UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
20-F





[ ]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE


SECURITIES


EXCHANGE
ACT OF 1934





OR





[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE


ACT OF
1934





For the
fiscal year ended December 31, 2007





OR





[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
transition period from ____ to ____





OR





[ ] SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934








Date of
event requiring this shell company report: Not applicable





Commission
file number 001-33976








OMEGA
NAVIGATION ENTERPRISES, INC.


-----------------------------------------------


(Exact
name of Registrant as specified in its charter)





----------------------------------------------


(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, President and Chief Executive Officer,
              Tel
      No. (011)(30) 210 413-9130,
              24
      Kaningos Street, Piraeus 185 34 Greece(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:





Class A
Common Stock, par value $0.01


-----------------------------


Title of
class





Nasdaq
Global Market


----------------------------------------------


Name of
exchange on which registered








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, 2007,
      there were 12,070,138 shares of Class A common stock and 3,140,000 shares
      of Class B common stock of the registrant outstanding.Indicate by check
      mark if the Registrant is a well-known seasoned issuer, as defined in Rule
      405 of the Securities Act.




[_]
      Yes
            [X]
      No






If this report is an
      annual report or transition report, indicate by check mark if the
      Registrant is not required to file reports pursuant to Section 13 or 15(d)
      of the Securities Exchange Act of
1934.




[_]
      Yes
            [X]
      No




Indicate by check
      mark whether the Registrant (1) has filed all reports required to be filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the registrant was
      required to file such reports) and (2) has been subject to such filing
      requirements for the past 90 days.




[X]
      Yes
            [_]
      No








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




Large
      accelerated filer  [_]
            Accelerated
      filer  [X]Non-accelerated
      filer
              (Do
      not check if a smaller
              reporting
      company)  [  ]
            Smaller
      reporting company  [_]





Indicate
      by check mark which basis of accounting
              the
      Registrant has used to prepare the financial
              statements
      included in this filing:[X]  U.S.
      GAAP[_]  International
      Financial Reporting Standards as issued by the
              International
      Accounting Standards Board[_]  OtherIf
      “Other” has been checked in response to the previous
              question,
      indicate by check mark which financial statement item
              the
      Registrant has elected to follow.[_]  Item
      17[_]  Item
      18




If this is an annual
      report, indicate by check mark whether the Registrant is a shell company
      (as defined in Rule 12b-2 of the Exchange
Act).




[_]
      Yes
            [X]
      No











TABLE
OF CONTENTS




PART
      I
              1
  ITEM
      1 -     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISERS
              1ITEM
      2 -     OFFER STATISTICS AND EXPECTED
      TIMETABLE
              1ITEM
      3 -     KEY INFORMATION
              1ITEM
      4 -     INFORMATION ON THE COMPANY
              17ITEM
      4A – UNRESOLVED STAFF COMMENTS
              31ITEM
      5 -     OPERATING AND FINANCIAL REVIEW AND
      PROSPECTS
              31ITEM
      6 -     DIRECTORS, SENIOR MANAGEMENT AND
      EMPLOYEES
              44ITEM
      7 -     MAJOR SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONS
              49ITEM
      8 -     FINANCIAL INFORMATION
              50ITEM
      9 -     THE OFFER AND LISTING
              52ITEM
      10 -   ADDITIONAL INFORMATION
              52ITEM
      11 -   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
              55ITEM
      12 -   DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES
              56
  PART
      II
              56
  ITEM
      13 -   DEFAULTS, DIVIDEND ARREARAGES AND
      DELINQUENCIES
              56ITEM
      14 -   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
      AND USE OF PROCEEDS
              56ITEM
      15 -   CONTROLS AND PROCEDURES
              56ITEM
      16A. Audit Committee Financial Expert
              57ITEM
      16B.  Code of Ethics
              57ITEM
      16C.  Principal Accountant Fees and Related
    Services
              57ITEM
      16D.  Exemption from the listing standards for Audit
      committees
              58ITEM
      16E.  Purchases of Equity Securities by Issuer and Affiliated
      purchases
              58
  PART
      III
              58
  ITEM
      17 -   FINANCIAL STATEMENTS
              58ITEM
      18 -   FINANCIAL STATEMENTS
              58ITEM
      19 -   EXHIBITS
              58INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS
              F-1CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
  
  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.












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 and 2007 for the period from February 28, 2005 (date of
inception) through December 31, 2005 and for the years ended December 31, 2006
and 2007. 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 December 31, 2005 and for the period from February 28, 2005 through
      December 31, 2005
            
            
            As
      of and for the year ended December 31, 2006
            
            
            As
      of and for the year ended December 31, 2007(Expressed
      in thousands of U.S. Dollars – except share, per share data and average
      daily results)INCOME
      STATEMENT DATAContinuing
      operationsVoyage
      revenues
            
            $
            -
            
            
            $
            26,867
            
            
            $
            69,890Voyage
      expenses
            
            
            -
            
            
            
            (341
            )
            
            
            (930
            )Vessel
      operating expenses
            
            
            -
            
            
            
            (5,669
            )
            
            
            (13,121
            )Depreciation
      and amortization
            
            
            -
            
            
            
            (7,236
            )
            
            
            (17,557
            )Management
      fees
            
            
            -
            
            
            
            (568
            )
            
            
            (1,110
            )Options’
      premium
            
            
            -
            
            
            
            (200
            )
            
            
            (200
            )General
      and administrative expenses
            
            
            (754
            )
            
            
            (2,354
            )
            
            
            (5,088
            )Foreign
      currency gains/(losses)
            
            
            3
            
            
            
            (33
            )
            
            
            (90
            )Operating
      income/(loss)
            
            
            (751
            )
            
            
            10,466
            
            
            
            31,794Interest
      and finance costs
            
            
            (1
            )
            
            
            (7,483
            )
            
            
            (18,579
            )Interest
      income
            
            
            12
            
            
            
            1,837
            
            
            
            1,821Change
      in fair value of warrant settled liability
            
            
            -
            
            
            
            -
            
            
            
            1,071Loss
      on derivative instruments
            
            
            -
            
            
            
            (255
            )
            
            
            (1,221
            )Income/(loss)
      from continuing operations
            
            $
            (740
            )
            
            $
            4,565
            
            
            $
            14,886






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
            )Net
      income
            
            $
            4,378
            
            
            $
            14,128
            
            
            $
            14,731Earnings/
      (Loss) per share from continuing operations-
      Earnings/ (Loss)  per class A shares basic
            
            $
            (0.23
            )
            
            $
            0.42
            
            
            $
            0.98-
      Earnings/ (Loss)  per class A shares diluted
            
            $
            (0.23
            )
            
            $
            0.42
            
            
            $
            0.95-
      Earnings/ (Loss)  per class B shares basic and
      diluted
            
            $
            (0.23
            )
            
            $
            0.30
            
            
            $
            0.98Earnings
      per share from continuing and discontinued operations-
      Earnings per class A shares basic
            
            $
            1.68
            
            
            $
            1.29
            
            
            $
            0.97-
      Earnings per class A shares diluted
            
            $
            1.68
            
            
            $
            1.29
            
            
            $
            0.94-
      Earnings per class B shares basic and diluted
            
            $
            1.39
            
            
            $
            0.93
            
            
            $
            0.97-
      Weighted average number of Class A common shares basic
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,010,000-
      Weighted average number of Class A common shares diluted
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,488,976-
      Weighted average number of Class B common shares basic and
      diluted
            
            
            3,140,000
            
            
            
            3,140,000
            
            
            
            3,140,000Cash
      dividends declared and paid per share
            
            $
            -
            
            
            $
            1.00
            
            
            $
            2.00BALANCE
      SHEET DATACash
      and cash equivalents
            
            $
            5,058
            
            
            $
            3,862
            
            
            $
            8,893Restricted
      cash (current and non-current)
            
            
            500
            
            
            
            6,477
            
            
            
            5,498Total
      current assets
            
            
            5,738
            
            
            
            88,974
            
            
            
            10,838Total
      fixed assets
            
            
            85,491
            
            
            
            350,631
            
            
            
            506,223Total
      assets
            
            
            92,392
            
            
            
            443,831
            
            
            
            522,485Short
      term debt, sellers’ notes and current portion of long term
      debt
            
            
            74,994
            
            
            
            49,133
            
            
            
            781Total
      current liabilities
            
            
            77,984
            
            
            
            54,509
            
            
            
            7,440Long
      term debt
            
            
            -
            
            
            
            188,944
            
            
            
            322,565Total
      stockholders’ equity
            
            $
            14,408
            
            
            $
            200,097
            
            
            $
            184,874CASH
      FLOW DATA (Continuing operations)Net
      cash provided by operating activities
            
            $
            345
            
            
            $
            15,002
            
            
            $
            34,067Net
      cash used in investing activities
            
            
            -
            
            
            
            (358,067
            )
            
            
            (165,178
            )Net
      cash provided by financing activities
            
            
            8,989
            
            
            
            338,427
            
            
            
            92,764EBITDA
      (1)
            
            $
            (751
            )
            
            $
            17,702
            
            
            $
            50,422CASH
      FLOW DATA (Continuing and discontinued operations)Net
      cash provided by operating activities
            
            $
            9,571
            
            
            $
            22,730
            
            
            $
            33,372Net
      cash used in investing activities
            
            
            (43,364
            )
            
            
            (358,067
            )
            
            
            (83,710
            )Net
      cash provided by financing activities
            
            
            38,851
            
            
            
            334,141
            
            
            
            55,369EBITDA
      (1)
            
            $
            12,260
            
            
            $
            32,578
            
            
            $
            50,395






2








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








(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
      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 and 2007, to EBITDA:







Continuing Operations
            
            For
      the period from February 28, 2005 through December 31,
2005
            
            
            Year
      ended December 31, 2006
            
            
            Year
      ended December 31, 2007Net
      cash from operating activities
            
            $
            345
            
            
            $
            15,002
            
            
            $
            34,067Net
      increase in current assets
            
            
            -
            
            
            
            973
            
            
            
            532Net
      increase in current liabilities excluding bank debt and sellers
      credit
            
            
            (1,085
            )
            
            
            (3,465
            )
            
            
            (997
            )Stock
      based compensation
            
            
            -
            
            
            
            -
            
            
            
            (457
            )Write
      off of option’s premium
            
            
            -
            
            
            
            (200
            )
            
            
            (200
            )Change
      in fair value of warrants settled liability
            
            
            -
            
            
            
            -
            
            
            
            1,071Net
      interest expense
            
            
            (11
            )
            
            
            5,588
            
            
            
            16,713Amortization
      of financing costs
            
            
            -
            
            
            
            (196
            )
            
            
            (307
            )EBITDA
            
            $
            (751
            )
            
            $
            17,702
            
            
            $
            50,422







3







Continuing and Discontinued
      operations
            
            For
      the period from February 28, 2005 through December 31,
2005
            
            
            Year
      ended December 31, 2006
            
            
            Year
      ended December 31, 2007Net
      cash from operating activities
            
            $
            9,571
            
            
            $
            22,730
            
            
            $
            33,372Net
      increase in current assets
            
            
            180
            
            
            
            987
            
            
            
            360Net
      increase in current liabilities excluding bank debt and sellers
      credit
            
            
            (2,868
            )
            
            
            (2,476
            )
            
            
            (245
            )Gain/(impairment
      loss) from sale of vessels
            
            
            1,012
            
            
            
            (1,685
            )
            
            
            -Gain
      on extinguishment of debt
            
            
            -
            
            
            
            5,000
            
            
            
            -Stock
      based compensation
            
            
            -
            
            
            
            -
            
            
            
            (457
            )Write
      off of option’s premium
            
            
            -
            
            
            
            (200
            )
            
            
            (200
            )Change
      in fair value of warrants settled liability
            
            
            -
            
            
            
            -
            
            
            
            1,071Payment
      for drydocking costs
            
            
            360
            
            
            
            -
            
            
            
            -Net
      interest expense
            
            
            4,137
            
            
            
            8,564
            
            
            
            16,841Amortization
      of financing costs
            
            
            (132
            )
            
            
            (342
            )
            
            
            (347
            )EBITDA
            
            $
            12,260
            
            
            $
            32,578
            
            
            $
            50,395








(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 (in thousands of U.S. dollars, except
      for TCE rate, which is expressed n U.S. dollars, and available days) and
      for the years ended December 31, 2006 and
2007.







4




For
      the period from February 28, 2005 through December 31,
2005
            
            
            Year
      ended December 31, 2006
            
            
            Year
      ended December 31, 2007Panamax
      tankersVoyage
      revenues
            
            $
            -
            
            
            $
            19,141
            
            
            $
            54,508Less:
      voyage expenses
            
            
            -
            
            
            
            (244
            )
            
            
            (722
            )Less:
      Profit share
            
            
            -
            
            
            
            -
            
            
            
            (4,034
            )Time
      charter equivalent revenues
            
            
            -
            
            
            
            18,897
            
            
            
            49,752Available
      days
            
            
            -
            
            
            
            753
            
            
            
            1,989Time
      charter equivalent (TCE) rate
            
            $
            -
            
            
            $
            25,096
            
            
            $
            25,013Handymax
      tankersVoyage
      revenues
            
            $
            -
            
            
            $
            7,726
            
            
            $
            15,382Less:
      voyage expenses
            
            
            -
            
            
            
            (97
            )
            
            
            (208
            )Time
      charter equivalent revenues
            
            
            -
            
            
            
            7,629
            
            
            
            15,174Available
      days
            
            
            -
            
            
            
            369
            
            
            
            730Time
      charter equivalent (TCE) rate
            
            $
            -
            
            
            $
            20,675
            
            
            $
            20,786







(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
      and $0 million for the Handymax 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




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




The
product tanker shipping sector is cyclical and volatile, and this may lead to
reductions and volatility in our charter rates when we re-charter our vessels,
vessel values and results of operations




The
product tanker sector is cyclical with attendant volatility in charter hire
rates and industry profitability.  The degree of charter hire rate
volatility among the different types of product tankers has varied widely. The
charter rates for product tankers remain near historically high
levels.  If we enter into a charter when charter hire rates are low,
our revenues and earnings will be adversely affected.  In addition, a
decline in charter hire rates likely will cause the value of our vessels to
decline.  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 to pay dividends to our shareholders. 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.


5


Factors
that influence demand for seaborne transportation of cargo include:





·
            demand
      for and production of crude oil and refined petroleum
      products;




·
            the
      distance cargo is to be moved by
sea;




·
            changes
      in oil production and refining
capacity;




·
            global
      and regional economic and political
conditions;




·
            environmental
      and other regulatory developments;
and




·
            changes
      in seaborne and other transportation patterns, including changes in the
      distances over which cargo is transported due to geographic changes in
      where commodities are produced, oil is refined and cargoes are
      used.




The
factors that influence the supply of vessel capacity include:





·
            the
      number of newbuilding deliveries;




·
            the
      scrapping rate of older vessels;




·
            vessel
      casualties;




·
            price
      of steel;




·
            number
      of vessels that are out of service;




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




·
            port
      or canal congestion.




We
anticipate that the future demand for our vessels will be dependent upon
continued economic growth in the world’s economies, seasonal and regional
changes in demand, changes in the capacity of the world’s product tanker fleets
and the sources and supply of cargo.  If the global vessel capacity
increases in the shipping sectors in which we operate, but the demand for vessel
capacity in these sectors does not increase or increases at a slower rate, the
charter rates paid for our vessels could materially decline.  Adverse
economic, political, social or other developments could have a material adverse
effect on our business, financial condition, results of operations and ability
to pay dividends.





The
market value of our vessels, which is near historically high levels, may
decrease, which could limit the amount of funds that we can borrow under our
senior secured credit facilities or junior secured credit facility and cause us
to fail to meet certain financial covenants in our senior secured credit
facilities and junior secured credit facility and adversely affect our operating
results




The
market value of product tankers has been volatile and market prices for
secondhand vessels are currently near historically high levels. You should
expect the market value of our vessels to fluctuate depending on general
economic and market conditions affecting the shipping industry and prevailing
charter hire rates, competition from other shipping companies and other modes of
transportation, types, sizes and age of vessels, applicable governmental
regulations and the cost of newbuildings.  If the market value of our
vessels declines, we may not be able to distribute dividends, we may not be able
to draw down funds under our senior secured credit facilities or our junior
secured credit facility, which we refer to collectively as our credit
facilities, and we may not be able to obtain other financing or incur debt on
terms that are acceptable to us or at all.






6





If the
market value of our vessels decreases, 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 vessels. 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 have a
material adverse effect on our business, financial condition, results of
operations and ability to pay dividends.





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





The
market supply of tankers is affected by a number of factors such as demand for
energy resources, oil, and petroleum products, as well as strong overall
economic growth in parts of the world economy including Asia. If the capacity of
new ships delivered exceeds the capacity of tankers being scrapped and lost,
tanker capacity will increase. In addition, the substantial newbuilding order
book, which extends to 2012, may increase further in proportion to the existing
fleet. If the supply of tanker capacity increases and the demand for tanker
capacity does not increase correspondingly, charter rates could materially
decline. A reduction in charter rates and the value of our vessels may have a
material adverse effect on our results of operations and our 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.





An
economic slowdown in the Asia Pacific region could have a material adverse
effect on our business, financial position and results of
operations




A
significant number of the port calls made by our vessels involves the loading or
discharging of cargo in the Asia Pacific region.  As a result, a
negative change in economic conditions in any Asia Pacific country, but
particularly in China, may have an adverse effect on our business, financial
position 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.  We cannot assure you that such growth will be sustained or
that the Chinese economy will not experience negative growth in the
future.  Moreover, any slowdown in the economies of the United States,
the European Union or certain Asian countries may adversely effect economic
growth in China and elsewhere.  Our business, financial position,
results of operations, ability to pay dividends as well as our future prospects,
will likely be materially and adversely affected by an economic downturn in any
of these countries.





We
are subject to regulation and liability under environmental laws that could
require significant expenditures and affect our cash flows and net
income




Our
business and the operation of our vessels are materially affected by government
regulation in the form of international conventions, national, state and local
laws and regulations in force in the jurisdictions in which the vessels operate,
as well as in the country or countries of their registration, including those
governing oil spills, discharges to air and water, ballast water management, and
the handling and disposal of hazardous substances and wastes. Because such
conventions, laws and regulations are often revised, we cannot predict the
ultimate cost of complying with such conventions, laws and regulations or the
impact thereof on the resale price or useful life of our vessels. Additional
conventions, laws and regulations may be adopted which could limit our ability
to do business or increase the cost of our doing business and which may
materially adversely affect our operations. We are required by various
governmental and quasi-governmental agencies to obtain certain permits, licenses
and certificates with respect to our operations.


7


The
operation of our vessels is affected by the requirements set forth in the ISM
Code. The ISM Code requires shipowners and bareboat charterers to develop and
maintain an extensive “Safety Management System” that includes the adoption of a
safety and environmental protection policy setting forth instructions and
procedures for safe operation and describing procedures for dealing with
emergencies. The failure of a shipowner or bareboat charterer to comply with the
ISM Code may subject such party to increased liability, may decrease available
insurance coverage for the affected vessels and may result in a denial of access
to, or detention in, certain ports. Currently, each of the vessels in our fleet
is ISM Code-certified. However, there can be no assurance that such
certification will be maintained indefinitely.





Although
the United States is not a party thereto, many countries have ratified and
follow the liability scheme adopted by the IMO and set out in the International
Convention on Civil Liability for Oil Pollution Damage, 1969, as amended, or
CLC, and the Convention for the Establishment of an International Fund for Oil
Pollution of 1971, as amended. Under these conventions, a vessel’s registered
owner is strictly liable for pollution damage caused on the territorial waters
of a contracting state by discharge of persistent oil, subject to certain
complete defenses. Many of the countries that have ratified the CLC have
increased the liability limits through a 1992 Protocol to the CLC. The right to
limit liability is also forfeited under the CLC where the spill is caused by the
owner’s actual fault or privity and, under the 1992 Protocol, where the spill is
caused by the owner’s intentional or reckless conduct. Vessels trading to
contracting states must provide evidence of insurance covering the limited
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 the CLC.





The
United States Oil Pollution Act of 1990, or OPA, established an extensive
regulatory and liability regime for the protection and cleanup of the
environment from oil spills. OPA affects all owners and operators whose vessels
trade in the United States, its territories and possessions or whose vessels
operate in United States waters. OPA allows for potentially unlimited liability
without regard to fault of vessel owners, operators and bareboat charterers for
all containment and clean-up costs and other damages arising from discharges or
threatened discharges of oil from their vessels, including bunkers (fuel), in
U.S. waters. OPA also expressly permits individual states to impose their own
liability regimes with regard to hazardous materials and oil pollution materials
occurring within their boundaries.





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.





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


8


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.





We
operate our vessels worldwide and as a result, our vessels are exposed to
international risks which may reduce revenue or increase expenses





The
international shipping industry is an inherently risky business involving global
operations. Our vessels are at risk of damage or loss because of events such as
mechanical failure, collision, human error, war, terrorism, piracy, cargo loss
and bad weather. In addition, changing economic, regulatory and political
conditions in some countries, including political and military conflicts, have
from time to time resulted in attacks on vessels, mining of waterways, piracy,
terrorism, labor strikes and boycotts. These sorts of events could interfere
with shipping routes and result in market disruptions which may reduce our
revenue or increase our expenses.





World
events could adversely affect our results of operations and financial
condition




The
threat of future terrorist attacks in the United States or elsewhere, continue
to cause uncertainty in the world financial markets and may affect our business,
operating results and financial condition.  The continuing conflict in
Iraq may lead to additional acts of terrorism and armed conflict around the
world, which may contribute to further economic instability in the global
financial markets. These uncertainties could also adversely affect our ability
to obtain any additional financing or, if we are able to obtain additional
financing, to do so on terms favorable to us.  In the past, political
conflicts have also resulted in attacks on vessels, mining of waterways and
other efforts to disrupt international shipping, particularly in the Arabian
Gulf region. Acts of terrorism and piracy have also affected vessels trading in
regions such as the South China Sea. Any of these occurrences could have a
material adverse impact on our business, financial condition, results of
operations and ability to pay dividends.




Company
Specific Risk Factors




We
cannot assure you that we will pay dividends




In May
2008, we paid our eighth consecutive quarterly dividend of $0.50 per share since
our initial public offering in April of 2006. We currently intend to continue 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),
reserves for further vessel acquisitions and other reserves as our board of
directors may from time to time determine are required for contingent and other
liabilities.  The declaration and payment of dividends, if any, will
always be subject to the discretion of our board of directors.  The
timing and amount of any dividends declared will depend on, among other things,
our earnings, financial condition and cash requirements and availability, and
our ability to obtain debt and equity financing on acceptable terms as
contemplated by our growth strategy. Our ability to pay dividends is also
subject to our ability to satisfy financial covenants contained in our financing
arrangements.  The international shipping industry is highly volatile,
and we cannot predict with certainty the amount of cash, if any, that will be
available for distribution as dividends in any period.  Also, there
may be a high degree of variability from period to period in the amount of cash,
if any, that is available for the payment of dividends.





We may
incur expenses or liabilities or be subject to other circumstances in the future
that reduce or eliminate the amount of cash that we have available for
distribution as dividends, including as a result of the risks described in this
section of this annual report.  Our growth strategy contemplates that
we will finance the acquisition of additional vessels through a combination
of debt and cash flow from operations.  If financing is not available
to us on acceptable terms, our board of directors may determine to finance or
refinance acquisitions with cash from operations, which would reduce or even
eliminate the amount of cash available for the payment of
dividends.  We may also enter into new financing or other agreements
that will restrict our ability to pay dividends. We can give no assurance that
dividends will be paid in the future.


9


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.





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 ranging between 12 and 24 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. If we cannot re-charter these vessels on medium or long-term
charters or trade them in the spot market profitably, our results of operations
and operating cash flow may suffer. 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 2007, 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.





We could
lose a customer or the benefits of a time charter if:




·
            the
      customer fails to make charter payments because of its financial
      inability, disagreements with us or
otherwise;




·
            the
      customer terminates the charter because we fail to deliver the vessel
      within a fixed period of time, the vessel is lost or damaged beyond
      repair, there are serious deficiencies in the vessel or prolonged periods
      of off-hire, or we default under the
charter;


·
              the
      customer terminates the charter because the vessel has been subject to
      seizure for more than 30
days.


If we
lose a key customer, we may be unable to obtain charters on comparable terms or
may become subject to the volatile spot market, which is highly competitive and
subject to significant price fluctuations.  The loss of any of our
customers, time charters or vessels, or a decline in payments under our
charters, could have a material adverse effect on our business, results of
operations and financial condition and our 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 nine 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.


10


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;




·
            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 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.





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.




11




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.





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.





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 20 years to 24, 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


12


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 seven 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 agreements for the
purchase of two Handymax (MR2) product tankers and the construction of five
Handymax (MR1) product tankers with Hyundai Mipo Dockyard in South
Korea.  One of these vessels is scheduled to be delivered in 2009,
five of these vessels in 2010 and the seventh 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.





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




We employ
our vessels in a highly competitive market that is capital intensive and highly
fragmented.  Competition arises primarily from other vessel owners,
some of whom have substantially greater resources than we
do.  Competition for the transportation of crude oil and refined
petroleum products by sea is intense and depends on price, location, size, age,
condition and the acceptability of the vessel and its operators to the
charterers.  Due in part to the highly fragmented market, competitors
with greater resources could enter the product tanker shipping industries and
operate larger fleets through consolidations or acquisitions and may be able to
offer lower charter rates than we are able to offer.





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.


13





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
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 has an average age of
approximately 1.9 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.






14





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 our Class A outstanding shares of 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.





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.





Our
vessels may suffer damage and we may face unexpected costs, which could
adversely affect our cash flow and financial condition




If our
vessels suffer damage, they may need to be repaired. The costs of repairs are
unpredictable and can be substantial. The loss of earnings while our vessels are
being repaired and repositioned, as well as the actual cost of these repairs,
would decrease our earnings and reduce the amount of cash that we have available
for dividends.  We may not have insurance that is sufficient to cover
all or any of these costs or losses and may have to pay costs not covered by our
insurance.





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.






15




Risks
Relating to our Class A Common Stock




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 21.1% of our outstanding common stock, 0.6% of which
consists of shares of Class A common stock and 20.5% of which consists of shares
of Class B common stock.  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 Class A 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 Class A common stock. These sales could also impair our ability to
raise additional capital through the sale of our equity securities in the
future.





The
conversion of our subordinated stock into Class A common stock could cause the
market price of our Class A common stock to decline




Our
outstanding subordinated Class B stock will be converted into Class A common
stock upon expiration of the subordination period.  The conversion
will effectively result in an increase in the number of shares of our Class A
common stock that are outstanding and may cause the market price of our Class A
common stock to decline.






16




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 Class A 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.





A
change of control of us would end the subordination of our Class B common stock
and eliminate any dividend arrearages on our Class A common stock, which could
depress the market price of the stock




The
subordination period will end immediately and all dividend arrearages on our
Class A common stock will be cancelled upon a change of control of us (as
defined in our amended and restated articles of incorporation), which could have
the effect of depressing the market price of the Class A common stock if it is
still outstanding following the change of control.





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.






17




B.
Business Overview




We own
and operate a fleet of six double hull Panamax (LR1) product tankers and two Ice
Class 1A double hull Handymax (MR) product tankers.  Prior to January,
2007, we also owned two drybulk carriers, which we sold to unaffiliated third
parties in January, 2007.  We took delivery of two double hull (LR1)
product tankers in March and April, 2007, respectively.  In June,
2007, we entered into agreements with Hyundai Mipo Dockyard in South Korea for
the construction of five Handymax (MR1) product tankers and additionally in May,
2008, we agreed to purchase two Handymax (MR2) product tankers that are
currently under construction at Hyundai Mipo Dockyard in South
Korea.  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.  We provide the commercial management
of our vessels in-house through a wholly owned subsidiary and we have entered
into technical management agreements for our vessels with unaffiliated third
parties.




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. Our current fleet had a combined
cargo-carrying capacity of 512,358 dwt and an average age of approximately 1.9
years as of December 31, 2007. 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. We have also agreed to purchase two
Handymax (MR2) product tankers that are currently under construction at Hyundai
Mipo Dockyard in South Korea and are scheduled to be delivered during the second
quarter of 2009 and the third quarter of 2010. Upon the delivery of these
vessels, our fleet will have a combined cargo-carrying capacity of 791,358
dwt.




We have
entered into long-term time charters for the eight double hull product tankers
in our fleet.  We will share a portion of our charterers’ excess
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. We have also entered into long-term time charters for
the two Handymax (MR2) product tankers that we have agreed to purchase and are
currently under construction and we will equally share our charterers’ excess
earnings from their employment.




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
and 2007.




The table below provides summary information about the
vessels in our fleet as of December 31, 2007 and the terms of their employment
as well as information about the two Handymax (MR2) product tankers that we
agreed to acquire in May, 2008 and are currently under
construction:






18





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
              (3)
              May-09Omega
      King
              A
              2004
              74,999
              LR1
              Jun-06
              $26,500
              (3)
              Jun-09Omega
      Lady Sarah
              C
              2004
              71,500
              LR1
      – Ice Class 1C
              Jun-06
              $24,000
              (4)
              Jun-09Omega
      Lady Miriam
              C
              2003
              71,500
              LR1
      – Ice Class 1C
              Aug-06
              $24,000
              (4)
              Jul-09Omega
      Emmanuel
              D
              2007
              73,000
              LR1
      – Ice Class 1A
              Mar-07
              $25,500
              (6)
              Apr-10Omega
      Theodore
              D
              2007
              73,000
              LR1
      – Ice Class 1A
              Apr-07
              $25,500
              (6)
              May-10Handymax
      Product TankersOmega
      Prince
              B
              2006
              36,680
              Ice
      Class 1A
              Jun-06
              $21,000
              (5)
              Jun-09Omega
      Princess
              B
              2006
              36,680
              Ice
      Class 1A
              Jul-06
              $21,000
              (5)
              Jun-09TOTAL
      (DWT):
              
              512,358


HANDYMAX
      VESSELS UNDER CONSTRUCTION(7)TBN1
            E
            2010
            37,000
            Mar-10TBN2
            E
            2010
            37,000
            Jul-10TBN3
            E
            2010
            37,000
            Sep-10TBN4
            E
            2010
            37,000
            Dec-10TBN5
            E
            2011
            37,000
            Feb-11TOTAL
      (DWT):
            
            
            185,000





VESSELS
THAT WE HAVE AGREED TO PURCHASE (SCHEDULED DELIVERY DATE) (8)





TBN1
            F
            2009
            47,000
            Jun-09
            $21,135
            (9)
            Jun-12TBN2
            F
            2010
            47,000
            Jul-10
            $21,135
            (9)
            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 for the product tankers are 1.25% of the daily time charter
      rate.


(3)
            The
      Company has granted the charterers the option to extend the charter for 24
      months at a minimum daily time charter hire rate of
    $28,500.


(4)
            Plus
      any additional income under profit sharing provisions of the Company’s
      charter agreement.  Following the fixture on the Omega Emmanueland the
      Omega Theodore,
      we have agreed to amend the profit sharing provisions on the Omega Lady Miriam and
      the Omega Lady
      Sarah whereby the amount up to $25,000 will be 100% for owner’s
      account, from $25,000 to $25,500 will be 100% for charterer’s account and
      above $25,500 will be split 50 /50 between owners and
      charterers.


(5)
            Plus
      any additional income under profit sharing provisions of the charter
      agreements. The Company has granted the charterers the option to extend
      the charter for 12 months at a minimum daily time charter hire rate of
      $24,000.


(6)
            Plus
      any additional income under profit sharing arrangements, according to
      which charter earnings in excess of $ 25,500 per day will be split 50 / 50
      between owners and the charterers. When the vessels trade in ice
      conditions, the profit sharing between owners and the charterers is 65/35%
      respectively.


(7)
            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.


19


(8)
            Omega
      announced on May 19, 2008, that it has agreed to acquire two newbuilding
      Handymax (MR2) product tankers that are currently under construction at
      Hyundai Mipo Dockyard in South Korea, and are scheduled to be delivered to
      Omega in the second quarter of 2009 and the third quarter
      2010.


(9)
            Plus
      any additional income under profit sharing arrangements, according to
      which charter earnings in excess of $ 21,135 per day will be split 50 / 50
      between owners and the charterers.







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, 2007, 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, and Eurasia International (L) Limited,
or Eurasia, provides the technical management for the other two product tankers
in our fleet.  We are reviewing the performance of the technical
managers of our product tankers on a continuous basis and may add or change
technical managers from time to time.




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. We
acquire insurance for the 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 twelve 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 and December 31, 2007 amounted to
$451,043 and $900,094, respectively. The management fees charged by Eurasia for
the year ended December 31, 2006 and December 31, 2007 amounted to $117,260 and
$210,128, respectively.




The
International Product Tanker Industry




The
international seaborne transportation industry represents the most efficient and
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. Global demand for refined products continues to
increase. Over the past five years, seaborne transportation of refined petroleum
products has grown substantially.




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:






20




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.






Environmental
Regulation




Government
regulations and laws significantly affects the ownership and operation of our
vessels. They are subject to international conventions, national, state and
local laws and regulations in force in the countries in which our vessels may
operate or are registered. 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.





Various
governmental and quasi-governmental agencies require us to obtain permits,
licenses and certificates for the operation of our vessels.





We
believe that the heightened level of environmental and quality concerns among
insurance underwriters, regulators and charterers is leading 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 the stricter
environmental standards. We maintain operating standards for all of our vessels
that emphasize operational safety, quality maintenance, continuous training of
our officers and crews and compliance with U.S. and international regulations.
We believe that the operation of our vessels are in substantial compliance with
applicable environmental laws and regulations; 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 marine 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.






21




Our
vessels are subject to both scheduled and unscheduled inspections by a variety
of governmental and
private entities, each of which may have unique requirements. These entities
include the local port authorities (U.S. Coast Guard, harbor master or
equivalent), classification societies, flag state administration (country of
registry) and charterers, particularly terminal operators and oil companies.
Failure to maintain necessary permits or approvals could require us to incur
substantial costs or temporarily suspend operation of one or more of our
vessels.





International
Maritime Organization (IMO)





The
International Maritime Organization, or IMO (the United Nations agency for
maritime safety), 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, or the “MARPOL
Convention”. The MARPOL Convention relates to 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 tanker 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.


Our
vessels are also subject to regulatory requirements including the phase-out of
single-hull tankers, imposed by the IMO. 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.






22





Air
Emissions





In
September 1997, the IMO adopted Annex VI to the International Convention for the
Prevention of Pollution from Ships to address air pollution from ships. Annex VI
was ratified in May 2004 and became effective May 19, 2005. Annex VI sets limits
on sulfur oxide and nitrogen oxide emissions
from ship exhausts and prohibits deliberate emissions of ozone depleting
substances, such as chlorofluorocarbons. Annex VI also includes a global cap on
the sulfur content of fuel oil and allows for special areas to be established
with more stringent controls on sulfur emissions. 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
adversely affect our business, cash flows, results of operations and financial
condition.





In
February 2007, the United States proposed a series of amendments to Annex VI
regarding particulate matter, NOx and SOx emission standards.  The
emission program proposed by the United States would reduce air pollution from
ships by establishing a new tier of performance-based standards for diesel
engines on all vessels and stringent emission requirements for ships that
operate in coastal areas with air-quality problems.  On June 28, 2007,
the World Shipping Council announced its support for these
amendments.  If these amendments are implemented, we may incur costs
to comply with the proposed standards.





Safety
Requirements





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





The
requirements contained in the International Safety Management Code, or ISM Code,
promulgated by the IMO, also affect our operations. The ISM Code requires the
party with operational control of a vessel 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.  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 code requirements for a safety management system. No vessel can
obtain a certificate unless its manager has been awarded a document of
compliance, issued by each flag state, under the ISM Code. We have obtained
documents of compliance for our offices and safety management certificates for
all of our vessels for which the certificates are required by the IMO. We are
required to renew these documents of compliance and safety management
certificates annually.





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. The U.S. Coast Guard and European Union
authorities have indicated that vessels not in compliance with the ISM Code by
the applicable deadlines will be prohibited from trading in U.S. and European
Union ports, as the case may be.





The IMO
has negotiated international conventions that impose liability for oil pollution
in international waters and a signatory’s territorial waters. Additional or new
conventions, laws and regulations may be adopted which could limit our ability
to do business and which could have a material adverse effect on our business
and results of operations.





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 become effective 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.


23


The flag
state, as defined by the United Nations Convention on Law of the Sea, has
overall responsibility for the implementation and enforcement of international
maritime regulations for all ships granted the right to fly its flag. The
“Shipping Industry Guidelines on Flag State Performance” evaluates flag states
based on factors such as sufficiency of infrastructure, ratification of
international maritime treaties, implementation and enforcement of international
maritime regulations, supervision of surveys, casualty investigations and
participation at IMO meetings.





Although
the United States 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, or
the CLC, as amended in 2000. Under this convention, and depending on whether the
country in which the damage results is a party to the 1992 Protocol to the
International Convention on Civil Liability for Oil Pollution Damage, 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 November 1, 2003, for vessels of 5,000 to 140,000 gross tons (a
unit of measurement for the total enclosed spaces within a vessel), liability
will be limited to approximately 4.51 million SDR plus 631 SDR for each
additional gross ton over 5,000. For vessels of over 140,000 gross tons,
liability will be limited to 89.77 million SDR.  The exchange rate
between SDRs and U.S. dollars was 0. 615181 SDR per U.S. dollar on April 29,
2008. The right to limit liability is forfeited under the International
Convention on Civil Liability for Oil Pollution Damage 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 International
Convention on Civil Liability for Oil Pollution Damage has not been adopted,
various legislative schemes or common law govern, and liability is imposed
either on the basis of fault or in a manner similar to that
convention.  We believe that our P&I insurance will cover the
liability under the plan adopted by the IMO.





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.





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





The Oil
Pollution Act of 1990, or OPA, established 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 United States or
its territories or possessions, or whose vessels operate in the waters of United
States, which include the U.S territorial sea and the 200 nautical mile
exclusive economic zone around the United States. The Comprehensive
Environmental Response, Compensation and Liability Act, or CERCLA, applies to
the discharge 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;




·
            net
      cost of public services necessitated by a spill response, such as
      protection from fire, safety or health hazards, and loss of subsistence
      use of natural resources.






24




OPA previously limited the liability of responsible parties to
the greater of $1,200 per gross ton or $10 million per tanker that is over 3,000
gross tons (subject to possible adjustment for inflation). Amendments
to OPA signed into law in July 2006 increased these limits on the liability of
responsible parties to the greater of $1,900 per gross ton or $16 million per
double hull tanker that is over 3,000 gross tons.  The act
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for
discharge of pollutants within their waters. In some cases, states which 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 cleanup, removal and natural resource damages. Liability under
CERCLA is limited to the greater of $300 per gross ton or $5
million.





These
limits of liability 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 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
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. The U.S. Coast Guard has enacted
regulations requiring evidence of financial responsibility in the amount of
$1,500 per gross ton for tankers, coupling the OPA limitation on liability of
$1,200 per gross ton with the CERCLA liability limit of $300 per gross
ton.  The U.S. Coast Guard has indicated that it expects to adopt
regulations requiring evidence of financial responsibility in amounts that
reflect the higher limits of liability imposed by the July amendments to OPA, as
described above.  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




·
            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 United States. In addition, the U.S. Coast Guard
has announced it intends to propose similar regulations requiring certain
vessels to prepare response plans for the release of hazardous
substances.


25


In
addition, the United States Clean Water Act prohibits the discharge of oil or
hazardous substances in United States navigable waters and imposes strict
liability in the form of penalties for unauthorized discharges.  The
Clean Water Act also imposes substantial liability for the costs of removal,
remediation and damages and complements the remedies available under OPA and
CERCLA, discussed above.  The United States Environmental Protection
Agency, or EPA, has exempted the discharge of ballast water and other substances
incidental to the normal operation of vessels in U.S. ports from Clean Water Act
permitting requirements.  However, on March 31, 2005, a U.S. District
Court ruled that the EPA exceeded its authority in creating an exemption for
ballast water.  On September 18, 2006, the court issued an order
invalidating the exemption in EPA’s regulations for all discharges incidental to
the normal operation of a vessel as of September 30, 2008, and directing the EPA
to develop a system for regulating all discharges from vessels by that
date.  The EPA filed a notice of appeal of this decision and, if the
EPA’s appeals are unsuccessful and the exemption is repealed, our vessels may be
subject to Clean Water Act permit requirements that could include ballast water
treatment obligations that could increase the cost of operating in the United
States.  For example, this 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 a
substantial cost, and/or otherwise restrict our vessels from entering U.S.
waters.  On June 21, 2007, the EPA provided notice of its intention to
develop a permit program for discharge of ballast water incidental to the normal
operations of vessels and solicited comments.





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.





The U.S.
Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990, or 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. In December 1999 and January 2003, the EPA issued final
rules regarding emissions standards for marine diesel engines.  The
final rules apply emissions standards to new engines beginning with the 2004
model year.  In the preambles to the final rules, the EPA noted that
it may revisit the application of emissions standards for marine diesel
engines.  These final rules are applicable to marine diesel engines on
vessels flagged or registered in the United States.  While we do not
believe that these current standards are applicable to our vessels, adoption of
future standards could require modifications to some existing marine diesel
engines, and the extent to which our vessels could be affected cannot be
determined at this time.  Although a risk exists that new regulations
could require significant capital expenditures and otherwise increase our costs,
based on the regulations that have been proposed to date, we believe that no
material capital expenditures beyond those currently contemplated and no
material increase in costs are likely to be required of us.




The U.S.
National Invasive Species Act, or NISA, was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through
ballast water taken on by ships in foreign ports.  The United States
Coast Guard adopted regulations under NISA in July 2004 that impose mandatory
ballast water management practices for all vessels equipped with ballast water
tanks entering U.S. waters.  These requirements can be met by
performing mid-ocean ballast exchange, by retaining ballast water on board the
ship, or by using environmentally sound alternative ballast water management
methods approved by the United States Coast Guard.  (However,
mid-ocean ballast exchange is mandatory for ships heading to the Great Lakes or
Hudson Bay, or vessels engaged in the foreign export of Alaskan North Slope
crude oil.) Mid-ocean ballast exchange is the primary method for compliance with
the United States Coast Guard regulations, since holding ballast water can
prevent ships from performing cargo operations upon arrival in the United
States, and alternative methods are still under development. Vessels that are
unable to conduct mid-ocean ballast exchange due to voyage or safety concerns
may discharge minimum amounts of ballast water (in areas other than the Great
Lakes and the Hudson River), provided that they comply with recordkeeping
requirements and document the reasons they could not follow the required ballast
water management requirements. The United States Coast Guard is developing a
proposal to establish ballast water discharge standards, which could set maximum
acceptable discharge limits for various invasive species, and/or lead to
requirements for active treatment of ballast water.






26






Our
operations occasionally generate and require the transportation, treatment and
disposal of both hazardous and non-hazardous wastes that are subject to the
requirements of the U.S. Resource Conservation
and Recovery Act, or RCRA, or comparable state, local or foreign requirements.
In addition, from time to time we arrange for the disposal of hazardous waste or
hazardous substances at offsite disposal facilities. If such materials are
improperly disposed of by third parties, we might still be liable for clean up
costs under applicable laws.





Several
of our vessels currently carry cargoes to U.S. waters regularly and we believe
that all of our vessels are suitable to meet OPA and other U.S. environmental
requirements and that they would also qualify for trade if chartered to serve
U.S. ports.





European
Union Tanker Restrictions




In July
2003, 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. 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) ban manifestly sub-standard
vessels (defined as those over 15 years old that have been detained by port
authorities at least twice in a six month period) from European waters and
create an obligation of port states to inspect vessels posing a high risk to
maritime safety or the marine environment; and (2) provide the European Union
with greater authority and control over classification societies, including the
ability to seek to suspend or revoke the authority of negligent societies. The
sinking of the MT Prestige and resulting oil spill in November 2002 has led to
the adoption of other environmental regulations by certain European Union
nations, which could adversely affect the remaining useful lives of all of our
vessels and our ability to generate income from them. We are unable to predict
what legislation or additional regulations, if any, may be adopted by the
European Union or any other country or authority.





Recent
scientific studies have suggested that emissions of certain gases, commonly
referred to as “greenhouse gases,” may be contributing to warming of the Earth’s
atmosphere.  According to the IMO’s study of greenhouse gas emissions
from the global shipping fleet, greenhouse emissions from ships are predicted to
rise by 38% to 72% due to increased bunker consumption by 2020 if corrective
measures are not implemented.  Any passage of climate control
legislation or other regulatory initiatives by the IMO or individual 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 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;
 27




·
              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




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.


28


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 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.





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.”






29




Our
current protection and indemnity insurance coverage for pollution is
$1.0 billion per vessel per incident. The thirteen 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.





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 approximately 350 independent
product tanker owners.





C.
Organizational Structure




Omega
Navigation Enterprises, Inc. is a holding company incorporated under the laws of
the Marshall Islands. We maintain our principal executive offices at 24 Kaningos
Street, Piraeus 185 34 Greece. Our telephone number at that address is (011)(30)
210 413-9130. We also maintain an office in the United States the mailing
address of which is P.O. Box 272, Convent Station, New Jersey
07961.  Our telephone number at that address is (551)
580-0532.





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. having annual lease payments for 2006
and 2007 of Euro 33,000 and Euro 47,720, respectively, or approximately $41,694,
and $65,320, respectively.




30


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 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, which have recently experienced historic highs in the spot
      and time charter market;




·
            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.




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
employed under time charters that require the charterer
to bear all voyage expenses, except for brokerage commissions.






31






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 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, insurance
arrangements and other duties related to the operation of our
vessels.




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. The amount of
outstanding indebtedness of the term credit facilities include $40.1 million
relating to the financing of the acquisition of the five newbuilding vessels
that we have entered into agreements to purchase.  Interest and
finance costs relating to the amounts drawn under the credit facilities during
the construction of the newbuilding vessels will be capitalized as vessels’
cost.  For additional information regarding our credit facilities,
please see “Liquidity and Capital Resources,” below.






32






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;




·
            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.




33




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.






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.





34


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 ratably 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 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.
Measurement of the impairment loss is based on the fair value of the asset as
provided by third parties. In this respect, management regularly reviews the
carrying amount of the vessels in comparison with the fair value of the asset as
provided by third parties for each of the Company’s vessels.





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 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.





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
which is approximately 30 months. 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. Our fleet is of an average age
of less than 3 years and no dry-dock costs incurred up to date. We plan to
perform our first dry docking within 2008.




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.






35





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, two Handymax MR’s and
six Panamax.  The two Handymax MR’s and four of the Panamax vessels
were purchased in 2006 with a combination of debt and proceeds for our initial
public offering. The vessels were delivered to the Company 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
from 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 Panamaxes and 2.0 Handymax MR’s in
2007 versus 2.1 Panamaxes 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 over
gross hire.





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 $200 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 number 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.






36





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 WARRANT SETTLED LIABILITY- 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 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.”





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.





Year
Ended December 31, 2006 compared with the period from February 28 (date of
inception) to December 31, 2005





OPERATING
FLEET





Our fleet
in 2006 was comprised of six product tankers, two Handymax MR’s and four
Panamax.  These vessels were purchased in 2006 with a combination of
debt and proceeds from our initial public offering. The results from operations
for these vessels in 2006 are in Continuing Operations.  The vessels
were delivered to us between May and August of 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 drybulk carriers, the results from operations of these vessels
are shown in Discontinued Operations.  Our Fleet in 2005 included the
operation of three drybulk carriers.  The results of the operations of
these vessels for 2005 are in Discontinued Operations.  We did not
operate any product tankers in 2005.






37






CONTINUING
OPERATIONS





VOYAGE
REVENUES – Voyage revenues were $26.9 million in 2006 and reflected the
operations of the six product tankers purchased between May and August of
2006.





VOYAGE
EXPENSES – Voyage expenses were $0.3 million and were primarily related to
commissions of the product tankers which were acquired between May and August of
2006.





VESSEL
OPERATING EXPENSES – Vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oils, insurance, maintenance and
repairs, were $5.7 million in 2006 and were related to the operation of the six
product tankers which were acquired between May and August of 2006.





DEPRECIATION
AND AMORTIZATION – Depreciation and amortization which primarily includes
depreciation of vessels was $7.2 million in 2006.  This related to the
depreciation on the six product tankers acquired between May and August of
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 $0.6 million and
related to the six product tankers acquired between May and August of
2006.





OPTIONS’
PREMIUM – This charge is related to the fact that two options to purchase two
Ice Class 1A Panamax product tankers expired in 2006 without being exercised.
This charge was $ 0.2 million ($ 0.1 million per vessel).





GENERAL
AND ADMINISTRATIVE EXPENSES – General and administrative expenses were $2.4
million in 2006, reflecting an increase of $1.6 million or 200% compared to
2005.  The increase is primarily due to the increased staffing and
other expenses incurred as a result of the expansion of our operations following
our initial public offering.





INTEREST
AND FINANCE COSTS - Interest and finance costs for 2006 were $7.5 million and
related to the new term and revolving credit facility entered into to partially
finance the acquisition of the six product tankers acquired between May and
August of 2006.  The total amount drawn under the facilities in 2006
was $241.5 million.





INTEREST
INCOME – Interest income was $1.8 million in 2006 and reflected interest income
received on cash balances during the year. The increased cash balances relate
mainly to the fact that we maintained the net proceeds from our initial public
offering in time deposit until we acquired the product tankers. In addition
following the acquisition of our product tankers we received additional cash
from operation of those vessels during the period.





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





INCOME/LOSS
FROM CONTINUING OPERATIONS – Income from continuing operations for 2006 was $4.6
million versus a loss of $0.7 million in 2005 resulting from the ownership and
operation of six product carriers acquired between May and August 2006, versus
general and administrative expense of operating the drybulk vessels in
2005.





Income
from the ownership and operation of the drybulk vessels for 2006 and 2005 is
shown below in “Discontinued Operations.”






38





DISCONTINUED
OPERATIONS


INCOME
FROM DISCONTINUED OPERATIONS – Income from discontinued operations was $9.6
million in 2006, an increase of $4.5 million or 88% versus $5.1 million earned
in 2005.  This increase in net income is attributable primarily to the
$5.0 million gain on extinguishment of debt that was partially offset by the
$1.7 million impairment loss on disposal of the drybulk carrier
fleet.





NET
INCOME – Net income was $14.1 million in 2006 compared with net income of $4.4
million in 2005.  The increase was attributable to the increase in the
size of our fleet in 2006 and primarily to the operation of the six tankers
acquired in the year and the $5.0 million gain on extinguishment of
debt.








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.





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 will be financed from the proceeds of the loan
facilities described below and the remaining amount will be financed from cash
available from operations. The amount of $44.2 million per vessel is payable as
follows:





·
            10%
      by July 5, 2007


·
            10%
      by December 15, 2007


·
            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







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.






39






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.





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.





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%.





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.





As of
December 31, 2007, we did not meet the working capital maintenance covenant of
not less than $1 million required under our principal agreement of our $295.0
million senior secured credit facility with HSH Nordbank.  In
addition, we were in violation of the interest coverage ratio provided in our
principal agreement, since March 31, 2007, which provided for an EBITDA/Interest
payable ratio of not less than 3:1.  We were provided with a waiver
from HSH Nordbank whereby the ratio was modified until March 31, 2008 to 2:1,
when we believed that this deficiency would be cured.  Following the
conclusion of the third supplement, amending the principal agreement with HSH
Nordbank discussed above, such non-compliance was remedied.





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 ranging between 2.25% and 3.00% based on the ratio of the aggregate of
the senior secured and junior secured loan facilities divided by the fleet
market value.





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%.






40





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.





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, the Company, through its 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 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.





We have
also entered into a commitment letter with Bremer for a post-delivery facility
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
purposes of repayment of the pre-delivery facility as well as financing of the
sixth instalment to the shipyard.  The loan will be drawn at the
vessels’ delivery dates and will be repayable in 40 equal 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.





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 instalments falling due under the shipbuilding contracts signed on June
15, 2007 in partial payment of the construction instalments under the
contracts.






41





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 will bear interest at
LIBOR plus margin.





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.





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.  The vessels are currently under
construction at Hyundai Mipo, South Korea and are scheduled to be delivered on
the second quarter of 2009 and the third quarter of 2010.  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.





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.  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.


42


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.





Cash
Flows





Our cash
and cash equivalents increased to $8.9 million in the year ended December 31,
2007 from $3.9 million in the year ended December 31, 2006.  Working
capital is current assets minus current liabilities including the current
portion of long-term debt.  Our working capital was $3.4 million as of
December 31, 2007 versus $34.5 million as of December 31, 2006.  This
decrease in working capital was primarily due to vessels being held for sale of
$81.5 million in 2006 partially offset by current portion of long term debt. We
believe that we have sufficient working capital for our present
requirements.





NET CASH
PROVIDED BY OPERATING ACTIVITIES – was $33.4 million in 2007, an increase of
$10.7 million versus $22.7 million in 2006.  The increase is primarily
attributed to an increase in the size of the fleet from an average of 3.1
operating vessels in 2006 to an average of 7.4 operating vessels in
2007.





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 in 2006 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 acquisitions.





NET CASH
PROVIDED BY FINANCING ACTIVITIES – was $55.4 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), $30.4 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.






43






F.
Tabular disclosure of contractual obligations




At
December 31, 2007 we had the following contractual obligations:





Payments
      due by periodTotal
            
            
            less
      than 1 year
            
            
            1-3
      years
            
            
            3-5
      years
            
            
            more
      than 5 yearsLong
      term debt (1)
            
            
            324,278
            
            
            
            781
            
            
            
            8,885
            
            
            
            292,821
            
            
            
            21,791Shipbuilding
      contracts (2)
            
            
            176,940
            
            
            
            -
            
            
            
            168,093
            
            
            
            8,847
            
            
            
            -Periodic
      Survey fees (3)
            
            
            614
            
            
            
            153
            
            
            
            253
            
            
            
            205
            
            
            
            3Operating
      leases (4)
            
            
            91
            
            
            
            78
            
            
            
            13
            
            
            
            -
            
            
            
            -Total
            
            
            501,923
            
            
            
            1,012
            
            
            
            177,244
            
            
            
            301,873
            
            
            
            21,794





(1) Refer
to Item 18 for a complete description of our credit facilities. The analysis
above reflects our debt maturities, following the third supplement amending our
principal loan agreement with HSH Nordbank signed on March 28,
2008.





(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) 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.





(4) 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. The
annual rental will be approximately $U.S. Dollars 78,227 (Euro 53,140). The
amount reflected in the table represents the Dollar equivalent of lease payments
in Euros calculated assuming a $/Euro exchange rate of $1.47/Euro on December
31, 2007.




(5) 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 vessels are currently under construction at
Hyundai Mipo Dockyard, South Korea and are scheduled to be delivered in the
second quarter of 2009 and the third quarter of 2010. We will finance 90% of the
advance payment by pre-delivery commercial bank debt and 75% of the purchase
price by post delivery commercial bank debt. The related obligations have been
excluded from the above table as the purchase agreements for these vessels were
entered into in 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.






44








Name
            Age
            PositionRobert
      J. Flynn
            55
            Chairman
      and Class A DirectorGeorge
      Kassiotis
            36
            President,
      Chief Executive Officer and Class C DirectorCharilaos
      Loukopoulos
            39
            Executive
      Vice President, Chief Operating Officer, General Counsel and Class C
      DirectorGregory
      McGrath
            57
            Chief
      Financial OfficerNicolas
      Borkmann
            46
            Class
      B DirectorDr.
      Chiang Hai Ding
            69
            Class
      A DirectorKevin
      Harding
            48
            Class
      C DirectorShariq
      Azhar
            53
            Class
      A DirectorMatthew
      W. McCleery
            37
            Class
      B DirectorHuang
      Yuan Chiang
            49
            Unclassified
      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 B Directors’
term expires in 2008. Class C Directors’ term expires in 2009. Class A
Directors’ term expires in 2010.  Huang Yuan Chiang was appointed to
our board of directors effective January 1, 2008.  In accordance with
our bylaws, Mr. Huang was appointed as an unclassified director until the
company's next annual meeting.  Mr. Huang has been nominated for
election at our 2008 annual general meeting as a Class B director.




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





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 graduated 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.






45





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.  From 1995 to 2002, Dr. Chiang Hai Ding worked
at Neptune Orient Lines Ltd. as an economic advisor to the Chairman and the
Chief Executive Officer.  Since 2007, he is the executive director of
the Center of Seniors and from 2001 to 2006 he was the executive director at
Singapore Action Group of Elders Counseling Center, each if which is a
voluntary organization for the elderly.  Dr. Chiang Hai Ding served as
Singapore Ambassador to Germany, European Union, Russia and Egypt from 1978
to 1994 and to Malaysia from 1971 to 1973. Dr. Chiang Hai Ding was an elected
member of the Singapore Parliament where he served from 1970 to
1984.  From 1973 to 1978 Dr. Chiang Hai Ding worked at Citibank and
was a university lecturer from 1963 to 1971.  Dr. Chiang Hai Ding is a
member of the board of directors of Swissco International Limited. Dr. Chiang
Hai Ding holds a graduate diploma from Simon Freaser University, Canada, a
doctorate from the Australia National University and a bachelors
degree from the Singapore University.  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.





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. 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.




46






Shariq
Azhar(Class A
Director)serves as a
Director.  Since 2005 Mr. Azhar has served as the Director General of
Injaz Mena Investment Co. PSC, an Abu Dhabi based investment bank regulated by
the Central Bank of the UAE, providing global private equity, real estate,
capital market and investment banking services to investors.  He has over
25 years experience in the financial services industry spanning America, Europe
and the Middle East. Over his career he has served in various senior level
positions in the areas of corporate banking, investment banking, risk management
and financial regulatory policy. Among other positions held over the years,
Mr. Azhar was Executive Vice President of Abu Dhabi Commercial Bank where he
headed the bank’s wholesale businesses including corporate banking, investment
banking, treasury & investments, commercial banking and institutional
banking. 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, including: the main shareholder in a AAA rated credit
derivative products company; the developer of large-scale real estate projects
in South Asia; the majority owner of multi-billion dollar tourist resort
developments in Eastern Europe and the principal sponsor of a property fund
investing in prime East Asian real estate. 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 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 1997 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 serves 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. A possible conflict of interest may arise between the interests of
FreeSeas and our interests. Mr. McCleery holds a Juris Doctor degree from the
University of Connecticut School of Law.





Huang Yuan Chiang
(UnclassifiedDirector)
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.




B.
Compensation




The
aggregate annual compensation paid to our executive officers, Messrs. Kassiotis,
Loukopoulos and McGrath, amounted to approximately $0.92 million for the year
ended December 31, 2007. In February, 2007, pursuant to the Company’s Stock
Incentive Plan, the officers were granted an aggregate of 54,138 restricted
common shares that will become vested ratably over three years. In February
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. Additionally, in February 2008, the
officers were granted an aggregate of 53,357 restricted common shares that will
vest ratably over three years. In addition, in February 2008, the officers
received an additional compensation of $0.1 million relating to 2007
performance. 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 extended 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.






47




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 committee members receive an additional annual fee of
$2,500.  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.




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.




Corporate
Governance Practices




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
4350(d)(3) and 4350(d)(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.




D.
Employees




As of
December 31, 2007, we employed 187 employees, consisting of nineshore-based personnel
based in Athens, Greece, and 178 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.




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.




2007
            
            
            2006Shore-based
            
            
            9
            
            
            
            9Seagoing
            
            
            178
            
            
            
            163Total
            
            
            187
            
            
            
            172






48




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 and March 20, 2008,
we granted an aggregate of 54,138 and 95,416 restricted shares, respectively, to
our Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer. On July 26, 2007, we granted an aggregate of 6,000 restricted shares to
our non-executive directors. On March 20, 2008, we granted an aggregate of 8,815
restricted shares to some employees.




ITEM
7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




A.
Major Shareholders




The
following table sets forth, as of December 31, 2007 (except as otherwise
indicated below), 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
            Kayne
      Anderson Capital Advisors LP(3)
            1,224,721
            10.2%MHR
      Fund management LLC(2)
            1,185,125
            9.9%Transamerica
      Investment Management LLC(2)
            1,095,808
            9.1%Bank
      of America Corporation(2)
            1,080,992
            9.0%All
      Directors and officers as a group(4)
            *
            *Class
      B Common Stock, par value $0.01
            George
      Kassiotis(5)
            3,140,000
            100%


____________





*
            Less
      than 1% in the aggregate.(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)
            Based
      on the SEC filings of the
Shareholder.


(3)
            Based
      on the SEC filing of the shareholder made on May 30,
  2008.


(4)
            The
      number of shares owned and percent of class by all Directors and officers
      as a group are as of May 31, 2008.


(5)
            Our
      Chief Executive Officer, Mr. Kassiotis, beneficially owns these shares
      indirectly through ONE Holdings, Inc.  Mr. Kassiotis is the sole
      shareholder of ONE Holdings, Inc.






49




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.




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. ONE Holdings
also owns 3,140,000 shares of Class B common stock that may, subject to certain
conditions, be converted into Class A common stock that will be entitled to
these registration rights.




Cosmos Maritime
Corporation Inc.Within 2007, we paid $10 on behalf of Cosmos, Maritime
Corporation Inc., a newly established company 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.Charter party agreements for the vessels Omega Emmanuel and Omega Theodore, effective
upon their delivery, 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. We pay no commissions to the ship brokerage firm.





Shoreline Mutual
Insurance Co.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 Shoreline Mutual
Bermuda Ltd provided to us 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 2007 and 2006 Shoreline’s charges amounted to $22 and $0,
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, 2007 of $22 was fully paid in February 2008.




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 the Company’s business exposes it 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.




50




Dividend
policy




Our
policy is 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.  However, as described below, if we do not have sufficient
available cash to pay a quarterly dividend to Class A common shareholders in the
amount of $0.50 per share, which we call our base dividend, out of our operating
surplus, the right of Class B common shareholders to receive dividends in
respect of those shares will be subordinated to the right of Class A common
shareholders to receive dividends during the subordination period. Declaration
and payment of dividends is at the discretion of our board of
directors.




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 3,140,000
shares of Class B common stock, or our subordinated shares. The provisions of
our Amended and Restated Articles of Incorporation limit or eliminate dividends
to the holders of our subordinated shares in the circumstances we describe
below. In general, during the subordination period, our Class A common stock
will receive regular quarterly dividends of $0.50 per share, plus any arrearages
from prior quarters, before our subordinated shares will receive any dividends.
Our subordinated shares will not be entitled to arrearages. During the
subordination period, we will pay quarterly dividends on our Class A common
stock and subordinated shares from operating surplus in the following
manner:




first, 100% to all shares of
Class A common stock, pro rata, until they receive $0.50 per share;




second, 100% to all shares of
Class A common stock, pro rata, until they have received any unpaid arrearages
in the $0.50 per share base dividend for prior quarters;




third, 100% to all
subordinated shares, pro rata, until they have received $0.50 per share;
and




after that, 100% to all Class
A common and subordinated shares, pro rata, as if they were a single
class.




The
subordination period commenced upon the issuance of the shares of Class B common
stock, which occurred on March 16, 2006. Each of our subordinated shares will
convert into a Class A common share after the end of the subordination period,
which extends until the first day after the quarter ending December 31, 2008
that each of the following tests are met:




(1) we
have paid quarterly dividends in an amount at least equal to $0.50 per share on
both our Class A common shares and Class B common shares for the immediately
preceding four-quarter period;




(2) the
operating surplus (excluding certain amounts as described in our amended and
restated Articles of Incorporation) generated during the four-quarter period
referred to above at least equaled the base dividend on all of the outstanding
Class A common shares and Class B common shares on a fully diluted basis during
that period; and




(3) there
are no arrearages in payment of the quarterly dividend on the Class A common
stock.




Notwithstanding
the above, the subordination period will end immediately and all arrearages will
be cancelled upon a change of control of us (as defined in our Amended and
Restated Articles of Incorporation).




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%.




51


Our board
of directors continually reviews our dividend policy and may makes adjustments
as it believes are appropriate taking into consideration the foregoing
factors.




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”.




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
            
            
            HighDecember
      2007
            
            $
            15.80
            
            
            $
            17.48January
      2008
            
            $
            14.15
            
            
            $
            16.87February
      2008
            
            $
            14.62
            
            
            $
            16.96March
      2008
            
            $
            13.85
            
            
            $
            15.29April
      2008
            
            $
            15.50
            
            
            $
            18.54May
      2008
            
            $
            18.71
            
            
            $
            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
            
            
            $
            24.222006April
      7, to June 30, 2006
            
            $
            13.15
            
            
            $
            16.60Third
      quarter 2006
            
            $
            14.65
            
            
            $
            16.60Fourth
      quarter 2006
            
            $
            15.10
            
            
            $
            16.25Year
      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, 2007 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.






52






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




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.  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, 2007.




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


53




·
            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 2007, as a qualified
foreign country. Accordingly, the Company and each of the subsidiaries satisfies
the country of organization requirement.





For the
2007 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 2007.





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 2007 taxable year, the Company believes that it is
not subject to the 5 Percent Override Rule for its 2007 taxable
year.  Therefore, the Company anticipates that it satisfies the
Publicly Traded Test for its 2007 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 2007 and 2006, the Company would be subject
to U.S. federal income tax of approximately $0.4 million and $0.2 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 United States 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 United States 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.


54


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.




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 $2.8 million
based upon our $274.4 million weighted average debt level during
2007.






55




The table
below provides information about our long term debt and derivative financial
instruments and other financial instruments at December 31, 2007 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 date2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter(amounts
      in million USD)Long
      term debtVariable
      interest rate ($US)(1)
            
            
            0.8
            
            
            
            -
            
            
            
            8.8
            
            
            
            292.8
            
            
            
            1.4
            
            
            
            20.4Average
      interest rate
            
            
            4.28
            %
            
            
            3.86
            %
            
            
            3.98
            %
            
            
            4.12
            %
            
            
            4.25
            %
            
            
            -Interest
      rate derivatives(2)Rate
      collar notional amount(3)
            
            
            136.9
            
            
            
            136.9
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Average
      pay rate(4)
            
            
            4.80
            %
            
            
            4.80
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Average
      receive rate(4)
            
            
            4.28
            %
            
            
            3.86
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -





(1) Refer
to Item 18 for a complete description of our credit facilities. The analysis
above reflects our debt maturities, following the third supplement amending our
principal loan agreement with HSH Nordbank signed on March 28,
2008.


(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.


(3)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%.


(4)After
the restructuring of the rate collar option with HSH, the cap has been set at
5.1% and the floor at 2.5% and, as a result, the implied forward interest rates
in the yield curve are within the collar and therefore there are no expected
inflows and outflows under the instrument.








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, 2007.  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.






56






(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, 2007 is effective.




(C)  Attestation
Report of Independent 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




N/A.




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 2007 are Messrs. McCleery, Azhar and Harding.  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.  On December 31, 2007, the Company announced the
appointment of Mr Huang Yuan Chiang as non executive independent director
effective January 1, 2008.  Mr Huang Yuan Chiang is also a member of
the audit committee in 2008.




ITEM 16
B.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:




2007
            
            
            2006Stated
      in EuroAudit
      fees
            
            
            409,500
            
            
            
            157,500All
      other fees
            
            
            1,180
            
            
            
            1,500Total
            
            
            410,680
            
            
            
            159,000






57


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 finanacial statements and audit
services provided in connection with SAS 100 reviews. All other fees for 2007
and 2006 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
2007.




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




Not
applicable.




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




None.






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 Nordbank4.7
            Form
      of Second Supplement to Senior Secured Credit Facility Agreement with HSH
      Nordbank4.8
            Form
      of Third Supplement to Senior Secured Credit Facility Agreement with HSH
      Nordbank4.9
            Form
      of Junior Secured Credit Facility with BTMU and NIBC4.10
            Form
      of Credit Facility with Bremer, dated July 4, 20074.11
            Form
      of Credit Facility with Bremer, dated August 24, 20074.12
            Form
      of Credit Facility with Bank of Scotland4.13
            Form
      of Credit Facility with National Bank of Greece4.14
            Form
      of Pre-Delivery Credit Facility with Lloyds TSB Bank
PLC4.15
            Form
      of Post-Delivery Credit Facility with Lloyds TSB Bank
  PLC8.1
            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.


58


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, INC.By:/s/ Gregory
      McGrathGregory
      McGrathChief
      Financial Officer
 
 Dated:
June 11, 2008
  59













OMEGA
      NAVIGATION ENTERPRISES, INC
              
              Audited
      consolidated financial statements as of
              December
      31, 2007










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, 2007 and 2006
            
            F-4Consolidated
      Statements of Income for the years ended December 31, 2007, December 31,
      2006 and for the period from February 28, 2005 (date of inception) through
      December 31, 2005
            
            F-5Consolidated
      Statements of Stockholders' Equity for the years ended December 31, 2007,
      December 31, 2006 and for the period from February 28, 2005 (date of
      inception) through December 31, 2005
            
            F-6Consolidated
      Statements of Cash Flows for the years ended December 31, 2007 and
      December 31, 2006 and for the period from February 28, 2005 (date of
      inception) through December 31, 2005
            
            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, 2006 and 2007, and the
related consolidated statements of income, stockholders’ equity, and cash flows
for the period from February 28, 2005 (date of inception) through December 31,
2005 and for each of the years ended December 31, 2006 and 2007. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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, 2006 and 2007, and the consolidated results of
its operations and its cash flows for the period from February 28, 2005 (date of
inception) through December 31, 2005 and for each of the years ended December
31, 2006 and 2007, 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, 2007, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated June 9, 2008 expressed an unqualified opinion thereon.








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








Athens,
Greece


June 9,
2008





F-2








REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING





We have
audited Omega Navigation Enterprises Inc.’s  internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Omega Navigation
Enterprises Inc.’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 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, 2007,
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, 2006 and 2007, and the related
consolidated statements of income, stockholders’ equity, and cash flows for the
period from February 28, 2005 (date of inception) through December 31, 2005 and
for each of the years ended December 31, 2006 and 2007   and our
report dated June 9, 2008 expressed an unqualified opinion thereon.





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


Athens,
Greece


June 9,
2008





F-3








OMEGA
      NAVIGATION ENTERPRISES, INC.
              CONSOLIDATED
      BALANCE SHEETS
              DECEMBER
      31, 2006 AND 2007
              (Expressed
      in thousands of U.S. Dollars – except share and per share
      data)Notes
            
            
            2006
            
            
            2007ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
            
            
            
            
            $
            3,862
            
            
            $
            8,893Accounts
      receivable, trade
            
            
            
            
            
            145
            
            
            
            179Inventories
            
            
            
            
            
            504
            
            
            
            501Prepayments
      and other
            
            
            
            
            
            518
            
            
            
            848Restricted
      cash
            
            2
      and 7
            
            
            
            2,477
            
            
            
            417Vessels
      held for sale
            
            
            5
            
            
            
            81,468
            
            
            
            -Total
      current assets
            
            
            
            
            
            
            88,974
            
            
            
            10,838FIXED
      ASSETS:Vessels,
      net
            
            
            5
            
            
            
            350,288
            
            
            
            461,251Property
      and equipment, net
            
            
            
            
            
            
            143
            
            
            
            103Advances
      for vessels’ acquisition
            
            
            4
            
            
            
            200
            
            
            
            44,869Total
      fixed assets
            
            
            
            
            
            
            350,631
            
            
            
            506,223OTHER
      NON-CURRENT ASSETS:Deferred
      charges
            
            
            6
            
            
            
            226
            
            
            
            343Restricted
      cash
            
            2
      and 7
            
            
            
            4,000
            
            
            
            5,081Total
      other non current assets
            
            
            
            
            
            
            4,226
            
            
            
            5,424Total
      assets
            
            
            
            
            
            $
            443,831
            
            
            $
            522,485LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT
      LIABILITIES:Current
      portion of long-term debt
            
            
            7
            
            
            $
            49,133
            
            
            $
            781Accounts
      payable
            
            
            
            
            
            
            1,496
            
            
            
            869Accrued
      and other current liabilities
            
            
            
            
            
            
            1,129
            
            
            
            2,740Deferred  revenue
            
            
            2
            (q)
            
            
            2,719
            
            
            
            1,869Derivative
      liability
            
            
            8
            
            
            
            32
            
            
            
            1,151Dividends
      payable
            
            
            
            
            
            
            -
            
            
            
            30Total
      current liabilities
            
            
            
            
            
            
            54,509
            
            
            
            7,440NON
      - CURRENT LIABILITIES:Long-
      term debt, net of current portion
            
            
            7
            
            
            
            188,944
            
            
            
            322,565Warrants
            
            
            5
            
            
            
            -
            
            
            
            7,097Derivative
      liability
            
            
            8
            
            
            
            281
            
            
            
            428Dividends
      payable
            
            
            
            
            
            
            -
            
            
            
            81Total
      non-current liabilities
            
            
            
            
            
            
            189,225
            
            
            
            330,171COMMITMENTS
      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;
      12,010,000 shares  issued and outstanding as at December 31,
      2006, 12,070,138 shares  issued and outstanding as at December
      31, 2007
            
            
            
            
            
            
            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, 2006 and
      December 31, 2007
            
            
            
            
            
            
            31
            
            
            
            31Additional
      paid in capital
            
            
            
            
            
            
            196,590
            
            
            
            197,047Retained
      earnings/ (Accumulated deficit)
            
            
            
            
            
            
            3,356
            
            
            
            (12,324
            )Total
      stockholders’ equity
            
            
            
            
            
            
            200,097
            
            
            
            184,874Total
      liabilities and stockholders’ equity
            
            
            
            
            
            $
            443,831
            
            
            $
            522,485The
      accompanying notes are an integral part of these consolidated financial
      statements.





F-4











OMEGA
      NAVIGATION ENTERPRISES, INC.
              CONSOLIDATED
      STATEMENTS OF INCOME
              FOR
      THE PERIOD FROM FEBRUARY 28, 2005 (DATE OF INCEPTION) THROUGH DECEMBER 31,
      2005 AND FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31,
      2007
              (Expressed
      in thousands of U.S. Dollars – except share and per share
      data)Notes
            
            
            2005
            
            
            2006
            
            
            2007CONTINUING OPERATIONSRevenuesVoyage
      revenues
            
            
            
            
            $
            -
            
            
            
            26,867
            
            
            
            69,890ExpensesVoyage
      expenses
            
            
            12
            
            
            
            -
            
            
            
            (341
            )
            
            
            (930
            )Vessel
      operating expenses
            
            
            12
            
            
            
            -
            
            
            
            (5,669
            )
            
            
            (13,121
            )Depreciation
      and amortization
            
            
            
            
            
            
            -
            
            
            
            (7,236
            )
            
            
            (17,557
            )Management
      fees
            
            
            1
            
            
            
            -
            
            
            
            (568
            )
            
            
            (1,110
            )Options’
      premium
            
            
            4
            
            
            
            -
            
            
            
            (200
            )
            
            
            (200
            )General
      and administrative expenses
            
            
            
            
            
            
            (754
            )
            
            
            (2,354
            )
            
            
            (5,088
            )Foreign
      currency gains/ (losses)
            
            
            
            
            
            
            3
            
            
            
            (33
            )
            
            
            (90
            )Operating
      Income / (Loss)
            
            
            
            
            
            
            (751
            )
            
            
            10,466
            
            
            
            31,794Other
      income / (expenses)Interest
      and finance costs
            
            
            13
            
            
            
            (1
            )
            
            
            (7,483
            )
            
            
            (18,579
            )Interest
      income
            
            
            
            
            
            
            12
            
            
            
            1,837
            
            
            
            1,821Change
      in fair value of warrants
            
            
            5
            
            
            
            -
            
            
            
            -
            
            
            
            1,071Loss
      on derivative instruments
            
            
            8
            
            
            
            -
            
            
            
            (255
            )
            
            
            (1,221
            )Total
      other income / (expenses), net
            
            
            
            
            
            
            11
            
            
            
            (5,901
            )
            
            
            (16,908
            )INCOME/
      (LOSS) FROM CONTINUING OPERATIONS
            
            
            
            
            
            
            (740
            )
            
            
            4,565
            
            
            
            14,886DISCONTINUED OPERATIONSIncome
      / (Loss) from discontinued operations of the dry-bulk carrier fleet
      (including a gain on extinguishment of debt of $5,000 in
    2006)
            
            
            
            
            
            
            5,118
            
            
            
            11,249
            
            
            
            (155
            )Impairment
      loss on disposal of dry bulk carrier vessels
            
            
            5
            
            
            
            -
            
            
            
            (1,686
            )
            
            
            -INCOME
      / (LOSS) FROM DISCONTINUED OPERATIONS
            
            
            
            
            
            
            5,118
            
            
            
            9,563
            
            
            
            (155
            )Net
      income
            
            
            
            
            
            $
            4,378
            
            
            
            14,128
            
            
            
            14,731Earnings / (Loss) per common share, basic and
      diluted:
            
            
            9-
      From
      continuing operationsEarnings
      / (Loss) per Class A common share, basic
            
            
            
            
            
            $
            (0.23
            )
            
            
            0.42
            
            
            
            0.98Earnings
      / (Loss) per Class A common share, diluted
            
            
            
            
            
            $
            (0.23
            )
            
            
            0.42
            
            
            
            0.95Earnings
      / (Loss) per Class B common share, basic and diluted
            
            
            
            
            
            $
            (0.23
            )
            
            
            0.30
            
            
            
            0.98Weighted
      average number of Class A common shares, basic
            
            
            
            
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,010,000Weighted
      average number of Class A common shares, diluted
            
            
            
            
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,488,976Weighted
      average number of Class B common shares, basic and diluted
            
            
            
            3,140,000
            
            
            
            3,140,000
            
            
            
            3,140,000-
      From
      discontinued operationsEarnings
      per Class A common share, basic and diluted
            
            
            
            
            
            $
            1.91
            
            
            
            0.87
            
            
            
            (0.01
            )Earnings
      per Class B common share, basic and diluted
            
            
            
            
            
            $
            1.62
            
            
            
            0.63
            
            
            
            (0.01
            )Weighted
      average number of Class A common shares, basic
            
            
            
            
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,010,000Weighted
      average number of Class A common shares, diluted
            
            
            
            
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,488,976Weighted
      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
            
            
            
            
            
            $
            1.68
            
            
            
            1.29
            
            
            
            0.97Earnings
      per Class A common share, diluted
            
            
            
            
            
            $
            1.68
            
            
            
            1.29
            
            
            
            0.94Earnings
      per Class B common share, basic and diluted
            
            
            
            
            
            $
            1.39
            
            
            
            0.93
            
            
            
            0.97Weighted
      average number of Class A common shares, basic
            
            
            
            
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,010,000Weighted
      average number of Class A common shares, diluted
            
            
            
            
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,488,976Weighted
      average number of Class B common shares, basic and diluted
            
            
            
            3,140,000
            
            
            
            3,140,000
            
            
            
            3,140,000The
      accompanying notes are an integral part of these consolidated financial
      statements.





F-5







OMEGA
      NAVIGATION ENTERPRISES, INC.
                  CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY
                  FOR
      THE PERIOD FROM FEBRUARY 28, 2005 (DATE OF INCEPTION) THROUGH DECEMBER 31,
      2005
                  AND
      FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2007
                  (Expressed
      in thousands of U.S. Dollars – except share and per share
      data)Class
      A
                
                
                Class
      BCommon
      Stock
                
                
                Common
      StockComprehensive
                  Income
                
                
                #
      of shares
                
                
                Par
      value
                
                
                #
      of shares
                
                
                Par
      value
                
                
                Additional
      Paid-in Capital
                
                
                Retained
      Earnings/(Accumulated Deficit)
                
                
                TotalBalance
      February 28, 2005 (date of inception)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                --  Capital
      contributions
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,000
                
                
                
                -
                
                
                
                10,000-  Issuance
      of capital stock
                
                
                -
                
                
                
                10,000
                
                
                
                -
                
                
                
                3,140,000
                
                
                
                31
                
                
                
                (1
                )
                
                
                -
                
                
                
                30-  Net
      income
                
                
                4,378
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,378
                
                
                
                4,378Comprehensive
      income
                
                $
                4,378Balance,
      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 and paid
                  ($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
                )
                
                
                184,874The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
 F-6








OMEGA
      NAVIGATION ENTERPRISES, INC.
              CONSOLIDATED
      STATEMENTS 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 AND DECEMBER 31,
      2007
              (Expressed
      in thousands of U.S. Dollars)2005
            
            2006
            
            2007Cash
      flows from operating activities:Net
      income / (loss) from continuing operations
            $
            (740)
            
            4,565
            
            14,886Adjustments
      to reconcile net income / (loss) to net cash from operating
      activities:Depreciation
      and amortization
            
            -
            
            7,236
            
            17,557Amortization
      and write-off of loan fees
            
            -
            
            197
            
            307Stock
      based compensation
            
            -
            
            -
            
            457Unrealized
      loss on derivative instruments
            
            -
            
            313
            
            1,266Options’
      premium
            
            -
            
            200
            
            200Change
      in fair value of warrants
            
            -
            
            -
            
            (1,071)(Increase)
      / Decrease in:Receivables
            
            -
            
            (18)
            
            (150)Prepayments
      and other
            
            -
            
            (452)
            
            (386)Inventories
            
            -
            
            (504)
            
            4Increase
      / (Decrease) in:Accounts
      payable
            
            335
            
            989
            
            (465)Accrued
      liabilities
            
            750
            
            109
            
            1,849Deferred
      revenue
            
            -
            
            2,367
            
            (498)Dividends
      payable
            
            -
            
            -
            
            111Net
      cash provided by-continuing operating activities
            
            345
            
            15,002
            
            34,067Net
      cash provided by/ (used in)-discontinued operating
    activities
            
            9,226
            
            7,728
            
            (695)Net
      cash provided by operating activities
            
            9,571
            
            22,730
            
            33,372Cash
      flows provided by /(used in) investing activities:Vessels
      acquisition
            
            -
            
            (357,495)
            
            (120,292)Advances
      for vessels acquisition
            
            -
            
            (400)
            
            (44,865)Property
      and equipment acquisition
            
            -
            
            (172)
            
            (21)Net
      cash used in investing activities-continuing operations
            
            -
            
            (358,067)
            
            (165,178)Net
      cash provided by /(used in) investing activities-discontinued
      operations
            
            (43,364)
            
            -
            
            81,468Net
      cash used in investing activities
            
            (43,364)
            
            (358,067)
            
            (83,710)4Cash
      flows from financing activities:Capital
      contributions, net of related costs
            
            10,030
            
            159,874
            
            -Initial
      public offering related costs
            
            (1,163)
            
            -
            
            -Proceeds
      from bank credit facilities
            
            -
            
            203,000
            
            156,760Proceeds
      from stockholder’s short-term financing
            
            377
            
            69
            
            -Payments
      of stockholder’s short-term financing
            
            (255)
            
            (191)
            
            -Financing
      costs
            
            -
            
            (1,245)
            
            (537)Dividends
      paid
            
            -
            
            (15,150)
            
            (30,411)Principal
      payments of bank credit facilities
            
            -
            
            (2,161)
            
            (33,320)(Increase)
      / decrease in restricted cash
            
            -
            
            (5,769)
            
            272Net
      cash provided by financing activities-continuing
operations
            
            8,989
            
            338,427
            
            92,764Net
      cash provided by /(used in) financing activities-discontinued
      operations
            
            29,862
            
            (4,286)
            
            (37,395)Net
      cash provided by financing activities
            
            38,851
            
            334,141
            
            55,369Net
      increase / (decrease) in cash and cash equivalents
            
            5,058
            
            (1,196)
            
            5,031Cash
      and cash equivalents at beginning of period/year
            
            -
            
            5,058
            
            3,862Cash
      and cash equivalents at end of period/year
            $
            5,058
            
            3,862
            
            8,893Supplemental
      cash flow informationCash
      paid during the period/year for interest on bank loans
            $
            2,433
            
            8,966
            
            17,199Cash
      paid during the period/year for interest on sellers’ notes
            $
            706
            
            1,632
            
            -Non-cash
      financing activitiesSeller’s
      notes for vessel acquisitions
            $
            72,500
            
            -
            
            -Reduction
      in sellers’ note due to sale of vessel
            $
            (28,000)
            
            -
            
            -Extinguishment
      of sellers’ notes
            $
            -
            
            (5,000)
            
            -Issuance
      of warrants for vessels’ acquisition
            $
            -
            
            -
            
            8,168The
      accompanying notes are an integral part of these consolidated financial
      statements





F-7
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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, following the sale of its dry bulk carrier vessels as discussed in Note
5, is currently engaged in the ocean transportation services of crude and
refined petroleum products. Omega is the sole owner of all outstanding shares of
the following subsidiaries:





Ship-owning companies with vessels in operation at
      December 31, 2007Company
            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
      2007Ship-owning companies with vessels under
      construction at December 31, 2007Company
            Country
      of incorporation
            Hull
      Number
            Type
      of
              vessel
            Expected
      Year of deliveryTyler
      Navigation Inc
            Marshall
      Islands
            2189
            Product
      Tanker
            2010Pasedena
      Navigation Inc
            Marshall
      Islands
            2190
            Product
      Tanker
            2010Sunray
      Navigation Inc
            Marshall
      Islands
            2191
            Product
      Tanker
            2010Nederland
      Navigation Inc
            Marshall
      Islands
            2192
            Product
      Tanker
            2010Lakeview
      Navigation Inc
            Marshall
      Islands
            2193
            Product
      Tanker
            2011Ship-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
      2007Other 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, 2007
 (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.





The
Company’s dry bulk carrier vessels were managed, up to the date of their sale
discussed in Note 5, by Target Marine S.A., a company beneficially owned by a
relative of Mr. George Kassiotis, the Company’s President and Chief Executive
Officer, who is not an immediate family member of Mr.
Kassiotis.  Neither Mr. Kassiotis nor any of the Company’s other
directors or officers have any ownership interest in Target Marine
S.A.  Vessels’ management fees and operating expenses charged by
Target Marine S.A. for the period from February 28, 2005 (date of inception)
through December 31, 2005 and for the years ended December 31, 2006 and 2007
amounted to $372 and $2,791, $365 and $2,757 and $35 and $136 respectively and,
following the Company’s decision to dispose off its dry bulk carrier vessels,
are included in income from discontinued operations in the accompanying
consolidated statements of income. The related agreements were terminated upon
delivery of the vessels to their new owners (Note 5).





During
the years ended December 31, 2005, 2006, 2007, six charterers individually
accounted for 10% or more of the Company’s voyage and time charter revenues as
follows:





Charterer
            
            2005
            
            2006
            
            2007
            
            Reportable
      segment (Note 15)A
            
            39%
            
            33%
            
            -
            
            Dry
      bulk carriersB
            
            15%
            
            -
            
            -
            
            Dry
      bulk carriersC
            
            12%
            
            -
            
            -
            
            Dry
      bulk carriersD
            
            -
            
            26%
            
            28%
            
            Product
      tankersE
            
            -
            
            19%
            
            50%
            
            Product
      tankersF
            
            -
            
            18%
            
            22%
            
            Product
      tankers








F-9
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)








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 its wholly-owned subsidiaries referred to in Note 1
      above. All significant intercompany balances and transactions have been
      eliminated in consolidation.





(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 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.





F-10
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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):





(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,
      2006 and 2007.





(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.





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 and $60 in 2006
      and 2007 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.





F-11
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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):





(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 which is approximately 30 months. 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 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.
      Measurement of the impairment loss is based on the fair value of the asset
      as provided by third parties. In this respect, management regularly
      reviews the carrying amount of the vessels in comparison with the fair
      value of the asset as provided by third parties for each of the Company’s
      vessels. The review for impairment of each vessel’s carrying amount as of
      December 31, 2005, 2006 and 2007 did not result in an indication of an
      impairment loss.





(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 ratably 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, 2007
 (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 the Company was
      incorporated on February 28, 2005 but did not commence operations nor
      issue any shares of its common stock until March 2, 2005, the common stock
      issued to the Company’s then sole shareholder (as discussed in Note 11) is
      considered as outstanding for the entire period from February 28, 2005
      (date of inception) to December 31, 2005 for purposes of both basic and
      diluted earnings per share calculations. 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 period from February 28,
      2005 (date of inception) to December 31, 2005 and the year ended December
      31, 2006, while for the year ended December 31, 2007, 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 and 2007 amounted to
      $68 and $136 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, 2006 and 2007 amounted to $24 and $35,
      respectively.

















F-13
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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):





(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.





(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”, 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.

















F-14
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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):





(x)
            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 Notes 1 and 5, the Company has disposed
      of its dry bulk carriers segment.





(y)
            Recent
      accounting pronouncements: In September 2006 SFAS No. 157 “Fair
      Value Measurements” was issued. SFAS No. 157 provides guidance for using
      fair value to measure assets and liabilities. SFAS No. 157 also responds
      to investors’ requests for expanded information about the extent to which
      companies measure assets and liabilities at fair value, the information
      used to measure fair value, and the effect of fair value measurements on
      earnings. The standard applies whenever other standards require (or
      permit) assets or liabilities to be measured at fair value. SFAS No. 157
      does not expand the use of fair value in any new circumstances. Under the
      standard, fair value refers to the price that would be received to sell an
      asset or paid to transfer a liability in an orderly transaction between
      market participants in the market in which the reporting entity transacts.
      SFAS No. 157 clarifies the principle that fair value should be based on
      the assumptions market participants would use when pricing the asset or
      liability. In support of this principle, the standard establishes a fair
      value hierarchy that prioritizes the information used to develop those
      assumptions. The fair value hierarchy gives the highest priority to quoted
      prices in active markets and the lowest priority to unobservable data, for
      example, the reporting entity’s own data. Under SFAS No. 157, fair value
      measurements would be separately disclosed by level within the fair value
      hierarchy. SFAS No. 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. Early adoption is permitted. The Company will adopt
      this pronouncement beginning in fiscal year 2008. The adoption of the
      standard is not expected to have a material effect on the Company’s
      financial position or results of
operations.




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. This scope exception does not
apply to assets and liabilities assumed in a business combination that are
required to be measured at fair value under SFAS No. 141, “Business
Combinations”, or No. 141(R) “Business Combinations”, regardless of whether
those assets or liabilities are related to leases. 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. The Company will apply the provisions of SFAS No.
157 to non – financial assets and non – financial liabilities beginning in
fiscal year 2009. The Company does not expect the adoption of SFAS No. 157 to
have a material effect on its consolidated financial statements.





F-15
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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):





In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159 “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS
No.159 permits the entities to choose to measure many financial instruments and
certain other items at fair value that are not currently required to be measured
at fair value. This standard is expected to expand the use of fair value
measurement, which is consistent with the Board’s long-term measurement
objectives for accounting for financial instruments. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This standard also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities.
SFAS No.159 is effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007. Early adoption is permitted as of the
beginning of a fiscal year on or before November 15, 2007, provided the entity
also elects to apply the provisions of SFAS No. 157. This standard will be
effective for the Company for the fiscal year beginning on January 1, 2008. The
Company evaluated the guidance contained in SFAS No. 159 and has elected not to
report any existing financial assets or liabilities (other than those currently
reported)  at fair value, therefore, the adoption of the statement is
not expected to have any impact on the Company’s financial position and results
of operation. The Company, however, retains the ability to elect the fair value
option for certain assets and liabilities acquired under this new
pronouncement.





In
December, 2007, the FASB issued SFAS No. 141(R) “Business Combinations” which
revises SFAS No. 141 “Business Combinations” issued in June 2001, and is
designed to improve the relevance, representational fairness and comparability
and information that a reporting entity provides about a business combination
and its effects. SFAS No. 141(R) establishes principles and requirements for how
the acquirer recognizes assets, liabilities and non-controlling interests, how
to recognize and measure goodwill and the disclosures to be made. The standard
applies to all transactions in which an entity obtains control of a business and
is effective for the Company for acquisitions on or after January 1, 2009.
The Company is currently evaluating the impact of the adoption of this standard,
if any.





In
December 2007, the FASB issued SFAS No. 160 “Non-controlling Interests in
Consolidated Financial Statements”, an amendment of ARB No. 51. SFAS 160 amends
ARB No. 151 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. This standard applies to all entities that prepare consolidated
financial statements, except not-for-profit organizations. The objective of the
standard is to improve the relevance, compatibility and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements. SFAS No. 160 is effective as of the beginning of an
entity’s fiscal year that begins on or after December 15, 2008. Earlier adoption
is prohibited. This standard will be effective for the Company for the fiscal
year beginning January 1, 2009. The adoption of this standard is not expected to
have a material effect on the 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.





F-16
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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)
            Reclassifications
      of Prior Year Balances: Certain minor reclassifications have been
      made to the 2006 consolidated financial statements to conform to the
      current year presentation. Restricted cash balances of $1,546 relating to
      interest bearing bank accounts (called “retention accounts”) maintained by
      the Company under the terms of the agreement with HSH Nordbank (Note 7),
      previously classified under non current assets have been reclassified to
      current assets cash in the accompanying 2006 consolidated balance sheet.
      Furthermore, an amount of $281 previously classified within short term
      derivative liability has been reclassified to long term liabilities in the
      accompanying 2006 consolidated balance
sheet.





3.     Transactions
with related parties:




(a)
            Cosmos Maritime Corporation
      Inc (“Cosmos”): Within 2007, the Company paid $10 on behalf of
      Cosmos, a newly established company 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. No commissions are paid by the Company
      to the ship brokerage firm.





(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 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
      2007 and 2006 Shoreline’s charges amounted to $22 and $0, 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, 2007 of $22 was fully paid in February
  2008.




4.      Advances
for vessels’ acquisition:




On
February 15, 2006, the Company entered into four option agreements to acquire
four Ice Class 1A double hull Panamax product tankers from sellers affiliated
with Target Marine S.A. (Note 1). The nominal purchase price agreed for each
product tanker was $66.0 million, subject to adjustment based on prevailing
market prices and negotiations upon exercise by the Company of its options. The
product tankers were under construction and expected to be available for
delivery between March 2007 and September 2007. In order to conclude such option
agreements, the Company paid a non-refundable option fee of $100 per agreement.
All of the four options expired (without being exercised), two of them in
November-December 2006 and the two remaining in April-May 2007; the
corresponding fees of $200 per couple of options were written-off upon
expiration and were reflected as Options’ premium in the accompanying 2006 and
2007 consolidated statements of income.  On February 7, 2007, the
Company, following further negotiations
with the sellers, entered into two Memoranda of Agreement for the acquisition of
the two product tankers related to the options expired in November-December
2006, as further discussed in Note 5 below.





F-17
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)








4.     Advances
for vessels’ acquisition – (continued):




On June
15, 2007, the Company entered into five shipbuilding contracts for the
acquisition of five new buildings double hull handymax product tankers, 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) and will be paid 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.





The
amount in the accompanying consolidated balance sheets as of December 31, 2006
and 2007 is analyzed below:





2007
            
            
            2006-
      Options’ premium
            
            
            -
            
            
            
            200-
      Pre-delivery instalments
            
            
            44,235
            
            
            
            --
      Capitalized interest and other related costs
            
            
            634
            
            
            
            -44,869
            
            
            
            200





5.      Vessels,
net:





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





Vessel
      Cost
            
            
            Accumulated
      Depreciation
            
            
            Net
      Book ValueBalance,
      December 31, 2005
            
            
            87,864
            
            
            
            (2,373
            )
            
            
            85,491-
      Vessel acquisitions
            
            
            357,495
            
            
            
            -
            
            
            
            357,495-
      Depreciation
            
            
            -
            
            
            
            (9,544
            )
            
            
            (9,544
            )-
      Vessels reclassified as held for sale
            
            
            (87,864
            )
            
            
            4,710
            
            
            
            (83,154
            )Balance,
      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





On
September 13, 2006, the Company entered into Memoranda of Agreement with
unrelated third party companies to sell its two dry bulk carrier vessels for
$41,250 each. At that date, the Company classified those vessels as “held for
sale”; the results of their operations and cash flows for all periods presented
are reported as discontinued operations in the accompanying consolidated
statements of income and cashflows. Within January 2007, the dry bulk carrier
vessels were sold for a consideration, net of brokerage commissions, of
$81,468.





As
previously discussed in Note 4 above, on February 7, 2007, the Company entered
into two Memoranda of Agreement with sellers affiliated with Target Marine SA.,
for the purchase of two Ice Class 1A double hull Panamax product tankers. On
March 27, 2007 and April 26, 2007, the Company took delivery of the two (2)
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 discussed above and warrants issued by the Company, further discussed
below. Total acquisition cost recorded was $128,432, comprising of cash
consideration of $120 million,





F-18
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)








5.     Vessels,
net – (continued):




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 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. 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 consolidated balance sheet
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 difference in fair values from initial
measurement is separately reflected in the accompanying 2007 consolidated
statement of income. If the settlement of warrants were to occur at December 31,
2007 the Company would issue 500,000 Class A common shares and would pay in cash
additional $760, that is the difference between the $18.00 per share and average
closing price during the 15 business days immediately preceding December 31,
2007. The maximum number of shares that could be required to be issued by the
Company under the specific warrant terms is 500,000 and the maximum amount of
additional cash payment amounts to $1,000.





All of
the Company’s vessels have been provided as collateral to secure the bank credit
facilities discussed in Notes 7 and 16 and, as of December 31, 2007, were
operating under time charters which gradually expire up to May
2010.





6.      Deferred
charges:




The
amounts in the accompanying consolidated balance sheets relate to loan
arrangement fees paid to the Company’s lenders and are analyzed as
follows:





Balance,
      December 31, 2005
            
            
            --
      Additions
            
            
            1,425-
      Amortization
            
            
            (65
            )- Financing fees
      presented as a contra to debt
            
            
            (1,134
            )Balance,
      December 31, 2006
            
            
            226-
      Additions
            
            
            537-
      Amortization
            
            
            (31
            )- Financing fees
      presented as a contra to debt
            
            
            (389
            )Balance,
      December 31, 2007
            
            
            343








F-19
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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 financing of the five new buildings discussed in Note 4
that amounts to $4 and is included in “Advances for vessels’ acquisition” in the
accompanying 2007 consolidated balance sheet.





7.      Long-term
debt:




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





2006
            
            
            2007Term
      loans (Note 16)
            
            
            
            142,906
            
            
            
            180,038Revolving  facility
      (Note 16)
            
            
            
            96,034
            
            
            
            141,807Bridge
      loan facility (Note 16)
            
            
            
            -
            
            
            
            2,433238,940
            
            
            
            324,278Less
      unamortized financing fees
            
            
            
            (863
            )
            
            
            (932
            )Total
            
            
            
            238,077
            
            
            
            323,346Less:
      Current portion of long-term debt (Note 16)
            
            
            
            (49,133
            )
            
            
            (781
            )Long
      -term debt, net of current portion
              
              Portionportion
            
            
            
            188,944
            
            
            
            322,565





The
movement of the Company’s bank debt during 2007 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
            
            
            
            -(II) Bremer (term
      loan)
            
            
            -
            
            
            
            35,802
            
            
            
            175
            
            
            
            (19,890
            )
            
            
            16,087
            
            
            
            39,163(III) Bank of Scotland
      (term loan)
            
            
            -
            
            
            
            15,925
            
            
            
            145
            
            
            
            -
            
            
            
            16,070
            
            
            
            53,930(IV) 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 nominal amounts available under the loan
      facilities.














F-20
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)








7.      Long-term
debt – (continued):





(I)  HSH
Nordbank (“HSH”)





On April
7, 2006, the Company entered into a senior secured credit facility with HSH, as
amended on July 28, 2006, for a maximum of $145.0 million term loan and a
revolving credit facility of a maximum of $150.0 million for the purpose of (i)
repaying the outstanding balance of a term loan facility concluded in 2005 for
the partial financing of the Company’s two (2) dry bulk vessels and (ii)
partially financing the six product tankers acquired in 2006.





On March
21, 2007, the Company repaid $38,102 of the term loan facility relating to the
dry bulk vessels which were disposed as discussed in Note 5 above; the related
term loan deferred financing costs of $41 were written-off against income from
discontinued operations in the accompanying consolidated 2007 statement of
income. Simultaneously, the Company, through a supplemental agreement with HSH
as of the same date, re-borrowed this amount, which was used for the partial
financing of the acquisition of the tanker vessels Omega Emmanuel and Omega
Theodore.





Drawdowns
within 2007 under the revolving facility were used to partly finance the
acquisition of the Omega Emmanuel and the Omega Theodore.





The
senior secured credit facility was payable within 5 years (i.e. up to April 11,
2011) from the initial loan agreement date, in partial semi-annual or quarterly
instalments starting on agreed dates following each draw-down and a final
balloon instalment upon maturity date, which, as of December 31, 2007, amounted
to $242,719.





The
senior secured credit facility bears interest at LIBOR plus a margin
and  is secured by a) first priority mortgages over the borrower’s
vessels; b) pledge of accounts in credit; (c) owners guarantee; (d) assignment
of insurance and earnings of the mortgaged vessels.





The
senior secured credit facility contains financial covenants calculated on a
consolidated basis, requiring the Company to maintain leverage ratio of not more
than 65%, minimum liquidity which is equal to the higher of (i) $4.0 million and
(ii) $500 multiplied by the number


of
vessels with more than six months remaining charter employment and $750
multiplied by the number of vessels with less than six months remaining charter
employment, maintain a working capital of not less than $1 million, maintain a
ratio of EBITDA to interest payable of not less than 3:1, and to ensure that at
all times the fair market value of the vessels securing the facility is not less
than 135% of the outstanding balance of the senior secured credit facility
($295.0 million). 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
the payment of such dividends. Furthermore, the Company maintains with HSH an
interest bearing retention account in which amounts equal to the repayments
falling due on the next repayment date are deposited.





On April
25, 2007 the Company entered into an agreement with HSH for a $2,433 bridge
facility to finance the remainder of the purchase price of the tanker vessels
acquired in 2007. The Company drew down the total amount on April 25, 2007,
shortly before the delivery of Omega Theodore. The bridge loan facility was
initially payable by May 2008. Following the refinancing of the bridge facility
with the Junior Facility discussed in Note 16, it is presented as long-term debt
in the accompanying 2007 consolidated balance sheet.





As of December 31, 2007, the Company
did not meet the working capital maintenance covenant of not less than $1
million discussed above. In addition, the Company was in violation of the
original Interest coverage ratio since March 31, 2007, which provided for
EBITDA/ Interest payable ratio of not less than 3:1.  The Company
received a waiver
from





F-21
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)





7.      Long-term
debt – (continued):





HSH
whereby the ratio was modified until March 31, 2008 to 2:1, when the Company
believed that this deficiency would be cured. Following the restructuring
of the senior secured credit facility with HSH discussed in Note 16 such
non-compliance was remedied and the outstanding balance of the entire facility
with HSH, with the exception of an amount of $781 relating to an instalment that
was due and paid by the Company prior to the restructuring, is presented as
long-term debt in the accompanying 2007 consolidated balance sheet.





(II)  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. The interest of
the first two advances will be deferred until the third instalment to the
shipyard is due.





The
Company has also entered into a commitment letter for a post-delivery facility
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 sixth
instalment 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 commitment remaining undrawn.





(III)
      Bank of Scotland





On
September 7, 2007 the Company 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 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 vessel’s delivery date plus a
balloon payment of $14,730.





(IV) 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.





F-22
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)





7.      Long-term
debt – (continued):




The loan
is be repayable in 40 quarterly instalments ($497.65 each), commencing three
months after delivery of the vessel, plus a balloon instalment equal to
$13,270.





All term
loan facilities discussed in (II), (III), (IV), are secured, prior to the
newbuildings’ delivery by a) first priority assignment of all rights under the
shipbuilding contracts signed on June 15, 2007 b) first priority assignment of
all rights under the relative refund guarantees and c) corporate guarantees.
Upon delivery of the newbuildings the term loan facilities, including the post
delivery facility to which the Company is committed with Bremer, 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 and e) manager’s undertaking. Furthermore, the
term loan facilities above, contain also financial covenants calculated on a
consolidated basis, providing for minimum requirements regarding a) liquidity/
working capital b) ratio of overall debt to total capitalization, c) ratio of
EBITDA to interest expense and d) ratio of market value of the fleet to
outstanding debt (covenant to be in effect upon vessels’ delivery, and for
Bremer loan to be calculated on a standalone, ship-owning subsidiary basis
also).  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.





The
Company pays commitment fees on the undrawn portion of the revolving facility
with HSH and the term loan facilities with the other lending banks, which for
the years 2005, 2006 and 2007 amounted to $0, $249 and $173, respectively and
are included in interest and finance costs in the accompanying consolidated
statements of income.





Total
interest incurred on long-term debt for the year ended December 31, 2005, 2006
and 2007 amounted to $1,738, $9,082 and $17,958, 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 2005, 2006 and 2007 was
4.56%, 6.38% and 6.54% respectively.





The
annual principal payments required to be made after December 31, 2007, following
the Company’s debt restructuring (Note 16), are as follows:





Year
      ended December 31,
            
            Amount2008
            
            
            7812009
            
            
            -2010
            
            
            8,8852011
            
            
            292,8212012
      and thereafter
            
            
            21,791


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 are 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.





In March
2006, the Company entered into two derivative contracts with HSH Nordbank,
consisting of an interest rate swap agreement and a rate collar option (cap and
floor), subsequently amended as to their notional amount and repayment dates, in
order to coincide with those provided in the term loan signed with the same
lending bank (Note 7). The interest rate swap was effective until April
2007.





F-23
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)








8.      Financial
instruments – (continued):





The
Company entered into these financial instruments in order to partially hedge its
exposure to fluctuations in interest rates on its Term Loan. 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 and 2007, 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
            )





The above
realized and unrealised loss from derivative instruments of $255 and $1,221 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, 2006 and 2007 of $313 and $1,579, 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 is subordinated to the right of Class A stockholders as
further discussed in Note 11 (a). 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 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, 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 period
from February 28, 2005 (date of inception) to December 31, 2005 and for the
years ended December 31, 2006 and 2007 are presented below:






F-24






2005
            
            
            2006
            
            
            2007Class
      A common stockWeighted
      average common shares outstanding, basic
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,010,000Add:
      Dilutive effect of non-vested shares
            
            
            -
            
            
            
            -
            
            
            
            29,661Add:
      Dilutive effect of warrants
            
            
            -
            
            
            
            -
            
            
            
            449,315Weighted
      average common shares outstanding, diluted
            
            
            10,000
            
            
            
            8,689,452
            
            
            
            12,488,976Class
      B common stockWeighted
      average common shares outstanding, basic and diluted
            
            
            3,140,000
            
            
            
            3,140,000
            
            
            
            3,140,000







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




The
components of the calculation of basic and diluted earnings/ (loss) per share
for the period from February 28, 2005 (date of inception) to December 31, 2005
and for the years ended December 31, 2006 and 2007 are presented
below:





2005Continuing
      operations
            
            
            Discontinued
      operations
            
            
            TotalNet
      income / (loss)
            
            
            (740
            )
            
            
            5,118
            
            
            
            4,378-
      Less dividends paidClass
      A shares
            
            
            -
            
            
            
            -
            
            
            
            -Class
      B shares
            
            
            -
            
            
            
            -
            
            
            
            -Undistributed
      earnings / (loss)
            
            
            (740
            )
            
            
            5,118
            
            
            
            4,378Allocation
      of undistributed earnings:To
      Class A shares-
      10,000 shares at $1.68 per share in total
            
            
            (2
            )
            
            
            19
            
            
            
            17To
      Class B shares-
      3,140,000 shares at $1.39 per share in total
            
            
            (738
            )
            
            
            5,099
            
            
            
            4,361To
      all Class A and Class B shares, pro rata, as if they were a single
      class
            
            
            -
            
            
            
            -
            
            
            
            -Undistributed
      earnings / (loss)
            
            
            (740
            )
            
            
            5,118
            
            
            
            4,378





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
            
            
            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
            )










F-25
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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:





2005
            
            
            2006
            
            
            2007Continuing
      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
            
            
            
            2.00Undistributed
      earnings/ (loss)
            
            
            (0.23
            )
            
            
            (0.23
            )
            
            
            (0.03
            )
            
            
            (0.02
            )
            
            
            (1.02
            )
            
            
            (1.02
            )Total
            
            
            (0.23
            )
            
            
            (0.23
            )
            
            
            0.42
            
            
            
            0.30
            
            
            
            0.98
            
            
            
            0.98





DilutedDistributed
      earnings
            
            
            -
            
            
            
            -
            
            
            
            0.45
            
            
            
            0.32
            
            
            
            1.93
            
            
            
            2.00Undistributed
      earnings/ (loss)
            
            
            (0.23
            )
            
            
            (0.23
            )
            
            
            (0.03
            )
            
            
            (0.02
            )
            
            
            (0.98
            )
            
            
            (1.02
            )Total
            
            
            (0.23
            )
            
            
            (0.23
            )
            
            
            0.42
            
            
            
            0.30
            
            
            
            0.95
            
            
            
            0.98





Discontinued
      OperationsBasicDistributed
      earnings
            
            
            -
            
            
            
            -
            
            
            
            0.94
            
            
            
            0.68
            
            
            
            -
            
            
            
            -Undistributed
      earnings/ (loss)
            
            
            1.91
            
            
            
            1.62
            
            
            
            (0.07
            )
            
            
            (0.05
            )
            
            
            (0.01
            )
            
            
            (0.01
            )Total
            
            
            1.91
            
            
            
            1.62
            
            
            
            0.87
            
            
            
            0.63
            
            
            
            (0.01
            )
            
            
            (0.01
            )




DilutedDistributed
      earnings
            
            
            -
            
            
            
            -
            
            
            
            0.94
            
            
            
            0.68
            
            
            
            -
            
            
            
            -Undistributed
      earnings/ (loss)
            
            
            1.91
            
            
            
            1.62
            
            
            
            (0.07
            )
            
            
            (0.05
            )
            
            
            (0.01
            )
            
            
            (0.01
            )Total
            
            
            1.91
            
            
            
            1.62
            
            
            
            0.87
            
            
            
            0.63
            
            
            
            (0.01
            )
            
            
            (0.01
            )





Continuing
      and Discontinued OperationsBasicDistributed
      earnings
            
            
            -
            
            
            
            -
            
            
            
            1.39
            
            
            
            1.00
            
            
            
            2.00
            
            
            
            2.00Undistributed
      earnings/ (loss)
            
            
            1.68
            
            
            
            1.39
            
            
            
            (0.10
            )
            
            
            (0.07
            )
            
            
            (1.03
            )
            
            
            (1.03
            )Total
            
            
            1.68
            
            
            
            1.39
            
            
            
            1.29
            
            
            
            0.93
            
            
            
            0.97
            
            
            
            0.97





DilutedDistributed
      earnings
            
            
            -
            
            
            
            -
            
            
            
            1.39
            
            
            
            1.00
            
            
            
            1.93
            
            
            
            2.00Undistributed
      earnings/ (loss)
            
            
            1.68
            
            
            
            1.39
            
            
            
            (0.10
            )
            
            
            (0.07
            )
            
            
            (0.99
            )
            
            
            (1.03
            )Total
            
            
            1.68
            
            
            
            1.39
            
            
            
            1.29
            
            
            
            0.93
            
            
            
            0.94
            
            
            
            0.97


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.





F-26
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)








10.   Commitments
and contingencies – (continued):





Contracts for vessels under
construction: Refer to discussion made in Note 4, in connection with the
Company’s five (5) 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. 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
1,850 and Euro 2,220 ($US dollars 2,723 and $US dollars 3,268 respectively using
the exchange rate of U.S. dollar/Euro at December 31, 2007). The monthly rental,
following the amendment of April 2008, will be Euro 2,050 and Euro 2,450. Rental
expense for the period from February 28, 2005 (date of inception) through
December 31, 2005 and for the years ended December 31, 2006 and 2007 amounted to
$17, $42 and $65, 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 2008 and 2009, using the exchange rate of U.S. dollar/Euro at December 31,
2007, will be approximately $78 and $13, respectively.





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 2008, 2009, 2010, 2011,
2012 and 2013 will be $153, $141 $112, $112, $93 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 is expected to end on the first day
      after the quarter ending December 31, 2008, subject to preconditions, as
      defined in the Company’s amended and restated articles of
      incorporation. 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-27
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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 year ended December 31, 2007, the Company declared and paid
      dividends of $30,411.





(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, 2005 and 2006, no stock and/or options were granted
      under the plan. During the year ended December 31, 2007 the Company
      granted restricted shares as
follows:





(i)
Restricted shares granted to Officers: On February 8, 2007 the Company granted
restricted shares pursuant to the Company’s Stock Incentive Plan (the “Plan”)
and entitle the Company’s officers, key employees and directors to receive
option to acquire Class A common stock. The Plan is administered by the Board of
Directors and granted 54,138 shares of restricted common stock to CEO, COO and
CFO.




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-28
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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 to CEO, COO and CFO amounted to
$828 and is being recognized rateably as compensation cost in the consolidated
income statement over the three year vesting period, of which $400 was
recognized as general and administrative expenses in the accompanying 2007
consolidated statement of


income.
As of December 31, 2007 the total unrecognized cost related to the restricted
shares is $428 which is expected to be recognized until February 2010. The fair
value of each share granted on February 8, 2007 was $15.29 and is equal to the
market value of the Company’s common stock as of that date.





(ii)
Restricted shares granted to non executive directors: On July 26, 2007 the
Company’s Board of Directors granted six thousand (6,000) 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 to non executive directors
amounted to $131 and is being recognized ratably as compensation in the
consolidated income statement over the one year vesting period, of which $57 was
recognized as general and administrative expenses in the accompanying 2007
consolidated statement of income. As of December 31, 2007 the total unrecognized
cost related to the above restricted shares is $74 which is expected to be
recognized until July 2008. The fair value of each share granted on July 26,
2007 was $21.84 and is equal to the market value of the Company’s common stock
as of that date.





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 classified as general and administrative
expenses in the accompanying 2007 consolidated statement of income.





During
the year ended December 31, 2007 the amount of dividends declared and deposited
into the interest-bearing account discussed above on the restricted shares
granted under the Plan, amounted to $111 and is recognized in the financial
statements as a charge to retained earnings.





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





Number
      of 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

















F-29
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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 operations2005
            
            
            2006
            
            
            2007Voyage
      expensesCommissions
            
            
            -
            
            
            
            335
            
            
            
            864Other
            
            
            -
            
            
            
            6
            
            
            
            66-
            
            
            
            341
            
            
            
            930





Vessel
      Operating ExpensesCrew
      wages and related costs
            
            
            -
            
            
            
            2,651
            
            
            
            7,314Spares
      and consumables
            
            
            -
            
            
            
            1,122
            
            
            
            2,394Pre
      delivery expenses
            
            
            -
            
            
            
            659
            
            
            
            862Insurances
            
            
            -
            
            
            
            650
            
            
            
            1,507Inspection-Surveys-Safety
            
            
            -
            
            
            
            262
            
            
            
            644Repairs
      and maintenance
            
            
            -
            
            
            
            134
            
            
            
            144Other
            
            
            -
            
            
            
            191
            
            
            
            256-
            
            
            
            5,669
            
            
            
            13,121





Discontinued operations2005
            
            
            2006
            
            
            2007Voyage
      expenses
            
            
            830
            
            
            
            835
            
            
            
            8Vessel
      Operating Expenses
            
            
            2,791
            
            
            
            2,757
            
            
            
            135





Vessel
operating expenses under discontinued operations related to the two dry bulk
carriers and were paid to Target Marine S.A. (see Note 1) at an agreed fixed
daily rate per vessel.




13.   Interest
and finance costs:




Interest
and finance costs are analyzed as follows:





2005
            
            
            2006
            
            
            2007Continuing operationsInterest
      expense
            
            
            -
            
            
            
            6,711
            
            
            
            18,464Less:
      Interest capitalized
            
            
            -
            
            
            
            -
            
            
            
            (590
            )Interest
      expense, net
            
            
            -
            
            
            
            6,711
            
            
            
            17,874Bank
      credit facility commitment fees
            
            
            -
            
            
            
            249
            
            
            
            173Amortization
      and write-off of financing costs
            
            
            -
            
            
            
            197
            
            
            
            307Other
      finance costs
            
            
            1
            
            
            
            326
            
            
            
            2251
            
            
            
            7,483
            
            
            
            18,579





Discontinued operationsInterest
      on bank credit facilities
            
            
            1,738
            
            
            
            2,371
            
            
            
            84Interest
      on Sellers’ Notes
            
            
            1,969
            
            
            
            369
            
            
            
            -Amortization
      and write-off of financing costs
            
            
            131
            
            
            
            139
            
            
            
            41Other
      finance costs
            
            
            365
            
            
            
            104
            
            
            
            44,203
            
            
            
            2,983
            
            
            
            129








F-30
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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 2005, 2006
and 2007, the Company would be subject to U.S. federal income tax of
approximately $0 million, $0.2 million and $0.4 million, respectively, in the
absence of an exemption under Section 883.














F-31
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (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, 2005, 2006 and 2007 and for the period from February 28, 2005 (date
of inception) through December 31, 2005 and for the years ended December 31,
2006 and 2007. 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
      tankers2005
            
            Panamax
      tankers
            
            
            Handymax
      tankers
            
            
            Dry
      bulk carriers
            
            
            Other
            
            
            TotalRevenues
      from external customers
            
            
            -
            
            
            
            -
            
            
            
            16,015
            
            
            
            -
            
            
            
            16,015Segment
      income/ (loss)
            
            
            -
            
            
            
            -
            
            
            
            5,118
            
            
            
            (740
            )
            
            
            4,378Total
      assets
            
            
            -
            
            
            
            -
            
            
            
            90,375
            
            
            
            2,017
            
            
            
            92,392





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





Dry bulk
carriers segment was discontinued effective September 2006, as further discussed
in Note 5. For the year ended December 31, 2007, the segment of handymax tankers
includes the five new building vessels discussed in Note 4.







F-32
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)





16.   Subsequent
events:




a)
            Declaration of dividends:On February 6, 2008, the Company declared dividends amounting to
      $7,605 or $0.50 per share. The dividends were paid on March 3, 2008 to the
      stockholders of record as of February 21,
2008.





b)
            Shareholder rights plan:
      On February 22, 2008 the Company’s Board of Directors has approved a
      shareholder rights plan. The Company declared a dividend of one preferred
      share purchase right to purchase one one-thousandth of the Company’s
      Series A Participating Preferred Stock for each outstanding share of the
      Company’s common stock, par value $0.01 per share. Each right entitles the
      register holder to purchase from the Company one one-thousandth of a share
      of series A Participating Preferred Stock at an exercise price of $60.
      Rights under the plan were issued to shareholders of record as of March 7,
      2008. The rights will expire on March 7,
2018.





The
rights will become exercisable upon the earlier of (a) the tenth day after a
person or group of affiliated or associated persons (“Acquiring Person”) has
acquired, or obtained the rights to acquire, beneficial ownership of 15% or more
of the common shares then outstanding, or (b) the tenth business day after a
person or group announces a tender or exchange offer, the consummation of which
would result in ownership by a person or group of 15% or more of the Company’s
then outstanding common shares. Persons who are beneficial owners of 15% or more
of the Common Shares outstanding on the effective date of the rights agreement
are excluded from the definition of “Acquiring Person” until such time as they
acquire additional shares of stock in an amount equal to 10% of the common
shares, and therefore until such time, these stockholders will not be deemed to
be Acquiring Persons. In the event that the rights are triggered shareholders of
record will be able to exercise each right to receive, upon payment of the
exercise price, shares of common stock having a market value equal to twice the
exercise price. An Acquiring Person will not be entitled to exercise any
rights.





c)
            Executive officer’s and
      employees compensation: On March 20, 2008, the Board of Directors
      approved an increase of the annual compensation of the Company’s executive
      officers as well as a bonus and incentive stock compensation. The annual
      compensation of the Company’s CEO, COO and CFO was increased from $850 to
      $1,150. Furthermore, on the same date the Board of Directors approved the
      reward of the Company’s executive officers by means of a bonus and
      incentive stock compensation that amounted to $850. Each executive officer
      was awarded to receive an amount equal to one year salary and had the
      option to receive up to $100 in cash and the remaining balance in
      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 $71 and in addition an amount of $51 following management
      approval awarded as bonus to the companies employees respectively. The
      amount of $300 that is the amount that the executive officers had the
      option to receive in cash as well as the amount of one month additional
      compensation that amounted to $122 was accrued in the accompanying
      financial statements and included in General and Administrative Expenses
      as of and for the year ended December 31, 2007. The immediately vested
      shares will be recognized as expense in the first quarter 2008 according
      to the provisions of FASB Statement 123(R) “Accounting for Stock-Based
      Compensation”.





d)
            Restricted shares granted to
      executive officers and key persons: On March 20, 2008 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 53,357
      shares of restricted common stock to CEO, COO and CFO as well as 8,815
      shares of restricted common stock to key persons. The shares will be
      vested in three years of which 25% will become vested one year after the
      grant date, 25% will become vested two years after the grant date and 50%
      will become vested three years after the grant date. The Company will
      follow the provisions of FASB
Statement





F-33
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)








16. 
 Subsequent events – (continued):





123(R)
“Accounting for Stock-Based Compensation” for purposes of accounting of such
share-based payments.





e)
            Debt restructuring:On
      March 28, 2008, the Company completed through a supplemental agreement,
      the restructuring of its existing debt facility with HSH and entered into
      a new $42.5 million Junior Facility with NIBC Bank N.V. (“NIBC” and Bank
      of Tokyo-Mitsubishi UFJ Ltd.
(“BTMU”)





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
amended facility with HSH provides for interest rate at LIBOR plus a margin, and
contains the following amended financial covenants calculated on a consolidated
basis: a) ratio of fleet market value to Debt 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.  The facility will continue to be
secured by a first mortgage on the Company's current fleet of eight
vessels.





The
Junior Facility of $42.5 million was used to fund the repayment of (i) the
revolving credit facility with HSH, (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 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 and junior credit facility falls
below 125% and in case an event of default has occurred.





Both the
restructured credit facility with HSH Nordbank and the Junior Facility have a
term until April of 2011 and will be non amortizing.








F-34
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)





16.   Subsequent
events – (continued):





f)
            Νew Interest rate
      swap  and collar agreements
              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. 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%.These financial instruments have not been designated as hedges
      and accordingly, the changes in their fair values will be reported in
      earnings.





g)
            Declaration of dividends:On May 7, 2008, the Company declared dividends amounting to $7,657
      or $0.50 per share, which were paid on May 30, 2008 to the stockholders of
      record as of May 20, 2008.





h)
            Vessel acquisitions:On
      May 9, 2008, the Company, through two wholly owned ship owning
      subsidiaries established on April 18, 2008, entered into a two Memoranda
      of Agreement, with an unaffiliated third party for the purchase of two
      newbuilding double hull Handymax product tankers, currently under
      construction (hulls No 2198 and 2143) scheduled to be delivered in the
      second quarter 2009 and third quarter 2010, respectively. The purchase
      consideration for each vessel was agreed to $55.5 million. Concurrently
      with the Memoranda of  Agreement, the Company entered into three
      years time charter agreements with ST Shipping, for the hulls above,
      commencing upon their delivery at the gross daily rate of $US
      Dollars21,135 per vessel plus profit share of 50% over any earnings
      achieved in excess of such daily
rate.





An
advance payment of $11.1 million (10% of the vessels’ purchase consideration)
was made on May 29, 2008 from cash available from operations and the proceeds
under a loan facility concluded in this respect with Lloyds TSB Bank PLC, as
further described below.





i)
            New term loan facilities:On May 28, 2008 the Company entered into a predelivery term loan
      facility with Lloyds TSB Bank PLC (“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. The term loan will be 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 2:1, 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 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.








F-35
 OMEGA
NAVIGATION ENTERPRISES INC.
 Notes to
consolidated financial statements December 31, 2007
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)





16. 
 Subsequent events – (continued):





Furthermore
on May 28, 2008 the Company also entered into a post delivery credit facility
with Lloyds Bank to fund the balance of 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'





The
Company will be required to pay on a quarterly basis a commitment fee of 0.45%
on the undrawn portion of the Term Loan Facility and an agency fee of $15 on an
annual basis.





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.





SK 23286 0002 881788
v7








F-36