
      reserved for issuance under the plan. The plan is administered by the
      Company’s Board of Directors. Under the terms of the plan, the Company’s
      Board of Directors will be able to grant new stock and/or options
      exercisable at a price per share to be determined by the Company’s Board
      of Directors. No stock and/or options will be exercisable until at least
      two years after the closing of the initial public offering discussed
      above. Any shares received on exercise of the options will not be able to
      be sold until three years after the closing of the initial public
      offering. All options will expire 10 years from the date of grant. The
      plan will expire 10 years from the closing of the initial public offering.
      As of December 31, 2006, no stock and/or options were granted under the
      plan. During the years ended December 31, 2007 and 2008 the Company
      granted restricted shares as
follows:





1.
            On
      February 8, 2007 the Company’s Board of Directors granted 54,138
      restricted shares of Class A common stock to CEO, COO and CFO pursuant to
      its Stock Incentive Plan. The restricted shares shall become vested, and
      the restrictions set forth in this award shall lapse, with respect to: (i)
      25% of the shares covered by this award on the first anniversary of the
      date of this award, (ii) 25% of the shares covered by this award on the
      second anniversary of the date of this award, (iii) 50% of the shares
      covered by this award on the third anniversary of the date of this award,
      all conditioned upon the grantee’s continued service as an employee of the
      Company or as a director of the Company from the date of the award
      agreement through the applicable vesting
date.




The
grant date fair value of the restricted shares granted amounted to $828 and is
being recognized rateably over the three year vesting period, of which $400 and
$265 was recognized as “General and administrative expenses” in the accompanying
2007 and 2008 consolidated statements of income. As of December 31, 2008 the
total unrecognized cost related to restricted shares is $163 which is expected
to be recognized until February 2010. The grant date fair value of the 13,535
shares that became vested on February 8, 2008 was $207.




2.
            On
      July 26, 2007 the Company’s Board of Directors granted 6,000 restricted
      shares of Class A common stock to all non executive directors pursuant to
      its Stock Incentive Plan. Such restricted shares were vested on July 26,
      2008. The grant date fair value of the restricted shares granted amounted
      to $131 and was recognized rateably over the one year vesting period, of
      which $57 and $74 was recognized as “General and administrative expenses”
      in the accompanying 2007 and 2008 consolidated statements of
      income.




3.
            On
      March 20, 2008 the Company’s Board of Directors awarded to each executive
      officer to receive an amount equal to one year salary and had the option
      to receive up to $100 each in cash and the remaining balance in
      immediately vested Class A common stock. The number of immediately vested
      Class A common stock granted was 42,059. The grant date fair value of the
      restricted shares granted amounted to $599 and was recognized in full as
      “General and administrative expenses” in the accompanying 2008
      consolidated statement of income.




4.
            On
      March 20, 2008, the Company’s Board of Directors granted 53,357 restricted
      shares of Class A common stock to CEO, COO and CFO as well as 8,815
      restricted shares (out of which 3,650 restricted shares were forfeited
      during the year) of Class A common stock to key persons pursuant to its
      Stock Incentive Plan. The restricted shares shall become vested, and the
      restrictions set forth in this award shall lapse, with respect to: (i) 25%
      of the shares covered by this award on the first anniversary of the date
      of this award, (ii) 25% of the shares covered by this award on the second
      anniversary of the date of this award, (iii) 50% of the shares covered by
      this award on the third anniversary of the date of this award, all
      conditioned upon the grantee’s continued service as an employee of the
      Company or as a director of the Company from the date of the award
      agreement through the applicable vesting
date.






F-29
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




11.        Stock
(continued) :




The
grant date fair value of the restricted shares granted, net of forfeitures,
amounted to $818 and is being recognized rateably over the three year vesting
period, of which $348 recognized as “General and administrative expenses” in the
accompanying 2008 consolidated statements of income. As of December 31, 2008 the
total unrecognized cost related to restricted shares is $470 which is expected
to be recognized until March 2011.




5.
            On
      July 31, 2008, the Company’s Board of Directors granted 10,500 restricted
      shares of Class A common stock to all non executive directors pursuant to
      its Stock Incentive Plan. Such restricted shares will become vested on the
      first anniversary of the date of grant. The grant date fair value of the
      restricted shares granted amounted to $164 and is being recognized
      rateably over the one year vesting period, of which $69 recognized as
      “General and administrative expenses” in the accompanying 2008
      consolidated statements of income. As of December 31, 2008 the total
      unrecognized cost related to restricted shares is $95 which is expected to
      be recognized until July 2009.




The
Company follows the provisions of SFAS No. 123(R) “Accounting for Stock-Based
Compensation” for purposes of accounting of such share-based payments. All
share-based compensation provided to employees is recognized in accordance with
the provisions of SFAS No. 123(R) and is classified as “General and
administrative expenses” in the accompanying 2007 and 2008 consolidated
statements of income. The fair value of each share granted is equal to the
market value of the Company’s common stock as of the grant date.





The
dividends declared on shares granted under the plan during the year ended 2007
and 2008 amounted to $111 and $285 and is recognized in the financial statements
as a charge to retained earnings. In 2008 the amount of dividends paid on shares
vested during the year was $135.





A
summary of the status of the Company’s vested and non-vested restricted shares
as of December 31, 2007 and 2008 and movement during the year 2007 and 2008 is
as follows:







Number
      of non-vested restricted shares
                            
                            Number
      of vested restricted shares
                            
                            Grant
      date fair values per restricted shareAs
      at December 31, 2006
                            -
                            
                            -
                            
                            -Granted
      on February 8, 2007
                            54,138
                            
                            -
                            
                            $15.29Granted
      on July 26, 2007
                            6,000
                            
                            -
                            
                            $21.84Vested
                            -
                            
                            -
                            
                            -Forfeited
                            -
                            
                            -
                            
                            -As
      at December 31, 2007
                            60,138
                            
                            -Vested
      on February 8, 2008
                            (13,535)
                            
                            13,535
                            
                            $15.29Granted
      on March 20, 2008
                            104,231
                            
                            -
                            
                            $14.23Vested
      on March 20, 2008
                            (42,059)
                            
                            42,059
                            
                            $14.23Vested
      on July 26, 2008
                            (6,000)
                            
                            6,000
                            
                            $21.84Granted
      on July 31, 2008
                            10,500
                            
                            -
                            
                            $15.65Forfeited
                            (3,650)
                            
                            -
                            
                            $14.23As
      at December 31, 2008
                            109,625
                            
                            61,594





As
of December 31, 2007 and 2008, the number of weighted average grant date fair
value of non vested shares was $15.94 and $14.76 respectively.







F-30
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)











12.         Voyage
and Vessel Operating Expenses:





Voyage
and Vessel Operating Expenses are analyzed as follows:





Continuing operations2006
                        
                        2007
                        
                        2008Voyage
      expensesCommissions
                        
                        335
                        
                        864
                        
                        917Other
                        
                        6
                        
                        66
                        
                        115341
                        
                        930
                        
                        1,032





Vessel
      Operating ExpensesCrew
      wages and related costs
                      
                      2,651
                      
                      7,314
                      
                      9,468Spares
      and consumables
                      
                      1,122
                      
                      2,394
                      
                      2,774Pre
      delivery expenses
                      
                      659
                      
                      778
                      
                      -Insurances
                      
                      650
                      
                      1,507
                      
                      1,680Inspection-Surveys-Safety
                      
                      262
                      
                      644
                      
                      642Repairs
      and maintenance
                      
                      134
                      
                      144
                      
                      241Other
                      
                      191
                      
                      340
                      
                      6815,669
                      
                      13,121
                      
                      15,486





Discontinued operations2006
                              
                              2007
                              
                              2008Voyage
      expenses
                              
                              835
                              
                              8
                              
                              -Vessel
      Operating Expenses/(income)
                              
                              2,757
                              
                              135
                              
                              (20)








13.        Interest
and finance costs:




Interest
and finance costs are analyzed as follows:





2006
                      
                      2007
                      
                      2008Continuing operationsInterest
      expense
                      
                      6,711
                      
                      18,464
                      
                      14,516Less:
      Interest capitalized
                      
                      -
                      
                      (590)
                      
                      (1,657)Interest
      expense, net
                      
                      6,711
                      
                      17,874
                      
                      12,859Bank
      credit facility commitment fees
                      
                      249
                      
                      173
                      
                      526Amortization
      and write-off of financing costs
                      
                      197
                      
                      307
                      
                      667Other
      finance costs
                      
                      326
                      
                      225
                      
                      3337,483
                      
                      18,579
                      
                      14,385





Discontinued operationsInterest
      on bank credit facilities
                              
                              2,371
                              
                              84
                              
                              -Interest
      on Sellers’ Notes
                              
                              369
                              
                              -
                              
                              -Amortization
      and write-off of financing costs
                              
                              139
                              
                              41
                              
                              -Other
      finance costs
                              
                              104
                              
                              4
                              
                              -2,983
                              
                              129
                              
                              -











F-31
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)










14.        Income
taxes:




Under
the laws of the Republic of Marshall Islands the companies are not subject to
tax on international shipping income, however, they are subject to registration
and tonnage taxes, which have been included in vessel operating expenses in the
accompanying consolidated statement of income.





Pursuant
to the Internal Revenue Code of the United States (the “Code”), U.S. source
income from the international operations of ships is generally exempt from U.S.
tax if the company operating the ships meets both of the following requirements,
(a) the Company is organized in a foreign country that grants an equivalent
exemption to corporations organized in the United States and (b) either (i) more
than 50% of the value of the Company’s stock is owned, directly or indirectly,
by individuals who are “residents” of the Company’s country of organization or
of another foreign country that grants an “equivalent exemption” to corporations
organized in the United States (50% Ownership Test) or (ii) the Company’s stock
is “primarily and regularly traded on an established securities market” in its
country of organization, in another country that grants an “equivalent
exemption” to United States corporations, or in the United States
(Publicly-Traded Test). Under the regulations, Company’s stock will be
considered to be “regularly traded” on an established securities market if (i)
one or more classes of its stock representing 50 percent or more of its
outstanding shares, by voting power and value, is listed on the market and is
traded on the market, other than in minimal quantities, on at least 60 days
during the taxable year; and (ii) the aggregate number of shares of our stock
traded during the taxable year is at least 10% of the average number of shares
of the stock outstanding during the taxable year. Notwithstanding the foregoing,
the regulations provide, in pertinent part, that each class of the Company’s
stock will not be considered to be “regularly traded” on an established
securities market for any taxable year in which 50% or more of the vote and
value of the outstanding shares of such class are owned, actually or
constructively under specified stock attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more of the value of
such class of the Company’s outstanding stock, (“5 Percent Override
Rule”).





In
the event the 5 Percent Override Rule is triggered, the regulations provide that
the 5 Percent Override Rule will nevertheless not apply if the Company can
establish that among the closely-held group of 5% Stockholders, there are
sufficient 5% Stockholders that are considered to be “qualified stockholders”
for purposes of Section 883 to preclude non-qualified 5% Stockholders in
the closely-held group from owning 50% or more of each class of the Company’s
stock for more than half the number of days during the taxable
year.





Treasury
regulations under the Code were promulgated in final form in August 2003. These
regulations apply to taxable years beginning after September 24, 2004. As a
result, such regulations are effective for calendar year taxpayers, like the
Company, beginning with the calendar year 2005. All the Company’s ship-operating
subsidiaries currently satisfy the 50% Ownership Test. In addition, following
the completion of the public offering of the Company’s shares (Note 1), the
management of the Company believes that by virtue of a special rule applicable
to situations where the ship operating companies are beneficially owned by a
publicly traded company like the Company, the 50% Ownership Test can also be
satisfied based on the trading volume and the widely-held ownership of the
Company’s shares, but no assurance can be given that this will remain so in the
future, since continued compliance with this rule is subject to factors outside
the Company’s control. Based on its U.S. source Shipping Income for 2006, 2007
and 2008, the Company would be subject to U.S. federal income tax of
approximately $0.2 million, $0.4 million and $0.4 million, respectively, in the
absence of an exemption under Section 883.













F-32
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)










15.        Segment
information:




The
table below presents information about the Company’s reportable segments as of
December 31, 2006, 2007 and 2008 and for the years ended December 31, 2006, 2007
and 2008. The accounting policies followed in the preparation of the reportable
segments are the same with those followed in the preparation of the





Company’s
consolidated financial statements. All intra-segment balances/ transactions are
eliminated in the preparation of the reportable segments.





Product
      tankers2006
                            
                            Panamax
      tankers
                            
                            Handymax
      tankers
                            
                            Dry
      bulk carriers
                            
                            
                            Other
                            
                            TotalRevenues
      from external customers
                            
                            19,141
                            
                            7,726
                            
                            15,521
                            
                            
                            -
                            
                            42,388Interest
      expense and finance costs
                            
                            5,651
                            
                            1,504
                            
                            2,983
                            
                            
                            328
                            
                            10,466Interest
      income
                            
                            208
                            
                            89
                            
                            6
                            
                            
                            1,540
                            
                            1,843Depreciation
      and amortization
                            
                            5,223
                            
                            1,984
                            
                            2,337
                            
                            
                            29
                            
                            9,573Loss
      on derivative instruments
                            
                            -
                            
                            -
                            
                            -
                            
                            
                            (255)
                            
                            (255)Segment
      income/ (loss)
                            
                            3,983
                            
                            2,232
                            
                            9,563
                            
                            
                            (1,650)
                            
                            14,128Total
      assets
                            
                            248,765
                            
                            103,615
                            
                            82,398
                            
                            
                            9,053
                            
                            443,831





Product
      tankers2007
                            
                            Panamax
      tankers
                            
                            Handymax
      tankers
                            
                            Dry
      bulk carriers
                            
                            
                            Other
                            
                            TotalRevenues
      from external customers
                            
                            54,508
                            
                            15,382
                            
                            151
                            
                            
                            -
                            
                            70,041Interest
      expense and finance costs
                            
                            15,103
                            
                            2,907
                            
                            129
                            
                            
                            569
                            
                            18,708Interest
      income
                            
                            117
                            
                            5
                            
                            -
                            
                            
                            1,699
                            
                            1,821Depreciation
      and amortization
                            
                            13,557
                            
                            3,940
                            
                            -
                            
                            
                            60
                            
                            17,557Change
      in fair value of warrants
                            
                            1,071
                            
                            -
                            
                            -
                            
                            
                            -
                            
                            1,071Loss
      on derivative instruments
                            
                            -
                            
                            -
                            
                            -
                            
                            
                            (1,221)
                            
                            (1,221)Segment
      income/ (loss)
                            
                            15,647
                            
                            4,737
                            
                            (155)
                            
                            
                            (5,498)
                            
                            14,731Total
      assets
                            
                            364,230
                            
                            143,558
                            
                            22
                            
                            
                            14,675
                            
                            522,485








Product
      tankers2008
                            
                            Panamax
      tankers
                            
                            Handymax
      tankers
                            
                            Dry
      bulk carriers
                            
                            
                            Other
                            
                            TotalRevenues
      from external customers
                            
                            62,214
                            
                            15,499
                            
                            -
                            
                            
                            -
                            
                            77,713Interest
      expense and finance costs
                            
                            10,781
                            
                            3,492
                            
                            -
                            
                            
                            112
                            
                            14,385Interest
      income
                            
                            10
                            
                            220
                            
                            -
                            
                            
                            481
                            
                            711Depreciation
      and amortization
                            
                            14,883
                            
                            3,939
                            
                            -
                            
                            
                            46
                            
                            18,868Change
      in fair value of warrants
                            
                            3,156
                            
                            -
                            
                            -
                            
                            
                            -
                            
                            3,156Loss
      on derivative instruments
                            
                            -
                            
                            -
                            
                            -
                            
                            
                            (13,586)
                            
                            (13,586)Segment
      income/ (loss)
                            
                            26,105
                            
                            4,138
                            
                            20
                            
                            
                            (19,304)
                            
                            10,959Total
      assets
                            
                            350,058
                            
                            152,918
                            
                            22
                            
                            
                            22,298
                            
                            525,296





Dry
bulk carriers segment was discontinued effective September 2006. For the year
ended December 31, 2007 and 2008, the segment of handymax tankers includes the
advances, interest expense and finance cost and interest income of the seven new
building vessels discussed in Note 4.






F-33
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)






16.        Subsequent
events:




a)
            The
      credit facility with HSH contains a “Market Disruption Clause” requiring
      the Company to compensate the banks for any increases to their funding
      costs caused by disruptions to the market which the bank may unilaterally
      trigger. While the Company has reserved its rights regarding the ability
      of HSH to invoke such close, commencing January 30, 2009 the market
      disruption rate is being paid and is approximately 0.21% higher than
      LIBOR.





b)
            New term loan facility:On February 2, 2009, the Company entered into a post-delivery term
      loan facility with Bremer of up to $66,300 representing 75% of the
      vessels’ price on delivery or the fair market value of those vessels at
      delivery, whichever is less, for the purpose of repayment of the
      pre-delivery facility discussed in Note 7 (III) as well as financing the
      remaining instalments to the shipyard. The loan will be drawn at the
      vessels’ delivery dates and will be repayable in 40 quarterly instalments
      ($460.5 per vessel) and a balloon instalment equal to $14,730 per vessel.
      Repayment will commence three months after delivery of the vessels. The
      loan will bear interest at LIBOR plus margin. The Company pays commitment
      fees of 0.2% per annum on the post delivery loan remaining undrawn. The
      loan agreement will be secured by a) first priority mortgages over the
      vessels, b) first priority assignment of each vessels insurances, c)
      corporate guarantee, d) first priority assignment of each of the vessels’
      earnings and retention accounts and e) manager’s undertakings. Furthermore
      the loan agreement contains financial covenants calculated on a
      consolidated basis, that will require the Company to maintain: a)
      liquidity of not less than $5.0 million, b) a ratio of total net debt to
      total net capitalization of not more than 70%, c) a ratio of market value
      of the secured vessels to outstanding net debt of the secured vessels
      shall be in excess of 120%.





c)
            Declaration of dividends:On February 4, 2009, the Company declared dividends amounting to
      $0.50 per share. Also the Board of Directors resolved to give One
      Holdings, an entity beneficially owned by the Company’s President and
      Chief Executive Officer, and the sole holder of the Company’s Class B
      subordinated shares, the option to be paid the base dividend in 0.07
      additional shares of Class B Common Stock for each share held, in lieu of
      cash, based on the closing price of the Company’s common stock on the
      declaration date of February 4, 2009. One Holdings did not elect to
      receive the base dividend in additional Class B subordinated shares. The
      dividends were paid in cash on March 9, 2009 to the stockholders of record
      as of February 24, 2009 and amounted to
$7,755.





d)
            Executive officer’s
      compensation: On February 4, 2009, the Board of Directors approved
      the reward of the Company’s executive officers by means of a bonus and
      incentive stock compensation. The executive officers were awarded to
      receive an amount equal to $30 in cash and 54,342 shares of immediately
      vested Class A common stock. Also the Board has approved an additional
      compensation of one month’s salary to the executive officers that amounted
      to $96. The amount of $30 as well as the amount of one month additional
      compensation was accrued in the accompanying financial statements and
      included in General and Administrative Expenses as of and for the year
      ended December 31, 2008. The immediately vested shares will be recognized
      as expense in the first quarter of 2009 according to the provisions of
      FASB Statement 123(R) “Accounting for Stock-Based
      Compensation”.





e)
            Restricted shares granted to
      executive officers and key persons: On February 4, 2009, the
      Company granted restricted Class A common stock pursuant to the Company’s
      Stock Incentive Plan (the “Plan”), to the Company’s officers and key
      persons. The plan is administered by the Board of Directors and granted
      108,685 restricted shares of Class A common stock to CEO, COO and CFO and
      25,109 to key persons. The shares will be vested in three years of which
      25% will become immediately vested on the first anniversary of the
      agreement, 25% will be become vested on the second anniversary of the
      agreement and the balance of 50% on the third anniversary of the
      agreement. In relation to the dividend payments which those shares are
      eligible to receive same will be deposited to the existing Company’s
      accounts, while of the shares will not become vested due to the employment
      being ceased, such dividends will remain in the Company’s custody. The
      Company will follow the provisions of FASB Statement 123(R) “Accounting
      for Stock-Based Compensation” for purposes of accounting of such
      share-based payments.





f)
            Omnicrom Holdings Ltd
      (“Omnicrom”),is wholly-owned by the Company and was incorporated
      on March 17, 2009 under the laws of Marshall
  Islands.








F-34
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)




16.        Subsequent events
(continued):


g)
            Class B shares conversion to
      Class A: Following the payment of the dividend with respect to the
      fourth quarter of 2008, all issued and outstanding subordinated Class B
      shares were converted into Class A common shares on a one-for-one basis.
      The Class A shares were issued on April 7,
2009.





h)
            Warrants exercise: On
      March 31, 2009, the Company received a Notice of Exercise of Warrants from
      the sellers of Omega Emmanuel and Omega Theodore (Note 5). By cashless
      exercise pursuant to the warrant agreement 499,724 shares were issued on
      April 13, 2009.  In accordance with the warrants’ agreement the
      Company further paid $1.0 million ($0.5 million per vessel) in cash on
      April 3, 2009, as the average closing price of the Company’s Class A share
      15 business days immediately preceding the exercise date was US
      $3.63.





i)
            Settlement agreement and Joint
      Venture Agreement for Omega
Duke:





a.
            On
      April 8, 2009 the Company has entered into a settlement agreement with the
      seller of Omega Duke to cancel the Memorandum of agreement and the time
      charter agreement, discussed in Note 4(b), by paying a settlement fee of
      $3.0 million. Such amount was paid on April 24, 2009 and both parties were
      released from further liabilities regarding the Memorandum of agreement
      and the time charter agreement.


b.
            The
      Company, through its wholly-owned subsidiary Omnicrom, has entered into a
      Joint Venture Agreement with Topley Corporation (“Topley”), which is a
      wholly-owned subsidiary of Glencore International AG. Omnicrom and Topley
      each own 50% of Stone Shipping Ltd (“Stone”) that is a Joint Venture
      holding company. Stone owns 100% of Blizzard Navigation Inc (Blizzard)
      that is the shipowning company of Omega Duke. Blizzard has entered into a
      Memorandum of Agreement with the seller for the purchase of Omega Duke for
      a consideration of $45,000. Omega Duke was delivered to Blizzard on April
      24, 2009.





The
purchase of the Omega Duke was financed by the loan agreement with Lloyds bank
discussed in Note 16(l) and by equal equity contributions of the joint venturers
that amounted to $11,250 ($5,625 each). Omega Management entered into a
management agreement with Blizzard based on which services relating to crewing,
technical management, purchasing, insurances, accounting, bookkeeping,
budgeting, operations and corporate secretarial services will be provided. For
the first year commencing upon the delivery of the vessel no management fee
shall be payable and after the first year a monthly fee will be agreed. Blizzard
has entered into a five year charter agreement with ST Shipping on a daily hire
of $USD 16,500 plus 100% of any trading income in excess.





In
the event that additional equity is required, Topley and Omnicrom will each
invest an amount equal to 50% of the required funding. The joint venture will
declare dividend on a quarterly basis, in amounts substantially equal to any
available cash from operations after cash expenses and discretionary reserves
and will be distributed equally between Omnicrom and Topley.





j)
            Settlement agreement and Joint
      Venture Agreement for the second vessel that the Company agreed to
      purchase on May 9, 2008 (Note
4(b)):





a.
            On
      April 8, 2009 the Company has entered into a settlement agreement with the
      seller to cancel the Memorandum of agreement and the time charter
      agreement, discussed in Note 4(b). The settlement agreement is subject to
      several financing arrangements that need to be placed prior to July 31,
      2009.


b.
            On
      April 8, 2009, as supplemented on April 24, 2009, the Company, through its
      wholly-owned subsidiary Omnicrom, has entered into a Joint Venture
      Agreement with Topley Corporation (“Topley”), which is a wholly-owned
      subsidiary of Glencore International AG. Omnicrom and Topley each own 50%
      of Onest Shipping Ltd (“Onest”) that will be a Joint Venture holding
      company. Onest owns 100% of Tornado Navigation Inc (“Tornado”) that will
      be shipowning company of the vessel. Again this agreement is subject to
      financing arrangements as per (1)
above.





Pursuant
to the terms of the Joint Venture agreement, Omnicrom and Topley shall procure
that a novation agreement transferring all rights and obligations of the
shipbuilding contract from the seller being an unaffiliated third party, to
Tornado, is executed. In case the builder refuses to sign the novation agreement
the seller will enter into a Memorandum of Agreement with Tornado for the sale
of








F-35
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)






16.        Subsequent
      events (continued):




the
vessel. Upon signing of the novation agreement or the Memorandum of Agreement
discussed above, Omnicrom and Topley will contribute the required equity. The
acquisition of the vessel will be financed by equal equity contributions of the
joint venturers and the loan facility with Lloyds bank described in Note 16(l).
In the event that additional equity is required, Topley and Omnicrom will each
invest an amount equal to 50% of the required funding.





Any
cost associated with the predelivery finance will be financed from Topley with
interest of Libor plus margin that will be repaid to Topley after the delivery
of the vessel, from free cashflow.





Omega
Management will be the technical manager of the vessel and finance manager on
behalf of Tornado. On April 8, 2009 Tornado has entered into a five year time
charter agreement with ST Shipping on a daily hire of $US Dollars 16,500 plus
100% of any trading income in excess. The time charter agreement will become
effective when the joint venture agreement will become effective.





The
joint venture will declare dividends on a quarterly basis, in amounts
substantially equal to any available cash from operations after cash expenses
and discretionary reserves and will be distributed equally between Omnicrom and
Topley provided that no dividends shall be paid unless and until the outstanding
indebtedness of the loan provided by Topley has been fully paid.





k)
            Suspension of dividends:
      On May 13, 2009 the Board of Directors decided to temporarily suspend the
      declaration and payment of dividends in order to increase the Company’s
      cash flow and to enhance internal growth
  capabilities.





l)
            Lloyds bank loan facility with
      joint ventures 50% owned by the Company:On April 24, 2009,
      Blizzard and Tornado have entered into a senior secured loan facility with
      Lloyds bank. The facility is divided in two tranches. The first tranche
      amounts to $33,750 for the financing of the acquisition of Omega Duke and
      was drawn down on April 24, 2009. The second tranche is to be applied to
      Tornado and will amount to the lower of $33,750 and 75% of the market
      value of the relevant vessel on delivery. The second tranche will be drawn
      down as follows: a) a maximum amount of $6,277 upon the signing of the
      novated building contract discussed in Note 16(j), b) a maximum amount of
      $9,158 toward payment of the third instalment of the novated building
      contract, c) a maximum amount of $9,158 toward payment of the fourth
      instalment of the novated building contract and d) delivery advance in
      repaying the predelivery advances and part of the purchase price under the
      novated shipbuilding contract.





The
first tranche is repayable in 29 quarterly instalments and a balloon payment in
the maximum amount of $18,984. The second tranche is repayable in 28 equal
quarterly instalments and a balloon payment payable together with the 28th
instalment.





The
facility bears interest at LIBOR plus margin, commitment fees of 0.7% and annual
agency fees of $15. The facility is secured by: (i) first priority mortgage,
(ii) first priority assignment of insurances, (iii) first priority assignment of
earnings of the vessel plus any time charter exceeding 12 months, (iv) first
priority pledge over vessel earnings accounts, (v) first priority pledge over
the shares of Stone, Topley and Omnicrom, (vi) Omnicrom’s guarantee for 50% of
the loan and Omega’s guarantee for 100% of Omnicrom’s obligations. The facility
contains financial covenants calculated on Omega’s and Glencore’s consolidated
financial statements. Also a ratio of market value of the secured vessel to
outstanding net debt of the secured vessel shall be in excess of 125%. The bank
has provided a waiver of the security value coverage up to and including the 2nd
anniversary of the delivery date of each vessel.





m)
            Swap agreement with Lloyds:On April 23, 2009, the Company terminated the fixed rate swap
      agreement that had entered into with Lloyds Bank on November 10, 2008
      (Note 8). Concurrently the Company has entered into (i) an interest rate
      swap with a notional amount of $66,250 at a fixed rate of 2.655% per annum
      effective since February 12, 2009 and (ii) an interest rate swap with a
      notional amount of $33,750 at a fixed rate of 2.655% per annum effective
      since April 24, 2009. The second swap was novated to Blizzard on April 24,
      2009. The duration for both swaps is until May 12,
  2011.






F-36
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes
to consolidated financial statements December 31, 2008
 (Expressed
in thousands
of U.S. Dollars - except share and per share data, unless otherwise
stated)


16.        Subsequent
      events (continued):


n)
            Loan repayment:On April
      23, 2009, the part of the predelivery loan with Lloyds bank, discussed in
      Note 7(VI) for the acquisition of Omega Duke, that amounted to $4,950 was
      fully repaid. This was not considered an adjusting event for 2008
      financial statements because the repayment of the obligation was due to
      the cancellation of the purchase of Omega Duke that occurred after the
      balance sheet date.





o)
            Vessel collision: Within
      March 2009, Omega Theodore was involved in a collision. Insurance claim
      recoveries will be recorded, net of any deductible amounts, amounting to
      $446, at the time the vessel suffered insured damages. The vessel was
      repaired and has been operating since April
  2009.






































SK 23286 0002 981823
v5





F-37