UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
DC 20549
 _________________
  FORM
20-F _________________
 
 
 o
              REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE
      ACT OF 1934ORx
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2009ORo
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period
      from              toORo
              SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934Date
      of event requiring this shell company report. . . . . . . . . . . . . . .Commission
      file number 001-33976OMEGA
      NAVIGATION ENTERPRISES, INC.(Exact
      name of Registrant as specified in its charter)Omega
      Navigation Enterprises, Inc.(Translation
      of Registrant's name into English)Republic
      of the Marshall Islands(Jurisdiction
      of incorporation or organization)61
      Vasilissis Sofias Ave,Athens 115 21 Greece(Address
      of principal executive offices)George
      KassiotisTel:  +
      30 210 413 9130, Fax: + 30 210 422 0230E-mail:
      gkassiotis@omeganavigation.com(Name,
      Telephone, E-mail and/or Facsimile number and Address of Company Contact
      Person)
 
 
  
  
 Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
 
 Title
      of each class
              
              Name
      of each exchange on which registeredClass
      A Common stock, $0.01 par value
              
              NASDAQ
      Global Market
 
 
 Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None
 
 Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 
 Indicate
the number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the annual
report:
 
 As of December 31, 2009,
there were 16,030,079 shares of Class A common stock of the registrant issued
and outstanding.
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 o Yes   x No
 If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
 o Yes   x No
 Note-Checking
the box above will not relieve any registrant required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their
obligations under those Sections.
  Indicate
by check mark whether the registrant (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 o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
 o
Yes  No  o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):
 
 Large
      accelerated filer o
              Accelerated
      filer  oNon-accelerated
      filer    x
  Indicate by check mark which basis of
accounting the registrant has used to prepare the financial statements included
in this filing:
 
 U.S.
      GAAPx
              International
      Financial Reporting Standards as issued by the International Accounting
      StandardsoOthero
 
 If
"Other" has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.
 o  Item
17   o 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).
 o Yes   x No
 
  
  TABLE
OF CONTENTS
  PART
      I
              
              1ITEM
      1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
              1ITEM
      2 - OFFER STATISTICS AND EXPECTED TIMETABLE
              1ITEM
      3 - KEY INFORMATION
              1ITEM
      4 - INFORMATION ON THE COMPANY
              27ITEM
      4A – UNRESOLVED STAFF COMMENTS
              41ITEM
      5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
              41ITEM
      6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
              62ITEM
      7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
              66ITEM
      8 - FINANCIAL INFORMATION
              68ITEM
      9 - THE OFFER AND LISTING
              69ITEM
      10 - ADDITIONAL INFORMATION
              69ITEM
      11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
              77ITEM
      12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
              79PART
      II
              
              79ITEM
      13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
              79ITEM
      14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
              79ITEM
      15 - CONTROLS AND PROCEDURES
              80ITEM
      16A. AUDIT COMMITTEE FINANCIAL EXPERT
              80ITEM
      16 B.  CODE OF ETHICS
              80ITEM
      16C.  PRINCIPAL ACCOUNTANT FEES AND RELATED
    SERVICES
              80ITEM
      16D.  EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT
      COMMITTEES
              80ITEM
      16E.  PURCHASES OF EQUITY SECURITIES BY ISSUER AND AFFILIATED
      PURCHASES
              81ITEM
      16G.  CORPORATE GOVERNANCEPART
      III
              
              81ITEM
      17 - FINANCIAL STATEMENTS
              81ITEM
      18 - FINANCIAL STATEMENTS
              81ITEM
      19 -EXHIBITS
              81INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS
              F-1
  
   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, 2009, 2008, 2007, 2006 and 2005 and for the years ended 2009, 2008,
2007, 2006 and the period from February 28, 2005 (date of inception) through
December 31, 2005. We refer you to the notes to our consolidated financial
statements for a discussion of the basis on which our consolidated financial
statements are presented. The information provided below should be read in
conjunction with Item 5 "Operating and Financial Review and Prospects" and the
consolidated financial statements, related notes and other financial information
included herein.
  In
September 2006, we decided to dispose of our drybulk carrier fleet and sell it
to an unrelated third party. Such operations, which have been eliminated from
the ongoing operations and cash flows of the company, are now presented as
discontinued operations in the consolidated statements of income.
  
  As
      of and for the year ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              As
      of December 31, 2005 and for the period from February 28, 2005 through
      December 31, 2005(Expressed
      in thousands of U.S. Dollars – except share, per share data and average
      daily results)INCOME
      STATEMENT DATAContinuing
      operationsVoyage
      revenues
              
              $
              64,456
              
              
              $
              77,713
              
              
              $
              69,890
              
              
              $
              26,867
              
              
              $
              -Voyage
      expenses
              
              
              (1,535
              )
              
              
              (1,032
              )
              
              
              (930
              )
              
              
              (341
              )
              
              
              -Vessel
      operating expenses
              
              
              (17,260
              )
              
              
              (15,486
              )
              
              
              (13,121
              )
              
              
              (5,669
              )
              
              
              -Depreciation
      and amortization
              
              
              (19,173
              )
              
              
              (18,868
              )
              
              
              (17,557
              )
              
              
              (7,236
              )
              
              
              -Management
      fees
              
              
              (1,283
              )
              
              
              (1,243
              )
              
              
              (1,110
              )
              
              
              (568
              )
              
              
              -Options'
      premium
              
              
              -
              
              
              
              -
              
              
              
              (200
              )
              
              
              (200
              )
              
              
              -
  1
  
 As
      of and for the year ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              As
      of December 31, 2005 and for the period from February 28, 2005 through
      December 31, 2005General
      and administrative expenses (including $1,408, $1,355 and $457 of non cash
      compensation expenses in 2009, 2008 and 2007,
respectively)
              
              
              (6,018
              )
              
              
              (6,085
              )
              
              
              (5,088
              )
              
              
              (2,354
              )
              
              
              (754
              )Foreign
      currency gains/(losses)
              
              
              (122
              )
              
              
              44
              
              
              
              (90
              )
              
              
              (33
              )
              
              
              3Income/(Loss)
      from vessels' operation
              
              
              19,065
              
              
              
              35,043
              
              
              
              31,794
              
              
              
              10,466
              
              
              
              (751
              )Loss
      on termination of purchase agreement
              
              
              (3,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Loss
      from Joint Venture companies
              
              
              (278
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Operating
      Income /(Loss)
              
              
              15,787
              
              
              
              35,043
              
              
              
              31,794
              
              
              
              10,466
              
              
              
              (751
              )Interest
      and finance costs
              
              
              (7,181
              )
              
              
              (14,385
              )
              
              
              (18,579
              )
              
              
              (7,483
              )
              
              
              (1
              )Interest
      income
              
              
              138
              
              
              
              711
              
              
              
              1,821
              
              
              
              1,837
              
              
              
              12Change
      in fair value of warrant
              
              
              1,127
              
              
              
              3,156
              
              
              
              1,071
              
              
              
              -
              
              
              
              -Loss
      on derivative instruments
              
              
              (4,149
              )
              
              
              (13,586
              )
              
              
              (1,221
              )
              
              
              (255
              )
              
              
              -Income/(loss)
      from continuing operations
              
              $
              5,722
              
              
              $
              10,939
              
              
              $
              14,886
              
              
              $
              4,565
              
              
              $
              (740
              )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).
              
              $
              -
              
              
              $
              20
              
              
              $
              (155
              )
              
              $
              9,563
              
              
              $
              5,118Net
      income
              
              $
              5,722
              
              
              $
              10,959
              
              
              $
              14,731
              
              
              $
              14,128
              
              
              $
              4,378Earnings/
      (Loss) per share from continuing operationsEarnings/
      (Loss)  per class A shares basic
              
              $
              0.27
              
              
              $
              0.71
              
              
              $
              0.98
              
              
              $
              0.42
              
              
              $
              (0.23
              )Earnings/
      (Loss)  per class A shares diluted
              
              $
              0.27
              
              
              $
              0.69
              
              
              $
              0.95
              
              
              $
              0.42
              
              
              $
              (0.23
              )
  2
  
 As
      of and for the year ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              As
      of December 31, 2005 and for the period from February 28, 2005 through
      December 31, 2005Earnings/
      (Loss)  per class B shares basic and diluted
              
              $
              1.90
              
              
              $
              0.71
              
              
              $
              0.98
              
              
              $
              0.30
              
              
              $
              (0.23
              )Earnings
      per share from continuing and discontinued operationsEarnings
      per class A shares basic
              
              $
              0.27
              
              
              $
              0.71
              
              
              $
              0.97
              
              
              $
              1.29
              
              
              $
              1.68Earnings
      per class A shares diluted
              
              $
              0.27
              
              
              $
              0.69
              
              
              $
              0.94
              
              
              $
              1.29
              
              
              $
              1.68Earnings
      per class B shares basic and diluted
              
              $
              1.90
              
              
              $
              0.71
              
              
              $
              0.97
              
              
              $
              0.93
              
              
              $
              1.39Weighted
      average number of Class A common shares basic
              
              
              14,825,002
              
              
              
              12,057,717
              
              
              
              12,010,000
              
              
              
              8,689,452
              
              
              
              10,000Weighted
      average number of Class A common shares diluted
              
              
              15,185,237
              
              
              
              12,610,219
              
              
              
              12,488,976
              
              
              
              8,689,452
              
              
              
              10,000Weighted
      average number of Class B common shares basic and diluted
              
              
              825,863
              
              
              
              3,140,000
              
              
              
              3,140,000
              
              
              
              3,140,000
              
              
              
              3,140,000Cash
      dividends
              
              $
              0.50
              
              
              $
              2.00
              
              
              $
              2.00
              
              
              $
              1.00
              
              
              $
              -BALANCE
      SHEET DATACash
      and cash equivalents
              
              $
              15,564
              
              
              $
              16,811
              
              
              $
              8,893
              
              
              $
              3,862
              
              
              $
              5,058Restricted
      cash (current and non-current)
              
              
              5,912
              
              
              
              5,297
              
              
              
              5,498
              
              
              
              6,477
              
              
              
              500Total
      current assets
              
              
              25,214
              
              
              
              18,638
              
              
              
              10,838
              
              
              
              88,974
              
              
              
              5,738Total
      fixed assets
              
              
              494,436
              
              
              
              500,221
              
              
              
              506,223
              
              
              
              350,631
              
              
              
              85,491Total
      assets
              
              
              527,433
              
              
              
              525,296
              
              
              
              522,485
              
              
              
              443,831
              
              
              
              92,392Short
      term debt, sellers' notes and current portion of long-term
      debt
              
              
              343,252
              
              
              
              138
              
              
              
              781
              
              
              
              49,133
              
              
              
              74,994Total
      current liabilities
              
              
              359,533
              
              
              
              14,992
              
              
              
              7,440
              
              
              
              54,509
              
              
              
              77,984Long-term
      debt
              
              
              -
              
              
              
              335,112
              
              
              
              322,565
              
              
              
              188,944
              
              
              
              -Total
      stockholders' equity
              
              $
              167,794
              
              
              $
              166,604
              
              
              $
              184,874
              
              
              $
              200,097
              
              
              $
              14,408CASH
      FLOW DATA
                (Continuing
      operations)Net
      cash provided by operating activities
              
              $
              19,561
              
              
              $
              40,055
              
              
              $
              33,956
              
              
              $
              15,002
              
              
              $
              345Net
      cash used in investing activities
              
              
              (18,883
              )
              
              
              (12,820
              )
              
              
              (165,178
              )
              
              
              (358,067
              )
              
              
              -Net
      cash provided by/ (used in) financing activities
              
              
              (1,925
              )
              
              
              (19,317
              )
              
              
              92,875
              
              
              
              338,427
              
              
              
              8,989
  3
  
 As
      of and for the year ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              As
      of December 31, 2005 and for the period from February 28, 2005 through
      December 31, 2005CASH
      FLOW DATA (Continuing and discontinued operations)Net
      cash provided by operating activities
              
              $
              19,561
              
              
              $
              40,055
              
              
              $
              33,261
              
              
              $
              22,730
              
              
              $
              9,571Net
      cash used in investing activities
              
              
              (18,883
              )
              
              
              (12,820
              )
              
              
              (83,710
              )
              
              
              (358,067
              )
              
              
              (43,364
              )Net
      cash provided by/ (used in) financing activities
              
              
              (1,925
              )
              
              
              (19,317
              )
              
              
              55,480
              
              
              
              334,141
              
              
              
              38,851FLEET
      DATAPanamax
      tankersAverage
      number of vessels (2)
              
              
              6
              
              
              
              6
              
              
              
              5
              
              
              
              2
              
              
              
              -Number
      of vessels at end of period
              
              
              6
              
              
              
              6
              
              
              
              6
              
              
              
              4
              
              
              
              -Average
      age of fleet (in years)
              
              
              4
              
              
              
              3
              
              
              
              2
              
              
              
              2
              
              
              
              -Ownership
      days (3)
              
              
              2,190
              
              
              
              2,196
              
              
              
              1,989
              
              
              
              753
              
              
              
              -Available
      days (4)
              
              
              2,158
              
              
              
              2,186
              
              
              
              1,989
              
              
              
              753
              
              
              
              -Operating
      days (5)
              
              
              2,142
              
              
              
              2,186
              
              
              
              1,989
              
              
              
              753
              
              
              
              -Fleet
      utilization (6)
              
              
              99
              %
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
              
              
              -Handysize
      tankersAverage
      number of vessels (2)
              
              
              2
              
              
              
              2
              
              
              
              2
              
              
              
              1
              
              
              
              -Number
      of vessels at end of period
              
              
              2
              
              
              
              2
              
              
              
              2
              
              
              
              2
              
              
              
              -Average
      age of fleet (in years)
              
              
              3
              
              
              
              2
              
              
              
              1
              
              
              
              0
              
              
              
              -Ownership
      days (3)
              
              
              730
              
              
              
              732
              
              
              
              730
              
              
              
              369
              
              
              
              -Available
      days (4)
              
              
              730
              
              
              
              732
              
              
              
              730
              
              
              
              369
              
              
              
              -Operating
      days (5)
              
              
              729
              
              
              
              732
              
              
              
              730
              
              
              
              369
              
              
              
              -Fleet
      utilization (6)
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
              
              
              -AVERAGE
      DAILY RESULTSPanamax
      tankersTime
      charter equivalent (TCE) rate (7)
              
              $
              22,265
              
              
              $
              25,029
              
              
              $
              25,013
              
              
              $
              25,096
              
              
              $
              -Daily
      vessel operating expenses (8)
              
              $
              6,097
              
              
              $
              5,406
              
              
              $
              4,959
              
              
              $
              5,191
              
              
              $
              -Handysize
      tankersTime
      charter equivalent (TCE) rate (7)
              
              $
              15,981
              
              
              $
              20,772
              
              
              $
              20,786
              
              
              $
              20,675
              
              
              $
              -Daily
      vessel operating expenses (8)
              
              $
              5,352
              
              
              $
              4,938
              
              
              $
              4,463
              
              
              $
              4,768
              
              
              $
              -Non-GAAP
      financial measuresAdjusted
      EBITDA (1)
                (continuing
      operations)
              
              $
              39,088
              
              
              $
              57,068
              
              
              $
              50,422
              
              
              $
              17,702
              
              
              $
              (751
              )Adjusted
      EBITDA (1)
                (continuing
      & discontinued operations)
              
              $
              39,088
              
              
              $
              57,088
              
              
              $
              50,395
              
              
              $
              32,578
              
              
              $
              12,260
 
  4
  
 (1)
              Adjusted
      EBITDA represents net income before interest, taxes, depreciation and
      amortization. Adjusted 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 Adjusted
      EBITDA may not be comparable to that reported by other companies. Adjusted
      EBITDA is included here because it is a basis upon which we assess our
      liquidity position, because it is used by our lenders as a measure of our
      compliance with certain loan covenants, and because we believe that it
      presents useful information to investors regarding our ability to service
      and/or incur indebtedness.
  The
following tables reconcile net cash from operating activities, as reflected in
the consolidated statement of cash flows for the years ended December 31, 2009,
2008, 2007, 2006 and the period from February 28, 2005 (date of inception)
through December 31, 2005, to Adjusted EBITDA:
  Year
      ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              For
      the period from February 28, 2005 through December 31,
2005Continuing
      OperationsNet
      cash from operating activities
              
              $
              19,561
              
              
              $
              40,055
              
              
              $
              33,956
              
              
              $
              15,002
              
              
              $
              345Net
      increase in current and non current assets
              
              
              2,030
              
              
              
              285
              
              
              
              532
              
              
              
              973
              
              
              
              -Net
      increase/ (decrease) in current liabilities excluding bank debt and
      sellers credit
              
              
              (1,215
              )
              
              
              466
              
              
              
              (886
              )
              
              
              (3,465
              )
              
              
              (1,085
              )Stock
      based compensation
              
              
              (1,408
              )
              
              
              (1,355
              )
              
              
              (457
              )
              
              
              -
              
              
              
              -Write
      off of option's premium
              
              
              -
              
              
              
              -
              
              
              
              (200
              )
              
              
              (200
              )
              
              
              -Change
      in fair value of warrant
              
              
              1,127
              
              
              
              3,156
              
              
              
              1,071
              
              
              
              -
              
              
              
              -Loss
      on termination of purchase agreement
              
              
              3,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Payments
      for drydocking costs
              
              
              1,521
              
              
              
              538
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      interest expense
              
              
              15,532
              
              
              
              14,591
              
              
              
              16,713
              
              
              
              5,588
              
              
              
              (11
              )Undistributed
      losses on Joint Venture companies
              
              
              (278
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Amortization
      of financing costs
              
              
              (782
              )
              
              
              (668
              )
              
              
              (307
              )
              
              
              (196
              )
              
              
              -Adjusted
      EBITDA
              
              $
              39,088
              
              
              $
              57,068
              
              
              $
              50,422
              
              
              $
              17,702
              
              
              $
              (751
              )
 
   5
  
  Year
      ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              For
      the period from February 28, 2005 through December 31,
2005Continuing and
      Discontinued operationsNet
      cash from operating activities
              
              $
              19,561
              
              
              $
              40,055
              
              
              $
              33,261
              
              
              $
              22,730
              
              
              $
              9,571Net
      increase in current and non current assets
              
              
              2,030
              
              
              
              285
              
              
              
              360
              
              
              
              987
              
              
              
              180Net
      increase/ (decrease) in current liabilities excluding bank debt and
      sellers credit
              
              
              (1,215
              )
              
              
              486
              
              
              
              (134
              )
              
              
              (2,476
              )
              
              
              (2,868
              )Gain/(impairment
      loss) from sale of vessels
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,685
              )
              
              
              1,012Gain
      on extinguishment of debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,000
              
              
              
              -Stock
      based compensation
              
              
              (1,408
              )
              
              
              (1,355
              )
              
              
              (457
              )
              
              
              -
              
              
              
              -Write
      off of option's premium
              
              
              -
              
              
              
              -
              
              
              
              (200
              )
              
              
              (200
              )
              
              
              -Change
      in fair value of warrant
              
              
              1,127
              
              
              
              3,156
              
              
              
              1,071
              
              
              
              -
              
              
              
              -Loss
      on termination of purchase agreement
              
              
              3,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Payment
      for drydocking costs
              
              
              1,521
              
              
              
              538
              
              
              
              -
              
              
              
              -
              
              
              
              360Net
      interest expense
              
              
              15,532
              
              
              
              14,591
              
              
              
              16,841
              
              
              
              8,564
              
              
              
              4,137Undistributed
      losses on Joint Venture companies
              
              
              (278
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Amortization
      of financing costs
              
              
              (782
              )
              
              
              (668
              )
              
              
              (347
              )
              
              
              (342
              )
              
              
              (132
              )Adjusted
      EBITDA
              
              $
              39,088
              
              
              $
              57,088
              
              
              $
              50,395
              
              
              $
              32,578
              
              
              $
              12,260
 
 For loan
covenants calculation purposes the amount of Adjusted EBITDA is based on
continuing and discontinued operations and it is further adjusted as
follows:
 
 Adjusted
      EBITDA
              
              $
              39,088
              
              
              $
              57,088
              
              
              $
              50,395
              
              
              $
              32,578
              
              
              $
              12,260Gain/(impairment
      loss) from sale of vessels
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,685
              
              
              
              -Change
      in fair value of warrant
              
              
              (1,127
              )
              
              
              (3,156
              )
              
              
              (1,071
              )
              
              
              -
              
              
              
              -Adjusted
      EBITDA required by debt covenants
              
              $
              37,961
              
              
              $
              53,932
              
              
              $
              49,324
              
              
              $
              34,263
              
              
              $
              12,260
  (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.
   6
  
  (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. 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 years 2009, 2008, 2007, 2006 and the period from February 28, 2005
      (date of inception) through December 31,
2005.
  
  Year
      ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              For
      the period from February 28, 2005 through December 31,
2005(in
      thousands of U.S. dollars, except for TCE rate, which is expressed in U.S.
      dollars, and available days)Panamax
      tankersVoyage
      revenues
              
              $
              52,273
              
              
              $
              62,214
              
              
              $
              54,508
              
              
              $
              19,141
              
              
              $
              -Less:
      Voyage expenses
              
              
              (1,017
              )
              
              
              (829
              )
              
              
              (722
              )
              
              
              (244
              )
              
              
              -Less:
      Profit share
              
              
              (3,208
              )
              
              
              (6,671
              )
              
              
              (4,034
              )
              
              
              -
              
              
              
              -Time
      charter equivalent revenues
              
              $
              48,048
              
              
              $
              54,714
              
              
              $
              49,752
              
              
              $
              18,897
              
              
              $
              -Available
      days
              
              
              2,158
              
              
              
              2,186
              
              
              
              1,989
              
              
              
              753
              
              
              
              -Time
      charter equivalent (TCE) rate
              
              $
              22,265
              
              
              $
              25,029
              
              
              $
              25,013
              
              
              $
              25,096
              
              
              $
              -Handysize
      tankersVoyage
      revenues
              
              $
              12,183
              
              
              $
              15,499
              
              
              $
              15,382
              
              
              $
              7,726
              
              
              $
              -Less:
      Voyage expenses
              
              
              (517
              )
              
              
              (203
              )
              
              
              (208
              )
              
              
              (97
              )
              
              
              -Less:
      Profit share
              
              
              -
              
              
              
              (91
              )
              
              
              -
              
              
              
              -
              
              
              
              -Time
      charter equivalent revenues
              
              
              11,666
              
              
              $
              15,205
              
              
              $
              15,174
              
              
              $
              7,629
              
              
              $
              -Available
      days
              
              
              730
              
              
              
              732
              
              
              
              730
              
              
              
              369
              
              
              
              -Time
      charter equivalent (TCE) rate
              
              $
              15,981
              
              
              $
              20,772
              
              
              $
              20,786
              
              
              $
              20,675
              
              
              $
              -
 
  (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 that amounted to $0.8 million for the Panamax
      product tankers. For the year ended December 31, 2006 the balance of
      vessel operating expenses includes pre-delivery expenses that amounted to
      $0.4 million for the Panamax product tankers and $0.4 million for the
      Handysize product tankers.
  7
  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
  Charter
rates for product tankers have declined significantly from their historic highs
and may decrease in the future, which may adversely affect our
earnings
  The
product tanker sector is cyclical with volatility in charter hire rates and
industry profitability. The degree of charter hire rate volatility among
different types of product tankers has varied widely and after reaching
historical highs in mid-2008, declined significantly from those historical high
levels. If the shipping industry is depressed in the future when our charters
expire or at a time when we may want to sell a vessel, our revenues, earnings,
available cash flow and ability to pay dividends, if any, may be adversely
affected. In addition, lower charter hire rates likely will cause the value of
our vessels to be lower than vessel values during periods of relatively higher
charter rates. We cannot assure you that we will be able to successfully
charter our vessels in the future or renew our existing charters at rates
sufficient to allow us to operate our business profitably, meet our obligations
or pay dividends to our shareholders. Our ability to re-charter our vessels on
the expiration or termination of our current charters, the charter rates payable
under any replacement charters and vessel values will depend upon, among other
things, economic conditions in the product tanker market at that time, changes
in the supply and demand for vessel capacity and changes in the supply and
demand for oil and oil products. The factors affecting the supply and demand for
product tankers are outside of our control and are unpredictable. The nature,
timing, direction and degree of changes in industry conditions are also
unpredictable.
  The
factors that influence the demand for vessel capacity include:
  ·
              demand
      for oil and oil products;
  ·
              supply
      of oil and oil products;
  ·
              regional
      availability of refining capacity;
  ·
              the
      globalization of manufacturing;
  ·
              global
      and regional economic and political
conditions;
  ·
              developments
      in international trade;
  ·
              changes
      in seaborne and other transportation patterns, including changes in the
      distances over which cargoes are
transported;
  8
   ·
              environmental
      and other regulatory developments;
  ·
              currency
      exchange rates; and
  ·
              weather.
  The
factors that influence the supply of vessel capacity include:
  ·
              the
      number of newbuilding deliveries;
 
 ·
              the
      scrapping rate of older vessels;
 
 ·
              the
      price of steel and vessel
equipment;
 
 ·
              changes
      in environmental and other regulations that may limit the useful lives of
      vessels;
 
 ·
              the
      number of vessels that are out of service or used for storage;
      and
 
 ·
              port
      or canal congestion.
  If the
number of new vessels delivered exceeds the number of vessels being scrapped and
lost, vessel capacity will increase. If the supply of vessel capacity increases
but the demand for vessel capacity does not increase correspondingly, charter
rates and vessel values could materially decline.
 
 The
value of our vessels may fluctuate, which may adversely affect our
liquidity
  Vessel
values can fluctuate substantially over time due to a number of different
factors, including:
  ·
              general
      economic and market conditions affecting the shipping
      industry;
  ·
              competition
      from other shipping companies;
  ·
              the
      types and sizes of available
vessels;
  ·
              the
      availability of other modes of
transportation;
  ·
              increases
      in the supply of vessel capacity;
  ·
              the
      cost of newbuildings;
  ·
              prevailing
      charter rates; and
  ·
              the
      cost of retrofitting or modifying second hand vessels as a result of
      charterer requirements, technological advances in vessel design or
      equipment, changes in applicable environmental or other regulations or
      standards, or otherwise.
 In
addition, as vessels grow older, they generally decline in value. Due to the
cyclical nature of the product tanker market, if for any reason we sell vessels
at a time when prices have fallen, we could incur a loss and our business,
results of operations, cash flows, financial condition and ability to pay
dividends could be adversely affected.
 
  9
  
 The
market value of our vessels have declined and may further decrease, which could
lead to a default under our credit facilities, the loss of our vessels and/or we
may incur a loss if we sell vessels following a decline in their market
value
 
 The fair
market values of our vessels have generally experienced high volatility and have
recently declined significantly. As of December 31, 2009, due to the decline in
the market value of our fleet we are not in compliance with certain provisions
of our credit facilities and we may not be able to refinance our debt or obtain
additional financing. Including the requirement that the market value of the
vessels in our fleet is at least 120% to 125% of the aggregate outstanding
principal balance of our borrowings under our credit facilities. If we are
unable to obtain waivers or modify the terms of the provisions of our loan
agreements of which we are currently in breach, and to comply with all other
covenants under our credit facilities, our lenders could require us to post
additional collateral, enhance our equity and liquidity, increase our interest
payments or pay down our indebtedness to a level where we are in compliance with
our covenants, sell vessels in our fleet, or they could accelerate our
indebtedness, which would impair our ability to continue to conduct our
business.  In addition, we have also classified as of the date of this
annual report all of our outstanding debt as current as a result of our
non-compliance with provisions in certain of our loan agreements and
cross-default provisions contained in the loan agreements. As of the date of
this annual report, the lenders under our loan agreements have not declared the
loans in default and we continue to seek to obtain waivers or amendments to
these loan agreements.  Our outstanding indebtedness that we have
classified as current is significantly in excess of our cash and other current
assets.  If our indebtedness was accelerated in full or in part, it
would be very difficult in the current financing environment for us to refinance
our debt or obtain additional financing and we could lose our vessels if our
lenders foreclose their liens, which would adversely affect our ability to
conduct our business. Furthermore, if we find it necessary to sell our vessels
at a time when vessel prices are low, we will recognize losses and a reduction
in our earnings, which could affect our ability to raise additional capital
necessary for us to comply with our loan agreements. In addition, if we sell one
or more of our vessels at a time when vessel prices have fallen and before we
have recorded an impairment adjustment to our consolidated financial statements,
the sale may be less than the vessel's carrying value on our consolidated
financial statements, resulting in a loss and a reduction in earnings.
Furthermore, if vessel values fall significantly we may have to record an
impairment adjustment in our financial statements which could adversely affect
our financial results and ability to pay dividends.
  An
over-supply of tanker capacity may lead to reductions in charter hire rates and
profitability
 
 The
market supply of tankers is affected by a number of factors such as demand for
energy resources, oil, and petroleum products, waiting days in ports, as well as
strong overall economic growth in parts of the world economy including Asia.
Furthermore, the extension of refinery capacity in India and the Middle East up
to 2011 will exceed the immediate consumption in these areas, and an increase in
exports of refined oil products is expected as a result. Factors that tend to
decrease tanker supply include the conversion of tankers to non-tanker purposes
and the phasing out of single-hull tankers due to legislation and environmental
concerns. An over-supply of tanker capacity may result in a reduction of charter
hire rates. If a reduction occurs, upon the expiration or termination of our
vessels' current charters, we may only be able to recharter our vessels at
reduced or unprofitable rates or we may not be able to charter these vessels at
all, which could lead to a material adverse effect on our results of operations
and ability to pay dividends.
  Rising
fuel prices may adversely affect our profits
 
 Upon
redelivery of vessels at the end of a period time or trip time charter, we may
be obligated to repurchase bunkers on board at prevailing market prices, which
could be materially higher than fuel prices at the inception of the charter
period. In addition fuel is a significant, if not the largest, expense that we
would incur with respect to vessels operating on voyage charter. As a result, an
increase in the price of fuel may adversely affect our profitability. The price
and supply of fuel is volatile and fluctuates based on events outside our
control, including geopolitical developments, supply and demand for oil and gas,
actions by OPEC and other oil and gas producers, war and unrest in oil producing
countries and regions, regional production patterns and environmental concerns
and regulations.
  10
  Our
substantial operations outside the United States expose us to political,
governmental and economic instability, which could harm our
operations
  Because
our operations are primarily conducted outside of the United States, they may be
affected by economic, political and governmental conditions in the countries
where we are engaged in business or where our vessels are
registered.  Future hostilities or political instability in regions
where we operate or may operate could have a material adverse effect on the
growth of our business, results of operations and financial condition and our
ability to pay dividends. In addition, tariffs, trade embargoes and other
economic sanctions by the United States or other countries against countries
where our vessels trade may limit trading activities with those countries, which
could also harm our business, financial condition, results of operations and
ability to pay dividends.
 
 A
further economic slowdown in the Asia Pacific region could exacerbate the effect
of recent slowdowns in the economies of the United States and the European Union
and may have a material adverse effect on our business, financial condition and
results of operations
 
 Negative
changes in economic conditions in any Asia Pacific country, particularly in
China, may exacerbate the effect of recent slowdowns in the economies of the
United States and the European Union and may further reduce global demand for
refined petroleum products and have a material adverse effect on our business,
financial condition and results of operations, as well as our future prospects.
In recent years, China has been one of the world's fastest growing economies in
terms of gross domestic product, which has had a significant impact on shipping
demand. This rate of growth declined significantly in the second half of 2008
and it is likely that China and other countries in the Asia Pacific region will
continue to experience slowed or even negative economic growth in the near
future. Moreover, the current economic slowdown in the economies of the United
States, the European Union and other Asian countries may further adversely
affect economic growth in China and elsewhere. Our business, financial condition
and results of operations, as well as our future prospects, will likely be
materially and adversely affected by a further economic downturn in any of these
countries.
 
 We
are subject to certain risks with respect to our counterparties on contracts,
and failure of such counterparties to meet their obligations could cause us to
suffer losses or otherwise adversely affect our business
  We enter
into, among other things, charter parties, joint ventures, credit facilities
with banks and interest rate swap agreements. Such agreements subject us to
counterparty risks. The ability of each of our counterparties to perform its
obligations under a contract with us will depend on a number of factors that are
beyond our control and may include, among other things, general economic
conditions, the condition of the shipping sector, the overall financial
condition of the counterparty, charter rates received for specific types of
product tankers and various expenses. Should a counterparty fail to honor its
obligations under agreements with us, we could sustain significant losses which
could have a material adverse effect on our business, financial condition,
results of operations, cash flows and ability to pay dividends.
 
 We are subject to complex laws and
regulations, including environmental regulations that can adversely affect the
cost, manner or feasibility of doing business
 
 Our
operations are subject to numerous laws and regulations in the form of
international conventions and treaties, national, state and local laws and
national and international regulations in force in the jurisdictions in which
our vessels operate or are registered, which can significantly affect the
ownership and operation of our vessels. These requirements include, but are not
limited to, the International Convention on Civil Liability for Oil Pollution
Damage of 1969, the International Convention for the Prevention of Pollution
from Ships of 1975, the International Maritime Organization, or IMO,
International Convention for the Prevention of Marine Pollution of 1973, the IMO
International Convention for the Safety of Life at Sea of 1974, the
International Convention on Load Lines of 1966, the U.S. Oil Pollution Act of
1990, or OPA, the U.S. Clean Air Act, the U.S. Clean Water Act and the U.S.
Marine Transportation Security Act of 2002. Compliance with such laws,
regulations and standards, where applicable, may require installation of costly
equipment or operational changes and may affect the resale value or useful lives
of our vessels. We may also incur additional costs in order to comply with other
existing and future regulatory obligations,
  11
  including,
but not limited to, costs relating to air emissions, the management of ballast
waters, maintenance and inspection, elimination of tin-based paint, development
and implementation of emergency procedures and insurance coverage or other
financial assurance of our ability to address pollution incidents. We cannot
predict the ultimate cost of complying with these future regulatory obligations,
and these costs could have a material adverse effect on our business, results of
operations, cash flows and financial condition. For example, we cannot predict
the cost of compliance with any new regulation that may be promulgated by the
United States as a result of the 2010 BP Deepwater Horizon oil spill in the Gulf
of Mexico.  A failure to comply with applicable laws and regulations
may result in administrative and civil penalties, criminal sanctions or the
suspension or termination of our operations. Environmental laws often impose
strict liability for remediation of spills and releases of oil and hazardous
substances, which could subject us to liability without regard to whether we
were negligent or at fault. Under OPA, for example, owners, operators and
bareboat charterers are jointly and severally strictly liable for the discharge
of oil within the 200-mile exclusive economic zone around the United States. An
oil spill could result in significant liability, including fines, penalties,
criminal liability and remediation costs for natural resource damages under
other federal, state and local laws, as well as third-party damages. We are
required to satisfy insurance and financial responsibility requirements for
potential oil (including marine fuel) spills and other pollution incidents.
Although we have arranged insurance to cover certain environmental risks, there
can be no assurance that such insurance will be sufficient to cover all such
risks or that any claims will not have a material adverse effect on our
business, results of operations, cash flows and financial
condition.
 
 We
currently maintain, for each of our vessels, pollution liability coverage
insurance of $1 billion per incident. If the damages from a catastrophic spill
exceeded our insurance coverage, it could have a material adverse effect on our
business, financial condition, results of operations and ability to pay
dividends.
 
 We
are subject to international safety regulations and the failure to comply with
these regulations may subject us to increased liability, may adversely affect
our insurance coverage and may result in a denial of access to, or detention in,
certain ports
 
 The
operation of our vessels is affected by the requirements set forth in the IMO
International Management Code for the Safe Operation of Ships and Pollution
Prevention, or ISM Code.  The ISM Code requires shipowners, ship
managers and bareboat charterers to develop and maintain an extensive "Safety
Management System" that includes the adoption of a safety and environmental
protection policy setting forth instructions and procedures for safe operation
and describing procedures for dealing with emergencies.  The failure
of a shipowner or bareboat charterer to comply with the ISM Code may subject it
to increased liability, may invalidate existing insurance or decrease available
insurance coverage for the affected vessels and may result in a denial of access
to, or detention in, certain ports.  As of the date of this annual
report, each of our vessels is ISM code-certified.
 
 Our
vessels may suffer damage due to the inherent operational risks of the seaborne
transportation industry and we may experience unexpected drydocking costs, which
may adversely affect our business, financial condition and ability to pay
dividends
 
 Our
vessels and their cargoes will be at risk of being damaged or lost because of
events such as marine disasters, bad weather, business interruptions caused by
mechanical failures, grounding, fire, explosions and collisions, human error,
war, terrorism, piracy and other circumstances or events. These hazards may
result in death or injury to persons, loss of revenues or property,
environmental damage, higher insurance rates, damage to our customer
relationships, delay or rerouting. If our vessels suffer damage, they may need
to be repaired at a drydocking facility. The costs of drydock repairs are
unpredictable and may be substantial. We may have to pay drydocking costs that
our insurance does not cover in full. The loss of earnings while these vessels
are being repaired and repositioned, as well as the actual cost of these
repairs, would decrease our earnings. In addition, space at drydocking
facilities is sometimes limited and not all drydocking facilities are
conveniently located. We may be unable to find space at a suitable drydocking
facility or our vessels may be forced to travel to a drydocking facility that is
not conveniently located to our vessels' positions. The loss of earnings while
these vessels are forced to wait for space or to steam to more distant
drydocking facilities would decrease our earnings.
  12
  
 Our
insurance may not be adequate to cover our losses that may result from our
operations due to the inherent operational risks of the seaborne transportation
industry
 
 We carry
insurance to protect us against most of the accident-related risks involved in
the conduct of our business, including marine hull and machinery insurance,
protection and indemnity insurance, which includes pollution risks, crew
insurance and war risk insurance. However, we may not be adequately insured to
cover losses from our operational risks, which could have a material adverse
effect on us.  Additionally, our insurers may refuse to pay particular
claims and our insurance may be voidable by the insurers if we take, or fail to
take, certain action, such as failing to maintain certification of our vessels
with applicable maritime regulatory organizations. Any significant uninsured or
under-insured loss or liability could have a material adverse effect on our
business, results of operations, cash flows and financial condition. In
addition, we may not be able to obtain adequate insurance coverage at reasonable
rates in the future during adverse insurance market conditions.
  As a
result of the September 11, 2001 attacks, the U.S. response to the attacks and
related concern regarding terrorism, insurers have increased premiums and
reduced or restricted coverage for losses caused by terrorist acts generally.
Accordingly, premiums payable for terrorist coverage have increased
substantially and the level of terrorist coverage has been significantly
reduced.
  In
addition, while we carry loss of hire insurance to cover 100% of our fleet, we
may not be able to maintain this level of coverage. Accordingly, any loss of a
vessel or extended vessel off-hire, due to an accident or otherwise, could have
a material adverse effect on our business, results of operations, financial
condition and ability to pay dividends.
  Because
we obtain some of our insurance through protection and indemnity associations,
we may also be subject to calls in amounts based not only on our own claim
records, but also the claim records of other members of the protection and
indemnity associations
  We may be
subject to calls in amounts based not only on our claim records but also the
claim records of other members of the protection and indemnity associations
through which we receive insurance coverage for tort liability, including
pollution-related liability. Our payment of these calls could result in
significant expense to us, which could have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to
pay dividends.
  Labor
interruptions could disrupt our business
  Our
vessels are manned by masters, officers and crews that are employed by third
parties. If not resolved in a timely and cost-effective manner, industrial
action or other labor unrest could prevent or hinder our operations from being
carried out as we expect and could have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to
pay dividends.
 
 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
  13
  takes
control of a vessel and effectively becomes her charterer at dictated charter
rates. Generally, requisitions occur during periods of war or emergency,
although governments may elect to requisition vessels in other circumstances.
Although we would be entitled to compensation in the event of a requisition of
one or more of our vessels, the amount and timing of payment would be uncertain.
Government requisition of one or more of our vessels may negatively impact our
business, financial condition, results of operations and ability to pay
dividends.
 
 Terrorist
attacks and international hostilities can affect the seaborne transportation
industry, which could adversely affect our business
 
 We
conduct most of our operations outside of the United States, and our business,
results of operations, cash flows, financial condition and ability to pay
dividends may be adversely affected by changing economic, political and
government conditions in the countries and regions where our vessels are
employed or registered. Moreover, we operate in a sector of the economy that is
likely to be adversely impacted by the effects of political instability,
terrorist or other attacks, war or international hostilities. Terrorist attacks
in such as the attacks on the United States on September 11, 2001, in London on
July 7, 2005 and in Mumbai on November 26, 2008 and the continuing response of
the United States and others to these attacks, as well as the threat of future
terrorist attacks in the United States or elsewhere, continues to cause
uncertainty in the world's financial markets and may affect our business,
operating results and financial condition. The continuing presence of United
States and other armed forces in Iraq and Afghanistan may lead to additional
acts of terrorism and armed conflict around the world, which may contribute to
further economic instability in the global financial markets. These
uncertainties could also adversely affect our ability to obtain additional
financing on terms acceptable to us or at all. In the past, political conflicts
have also resulted in attacks on vessels, mining of waterways and other efforts
to disrupt international shipping, particularly in the Arabian Gulf region. Acts
of terrorism and piracy have also affected vessels trading in regions such as
the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these
occurrences could have a material adverse impact on our operating results,
revenues and costs.
 
 Terrorist
attacks on vessels, such as the October 2002 attack on the M.V. Limburg, a very large crude
carrier not related to us, may in the future also negatively affect our
operations and financial condition and directly impact our vessels or our
customers. Future terrorist attacks could result in increased volatility and
turmoil of the financial markets in the United States and globally. Any of these
occurrences could have a material adverse impact on our revenues and
costs.
 
 Acts of piracy on ocean-going
vessels have recently increased in frequency, which could adversely affect our
business
 
 Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia. Throughout 2008 and 2009, the frequency of piracy incidents has
increased significantly, particularly in the Gulf of Aden off the coast of
Somalia. If these piracy attacks result in regions in which our vessels are
deployed being characterized by insurers as "war risk" zones or Joint War
Committee (JWC) "war and strikes" listed areas, premiums payable for such
coverage could increase significantly and such insurance coverage may be more
difficult to obtain. In addition, crew costs, including due to employing onboard
security guards, could increase in such circumstances. We may not be adequately
insured to cover losses from these incidents, which could have a material
adverse effect on us. In addition, detention hijacking as a result of an act of
piracy against our vessels, or an increase in cost, or unavailability of
insurance for our vessels, could have a material adverse impact on our business,
financial condition, results of operations and ability to pay
dividends.
 
 Disruptions
in world financial markets and the resulting governmental action in the United
States and in other parts of the world could have a material adverse impact on
our results of operations, financial condition and cash flows, and could cause
the market price of our common stock to further decline
 
 The
United States and other parts of the world are exhibiting deteriorating economic
trends and have been in a recession. For example, the credit markets in the
United States have experienced significant contraction, deleveraging and reduced
liquidity, and the United States federal government and state governments have
implemented and are considering a broad variety of governmental action and/or
new regulation of the financial markets. Securities and futures markets and the
credit markets are subject to comprehensive statutes, regulations and other
requirements. The Commission, other regulators, self-regulatory organizations
and exchanges are authorized to take extraordinary actions in the event of
market emergencies, and may effect changes in law or interpretations of existing
laws.
  14
  
 
 Recently,
a number of financial institutions have experienced serious financial
difficulties and, in some cases, have entered bankruptcy proceedings or are in
regulatory enforcement actions. The uncertainty surrounding the future of the
credit markets in the United States and the rest of the world has resulted in
reduced access to credit worldwide.
 
 We face
risks attendant to changes in economic environments, changes in interest rates,
and instability in the banking and securities markets around the world, among
other factors. Major market disruptions and the current adverse changes in
market conditions and regulatory climate in the United States and worldwide may
adversely affect our business or impair our ability to borrow amounts under our
credit facilities or any future financial arrangements. We cannot predict how
long the current market conditions will last. However, these recent and
developing economic and governmental factors, together with the concurrent
decline in charter rates and vessel values, may have a material adverse effect
on our results of operations, financial condition or cash flows, have caused the
trading price of our common shares on the NASDAQ Global Market to decline and
could cause the price of our common shares to continue to decline.
  Company
Specific Risk Factors
  We
are in breach of financial covenants contained in our credit facilities, and are
currently in discussions with our lenders to obtain waivers and amendments of
such financial covenants
  Our
credit facilities, which are secured by mortgages on our vessels, require us to
comply with specified collateral coverage ratios and satisfy certain financial
covenants.  The current low charter hire rates for product tankers and
product tanker values, and even lower rates and values experienced over the past
year, have affected our ability to comply with these
covenants.  Unless waived by our lenders, our breach of these
covenants provides our lenders with the right to require us to post additional
collateral, enhance our equity and liquidity, increase our interest payments,
pay down our indebtedness to a level where we are in compliance with our loan
covenants, sell vessels in our fleet, and accelerate our indebtedness and
foreclose their liens on our vessels, any of the foregoing of which would impair
our ability to continue to conduct our business.  In addition, as a
result of these breaches, we have, as of the date of this annual report
classified our outstanding indebtedness as current.
 
 While our
lenders have not declared an event of default under our loan agreements, these
breaches give our lenders the right to declare such breaches as events of
default, and we are in discussions with our lenders to obtain waivers and
amendments of such financial covenants.  Charter rates and vessel
values, particularly in the product tanker sector, may remain at low levels for
an extended period of time or may decrease even further, in which case it may be
difficult for us to comply with the existing financial and other covenants in
our loan agreements with which we are currently in compliance absent obtaining
additional waivers from our lenders or amending the financial covenants and may
make it more difficult to negotiate waivers or amendments with respect to our
existing breaches.  There can be no assurance that our lenders will
grant us these waivers.  If we fail to comply with the covenants in
our loan agreements and our lenders do not provide us with waivers or amendments
of such covenants, our lenders could accelerate our indebtedness and foreclose
their liens on our vessels, which would impair our ability to continue as a
going concern.
 
 Because
of the presence of cross default provisions in all of our loan agreements, the
refusal of any one lender to grant us a waiver could result in all of our
indebtedness being accelerated even if our other lenders have waived covenant
defaults under the respective loan agreements.  A cross default
provision means that if we default on one loan, we would then default on all of
our other loans.
 
 If our
indebtedness is accelerated, it would be very difficult in the current financing
environment for us to refinance our debt or obtain additional financing, and we
could lose our vessels if our lenders foreclose their liens.  In
addition, if the fair value of our vessels, which is calculated using
undiscounted cash flows, deteriorates significantly from their currently
depressed levels, we may have to record an impairment adjustment to our
financial statements, which would adversely affect our financial results and
further hinder our ability to raise capital.
  15
  
 Moreover,
in connection with any waivers and/or amendments to our loan agreements, our
lenders may impose additional operating and financial restrictions on us and/or
modify the terms of our existing loan agreements.  These restrictions
may limit our ability to, among other things, pay dividends, make capital
expenditures and/or incur additional indebtedness, including through the
issuance of guarantees.  In addition, our lenders may require the
payment of additional fees, require prepayment of a portion of our indebtedness
to them, accelerate the amortization schedule for our indebtedness and increase
the interest rates they charge us on our outstanding indebtedness.
 
 Our
inability to comply with certain financial covenants under our loan agreements
raises substantial doubt as to our ability to continue as a going
concern
  As
discussed above, we are in breach of certain financial covenants contained in
our loan agreements as a result of the decline in the product tanker charter
market and related decline in vessel values in the product tanker
sector.  While our lenders have not declared an event of default under
our loan agreements, these breaches could constitute a potential event of
default and we are currently in discussions with our lenders to obtain waivers
and/or amendments of such covenants.  If we are unable to obtain
waivers, our lenders may choose to accelerate our
indebtedness.  Therefore, our ability to continue as a going concern
is dependent on the support of our lenders and management's ability to
successfully generate income in order to meet our obligations as they become
due. Our independent registered public accounting firm has issued its opinion
with an explanatory paragraph in connection with our financial statements
included in this annual report that expresses substantial doubt as to our
ability to continue as a going concern.  Our financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of our inability to continue as a
going concern.  However, there is a material uncertainty related to
events or conditions which raises significant doubt as to our ability to
continue as a going concern and, therefore, we may be unable to realize our
assets and discharge our liabilities in the normal course of
business.
 
 As
a result of our inability to comply with certain financial covenants under our
loan agreements, all of our indebtedness and derivate liabilities were
classified as current liabilities as of December 31, 2009
  A total
of $338.8 million of our indebtedness and $1.6 million of our derivative
liabilities, as of December 31, 2009, have been reclassified as current
liabilities as a result of our non-compliance with financial covenants contained
in our loan agreements.  As a result of this classification, we had a
working capital deficit of $334.3 million as of December 31, 2009. Consequently,
our independent registered public accounting firm included an explanatory
paragraph in its opinion on our most recently audited financial statements for
the year ended December 31, 2009, that expressed substantial doubt as to our
ability to continue as a going concern.  Charter rates and vessel
values, particularly in the product tanker sector, may remain at low levels for
an extended period of time, in which case, it may be difficult for us to comply
with financial and other covenants in our loan agreements absent obtaining
waivers or amendments of such covenants from our lenders. Furthermore our
current working capital needs may affect our ability to finance the acquisition
of the newbuildings that are currently under construction. We currently
exploring various alternatives including capital raising in order to improve our
liquidity, meet short term commitments and manage our overall capital
exposure.
 
 Our
credit facilities impose operating and financial restrictions on us, and if we
receive waivers and/or amendments to our loan agreements, our lenders may impose
additional operating and financial restrictions on us and/or modify the terms of
our existing loan agreements
  In
addition to certain financial covenants relating to our financial position,
operating performance and liquidity, the restrictions contained in our loan
agreements limit our ability to, among other things:
 
 ·
              pay
      dividends to investors or 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 payment of a dividend or 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;
  16
  
 ·
              create
      liens on our assets;
 
 ·
              sell
      or otherwise change the ownership of our
  vessels;
 
 ·
              merge
      or consolidate with, or transfer all or substantially all of our assets
      to, another person;
 
 ·
              drop
      below certain minimum cash deposits, as defined in our credit facilities;
      and/or
 
 ·
              receive
      dividends from certain
subsidiaries.
 
 See "Item
5. Operating and Financial Review and Prospectus – Liquidity and Capital
Resources – Breach of financial covenants under secured credit
facilities."  In connection with any waivers or amendments to
covenants in our loan agreements that our lenders may provide to us, our lenders
may impose additional restrictions on us.
 
 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 may not be able to obtain our lenders' permission when
needed.  In addition to the above restrictions, our lenders may
require the payment of additional fees, require prepayment of a portion of our
indebtedness to them, accelerate the amortization schedule for our indebtedness
and increase the interest rates they charge us on our outstanding
indebtedness.  These potential restrictions and requirements may limit
our ability to pay dividends, if any, in the future to you, finance our future
operations, make acquisitions or pursue business opportunities.
 
 Since the second quarter of 2009 our
board of directors has not declared cash dividends as a result of market
conditions in the international shipping industry and capital commitments of the
Company. We cannot assure you that our board of directors will declare dividends
in the future
  Since the
second quarter of 2009 we have not declared a common stock dividend in order to
increase our cash flow and enhance internal growth capabilities. We can give no
assurance that dividends will be paid in the future.
 
 Certain
provisions of Marshall Islands law may prohibit us from paying
dividends
  Marshall
Islands law generally prohibits the declaration and payment of dividends other
than from surplus. Marshall Islands law also prohibits the declaration and
payment of dividends while a company is insolvent or would be rendered insolvent
by the payment of such a dividend. We may not have sufficient surplus in the
future to pay dividends.
 
 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
  The
majority of the vessels in our fleet, including vessels owned through 50%
controlled joint ventures, are employed under medium to long-term time charters,
with remaining terms (under existing charter party agreements or under
replacement charter party agreements that we have entered into) ranging between
11 and 61 months.  Although medium and long-term time charters provide
relatively steady streams of revenue, vessels committed to medium and long-term
charters may not be available for spot voyages during periods of increasing
charter hire rates, when spot voyages might be more profitable. Recently,
charter hire rates for product tankers have reached near historically low
levels. If our vessels become available for employment in the spot market or
under new charters during periods when market prices have fallen, we may have to
employ our vessels at depressed market prices, which would lead to reduced or
volatile earnings.  We cannot assure you that future charter hire
rates will enable us to operate our vessels profitably or to pay you
dividends.
  17
  
 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 2009, we derived 100% of our revenues from
three customers.  If one or more of these customers is unable to
perform under one or more charters with us and we are not able to find a
replacement charter, or if a customer exercises certain rights to terminate the
charter, we could suffer a loss of revenues that could materially adversely
affect our business, financial condition, results of operations and cash
available for distribution as dividends to our shareholders.
 
 Our
charterers may terminate or default on their charters, which could adversely
affect our results of operations and cash flow
  Our
charters may terminate earlier than the dates indicated in the section "Our
Fleet" in "Item 4 – Information on the Company." The terms of our charters vary
as to which events or occurrences will cause a charter to terminate or give the
charterer the option to terminate the charter, but these generally include a
total or constructive total loss of the related vessel, the requisition for hire
of the related vessel or the failure of the related vessel to meet specified
performance criteria. In addition, the ability of each of our charterers to
perform its obligations under a charter will depend on a number of factors that
are beyond our control. These factors may include general economic conditions,
the condition of a specific shipping market sector, the charter rates received
for specific types of vessels and various operating expenses. The costs and
delays associated with the default by a charterer of a vessel may be
considerable and may adversely affect our business, results of operations, cash
flows, financial condition and ability to pay dividends.
  We cannot
predict whether our charterers will, upon the expiration of their charters,
recharter our vessels on favorable terms or at all. If our charterers decide not
to recharter our vessels, we may not be able to recharter them on terms similar
to the terms of our current charters or at all. In the future, we may also
employ our vessels on the spot charter market, which is subject to greater rate
fluctuation than the time charter market.
  If we
receive lower charter rates under replacement charters or are unable to
recharter all of our vessels, our business, results of operations, cash flows,
financial condition and ability to pay dividends may be adversely
affected.
 
 In
addition, in depressed market conditions such as those existing in the early
part of 2009, our charterers may no longer need a vessel that is currently under
charter or may be able to obtain a comparable vessel at lower rates. As a
result, charterers may seek to renegotiate the terms of their existing charter
parties or avoid their obligations under those contracts. Should a counterparty
fail to honor its obligations under agreements with us, we could sustain
significant losses which could have a material adverse effect on our business,
results of operations, cash flows, financial condition and ability to pay
dividends.
 
 Our
ability to obtain additional debt financing may depend on the performance of our
then existing charters and the creditworthiness of our charterers
  The
actual or perceived credit quality of our charterers, and any defaults by them,
may materially affect our ability to obtain the additional capital resources
that we will require to purchase additional vessels or may significantly
increase our costs of obtaining that capital. Our inability to obtain additional
financing or our ability to obtain additional financing at higher than
anticipated costs may materially and adversely affect our business, results of
operations, cash flows and financial condition and ability to pay
dividends.
 
 We
depend on our Managers to manage our fleet and the loss of their services could
adversely affect our operations
  We
currently have a total of fourteen employees including our senior executive
officers. Currently we subcontract the technical management of the majority of
our 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.
   18
  
  The
ability of our managers to continue providing services for our benefit will
depend in part on their own financial strength. Circumstances beyond our control
could impair our technical managers' financial strength.
 
 We
may have difficulty performing under our existing newbuilding commitments or
managing our planned growth through acquisitions of additional
vessels
  We intend
to continue to grow our business through selective acquisitions of additional
vessels. Our future growth will primarily depend on:
 
 ·
              locating
      and acquiring suitable vessels;
  ·
              identifying
      and consummating acquisitions or joint
ventures;
  ·
              integrating
      any acquired business successfully with our existing
      operations;
  ·
              enlarging
      our customer base;
  ·
              managing
      our expansion; and
  ·
              obtaining
      required financing on acceptable
terms.
  During
periods in which charter hire rates are high, vessel values generally are high
as well, and it may be difficult to identify vessels for acquisition at
favorable prices.  In addition, growing any business by acquisition
presents numerous risks, such as undisclosed liabilities and obligations, the
possibility that indemnification agreements will be unenforceable or
insufficient to cover potential losses and difficulties associated with imposing
common standards, controls, procedures and policies, obtaining additional
qualified personnel, managing relationships with customers and integrating newly
acquired assets and operations into existing infrastructure. We cannot give any
assurance that we will be successful in executing our growth plans or that we
will generate enough funds to purchase our newbuilding vessels or that we will
not incur significant expenses and losses in connection with our future
growth.
 
 We may
also be either unable to finance the newbuilding vessels we have agreed to
purchase or the available financing, based on the fair market value of the
newbuilding vessels on delivery, maybe inadequate to cover the purchase of the
vessels.
 
 Restrictions
under our credit facilities could restrict our ability to pay
dividends
  We may
have to limit the amount of dividends that we declare and pay in the future or
may not be able to declare and pay dividends at all if we do not repay amounts
drawn under our credit facilities if there is a default under the credit
facilities, if the declaration or payment of a dividend would result in a
default or breach of a loan covenant, or if the aggregate market value of our
vessels falls below a certain point in relation to the amounts borrowed under
our credit facilities.
  We
cannot assure you that we will be able to borrow amounts under our credit
facilities and restrictive covenants in our credit facilities may impose
financial and other restrictions on us
  Our
ability to borrow amounts under our credit facilities is subject to the
execution of definitive documentation relating to the facilities, including
security documents, satisfaction of certain customary conditions precedent and
compliance with terms and conditions included in the loan documents. Prior to
each drawdown, we will be required, among other things, to provide the lenders
with acceptable valuations of the vessels in our fleet confirming that they are
sufficient to satisfy minimum security requirements. To the extent that we are
not able to satisfy these requirements, including as a result of a decline in
the value of our vessels, we may not be able to draw down the full amount under
our credit facilities without obtaining a waiver or consent from the lenders. We
will also not be permitted to borrow amounts under the facilities if we
experience a change of control.
  19
  
 Our
credit facilities also impose operating and financial restrictions on us. These
restrictions may limit our ability to, among other things:
 
 ·
              make
      capital expenditures if we do not repay amounts drawn under the credit
      facilities, if there is a default under the credit facilities or if the
      capital expenditure would result in a default or breach of a loan
      covenant;
  ·
              incur
      additional indebtedness, including through the issuance of
      guarantees;
  ·
              change
      the flag, class or management of our
vessels;
  ·
              create
      liens on our assets;
  ·
              sell
      our vessels;
  ·
              merge
      or consolidate with, or transfer all or substantially all our assets to,
      another person; and
  ·
              enter
      into a new line of business.
  Therefore,
we may need to seek permission from our lenders in order to engage in some
corporate actions. Our lenders' interests may be different from ours and we
cannot guarantee that we will be able to obtain our lenders' permission when
needed. This may limit our ability to pay dividends to you, finance our future
operations, make acquisitions or pursue business opportunities.
 
 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 18 years to 25 (including
vessels owned through joint ventures), 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.
   20
  
  Purchasing
and operating secondhand vessels may result in increased operating costs and
reduced fleet utilization
  Our
current business strategy includes additional, strategic growth through the
acquisition of high quality secondhand vessels.  While we have the
right to inspect previously owned vessels prior to our purchase of them, such an
inspection does not provide us with the same knowledge about their condition
that we would have if these vessels had been built for and operated exclusively
by us. Secondhand vessels may have conditions or defects that we were not aware
of when we bought the vessel and which may require us to incur costly repairs to
the vessel.  If this were to occur, such hidden defects or problems,
when detected, may be expensive to repair, and if not detected, may result in
accidents or other incidents for which we may become liable to third
parties.  Repairs may require us to put a vessel into drydock which
would reduce our fleet utilization.  Furthermore, we usually do not
receive the benefit of warranties on secondhand vessels.
  In
general, the costs to maintain a vessel in good operating condition increase
with the age of the vessel. Older vessels are typically less fuel-efficient than
more recently constructed vessels due to improvements in engine
technology.
 
 Governmental
regulations, safety and other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
some of our vessels and may restrict the type of activities in which these
vessels may engage. We cannot assure you that, as our vessels age, market
conditions will justify those expenditures or enable us to operate our vessels
profitably during the remainder of their useful lives.
 
 If the Panamax
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 a 50% controlled joint venture for the acquisition of seven Panamax
(LR1) product tankers that are currently under construction at Hyundai Mipo
Dockyard in South Korea. One of these vessels is scheduled to be delivered in
the fourth quarter of 2010, four in 2011 and two vessels in 2012.  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.
 
 If
we are unable to operate our vessels profitably, we may be unsuccessful in
competing in the highly competitive international tanker market
  The
operation of tanker vessels and transportation of crude and petroleum products
is extremely competitive. Competition arises primarily from other tanker owners,
including major oil companies as well as independent tanker companies, some of
whom have substantially greater resources. Competition for the transportation of
oil and oil products can be intense and depends on price, location, size, age,
condition and the acceptability of the tanker and its operators to the
charterers. We will have to compete with other tanker owners, including major
oil companies as well as independent tanker companies. Due in part to the highly
fragmented market, competitors with greater resources could enter the products
tanker and container vessel shipping markets and operate larger fleets through
consolidations or acquisitions and may be able to offer lower charter rates and
higher quality vessels than we are able to offer.
  Our
market share may decrease in the future. We may not be able to compete
profitably as we expand our business into new geographic regions or provide new
services. New markets may require different skills, knowledge or strategies than
we use in our current markets, and the competitors in those new markets may have
greater financial strength and capital resources than we do.
  21
  
 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.
 
 The
shipping industry has inherent operational risks that may not be adequately
covered by our insurance
  We
procure insurance for our fleet against risks commonly insured against by vessel
owners and operators. Our current insurance includes hull and machinery
insurance, war risks insurance, protection and indemnity insurance, which
includes environmental damage and pollution insurance, and insurance against
loss of hire, which covers business interruptions that result in the loss of use
of a vessel.  We can give no assurance that we are adequately insured
against all risks or that our insurers will pay a particular claim. Even if our
insurance coverage is adequate to cover our losses, we may not be able to timely
obtain a replacement vessel in the event of a loss. Furthermore, we may not be
able to maintain or obtain adequate insurance coverage at reasonable rates for
our fleet. We may also be subject to calls, or premiums, in amounts based not
only on our own claim records but also the claim records of all other members of
the protection and indemnity associations through which we receive indemnity
insurance coverage for tort liability.  Our insurance contracts also
contain clauses for deductibles, limitations and exclusions which may increase
our costs.
 
 The
operation of tankers involves certain unique operational risks
 
 The
operation of tankers has unique operational risks associated with the
transportation of oil. An oil spill may cause significant environmental damage,
and a catastrophic spill could exceed the insurance coverage available. Compared
to other types of vessels, tankers are exposed to a higher risk of damage and
loss by fire, whether ignited by a terrorist attack, collision, or other cause,
due to the high flammability and high volume of the oil transported in
tankers.
 
  22
  
 If we are
unable to adequately maintain or safeguard our vessels we may be unable to
prevent these events. Any of these circumstances or events could negatively
impact our business, financial condition and results of operations. In addition,
the loss of any of our vessels could harm our reputation as a safe and reliable
vessel owner and operator.
 
 The
aging of our fleet may result in increased operating costs in the future, which
could adversely affect our earnings
  In
general, the cost of maintaining a vessel in good operating condition increases
with the age of the vessel. Our current fleet, including the vessels owned by
the 50% controlled joint venture, has an average age of approximately 3.3
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.
 
 We expect
that we and each of our subsidiaries will qualify for this statutory tax
exemption and we have taken this position for United States federal income tax
return reporting purposes. However, there are factual circumstances beyond our
control that could cause us to lose the benefit of this tax exemption in the
future and thereby become subject to United States federal income tax on our
United States source income. For example, if beneficial owners of our Class A
common stock that own 5% or more of our Class A common stock were to own 50% or
more of the outstanding shares of our Class A common stock on more than half the
days during the taxable year we might not be able to qualify for the exemption
under Code Section 883.  However, we may still be able to qualify for
the exemption under such circumstances if a sufficient number of five percent or
greater shareholders were able to establish that they are "qualified
shareholders" for purpose of Section 883 to preclude non-qualified five percent
shareholders from owning 50% or more of the outstanding shares of our Class A
common stock on more than half of the days in the year. The requirements to
establish that one or more of our shareholders is a "qualified shareholder" for
purposes of Section 883 are onerous and we cannot assure you that we would be
able to obtain the required information from sufficient five percent
shareholders.  Due to the factual nature of the issues involved, we
can give no assurances on our tax-exempt status or that of any of our
subsidiaries.
  23
  
 If we or
our subsidiaries are not entitled to this exemption under Section 883 for any
taxable year, we or our subsidiaries would be subject for those years to a 4%
United States federal income tax on our U.S.-source shipping
income.  The imposition of this taxation could have a negative effect
on our business and would result in decreased earnings available for
distribution to our shareholders.
 
 United
States tax authorities could treat us as a "passive foreign investment company",
which could have adverse United States federal income tax consequences to United
States holders
  A foreign
corporation will be treated as a "passive foreign investment company," or PFIC,
for United States federal income tax purposes if either (1) at least 75% of its
gross income for any taxable year consists of certain types of "passive income"
or (2) at least 50% of the average value of the corporation's assets produce or
are held for the production of those types of "passive income." For purposes of
these tests, "passive income" includes dividends, interest, and gains from the
sale or exchange of investment property and rents and royalties other than rents
and royalties which are received from unrelated parties in connection with the
active conduct of a trade or business. For purposes of these tests, income
derived from the performance of services does not constitute "passive income."
United States stockholders of a PFIC are subject to a disadvantageous United
States federal income tax regime with respect to the income derived by the PFIC,
the distributions they receive from the PFIC and the gain, if any, they derive
from the sale or other disposition of their shares in the PFIC.
  Based on
our current and proposed method of operation, we do not believe that we are,
have been or will be a PFIC with respect to any taxable year. In this regard, we
intend to treat the gross income we derive or are deemed to derive from our time
chartering activities as services income, rather than rental income.
Accordingly, we believe that our income from our time chartering activities does
not constitute "passive income," and the assets that we own and operate in
connection with the production of that income do not constitute passive
assets.
  There is,
however, no direct legal authority under the PFIC rules addressing our method of
operation. We believe there is substantial legal authority supporting our
position consisting of case law and United States Internal Revenue Service, or
IRS, pronouncements concerning the characterization of income derived from time
charters and voyage charters as services income for other tax
purposes.  However, we note that there is also authority which
characterizes time charter income as rental income rather than services income
for other tax purposes. Accordingly, no assurance can be given that the IRS or a
court of law will accept our position, and there is a risk that the IRS or a
court of law could determine that we are a PFIC. Moreover, no assurance can be
given that we would not constitute a PFIC for any future taxable year if there
were to be changes in the nature and extent of our operations.
  If the
IRS were to find that we are or have been a PFIC for any taxable year, our
United States stockholders will face adverse United States tax consequences and
information reporting obligations. Under the PFIC rules, unless those
stockholders make an election available under the Code (which election could
itself have adverse consequences for such stockholders), such stockholders would
be liable to pay United States federal income tax at the then prevailing income
tax rates on ordinary income plus interest upon excess distributions and upon
any gain from the disposition of our common stock, as if the excess distribution
or gain had been recognized ratably over the stockholder's holding period of our
common stock. Please see the section of this annual report entitled "Taxation"
under Item 10E for a more comprehensive discussion of the United States federal
income tax consequences if we were to be treated as a PFIC.
 
 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.
  24
  
 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.
  We
may incur environmental and other liabilities from vessels that we do not own,
or that we own through joint-ventures, in our capacity as technical manager,
which may adversely affect our results of operations and cash flows
  We
currently provide technical management services through Omega Mnagement Inc to
two of our wholly-own vessels and three of the product tankers we partly own
through equal partnership joint ventures. In addition, either directly or
through Omega Management, Inc. or other entities affiliated with us, we may
provide vessel management services to vessels owned by third parties in the
future.  Under current environmental and other laws and regulations,
we may incur liability for environmental discharges or other accidents involving
the vessels, its crew or cargoes as a result of the provision of such management
services. Such liabilities may be material, and we cannot assure you we are
adequately insured against all such liabilities.
 
 Risks
Relating to our Common Shares
  The market price of our common shares
has fluctuated widely and the market price of our common shares may fluctuate in
the future
 
 The
market price of our common shares has fluctuated widely since we became a public
company in April 2006 and may continue to do so as a result of many factors,
including our actual results of operations and perceived prospects, the
prospects of our competition and of the shipping industry in general and in
particular the product tanker sector, differences between our actual financial
and operating results and those expected by investors and analysts, changes in
analysts' recommendations or projections, changes in general valuations for
companies in the shipping industry, particularly the product tanker sector,
changes in general economic or market conditions and broad market
fluctuations.
 
 Our
common shares have recently traded below $5.00 per share, and the last reported
sale price on The NASDAQ Global Market on July 14, 2010 was $1.85 per share. If
the market price of our common shares remains below $5.00 per share, under stock
exchange rules, our shareholders will not be able to use such shares as
collateral for borrowing in margin accounts. This inability to continue to use
our common shares as collateral may depress demand as certain investors are
restricted from investing in shares priced below $5.00 and lead to sales of such
shares creating downward pressure on and increased volatility in the market
price of our common shares.  In addition, in order to maintain the
listing of our common shares on The NASDAQ Global Market, our stock price will
need to comply with NASDAQ's minimum share price requirements.  Under
NASDAQ Rule 5450(a)(1), or the Bid Price Rule, the closing bid price per share
of our common shares must be at least $1.00 in order for us to continue our
listing on the NASDAQ Stock Exchange.  If the closing bid price per
share of our common shares falls below $1.00 and we are unable to regain
compliance with the Bid Price Rule, we may receive notification from the NASDAQ
Stock Exchange that our securities will be subject to
delisting.  Alternatively, in such an instance, we may be eligible for
a grace period if we meet the initial listing standards, with the exception of
the bid price, for the NASDAQ Capital Market.  However, we will need
to submit an application to transfer our securities from the NASDAQ Global
Market to the NASDAQ Capital Market.  If such application is approved,
the NASDAQ Stock Exchange will notify us that we have been granted the grace
period.
  25
  
 There
may not be an active market for our common shares, which may cause our common
shares to trade at a discount and make it difficult to sell the common shares
you purchase
  We cannot
assure you that an active trading market for our common shares will be
sustained. We cannot assure you of the price at which our common shares will
trade in the public market in the future or that the price of our shares in the
public market will reflect our actual financial performance. You may not be able
to resell your common shares at or above their current market price.
Additionally, a lack of liquidity may result in wide bid-ask spreads, contribute
to significant fluctuations in the market price of our common shares and limit
the number of investors who are able to buy the common shares.
  The
products tanker and container vessel sectors have been highly unpredictable and
volatile. The market price of our common shares may be similarly
volatile.
 
 We
are incorporated in the Marshall Islands, which does not have a well-developed
body of corporate law
  Our
corporate affairs are governed by our amended and restated articles of
incorporation and by-laws and by the Marshall Islands Business Corporations Act,
or the BCA. The provisions of the BCA resemble provisions of the corporation
laws of a number of states in the United States. However, there have been few
judicial cases in the Marshall Islands interpreting the BCA. The rights and
fiduciary responsibilities of directors under the laws of the Marshall Islands
are not as clearly established as the rights and fiduciary responsibilities of
directors under statutes or judicial precedent in existence in the United
States. The rights of shareholders of the Marshall Islands may differ from the
rights of shareholders of companies incorporated in the United States. While the
BCA provides that it is to be interpreted according to the laws of the State of
Delaware and other states with substantially similar legislative provisions,
there have been few, if any, court cases interpreting the BCA in the Marshall
Islands and we can not predict whether Marshall Islands courts would reach the
same conclusions as United States courts. Thus, you may have more difficulty in
protecting your interests in the face of actions by our management, directors or
controlling shareholders than would shareholders of a corporation incorporated
in a United States jurisdiction which has developed a relatively more
substantial body of case law.
 
 Because
we are incorporated under the laws of the Marshall Islands, it may be difficult
to serve us with legal process or enforce judgments against us, our directors or
our management
  We are
incorporated under the laws of the Marshall Islands, and all of our assets are
located outside of the United States.  Our business is operated
primarily from our offices in Athens, Greece.  In addition, our
directors and officers generally are non-residents of the United States, and all
or a substantial portion of the assets of these non-residents are located
outside the United States.  As a result, it may be difficult or
impossible for you to bring an action against us or against these individuals in
the United States if you believe that your rights have been infringed under
securities laws or otherwise. Even if you are successful in bringing an action
of this kind, the laws of the Marshall Islands and of other jurisdictions may
prevent or restrict you from enforcing a judgment against our assets or the
assets of our directors and officers.
 
 A
significant shareholder, owned by our President and Chief Executive Officer,
effectively controls the outcome of matters on which our shareholders are
entitled to vote
  Our
significant shareholder, ONE Holdings, which is wholly-owned by our President
and Chief Executive Officer, Mr. George Kassiotis, owns, directly or indirectly,
approximately 20.5% of our outstanding common shares.  While ONE
Holdings has no agreement, arrangement or understanding relating to the voting
of its shares of our common stock, it may effectively control the outcome of
matters on which our shareholders are entitled to vote, including the election
of directors, the adoption or amendment of provisions in our certificate of
incorporation or bylaws and possible mergers, corporate control contests and
other significant corporate transactions. This concentration of ownership may
have the effect of delaying, deferring or preventing a change in control, a
merger, consolidation, takeover or other business combination. This
concentration of ownership could also discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, which
could in turn have an adverse effect on the market price of our common stock.
The interests of ONE Holdings may be different from other shareholder
interests.
  26
  
 
 Future
sales of our common stock could cause the market price of our common stock to
decline
  Sales of
a substantial number of additional shares of our common stock in the public
market, or the perception that these sales could occur, may depress the market
price for our common stock. These sales could also impair our ability to raise
additional capital through the sale of our equity securities in the
future.
 
 Anti-takeover
provisions in our organizational and other documents could make it difficult for
our shareholders to replace or remove our current board of directors or have the
effect of discouraging, delaying or preventing a merger or acquisition, which
could adversely affect the market price of our common stock
  Several
provisions of our amended and restated articles of incorporation and bylaws
could make it difficult for our shareholders to change the composition of our
board of directors in any one year, preventing them from changing the
composition of management. In addition, the same provisions may discourage,
delay or prevent a merger or acquisition that shareholders may consider
favorable.
  These
provisions include:
  ·
              authorizing
      our board of directors to issue "blank check" preferred stock without
      shareholder approval;
  ·
              providing
      for a classified board of directors with staggered, three year
      terms;
  ·
              prohibiting
      cumulative voting in the election of
directors;
  ·
              authorizing
      the removal of directors only for cause and only upon the affirmative vote
      of the holders of a majority of the outstanding shares of our common stock
      entitled to vote for the directors;
  ·
              prohibiting
      shareholder action by written consent unless the written consent is signed
      by all shareholders entitled to vote on the
  action;
  ·
              limiting
      the persons who may call special meetings of
  shareholders;
  ·
              establishing
      advance notice requirements for nominations for election to our board of
      directors or for proposing matters that can be acted on by shareholders at
      shareholder meetings.
  In
addition, in 2008 our board of directors adopted a shareholder rights plan that
allows our board of directors to significantly dilute the shareholdings of any
person or group of persons that acquire more than 15% of our total outstanding
common stock other than those persons who beneficially owned 15% of the total
outstanding common shares on the date the shareholder rights plan was adopted
who were permitted to acquire up to an additional 10% of the total outstanding
common shares above their share ownership on the date the shareholder rights
plan was adopted.
 
 These
anti-takeover provisions could substantially impede the ability of public
shareholders to benefit from a change in control and, as a result, may adversely
affect the market price of our common stock and your ability to realize any
potential change of control premium.
 
 ITEM
4 - INFORMATION ON THE COMPANY
  A.
History and development of the Company
  We are
Omega Navigation Enterprises, Inc., a holding company incorporated under the
laws of the Marshall Islands on February 28, 2005. Prior to our initial public
offering we issued 10,000 shares of Class A common stock and 3,140,000 shares of
Class B common stock to our shareholders. In April, 2006, we completed our
initial public offering and issued an additional 12,000,000 Class A common
shares. On April 7, 2009 Class B shares were converted to Class A shares on a
one-for-one basis. 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 61 Vasilissis Sofias Ave, Athens 115 21 Greece. Our
telephone number is (30) 210 413-9130.
  27
  B.
Business Overview
 
 The
current fleet includes twelve double hull product tankers with a carrying
capacity of about 680,000 dwt. Eight of the vessels are fully owned by us and
four are owned through equal partnership joint ventures with a wholly owned
subsidiary of Glencore International AG.
  We wholly
own and operate a fleet of six double hull Panamax (LR1) product tankers and two
Ice Class 1A double hull Handysize (MR1) product tankers. We also participate in
a 50% controlled joint venture, Stone Shipping Ltd ("Stone), that owns and
operates, Omega Duke, a double hull Handymax (MR2) product tanker that was
delivered in April 2009.
  In June
2007, we entered into agreements with Hyundai Mipo Dockyard in South Korea for
the construction of five Handysize (MR1) product tankers. These vessels were
novated to a 50% controlled joint venture, Megacore Shipping Ltd ("Megacore"),
that would own ten Handysize (MR1) vessels to be constructed. In December 2009
an addendum to the shipbuilding contract was signed to suspend construction of
one vessel and amend the type of seven out of the nine remaining vessels to
Panamax (LR1). The two Handysize (MR1) vessels, Megacore Honami and Megacore
Hibiscus were delivered in February 2010 and May 2010 and the seven LR1s are
under construction with deliveries scheduled between the fourth quarter 2010 and
the first quarter 2012.
  In May
2008 we entered into an agreement to purchase one Handymax (MR2) product tanker.
On June 2, 2010 this agreement was cancelled and we have entered into a 50%
controlled joint venture, Onest Shipping Ltd ("Onest"), to acquire the vessel
Alpine Marina that was delivered in July 2010.
  We
generate revenues by employing the vessels in our fleet on time charters as well
as in the spot market. For the eight wholly-owned vessels in our fleet, we
provide the commercial management in-house through a wholly-owned subsidiary.
For six out of the eight wholly owned vessels in our fleet and one vessel owned
through our 50% controlled joint venture we have entered into technical
management agreements with unaffiliated third parties. For two out of the eight
wholly owned vessels in our fleet and for three vessel owned by the 50%
controlled joint ventures, we provide the technical management through our
wholly owned subsidiary namely Omega Management Inc.
  Our
Fleet
  Product
Tankers
  We
currently wholly 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 Handysize (MR1) product tankers. We also participate in
three 50% controlled joint ventures, which own and operate four double hull
Handymax/Handysize product tankers (Omega Duke, Megacore Honami, Megacore HibiscusandAlpine Marina), which were
delivered in April 2009, February 2010, May 2010 and July 2010. As of December
31, 2009 our fleet, including the vessels owned by the 50% controlled joint
venture, had a combined cargo-carrying capacity of 559,358 dwt and an average
age of approximately 3.4 years. As of July 15, 2010, our fleet, including the
vessels owned by the 50% controlled joint ventures, has a combined cargo
capacity of 680,358 dwt and an average age of approximately 3.3
years.
 
 In
addition we have entered into a 50% controlled joint venture, Megacore, to
acquire seven Panamaxes (LR1) that are currently under construction. One of
these vessels is scheduled to be delivered in the fourth quarter 2010, four in
2011 and two in 2012.
 
 Information
about the employment of the vessels wholly-owned by us as well as the vessels
owned through joint ventures is presented below.
  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
   28
   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 years ended December 31, 2006, 2007 and
2008 and for the period from February 28, 2005 (date of inception) through
December 31, 2005.
  The table below provides summary
information about the vessels in our fleet as of July 15, 2010 and the terms of
their employment:
  Vessel
              Sister
                Ships
      (1)
              Year
                built
              Deadweight
                (dwt)
              Type
              Delivery
                date
              Daily
      hire
                rate
      (2)
              
              Latest
                RedeliveryCurrent
      fleetWholly
      owned vesselsOmega
      Lady Sarah
              A
              2004
              71,500
              LR1
      – Ice Class 1C
              Aug-09
              $25,500
              (3)
              Sep-12Omega
      Lady Miriam
              A
              2003
              71,500
              LR1
      – Ice Class 1C
              Sep-09
              $25,500
              (3)
              Oct-12Omega
      Emmanuel
              D
              2007
              73,000
              LR1
      – Ice Class 1A
              Spot
      marketOmega
      Theodore
              D
              2007
              73,000
              LR1
      – Ice Class 1A
              Spot
      marketOmega
      King
              B
              2004
              74,999
              LR1
              Jun-10
              $16,000
              
              Jul-11Omega
      Queen
              B
              2004
              74,999
              LR1
              Time
      charter, on evergreen basis with 2 months termination notice, rate being
      the monthly average TCE of a pool of 10 similar vesselsOmega
      Prince
              C
              2006
              36,680
              MR1-Ice
      Class 1A
              Time
      charter, on evergreen basis with 2 months termination notice, rate being
      the monthly average TCE of a pool of 9 similar vessels.Omega
      Princess
              C
              2006
              36,680
              MR1-Ice
      Class 1ATotal
      dwt
              
              
              512,358
  29
  
 Vessel
              Sister
                Ships
      (1)
              Year
                built
              Deadweight
                (dwt)
              Type
              Delivery
                date
              Daily
      hire
                rate
      (2)
              
              Latest
      RedeliveryVessels
      owned through 50% controlled JVOmega
      Duke
              G
              2009
              47,000
              MR2
              Apr-09
              $16,500
              (4)
              May-14Alpine
      Marina
              G
              2010
              47,000
              MR2
              Jul-10
              $14,000
              (4)
              Jul-15Megacore
      Honami
              E
              2010
              37,000
              MR1
              Feb-10
              Confidential
              
              Mar-13Megacore
      Hibiscus
              E
              2010
              37,000
              MR1
              May-10
              Spot
      marketTotal
      dwt
              
              
              168,000JV
      vessels under constructionHull
      2288
              F
              2010
              74,000
              LR1
              Oct-10Hull
      2291
              F
              2011
              74,000
              LR1
              Jan-11Hull
      2289
              F
              2011
              74,000
              LR1
              Jan-11Hull
      2295
              F
              2011
              74,000
              LR1
              Jul-11Hull
      2296
              F
              2011
              74,000
              LR1
              Sep-11Hull
      2298
              F
              2012
              74,000
              LR1
              Feb-12Hull
      2299
              F
              2012
              74,000
              LR1
              Mar-12Total
      dwt
              
              
              518,000
 
 (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.
 (3)
              Plus
      any additional income under profit sharing agreements, according to which
      charter earnings in excess of $25,500 per day will be divided equally
      between Omega Navigation and ST
Shipping.
 (4)
              Plus
      100% of any trading income in excess of the daily
  hire.
 
  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, 2009, three of our customers accounted for 100% of our voyage revenues.
These customers were ST Shipping & Transport (Glencore International AG),
D/S Norden A/S and A/S Dampskibsselskabet Torm.
   30
  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 four of the wholly owned product tankers in our fleet is
provided by V. Ships Management Limited, or V. Ships. The technical management
of two of the wholly owned product tankers and one of the vessels owned by the
50% controlled joint venture is provided by Bernhard Schulte Ship Management
Pvt, Ltd (formerly Eurasia International (L) Limited), and Omega Management Inc
is the technical manager of two wholly owned vessels and three vessels owned by
the 50% controlled joint ventures. We review the performance of the third party
technical managers of our product tankers on a continuous basis and may add or
change technical managers from time to time, or assume the technical management
internally.
  Third
party technical managers are responsible for managing day-to-day vessel
operations, performing general vessel maintenance, ensuring regulatory and
classification society compliance, oil majors vetting procedures, supervising
the maintenance and general efficiency of vessels, arranging our hire of
qualified officers and crew, arranging and supervising drydocking and repairs,
purchasing supplies, spare parts and new equipment for vessels, appointing
supervisors and technical consultants and providing technical support. These
services are provided directly by us with respect to our two wholly owned
vessels and the three vessels owned through 50% joint venture vessel. We acquire
insurance for all product tankers in our fleet, including marine hull and
machinery insurance and protection and indemnity insurance (including pollution
risks and crew insurance) and war risk insurance.
  Under the
management agreements, our product tanker managers present us with an annual
budget for the following 12 months for each vessel and prepare and present us
with their 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, 2009, 2008 and 2007 amounted to
$1,032,779, $993,362 and $900,094, respectively. The management fees charged by
Bernhard Schulte Ship Management Pvt, Ltd for the year ended December 31, 2009,
2008 and 2007 amounted to $250,250, $249,859 and $210,128,
respectively.
  The
International Product Tanker Industry
  The
international seaborne transportation industry represents the most efficient and
we believe safest method of transporting large volumes of crude oil and refined
petroleum products such as gasoline, diesel, fuel oil, gas oil and jet fuel, as
well as edible oils and chemicals. Over the past five years, seaborne
transportation of refined petroleum products has grown substantially, before
declining during 2008 and 2009.
  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:
  Demand:
  ·
              the
      supply and demand for refined petroleum products and
  oil
  ·
              regional
      availability of refining capacity;
  ·
              global
      and regional economic and political
conditions;
   31
  
  ·
              the
      location of regional and global oil refining facilities that affect the
      distance that refined petroleum products and oil are to be moved by
      sea;
  ·
              changes
      in seaborne and other transportation
patterns;
  ·
              environmental
      and other legal and regulatory
developments;
  ·
              currency
      exchange rates;
  ·
              weather;
  ·
              competition
      from alternative sources of energy;
and
  ·
              international
      sanctions, embargoes, import and export restrictions, nationalizations and
      wars.
  Supply:
  ·
              the
      number of newbuilding deliveries;
  ·
              the
      phase-out of single hull tankers from certain markets pursuant to national
      and international laws and
regulations;
  ·
              the
      scrapping rate of older vessels;
  ·
              port
      and canal congestion;
  ·
              the
      conversion of tankers to other
uses;
  ·
              the
      price of steel;
  ·
              the
      number of vessels that are out of service;
and
  ·
              environmental
      concerns and regulations.
  Seasonality
  The
demand for product tankers has historically fluctuated depending on the time of
year.  Demand for product tankers is influenced by many factors,
including general economic conditions, but it is primarily related to demand for
petroleum products in the areas of greatest consumption.  Accordingly,
demand for product tankers generally rises during the winter months and falls
during the summer months in the Northern hemisphere.  Moreover, these
are generalized trading patterns that vary from year to year and there is no
guarantee that similar patterns will continue in the future.
  Environmental
and Other Regulations
  Government
regulation significantly affects the ownership and operation of our fleet. We
are subject to various international conventions, laws and regulations in force
in the countries in which our vessels may operate or are registered. Compliance
with such laws, regulations and other requirements can entail significant
expense, including vessel modification and implementation of certain operating
procedures. We cannot predict the ultimate cost of complying with these
requirements, or the impact of these requirements on the resale value or useful
lives of our
   32
   vessels.  In
addition, we cannot foresee what additional regulations or statutes will be
adopted in the future and what costs we may have to incur in the future to
comply with such regulations and statutes.  The recent oil spill in
the Gulf of Mexico may result in additional and more stringent regulations and
statutes affecting our industry.
  A variety
of governmental and private entities subject our vessels to both scheduled and
unscheduled inspections. These entities include the local port authorities
(applicable national authorities such as the U.S. Coast Guard and harbor
masters), classification societies, flag state administration (country of
registry) and charterers, particularly terminal operators, and oil companies.
Some of these entities require us to obtain permits, licenses, certificates and
other authorizations for the operation of our fleet. Our failure to maintain
necessary permits or approvals could require us to incur substantial costs or
temporarily suspend operation of one or more of the vessels in our
fleet.
  Heightened
levels of environmental and quality concerns among insurance underwriters,
regulators and charterers have led to greater inspection and safety requirements
on all vessels and may accelerate the scrapping of older vessels throughout the
industry. Increasing environmental concerns have created a demand for vessels
that conform to stricter environmental standards. We are required to maintain
operating standards for all of our vessels emphasizing operational safety,
quality maintenance, continuous training of our officers and crews and
compliance with applicable local, national and international environmental laws
and regulations. We believe that the operation of our vessels is in substantial
compliance with applicable environmental laws and regulations and that our
vessels have all material permits, licenses, certificates or other
authorizations necessary for the conduct of our operations; however, because
such laws and regulations are frequently changed and may impose increasingly
stricter requirements, we cannot predict the ultimate cost of complying with
these requirements, or the impact of these requirements on the resale value or
useful lives of our vessels.  In addition, a future serious marine
incident that results in significant oil pollution or otherwise causes
significant adverse environmental impact, such as the 2010 BP Deepwater Horizon
oil spill in the Gulf of Mexico, could result in additional legislation or
regulation that could negatively affect our profitability.
  International
Maritime Organization (IMO)
  The
International Maritime Organization, or IMO (the United Nations agency for
maritime safety and the prevention of pollution by ships), has adopted the
International Convention for the Prevention of Marine Pollution from Ships,
1973, as modified by the Protocol of 1978 relating thereto, which has been
updated through various amendments (the "MARPOL Convention"). The MARPOL
Convention implements environmental standards including oil leakage or spilling,
garbage management, as well as the handling and disposal of noxious liquids,
harmful substances in packaged forms, sewage and air emissions. These
regulations, which have been implemented in many jurisdictions in which our
vessels operate, provide, in part, that:
  ·
              25-year
      old tankers must be of double-hull construction or of a mid-deck design
      with double-sided construction,
unless:
  (1)
              they
      have wing tanks or double-bottom spaces not used for the carriage of oil
      which cover at least 30% of the length of the cargo tank section of the
      hull or bottom, or
  (2)
              they
      are capable of hydrostatically balanced loading (loading less cargo into a
      tanker so that in the event of a breach of the hull, water flows into the
      tanker, displacing oil upwards instead of into the
  sea);
  ·
              30-year
      old tankers must be of double-hull construction or mid-deck design with
      double-sided construction; and
  ·
              all
      tankers will be subject to enhanced
inspections.
  Also,
under IMO regulations, a newbuilding tanker of 5,000 dwt and above must be of
double hull construction or a mid-deck design with double-sided construction or
be of another approved design ensuring the same level of protection against oil
pollution if the tanker:
  ·
              is
      the subject of a contract for a major conversion or original construction
      on or after July 6, 1993;
   33
 
  ·
              commences
      a major conversion or has its keel laid on or after January 6, 1994;
      or
  ·
              completes
      a major conversion or is a newbuilding delivered on or after July 6,
      1996.
  Effective
September 2002, the IMO accelerated its existing timetable for the phase-out of
single-hull oil tankers. At that time, these regulations required the phase-out
of most single- hull oil tankers by 2015 or earlier, depending on the age
of the tanker and whether it has segregated ballast tanks.  Currently
all of our tankers, including the tankers under construction, are of double hull
construction.
  Under the
regulations, the flag state may allow for some newer single-hull ships
registered in its country that conform to certain technical specifications to
continue operating until the 25th anniversary of their delivery. Any port state,
however, may deny entry of those single-hull tankers that are allowed to operate
until their 25th anniversary to ports or offshore terminals. These regulations
have been adopted by over 150 nations, including many of the jurisdictions in
which our tankers operate.
  Ballast
Water Requirements
  The IMO
adopted an International Convention for the Control and Management of Ships'
Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM
Convention's implementing regulations call for a phased introduction of
mandatory ballast water exchange requirements (beginning in 2009), to be
replaced in time with mandatory concentration limits. The BWM Convention will
not enter into force until 12 months after it has been adopted by 30 states, the
combined merchant fleets of which represent not less than 35% of the gross
tonnage of the world's merchant shipping.
  Air
Emissions
  In
September 1997, the IMO adopted Annex VI to the MARPOL Convention to address air
pollution from ships.  Effective in May 2005, Annex VI sets limits on
sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts
and prohibits deliberate emissions of ozone depleting substances (such as halons
and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and
the shipboard incineration of specific substances.  Annex VI also
includes a global cap on the sulfur content of fuel oil and allows for special
areas to be established with more stringent controls on sulfur
emissions.  We believe that all our vessels are currently compliant in
all material respects with these regulations.  Additional or new
conventions, laws and regulations may be adopted that could require the
installation of expensive emission control systems and that could adversely
affect our business, cash flows, results of operations and financial
condition.
  In
October 2008, the IMO adopted amendments to Annex VI regarding particulate
matter, nitrogen oxide and sulfur oxide emission standards which are expected to
enter into force on July 1, 2010.  The amended Annex VI would reduce
air pollution from vessels by, among other things, (i) implementing a
progressive reduction of sulfur oxide, emissions from ships, with the global
sulfur cap reduced initially to 3.50% (from the current cap of 4.50%), effective
from January 1, 2012, then progressively to 0.50%, effective from January 1
2020, subject to a feasibility review to be completed no later than 2018; and
(ii) establishing new tiers of stringent nitrogen oxide emissions standards for
new marine engines, depending on their date of installation.  Once
these amendments become effective, we may incur costs to comply with these
revised standards.
  Safety
Requirements
  The IMO
has also adopted the International Convention for the Safety of Life at Sea, or
SOLAS Convention, and the International Convention on Load Lines, 1966, or LL
Convention, which impose a variety of standards to regulate design and
operational features of ships. SOLAS Convention and LL Convention standards are
revised periodically. We believe that all our vessels are in substantial
compliance with SOLAS Convention and LL Convention standards.
  Under
Chapter IX of SOLAS, the requirements contained in the International Safety
Management Code for the Safe Operation of Ships and for Pollution Prevention, or
ISM Code, promulgated by the IMO, the party with operational control of a vessel
is required to develop an extensive safety management system that includes,
among other things,
   34
   the
adoption of a safety and environmental protection policy setting forth
instructions and procedures for operating its vessels safely and describing
procedures for responding to emergencies. In 1994, the ISM Code became mandatory
with the adoption of Chapter IX of SOLAS. We intend to rely upon the safety
management system that we and our third-party technical managers have
developed.
  The ISM
Code requires that vessel operators obtain a safety management certificate for
each vessel they operate. This certificate evidences compliance by a vessel's
management with ISM Code requirements for a safety management system. No vessel
can obtain a safety management certificate unless its operator has been awarded
a document of compliance, issued by each flag state, under the ISM Code. We have
obtained documents of compliance for their offices and safety management
certificates for the vessels in our fleet for which such certificates are
required by the IMO. These documents of compliance and safety management
certificates are renewed as required.
  Noncompliance
with the ISM Code and other IMO regulations may subject the shipowner or
bareboat charterer to increased liability, may lead to decreases in available
insurance coverage for affected vessels and may result in the denial of access
to, or detention in, some ports. For example, the U.S. Coast Guard and European
Union (EU) authorities have indicated that vessels not in compliance with the
ISM Code will be prohibited from trading in U.S. and EU ports.
  Oil
Pollution Liability
  Although
the U.S. is not a party to these conventions, many countries have ratified and
follow the liability plan adopted by the IMO and set out in the International
Convention on Civil Liability for Oil Pollution Damage of 1969, as amended in
2000, or the CLC. Under this convention and depending on whether the country in
which the damage results is a party to the CLC, a vessel's registered owner is
strictly liable for pollution damage caused in the territorial waters of a
contracting state by discharge of persistent oil, subject to certain complete
defenses. The limits on liability outlined in the 1992 Protocol use the
International Monetary Fund currency unit of Special Drawing Rights, or SDR.
Under an amendment to the 1992 Protocol that became effective on 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, or $6.80 million, plus 631 SDR, or $950.74, for
each additional gross ton over 5,000. For vessels over 140,000 gross tons,
liability will be limited to 89.77 million SDR, or $135.26 million. The exchange
rate between SDRs and U.S. Dollars was 0.67 SDR per U.S. dollar on July 13,
2010.  The right to limit liability is forfeited under the CLC where
the spill is caused by the owner's actual fault and under the 1992 Protocol
where the spill is caused by the owner's intentional or reckless conduct.
Vessels trading to states that are parties to these conventions must provide
evidence of insurance covering the liability of the owner. In jurisdictions
where the CLC has not been adopted various legislative schemes or common law
govern, and liability is imposed either on the basis of fault or in a manner
similar to that of the CLC. We believe that our insurance will cover the
liability under the plan adopted by the IMO.
  The IMO
continues to review and introduce new regulations.  It is difficult to
accurately predict what additional regulations, if any, may be passed by the IMO
in the future and what effect, if any, such regulations might have on our
operations.
  In 2005,
the European Union adopted a directive on ship-source pollution, imposing
criminal sanctions for intentional, reckless or negligent pollution discharges
by ships.  The directive could result in criminal liability for
pollution from vessels in waters of European countries that adopt implementing
legislation.  Criminal liability for pollution may result in
substantial penalties or fines and increased civil liability
claims.
  United
States Requirements
  U.S.
Oil Pollution Act of 1990 and Comprehensive Environmental Response, Compensation
and Liability Act
   In 1990,
the U.S. Congress enacted OPA to establish an extensive regulatory and liability
regime for environmental protection and cleanup of oil spills. OPA affects all
owners and operators whose vessels trade with the U.S. or its territories or
possessions, or whose vessels operate in the waters of the U.S., which include
the U.S. territorial sea and the 200 nautical mile exclusive economic zone
around the U.S. The Comprehensive Environmental Response, Compensation and
Liability Act, or CERCLA, imposes liability for clean-up and natural resource
damage from the release of hazardous substances (other than oil) whether on land
or at sea. Both OPA and CERCLA impact our operations.
   35
  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;
  ·
              loss
      of profits or impairment of earning capacity due to injury, destruction or
      loss of real property, personal property and natural resources;
      and
  ·
              loss
      of subsistence use of natural
resources.
  Under
amendments to OPA that became effective on July 11 2006, the liability of
responsible parties is limited, with respect to tanker vessels, to the greater
of $1,900 per gross ton or $16.0 million per vessel that is over 3,000 gross
tons, (subject to periodic adjustment for inflation).  The act
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for
discharge of pollutants within their waters. In some cases, states that have
enacted this type of legislation have not yet issued implementing regulations
defining tanker owners' responsibilities under these laws. CERCLA, which applies
to owners and operators of vessels, contains a similar liability regime and
provides for clean-up, removal and natural resource damages relating to the
discharge of hazardous substances (other than oil). Liability under CERCLA is
limited to the greater of $300 per gross ton or $5.0 million for vessels
carrying a hazardous substance as cargo or residue and the greater of $300 per
gross ton or $0.5 million for any other vessel.
  These
limits of liability do not apply, however, where the incident is caused by
violation of applicable U.S. federal safety, construction or operating
regulations, or by the responsible party's gross negligence or willful
misconduct. These limits also do not apply if the responsible party fails or
refuses to report the incident or to cooperate and assist in connection with the
substance removal activities. OPA and CERCLA each preserve the right to recover
damages under existing law, including maritime tort law. We believe that we are
in substantial compliance with OPA, CERCLA and all applicable state regulations
in the ports where our vessels call.
  OPA also
requires owners and operators of vessels to establish and maintain with the U.S.
Coast Guard evidence of financial responsibility sufficient to meet the limit of
their potential strict liability under the act.  U.S. Coast Guard
regulations currently require evidence of financial responsibility in the amount
of $2,200 per gross ton for tankers, coupling the OPA limitation on liability of
$1,900 per gross ton with the CERCLA liability limit of $300 per gross
ton.  Under the regulations, evidence of financial responsibility may
be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA
regulations, an owner or operator of more than one tanker is required to
demonstrate evidence of financial responsibility for the entire fleet in an
amount equal only to the financial responsibility requirement of the tanker
having the greatest maximum strict liability under OPA and CERCLA. We have
provided such evidence and received certificates of financial responsibility
from the U.S. Coast Guard for each of our vessels required to have
one.
  We insure
each of our vessels with pollution liability insurance in the maximum
commercially available amount of $1.0 billion. A catastrophic spill could exceed
the insurance coverage available, in which event there could be a material
adverse effect on our business.
   36
   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 U.S.
  In
addition, most U.S. states that border a navigable waterway have enacted
environmental pollution laws that impose strict liability on a person for
removal costs and damages resulting from a discharge of oil or a release of a
hazardous substance. These laws may be more stringent than U.S. federal
law.
  Additional
U.S. Environmental Requirements
  The U.S.
Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990 (the "CAA"), requires the U.S. Environmental Protection Agency, or EPA, to
promulgate standards applicable to emissions of volatile organic compounds and
other air contaminants. Our vessels are subject to vapor control and recovery
requirements for certain cargoes when loading, unloading, ballasting, cleaning
and conducting other operations in regulated port areas. Our vessels that
operate in such port areas are equipped with vapor control systems that satisfy
these requirements. The CAA also requires states to draft State Implementation
Plans, or SIPs, designed to attain national health-based air quality standards
in primarily major metropolitan and/or industrial areas. Several SIPs regulate
emissions resulting from vessel loading and unloading operations by requiring
the installation of vapor control equipment. As indicated above, our vessels
operating in covered port areas are already equipped with vapor control systems
that satisfy these requirements. Although a risk exists that new regulations
could require significant capital expenditures and otherwise increase our costs,
we believe, based on the regulations that have been proposed to date, that no
material capital expenditures beyond those currently contemplated and no
material increase in costs are likely to be required.
  The Clean
Water Act, or CWA, prohibits the discharge of oil or hazardous substances into
navigable waters and imposes strict liability in the form of penalties for any
unauthorized discharges. The CWA also imposes substantial liability for the
costs of removal, remediation and damages. The CWA complements the remedies
available under the more recent OPA and CERCLA, discussed above.
  Effective
February 6, 2009, the EPA, regulates the discharge of ballast water and other
substances incidental to the normal operation of vessels in U.S. waters using a
Vessel General Permit, or VGP, system pursuant to the CWA, in order to combat
the risk of harmful foreign organisms that can travel in ballast water carried
from foreign ports. A VGP is required for commercial vessels 79 feet in length
or longer (other than commercial fishing vessels). Compliance could require the
installation of equipment on our vessels to treat ballast water before it is
discharged or the implementation of other port facility disposal arrangements or
procedures at potentially substantial cost, and/or otherwise restrict our
vessels from entering U.S. waters.
   37
  Ballast
water is also addressed under the U.S. National Invasive Species Act, or
NISA.  U.S. Coast Guard regulations adopted under NISA impose
mandatory ballast water management practices for all vessels equipped with
ballast water tanks entering U.S. waters.
  European
Union Tanker Restrictions
  In
response to the MT Prestige oil spill in November 2002, the European Union
adopted legislation that prohibits all single-hull tankers from entering into
its ports or offshore terminals by 2010 or earlier depending on age. The
European Union has also banned all single-hull tankers carrying heavy grades of
oil from entering or leaving its ports or offshore terminals or anchoring in
areas under its jurisdiction. Commencing in 2005, certain single-hull tankers
above 15 years of age will also be restricted from entering or leaving European
Union ports or offshore terminals and anchoring in areas under European Union
jurisdiction.
  The
European Union has also adopted legislation that would: (1) strengthen
regulation against manifestly sub-standard vessels (defined as those over 15
years old that have been detained by port authorities at least twice in a
six-month period) from European waters and create an obligation of port states
to inspect vessels posing a high risk to maritime safety or the marine
environment and (2) provide the European Union with greater authority and
control over classification societies, including the ability to seek to suspend
or revoke the authority of negligent societies. It is difficult to accurately
predict what legislation or additional regulations, if any, may be promulgated
by the European Union or any other country or authority.
  Greenhouse
Gas Regulation
  In
February 2005, the Kyoto Protocol to the United Nations Framework Convention on
Climate Change, which we refer to as the Kyoto Protocol, entered into force.
Pursuant to the Kyoto Protocol, adopting countries are required to implement
national programs to reduce emissions of certain gases, generally referred to as
greenhouse gases, which are suspected of contributing to global warming.
Currently, the emissions of greenhouse gases from international shipping are not
subject to the Kyoto Protocol. However, the European Union has indicated that it
intends to propose an expansion of the existing European Union emissions trading
scheme to include emissions of greenhouse gases from vessels. In the U.S., the
EPA has begun the process of declaring greenhouse gases to be dangerous
pollutants, which may be followed by future federal regulation of greenhouse
gases. Any passage of climate control legislation or other regulatory
initiatives by the IMO, EU, the U.S. or other countries where we operate that
restrict emissions of greenhouse gases could require us to make significant
financial expenditures we cannot predict with certainty at this
time.
  Vessel
Security Regulations
  Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the U.S.
Maritime Transportation Security Act of 2002, or MTSA, came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created a new chapter
of the convention dealing specifically with maritime security. The new chapter
became effective in July 2004 and imposes various detailed security obligations
on vessels and port authorities, most of which are contained in the
International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS
Code is designed to protect ports and international shipping against terrorism.
After July 1, 2004, to trade internationally, a vessel must obtain an
International Ship Security Certificate, or ISSC, from a recognized security
organization approved by the vessel's flag state. Among the various requirements
are:
  ·
              on-board
      installation of automatic identification systems to provide a means for
      the automatic transmission of safety-related information from among
      similarly equipped ships and shore stations, including information on a
      ship's identity, position, course, speed and navigational
      status;
  ·
              on-board
      installation of ship security alert systems, which do not sound on the
      vessel but only alerts the authorities on
shore;
   38
 
  ·
              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.
  or
maintenance of the class, regular and extraordinary surveys of hull, machinery,
including the electrical plant, and any special equipment classed are quired 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.
   39
  All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years.
  Most
vessels are also dry-docked every 30 to 36 months for inspection of the
underwater parts and for repairs related to inspections. If any defects are
found, the classification surveyor will issue a "recommendation" which must be
rectified by the ship owner within prescribed time limits.
  Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as "in class" by a classification society which is a member of the
International Association of Classification Societies. All our vessels are
certified as being "in class" by the American Bureau of Shipping, Lloyds
Register of Shipping and Det Norske Veritas. All new and secondhand vessels that
we purchase must be certified prior to their delivery under our standard
contracts and memorandum of agreement. If the vessel is not certified on the
date of closing, we have no obligation to take delivery of the
vessel.
  Risk of Loss and Liability
Insurance
  General
  The
operation of any vessel includes risks such as mechanical failure, collision,
property loss, cargo loss or damage and business interruption due to political
circumstances in foreign countries, hostilities and labor strikes. In addition,
there is always an inherent possibility of marine disaster, including oil spills
and other environmental mishaps, and the liabilities arising from owning and
operating vessels in international trade. OPA, which imposes virtually unlimited
liability upon owners, operators and demise charterers of vessels trading in the
United States exclusive economic zone for certain oil pollution accidents in the
United States, has made liability insurance more expensive for ship owners and
operators trading in the United States market.
  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."
   40
   Our
current protection and indemnity insurance coverage for pollution is $1.0
billion per vessel per incident. The 13 P&I Clubs that comprise the
International Group insure approximately 90% of the world's commercial tonnage
and have entered into a pooling agreement to reinsure each association's
liabilities.
  The
International Group of P&I Clubs exists to arrange collective insurance and
reinsurance for P&I Clubs, to represent the views of shipowners and
charterers who belong to those Clubs on matters of concern to the shipping
industry and to provide a forum for the exchange of information.  Each
of the constituent P&I Clubs is an independent, non-profit making mutual
insurance association or "Club," providing cover for its shipowner and charterer
members against liabilities of their respective businesses.  Each Club
is controlled by its members through a board of directors (or Committee) elected
from the membership; the Board (or Committee) retains responsibility for
strategic and policy issues but delegates to full-time managers the technical
running of the Club.
  Although
the Clubs compete with each other for business, they have found it beneficial to
pool their larger risks under the auspices of the International
Group.  This pooling is regulated by a contractual agreement which
defines the risks that are to be pooled and exactly how these are to be shared
between the participating Clubs.  The pool provides a mechanism for
sharing all claims in excess of $5.0 million up to a limit of about $5.4
billion.  For a layer of claims between $50.0 million and $2.03
billion the International Group's Clubs purchase reinsurance from the commercial
market.  The pooling system provides participating Clubs with
reinsurance protection at cost to much higher levels than would normally be
available in the commercial reinsurance market.
  As a
member of a P&I Club, which is a member of the International Group, we are
subject to calls payable to the associations based on the group's claim records
as well as the claim records of all other members of the individual associations
and members of the pool of P&I Club comprising the International
Group.
  Competition
  The
international product tanker business fluctuates in line with the main patterns
of trade changes in the supply and demand for these refined petroleum
products.  We operate in markets that are highly competitive and based
primarily on supply and demand.  We compete for charters on the basis
of price, vessel location, size, age and condition of the vessel, as well as on
our reputation as an owner and operator. We compete with other owners of
Aframax, Handymax and Panamax product tankers.  The sector in which we
operate is highly fragmented and is divided among numerous independent product
tanker owners.
  C.
Organizational Structure
  We own
our wholly-owned 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 all our
wholly-owned vessels and technical management for two of the eight wholly-owned
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 Athens, Greece, from an
unaffiliated third party company, and have annual lease payments for 2009, 2008
and 2007 of Euro 77,225, Euro 53,140 and Euro 47,720, respectively, or
approximately $109,027, $78,532 and $65,320, respectively.
  ITEM
4A – UNRESOLVED STAFF COMMENTS
  None.
  ITEM
5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  The
following management's discussion and analysis of the results of our operations
and our financial condition should be read in conjunction with the financial
statements and the notes to those statements included elsewhere in this annual
report. This discussion includes forward-looking statements that involve risks
and uncertainties. Our
  41
  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;
  ·
              spot
      market rates
  ·
              periods
      of charter hire;
  ·
              vessel
      operating expenses and voyage costs, which are incurred primarily in
      Dollars;
  ·
              depreciation
      expenses, which are a function of the cost of our vessels, significant
      vessel improvement costs and our vessels' estimated useful lives;
      and
  ·
              financing
      costs related to our indebtedness under our credit facilities and
      derivative agreements.
  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 or spot rates that our vessels earn
under charters or spot voyages, 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.
  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 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.
   42
  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. Many 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, rent and
compensation cost of restricted shares awarded.
  Management
Fees
  We pay
management fees for the technical management of our wholly-owned fleet, which
includes managing day-to-day vessel operations, performing general vessel
maintenance, ensuring regulatory and classification society compliance,
supervising the maintenance and general efficiency of vessels, arranging the
employment and transportation of officers and crew, arranging and supervising
dry docking and repairs, purchasing of spares and other consumable stores and
other duties related to the operation of our vessels. During 2010 the technical
manager of two of our wholly-owned vessels were changed from VShips to Omega
Management Inc, which is our wholly-owned subsidiary.
  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.
  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, 2009 and 2008, we had $344.1 and $336.6 million of indebtedness
outstanding under our term credit facilities, respectively. 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 credit facilities relating to the financing of the
acquisition of the newbuilding vessels that amounted to $61.0, $51.4 and $40.1
million as of December 31, 2009, 2008 and 2007, respectively. Interest and
finance costs relating to the amounts drawn under the credit facilities during
the construction of the five newbuilding vessels will be capitalized as vessels'
cost.  For additional information regarding our credit facilities,
please see "Liquidity and Capital Resources," below.
  Lack
of Historical Operating Data for Vessels Before their Acquisition
  Consistent
with shipping industry practice, other than inspection of the physical condition
of the vessels and examinations of classification society records, there is no
historical financial due diligence process when we acquire vessels. Accordingly,
we do not obtain the historical operating data for the vessels from the sellers
because that information is not material to our decision to make acquisitions,
nor do we believe it would be helpful to potential investors in our common
shares in assessing our business or profitability. Most vessels are sold under a
standardized agreement, which, among other things, provides the buyer with the
right to inspect the vessel and the vessel's classification society records. The
standard agreement does not give the buyer the right to inspect, or receive
copies of, the historical operating data of the vessel. Prior to the delivery of
a purchased vessel, the seller typically removes
   43
   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.
  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;
   44
   ·
              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 and spot market
  rates;
  ·
              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.
 
 Principles of
Consolidation:The
Company determines whether it has a controlling financial interest in an entity
by first evaluating whether the entity is a voting interest entity or a variable
interest entity. Under ASC 810-10, "Consolidation," a voting interest entity is
an entity in which the total equity investment at risk is sufficient to enable
the entity to finance itself independently and provides the equity holders with
the obligation to absorb losses, the right to receive residual returns and the
right to make financial and operating decisions. The Holding Company
consolidates voting interest entities in which it owns all, or at least a
majority (generally, greater than 50%) of the voting interest.
 
 Variable
interest entities ("VIE") are entities as defined under ASC 810, "Consolidation"
that in general either do not have equity investors with voting rights or that
have equity investors that do not provide sufficient financial resources for the
entity to support its activities. A controlling financial interest in a VIE is
present when a company absorbs a majority of an entity's expected losses,
receives a majority of an entity's expected residual returns, or both. The
company with a controlling financial interest, known as the primary beneficiary,
is required to consolidate the VIE. The Company evaluates all arrangements that
may include a variable interest in an entity to determine if it may be the
primary beneficiary, and would be required to include assets, liabilities and
operations of a VIE in its consolidated financial statements.
  45
  
 
 According
to ASC 810 "Consolidation", effective for annual periods beginning after
November 15, 2009, there are two criteria to determine the primary beneficiary
a) The power to direct the activities that most significantly impact the
entity's economic performance, and b) the obligation to absorb losses or rights
to receive benefits of the entity that could potentially be significant to the
VIE. Both criteria should be met in order for an entity to be the primary
beneficiary of a VIE. Entities that have identified VIE in the past should
re-evaluate their relationships with those entities using the above two
criteria.
 
 Revenue recognition: The
Company generates its revenues from charterers for the charter hire of its
vessels. Vessels are chartered using either voyage charters, where a contract is
made in the spot market for the use of a vessel for a specific voyage for a
specified charter rate, or time charters, where a contract is entered into for
the use of a vessel for a specific period of time and a specified daily charter
hire rate. If a charter agreement exists, and collection of the related revenue
is reasonably assured, revenue is recognized, as it is earned rateably over the
duration of the period of each voyage or time charter. A voyage is deemed to
commence upon the completion of discharge of the vessel's previous cargo and is
deemed to end upon the completion of discharge of the current cargo. Profit
sharing represents the Company's portion on the excess of the actual net daily
charter rate earned by the Company's charterers from the employment of the
Company's vessels over a predetermined base daily charter rate, as agreed
between the Company and its charterers; such profit sharing is recognized in
revenue when mutually settled. Demurrage income represents payments by the
charterer to the vessel owner when loading or discharging time exceeded the
stipulated time in the voyage charter and is recognized as incurred. Deferred
revenue represents cash received on charter agreements 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 ASC 360 "Property, Plant and Equipment",
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The standard requires that, long-lived assets and
certain identifiable intangibles held and used or disposed of by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. When the estimate
of undiscounted projected operating cash flows, excluding interest charges,
expected to be generated by the use of the asset is less than its carrying
amount, the Company should evaluate the asset for an impairment loss. The
Company determines the fair value of its assets based on management estimates
and assumptions and by making use of available market data and taking into
consideration third party valuations.
 
 The
Company evaluates the carrying amounts (primarily for vessels and related
dry-docking and special survey costs) and periods over which long lived assets
are depreciated to determine if events have occurred which would require
modification of their carrying values or useful lives.In evaluating useful lives
and carrying values of long lived assets, management reviews certain indicators
of potential impairment, such as undiscounted projected operating cash flows,
vessel sales and purchases and overall market conditions. The amount of
undiscounted operating cash flows estimated in 2008 for 2009 was not materially
different from the actual amount of 2009.
 
 The
current economic and market conditions, including the significant disruptions in
the global credit markets are having broad effects on participants in a wide
variety of industries. Since 2008 the product tanker vessel values have declined
both as a result of a slowdown in the availability of global credit and the
decrease in charter rates; conditions that the Company considers indicators of a
potential impairment.
 
 The
Company determines undiscounted projected net operating cash flows for each
vessel and compares it to the vessel's carrying value. The projected net
operating cash flows are determined by considering the charter revenues from
existing time charters for the fixed fleet days and an estimated daily time
charter equivalent for the unfixed days (based on the most recent 10 years
average historical one year time charter rates) over the remaining estimated
life of each vessel, net of brokerage commissions, expected outflows for
scheduled vessels' maintenance and vessel operating expenses assuming an average
annual inflation rate of 3%. In the Company's exercise the fleet utilization is
assumed to be 99% for the first 15 years of the life of the vessel and 98%
thereafter. Additional off hire is assumed for the periods each vessel is
expected to undergo her scheduled maintenance (drydocking and special surveys).
The cash flows were based on the conditions that existed at the balance sheet
date and were not affected by subsequent decisions.
  46
  
 
 No
impairment loss was identified or recorded for 2009, 2008 or 2007 and the
Company has not identified any other facts or circumstances that would require
the write down of vessel values. However, the current assumptions used and the
estimates made are highly subjective, and could be negatively impacted by
further significant deterioration in charter rates or vessel utilization over
the remaining life of the vessels which could require the Company to record a
material impairment charge in future periods.
 
 Vessel's depreciation:
Depreciation is computed using the straight-line method over the estimated
useful life of the vessels, after considering the estimated salvage value. Each
vessel's salvage value is equal to the product of 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: ASC 815 "Derivatives and Hedging" requires all
derivative contracts to be recorded at fair value, as determined in accordance
with ASC 820 "Fair Value Measurements and Disclosures", which is more fully
discussed in Note 10 to our consolidated financial statements. The changes in
fair value of the derivative contracts are recognized in earnings unless
specific hedging criteria are met. As derivative instruments have not been
designated as hedging instruments, changes in their fair value are reported in
current period earnings. The Company does not believe it is necessary to obtain
collateral arrangements.
 
 ASC 815
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about the fair value of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative instruments. ASC 815 relates to disclosures
only and its adoption did not have any effect on the financial condition,
results of operations or liquidity of the Company.
 
 Effective
January 1, 2009, the Company adopted the accounting pronouncement relating to
the expanded disclosure requirements about derivative instruments and hedging
activities codified as ASC 815, "Derivatives and Hedging". ASC 815 intents to
provide users of financial statements with an enhanced understanding of: (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for, and (c) how derivative instruments
and related hedged items affect an entity's financial position, financial
performance, and cash flows.
 
 Financial instruments with
characteristics of both liabilities and equity: ASC 480 "Distinguishing
liabilities from 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 ASC 480
initially and subsequently should be measured at fair value. Subsequently
changes in fair value are recognized in earnings.
 
 Deferred Dry-dock costs: The
Company follows the deferral method of accounting for dry-docking costs whereby
actual costs incurred are deferred and are amortized on a straight-line basis
over the period through the date the next dry-docking is scheduled to become
due. Unamortized dry-docking costs of vessels that are sold are written off and
included in the calculation of the resulting gain or loss in the period of the
vessel's sale. During 2009 and 2008 three vessels (Omega King, Omega Queen and Omega Lady Sarah) and one
vessel (Omega Lady
Miriam), respectively, have entered their scheduled
drydock.
  47
  
 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.
 
 Equity method investments:
Investments in entities that the Company does not control, but has the ability
to exercise significant influence over the operating and financial policies, are
accounted for using the equity method.  Under this method the
investment is carried at cost, and is adjusted to recognize the investor's share
of the earnings or losses of the investee after the date of acquisition and is
adjusted for impairment whenever facts and circumstances determine that a
decline in fair value below the cost basis is other than temporary. The amount
of the adjustment is included in the determination of net income by the investor
and such amount reflects adjustments similar to those made in preparing
consolidated financial statements including adjustments to eliminate
intercompany gains and losses, and to amortize, if appropriate, any differences
between investor cost and underlying equity in net assets of the investee at the
date of acquisition. The investment of an investor is also adjusted to reflect
the investor's share of changes in the investee's capital.
 
 Year
Ended December 31, 2009 compared with the Year Ended December 31,
2008
 
 OPERATING
FLEET – Our fleet, in 2009, was comprised of eight wholly owned-product tankers,
including two Handysize MR's and six Panamax vessels. The two Handysize MR's and
four of the Panamax vessels were purchased in 2006 with a combination of debt
and proceeds from our initial public offering. The vessels were delivered to us
between May and August of 2006.  The other two Panamax vessels were
purchased in 2007 and were delivered to us in March and April of 2007,
respectively.  The results from operations for these vessels in 2009
and 2008 are in Continuing Operations.  Discontinued operations relate
to the results of operations of our bulk carriers that we agreed to sell in 2006
and were delivered to their new owners in 2007. In addition, since April 2009 we
own, through a 50% controlled joint venture, a Handymax (MR2) vessel. The
results of the joint venture company are presented as "Loss from joint venture
companies" in the accompanying consolidated financial statements of
income.
 
 CONTINUING
OPERATIONS
 
 VOYAGE
REVENUES – Voyage revenues were $64.5 million in 2009 versus $77.7 million in
2008, a decrease of 17%.  During 2009 the time charter of six out of
the eight wholly-owned vessels expired. Four of the these vessels have entered
into new time charters with lower rates and two have entered into new time
charters with higher rates. As a result of the deterioration of the shipping
rates in 2009, the overall decrease of our average charter rate (excluding any
profit sharing) was 15%. Also the amount of revenue received from our profit
sharing agreements decreased from $6.8 million in 2008 to $3.2 million in
2009.
 
 VOYAGE
EXPENSES – Voyage expenses, which include mainly brokerage commissions on voyage
revenues as well as bunkers consumed and port expenses of spot voyages, were
$1.5 million in 2009 versus $1.0 million in 2008, an increase of 50%. The amount
of commission on voyage revenue was decreased by $0.1 million in 2009 compared
to 2008 due to the decrease of the revenues. Voyage expenses were increased in
2009 due to spot voyages performed by some of our vessels, versus time charters
in 2008, resulting in charges for the bunkers consumed and port expenses
incurred which amounted to $0.7 million.
 
 VESSEL
OPERATING EXPENSES – Vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oils, insurance, maintenance and
repairs, were $17.3 million in 2009 versus $15.5 million in 2008, an increase of
12%.  The increase was primarily related to higher crew wages and the
increased cost of spares incurred as a result of repairs and maintenance
effected during the drydocking of three vessels in our fleet during
2009.
 
 DEPRECIATION
AND AMORTIZATION – Depreciation and amortization, which primarily includes
depreciation of vessels, was $19.2 million in 2009 versus $18.9 million in
2008.  The increase of 2% relates to the amortization of the costs
incurred during drydocking.
 
 MANAGEMENT
FEES – Management fees relate to the fees paid to V. Ships and Benhard Schulte
Ship management for the technical management of our vessels.  These
fees were $1.3 million in 2009 versus $1.2 million in 2008.  This
increase of 8% related to the contractual annual increase of the management
fees.
  48
  
 
 GENERAL
AND ADMINISTRATIVE EXPENSES – General and Administrative Expenses were $6.0
million in 2009 versus $6.1 million in 2008, reflecting a decrease of
2%.
 
 INTEREST
AND FINANCE COSTS - Interest and Finance costs for 2009 were $7.2 million versus
$14.4 million in 2008, a decrease of $7.2 million or 50%.  The
decrease reflects the decrease in average interest rates by 50% in 2009 compared
with 2008.
 
 INTEREST
INCOME – Interest Income was $0.1 million in 2009 versus $0.7 million in 2008, a
decrease of 86%, relating mainly to lower interest rates and
balances.
 
 CHANGE IN
FAIR VALUE OF WARRANTS - This gain was $1.1 million in 2009 versus $3.2 million
in 2008 and is related to the changes in fair values of the warrants issued to
the seller of the Ice Class 1A Panamax newbuildings, which we took delivery of
in March and April of 2007, as partial compensation for the vessels.
Additionally the gain recognized in 2009 is due to the further decrease of our
share price, until the exercise date of the warrants that was March 31,
2009.
 
 LOSS ON
DERIVATIVE INSTRUMENTS – For the year ended December 31, 2009, realized loss
from the interest rate swaps amounted to $8.5 million and unrealized gain was
$4.3 million. For the year ended December 31, 2008, realized loss from the
interest rate swaps amounted to $0.9 million and unrealized loss was $12.7
million. The decrease of the loss on derivative instruments relates primarily to
the increase of the forward interest rates as of December 31, 2009 compared to
December 31, 2008.
 
 LOSS FROM
JOINT VENTURE COMPANIES – For year ended December 31, 2009, loss from joint
venture companies amounted to $0.3 million. This amount relates to our
investment in a 50% joint venture that owns an MR(2) product tanker Omega Duke that was delivered
on April 24, 2009.
 
 INCOME
FROM CONTINUING OPERATIONS – Income from continuing operations for 2009 was $5.7
million versus $10.9 million in 2008.  The decrease of $5.2 million,
or 48%, primarily is related to (i) the decrease of revenues by $13.2 million,
(ii) an amount of $3.0 million relating to the termination of a purchase
agreement of the Omega Duke, further discussed in Liquidity and Capital
Resources section, (iii) the increase of voyage expenses and vessels' operating
expenses by $2.3 million, (iv) the decrease of gains from warrants by $2.0
million, (v) the increase of depreciation cost by $0.3 million and (vi) the loss
from joint venture companies of $0.3 million, partially offset by the decrease
of interest and finance cost, interest income as well as derivative losses by $
16.1 million.
 
 Year
Ended December 31, 2008 compared with the Year Ended December 31,
2007
 
 OPERATING
FLEET – Our fleet, in 2008, was comprised of eight product tankers, including
two Handysize MR's and six Panamax vessels.  The two Handysize MR's
and four of the Panamax vessels were purchased in 2006 with a combination of
debt and proceeds from our initial public offering. The vessels were delivered
to us between May and August of 2006.  The other two Panamax vessels
were purchased in 2007 and were delivered to us in March and April of 2007,
respectively.  The results from operations for these vessels in 2007
and 2008 are in Continuing Operations.  Discontinued operations relate
to the results of operations of our bulk carriers that we agreed to sell in 2006
and were delivered to their new owners in 2007.
 
 CONTINUING
OPERATIONS
 
 VOYAGE
REVENUES – Voyage revenues were $77.7 million in 2008 versus $69.9 million in
2007, an increase of 11%.  The increase was primarily due to an
increase in the number of ship operating days for the product tankers from 2,719
days in 2007 to 2,918 in 2008, an increase of 199 days or 7%.  On
average, we operated 6.0 Panamax vessels and 2.0 Handysize MR's in 2008 versus
5.4 Panamax vessels and 2.0 Handysize MR's in 2007. Voyage revenues for 2008 and
2007 also include revenue from profit sharing of $6.8 million and $4.0 million,
respectively.
  49
  
 VOYAGE
EXPENSES – Voyage expenses, which include mainly brokerage commissions on voyage
revenues, were $1.0 million in 2008 versus $0.9 million in 2007, an increase of
11%. This increase is due primarily to the respective increase in voyage
revenues, as commissions are calculated as a percentage of gross
hire.
 
 VESSEL
OPERATING EXPENSES – Vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oils, insurance, maintenance and
repairs, were $15.5 million in 2008 versus $13.1 million in 2007, an increase of
18%.  This increase was primarily related to the operation of a larger
fleet in 2008 versus 2007, when we operated a fleet of 8.0 compared to 7.4
vessels, respectively. The increase in crew wages and the increased cost of
spares incurred as a result of repairs and maintenance effected during the
drydocking for one vessel in our fleet.
 
 DEPRECIATION
AND AMORTIZATION – Depreciation and amortization, which primarily includes
depreciation of vessels, was $18.9 million in 2008 versus $17.6 million in
2007.  The increase of 7% reflected the operation of an average of 8.0
vessels in 2008 versus 7.4 vessels in 2007.
 
 MANAGEMENT
FEES – Management fees relate to the fees paid to V. Ships and Bernhard Schulte
Ship Management for the technical management of our vessels.  These
fees were $1.2 million in 2008 versus $1.1 million in 2007.  This
increase of 9.1% related to the operation of a larger fleet in 2008 than 2007 as
well as 7% annual increase of the management fees in 2008 compared to 2007. This
increase was partially offset by the fact that in 2007 extra fees were charged
by V. Ships as for management services rendered prior to the acquisition of
Omega Emmanuel andOmega Theodore.
 
 GENERAL
AND ADMINISTRATIVE EXPENSES – General and Administrative Expenses were $6.1
million in 2008 versus $5.1 million in 2007, reflecting an increase of 20%. The
increase is mainly attributable to a $0.9 million increase of non cash charges
relating to the fair value of the restricted shares granted. The grant date fair
value of the restricted shares is being recognized rateably over the vesting
period. Also during 2008 there was an increase of wages that was partially
offset by the decrease of the cash bonus received by the Officers and the
decrease of the audit fees. The amount of audit and consulting fees was higher
in 2007 mainly due to Sarbanes-Oxley compliance requirements.
 
 INTEREST
AND FINANCE COSTS - Interest and Finance costs for 2008 were $14.4 million
versus $18.6 million in 2007, a decrease of $4.2 million or 23%.  The
decrease reflects the decrease of average interest rate by 32% in 2008 compared
to 2007. The decrease resulted from the lower interest rates was partially
offset by the higher amount of outstanding debt relating mainly to the financing
of the two Handymax (MR2) product tankers that we have agreed to
purchase.
 
 INTEREST
INCOME – Interest Income was $0.7 million in 2008 versus $1.8 million in 2007, a
decrease of 61%, relating mainly to lower interest rates and
balances.
 
 CHANGE IN
FAIR VALUE OF WARRANTS - This gain was $3.2 million in 2008 versus $1.1 million
in 2007 and is related to the changes in fair values of the warrants issued to
the seller of the Ice Class 1A Panamax newbuildings, which we took delivery of
in March and April of 2007, as partial compensation for the vessels. The
increase of the amount of gain relates mainly to the decrease of our share price
on December 31, 2008 compared to December 31, 2007.
 
 LOSS ON
DERIVATIVE INSTRUMENTS – For the year ended December 31, 2008, realized loss
from the interest rate swaps amounted to $0.9 million and unrealized loss was
$12.7 million. For the year ended December 31, 2007, realized gain from the
interest rate swap amounted to $0.04 million and the net unrealized loss on the
interest rate collar option amounted to $1.3 million. The increase of the loss
on derivative instruments relates primarily to the significant decrease of the
forward interest rates as of December 31, 2008 compared to December 31, 2007. On
March 27, 2008 we entered into two interest rate swap agreements with NIBC and
BTMU in order to hedge our exposure to fluctuations in interest rates on our
junior secured credit facility. The notional amount of each agreement is $21.3
million and the interest rate is fixed at 2.96% per annum. Furthermore, on April
15, 2008 we entered into a restructuring agreement amending the initial rate
collar option with HSH. Under the amended agreement, we have entered into a
participation swap with a gradual alignment factor. The notional amount of the
swap is $150.0 million
  50
  and the
cap has been set at 5.1%, with the floor being at 2.5% and the gradual aligned
participation at a maximum of 2.6% when the three months LIBOR drops below 2.5%.
Finally, on November 10, 2008 we entered into an interest rate swap agreement
with Lloyds Bank in order to hedge our exposure to fluctuations in interest
rates.The interest
rate is fixed at 2.585% per annum and the notional amount was $100.0 million as
of December 31, 2008.
 
 INCOME
FROM CONTINUING OPERATIONS – Income from continuing operations for 2008 was
$10.9 million versus $14.9 million in 2007.  The decrease of $4.0
million, or 27%, primarily is related to the significant increase of the loss on
derivative instruments by $12.4 million, that was partially offset by (i) the
increase of operating income by $3.2 million due primarily to the increase of
the size of our fleet from an average of 7.4 vessels in 2007 to 8.0 vessels in
2008, (ii) the decrease of interest and finance costs and interest income by
$3.1 million and (iii) the increase of gain from change in fair value of
warrants by $2.1 million.
  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.
 
 We have
entered into an equal partnership joint venture named Megacore Shipping Ltd.
with a wholly owned subsidiary of Glencore International AG to acquire two
Handysize double hull chemical / product tankers and seven Panamax double hull
product tankers to be constructed at Hyundai Mipo Dockyard in South Korea. Two
of the Handysize vessels, the 37,000 dwt. Megacore Honami and Megacore Hibiscus,
were delivered in February and May, 2010, respectively, to companies owned by
Megacore. The Megacore Honami and the Megacore Hibiscus were funded with Bank
debt and equity contributions from the shareholders. Upon delivery, the Megacore
Honami commenced a three year time charter with NYK Line. The Megacore Hibiscus
is currently trading in the spot market.
 
 As
mentioned Megacore has contracted to take delivery of one LR1 Panamax vessel in
the third quarter 2010, two LR1's in the first quarter 2011 another two LR1's in
the third quarter 2011 and finally two LR1's are scheduled for delivery in the
first quarter 2012. The payment terms contracted with the shipyard provide for
five installments, each of 20% of the contract price, with the last three
installments, amounting in total to 60% of the contract price, payable within
five months before the final delivery date. The construction and acquisition of
the remaining seven LR1 newbuildings, owned by Megacore Shipping Ltd, that are
currently under construction are being funded by debt and equity contributions
by the shareholders. The Company is funding the pre-delivery construction
schedule with respect to three and a half of these vessels, for all of which
bank debt financing commitments are already in place, including pre-delivery as
well as post delivery financing. Based on prevailing market conditions and also
taking into account our current liquidity and short term debt obligations, these
capital expenditure commitments, can only be funded with a combination of debt
financing, internally generated cash flow and other capital raises which are
currently being explored.
 
 The
Company is currently in advanced discussions with its lenders to extend the term
of its loans under the Senior Credit Facility and the Junior Credit Facility
beyond the current maturity of April 2011. Both the Senior as well as the Junior
Facility are non amortizing until the maturity. While both loans will mature in
nine months, we believe we will reach a satisfactory outcome well in advance as
we are in negotiations to reach a final agreement to obtain waivers and extend
or restructure our debt. The current outstanding balance of our credit
facilities, including predelivery advances for newbuildings, amounts to
approximately $340 million.
 
 While
delivery dates and respective capital expenditures are staggered within a time
frame of 20 months from today, the Company is currently in negotiations to reach
a final agreement to obtain waivers and extend or restructure its debt, and is
also exploring, amidst challenging capital market conditions, various
alternatives including capital raising in order to improve both its short term
and long term liquidity, meet short term commitments and manage its overall
capital exposure.
  51
  
 Vessel
acquisition and vessels under construction
 
 Omega
Duke:
 
 (i) On
April 8, 2009, we entered into a settlement agreement with the seller to cancel
the Memorandum of Agreement and the time charter agreement for Omega Duke, by paying a
settlement fee of $3.0 million. Such amount was paid on April 24, 2009 and both
parties were released from further liabilities regarding the Memorandum of
agreement and the time charter agreement.
 
 (ii)
Through our wholly-owned subsidiary Omnicrom Holdings Ltd., or Omnicrom, we have
entered into a joint venture agreement with Topley Corporation, or Topley, which
is a wholly-owned subsidiary of Glencore International AG. Omnicrom and Topley
each own 50% of Stone Shipping Ltd, or Stone, that is a joint venture holding
company. Stone owns 100% of Blizzard Navigation Inc., or Blizzard, that is the
shipowning company of Omega
Duke. Blizzard entered into a Memorandum of Agreement with the seller for
the purchase of Omega
Duke for a consideration of $45.0 million. Omega Duke was delivered to
Blizzard on April 24, 2009. The purchase of the vessel was financed by the loan
agreement with Lloyds bank discussed below and by equal equity contributions of
the shareholders that amounted to $11.3 million, or $5.6 million each. Blizzard
has entered into a five year charter agreement on a daily hire of $16,500 plus
100% of any trading income in excess. The joint venture is expected to declare a
dividend on a quarterly basis, in amounts substantially equal to any available
cash from operations after cash expenses and discretionary reserves and is
expected to be distributed equally between Omnicrom and Topley.
 
 Alpine
Marina:
 
 On May 9,
2008, we entered into a Memorandum of Agreement with an unrelated third party to
acquire a newbuilding double hull Handymax (MR2) product tanker for a
consideration of $55.5 million. The vessel is a sistership to the Omega Duke. As
of December 31, 2009, we had paid an advance, representing 10% of the total
purchase price, amounting to $5.5 million, from cash available from operations
and the proceeds under a loan facility concluded in this respect with Lloyds TSB
Bank PLC, as further discussed below.
 
 On April
8, 2009, as supplemented on April 24, 2009, we entered into a settlement
agreement with the seller to cancel the Memorandum of Agreement and the time
charter agreement that was attached to the vessel and scheduled to commence upon
delivery to us, of the vessel that we agreed to purchase on May 9, 2008. The
effectiveness of the settlement agreement was subject to several financing
arrangements that needed to be in place relating mainly to equity contributions
from the joint venturers and the payment of the settlement fee.
 
 On April
8, 2009, as supplemented on April 24, 2009, we entered, through Omnicrom, our
wholly owned subsidiary, into a joint venture agreement with Topley, a wholly
owned subsidiary of Glencore International AG. Omnicrom and Topley each own 50%
of Onest Shipping Ltd, or Onest, which is a joint venture holding company. Onest
owns 100% of Tornado Navigation Inc., or Tornado, which is the shipowning
company of the vessel (Alpine Marina). This agreement was subject to several
financing arrangements that were not in place as of December 31,
2009.
 
 On June
2, 2010, we paid the amount of $3.0 million as settlement fee for the
cancellation of the initial MOA agreement as well as the time charter. Also,
Tornado has entered into an MOA to acquire the vessel for a consideration of
$45.0 million. Tornado has also entered into a five year time charter agreement
for the vessel with ST Shipping, a wholly owned subsidiary of Glencore
International AG, on a daily hire of $14,000 plus 100% of any trading income in
excess.
 
 The
Alpine Marina was delivered on July 8, 2010. The acquisition of the vessel was
financed by debt financing, described below and 50/50 equity contributions of
$7,275 each.
 
 On April
24, 2009 Blizzard Navigation Inc., owner of the vessel Omega Duke, and Tornado
that is the owner of Alpine Marina have entered into a senior secured loan
facility with Lloyds bank. The facility was divided in two tranches. The first
advance amounted to $33.7 million and it was used for the financing of the
acquisition of Omega Duke. The second advance amounted to $28.5 million and it
was used for the financing of the acquisition of Alpine Marina. In addition, for
the financing of the  acquisition of Alpine Marina, Glencore provided
a top up loan facility of $2.0 million and will be repaid from the available net
cash flow of Tornado. Both facilities will bear interest at LIBOR plus margin.
We will guarantee 50% of the obligations of the borrower under both
facilities.
  52
  
 
 Under the
joint venture agreement it is agreed to declare dividends on a quarterly basis,
in amounts substantially equal to any available cash from operations after cash
expenses and discretionary reserves and is expected to be distributed equally
between Omnicrom and Topley provided that no dividends shall be paid unless and
until the outstanding indebtedness of the loan provided by Glencore has been
fully repaid.
 
 Megacore newbuilding
contracts
 
 On June
15, 2007, we entered into five shipbuilding contracts with Hyundai Mipo
Dockyard, in South Korea, to construct and acquire five newbuilding double hull
Handysize (MR1) product tankers, each with a capacity of 37,000 dwt. The
contractual purchase price of the five newbuildings was $44.2 million per vessel
($221.2 million in total).
 
 On
September 8, 2008 we entered into a joint venture agreement with Topley, which
is a wholly-owned subsidiary of Glencore International AG. Based on the
agreement, each party was expected to initially contribute five (5) newbuilding
double hull Handysize product tanker vessels, with a capacity of 37,000 dwt,
thus forming a fleet of 10 newbuilding vessels, with the aim of establishing a
major participant in the ownership and operation of product
tankers.
 
 On June
11, 2009 we entered into five novation agreements with Hyundai Mipo shipyard and
five shipowning companies wholly owned by Megacore Shipping Ltd, a joint venture
company owned equally by the Company and Topley, in order to transfer all of the
rights and obligations to the joint venture companies. Subsequently, we
transferred the financing arrangements to the five joint venture companies but
continued to guarantee the performance of their loans during the pre-delivery
period. As a result the above five shipowning companies are included in the
consolidated financial statements as of December 31, 2009. On December 10, 2009
we have entered into Addendum No. 1 of the shipbuilding contracts with Hyundai
Mipo shipyard whereby out of the original 10 shipbuilding contracts for
Handysize product tankers only 2 remained unchanged and 7 were converted to
Panamax (LR1) product tankers with a capacity of 74,000dwt while one contract
was suspended. The contract price was amended for the 7 LR1s and the delivery
dates were extended. One of the vessels is scheduled for delivery in 2010, four
of the vessels are scheduled for delivery in 2011 and two in 2012.
 
 Each
shareholder is expected to fully fund through Megacore all obligations under
four shipbuilding contracts until the delivery of the respective vessels, while
the predelivery obligations of one vessel will be funded 50/50 by each
shareholder. The objective of the joint venturers is that, following delivery of
the vessels the equity contribution of the Company and Topley is expected to be
equal. After the delivery of each vessel the shipowning companies shall declare
and pay quarterly dividends to the Company and Topley that are expected to be
substantially equal to available cash from operations during the previous
quarter after cash expenses and discretionary reserves. Dividends are expected
to be equal for the two joint venture partners.
 
 Two of
the Megacore joint venture vessels, Megacore Honami and Megacore Hibiscus, were
delivered on February 25, 2010 and May 6, 2010, respectively.
 
 Credit
Facilities
 
 HSH
Nordbank Syndicated 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 and a syndicate of Banks, 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.
  53
  
 
 On March
21, 2007, a second supplement amending this facility was signed in connection
with the financing of the acquisition of the tanker vessels Omega Emmanuel and Omega
Theodore.  Under the amended facility, HSH Nordbank agreed to
make available to us an aggregate amount of $94.3 million, which would be made
available by (i) re-committing for re-borrowing again (once only) an amount of
$38.1 million from the term loan facility amount that we had repaid on the same
date relating to the drybulk carriers that we have sold and (ii) drawing an
amount of $56.2 million from the revolving facility.  These amounts
were to be combined and comprise two tranches, one for each of the above two
vessels, in each case of $47.2 million per vessel.
 
 Pursuant
to the above supplement, on March 26, 2007, we drew down an amount of $19.0
million from the term loan facility and $28.1 million from the revolving
facility in order to partly finance the acquisition of the Omega Emmanuel and on April
25, 2007, we drew down an amount of $19.0 million from the term loan facility
and $28.1 million from the revolving facility in order to partly finance the
acquisition of the Omega
Theodore.  As of December 31, 2007, the outstanding balance of
the term loan and the revolving facility was $139.9 million and $141.8 million,
respectively.
 
 On March
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. As of December 31, 2009, as well as
currently the outstanding balance of the term loan facility was $ 242.7
million.
 
 Our
credit facility with HSH contains a "Market Disruption Clause" requiring us to
compensate the banks for any increases to their funding costs caused by
disruptions to the market which the bank may unilaterally trigger. While we have
reserved our rights regarding the ability of HSH to invoke such clause
commencing January 30, 2009 we are paying the market disruption rate that is on
average 0.23% higher than LIBOR and varies on each loan roll over based on the
HSH actual funding cost. At this time we do not know when our lender will stop
charging us the Market Disruption rate.
 
 On April
15, 2008, we entered into a restructuring agreement amending the initial rate
collar option with HSH.  Under the amended agreement we entered into a
participation swap with gradual alignment factor.  The notional amount
of the swap is $150.0 million and the cap has been set at 5.1% with the floor
being at 2.5% and the gradual aligned participation at a maximum of 2.6% when
the three months LIBOR drops below 2.5%. On July 22, 2008 the maturity date of
the swap was amended from April 4, 2011 to April 14, 2011.
 
 HSH
Nordbank Bridge Loan Facility
 
 On April
25, 2007, we entered into an agreement with HSH Nordbank for a $2.4 million
bridge facility to finance the remainder of the purchase price of the Omega Emmanuel and Omega Theodore.  We
drew down the total amount on April 25, 2007, shortly before the delivery of
Omega
Theodore.  This bridge loan facility was repaid in full on
March 28, 2008, with proceeds drawn under our junior secured credit facility
with BTMU and NIBC, described below.
  54
  
 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.  Based on the loan agreement, the facility has to be repaid
in one amount on April 12, 2011. The junior secured credit facility bears
interest at LIBOR plus margin.
 
 The
junior secured credit facility contains financial covenants calculated on a
consolidated basis requiring us to maintain (i) minimum cash of $5.0 million,
(ii) minimum interest coverage ratio on a four trailing quarter basis of
2.00:1.00, (iii) a leverage ratio maximum of 70% based on Net Debt to Net
Capitalization, (iv) a ratio of fair market value to combined senior secured
credit facility, junior secured credit facility and swap exposure, in case of
early termination, of 120%.
 
 The
junior facility is secured by owners' guarantees, second priority, cross
collateralized mortgages, second priority pledge/assignment of earnings account
and retention account, second priority assignment of insurances in respect to
the vessels, second priority pledge of the time charter contracts currently in
place for the vessels, and second priority assignment of each of the vessels
earnings.
 
 On March
27, 2008, we entered into two interest rate swap agreements with NIBC and BTMU
in order to hedge our exposure to fluctuations in the interest rate on our
junior secured credit facility.  The notional amount of each agreement
is $21.25 million, or $42.5 million in total, and interest rate is fixed at
2.96% per annum with NIBC and 2.9625% per annum with BTMU. The effective date of
the agreements are March 28, 2008 and their duration is three years. The
agreements are secured under second preferred mortgages.
 
 According
to the cash sweep clause of the junior facility, in the event that at any time
during the security period the fair market value of the secured vessels is less
than 130% of the aggregate of the senior and junior credit facilities we shall
prepay part of the facility. On November 20, 2009 an amount of $2.2 million was
prepaid under the cash sweep clause of the junior facility and as a result the
outstanding balance of the loan amounted to $40.3 million as of December 31,
2009. Also an amount of $2.0 million was prepaid under cash sweep clause on
January 19, 2010 and the current outstanding balance is $38.3
million.
 
 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 installment (representing the 10% of
the total purchase price) made on July 5, 2007, amounting to $22.1 million of
the five newbuilding vessels.
 
 On August
24, 2007, we, through our two wholly-owned subsidiaries that were to become the
owners of two of the five Handysize (MR1) product tankers currently under
construction, entered into a secured loan facility with Bremer of up to $55.3
million for the purpose of (i) the partial repayment of the outstanding loan
facility with Bremer discussed above and (ii) to partly finance the acquisition
cost during the construction period of the two of the five product tankers
described above.  The loan amount would be drawn in two tranches, one
for each vessel under construction, which would be available in five advances to
be drawn on the payment dates of the installments under the shipbuilding
contracts and would bear interest at LIBOR plus margin.  The interest
of the first two advances, which would be deferred until the third installment
to the shipyard is due, was considered as a part of the loan and bear interest
thereon until full repayment of the loan upon delivery of the
vessels.
 
 On August
31, 2007, we drew down the first advance of the pre-delivery facility for both
vessels ($4.0 million per vessel) and used it for the repayment of the previous
loan facility with Bremer, discussed above.  On December 13, 2007, we
drew down the second advance of pre-delivery facility for both vessels ($4.0
million per vessel) to partially finance the second construction installment 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 would take
  55
  place on
the dates of the third, fourth and fifth installments falling due under the
shipbuilding contracts signed on June 15, 2007 in partial payment of the
construction installments under the contracts. The facility contained financial
covenants calculated on a consolidated basis providing for a) minimum liquidity
of $5.0 million and b) a leverage ratio, calculated as total debt to total
capitalization, of maximum 70%. The facility was secured by a) first priority
assignment of all rights under the relevant two shipbuilding contracts signed on
June 15, 2007, b) first priority assignment of all rights under the relative
refund guarantees and c) corporate guarantee. Furthermore, we were permitted to
pay dividends so long as an event of default had not occurred and would not
occur upon the payment of such dividend.
 
 On
February, 2, 2009, we entered into a post-delivery term loan facility with
Bremer of up to $66.3 million representing 75% of the vessels' price on delivery
or the fair market value of those vessels at delivery, whichever is less, for
the purpose of repayment of the pre-delivery facility as well as financing the
sixth installment to the shipyard. The loan wpuld be drawn at the vessels'
delivery dates and would be repayable in 40 quarterly installments and a balloon
installment equal to $14.7 million per vessel. Repayment would commence three
months after delivery of the vessels. The loan would bear interest at LIBOR plus
margin. We would pay commitment fees of 0.2% per annum on the post delivery loan
remaining undrawn. The loan agreement would be secured by a) first priority
mortgages over the vessels, b) first priority assignment of each vessels
insurances, c) corporate guarantee, d) first priority assignment of each of the
vessels' earnings account and retention accounts and e) manager's undertakings.
Furthermore the loan agreement contains financial covenants calculated on a
consolidated basis, that will require the Company to maintain: a) liquidity of
not less than $5.0 million, b) a ratio of total net debt to total net
capitalization of not more than 70%, c) a ratio of market value of the secured
vessels to outstanding net debt of the secured vessels shall be in excess of
120%.
 
 On June
29, 2009 we repaid the outstanding balance of $16.9 million, including an amount
of $1.0 million relating to the interest deferred until that date. On June 25,
2009 we, through Lightning Navigation Inc and Rain Navigation Inc, have entered
into a senior secured loan facility with Bremer for an amount up to $58.8
million to (i) repay the outstanding loan facility discussed above and (ii) to
partially finance the acquisition of the two of the five newbuilding vessels
that we have novated to the above Joint Venture companies. 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 margin and a commitment
fee of 0.2% per annum on the undrawn portion of the loan. The amount of interest
is deferred until the payment of the third instalment to the yard is due and it
cannot exceed $2.5 million.
 
 According
to the pre-delivery facility signed on June 25, 2009 we, through Lightning
Navigation Inc and Rain Navigation Inc, will enter into a new loan agreement for
the post delivery financing in accordance with the terms presented above but
including any necessary amendments based on the addendum of the shipbuilding
contracts.
 
 As of
December 31, 2009, the outstanding balance of the loan was $17.0
million.
 
 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 Handysize (MR1)
product tankers that we have agreed to construct and purchase.  This
facility would 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 installment 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 installment amounting to $8.8 million (representing 10% of their
total purchase price).  In respect of each tranche, the remaining
advances would be drawn on the payment dates and in partial payment of the
installments under the shipbuilding contracts and would 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 would be repaid in 40 equal quarterly installments
commencing 3 months after the relevant vessel's delivery date plus a balloon
payment of $14.7 million.  The senior secured credit facility would
bear interest at LIBOR plus margin.
 
 The
facility contained financial covenants calculated on a consolidated basis
providing for a) minimum liquidity of $5.0 million b) a leverage ratio,
calculated as total debt to total capitalization, of maximum 70%, c) minimum
interest coverage ratio on a four trailing quarter basis of 2.00:1.00 and d)
working capital of not less than $1.0
  56
  million.
After the vessels have been delivered the ratio of fair market value of the
secured vessels to outstanding debt should not be less than 125%. Prior to the
newbuildings' delivery the facility was secured by a) first priority assignment
of all rights under the relevant two shipbuilding contracts signed on June 15,
2007, b) first priority assignment of all rights under the relative refund
guarantees and c) corporate guarantee. Upon delivery of the newbuildings the
term loan facility would be secured by a) first priority mortgages over the
vessels, b) first priority assignment of each vessel's insurances, c) Corporate
guarantee, d) first priority assignment of vessels' charter agreements and e)
pledge over each of the vessels' earnings account and retention accounts.
Furthermore, we were permitted to pay dividends so long as an event of default
had not occurred and would not occur upon the payment of such
dividend.
 
 On June
29, 2009 we repaid the outstanding balance of $16.9 million, including an amount
of $1.0 million relating to the interest deferred until that date. On June 29,
2009 we, through Fire Navigation Inc and Hurricane Navigation Inc, have entered
into a loan agreement with Bank of Scotland for an amount of up to $70.0 million
to (i) repay the outstanding loan facility discussed above and (ii) to partially
finance the two of the five newbuilding vessels that we have novated to the
above Joint Venture companies. On October 1, 2009 and on October 29, 2009 we
paid the third and fourth instalments of Hull 2189 (Megacore Honami) and as a
result we drew down the third and fourth instalments of the loan amounting $7.1
million each. 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.
 
 As of
December 31, 2009 the outstanding balance of the loan was $31.2
million.
 
 Megacore Honami was delivered
to Fire Navigation Inc in February 2010. The total financing amounts to $28.2
million that consists of $22.9 million of senior loan facility and $5.3 million
of top up loan facility. The loan was drawn down on vessels' delivery on
February 25, 2010. The top up loan facility shall be repayable in 12 equal
consecutive quarterly instalments. According to the amended terms the ratio of
fair market value of the secured vessels to outstanding senior debt should not
be less than to 125% or 115% in case that the top up loan is
included.
 
 On March
26, 2010 we, through Fire Navigation Inc and Hurricane Navigation Inc, have
entered into a supplemental agreement to amend the loan agreement with Bank of
Scotland dated June 29, 2009 to (i) increase the amount of the post-delivery
financing for the acquisition of Megacore Honami to take into
account the top up loan facility described above and (ii) to amend the
pre-delivery and post-delivery financing to take into account the amendment of
the shipbuilding contract to a double hull product tanker of 74,000 dwt with
expected delivery in October 2010.
 
 In
respect to the double hull product tanker of 74,000 dwt with expected delivery
in October 2010, the amount of the loan was amended in order to take into
consideration the contract price of the amended shipbuilding contract as well as
the increased amounts of the pre-delivery instalments. As a result the loan
amount should not exceed the lesser of (i) $38.9 million and (ii) 75% of the
fair market value of the vessel on delivery date. On March 5, 2010 and June 25,
2010 Hurricane Navigation Inc paid the third and fourth instalments of Hull 2288
and as a result we drew down the third and fourth instalment of the loan
amounting $8.6 million each. The outstanding balance of the loan after these
draw downs is $25.8 million.
 
 On
February 25, 2010 we, through Fire Navigation Inc and Hurricane Navigation Inc
have entered into a fixed rate swap agreement with the Bank of Scotland to hedge
its exposure to fluctuations in interest rate. The interest rate was fixed at
0.59% for one year and the notional amount is $16.6 million. The effective date
of the agreement was March 9, 2010 and its expiration date March 9,
2011.
 
 National
Bank of Greece Facility
 
 On
November 20, 2007, for the financing of one of the newbuildings, we entered into
a senior secured loan facility with the National Bank of Greece (NBG) for an
amount of up to the lesser of $33.2 million or 75% of the fair market value of
the vessel on its delivery date.  The loan would be available in six
advances; the first of which was drawn down on November 21, 2007 as a
reimbursement for the first installment 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 installment for the
newbuilding
  57
  vessel,
made on December 13, 2007, amounting to $4.4 million (representing 10% of its
total purchase price).  The remaining advances would be drawn on the
payment dates of the installments under the shipbuilding
contract.  The loan would bear interest at LIBOR plus
margin.  The loan would be repayable in 40 equal quarterly
installments plus a balloon installment equal to $13.3
million.  Repayment would commence three months after delivery of the
vessel.
 
 The
facility contained financial covenants calculated on a consolidated basis
providing for a) minimum liquidity of $0.5 million per fleet vessel b) a
leverage ratio, calculated as total debt to total capitalization, of maximum
70%, c) minimum interest coverage ratio on a four trailing quarter basis of
2.00:1.00. After the vessel has been delivered the ratio of fair market value of
the secured vessel to outstanding debt should not be less than 120%. The
facility was secured, prior to the newbuildings' delivery by a) first priority
assignment of all rights under the relevant shipbuilding contract signed on June
15, 2007 b) first priority assignment of all rights under the relative refund
guarantee and c) corporate guarantee. Upon delivery of the newbuildings the term
loan facility, would 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, we would be permitted to pay dividends so
long as an event of default had not occurred and would not occur upon the
payment of such dividend.
 
 On June
10, 2009 we, through Ice Navigation Inc, have entered into a loan agreement with
NBG for an amount of up to $33.2 million to (i) repay the outstanding loan
facility discussed above and (ii) to partially finance the one of the five
newbuilding vessels that the Company has novated to the above Joint Venture
company. Drawdowns under this loan are made in accordance with the payment dates
of the instalments under the shipbuilding contracts and bear interest at LIBOR
plus a margin and commitment fees of 0.2% per annum on the undrawn portion of
the loan. The loan is repayable in 40 quarterly instalments ($0.5 million each),
commencing three months after delivery of the vessel, plus a balloon instalment
equal to $13.3 million. On June 29, 2009 we paid the total outstanding
balance.
 
 As of
December 31, 2009 the outstanding balance of the loan was $8.0
million.
 
 On
January 27, 2010 we, through Ice Navigation Inc, have entered into a term sheet
to amend the loan agreement with NBG dated June 10, 2009 to take into account
the amendment of the shipbuilding contract to a double hull product tanker of
74,000 dwt with expected delivery date in January 2011. The purpose of the
facility is to provide pre-delivery and post-delivery financing for the
acquisition of a double hull product tanker of 74,000 dwt with expected delivery
in January 2011. The total amount of the loan shall not exceed the lower of a)
$36.3 million and b) 70% of the market value of the vessel on delivery. The
facility shall be repaid by 40 equal, consecutive, quarterly instalments of $0.5
million each plus a balloon payment of $14.5 million. During the post delivery
period the loan will be secured by the Company's corporate guarantee for the 50%
of the outstanding debt and Glencore for the remaining 50% of the outstanding
debt. All other terms of the loan agreement dated June 10, 2009 remain
unchanged.
 
 According
to the shipbuilding contract and Megacore joint venture agreement, each of the
joint venturer is 50/50 responsible for the financing of the acquisition of the
vessel on delivery as well as the predelivery period. As of December 31, 2009 we
include the outstanding balance of the debt in our consolidated financial
statements because we have contributed 100% of the required capital and we have
provided a corporate guarantee for the debt. On July 2, 2010 Ice Navigation Inc.
paid the third instalment of Hull 2289 that was financed through debt financing
amounting to $8.6 million and 50/50 equity contribution amounting to $1.1
million per joint venturer. On July 2, 2010 we received from Glencore an amount
of $0.4 million representing 50% of the equity already contributed by us for the
payment of the first and second instalment to the yard. The current balance of
the debt is $16.6 and will be deconsolidated during the ensuing
quarters.
 
 Lloyds
TSB Bank PLC
 
 On May 9,
2008, we entered into an agreement to purchase two newbuilding Handymax (MR2)
product tankers for $55.5 million each. Payment terms provided 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 was repayable by a bullet
payment at the delivery date and would bear interest at a rate of LIBOR plus
margin.  The loan would be secured by i) Memorandum of Agreement
assignment, ii) shares charge and iii) Corporate Guarantee and
  58
  contained
financial covenants calculated on a consolidated basis that would 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 was more than 1 year, (B) $0.75
million per vessel if the average remaining time charter coverage in respect of
both Vessels was 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 was less or equal to six months, but in any event not
less than $0.75 million per vessel. The amount of $4.95 million was fully
repaid, on April 23, 2009. As of December 31, 2009 the outstanding balance of
the loan is $4.95 million and related to the vessel that was under construction
and was fully repaid on June 2, 2010.
 
 On May
28, 2008, we also entered into a post-delivery credit facility to fund the
balance of the acquisition cost of the same two vessels in an amount of the
lesser of $83.25 million and 75% of the fair market value of the vessels on
their delivery dates.  The loan facility was repayable in 40 equal
quarterly installments plus a balloon installment of $18.3 million per vessel
together with the final installment.  Repayment would commence three
months after the delivery of the vessels.  Amounts under the facility
would bear interest at LIBOR plus margin.  Also, the credit facility
contained financial covenants that required 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 was more than 1 year, (b) $0.75 million per vessel if
the average remaining time charter coverage in respect of both Vessels was 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 was less or equal to six months, but in any event not less than $0.75
million per vessel. The loan was secured by a) first priority mortgage over each
security vessel, b) first priority assignments of accounts, c) first priority
general assignment in relation to security vessels' earnings, insurances and
employment, and d) corporate guarantee.
 
 On
November 10, 2008 we entered into an interest rate swap agreement with Lloyds
Bank in order to hedge our exposure to fluctuations in interest rate.
Furthermore, on April 23, 2009, we terminated the fixed rate swap agreement that
had entered into with Lloyds Bank on November 10, 2008. Concurrently we entered
into (i) an interest rate swap with a notional amount of $66.3 million at a
fixed rate of 2.655% per annum effective since February 12, 2009 and (ii) an
interest rate swap with a notional amount of $33.8 million at a fixed rate of
2.655% per annum effective since April 24, 2009. The second swap was novated to
Blizzard on April 24, 2009. The duration for both swaps is until May 12,
2011.
 
 On April
8, 2009 we have entered into two joint venture agreements. The joint venture
agreement relating to Omega Duke was effective on April 24, 2009 and part of the
pre-delivery loan facility, amounting to $4.95 million, was fully repaid on
April 23, 2009. As of December 31, 2009 the joint venture agreement relating to
the second vessel, Alpine Marina, that was delivered on July 8, 2010, was not
effective and as a result the pre-delivery and post-delivery facilities, signed
in May 2008, were still valid for this vessel. On June 2, 2010 the joint venture
agreement became effective and as a result the above loan was no more
effective.
 
 On April
24, 2009 the joint venture shipowning companies, Blizzard and Tornado, have
entered into a senior secured loan facility with Lloyds bank. The facility is
divided in two tranches. The first tranche amounts to $33.8 million for the
financing of the acquisition of Omega Duke and was drawn down on April 24, 2009.
The second tranche amounted to $28.5 million for the financing of the
acquisition of Alpine Marina. After the drawdown of the second tranche the
notional amount of the Company's swap with Lloyds, amounting to $66.3 million as
of December 31, 2009, was decreased by $28.5 million because it was novated to
Tornado. The swap matures on May 12, 2011 and it has a fixed rate of $2.655%.
Omega Duke and Alpine Marina are not consolidated in our financial statements
but are or will be presented by using the equity method.
 
 The
facility bears interest at LIBOR plus margin. The facility is secured by (i)
first priority mortgage, (ii) first priority assignment of insurances, (iii)
first priority assignment of earnings of the vessel plus any time charter
exceeding 12 months, (iv) first priority pledge over vessel earnings accounts,
(v) first priority pledge over the shares of Stone, Topley and Omnicrom, (vi)
Omnicrom's guarantee for 50% of the loan and Omega's guarantee for 100% of
Omnicrom's obligations. The facility contains financial covenants calculated on
Omega's and Glencore's consolidated financial statements. Also a ratio of market
value of the secured vessel to outstanding net debt of the secured vessel shall
be in excess of 125%. The bank has provided a waiver of the security value
coverage up to and including the 2nd anniversary of the delivery date of each
vessel.
  59
  
 Breach
of financial covenants under secured credit facilities
  The
Company is in breach of certain financial covenants, primarily the security
value maintenance (also known as loan to value). Although the lenders have not
declared an Event of Default, this constitutes a potential event of default and
could result in the lenders requiring immediate repayment of the loan. The
security value maintenance ratio is calculated as the fair market value of the
secured vessels under a loan facility divided by the outstanding amount of the
junior and senior facilities of the secured vessels. Due to cross default
provisions in the loan agreements, the Company has classified the affected debt
as current.
  Cash
Flows
 
 Our cash
and cash equivalents decreased to $15.6 million in the year ended December 31,
2009 from $16.8 million in the year ended December 31, 2008.  Working
capital is current assets minus current liabilities including the current
portion of long-term debt. Our working capital deficit was $334.3 million as of
December 31, 2009. The deficit is due to the reclassification of long term debt
to current liabilities. We are currently in negotiations with the lenders to
obtain waivers, extend the maturity of the loans and otherwise restructure the
debt. The lenders have not demanded payment of the loans before their maturity.
Management plans to settle the loan interest with cash generated from
operations. Working capital was $3.6 million as of December 31,
2008.
 
 NET CASH
PROVIDED BY OPERATING ACTIVITIES – was $19.6 million in 2009 versus $40.1
million in 2008. The decrease is primarily attributable to the decrease of
revenues, the increase of operating expenses, the increase of drydocking
expenses in 2009 and the payment of $3.0 million relating to the termination of
a purchase agreement. In 2007 net cash provided by operating activities was
$33.3 million and we operated an average of 7.4 vessels.
 
 NET CASH
USED IN INVESTING ACTIVITIES – was $18.9 million in 2009 relating mainly to
advance payments to the yard for the acquisition of Megacore Honami.
 
 Net cash
used in investing activities was $12.8 million in 2008 relating to 10% advance
payment for the acquisition of two (MR2) newbuilding vessels.
 
 Net cash
used in investing activities was $83.7 million in 2007 consisting of $120.3
million paid for the acquisition of Omega Emmanuel and Omega Theodore, $81.5 million
received from the sale of our two drybulk product carriers and $44.9 million
advance payment for the acquisition of the five newbuilding vessels four of
which are currently under construction and one was delivered in February
2010.
 
 NET CASH
USED IN FINANCING ACTIVITIES – was $1.9 million in 2009 primarily consisting of
$56.3 million of proceeds draw downs under our credit facilities, repayment of
$48.8 million of our credit facilities, $7.8 million of cash dividend paid
during the year, $1.0 million relating to the settlement of warrants and $0.6
million increase of restricted cash.
 
 Net cash
used in financing activities was $19.3 million in 2008 primarily consisting of
$156.6 million of proceeds drawn under our credit facilities, repayment of
$144.3 million of our credit facilities, $30.4 million of cash dividend paid
during the year, $1.4 million paid as to financing fees and $0.2 million
decrease of restricted cash.
 
 Net cash
provided by financing activities was $55.5 million in 2007 mainly consisting of
$156.8 million of proceeds drawn under our credit facilities to fund part of the
acquisition cost of Omega
Emmanuel, Omega
Theodore and the five newbuilding vessels, the repayment of $71.4 million
of our credit facilities (including a $38.1 million repayment of the term loan
facility relating to the drybulk vessels sold), $30.3 million of cash dividend
paid during the year, $1.0 million decrease of restricted cash and $0.6 million
paid as financing costs.
 
 C.
Research and development, Patents and Licenses
  Not
applicable.
   60
   D.
Trend Information
  Not
applicable.
  E.
Off Balance Sheet Arrangements
  We do not
have any off-balance sheet arrangements.
  F.
Tabular disclosure of contractual obligations
  At
December 31, 2009 we had the following contractual obligations:
 
 Payments
      due by periodTotal
              
              
              less
      than 1 year
              
              
              1-3
      years
              
              
              3-5
      years
              
              
              more
      than 5 yearsDebt
      (1)
              
              
              344,096
              
              
              
              344,096
              
              
              
              -
              
              
              
              -
              
              
              
              -Shipbuilding
      contracts (2)
              
              
              163,956
              
              
              
              83,232
              
              
              
              80,724
              
              
              
              -
              
              
              
              -Vessel
      acquisitions (3)
              
              
              49,950
              
              
              
              49,950
              
              
              
              -
              
              
              
              -
              
              
              
              -Operating
      leases (4)
              
              
              651
              
              
              
              189
              
              
              
              462
              
              
              
              -
              
              
              
              -Periodic
      Survey fees (5)
              
              
              314
              
              
              
              112
              
              
              
              199
              
              
              
              3
              
              
              
              -Total
              
              
              558,967
              
              
              
              477,579
              
              
              
              81,385
              
              
              
              3
              
              
              
              -
 
 (1) Refer
to Item 18 for a complete description of our credit facilities.
 
 (2) The
amount presented above relates to the five shipbuilding contracts that were
novated to Megacore JV and includes the installments payable for the vessels
that we are responsible to finance during predelivery period. More specifically
the amount above includes (i) 100% of the installments payable to the yard for
three LR1s, (ii) 100% of the installments payable to the yard for Megacore
Honami that was delivered in February 2010 and (iii) 50% of the installments
payable to the yard for one LR1. The joint venture has entered into shipbuilding
contracts to acquire two Handysize double hull product tankers, already
delivered, and seven Panamax product tankers, that are currently under
construction at Hyundai Mipo Dockyard.
 
 (3) On
May 9, 2008, we entered into a memorandum of agreement for the purchase of a
newbuilding double hull Handymax (MR2) product tanker, Apline Marina, for a
consideration of $55.5 million. On June 2, 2010 the agreement to purchase the
vessel was cancelled. The vessel was delivered in July 2010. We acquired the
vessel through Onest joint venture in which we have 50% participation for a
consideration of $45.0 million.
 
 (4) In
October 2009, we entered into rental agreements to lease office spaces in
Athens, Greece. The termination date is December 2012. The amount reflected in
the table represents the Dollar equivalent of lease payments in Euros calculated
assuming a $/Euro exchange rate of $1.43/Euro on December 31, 2009.
  (5) We
have entered into a five year fee agreement with American Bureau of Shipping as
well as Lloyds Register for periodic surveys of our vessels.
 
 (6) The
above table does not include interest payments. Interest payments and
obligations are discussed in Item 11 "Quantitative and Qualitative disclosures
about market risk".
  G.
Safe Harbor
  See
section "forward looking statements" at the beginning of this annual
report.
   61
   ITEM
6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
  A.
Directors and Senior Management
  Set forth
below are the names, ages and positions of our directors, executive officers and
key employees.  Our board of directors is elected annually on a
staggered basis, and each director elected holds office until his successor
shall have been duly elected and qualified, except in the event of his death,
resignation, removal or the earlier termination of his term of
office.  Officers are elected from time to time by vote of our board
of directors and hold office until a successor is elected.
 
 Name
              Age
              PositionRobert
      J. Flynn
              57
              Chairman
      and Class A DirectorGeorge
      Kassiotis
              38
              President,
      Chief Executive Officer and Class C DirectorCharilaos
      Loukopoulos
              41
              Executive
      Vice President, Chief Operating Officer, General Counsel and Class C
      DirectorGregory
      McGrath
              59
              Chief
      Financial OfficerNicolas
      Borkmann
              48
              Class
      B DirectorDr.
      Chiang Hai Ding
              71
              Class
      A DirectorKevin
      Harding
              51
              Class
      C DirectorShariq
      Azhar
              55
              Class
      A DirectorMatthew
      W. McCleery
              40
              Class
      B DirectorHuang
      Yuan Chiang
              51
              Class
      B Director
 _____________________________
 
 Our board
of directors is divided into three classes, as nearly equal in number as
possible, with each director serving a three-year term and one class being
elected at each year's annual meeting of shareholders. Class A Directors' term
expires in 2010. Class B Directors' term expires in 2011.  Class C
Directors' term expires in 2012.
  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, newbuilding 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)founded Omega
Navigation. Prior to founding Omega Navigation in 2005, Mr. Kassiotis served as
the commercial director of Target Marine S.A. since 1996, and since 1999 he led,
as a senior executive director, the development of Target's business and oversaw
its growth and expansion. 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.
  62
  
 
 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 S.A. where he acted as a General
Counsel and Insurance and Claims Director. In this capacity, Mr. Loukopoulos was
responsible for the administrative and legal supervision of all of Target's
departments, overseeing all the Target operations. Prior to that, after being
admitted to the Athens Bar Association in 1993, Mr. Loukopoulos worked as an
attorney in a shipping law firm based in Piraeus. He has lectured on shipping
law and vessel sale & purchase contracts at the Institute of Chartered
Shipbrokers' Greek branch. He graduated from the University of Thessaloniki,
Greece in 1992, having studied law and holds a Masters degree in Shipping law
from the University of Southampton, England.
 
 Gregory A.
McGrath (Chief Financial Officer) has served as our Chief Financial
Officer since June 2005.  He previously served as Vice President of
Finance and Administration at American Eagle Tankers, Inc., Ltd., an Aframax and
VLCC owner and operator, from 1995 to 2004 and as Vice President of Public
Affairs from 2004 to 2005.  Mr. McGrath served as Vice President,
Finance and Administration with Marine Transport Lines, Inc. from 1990 to
1995.  Prior to that, Mr. McGrath spent 16 years with Mobil Oil
Corporation (now Exxon Mobil Corporation) in various financial, shipping and
supply and distribution positions. Mr. McGrath is a director of Shoreline Mutual
Insurance Co. and several subsidiaries of American Eagle Tankers, Inc.,
Ltd.  Mr. McGrath holds a Bachelor of Arts degree from Fairfield
University, Connecticut and holds and a Masters in Business Administration
degree from Pace University, New York.
 
 Dr. Chiang Hai
Ding (Class ADirector)
serves as a Director.  He worked in Neptune Orient Lines Ltd. as an
economic advisor to the Chairman and the Chief Executive Officer from 1995 to
2002. He had also worked at Citibank from 1973 to 1978. Dr Chiang has had a
varied career. He has been a university lecturer, an elected Member of
Parliament, and a Singapore Ambassador, serving in Malaysia, Germany, The
European Communities, The USSR and Egypt. He also worked as the executive
director in two NGOs for the elderly and as an Independent Director in a few
publicly-listed companies in Singapore.  Dr Chiang has a BA from the
National University Singapore and a Ph.D. from the Australia National
University. In 2001 he took a Graduate Diplomacy in Gerontology from Simon
Fraser University in Vancouver, BC, Canada.  Dr. Chiang Hai Ding's son
is a partner of the Singapore affiliate of Ernst & Young Global. Ernst &
Young (Hellas) Certified Auditors Accountants S.A., our independent auditors,
and the Singapore affiliate of Ernst & Young Global are members of the Ernst
& Young Global network.  Dr. Chiang Hai Ding has advised us that
his son is not and will not be directly or indirectly involved in providing any
services to us during his employment at the Singapore or any other affiliate of
Ernst & Young Global for so long as Dr. Chiang Hai Ding remains our
director.
 
 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
shipbrokering for tankers both in respect of chartering of all sizes, as well as
in the S&P market for large ships, and the wet freight derivative broking
activities of ACM.  Prior to joining ACM, Mr. Borkmann was a
commercial director of Frachtcontor Junge & Co, Hamburg from 1996 to 1999,
where he was responsible for shipbroking for tankers and commercial management
and chartering of tankers and combination carriers.
 
 Kevin
Harding(Class CDirector)
serves as a Director. Mr. Harding is currently acting as a consultant within the
shipping industry. Since 2005, Mr. Harding has been a director of Sextant
Consultancy Ltd. where he served as a shipping consultant. Since 2008, Mr.
Harding has been a director of Pareefers where he provides general shipping
advice to the other board members of Pareefers. From 1992 to 2005, he was the
Senior Vice President of Star Reefers UK Ltd., a Siem Industries company,
responsible for chartering and sale and purchases of vessels and overseeing
operations and financial management. From 1978 to 1992 Mr. Harding served as a
manager with Associated Container Transportation Limited (London), where he
managed international trade operations.
 
 Shariq
Azhar(Class A
Director)serves as a
Director.  Since 2008 Mr. Azhar has been the Chief Executive Officer
of Oman International Development & Investment Co. SAOG, a leading Muscat
Securities Market listed Omani investment company engaged in investment
activities across a diversity of sectors, geographies and asset
classes.  Prior to this, he was the Director General of Injaz Mena
Investment Co. PSC, an Abu Dhabi based investment bank
  63
  focused
on global private equity, real estate, capital markets and corporate finance
activities.  Among other positions held over some 25 years in banking
and finance, Mr. Azhar served as Executive Vice President of Abu Dhabi
Commercial Bank heading the bank's wholesale businesses including corporate
banking, investment banking, commercial banking, institutional banking and
treasury. Earlier in his career he served as General Manager of Mashreqbank USA,
as Vice President of Chase Manhattan Bank in New York and as Senior Research
Analyst at the Federal Reserve Bank of New York, the US central
bank.  He is a director on the boards of several
companies.  Mr. Azhar holds an MBA in Finance from the Stern School of
Business at New York University.
 
 Matthew W.
McCleery(Class BDirector)
serves as a Director. Since 2002, Mr. McCleery has been the president of Blue
Sea Capital, Inc., a provider of ship finance advisory services. Since 2000, Mr.
McCleery has been the president of Marine Money International, a provider of
maritime finance transactional information and maritime company analysis. He
joined Marine Money International in 1996 as a managing editor. Mr. McCleery
also serves as a managing director of Marine Money Consulting Partners, the
financial advisory and consulting company that provides shipowners with advisory
services in capital raising, debt financing and business combination
transactions. Mr. McCleery previously served on the board of directors of
FreeSeas, Inc., a bulk shipping company, which is also a publicly traded company
with securities registered under the Securities Exchange Act of 1934. Mr.
McCleery holds a Juris Doctor degree from the University of Connecticut School
of Law.
 
 Huang Yuan Chiang
(Class BDirector)
serves as a Director. Mr. Huang is a lawyer by training and he has had a career
in Investment Banking spanning 12 years. He has held senior management positions
at various international banks including Standard Chartered Bank, HSBC, Bankers
Trust and Deutsche Bank. His areas of specialization were in the areas of
mergers and acquisitions and corporate finance and his last position at Bankers
Trust was Managing Director, heading the Mergers & Acquisition Division for
Bankers Trust for Singapore, Malaysia, Indonesia, Thailand, Philippines and
India. Apart from Omega Navigation Enterprises Inc., Mr. Huang holds board
positions in several other listed and private companies. Mr. Huang has degrees
in law and economics.
  No family
relationships exist among any of the Executive Officers and
Directors.
  B.
Compensation
  The
aggregate annual compensation paid to our executive officers, Messrs. Kassiotis,
Loukopoulos and McGrath, amounted to approximately $1.3 million for the year
ended December 31, 2009. In March 2008, pursuant to the Company's Stock
Incentive Plan, the officers were granted an aggregate of 53,357 restricted
common shares that will become vested rateably over three years. In March 2008
the officers received bonus compensation, relating to 2007 performance, which
amounted to $0.85 million and consisted of cash and immediately vested shares.
The actual amount of cash paid was $0.2 million and the number of immediately
vested shares issued was 42,059. In February, 2009, the Board of Directors
approved the reward of the executive officers by means of a bonus and incentive
stock compensation. The executive officers were awarded to receive an amount
equal to $0.03 million in cash and 54,342 shares of immediately vested Class A
common stock. Also the Board has approved an additional compensation of one
month's salary to the executive officers that amounted to $0.1 million. In
February 2009, pursuant to the Company's Stock Incentive Plan, the officers were
granted an aggregate of 108,685 restricted common shares that will become vested
rateably over three years.  Executive officers who also serve as
directors do not receive additional compensation for their services as
directors.
  We do not
have a retirement plan for our executive officers or directors. Under the
respective employment agreements between us and Messrs. Kassiotis, Loukopoulos
and McGrath, we will be required to make an aggregate lump sum payment of $1.3
million to our executive officers, in addition to their respective base salary,
until the end of the contract term, for early termination of employment during
its term or in the event that we materially breach the terms of the respective
employment agreements. Such an amount will be increased by an aggregate amount
of approximately $0.6 million in the case where the term of the employment
agreements is 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.
   64
  
  Non-employee
directors receive annual compensation in the aggregate amount of $30,000 plus
reimbursement of their out-of-pocket expenses. In addition, non-employee
directors who serve as audit committee members and compensation committee
members receive an additional annual fee of $7,500 and $2,500,
respectively.  In lieu of any other compensation, Mr. Robert J. Flynn,
the Chairman of our board of directors, receives annual compensation in the
amount of $150,000. In July, 2007, pursuant to the Company's Stock Incentive
Plan, the non-executive directors were granted an aggregate of 6,000 restricted
common shares that vest after one year.  In July, 2008, pursuant to
the Company's Stock Incentive Plan, the non-executive directors were granted an
aggregate of 10,500 restricted common shares that vest after one year. In July,
2009, pursuant to the Company's Stock Incentive Plan, the non-executive
directors were granted an aggregate of 21,000 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.
  There are
no service contracts between us and any of our directors providing for benefits
upon termination of their employment or service.
  D.
Employees
  As of
December 31, 2009, we employed 198 employees, consisting of 14shore-based personnel
based in Athens, Greece, and 184 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.
  2009
              
              
              2008
              
              
              2007
              
              
              2006Shore-based
              
              
              14
              
              
              
              13
              
              
              
              9
              
              
              
              9Seagoing
              
              
              184
              
              
              
              156
              
              
              
              178
              
              
              
              163Total
              
              
              198
              
              
              
              169
              
              
              
              187
              
              
              
              172
  E.
Share Ownership
  The
common shares beneficially owned by our directors and senior managers are
disclosed in "Item 7". Major Shareholders and Related Party Transactions"
below.
   65
  Equity
Incentive Plan
  We have
adopted an equity incentive plan, or the Plan, which entitles our officers, key
employees and directors to receive options to acquire Class A common
stock.  Under the Plan, a total of 1,500,000 shares of Class A common
stock has been reserved for issuance.  The Plan is administered by our
board of directors.  Under the terms of the Plan, our board of
directors is able to grant new options exercisable at a price per share to be
determined by our board of directors.  The exercise price of initially
issued options are equal to the average daily closing price for our Class A
common stock over the 20 trading days following the closing of our initial
public offering.  Under the terms of the Plan, no options may be
exercised until at least two years after the closing of our initial public
offering in April 2006.  Any shares received on exercise of the
options may not be able to be sold until three years after the closing of our
initial public offering.  All options expire ten years from the date
of grant.  The Plan expires ten years from the closing of our initial
public offering.  On February 8, 2007, March 20, 2008 and February 4,
2009, we granted an aggregate of 54,138, 95,416 and 163,027 restricted shares,
respectively, to our Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer. On July 26, 2007, July 31, 2008 and July 23, 2009 we granted
an aggregate of 6,000, 10,500 and 21,000 restricted shares to our non-executive
directors. On March 20, 2008 and February 4, 2009 we granted an aggregate of
8,815 and 25,109 restricted shares to some employees. During 2008 3,650
restricted shares were forfeited.
  ITEM
7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
  A.
Major Shareholders
  The
following table sets forth as of July 15, 2010, information regarding (i) the
owners of more than five percent of our common stock that we are aware of and
(ii) the total amount of common stock owned by all of our officers and
directors, individually and as a group.  All of the shareholders,
including the shareholders listed in this table, are entitled to one vote for
each share of common stock held.
 Title
      of Class
              Identity
      of Person or
                  Group
              
              Number
      of Shares Owned
              
              
              Percent
      of Class(1)Class
      A Common Stock, par value $0.01
              George
      Kassiotis(2)
              
              
              3,249,532
              
              
              
              20.46
              %MHR
      Fund management LLC(3)
              
              
              1,358,100
              
              
              
              8.55
              %All
      Directors and officers as a group(4)
              
              
              3,370,890
              
              
              
              21.22
              %
 ____________
 (1)
              Does
      not include unvested restricted shares granted pursuant to the Plan to our
      Chief Executive Officer, Chief Operating Officer Chief Financial Officer,
      non-executive directors and
employees.
 (2)
              Our
      Chief Executive Officer, Mr. Kassiotis, beneficially owns 3,150,000 shares
      indirectly through ONE Holdings, Inc.  Mr. Kassiotis is the sole
      shareholder of ONE Holdings, Inc.
 (3)
              Based
      on the SEC filings of the Shareholder dated as of February 13,
      2009.
 (4)
              The
      number of shares owned and percent of class by all Directors and officers
      as a group are as of July 15, 2010.
  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.
   66
  On April
13, 2009 we have issued 499,724 Class A common shares relating to warrants
issued to the seller of the Ice Class 1A Panamax newbuildings, which we took
delivery in March and April of 2007, as partial compensation for the
vessels.
  B.
Related party transactions
  Registration
Rights Agreement:We have entered into a registration rights agreement with One Holdings,
which is wholly-owned by Mr. Kassiotis, pursuant to which it has 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 3,150,000 shares of Class A common stock that
are entitled to these registration rights.
  Stone Shipping
Ltd: As of April 2009, we through our wholly-owned subsidiary Omnicrom
Holdings Ltd., ("Omnicrom"), entered into a joint venture agreement with Topley
Corporation, ("Topley"), which is a wholly-owned subsidiary of Glencore
International AG ("Glencore"). Omnicrom and Topley each own 50% of Stone, that
is a joint venture holding company. Stone owns 100% of Blizzard Navigation Inc.,
("Blizzard"), that is the shipowning company of Omega Duke. We account for
our 50% interest in Stone by using the equity method. We provide to Blizzard
technical, operating and administrative services. No management fees were
payable to us during 2009. The outstanding balance due from Stone as of December
31, 2009 is $56 thousand and relates to payments in advance by Blizzard to its
technical manager netted off by an amount of $101 thousand that was paid on
behalf of Blizzard as loan financing related expenses.
 
 Onest Shipping
Ltd.: As of
April 2009, we entered through Omnicrom, into a joint venture agreement with
Topley. Omnicrom and Topley each own 50% of Onest, a joint venture holding
company, that owns 100% of Tornado Navigation Inc., ("Tornado"), a shipowning
company that owns Alpine Marina. Onest was charged with administrative expenses,
50% of which were charged to us equal to $3 thousand. The outstanding balance
due from Onest as of December 31, 2009 is $5 thousand.
 
 Megacore Shipping
Ltd.: On
September 2008, we formed an equal partnership (50/50) joint venture company
with Topley named Megacore. Companies owned by us and the ST Shipping Pte
Limited have novated their respective original shipbuilding contracts entered
into with Hyundai Mipo, consisting in total of 10 newbuilding 37,000 dwt
product/chemical carriers (MR1s) (5 vessels each partner), to companies wholly
owned by Megacore. On December 2009, this order was converted to two 37,000 dwt
product/chemical tankers (MR1s) and seven 74,000 dwt. product/oil tankers (LR1s)
while one MR1 vessel has been suspended and remains as an option for Megacore to
exercise in the future. All nine vessels will be owned by companies fully owned
by Megacore. In addition, we will provide the technical, operating and
administrative services for the vessels. During 2009, Megacore incurred legal
administrative expenses, 50% of which were charged to us, equal to $30 thousand.
The outstanding balance due from Megacore as of December 31, 2009 is $29
thousand.
 
 Charter party agreements for
the vessels Omega
Emmanuel and Omega
Theodore, acquired within 2007, were arranged through a ship-brokerage
firm, in which one of our non-executive director of the Board of Directors acts
as a senior broker. The same ship-brokerage firm has arranged charter party
arrangements for the vessels Omega Lady Miriam and Omega Lady Sarah in 2008 and
Omega Queen, Omega Prince and Omega Princess in 2009. No
commissions are paid by us to the ship brokerage firm.
 
 Shoreline Mutual
Bermuda Ltd.:
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, 2008 and 2009 Shoreline Mutual Bermuda Ltd
provided to us financial guarantees needed to support COFRs issued by USCG for
Omega Lady
Sarah,
   67
  Omega Lady Miriam and Omega Theodore. Our Chief
Financial Officer is a non executive director of Shoreline. During 2009, 2008
and 2007 Shoreline's charges amounted to $66, $31 and $22 thousand, 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, 2009 is
$5 thousand.
  Marine Money
International:is a maritime finance
transactional information and maritime company analysis provider, in which one
of our non-executive director of the Board of Directors acts as president.
Within 2009 and 2008 the Company paid an annual subscription of $2 thousand to
Marine Money International.
  Worldscale
Association (London) Limited: is a non-profit making organisation
providing information about rates of freight for tanker voyage charters. The
organization is under the control of a management committee, the members of
which are senior brokers from leading tanker broking firms in London. A
non-executive director of the Company's Board of Directors acts as management
committee member. Within 2009 and 2008 we paid an annual subscription of $5
thousand to Worldscale.
  C.
Interest of Experts and Counsel
  Not
applicable.
  ITEM
8 - FINANCIAL INFORMATION
  A.  Consolidated
Statements and Other Financial Information
  See Item
18.
  Legal
Proceedings
  The
ordinary course of our business exposes us to the risk of lawsuits for damages
or penalties relating to, among other things, personal injury, property casualty
and environmental contamination.  We are not aware of any litigation
in which we are currently involved, that individually and in the aggregate,
would be material to us.
  Dividend
policy
  Our
general policy has been to declare and pay quarterly dividends to shareholders
in amounts that are substantially equal to our available cash from operations
during the previous quarter after cash expenses (e.g., operating expenses and
debt service), discretionary reserves for (i) further vessel acquisitions, (ii)
contingent and other liabilities, such as drydocking and extraordinary vessel
maintenance and repair, and (iii) general corporate
purposes.  Declaration and payment of dividends is at the discretion
of our board of directors.
  As a
result of market conditions in the international shipping industry our board of
directors did not declare any dividends for the 2nd,
3rd and
4th
quarter 2009. We believe that this increased our available cash and enhanced our
internal growth capabilities. In addition, other external factors, such as our
lenders imposing restrictions on our ability to pay dividends under the terms of
our credit facilities, may limit our ability to pay dividends. The declaration
and payment of dividends, if any, in future quarters will be at the sole
discretion of our board of directors. Furthermore, our ability to pay dividends
is subject to our satisfaction of the financial covenants contained in our
credit agreements.  Under our credit facilities we are prohibited from
paying dividends if (i) an event of default has occurred or will occur as a
result of the payment of the dividend or (ii) the aggregate average fair market
value of our vessels to total debt (as defined in our senior secured credit
facility) is less than 125.0%.
   ONE
Holdings, an entity wholly-owned by our President and Chief Executive Officer,
Mr. Georgios Kassiotis, owns 3,150,000 shares of Class A common stock as of
December 31, 2009.
   68
  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
              
              
              HighJanuary
      2010
              
              $
              2.92
              
              
              $
              3.42February
      2010
              
              $
              2.80
              
              
              $
              3.01March
      2010
              
              $
              2.81
              
              
              $
              3.08April
      2010
              
              $
              2.83
              
              
              $
              3.04May
      2010
              
              $
              2.37
              
              
              $
              3.04June
      2010
              
              $
              1.95
              
              
              $
              2.402009First
      quarter 2009
              
              $
              3.40
              
              
              $
              8.10Second
      quarter 2009
              
              $
              3.63
              
              
              $
              5.84Third
      quarter 2009
              
              $
              3.23
              
              
              $
              4.25Fourth
      quarter 2009
              
              $
              2.73
              
              
              $
              3.97Year
      ended December 31, 2009
              
              $
              2.73
              
              
              $
              8.102008First
      quarter 2008
              
              $
              13.85
              
              
              $
              16.96Second
      quarter 2008
              
              $
              15.50
              
              
              $
              21.66Third
      quarter 2008
              
              $
              10.55
              
              
              $
              16.28Fourth
      quarter 2008
              
              $
              4.95
              
              
              $
              12.20Year
      ended December 31, 2008
              
              $
              4.95
              
              
              $
              21.662007Year
      ended December 31, 2007
              
              $
              14.50
              
              
              $
              24.222006Year
      ended December 31, 2006
              
              $
              13.15
              
              
              $
              16.60
 
 ITEM
10 - ADDITIONAL INFORMATION
  A.
Share Capital
  Not
applicable.
   69
  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, 2009 we had debt obligations under our credit facilities. For a
full description of our credit facilities, see Item 5B "Liquidity and Capital
Resourses" above.  Other than as described above, there were no
material contracts, other than contracts entered into in the ordinary course of
business, to which the Company was a party during the two year period
immediately preceding the date of this report.
 
 D.
Exchange Controls
  Under
Marshall Islands and Greek law, there are currently no restrictions on the
export or import of capital, including foreign exchange controls, or
restrictions that affect the remittance of dividends, interest or other payments
to non-resident holders of our shares of our Class A common stock.
  E.
Taxation
  Tax
Considerations
  United
States Taxation
  The
following discussion is based upon the provisions of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury
Department regulations, administrative rulings, pronouncements and judicial
decisions, all as of the date of this Annual Report.  This discussion
assumes that we do not have an office or other fixed place of business in the
United States. Unless the context otherwise requires, the reference to Company
below shall be meant to refer to both the Company and its vessel owning and
operating subsidiaries.
 
 Taxation
of the Company's Shipping Income: In General
 
 The
Company anticipates that it will derive substantially all of its gross income
from the use and operation of vessels in international commerce and that this
income will principally consist of freights from the transportation of cargoes,
hire or lease from time or voyage charters and the performance of services
directly related thereto, which the Company refers to as "shipping
income."
 
 Shipping
income that is attributable to transportation that begins or ends, but that does
not both begin and end, in the United States will be considered to be 50%
derived from sources within the United States. Shipping income attributable to
transportation that both begins and ends in the United States will be considered
to be 100% derived from sources within the United States. The Company is not
permitted by law to engage in transportation that gives rise to 100% U.S. source
income. Shipping income attributable to transportation exclusively between
non-U.S. ports will be considered to be 100% derived from sources outside the
United States. Shipping income derived from sources outside the United States
will not be subject to U.S. federal income tax.
 
 Based
upon the Company's anticipated shipping operations, the Company's vessels will
operate in various parts of the world, including to or from U.S. ports. Unless
exempt from U.S. taxation under Section 883 of the Code, the Company will be
subject to U.S. federal income taxation, in the manner discussed below, to the
extent its shipping income is considered derived from sources within the United
States, which we refer to as U.S.-source shipping income. In the absence of
exemption from tax under Section 883, the Company would have been effectively
subject to a 4% tax on its gross U.S. source shipping income which would have
amounted to approximately $0.4 million for the year ended December 31,
2009.
  70
  
  Application
of Code Section 883
  Under the
relevant provisions of Section 883 of the Code and the final regulations
promulgated thereunder, or the final regulations, which became effective on
January 1, 2005 for calendar year taxpayers like ourselves and our subsidiaries,
a foreign corporation will be exempt from U.S. taxation on its U.S.-source
shipping income if:
  (i)
              It
      is organized in a qualified foreign country which, as defined, is one that
      grants an equivalent exemption from tax to corporations organized in the
      United States in respect of the shipping income for which exemption is
      being claimed under Section 883, or the "country of organization
      requirement"; and
  (ii)
              It
      can satisfy any one of the following two (2) stock ownership
      requirements:
  ·
              more
      than 50% of its stock, in terms of value, is beneficially owned by
      qualified shareholders which, as defined, includes individuals who are
      residents of a qualified foreign country, or the "50% Ownership Test";
      or
  ·
              a
      class of its stock or that of its 100% parent is "primarily and regularly"
      traded on an established securities market located in the United States,
      or the "Publicly-Traded Test".
 
 The U.S.
Treasury Department has recognized the Marshall Islands, the Company's country
of organization, and the country of incorporation of each of the Company's
subsidiaries that earned shipping income during 2009, as a qualified foreign
country. Accordingly, the Company and each of the subsidiaries satisfies the
country of organization requirement.
 
 For the
2009 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 2009.
 
 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 2009 taxable year, the Company believes that it is
not subject to the 5 Percent Override Rule for its 2009 taxable
year.  Therefore, the Company anticipates that it satisfies the
Publicly-Traded Test for its 2009 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.
  71
  
 Based on
its U.S.-source shipping income for 2009 and 2008, the Company would be subject
to U.S. federal income tax of approximately $0.4 million and $0.4 million,
respectively, under Section 887 in the absence of an exemption under Section
883.
 
 Gain
on Sale of Vessels
  Regardless
of whether the Company qualifies for exemption under Section 883, the Company
will not be subject to U.S. federal income taxation with respect to gain
realized on a sale of a vessel, provided the sale is considered to occur outside
of the United States under U.S. federal income tax principles.  In
general, a sale of a vessel will be considered to occur outside of the United
States for this purpose if title to the vessel, and risk of loss with respect to
the vessel, pass to the buyer outside of the United States.  It is
expected that any sale of a vessel by the Company will be considered to occur
outside of the United States.
 
 United
States Federal Income Taxation of U.S. Holders
  As used
herein, the term "U.S. Holder" means a beneficial owner of Class A common stock
that is a U.S. citizen or resident, U.S. corporation or other U.S. entity
taxable as a corporation, an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or a trust if a court within
the United States is able to exercise primary jurisdiction over the
administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust.
  If a
partnership holds our Class A common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our Class A common
stock, you are encouraged to consult your tax advisor.
  Distributions
  Subject
to the discussion of passive foreign investment companies below, any
distributions made by us with respect to our Class A common stock to a U.S.
Holder will generally constitute dividends, which may be taxable as ordinary
income or "qualified dividend income" as described in more detail below, to the
extent of our current or accumulated earnings and profits, as determined under
U.S. federal income tax principles. Distributions in excess of our earnings and
profits will be treated first as a nontaxable return of capital to the extent of
the U.S. Holder's tax basis in his Class A common stock on a dollar-for-dollar
basis and thereafter as capital gain. Because we are not a U.S. corporation,
U.S. Holders that are corporations will not be entitled to claim a dividends
received deduction with respect to any distributions they receive from us.
Dividends paid with respect to our Class A common stock will generally be
treated as "passive category income" or, in the case of certain types of U.S.
Holders, "general category income" for purposes of computing allowable foreign
tax credits for U.S. foreign tax credit purposes.
  Dividends
paid on our Class A common stock to a U.S. Holder who is an individual, trust or
estate (a "U.S. Individual Holder") will generally be treated as "qualified
dividend income" that is taxable to such U.S. Individual Holders at preferential
tax rates (through 2010) provided that (1) we are not a passive foreign
investment company for the taxable year during which the dividend is paid or the
immediately preceding taxable year (which we do not believe we are, have been or
will be) (2) the common stock is readily tradable on an established securities
market in the United States (such as the NASDAQ Global Market, on which our
Class A common stock are listed), and (3) the U.S. Individual Holder has owned
the Class A common stock for more than 60 days in the 121-day period beginning
60 days before the date on which the Class A common stock become ex-dividend.
There is no assurance that any dividends paid on our Class A common stock will
be eligible for these preferential rates in the hands of a U.S. Individual
Holder. Legislation has been previously introduced in the U.S. Congress which,
if enacted in its present form, would preclude our dividends from qualifying for
such preferential rates prospectively from the date of the
enactment.  Further, in the absence of legislation extending the term
of the preferential tax rates for qualified dividend income, all dividends
received by a taxpayer in tax years beginning on January 1, 2011 or later will
be taxed at ordinary graduated tax rates.
   72
  
  Special
rules may apply to any "extraordinary dividend," generally a dividend in an
amount which is equal to or in excess of ten percent of a shareholder's adjusted
basis (or fair market value in certain circumstances) in a share of Class A
common stock paid by us. If we pay an "extraordinary dividend" on our Class A
common stock and such dividend is treated as "qualified dividend income," then
any loss derived by a U.S. Individual Holder from the sale or exchange of such
Class A common stock will be treated as long-term capital loss to the extent of
such dividend.
  Sale,
Exchange or other Disposition of Class A Common Stock
  Assuming
we do not constitute a passive foreign investment company for any taxable year,
a U.S. Holder generally will recognize taxable gain or loss upon a sale,
exchange or other disposition of our Class A common stock in an amount equal to
the difference between the amount realized by the U.S. Holder from such sale,
exchange or other disposition and the U.S. Holder's tax basis in such stock.
Such gain or loss will be treated as long-term capital gain or loss if the U.S.
Holder's holding period is greater than one year at the time of the sale,
exchange or other disposition. Such capital gain or loss will generally be
treated as U.S. source income or loss, as applicable, for U.S. foreign tax
credit purposes. A U.S. Holder's ability to deduct capital losses is subject to
certain limitations.
  Passive
Foreign Investment Company Status and Significant Tax Consequences
  Special
U.S. federal income tax rules apply to a U.S. Holder that holds stock in a
foreign corporation classified as a passive foreign investment company for U.S.
federal income tax purposes. In general, we will be treated as a passive foreign
investment company with respect to a U.S. Holder if, for any taxable year in
which such holder held our Class A common stock, either:
  ·
              at
      least 75% of our gross income for such taxable year consists of passive
      income (e.g., dividends, interest, capital gains and rents derived other
      than in the active conduct of a rental business);
  or
 
 ·
              at
      least 50% of the average value of the assets held by the corporation
      during such taxable year produce, or are held for the production of,
      passive income (including cash).
 
 For
purposes of determining whether we are a passive foreign investment company, we
will be treated as earning and owning our proportionate share of the income and
assets, respectively, of any of our subsidiary corporations in which we own at
least 25% of the value of the subsidiary's stock. Income earned, or deemed
earned, by us in connection with the performance of services would not
constitute passive income. By contrast, rental income would generally constitute
"passive income" unless we were treated under specific rules as deriving our
rental income in the active conduct of a trade or business.
  Based on
our current operations and future projections, we do not believe that we have
been, are, nor do we expect to become, a passive foreign investment company with
respect to any taxable year. Although there is no legal authority directly on
point, and we are not relying upon an opinion of counsel on this issue, our
belief is based principally on the position that, for purposes of determining
whether we are a passive foreign investment company, the gross income we derive
or are deemed to derive from the time chartering and voyage chartering
activities of our wholly-owned subsidiaries should constitute services income,
rather than rental income. Correspondingly, such income should not constitute
passive income, and the assets that we or our wholly-owned subsidiaries own and
operate in connection with the production of such income, in particular, the
vessels, should not constitute passive assets for purposes of determining
whether we are a passive foreign investment company. We believe there is
substantial legal authority supporting our position consisting of case law and
Internal Revenue Service pronouncements concerning the characterization of
income derived from time charters and voyage charters as services income for
other tax purposes. However, there is also authority which characterizes time
charter income as rental income rather than services income for other tax
purposes.  In the absence of any legal authority specifically relating
to the statutory provisions governing passive foreign investment companies, the
Internal Revenue Service or a court could disagree with our position. In
addition, although we intend to conduct our affairs in a manner to avoid being
classified as a passive foreign investment company with respect to any taxable
year, we cannot assure you that the nature of our operations will not change in
the future. Under specified constructive ownership rules, if we are
   73
  treated
as a passive foreign investment company, then a U.S. Holder will be treated as
owning his proportionate share of the stock of any our subsidiaries that are
treated as passive foreign investment companies.  The tax regimes
discussed below would also apply to any shares in a subsidiary passive foreign
investment company which are constructively owned by a U.S. Holder under these
constructive ownership rules.
  As
discussed more fully below, if we were to be treated as a passive foreign
investment company for any taxable year, a U.S. Holder would be subject to
different taxation rules depending on whether the U.S. Holder makes an election
to treat us as a "Qualified Electing Fund," which election we refer to as a "QEF
election." As an alternative to making a QEF election, a U.S. Holder should be
able to make a "mark-to-market" election with respect to our Class A common
stock, as discussed below.  In addition, if we were to be treated as a
passive foreign investment company for any taxable year after 2010, a U.S.
Holder would be required to file an annual report with the Internal Revenue
Service for that year with respect to such holder's common stock.
  If we
were to be treated as a passive foreign investment company for any taxable year,
a U.S. Holder would also be subject to special U.S. federal income tax rules in
respect of such U.S. Holder's indirect interest in any of our subsidiaries that
are also treated as passive foreign investment companies. Such a U.S. Holder
would be permitted to make a QEF election in respect of any such subsidiary, so
long as we timely provided the information necessary to such election, which we
currently intend to do in such circumstances, but such a U.S. Holder would not
be permitted to make a mark-to-market election in respect of such U.S. Holder's
indirect interest in any such subsidiary. The application of the passive foreign
investment company rules is complicated and U.S. Holders are encouraged to
consult with their tax advisors regarding the application of such rules in their
circumstances.
  Taxation
of U.S. Holders Making a Timely QEF Election
  If a U.S.
Holder makes a timely QEF election, which U.S. Holder we refer to as an
"Electing Holder," the Electing Holder must report each year for U.S. federal
income tax purposes his pro rata share of our ordinary earnings and our net
capital gain, if any, for our taxable year that ends with or within the taxable
year of the Electing Holder, regardless of whether or not distributions were
received from us by the Electing Holder. The Electing Holder's adjusted tax
basis in the Class A common stock will be increased to reflect taxed but
undistributed earnings and profits. Distributions of earnings and profits that
had been previously taxed will result in a corresponding reduction in the
adjusted tax basis in the Class A common stock and will not be taxed again once
distributed. An Electing Holder would generally recognize capital gain or loss
on the sale, exchange or other disposition of our Class A common stock. A U.S.
Holder would make a QEF election with respect to any year that our company is a
passive foreign investment company by filing Internal Revenue Service Form 8621
with his U.S. federal income tax return. If we were aware that we were to be
treated as a passive foreign investment company for any taxable year, we would
provide each U.S. Holder with all necessary information in order to make the QEF
election described above. A U.S. Holder who is treated as constructively owning
shares in any of our subsidiaries which are treated as passive foreign
investment companies would be required to make a separate QEF election with
respect to each such subsidiary.
  Taxation
of U.S. Holders Making a "Mark-to-Market" Election
  Alternatively,
if we were to be treated as a passive foreign investment company for any taxable
year and our Class A common stock is treated as "marketable stock," as we
believe is the case, a U.S. Holder would be allowed to make a "mark-to-market"
election with respect to our Class A common stock, provided the U.S. Holder
completes and files Internal Revenue Service Form 8621 in accordance with the
relevant instructions and related Treasury Regulations. If that election is
made, the U.S. Holder generally would include as ordinary income in each taxable
year the excess, if any, of the fair market value of the Class A common stock at
the end of the taxable year over such holder's adjusted tax basis in the Class A
common stock. The U.S. Holder would also be permitted an ordinary loss in
respect of the excess, if any, of the U.S. Holder's adjusted tax basis in the
Class A common stock over its fair market value at the end of the taxable year,
but only to the extent of the net amount previously included in income as a
result of the mark-to-market election. A U.S. Holder's tax basis in his Class A
common stock would be adjusted to reflect any such income or loss amount. Gain
realized on the sale, exchange or other disposition of our Class A common stock
would be treated as ordinary income, and any loss realized on the sale, exchange
or other disposition of the Class A common stock would be treated as ordinary
loss to the extent that such loss does not exceed the net mark-to-market gains
previously included by the U.S. Holder. A mark-to-market election would likely
not be available for any of our subsidiaries that are treated as passive foreign
investment companies.
   74
  
  Taxation
of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
  Finally,
if we were to be treated as a passive foreign investment company for any taxable
year, a U.S. Holder who does not make either a QEF election or a
"mark-to-market" election for that year, whom we refer to as a "Non-Electing
Holder," would be subject to special rules with respect to (1) any excess
distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on our Class A common stock in a taxable year in excess of
125% of the average annual distributions received by the Non-Electing Holder in
the three preceding taxable years, or, if shorter, the Non-Electing Holder's
holding period for the Class A common stock), and (2) any gain realized on the
sale, exchange or other disposition of our Class A common stock. Under these
special rules:
  ·
              the
      excess distribution or gain would be allocated rateably over the
      Non-Electing Holders' aggregate holding period for the Class A common
      stock;
 
 ·
              the
      amount allocated to the current taxable year and any taxable year before
      we became a passive foreign investment company would be taxed as ordinary
      income; and
 
 ·
              the
      amount allocated to each of the other taxable years would be subject to
      tax at the highest rate of tax in effect for the applicable class of
      taxpayer for that year, and an interest charge for the deemed deferral
      benefit would be imposed with respect to the resulting tax attributable to
      each such other taxable year.
  These
penalties would not apply to a pension or profit sharing trust or other
tax-exempt organization that did not borrow funds or otherwise utilize leverage
in connection with its acquisition of our Class A common stock. If a
Non-Electing Holder who is an individual dies while owning our Class A common
stock, such holder's successor generally would not receive a step-up in tax
basis with respect to such stock.
  United
States Federal Income Taxation of "Non-U.S. Holders"
  A
beneficial owner of Class A common stock that is not a U.S. Holder (other than a
partnership) is referred to herein as a "Non-U.S. Holder."
  Dividends
on Class A Common Stock
  Non-U.S.
Holders generally will not be subject to U.S. federal income tax or withholding
tax on dividends received from us with respect to our Class A common stock,
unless that income is effectively connected with the Non-U.S. Holder's conduct
of a trade or business in the United States. If the Non-U.S. Holder is entitled
to the benefits of a U.S. income tax treaty with respect to those dividends,
that income is taxable only if it is attributable to a permanent establishment
maintained by the Non-U.S. Holder in the United States.
  Sale,
Exchange or Other Disposition of Class A Common Stock
  Non-U.S.
Holders generally will not be subject to U.S. federal income tax or withholding
tax on any gain realized upon the sale, exchange or other disposition of our
Class A common stock, unless:
  ·
              the
      gain is effectively connected with the Non-U.S. Holder's conduct of a
      trade or business in the United States. If the Non-U.S. Holder is entitled
      to the benefits of an income tax treaty with respect to that gain, that
      gain is taxable only if it is attributable to a permanent establishment
      maintained by the Non-U.S. Holder in the United States;
  or
 
 ·
              the
      Non-U.S. Holder is an individual who is present in the United States for
      183 days or more during the taxable year of disposition and other
      conditions are met.
  75
  
  If the
Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income
tax purposes, the income from the Class A common stock, including dividends and
the gain from the sale, exchange or other disposition of the stock that is
effectively connected with the conduct of that trade or business will generally
be subject to regular U.S. federal income tax in the same manner as discussed in
the previous section relating to the taxation of U.S. Holders. In addition, if
you are a corporate Non-U.S. Holder, your earnings and profits that are
attributable to the effectively connected income, which are subject to certain
adjustments, may be subject to an additional branch profits tax at a rate of
30%, or at a lower rate as may be specified by an applicable income tax
treaty.
  Backup
Withholding and Information Reporting
  In
general, dividend payments, or other taxable distributions, made within the
United States to you will be subject to information reporting requirements. Such
payments will also be subject to backup withholding tax if you are a
non-corporate U.S. Holder and you:
  ·
              fail
      to provide an accurate taxpayer identification
  number;
 
 ·
              are
      notified by the Internal Revenue Service that you have failed to report
      all interest or dividends required to be shown on your federal income tax
      returns; or
 
 ·
              in
      certain circumstances, fail to comply with applicable certification
      requirements.
 
  Non-U.S.
Holders may be required to establish their exemption from information reporting
and backup withholding by certifying their status on Internal Revenue Service
Form W-8BEN, W-8ECI or W-8IMY, as applicable.
  If you
sell your Class A common stock to or through a U.S. office or broker, the
payment of the proceeds is subject to both U.S. backup withholding and
information reporting unless you certify that you are a non-U.S. person, under
penalties of perjury, or you otherwise establish an exemption. If you sell your
Class A common stock through a non-U.S. office of a non-U.S. broker and the
sales proceeds are paid to you outside the United States then information
reporting and backup withholding generally will not apply to that payment.
However, U.S. information reporting requirements, but not backup withholding,
will apply to a payment of sales proceeds, even if that payment is made to you
outside the United States, if you sell your Class A common stock through a
non-U.S. office of a broker that is a U.S. person or has certain other contacts
with the United States.
  Backup
withholding tax is not an additional tax. Rather, you generally may obtain a
refund of any amounts withheld under backup withholding rules that exceed your
income tax liability by filing a refund claim with the Internal Revenue
Service.
  Marshall
Islands Tax Considerations
  We are
incorporated in the Marshall Islands. Under current Marshall Islands law, we are
not subject to tax on income or capital gains, and no Marshall Islands
withholding tax will be imposed upon payments of dividends by us to our
stockholders.
  F.
Dividends and paying agents
  Not
applicable.
  G.
Statement by experts
  Not
applicable.
   76
  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 61 Vasilissis Sofias Ave.,
Athens 115 21 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 $3.0 million
based upon our $291.4 million weighted average debt level during
2009.
  The table
below provides information about our debt and derivative financial instruments
and other financial instruments at December 31, 2009 that are sensitive to
changes in interest rates.  See notes 9 and 10 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.
  77
  
 Expected
      maturity date2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              2014
              
              
              Thereafter(amounts
      in million USD)DebtVariable
      interest rate ($US)(1)
              
              
              344.1
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Average
      interest rate
              
              
              0.70
              %
              
              
              1.58
              %
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      rate derivativesa)
      Rate collar notional amount ($US)(2)
              
              
              150.0
              
              
              
              150.0
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Average
      pay rate
              
              
              5.10
              %
              
              
              4.80
              %
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Average
      receive rate
              
              
              0.70
              %
              
              
              1.58
              %
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -b)
      Fixed rate swaps ($US)(3)
              
              
              42.5
              
              
              
              42.5
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Average
      pay rate
              
              
              2.96
              %
              
              
              2.96
              %
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Average
      receive rate
              
              
              0.70
              %
              
              
              1.58
              %
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -c)
      Fixed rate swap ($US)(4)
              
              
              45.3
              
              
              
              32.6
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Average
      pay rate
              
              
              2.655
              %
              
              
              2.655
              %
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Average
      receive rate
              
              
              0.70
              %
              
              
              1.58
              %
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
 
 (1) Refer
to Item 18 for a complete description of our credit facilities
 
 (2) In
March 2006, we entered into an interest rate swap agreement in order to
partially hedge our exposure to fluctuations in interest rates on its
variable-rate debt, according to which the Company exchanges LIBOR with a fixed
rate of 5.25% (pay fixed receive floating). The expiration date of the swap
agreement was in April 2007 and the notional amount at inception was $144.4
million, diminishing down to $142.9 million following our term loan's repayment
schedule.
 
 The
termination date of the rate collar option is in April 2009.  On April
15, 2008, we entered into a restructuring agreement amending the initial rate
collar option with HSH which extended its duration up to April 4, 2011. Under
the amended agreement we entered into a participation swap with gradual
alignment factor. The notional amount of the swap is $150.0 million and the cap
has been set at 5.1% with the floor being at 2.5% and the gradual aligned
participation at maximum of 2.6% when the three months LIBOR drops below 2.5%.
On July 22, 2008 the agreement was amended and its duration was extended up to
April 14, 2011.
 
 (3) On
March 27, 2008 we entered into two interest rate swap agreements with NIBC and
BTMU in order to hedge our exposure to fluctuations in interest rate on our
junior secured credit facility. The notional amount of each agreement is $21.3
million, $42.5 million in total, and interest rate is fixed at 2.96% per annum.
The effective date of the agreements is March 28, 2008 and their duration is
three years.
 
 (4) On
November 10, 2008 we entered into an interest rate swap agreement with Lloyds
Bank in order to hedge our exposure to fluctuations in interest rate. The
interest rate is fixed at 2.585% per annum and the notional amount at inception
was $100.0 million diminishing down to $77.4 million. The annual notional amount
presented on the above table is the average of each year. The effective date of
the agreement is November 12, 2008 and its duration is until May 12, 2011. On
April 23, 2009, we terminated the fixed rate swap agreement that we had entered
into with Lloyds Bank on November 10, 2008. Concurrently we entered into (i) an
interest rate swap with a notional amount of $66.3 million at a fixed rate of
2.655% per annum effective since February 12, 2009 and (ii) an interest rate
swap with a notional amount of $33.8 million at a fixed rate of 2.655% per annum
effective since April 24, 2009. The second swap was novated to Blizzard on April
24, 2009. The duration for both swaps is until May 12, 2011. After the drawdown
of the second advance of the loan, relating to the acquisition of Alpine Marina,
the notional amount of the Company's swap with Lloyds, amounting to $66.3
million as of December 31, 2009, was decreased by $28.5 million because it was
novated to Tornado. The swap matures on May 12, 2011 and it has a fixed rate of
$2.655%.
  78
  
 
 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, 2009.  Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective to provide reasonable
assurance that the information required to be disclosed by the Company in
reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.
  (B)  Management's Annual
Report on Internal Controls over Financial Reporting
  Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange
Act. The Company's internal control over financial reporting is a process
designed under the supervision of the Company's Chief Executive Officer and
Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company's
financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States.
  Management
has conducted an assessment of the effectiveness of the Company's internal
control over financial reporting based on the framework established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
has determined that the Company's internal control over financial reporting as
of December 31, 2009 is effective.
  (C)  Attestation
Report of the Registered Public Accounting Firm
  This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.
  (D)  Changes
in Internal Controls
  There
were no changes in internal control over financial reporting during the year
ended December 31, 2009 that have materially affected or are reasonably likely
to materially affect the Company's internal control over financial
reporting.
   79
  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 2009 are Messrs. McCleery, Azhar, Harding and
Huang.  Mr. McCleery has been determined to be a financial expert and
independent according to Securities and Exchange Commission rules by the
Company's board of directors.
  ITEM 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 61 Vasilissis Sofias Ave, Athens 115 21 J3 00000,
Greece.
  ITEM
16C.  Principal Accountant Fees and Related Services
  Audit
fees
  Our
principal Accountants, Ernst and Young (Hellas), Certified Auditors Accountants
S.A have billed us for audit and other services as follows:
  Stated
      in Euro
  2009
              
              
              2008
              
              
              2007Audit
      fees
              
              
              223,450
              
              
              
              270,000
              
              
              
              409,500All
      other fees
              
              
              -
              
              
              
              1,180
              
              
              
              1,180Total
              
              
              224,630
              
              
              
              271,180
              
              
              
              410,680
  Audit
fees for 2009 relate primarily to the audit of our consolidated financial
statements. Audit fees for 2008 relate to the audits of our 2008 consolidated
financial statements and internal control over financial reporting. Audit fees
for 2007 relate to the audits of our 2007 consolidated financial statements and
internal control over financial reporting and audit services provided in
connection with SAS 100 reviews and registration statements. All other fees
relate to access to Ernst & Young Online, a service of Ernst & Young
that provides web based access to US GAAP and SEC related matters.
  Our audit
committee pre-approves all audit, audit-related and non-audit services not
prohibited by law to be performed by our independent auditors and associated
fees prior to the engagement of the independent auditor with respect to such
services.
  ITEM
16D.Exemption from the listing standards for Audit
committees
  Not
applicable.
  ITEM
16E.Purchases of Equity Securities by Issuer and Affiliated
purchases
  None.
   80
  ITEM
16G.  Corporate Governance
  We have
certified to the NASDAQ Stock Exchange 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 the NASDAQ Stock
Exchange'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 the NASDAQ Stock
Exchange corporate governance practices and the establishment of an audit
committee in accordance with NASDAQ Marketplace Rules 5605(c)(3) and
5605(c)(2)(A)(ii). The practices we follow in lieu of the NASDAQ Stock
Exchange'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 the NASDAQ Stock Exchange pursuant to the NASDAQ Stock Exchange's
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 Stock
Exchange corporate governance standards applicable to U.S. domestic
issuers.
   PART
III
  ITEM
17 - FINANCIAL STATEMENTS
   See Item
18.
  ITEM
18 - FINANCIAL STATEMENTS
  The
following financial statements, together with the report of our independent
registered public accounting firm, Ernst & Young (Hellas) Certified Auditors
Accountants S.A. thereon, are set forth below on pages F-1 through F-43 and are
filed as a part of this annual report.
 
 ITEM
19 -EXHIBITS
  Exhibit
              Description1.1
              Amended
      and Restated Articles of Incorporation  (1)1.2
              Amended
      and restated by-laws of the Company (1)2.1
              Form
      of Share Certificate (2)4.1
              Vessel
      Management Agreement with the V. Ships (1)4.2
              Senior
      Secured Credit Facility Agreement (3)4.3
              Form
      of Registration Rights Agreement in favor of ONE Holdings
    (1)4.4
              Form
      of Stock Incentive Plan (1)4.5
              Form
      of Vessel Management Agreement with Eurasia (4)4.6
              Form
      of Bridge Loan Facility with HSH Nordbank
(5)
  81
  
 Exhibit
              Description4.7
              Form
      of Second Supplement to Senior Secured Credit Facility Agreement with HSH
      Nordbank (5)4.8
              Form
      of Third Supplement to Senior Secured Credit Facility Agreement with HSH
      Nordbank (5)4.9
              Form
      of Junior Secured Credit Facility with BTMU and NIBC
(5)4.10
              Form
      of Credit Facility with Bremer, dated July 4, 2007 (5)4.11
              Form
      of Credit Facility with Bremer, dated August 24, 2007
  (5)4.12
              Form
      of Credit Facility with Bank of Scotland (5)4.13
              Form
      of Credit Facility with National Bank of Greece (5)4.14
              Form
      of Pre-Delivery Credit Facility with Lloyds TSB Bank PLC
    (5)4.15
              Form
      of Post-Delivery Credit Facility with Lloyds TSB Bank PLC
    (5)4.16
              Stockholders
      Rights Agreement (6)8.1
              Subsidiaries
      of the Company11.1
              Code
      of Ethics (4)12.1
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer12.2
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer13.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200213.2
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200215.1
              Consent
      of Independent Registered Public Accounting
Firm
 ____________
 (1)
              Filed
      as an exhibit to the Company's Registration Statement on Form F-1 filed on
      March 17, 2006, File No. 333-132503 and incorporated by reference
      herein.
 (2)
              Filed
      as an exhibit to the Company's Registration Statement on Form 8-A filed on
      April 4, 2006, File No. 000-51894 and incorporated by reference
      herein.
 (3)
              Filed
      as an exhibit to the Company's post effective amendment to its
      Registration Statement filed Form F-1 filed on April 7, 2006, File No.
      333-132503 and incorporated by reference
herein.
 (4)
              Filed
      as an exhibit to the Company's Annual Report on Form 20-F filed on April
      25, 2007 and incorporated by reference
herein.
 (5)
              Filed
      as an exhibit to the Company's Annual Report on Form 20-F filed on June
      11, 2008 and incorporated by reference
herein.
 (6)
              Filed
      as an exhibit to the Company's Registration Statement on Form 8-A, filed
      on February 22, 2008, File No. 001-33976 and incorporated by reference
      herein.
  82
  SIGNATURES
  The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
  
 OMEGA
      NAVIGATION ENTERPRISES, INCBy:
              /s/
      Gregory McGrathGregory
      McGrathChief
      Financial OfficerDated:
      July 15, 2010
 
 
 
  83


OMEGA
NAVIGATION ENTERPRISES INC


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS











PageReport
      of Independent Registered Public Accounting Firm
            
            F-2Consolidated
      Balance Sheets as of December 31, 2009 and 2008
            
            F-3Consolidated
      Statements of Income for the years ended December 31, 2009, 2008 and
      2007
            
            F-4Consolidated
      Statements of Stockholders' Equity for the years ended December 31, 2009,
      2008 and 2007
            
            F-5Consolidated
      Statements of Cash Flows for the years ended December 31, 2009, 2008 and
      2007
            
            F-6Notes
      to Consolidated Financial Statements
            
            F-7


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, 2009 and 2008, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31,
2009.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures  that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial
reporting.  Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Omega Navigation
Enterprises Inc. at December 31, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles.




The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As more fully discussed in Note 3
to the consolidated financial statements, the Company has a working capital
deficiency. In addition, the Company has not complied with certain covenants of
loan agreements with banks. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.








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








Athens,
Greece


July 15,
2010


F-2




OMEGA
      NAVIGATION ENTERPRISES, INC.
              CONSOLIDATED
      BALANCE SHEETS
              DECEMBER
      31, 2009 AND 2008
              (Expressed
      in thousands of U.S. Dollars – except share and per share
      data)  Notes
                
                
                2009
                
                
                2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                
                
                
                
                $
                15,564
                
                
                $
                16,811Accounts
      receivable, trade
                
                
                
                
                
                1,720
                
                
                
                596Inventories
                
                
                
                
                
                614
                
                
                
                602Prepayments
      and other
                
                
                
                
                
                1,419
                
                
                
                506Due
      from related parties
                
                
                
                
                
                90
                
                
                
                -Restricted
      cash
                
                2
      and 9
                
                
                
                5,807
                
                
                
                123Total
      current assets
                
                
                
                
                
                25,214
                
                
                
                18,638FIXED
      ASSETS:Vessels,
      net
                
                
                7
                
                
                
                423,762
                
                
                
                442,485Property
      and equipment, net
                
                
                
                
                
                
                54
                
                
                
                56Advances
      for vessels under construction and acquisitions
                
                
                5
                
                
                
                70,620
                
                
                
                57,672Total
      fixed assets
                
                
                
                
                
                
                494,436
                
                
                
                500,213OTHER
      NON-CURRENT ASSETS:Investments
      in Joint Ventures
                
                
                6
                
                
                
                5,347
                
                
                
                -Deferred
      charges
                
                
                8
                
                
                
                2,110
                
                
                
                1,154Restricted
      cash
                
                2
      and 9
                
                
                
                105
                
                
                
                5,174Intangible
      assets, net
                
                
                
                
                
                
                221
                
                
                
                8Other
      non-current assets
                
                
                
                
                
                
                -
                
                
                
                109Total
      other non-current assets
                
                
                
                
                
                
                7,783
                
                
                
                6,445Total
      assets
                
                
                
                
                
                $
                527,433
                
                
                $
                525,296LIABILITIES AND
      STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Current
      portion of long-term debt
                
                
                9
                
                
                $
                343,252
                
                
                $
                138Accounts
      payable
                
                
                
                
                
                
                2,401
                
                
                
                1,804Accrued
      and other current liabilities
                
                
                
                
                
                
                3,211
                
                
                
                1,815Deferred  revenue
                
                
                2(t)
                
                
                
                594
                
                
                
                1,368Warrants
                
                
                7
                
                
                
                -
                
                
                
                3,941Derivative
      liability, current portion
                
                
                10
                
                
                
                9,909
                
                
                
                5,839Dividends
      payable
                
                
                
                
                
                
                166
                
                
                
                87Total
      current liabilities
                
                
                
                
                
                
                359,533
                
                
                
                14,992NON
      - CURRENT LIABILITIES:Long
      - term debt, net of current portion
                
                
                9
                
                
                
                -
                
                
                
                335,112Derivative
      liability, net of current portion
                
                
                10
                
                
                
                -
                
                
                
                8,409Dividends
      payable
                
                
                
                
                
                
                105
                
                
                
                174Other
      long - term liabilities
                
                
                
                
                
                
                1
                
                
                
                5Total
      non-current liabilities
                
                
                
                
                
                
                106
                
                
                
                343,700COMMITMENTS
      AND CONTINGENCIES:
                
                
                
                
                
                
                -
                
                
                
                -STOCKHOLDERS'
      EQUITY:Preferred
      stock, $0.01 par value; 25,000,000 shares authorised, none
                  issued
                
                
                
                
                
                
                -
                
                
                
                -Common
      stock:Class
      A shares, par value $0.01 per share 75,000,000 shares authorised;
      16,030,079 shares  issued and outstanding as at December 31,
      2009, 12,183,019 shares  issued and outstanding as at December
      31, 2008
                
                
                
                
                
                
                158
                
                
                
                120Class
      B shares, par value $0.01 per share, 25,000,000 shares
                  authorised;
      0 shares issued and outstanding as at December 31, 2009 and 3,140,000
      shares issued and outstanding as at December 31, 2008
                
                
                
                
                
                
                -
                
                
                
                31Additional
      paid in capital
                
                
                
                
                
                
                201,618
                
                
                
                198,402Accumulated
      deficit
                
                
                
                
                
                
                (33,982
                )
                
                
                (31,949
                )Total
      stockholders' equity
                
                
                
                
                
                
                167,794
                
                
                
                166,604Total
      liabilities and stockholders' equity
                
                
                
                
                
                $
                527,433
                
                
                $
                525,296
 The
      accompanying notes are an integral part of these consolidated financial
      statements.


F-3





OMEGA
      NAVIGATION ENTERPRISES, INC.
              CONSOLIDATED
      STATEMENTS OF INCOME
              FOR
      THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
              (Expressed
      in thousands of U.S. Dollars – except share and per share
      data)





Notes
              
              
              2009
              
              
              2008
              
              
              2007CONTINUING
      OPERATIONSRevenuesVoyage
      revenues
              
              
              
              
              $
              64,456
              
              
              
              77,713
              
              
              
              69,890ExpensesVoyage
      expenses
              
              
              14
              
              
              
              (1,535
              )
              
              
              (1,032
              )
              
              
              (930
              )Vessel
      operating expenses
              
              
              14
              
              
              
              (17,260
              )
              
              
              (15,486
              )
              
              
              (13,121
              )Depreciation
      and amortization
              
              
              
              
              
              
              (19,173
              )
              
              
              (18,868
              )
              
              
              (17,557
              )Management
      fees
              
              
              1
              
              
              
              (1,283
              )
              
              
              (1,243
              )
              
              
              (1,110
              )Options'
      premium
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              (200
              )General
      and administrative expenses (including $1,408, $1,355 and $457
      of  non cash compensation expense in 2009, 2008 and 2007
      respectively)
              
              
              
              
              
              
              (6,018
              )
              
              
              (6,085
              )
              
              
              (5,088
              )Foreign
      currency gains / (losses)
              
              
              
              
              
              
              (122
              )
              
              
              44
              
              
              
              (90
              )Income
      from vessels operation
              
              
              
              
              
              
              19,065
              
              
              
              35,043
              
              
              
              31,794Loss
      on termination of purchase agreements
              
              
              5
              
              
              
              (3,000
              )
              
              
              -
              
              
              
              -Loss
      from Joint Venture Companies
              
              
              6
              
              
              
              (278
              )
              
              
              -
              
              
              
              -Operating
      Income
              
              
              
              
              
              
              15,787
              
              
              
              35,043
              
              
              
              31,794Other
      income / (expenses)Interest
      and finance costs
              
              
              15
              
              
              
              (7,181
              )
              
              
              (14,385
              )
              
              
              (18,579
              )Interest
      income
              
              
              
              
              
              
              138
              
              
              
              711
              
              
              
              1,821Change
      in fair value of warrants
              
              
              7
              
              
              
              1,127
              
              
              
              3,156
              
              
              
              1,071Loss
      on derivative instruments
              
              
              10
              
              
              
              (4,149
              )
              
              
              (13,586
              )
              
              
              (1,221
              )Total
      other income / (expenses), net
              
              
              
              
              
              
              (10,065
              )
              
              
              (24,104
              )
              
              
              (16,908
              )INCOME
      FROM CONTINUING OPERATIONS
              
              
              
              
              
              
              5,722
              
              
              
              10,939
              
              
              
              14,886DISCONTINUED
      OPERATIONSIncome
      / (loss) from discontinued operations of the dry-bulk carrier
      fleet
              
              
              
              
              
              
              -
              
              
              
              20
              
              
              
              (155
              )INCOME
      / (LOSS) FROM DISCONTINUED OPERATIONS
              
              
              
              
              
              
              -
              
              
              
              20
              
              
              
              (155
              )NET
      INCOME
              
              
              
              
              
              $
              5,722
              
              
              
              10,959
              
              
              
              14,731Earnings / (Loss) per
      common share, basic and diluted:
              
              
              11-
      From
      continuing operationsEarnings
      per Class A common share, basic
              
              
              
              
              
              $
              0.27
              
              
              
              0.71
              
              
              
              0.98Earnings
      per Class A common share, diluted
              
              
              
              
              
              $
              0.27
              
              
              
              0.69
              
              
              
              0.95Earnings
      per Class B common share, basic and diluted
              
              
              
              
              
              $
              1.90
              
              
              
              0.71
              
              
              
              0.98Weighted
      average number of Class A common shares, basic
              
              
              
              
              
              
              14,825,002
              
              
              
              12,057,717
              
              
              
              12,010,000Weighted
      average number of Class A common shares, diluted
              
              
              
              
              
              
              15,185,237
              
              
              
              12,610,219
              
              
              
              12,488,976Weighted
      average number of Class B common shares, basic and diluted
              
              
              
              825,863
              
              
              
              3,140,000
              
              
              
              3,140,000-
      From
      discontinued operationsEarnings
      / (loss) per Class A common share, basic and diluted
              
              
              
              
              
              $
              -
              
              
              
              -
              
              
              
              (0.01
              )Earnings
      / (loss) per Class B common share, basic and diluted
              
              
              
              
              
              $
              -
              
              
              
              -
              
              
              
              (0.01
              )Weighted
      average number of Class A common shares, basic
              
              
              
              
              
              
              14,825,002
              
              
              
              12,057,717
              
              
              
              12,010,000Weighted
      average number of Class A common shares, diluted
              
              
              
              
              
              
              15,185,237
              
              
              
              12,610,219
              
              
              
              12,488,976Weighted
      average number of Class B common shares, basic and diluted
              
              
              
              825,863
              
              
              
              3,140,000
              
              
              
              3,140,000-
      From continuing and discontinued operationsEarnings
      per Class A common share, basic
              
              
              
              
              
              $
              0.27
              
              
              
              0.71
              
              
              
              0.97Earnings
      per Class A common share, diluted
              
              
              
              
              
              $
              0.27
              
              
              
              0.69
              
              
              
              0.94Earnings
      per Class B common share, basic and diluted
              
              
              
              
              
              $
              1.90
              
              
              
              0.71
              
              
              
              0.97Weighted
      average number of Class A common shares, basic
              
              
              
              
              
              
              14,825,002
              
              
              
              12,057,717
              
              
              
              12,010,000Weighted
      average number of Class A common shares, diluted
              
              
              
              
              
              
              15,185,237
              
              
              
              12,610,219
              
              
              
              12,488,976Weighted
      average number of Class B common shares, basic and diluted
              
              
              
              825,863
              
              
              
              3,140,000
              
              
              
              3,140,000
  The
      accompanying notes are an integral part of these consolidated financial
      statements.


F-4





OMEGA
      NAVIGATION ENTERPRISES, INC.
              CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR
      THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 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
      December 31, 2006
                
                
                
                12,010,000
                
                
                120
                
                
                3,140,000
                
                
                31
                
                
                196,590
                
                
                3,356
                
                
                200,097-  Issuance
      of restricted shares
                
                
                -
                
                60,138
                
                
                -
                
                
                -
                
                
                -
                
                
                457
                
                
                -
                
                
                457-  Net
      income
                
                
                14,731
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                14,731
                
                
                14,731-  Dividends
      declared ($2 per share)
                
                
                -
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (30,411
                )
                
                (30,411
                )Comprehensive
      income
                
                $
                14,731Balance
      December 31, 2007
                
                
                
                
                12,070,138
                
                
                120
                
                
                3,140,000
                
                
                31
                
                
                197,047
                
                
                (12,324
                )
                
                184,874-  Issuance
      of restricted shares, net of forfeitures
                
                
                -
                
                112,881
                
                
                -
                
                
                -
                
                
                -
                
                
                1,355
                
                
                -
                
                
                1,355-  Net
      income
                
                
                10,959
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                10,959
                
                
                10,959-  Dividends
      declared ($2 per share)
                
                
                -
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (30,584
                )
                
                (30,584
                )Comprehensive
      income
                
                $
                10,959Balance
      December 31, 2008
                
                
                
                
                12,183,019
                
                
                120
                
                
                3,140,000
                
                
                31
                
                
                198,402
                
                
                (31,949
                )
                
                166,604-  Issuance
      of restricted shares, net of forfeitures
                
                
                -
                
                207,336
                
                
                2
                
                
                -
                
                
                -
                
                
                1,408
                
                
                -
                
                
                1,410-  Net
      income
                
                
                5,722
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                5,722
                
                
                5,722-  Conversion
      of Class B shares to Class A
                
                
                -
                
                3,140,000
                
                
                31
                
                
                (3,140,000
                )
                
                (31
                )
                
                -
                
                
                -
                
                
                --  Issuance
      of shares, warrants settlement
                
                
                -
                
                499,724
                
                
                5
                
                
                -
                
                
                -
                
                
                1,808
                
                
                
                
                
                1,813-  Dividends
      declared ($0.5 per share)
                
                
                -
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (7,755
                )
                
                (7,755
                )Comprehensive
      income
                
                
                5,722Balance
      December 31, 2009
                
                
                
                
                16,030,079
                
                
                158
                
                
                -
                
                
                -
                
                
                201,618
                
                
                (33,982
                )
                
                167,794
  The
      accompanying notes are an integral part of these consolidated financial
      statements.





F-5


OMEGA
      NAVIGATION ENTERPRISES, INC.
              CONSOLIDATED
      STATEMENTS OF CASH FLOWS
              FOR
      THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
              (Expressed
      in thousands of U.S. Dollars)





2009
            
            
            2008
            
            
            2007Cash
      flows from operating activities:Net
      income from continuing operations
            
            $
            5,722
            
            
            
            10,939
            
            
            
            14,886Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
      and amortization
            
            
            19,173
            
            
            
            18,868
            
            
            
            17,557Amortization
      and write-off of loan fees
            
            
            782
            
            
            
            669
            
            
            
            307Stock
      based compensation
            
            
            1,408
            
            
            
            1,355
            
            
            
            457Change
      in fair value of derivative instruments
            
            
            (4,339
            )
            
            
            12,669
            
            
            
            1,266Options’
      premium
            
            
            -
            
            
            
            -
            
            
            
            200Undistributed
      losses of Joint Venture companies
            
            
            278
            
            
            
            -
            
            
            
            -Change
      in fair value of warrants
            
            
            (1,127
            )
            
            
            (3,156
            )
            
            
            (1,071
            )(Increase)
      / Decrease in:Accounts
      receivable, trade
            
            
            (1,124
            )
            
            
            (417
            )
            
            
            (150
            )Prepayments
      and other
            
            
            (913
            )
            
            
            342
            
            
            
            (386
            )Inventories
            
            
            (12
            )
            
            
            (101
            )
            
            
            4Due
      from related parties
            
            
            (90
            )
            
            
            -
            
            
            
            -Other
      non-current assets
            
            
            109
            
            
            
            (109
            )
            
            
            -Increase
      / (Decrease) in:Accounts
      payable
            
            
            597
            
            
            
            935
            
            
            
            (465
            )Accrued
      and other current liabilities
            
            
            1,396
            
            
            
            (905
            )
            
            
            1,849Deferred
      revenue
            
            
            (774
            )
            
            
            (501
            )
            
            
            (498
            )Other
      long-term liabilities
            
            
            (4
            )
            
            
            5
            
            
            
            -Payments
      for dry docking costs
            
            
            (1,521
            )
            
            
            (538
            )
            
            
            -Net
      cash provided by continuing operating activities
            
            
            19,561
            
            
            
            40,055
            
            
            
            33,956Net
      cash provided by/ (used in) discontinued operating
    activities
            
            
            -
            
            
            
            -
            
            
            
            (695
            )Net
      cash provided by operating activities
            
            
            19,561
            
            
            
            40,055
            
            
            
            33,261Cash
      flows from investing activities:Vessels
      acquisition and other vessels’ costs
            
            
            (74
            )
            
            
            (29
            )
            
            
            (120,292
            )Advances
      for vessels under construction and vessels acquisitions
            
            
            (12,930
            )
            
            
            (12,783
            )
            
            
            (44,865
            )Intangible
      assets
            
            
            (225
            )
            
            
            -
            
            
            
            -Property
      and equipment acquisition
            
            
            (29
            )
            
            
            (8
            )
            
            
            (21
            )Investments
      in Joint Ventures
            
            
            (5,625
            )
            
            
            -
            
            
            
            -Net
      cash used in investing activities-continuing operations
            
            
            (18,883
            )
            
            
            (12,820
            )
            
            
            (165,178
            )Net
      cash provided by investing activities-discontinued
    operations
            
            
            -
            
            
            
            -
            
            
            
            81,468Net
      cash used in investing activities
            
            
            (18,883
            )
            
            
            (12,820
            )
            
            
            (83,710
            )Cash
      flows from financing activities:Capital
      contributions, net of related costs
            
            
            2
            
            
            
            -
            
            
            
            -Proceeds
      from bank credit facilities
            
            
            56,322
            
            
            
            156,574
            
            
            
            156,760Financing
      costs
            
            
            (50
            )
            
            
            (1,418
            )
            
            
            (537
            )Dividends
      paid
            
            
            (7,745
            )
            
            
            (30,434
            )
            
            
            (30,300
            )Principal
      payments of bank credit facilities
            
            
            (48,839
            )
            
            
            (144,240
            )
            
            
            (33,320
            )Warrants
      cash settlement
            
            
            (1,000
            )
            
            
            -
            
            
            
            -(Increase)
      / decrease in restricted cash
            
            
            (615
            )
            
            
            201
            
            
            
            272Net
      cash (used in)  /provided by financing activities-continuing
      operations
            
            
            (1,925
            )
            
            
            (19,317
            )
            
            
            92,875Net
      cash used in financing activities-discontinued operations
            
            
            -
            
            
            
            -
            
            
            
            (37,395
            )Net
      cash (used in)/ provided by  financing
activities
            
            
            (1,925
            )
            
            
            (19,317
            )
            
            
            55,480Net
      (decrease)/ increase  in cash and cash
    equivalents
            
            
            (1,247
            )
            
            
            7,918
            
            
            
            5,031Cash
      and cash equivalents at beginning of year
            
            
            16,811
            
            
            
            8,893
            
            
            
            3,862Cash
      and cash equivalents at end of year
            
            $
            15,564
            
            
            
            16,811
            
            
            
            8,893Supplemental
      cash flow informationCash
      paid during the year for interest on bank loans
            
            $
            5,567
            
            
            
            13,719
            
            
            
            17,199Non-cash
      financing activitiesIssuance
      of warrants for vessels’ acquisition
            
            $
            -
            
            
            
            -
            
            
            
            8,168





The
      accompanying notes are an integral part of these consolidated financial
      statements


F-6






OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (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"), its wholly-owned subsidiaries and VIEs
for which the Company is the primary beneficiary (collectively, the "Company").
Investments in 50% joint ventures are accounted for under the equity method of
accounting. Omega was incorporated on February 28, 2005 under the laws of
Marshall Islands for the purpose of engaging in any lawful act or activity under
the Marshall Islands Business Corporations Act. On March 2, 2005, the Company
commenced operations and preparation for an initial public offering in the
United States under the United States Securities Act of 1933, as amended. In
April 2006, the Company completed its initial public offering, the net proceeds
of which amounted to $186,711. The Company's Class A shares are listed on the
Nasdaq National Market and on the Singapore Exchange Securities Trading
Limited.





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





Ship-owning companies
      with vessels in operation at December 31, 2009Company
            Country
      of incorporation
            Vessel-owned
            Type
      of
              vessel
            Acquisition
              DateGalveston
      Navigation Inc.
            Marshall
      Islands
            Omega
      Lady Miriam
            Product
      Tanker
            August  2006Beaumont
      Navigation Inc.
            Marshall
      Islands
            Omega
      Lady Sarah
            Product
      Tanker
            June
      2006Carrolton
      Navigation Inc.
            Marshall
      Islands
            Omega
      Prince
            Product
      Tanker
            June  2006Decatur
      Navigation Inc.
            Marshall
      Islands
            Omega
      Princess
            Product
      Tanker
            July  2006Elgin
      Navigation Inc.
            Marshall
      Islands
            Omega
      Queen
            Product
      Tanker
            May  2006Fulton
      Navigation Inc.
            Marshall
      Islands
            Omega
      King
            Product
      Tanker
            June  2006Orange
      Navigation Inc.
            Marshall
      Islands
            Omega
      Emmanuel
            Product
      Tanker
            March
      2007Baytown
      Navigation Inc.
            Marshall
      Islands
            Omega
      Theodore
            Product
      Tanker
            April
      2007  Ship-owning companies
      with vessels under construction at December 31,
  2009Company
            Country
      of incorporation
            Vessel
      owned
            Type
      of
              vessel
            Expected
      Year of deliveryLemannville
      Navigation Inc
            Marshall
      Islands
            Under
      construction
            Product
      Tanker
            2010  Ship-owning companies
      with vessels sold during the year 2007Company
            Country
      of incorporation
            Vessel-owned
            Type
      of
              vessel
            Disposition
      DateAbilene
      Navigation Inc.
            Marshall
      Islands
            EKAVI
      I
            Bulk
      Carrier
            January
      2007Hamilton
      Navigation Inc.
            Marshall
      Islands
            ELECTRA
      I
            Bulk
      Carrier
            January
      2007  Other group
      companiesCompany
            Country
      of incorporation
            ActivityOmega
      Management Inc.
            Marshall
      Islands
            Fleet
      commercial managementOmega
      Navigation (USA) LLC
            USA
            Company's
      representative in United StatesOmnicrom
      Holdings Ltd
            Marshall
      Islands
            Holding
      CompanyTurneville
      Navigation Inc
            Marshall
      IslandsTyler
      Navigation Inc
            Marshall
      IslandsPasedena
      Navigation Inc
            Marshall
      Islands






F-7


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


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





Sunray
      Navigation Inc
            
            Marshall IslandsNederland
      Navigation Inc
            
            Marshall
      IslandsLakeview
      Navigation Inc
            
            Marshall
      Islands





As
further discussed in Note 5, the Company is the primary beneficiary and as a
result consolidates the following companies:





Fire
      Navigation Inc
            Marshall
      Islands
            Company
      owned by 50%, through Megacore Joint VentureHurricane
      Navigation Inc
            Marshall
      Islands
            Company
      owned by 50%, through Megacore Joint VentureIce
      Navigation Inc
            Marshall
      Islands
            Company
      owned by 50%, through Megacore Joint VentureLightning
      Navigation Inc
            Marshall
      Islands
            Company
      owned by 50%, through Megacore Joint VentureRain
      Navigation Inc
            Marshall
      Islands
            Company
      owned by 50%, through Megacore Joint
Venture





The
day-to-day operations of the Company's 100% owned vessels are managed by two
unrelated third party managers under separate management agreements with each
vessel-owning subsidiary, effective upon each vessel's delivery, which
agreements provide for an annual fixed management fee per vessel increased,
where specified, by miscellaneous management expenses while the vessel operating
expenses are charged as incurred, and, following either party's prior written
notice, can be terminated within one to three months period from such
notice.





During
the years ended December 31, 2009, 2008, 2007, three charterers individually
accounted for 10% or more of the Company's voyage and time charter revenues as
follows:





Charterer
            
            2009
            
            2008
            
            2007
            
            Reportable
      segment
              (Note
      17)A
            
            16%
            
            25%
            
            28%
            
            Product
      tankersB
            
            74%
            
            55%
            
            50%
            
            Product
      tankersC
            
            10%
            
            20%
            
            22%
            
            Product
      tankers





2.     Significant
accounting policies and recent accounting pronouncements:





a)
            FASB Accounting Standards
      Codification:In June 2009, the Financial Accounting Standards
      Board ("FASB") issued Statement of Financial Accounting Standard No. 168
      ("SFAS 168"), "The FASB Accounting Standards Codification and the
      Hierarchy of Generally Accepted Accounting Principles – a replacement of
      FASB Statement No. 162" (codified as "ASC 105").  ASC 105
      establishes the Accounting Standards Codification ("ASC") as the source of
      authoritative accounting literature recognized by the FASB to be applied
      by nongovernmental entities in addition to rules and interpretive releases
      of the Securities and Exchange Commission ("SEC"), which are sources of
      authoritative generally accepted accounting principles ("GAAP") for SEC
      registrants. All other non-grandfathered, non-SEC accounting literature
      not included in the Codification will become
      non-authoritative.  ASC 105 identifies the sources of accounting
      principles and the framework for selecting the principles used in the
      preparation of the financial statements.  Following this
      statement, the FASB will issue new standards in the form of Accounting
      Standards Updates ("ASU").





In
conjunction with the issuance of SFAS 168, the FASB also issued its first
Accounting Standards Update No. 2009-1, "Topic 105 –Generally Accepted
Accounting Principles" ("ASU 2009-1") which includes SFAS 168 in its entirety as
a transition to the ASC.  ASU 2009-1 was effective on a prospective
basis for interim and annual periods ended after September 15,
2009.





The
Codification was effective for the Company for the interim reporting period
ended September 30, 2009. As a result of the adoption of this pronouncement, the
Company's consolidated financial statements reference the Codification as the
sole source of authoritative literature. Accordingly, all accounting references
have been updated and SFAS references have been replaced with ASC references as
if the SFAS has been adopted into the Codification.  The Codification
did not change or alter existing GAAP and; therefore, it did not have an impact
of the Company's financial position, results of operations and cash
flows.






F-8


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (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):




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





Omega
Navigation Enterprises Inc. determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is a voting
interest entity or a variable interest entity. Under ASC 810-10,
"Consolidation," a voting interest entity is an entity in which the total equity
investment at risk is sufficient to enable the entity to finance itself
independently and provides the equity holders with the obligation to absorb
losses, the right to receive residual returns and the right to make financial
and operating decisions. The Holding Company consolidates voting interest
entities in which it owns all, or at least a majority (generally, greater than
50%) of the voting interest.





Variable
interest entities ("VIE") are entities as defined under ASC 810, "Consolidation"
that in general either do not have equity investors with voting rights or that
have equity investors that do not provide sufficient financial resources for the
entity to support its activities. A controlling financial interest in a VIE is
present when a company absorbs a majority of an entity's expected losses,
receives a majority of an entity's expected residual returns, or both. The
company with a controlling financial interest, known as the primary beneficiary,
is required to consolidate the VIE. The Company evaluates all arrangements that
may include a variable interest in an entity to determine if it may be the
primary beneficiary, and would be required to include assets, liabilities and
operations of a VIE in its consolidated financial statements.





According
to ASC 810 "Consolidation", effective for annual periods beginning after
November 15, 2009, there are two criteria to determine the primary beneficiary
a) The power to direct the activities that most significantly impact the
entity's economic performance, and b) the obligation to absorb losses or rights
to receive benefits of the entity that could potentially be significant to the
VIE. Both criteria should be met in order for an entity to be the primary
beneficiary of a VIE. Entities that have identified VIE in the past should
re-evaluate their relationships with those entities using the above two
criteria.





As
discussed in Note 5(a), in September 2008, the Company entered into a joint
venture agreement, in which the Company will have variable interests; however,
the Company has, and will continue to consolidate, five ship-owning companies
contributed to the joint venture since each venture investor is solely
responsible for the financing and any variability of the future cash flows
during the pre-delivery period of its new building.





As of
December 31, 2009, there were no other entities for the periods presented that
were required to be included in the accompanying consolidated financial
statements.





c)
            Equity
      Method Investments:Investments in entities that the Company does
      not control, but has the ability to exercise significant influence over
      the operating and financial policies, are accounted for using the equity
      method.  Under this method the investment is carried at cost,
      and is adjusted to recognize the investor's share of the earnings or
      losses of the investee after the date of acquisition, and is adjusted for
      impairment whenever facts and circumstances determine that a decline in
      fair value below the cost basis is other than temporary. The amount of the
      adjustment is included in the determination of net income by the investor
      and such amount reflects adjustments similar to those made in preparing
      consolidated financial statements including adjustments to eliminate
      intercompany gains and losses, and to amortize, if appropriate, any
      differences between investor cost and underlying equity in net assets of
      the investee at the date of acquisition. The investment of an investor is
      also adjusted to reflect the investor's share of changes in the investee's
      capital. As discussed in Note 6, in April 2009, the Company entered into a
      joint venture agreement for the purchase of a double hull handymax product
      tanker "Omega Duke". The Company records its ownership interest in
      "Investments in Joint Ventures" in the consolidated balance sheets.
      Earnings or losses from equity method investments are recorded in "Loss
      from Joint Venture Companies" in the accompanying consolidated statements
      of income.







F-9


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (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):




d)
            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.





e)
            Comprehensive
      Income:The Company
      follows the provisions of ASC 220 "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.





f)
            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.





g)
            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.





h)
            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 declared to unvested restricted shares. The restricted cash
      balance related to minimum liquid funds, as defined in the loan
      agreements, has been classified as current as of December 31, 2009 since
      its related debt has also been classified as current, as discussed in Note
      9.





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





j)
            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.





k)
            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,
      2009 and 2008.





l)
            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.






F-10


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (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):





It is the
Company's policy to dispose of 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 ASC 360''Property, Plant and Equipment'', 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.





m)
            Property
      and Equipment, net:Property and equipment consists of office
      furniture and equipment and computer hardware. The useful life of the
      office furniture and equipment and computer hardware is 5 or 3 years.
      Depreciation is calculated on a straight-line basis, and amounted to $31,
      $35 and $30 in 2009, 2008 and 2007,
  respectively.





n)
            Intangible
      assets:Intangible assets consist of computer software and
      leasehold improvements. The useful life of the computer software is 3
      years, and the amortization commences when software is ready for its
      intended use. Leasehold improvements are depreciated over the remaining
      contractual term of the lease. Amortization is calculated on a
      straight-line basis, and amounted to $12, $11 and $30 in 2009, 2008 and
      2007, respectively.





o)
            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.





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





q)
            Impairment
      of Long-Lived Assets:The Company applies ASC 360 "Property, Plant
      and Equipment", which addresses financial accounting and reporting for the
      impairment or disposal of long-lived assets. The standard requires that,
      long-lived assets and certain identifiable intangibles held and used or
      disposed of by an entity be reviewed for impairment whenever events or
      changes in circumstances indicate that the carrying amount of the assets
      may not be recoverable. When the estimate of undiscounted projected
      operating cash flows, excluding interest charges, expected to be generated
      by the use of the asset is less than its carrying amount, the Company
      should evaluate the asset for an impairment loss. The Company determines
      the fair value of its assets based on management estimates and assumptions
      and by making use of available market data and taking into consideration
      third party valuations.





The
Company evaluates the carrying amounts (primarily for vessels and related
drydocking and special survey costs) and periods over which long lived assets
are depreciated to determine if events have occurred which would require
modification of their carrying values or useful lives. In evaluating useful
lives and carrying values of long lived assets, management reviews certain
indicators of potential impairment, such as undiscounted projected operating
cash flows, vessel sales and purchases and overall market conditions. The amount
of undiscounted operating cash flows estimated in 2008 for 2009 was not
materially different from the actual amount of 2009.








F-11


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


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





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





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





No
impairment loss was identified or recorded for 2009, 2008 or 2007 and the
Company has not identified any other facts or circumstances that would require
the write down of vessel values. However, the current assumptions used and the
estimates made are highly subjective, and could be negatively impacted by
further significant deterioration in charter rates or vessel utilization over
the remaining life of the vessels which could require the Company to record a
material impairment charge in future periods.





r)
            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.





s)
            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 and derivative contracts
      (interest rate swaps). 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.





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








F-12


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (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.





u)
            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.





v)
            Earnings/
      (Loss) Per Common Share:Basic earnings/
      (loss) per common share is computed by dividing income/ (loss) available
      to common stockholders by the weighted average number of common shares
      deemed outstanding during the period. Diluted earnings/ (loss) per common
      share reflect the potential dilution that could occur if securities or
      other contracts to issue common stock were exercised. As further discussed
      in Note 13, 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.
      Following the payment of the dividend with respect to the fourth quarter
      2008, all issued and outstanding subordinated Class B shares were
      converted into Class A common shares on a one-for-one basis. The Class A
      shares were issued on April 7, 2009. For the year ended December 31, 2009,
      2008 and 2007, diluted earnings/ (loss) per share reflect the potential
      dilution from the restricted stock granted by the Company under its equity
      incentive plan (Note 13). Also for the years ended December 31, 2008 and
      2007, diluted earnings/(loss) per share reflect the potential dilution
      from the warrants issued by the Company in order to partially finance
      vessels' acquisition (Note 7).





w)
            Pension and
      Retirement Benefit Obligation:Administrative personnel employed by
      Omega Management are covered by Greek 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, 2009, 2008 and 2007 amounted
      to $179, $161 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 Company's liability on an
      actuarially determined basis at December 31, 2009 and 2008 amounted to $34
      and $ 33, respectively.





x)
            Share Based
      Payments: According to ASC 718 "Compensation-Stock Compensation", a
      public entity is required to measure the cost of employee services
      received in exchange for an award of equity instruments based on the
      grant-date fair value of the award (with limited exceptions). That cost
      will be recognized over the period during which an employee is required to
      provide service in exchange for the award – the requisite service period
      (usually the vesting period). No compensation cost is recognized for
      equity instruments for which employees do not render the requisite
      service. Employee share purchase plans will not result in recognition of
      compensation cost if certain conditions are met. A public company will
      initially measure the cost of employee services received in exchange for
      an award of liability instruments based on its current fair value; the
      fair value of that award will be re-measured subsequently at each
      reporting date through the settlement date. Changes in fair value during
      the requisite service period will be recognized as compensation cost over
      that period. The grant-date fair value of employee share options and
      similar instruments will be estimated using option-pricing models adjusted
      for the unique characteristics of those instruments (unless observable
      market prices for the same or similar instruments are available). If an
      equity award is modified after the grant date, incremental compensation
      cost will be recognized in an amount equal to the excess of the fair value
      of the modified award over the fair value of the original award
      immediately before the
modification.








F-13


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (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):




y)
            Financial
      Instruments with Characteristics of Both Liabilities and Equity:
      ASC 480 "Distinguishing liabilities from 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 ASC 480 initially and subsequently should be measured at fair
      value. Subsequently changes in fair value are recognized in
      earnings.





z)
            Derivative
      Instruments: ASC 815 "Derivatives and Hedging" requires all
      derivative contracts to be recorded at fair value, as determined in
      accordance with ASC 820 "Fair Value Measurements and Disclosures", which
      is more fully discussed in Note 10 of the consolidated financial
      statements. The changes in fair value of the derivative contracts are
      recognized in earnings unless specific hedging criteria are met. As
      derivative instruments have not been designated as hedging instruments,
      changes in their fair value are reported in current period
      earnings.





ASC 815
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about the fair value of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative instruments. ASC 815 relates to disclosures
only and its adoption did not have any effect on the financial condition,
results of operations or liquidity of the Company.





Effective
January 1, 2009, the Company adopted the accounting pronouncement relating to
the expanded disclosure requirements about derivative instruments and hedging
activities codified as ASC 815, "Derivatives and Hedging". ASC 815 intents to
provide users of financial statements with an enhanced understanding of: (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for, and (c) how derivative instruments
and related hedged items affect an entity's financial position, financial
performance, and cash flows.





aa)
            Fair Value
      Measurements: The Company adopted as of January 1, 2008 ASC 820
      "Fair Value Measurements and Disclosures," which defines and provides
      guidance as to the measurement of fair value. This statement creates a
      hierarchy of measurement and indicates that, when possible, fair value is
      the price that would be received to sell an asset or paid to transfer a
      liability in an orderly transaction between market participants. ASC 820
      applies when assets or liabilities in the financial statements are to be
      measured at fair value, but does not require additional use of fair value
      beyond the requirements in other accounting principles. The statement was
      effective for the Company as of January 1, 2008, excluding certain
      non-financial assets and non-financial liabilities, for which the
      statement is effective for fiscal years beginning after November 15, 2008,
      and its adoption did not have a material impact on the Company's financial
      position or results of operations.





ASC 825
"Financial Instruments," permits companies to report certain financial assets
and financial liabilities at fair value.  ASC 825 was effective for
the Company as of January 1, 2008 at which time the Company could elect to apply
the standard prospectively and measure certain financial instruments at fair
value. The Company has evaluated the guidance contained in ASC 825, and has
elected not to report any existing financial assets or liabilities at fair value
that are not already reported as such; therefore, the adoption of the statement
had no impact on the Company's financial position and results of
operations.  The Company retains the ability to elect the fair value
option for certain future assets and liabilities acquired under this new
pronouncement. The statement was effective for the Company as of January 1,
2008, excluding certain nonfinancial assets and nonfinancial liabilities, for
which the statement was effective for fiscal years beginning after November 15,
2008 and its adoption did not have a material impact on the Company's financial
position or results of operations.





F-14


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (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):




Effective
January 1, 2009, the Company adopted ASC 820-10-65, "Fair Value Measurements and
Disclosures" that provides additional guidelines for estimating fair value in
accordance with fair value accounting. The adoption of this statement did not
have a material impact on the Company's consolidated financial position, cash
flows or results of operations.





In August
2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value,
which provides additional guidance on how companies should measure liabilities
at fair value under ASC 820. The ASU clarifies that the quoted price for an
identical liability should be used. However, if such information is not
available, an entity may use, the quoted price of an identical liability when
traded as an asset, quoted prices for similar liabilities or similar liabilities
traded as assets, or another valuation technique (such as the market or income
approach). The ASU also indicates that the fair value of a liability is not
adjusted to reflect the impact of contractual restrictions that prevent its
transfer and indicates circumstances in which quoted prices for an identical
liability or quoted price for an identical liability traded as an asset may be
considered level 1 fair value. The adoption of this statement did not have a
material impact on the Company's consolidated results of operations or financial
condition.





bb)
            Segmental
      Reporting: ASC 280 ''Segment Reporting'' 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.  The Company,
      during 2007 disposed of its dry bulk carriers
  segment.





cc)
            Leases: The lease
      agreement relating to the office space is considered to be operating
      lease.  In case the rentals vary from a straight line basis, the
      income/expense is recognized on a straight-line
  basis.





dd)
            Recent
      Accounting Pronouncements:





ASU 2009-16:In December 2009,
the FASB issued ASU 2009-16, Transfers and Servicing (Topic 860) - Accounting
for Transfers of Financial Assets, which formally codifies FASB Statement No.
166, Accounting for Transfers of Financial Assets into the ASC. ASU 2009-16
represents a revision to the provisions of former FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities and will require more information about transfers of financial
assets, including securitization transactions, and where entities have
continuing exposure to the risks related to transferred financial assets. Among
other things, ASU 2009-16 (1) eliminates the concept of a "qualifying
special-purpose entity", (2) changes the requirements for derecognizing
financial assets, and (3) enhances information reported to users of financial
statements by providing greater transparency about transfers of financial assets
and an entity's continuing involvement in transferred financial assets. ASU
2009-16 will be effective for transfers of financial assets in fiscal years
beginning after November 15, 2009, and in interim periods within those fiscal
years with earlier adoption prohibited. The provisions of ASU 2009-16 are not
expected to have a material impact on the Company's consolidated financial
statements





ASU 2009-17:In December 2009,
the FASB issued ASU 2009-17, Consolidations (Topic 810) - Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities,
which codifies FASB Statement No. 167, Amendments to FASB Interpretation No.
46(R). ASU 2009-17 represents a revision to former FASB Interpretation No. 46
(Revised December 2003), Consolidation of Variable Interest Entities, and
changes how a reporting entity determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a reporting entity is required to
consolidate another entity is based










F-15


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (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):





on, among
other things, the other entity's purpose and design and the reporting entity's
ability to direct the activities of the other entity that most significantly
impact the other entity's economic performance.  ASU 2009-17 also
requires a reporting entity to provide additional disclosures about its
involvement with variable interest entities and any significant changes in risk
exposure due to that involvement. ASU 2009-17 is effective as of the beginning
of an enterprise's first fiscal year beginning after November 15, 2009, and for
interim periods within that first period. The Company is currently assessing the
potential impacts, if any, on its consolidated financial
statements.





ASU 2010-01:In January 2010,
the FASB issued ASU 2010-01, Accounting for Distributions to Shareholders with
Components of Stock and Cash which amends FASB ASC 505, Equity in order to
clarify that the stock portion of a distribution to shareholders that allows the
shareholder to elect to receive cash or stock with a potential limitation on the
total amount of cash that all shareholders can elect to receive in the aggregate
is considered a share issuance that is reflected in earnings per share
prospectively and is not a stock dividend for purposes of applying FASB ASC 505,
Equity and FASB ASC 260, Earnings Per Share. ASU 2010-01 is effective for
interim or annual periods ending on or after December 15, 2009 and is adopted
retrospectively. The Company has not been involved in any such distributions and
thus, the impact to the Company cannot be determined until any such distribution
occurs.





ASU 2010-02:In January 2010,
the FASB issued ASU 2010-02, Consolidations (Topic 810) – Accounting and
Reporting for Decreases in Ownership of a Subsidiary- a Scope Clarification.
This update provides amendments to Subtopic 810-10 and related guidance within
U.S. GAAP to clarify the scope of the decrease in ownership provisions of the
Subtopic and related guidance. The amendments in this update are effective in
the period that an entity adopts ASC 810-10 and if an entity has previously
adopted ASC 810-10 as of the date the amendments of the update are included in
the Codification, the amendments are effective in the first interim or annual
reporting period ending on or after December 15, 2009.   The
Company is currently assessing the potential impacts, if any, on its
consolidated financial statements.





ASU 2010-06:In January 2010,
the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic
820)-Improving Disclosures About Fair Value Measurements. ASU 2010-06 amends ASC
820 to add new requirements for disclosures about transfers into and out of
Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and
settlements relating to Level 3 measurements. It also clarifies existing fair
value disclosures about the level of disaggregation and about inputs and
valuation techniques used to measure fair value. The ASU also amends guidance on
employers' disclosures about postretirement benefit plan assets under ASC 715 to
require that disclosures be provided by classes of assets instead of by major
categories of assets. The guidance in the ASU is effective for the first
reporting period (including interim periods) beginning after December 15, 2009,
except for the requirement to provide the Level 3 activity of purchases, sales,
issuances, and settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010, and for interim periods within those
fiscal years. In the period of initial adoption, entities will not be required
to provide the amended disclosures for any previous periods presented for
comparative purposes. However, those disclosures are required for periods ending
after initial adoption. The provisions of ASU 2010-06 are not expected to have a
material impact on the Company's consolidated financial statements.





ASU 2010-09: In February 2010, the
FASB issued ASU 2010-09, Subsequent Events (Topic 855). ASU 2010-09 amends ASC
855 to clarify which entities are required to evaluate subsequent events through
the date the financial statements are issued and the scope of the disclosure
requirements related to subsequent events. The amendments remove the requirement
for an SEC filer to disclose the date through which management evaluated
subsequent events in both issued and revised financial statements. Revised
financial statements include financial statements revised as a result of either
correction of an error or retrospective application of U.S. GAAP. Additionally,
the FASB has clarified that if the financial  statements have been
revised, then an entity that is not an SEC filer should disclose both the date
that the financial statements were issued or available to be issued and the date
the revised financial statements were issued or available to be issued. Those
amendments remove potential conflicts with the SEC's literature. All of the
amendments in this Update are effective upon its issuance, except for the use of
the issued date for conduit debt obligors. That amendment is effective for
interim or annual periods ending after June 15, 2010. The adoption of the above
amendments of ASU 2010-09 did not have a material impact on the Company's
consolidated financial statements.








F-16


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (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):




ASU 2010-11:In March 2010,
the FASB issued ASU 2010-11, Derivatives and Hedging- Scope Exception Related to
Embedded Credit Derivatives (Topic 815) which addresses application of the
embedded derivative scope exception in ASC 815-15-15-8 and 15-9. The ASU
primarily affects entities that hold or issue investments in financial
instruments that contain embedded credit derivative features, however, other
entities may also benefit from the ASU's transition provisions, which permit
entities to make a special one-time election to apply the fair value option to
any investment in a beneficial interest in securitized financial assets,
regardless of whether such investments contain embedded derivative features. The
ASU is effective for each reporting entity at the beginning of its first fiscal
quarter beginning after June 15, 2010. Early adoption is permitted at the
beginning of any fiscal quarter beginning after March 5, 2010. The Company has
not been engaged in any such contracts and thus, the impact to the Company
cannot be determined.





ASU 2010-13: In April 2010,
the FASB issued ASU 2010-13, Compensation-Stock Compensation, Effect of
Denominating the Exercise Price of a Share- Based Payment Award in the Currency
of the Market in Which the Underlying Equity Security Trades a consensus of the
FASB Emerging Issues Task Force (Topic 718) which Update addresses the
classification of a share-based payment award with an exercise price denominated
in the currency of a market in which the underlying equity security trades.
Topic 718 is amended to clarify that a share-based payment award with an
exercise price denominated in the currency of a market in which a substantial
portion of the entity's equity securities trades shall not be considered to
contain a market, performance, or service condition. Therefore, such an award is
not to be classified as a liability if it otherwise qualifies as equity
classification. The amendments in this Update are effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2010. The amendments in this Update should be applied by recording a
cumulative-effect adjustment to the opening balance of retained earnings. The
cumulative-effect adjustment should be calculated for all awards outstanding as
of the beginning of the fiscal year in which the amendments are initially
applied, as if the amendments had been applied consistently since the inception
of the award. The cumulative-effect adjustment should be presented separately.
Earlier application is permitted. The provisions of ASU 2010-13 are not expected
to have a material impact on the Company's consolidated financial
statements.




Reclassification
of prior year balances





Certain
minor reclassifications have been made to the 2008 consolidated financial
statements to conform to the current year presentation. Software balance of $8
previously classified under "Property and equipment, net" was reclassified to
"Intangible assets, net".





3.     Going
concern:





As of
December 31, 2009, the Company was in breach of certain financial loan
covenants, related primarily to the security value maintenance (also known as
loan-to-value ratio).  Although the lenders have not declared an Event
of Default, this constitutes a potential event of default and could result in
the lenders requiring immediate repayment of the loan. As further discussed in
Note 9 below, due to cross default provisions in the loan agreements, the
Company has classified the affected debt as current. As a result, as of December
31, 2009, the Company has a working capital deficiency.




The
Company is currently in negotiations with the lenders to restructure the debt.
Management plans to settle the loan interest and scheduled loan repayments with
cash generated from operations. The working capital deficit may affect the
Company's ability to finance the acquisition of the new-buildings that are
currently under construction. The Company is currently exploring various
alternatives including capital raising in order to improve its liquidity, meet
short term commitments and manage its overall capital exposure.




F-17


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


3.     Going
concern (continued):





The
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. Accordingly, the financial statements do not
include any adjustments relating to the recoverability and classification of the
recorded asset amounts, the amounts and classification of liabilities or any
other adjustments that might result should the Company be unable to continue as
a going concern, except for the current classification of the debt discussed in
Note 9.





4.     Transactions
with related parties:





(a)
            Stone Shipping Ltd
      ("Stone"): As of April 2009, the Company through its wholly-owned
      subsidiary Omnicrom Holdings Ltd., ("Omnicrom"), entered into a joint
      venture agreement with Topley Corporation, ("Topley"), which is a
      wholly-owned subsidiary of Glencore International AG ("Glencore").
      Omnicrom and Topley each own 50% of Stone, that is a joint venture holding
      company. Stone owns 100% of Blizzard Navigation Inc., ("Blizzard"), that
      is the shipowning company of the vessel Omega Duke. The Company account
      for its 50% interest in Stone by using the equity method of accounting
      (Note 2(b)). The Company provides Blizzard with technical, operating and
      administrative services. No management fees were payable to the Company
      during 2009. The outstanding balance due from Stone as of December 31,
      2009 is $56, and relates to payments in advance by Blizzard to its
      technical manager netted off by an amount of $101 that was paid on behalf
      of Blizzard as loan financing related
expenses.





(b)
            Onest Shipping Ltd.
      ("Onest"): As of April 2009, the Company entered through Omnicrom,
      into a joint venture agreement with Topley. Omnicrom and Topley each own
      50% of Onest, a joint venture holding company, that owns 100% of Tornado
      Navigation Inc., ("Tornado"), a shipowning company that  owns
      Alpine Marina, a handymax double hull product tanker delivered in July
      2010. The joint venture agreement was subject to several settlement,
      novation and financing arrangements that were fulfilled subsequent to
      December 31, 2009 (Note 18(i)). Onest was charged with administrative
      expenses, 50% of which were charged to the Company equal to $3. The
      outstanding balance due from Onest as of December 31, 2009 is
      $5.





(c)
            Megacore Shipping Ltd.
      ("Megacore"): On September 2008, the Company formed an equal
      partnership (50/50) joint venture company with Topley named Megacore.
      Companies owned by Omega and  ST Shipping have novated their
      respective original shipbuilding contracts entered into with Hyundai Mipo,
      consisting in total of 10 newbuilding 37,000 dwt product/chemical carriers
      (MR1s) (5 vessels each partner), to companies wholly owned by Megacore. On
      December 2009, this order was converted to two 37,000 dwt product/chemical
      tankers (MR1s) and seven 74,000 dwt. product/oil tankers (LR1s) while the
      contract of one MR1 vessel has been suspended and remains as an option for
      Megacore to exercise in the future. All nine vessels will be owned by
      companies fully owned by Megacore. In addition, Omega will provide the
      technical, operating and administrative services for the vessels. During
      2009, Megacore incurred legal administrative expenses, 50% of which were
      charged to the Company, equal to $30. The outstanding balance due from
      Megacore as of December 31, 2009 is
$29.





(d)
            Charter
      party agreements for the vessels Omega Emmanuel and Omega Theodore
      acquired within 2007 (Note 7) were arranged through a ship-brokerage firm
      in which a non-executive director of the Company's Board of Directors acts
      as a senior broker. The same ship-brokerage firm has arranged charter
      party arrangements for the vessels Omega Lady Miriam and Omega Lady Sarah
      in 2008 and Omega Queen, Omega Prince and Omega Princess in 2009. No
      commissions are paid by the Company to the ship brokerage
      firm.





(e)
            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, 2008 and 2009, Shoreline 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 2009, 2008 and
      2007, Shoreline's charges amounted to $66, $31 and $22, respectively for
      which the Company was reimbursed by the vessels' charterers, as per the
      respective charter party agreements. The outstanding balance due as of
      December 31, 2009 is $5.






F-18


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


4.
            Transactions
      with related parties (continued):




(f)
            Marine Money
      International is a maritime finance transactional information and
      maritime company analysis provider, in which a non-executive director of
      the Company's Board of Directors acts as president. Within 2009 and 2008,
      the Company paid an annual subscription of $2 to Marine Money
      International.





(g)
            Worldscale Association
      (London) Limited "Worldscale" is a non-profit making organisation
      providing information about rates of freight for tanker voyage charters.
      The organization is under the control of a management committee, the
      members of which are senior brokers from leading tanker broking firms in
      London. A non-executive director of the Company's Board of Directors acts
      as management committee member. Within 2009 and 2008, the Company paid an
      annual subscription of $5 to
Worldscale.





5.     Advances
for vessels' under construction and acquisition:





The
amount in the accompanying consolidated balance sheets as of December 31, 2009
and 2008 is analyzed below:





2009
            
            
            2008-
      Advances for vessels acquisition
            
            
            5,550
            
            
            
            11,100-
      Pre-delivery instalments
            
            
            61,929
            
            
            
            44,235-
      Capitalized interest and other related costs
            
            
            3,141
            
            
            
            2,33770,620
            
            
            
            57,672





(a) Advancesfor
vessels under construction:





On June
15, 2007, the Company entered into five shipbuilding contracts for the
acquisition of five new building double hull handysize product tankers, with a
capacity of 37,000 dwt each, four of which were scheduled for delivery in 2010
and the fifth within the first quarter of 2011. The contractual purchase price
was $44,235 per vessel ($221,175 in total) payable in six instalments, each of
the first two (2) instalments being equal to 10% of the vessels' purchase price
and each of the next four (4) instalments being equal to 20% of the vessels'
purchase price. Until December 31, 2009, the Company has paid $61,929 and has
incurred $3,141 of additional costs. On September 1, 2008, the Company concluded
an agreement to charter one of the above five newbuilding product tankers for
three years, with charterer's option to extend for two years, commencing on
delivery of the vessel from the shipyard. As further discussed in Note 18(d) the
vessel Megacore Honami, was delivered to Megacore on February 25,
2010.





On
September 8, 2008, the Company has entered into a joint venture agreement that
was further amended in May 29, 2009 and June 30, 2010 with Topley, which is a
wholly-owned subsidiary of Glencore. Based on the agreement, each party would
initially contribute five (5) newbuilding double hull handysize product tanker
vessels thus forming a fleet of 10 newbuilding vessels, with the aim of
establishing a major participant in the ownership and operation of product
tankers. Megacore is the resulting joint venture holding company, and is the
sole owner of the following 10 shipowning companies:





1)
      Fire Navigation Inc.
            6)  Storm
      Navigation Inc.2)
      Hurricane Navigation Inc.
            7)  Thunder
      Navigation Inc.3)
      Ice Navigation Inc.
            8)  Twister
      Navigation Inc.4)
      Lightning Navigation Inc.
            9)  Typhoon
      Navigation Inc.5)
      Rain Navigation Inc.
            10)
      Wind Navigation Inc.





On June
11, 2009, the Company has entered into five novation agreements with Hyundai
Mipo shipyard and five shipowning companies wholly owned by Megacore (Fire
Navigation Inc., Hurricane Navigation Inc., Ice Navigation Inc., Lightning
Navigation Inc. and Rain Navigation Inc.) in order to transfer all of the rights
and obligations to the Joint Venture companies. Subsequently, as described in
Note 9, the Company transferred its financing arrangements to the five Joint
Venture companies, but continued to guarantee the performance of their loans
during the predelivery period.






F-19


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


5.     Advances
for vessels' under construction and acquisition (continued):




On
December 10, 2009, Hurricane Navigation Inc., Ice Navigation Inc., Lightning
Navigation Inc. and Rain Navigation Inc. have entered into Addendum No. 1 of the
shipbuilding contract with Hyundai Mipo shipyard to amend the type of the
vessels to be built from double hull handysize product tankers with a capacity
of 37,000 dwt each to double hull panamax product tankers (LR1s) with a capacity
of 74,000 dwt each. The contract price was increased from $44,235 per vessel to
$51,900 per vessel. The delivery dates were extended, and one of the vessels is
scheduled for delivery in 2010, two of the vessels are scheduled for delivery in
2011 and the remaining one in 2012. Refund guarantees and performance guarantees
were replaced. For the shipbuilding contract between Ice Navigation Inc. and
Hyundai Mipo, ST Shipping and Transport Pte Ltd ("ST Shipping") a wholly owned
subsidiary of Glencore, has provided a performance guarantee of 50% of the
contract price in case of payment default by the Omega under the performance
guarantee, ST Shipping will guarantee 100% of the buyer's
obligation.





Glencore
has novated the shipbuilding contracts to Storm Navigation Inc., Thunder
Navigation Inc., Twister Navigation Inc., Typhoon Navigation Inc. and Wind
Navigation Inc. On December 10, 2009, Thunder Navigation Inc., Twister
Navigation Inc., Typhoon Navigation Inc. and Wind Navigation Inc. have entered
into Addendum No. 1 of the shipbuilding contract with Hyundai Mipo shipyard to
amend the type of three of the vessels from double hull handysize product
tankers with a capacity of 37,000 dwt each to double hull panamax product oil
tankers (LR1s) with a capacity of 74,000 dwt each while one vessel has been
suspended and remains as an option for Megacore to exercise in the future. For
two vessels the contract price was increased from $44,850 per vessel to $51,900
per vessel and for one vessel was increased from $44,850 to
$53,900.





After the
signing of the addendums of the shipbuilding contracts, the Megacore joint
venture will take delivery of two double hull handysize product tankers (MR1s)
with a capacity of 37,000 dwt each and seven double hull panamax product oil
tankers (LR1s) with a capacity of 74,000 dwt each.





Each
joint venturer will fully fund through Megacore all obligations under four
shipbuilding contracts  until the delivery of the respective vessels
while the predelivery obligations of one vessel will be funded by each
shareholder on an equal basis. The objective of the joint venturers is that,
following delivery of the vessels, the equity contribution of the Company and
Topley will be equal. During the predelivery period of each vessel, only the
cost of supervision of the vessels as well as the running expenses of Megacore
will be split equally between the two joint venturers. After the delivery of
each vessel, the shipowning companies shall declare and pay quarterly dividends
to the Company and Topley that will be equal to available cash from operations
during the previous quarter after cash expenses and discretionary reserves.
Dividends will be equal for the two joint venturers.





As of
December 31, 2009, the Company was the primary beneficiary of the Fire
Navigation Inc., Hurricane Navigation Inc., Lightning Navigation Inc. and Rain
Navigation Inc., because based on Megacore Joint Venture agreement, Omega is
solely responsible for ensuring that the relevant obligations under the
shipbuilding contracts and any financing in respect of these companies will be
met. The Company was also considered the primary beneficiary of Ice Navigation
Inc. because although based on the addendum to the shipbuilding contracts, the
Company and Topley are share equal responsibility for ensuring that the relevant
obligations under the shipbuilding contract are met, the Company is responsible
for ensuring that the obligations under the predelivery financing are
met.  As a result, the above five shipowning companies are included in
the consolidated financial statements.





(b) Advances for vessels
acquisition





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




F-20


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


5.     Advances
for vessels' under construction and acquisition (continued):




On April
8, 2009, the Company has entered into a settlement agreement with the seller of
Omega Duke, one of the aforementioned new building double hull handymax product
tankers, to cancel the Memorandum of Agreement and the time charter agreement by
paying a settlement fee of $3.0 million. Such amount was paid on April 24, 2009,
and both parties were released from further liabilities regarding the Memorandum
of agreement and the time charter agreement. The amount of the settlement fee is
presented as "Loss on termination of purchase agreements" in the accompanying
statement of income. As further discussed in Note 6, the Company acquired the
Omega Duke, through Stone, a 50% owned joint venture with Glencore.





On April
8, 2009, the Company has entered into a settlement agreement with the seller to
cancel the second Memorandum of Agreement and the time charter agreement
described above. Also on April 8, 2009 as supplemented on April 24, 2009, the
Company through its wholly owned subsidiary Omnicrom entered into a Joint
Venture agreement with "Topley". Omnicrom and Topley each own 50% of Onest which
in turn owns 100% of Tornado that is the shipowning company of the newbuilding
vessel. Tornado has entered into a 5 year time charter agreement with ST
Shipping. The settlement agreement and the joint venture agreement were subject
to financing arrangements that were placed subsequent to December 31, 2009 (Note
18(i)).





6.
            Equity
      method investments:





"Investments
in Joint Venture companies" include the Company's investment in a joint venture
company accounted for by using the equity method. On April 8, 2009, the Company,
through its wholly owned subsidiary Omnicrom, entered into a joint venture
agreement with Topley. Omnicrom and Topley each own 50% of Stone, a joint
venture holding company, which in turn owns 100% of Blizzard that is the
shipowning company of the vessel Omega Duke. Blizzard entered into a Memorandum
of Agreement in April 2009 to purchase the vessel Omega Duke for a consideration
of $45,000.  The vessel Omega Duke was delivered on April 24,
2009.





The
purchase of the vessel Omega Duke was financed by a $33,750 loan agreement with
Lloyds Bank and by equal equity contributions of the joint venturers that
amounted to $11,250 ($5,625 each). Omnicrom entered into corporate guarantee
agreement with Lloyds Bank for 50% of the loan, and Omega entered into a
corporate guarantee agreement for 100% of Omnicrom's obligations. The facility
contains financial covenants calculated on Omega's and Glencore's consolidated
financial statements. Also the ratio of market value of the secured vessel to
outstanding net debt of the secured vessel shall be in excess of 125%. The bank
has provided a waiver of the security value coverage up to and including the 2nd
anniversary of the delivery date of the vessel.





On April
24, 2009, the Company novated to Blizzard an interest rate swap with Lloyds bank
having a notional amount of $33,750 at a fixed rate of 2.655% per annum. The
swap matures on May 12, 2011.





Omega
Management entered into a management agreement with Blizzard based on which
services relating to crewing, technical management, purchasing, insurances,
accounting, bookkeeping, budgeting, operations and corporate secretarial
services will be provided. For the first year commencing upon the delivery of
the vessel, no management fee shall be payable, and after the first year a
monthly fee will be agreed. Blizzard has entered into a five year charter
agreement with ST Shipping.





The joint
venture will declare dividends on a quarterly basis, in amounts equal to any
available cash from operations after cash expenses and discretionary reserves,
and will be distributed equally between Omnicrom and Topley. No dividend has
been declared in 2009.





A
condensed summary of the assets and liabilities of the equity method investment
follows:





2009Current
      assets
            $
      911Vessels
      net
            $
      43,986Other
      assets
            -Total
      Assets
            $
      44,897








F-21


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)




6.
            Equity
      method investments (continued):




Current
      liabilities
            $
      3,708Long
      term debt and other non-current liabilities
            $
      30,495Shareholders
      equity
            $
      10,694Total
      liabilities and shareholders equity
            $
      44,897








A
condensed summary of the results of operations of the equity method investment
follows:





2009Voyage
      revenues,net
            $
      4,135Operating
      expenses
            $
      (1,551)Amortization
      and depreciation
            $(1,175)Other
            $(64)Interest
      and finance cost, net
            $(676)Losses
      from derivative instruments
            (1,226)Net
      income/(loss)
            $
      (557)





7.
            Vessels,
      net:





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





Vessel
      Cost
            
            
            Accumulated
      Depreciation
            
            
            Net
      Book ValueBalance,
      December 31, 2007
            
            
            485,955
            
            
            
            (24,704
            )
            
            
            461,251-
      Other vessels' costs
            
            
            29
            
            
            
            -
            
            
            
            29-
      Depreciation
            
            
            -
            
            
            
            (18,795
            )
            
            
            (18,795
            )Balance,
      December 31, 2008
            
            
            485,984
            
            
            
            (43,499
            )
            
            
            442,485-
      Other vessels' costs
            
            
            74
            
            
            
            -
            
            
            
            74-
      Depreciation
            
            
            -
            
            
            
            (18,797
            )
            
            
            (18,797
            )Balance,
      December 31, 2009
            
            
            486,058
            
            
            
            (62,296
            )
            
            
            423,762





On March
27, 2007 and April 26, 2007, the Company took delivery of two product tanker
vessels, named Omega Emmanuel and Omega Theodore. The acquisition of these
vessels was financed from the proceeds of bank credit facilities discussed in
Note 9, the net proceeds from the sale of the two dry bulk product carriers, and
warrants issued by the Company, as further discussed below.





The
warrants issued entitled 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 was less than $18.00, the buyer should 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 were accounted for in accordance with the requirements of ASC 480 and
EITF 00-19 "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock". The Company used binomial model
to measure the fair value of warrants at each reporting date. The fair value of
the warrants was derived principally from or corroborated by observable market
data. Inputs include Company's share price, US zero coupon rate, dividend yield
and share price volatility. The difference in fair values from initial
measurement is separately reflected in the accompanying 2009, 2008 and 2007
consolidated statement of income.







F-22


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)




7.
            Vessels,
      net (continued):





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





All of
the Company's vessels have been provided as collateral to secure the bank credit
facilities discussed in Note 9 and, as of December 31, 2009, were operating
under time charters for which the latest expires in September 2012.








Charters-out





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


Year
            
            Amount2010
            
            
            28,8942011
            
            
            18,6152012
            
            
            12,1642013
            
            
            -2014
      and thereafter
            
            
            -Net
      minimum charter payments
            
            
            59,673




These
amounts do not assume any off-hire. The above amount of revenues relates only to
the eight vessels of the Company's fleet, and does not include vessels that were
under construction as of December 31, 2009. The duration of the charter parties
of the vessels Omega Queen, Omega Prince and Omega Princess are for an
indefinite time. Specifically, charterers and owners have each the option to
cancel the time charter agreement with 60 days written notice given. After such
notice is served, the charterers will ensure that the vessel is fixed in voyages
that will not exceed the 60 day redelivery notice.  Since no written
notice was given for the cancellation of these time charter agreements as of
December 31, 2009, 60 days of hire revenue have been included in the
calculations above.








8.
            Deferred
      charges:





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





Financing
      costs
            
            
            Drydock
      costs
            
            
            TotalBalance,
      December 31, 2007
            
            
            343
            
            
            
            -
            
            
            
            343-
      Additions
            
            
            1,418
            
            
            
            538
            
            
            
            1,956-
      Amortization
            
            
            (66
            )
            
            
            (27
            )
            
            
            (93
            )- Financing fees
      presented as a contra to debt
            
            
            (1,052
            )
            
            
            -
            
            
            
            (1,052
            )Balance,
      December 31, 2008
            
            
            643
            
            
            
            511
            
            
            
            1,154-
      Additions
            
            
            50
            
            
            
            1,521
            
            
            
            1,571-
      Amortization
            
            
            (218
            )
            
            
            (334
            )
            
            
            (552
            )- Financing fees
      presented as a contra to debt
            
            
            (63
            )
            
            
            -
            
            
            
            (63
            )Balance,
      December 31, 2009
            
            
            412
            
            
            
            1,698
            
            
            
            2,110





Financing
fees presented as a contra to debt represent the portion of loan arrangement
fees relating to the outstanding portion of debt. The amortization of loan
financing costs is included in "Interest and finance costs" in the accompanying
consolidated statements of income, except for the amortization of loan financing
costs relating to the outstanding portion of debt of the five new buildings
discussed in Note 5 that amounts to $24 and $ 42 for 2008 and 2009,
respectively, and is included in "Advances for vessels' under construction and
acquisition" in the accompanying 2008 and 2009 consolidated balance
sheets.






F-23


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


8.
            Deferred
      charges (continued):





Additions
in dry dock costs of $538 in 2008 relate to the scheduled drydock of vessel
Omega Lady Miriam, which took place within September 2008, and is amortised
during the period through the next drydocking, scheduled in 2013. Additions in
dry dock costs of $1,521 in 2009 relate to the scheduled drydocks of the vessels
Omega Lady Sarah, Omega Queen and Omega King which took place in February, April
and May 2009, respectively and are amortized during the period through the next
drydockings scheduled in 2014.The amortization of drydock costs is included in
"Depreciation and amortization" in the accompanying consolidated statements of
income.








9.
            Long-term
      debt:





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





2009
            
            
            2008Term
      loans
            
            
            344,096
            
            
            
            336,612Less
      unamortized financing fees
            
            
            (844
            )
            
            
            (1,362
            )Total
            
            
            343,252
            
            
            
            335,250Less:
      Current portion of long-term debt
            
            
            (343,252
            )
            
            
            (138
            )Long
      -term debt, net of current portionPortionportion
            
            
            -
            
            
            
            335,112





The
movement of the Company's bank debt during 2009 and 2008 per type and financial
institution is analysed as follows:





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





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







F-24


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


9.
            Long-term
      debt (continued):




Movement
      in 2009Name
      of Financial Institution/ loan type
            
            Balance
      at December 31, 2008
            
            
            Drawdowns
            
            
            Accrued
      interest
            
            
            Repayments
            
            
            Balance
      at December 31, 2009
            
            
            Unused
      portion(1)(I)
      HSH-
      Term loan
              (senior
      credit facility)
            
            
            242,720
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            242,720
            
            
            
            -(II) NIBC-BTMU (junior
      credit facility)
            
            
            42,500
            
            
            
            -
            
            
            
            -
            
            
            
            (2,156
            )
            
            
            40,344
            
            
            
            -(III) Bremer (term
      loan)
            
            
            16,759
            
            
            
            16,868
            
            
            
            214
            
            
            
            (16,868
            )
            
            
            16,973
            
            
            
            41,777(IV) Bank of Scotland
      (term loan)
            
            
            16,771
            
            
            
            31,058
            
            
            
            220
            
            
            
            (16,903
            )
            
            
            31,146
            
            
            
            35,945(V) NBG (term
      loan)
            
            
            7,962
            
            
            
            7,962
            
            
            
            -
            
            
            
            (7,962
            )
            
            
            7,962
            
            
            
            28,368(VI) Lloyds (term
      loan)
            
            
            9,900
            
            
            
            -
            
            
            
            -
            
            
            
            (4,950
            )
            
            
            4,950
            
            
            
            36,675Total
            
            
            336,612
            
            
            
            55,888
            
            
            
            434
            
            
            
            (48,839
            )
            
            
            344,095
            
            
            
            142,765





(1)
            Based
      on the maximum notional amounts available under the loan facilities,
      including any amendments based on the term sheets signed in 2010 with NBG
      and Bank of Scotland. (Note 18(b) and
(c)).








(I)  HSH Nordbank
("HSH")





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





The
amended facility with HSH provides for interest rate at LIBOR plus a margin, and
contains the following financial covenants calculated on a consolidated basis:
a) ratio of fleet market value to outstanding balance of the facility of 120%;
b) leverage ratio calculated as total net debt to total net capitalization, that
may be temporarily increased to between 65% and 70%, provided that it will
thereafter be reduced to 65% within six months after the end of the quarter that
it first exceeded 65%; c) ratio of EBITDA to interest payable on a four trailing
quarter basis of not less than 2:00 to 1:00; d) minimum liquidity which is equal
to the higher of (i) $4.0 million and (ii) $500 multiplied by the number of
vessels with more than six months remaining charter employment and $750
multiplied by the number of vessels with less than six months remaining charter
employment; e) working capital of not less than $1.0 million. The facility is
secured by a) first priority mortgage, b) pledge of accounts in credit, c)
owners guarantee, d) assignment of insurance and earnings of mortgaged vessels.
The Company is permitted to pay dividends under the credit facility so long as
an event of default has not occurred and will not occur upon payment of such
dividend, and at any time that the fair market value of the secured vessels does
not fall below 125% of the outstanding senior secured credit
facility.





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






F-25


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)





9.     Long-term
debt (continued):





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





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





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





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





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





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





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





According
to the cash sweep clause of the junior facility, in the event that at any time
during the security period the fair market value of the secured vessels is less
than 130% of the aggregate of the senior and junior credit facilities, the
Company shall prepay part of the facility. On November 20, 2009, an amount of
$2,156 was prepaid under the cash sweep clause of the junior facility, and as a
result the outstanding balance of the debt was reduced to $40,344 as of December
31, 2009. Also, an amount of $1,991 was prepaid under cash sweep clause on
January 19, 2010 (Note 18(a)).





(III)  Bremer
Landesbank Kreditanstalt Oldenburg Girozentrale ("Bremer"):





a) Predelivery
facility





On August
24, 2007, the Company entered into a secured loan facility with Bremer of up to
$55,250 for the purpose to partly finance the acquisition cost during the
construction period of two of the Company's newbuildings. On June 29, 2009, the
Company repaid the outstanding balance of $16,868, including an amount of $956
relating to the interest deferred until that date.





On June
25, 2009, the Company, through Lightning Navigation Inc. and Rain Navigation
Inc., has entered into a senior secured loan facility with Bremer for an amount
up to $58,750 to (i) repay the outstanding loan facility discussed above, and
(ii) to partially finance the acquisition of the two of the five newbuilding
vessels that the Company has novated to the above Joint Venture companies (Note
5). 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
margin and a commitment fee of 0.2% per annum on the undrawn portion of the
loan. The interest for the period up to the payment of the third instalment to
the shipyard is deferred but it cannot exceed $2,544.





The
facility contains financial covenants calculated on a consolidated basis
providing for a) minimum liquidity of $5.0 million, and b) a leverage ratio,
calculated as total debt to total capitalization, of maximum 70%. The facility
is secured by a) first priority assignment of all rights under the relevant two
shipbuilding contracts signed on June 15, 2007, b) first priority assignment of
all rights under the relative refund guarantees, and c) the Company's corporate
guarantee.






F-26


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


9.     Long-term
debt (continued):





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.





b) Post delivery
facility





On
February 2, 2009, the Company entered into a post-delivery term loan facility
with Bremer of up to $66,300 representing 75% of the vessels' contract price on
delivery (without taking into consideration the amendment of the shipbuilding
contract signed on December 10, 2009) or the fair market value of those vessels
at delivery, whichever is less, for the purpose of repayment of the pre-delivery
facility discussed above as well as financing the remaining instalments to the
shipyard. The loan will be drawn at the vessels' delivery dates and will be
repayable in 40 quarterly instalments ($460.5 per vessel) and a balloon
instalment equal to $14,730 per vessel. Repayment will commence three months
after delivery of the vessels. The loan will bear interest at LIBOR plus margin.
The Company pays commitment fees of 0.2% per annum on the post delivery loan.
The loan agreement will be secured by a) first priority mortgages over the
vessels, b) first priority assignment of each vessels insurances, c) corporate
guarantee, d) first priority assignment of each of the vessels' earnings and
retention accounts, and e) manager's undertakings. Furthermore, the loan
agreement contains financial covenants calculated on a consolidated basis, that
will require the Company to maintain: a) liquidity of not less than $5.0
million; b) a ratio of total net debt to total net capitalization of not more
than 70%; c) a ratio of market value of the secured vessels to outstanding net
debt of the secured vessels in excess of 120%.





According
to the predelivery facility signed on June 25, 2009, the Company, through
Lightning Navigation Inc. and Rain Navigation Inc., will enter into a new loan
agreement for the post delivery financing in accordance with the terms presented
above, but including any necessary amendments based on the addendum of the
shipbuilding contracts discussed in Note 5.





(IV) Bank of
Scotland:




On
September 7, 2007, the Company entered into a senior secured loan facility with
Bank of Scotland of up to the lesser of $70.0 million or 75% of the fair market
value of the vessels on delivery date, to partly finance the construction and
acquisition cost of two of the Company's new buildings. The Company had drawn
down an amount of $15,925, is order to partially finance the first two
instalments under the two shipbuilding contracts paid in 2007. On June 29, 2009,
the Company repaid the outstanding balance of $16,903, including an amount of
$979 relating to the interest deferred until that date.





On June
29, 2009, the Company, through Fire Navigation Inc. and Hurricane Navigation
Inc., have entered into a loan agreement with Bank of Scotland for an amount of
up to $70,000 to (i) repay the outstanding loan facility discussed above and
(ii) to partially finance the two of the five newbuilding vessels that the
Company has novated to the above Joint Venture companies (Note 5). On October 1,
2009, and on October 29, 2009, the Company paid the third and fourth instalment
of Hull 2189 (Megacore Honami) and as a result the third and four instalment of
the loan amounting $7.1 million each was drawn down. 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 under the terms of the
facility agreement. The interest of the first two advances under each tranche
will be deferred until the date the advance for the third instalment to the
shipyard is drawn.





The
senior secured loan facility will be repaid in 40 equal quarterly instalments of
$506.75, commencing 3 months after the relevant vessels' delivery date plus a
balloon payment of $14,730.





The
facility contains financial covenants calculated on a consolidated basis
providing for: a) minimum liquidity of $5.0 million; b) a leverage ratio,
calculated as total debt to total capitalization of maximum 70%; c) minimum
interest coverage ratio on a four trailing quarter basis of 2.00:1.00; and d)
working capital of not less than $1.0 million. After any vessel is delivered,
the ratio of the fair market value of the secured vessels to outstanding debt
should not be less than 125%. Prior to the newbuildings' delivery, the facility
is secured by: a) first priority assignment of all rights under the relevant two
shipbuilding contracts signed on June 15, 2007; b) first priority assignment of
all rights under the relative refund guarantees; and




F-27


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


9.     Long-term
debt (continued):





c)
corporate guarantee. Upon delivery of the newbuildings, the term loan facility
will be secured by a) first priority mortgages over the vessels, b) first
priority assignment of each vessel's insurances, c) Corporate guarantee, d)
first priority assignment of vessels' charter agreements, and e) pledge over
each of the vessels' earnings account and retention accounts. Furthermore, the
Company is permitted to pay dividends so long as an event of default has not
occurred and will not occur upon the payment of such dividend.





As
further discussed in Note 18(c), the facility was amended on March 26,
2010.





(V) National Bank of Greece
("NBG"):





On
November 20, 2007, the Company entered into a senior secured loan facility with
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 five Megacore vessels. The Company had drawn down an amount
of $7,962 in order to partially finance the first two instalments under the
shipbuilding contract paid in 2007. The outstanding balance of the loan was
repaid on June 29, 2009.





On June
10, 2009, the Company, through Ice Navigation Inc., entered into a loan
agreement with NBG for an amount of up to $33,176 to (i) repay the outstanding
loan facility discussed above, and (ii) to partially finance the one of the five
newbuilding vessels that the Company has novated to the above Joint Venture
company (Note 5). Drawdowns under this loan are made in accordance with the
payment dates of the instalments under the shipbuilding contracts, and bear
interest at LIBOR plus a margin and commitment fees of 0.2% per annum on the
undrawn portion of the loan. The loan is repayable in 40 quarterly instalments
($497.65 each), commencing three months after delivery of the vessel plus a
balloon instalment equal to $13,270.





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





As
further discussed in Note 18(b) the facility was amended on January 27,
2010.





(VI) Lloyds TSB Bank PLC
("Lloyds Bank"):





On May
28, 2008, the Company entered into a predelivery term loan facility with Lloyds
Bank of up to $9,900 to finance the 90% of the advance payment for the
acquisition of the two double hull Handymax product tankers, discussed in Note
5(b). On April 23, 2009, the predelivery loan facility for the vessel Omega Duke
amounting to $4,950 was fully repaid.





As of
December 31, 2009, the outstanding balance was $4,950, and relates to the second
double hull Handymax product tanker that is currently under construction (Note
5(b)). The facility was repayable by a bullet payment upon delivery of the
vessel, and would bear interest at a rate of LIBOR plus margin.





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




F-28


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)




9.     Long-term
debt (continued):




Furthermore
on May 28, 2008, the Company entered into a post delivery credit facility with
Lloyds Bank to to repay, in accordance with the terms of the agreement, the
predelivery term loan facility mentioned above, and fund the acquisition cost of
the same two vessels in an amount of the lesser of $83,250 and 75% of the fair
market value of the vessels on their delivery dates. Due to the fact that the
one vessel, Omega Duke, was acquired in 2009 through Stone, a 50/50 joint
venture, the postdelivery loan agreement was effective for the second vessel,
Alpine Marina, that was under construction as of December 31, 2009 (Note 5(b)
and Note 18(i)).  As further discussed in Note 18 (i), subsequent to
December 31, 2009 the Company took delivery of Alpine Marina through Onest, a
50/50 joint venture and as a result the post delivery financing described above
was not drawn down by the Company.





The post
delivery facility would be repayable in 40 quarterly installments of $582.3 plus
a balloon payment of $18,333 together with the final installment. Repayment
would commence three months after each vessel's delivery. Amounts under the
facility would bear interest at LIBOR plus margin, and would contain financial
covenants that required the Company to maintain: a) a ratio of EBITDA to
interest payable of not less than 2:1; b) a ratio of total net debt to total net
capitalization of not more than 0.70:1; c) working capital of not less than $1.0
million; d) a ratio of secured vessel's market value to outstanding loan of not
less than 125%; and e) liquidity of not less than (i) $500 per vessel if the
average remaining time charter coverage of the vessel was more than 1 year, (ii)
$750 vessel if the average remaining time charter coverage in respect of the
vessel was 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 the vessel was less or equal to 6 months, but in any event not less
than $750. The facility would be secured by a) first priority mortgage over the
vessel, b) first priority assignments of accounts, c) first priority general
assignment in relation to security vessels' earnings, insurances and employment,
and d) a corporate guarantee. The Company was paying on a quarterly basis a
commitment fee of 0.45% of the undrawn portion of the term loan facility, and an
agency fee of $15 on an annual basis.





As
further discussed in Note 18 (j), subsequent to year end, the outstanding
balance of $4,950 was fully repaid.





The
Company pays commitment fees on the undrawn portion of term loan facilities with
the lending banks, as discussed above, which for the years 2009, 2008 and 2007
amounted to $524, $526 and $173, respectively and are included in "Interest and
finance costs" in the accompanying consolidated statements of
income.  During 2009, the Company paid an upfront fee of $50 for
entering into new credit facilities.





Total
interest incurred on long-term debt for the years ended December 31, 2009, 2008
and 2007 amounted to $5,562, $12,859 and $17,958, respectively (Note 15) 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 2009, 2008 and 2007 was
2.22%, 4.47% and 6.54%, respectively.





As of
December 31, 2009, the Company was in breach of certain of the financial
covenants, primarily the security value maintenance in respect of the junior
loan facility.  As a result of this non compliance and of
cross-default provisions, the lenders currently have the ability to call the
debt due. The Company is currently under discussions with the lender to obtain
waivers and restructure the debt. As of December 31, 2009 the Company has
classified all debt as current. As of December 31, 2008, the Company was in
compliance with all financial covenants as required by the loan
agreements.





10.  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




F-29


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)




10.  Financial
instruments (continued):





swaps is
determined based on observable Level 2 inputs, as defined in ASC 820 "Fair Value
Measurements and Disclosures" derived principally from or corroborated by
observable market data. Inputs include quoted prices for similar assets,
liabilities (risk adjusted) and market-corroborated inputs, such as market
comparables, interest rates, yield curves and other items that allow value to be
determined.





On March
27, 2008, the Company entered into two interest rate swap agreements with NIBC
and BTMU in order to hedge its exposure to fluctuations in interest rate on its
junior secured credit facility. The notional amount of each agreement is $21,250
and interest rate is fixed at 2.96% per annum. The effective date of the
agreements is March 28, 2008 and they mature in March 2011.





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





On
November 10, 2008, the Company entered into an interest rate swap agreement with
Lloyds Bank in order to hedge its exposure to fluctuations in interest rate. The
interest rate was fixed at 2.585% per annum and the notional amount was $100.0
million as of December 31, 2008. The effective date of the agreement was
November 12, 2008, and its expiration date May 12, 2011. On April 23, 2009, the
Company terminated this fixed rate swap agreement, and entered into (i) an
interest rate swap with a notional amount of $ 66,250 at a fixed rate of 2.655%
per annum effective since February 12, 2009 and (ii) an interest rate swap with
a notional amount of $ 33,750 at a fixed rate of 2.655% per annum effective
since April 24, 2009. The second swap was novated to Blizzard on April 24, 2009.
Both swaps mature on May 12, 2011.





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





As of and
for the years ended December 31, 2009, 2008 and 2007, realized and unrealized
gains and losses per category of derivative are analyzed as
follows:





Realized
            
            
            UnrealizedGains/(Losses)
            
            
            Gains/(Losses)
            
            
            TotalJanuary
      1, 2007
            
            
            -
            
            
            
            (313
            )
            
            
            (313
            )Interest
      rate swap
            
            
            45
            
            
            
            (30
            )
            
            
            15Rate
      collar option
            
            
            -
            
            
            
            (1,236
            )
            
            
            (1,236
            )Effect
      on 2007 earnings
            
            
            45
            
            
            
            (1,266
            )
            
            
            (1,221
            )December
      31, 2007
            
            
            -
            
            
            
            (1,579
            )
            
            
            (1,579
            )Interest
      rate swaps
            
            
            (16
            )
            
            
            (3,746
            )
            
            
            (3,762
            )Rate
      collar option/Participation swap
            
            
            (901
            )
            
            
            (8,923
            )
            
            
            (9,824
            )Effect
      on 2008 earnings
            
            
            (917
            )
            
            
            (12,669
            )
            
            
            (13,586
            )December
      31, 2008
            
            
            -
            
            
            
            (14,248
            )
            
            
            (14,248
            )Interest
      rate swaps
            
            
            (2,148
            )
            
            
            1,527
            
            
            
            (621
            )Rate
      collar option/Participation swap
            
            
            (6,340
            )
            
            
            2,812
            
            
            
            (3,528
            )Effect
      on 2009 earnings
            
            
            (8,488
            )
            
            
            4,339
            
            
            
            (4,149
            )December
      31, 2009
            
            
            -
            
            
            
            (9,909
            )
            
            
            (9,909
            )





The above
aggregate realized and unrealised losses from derivative instruments for 2009,
2008 and 2007 of $4,149 and $13,586 and $1,221 respectively, are reflected as
"Loss on derivative instruments" in the accompanying consolidated statements of
income. The fair values of the derivative contracts as of






F-30


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)





10.  Financial
instruments (continued):





December
31, 2009 and 2008 are $9,909 and $14,248, respectively, and are included under
"Derivative liability", current and non-current in the accompanying consolidated
balance sheets.





The long
term portion of the derivative liability has been classified as current as of
December 31, 2009 since its related debt has also been classified as current, as
discussed in Note 9.





11.  Earnings/(loss)
per Share:





All
shares issued under the Company's Incentive Plan (including non-vested shares)
are the Company's Class A common stock and have equal rights to vote and
participate in dividends upon their vesting. The right of Class B stockholders
to receive dividends were subordinated to the right of Class A stockholders as
further discussed in Note 13(a). Following the payment of the dividend with
respect to the fourth quarter 2008, all issued and outstanding subordinated
Class B shares were converted into Class A common shares on a one-for-one basis.
The Class A shares were issued on April 7, 2009. For 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
2009, 2008 and 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 7). The number of shares
assumed to be issued was calculated based on the average market price over the
period of 15 business days immediately proceeding December 31, 2007 and 2008, as
per warrants terms. In 2009, the calculation of diluted earnings per share used
the actual number of shares issued after the expiration of warrants agreement,
and the effect was "time weighted". After April 13, 2009, the number of Class A
shares issued under warrants agreements was included at the basic earnings per
share calculation. The denominator of the diluted earnings per share calculation
includes the incremental shares assumed issued under the treasury stock method
weighted for the period the shares were outstanding.





The
components of the calculation of the basic and diluted shares for the years
ended December 31, 2009, 2008 and 2007 are presented below:





2009
            
            
            2008
            
            
            2007Class
      A common stockWeighted
      average common shares outstanding, basic
            
            
            14,825,002
            
            
            
            12,057,717
            
            
            
            12,010,000Add:
      Dilutive effect of non-vested shares
            
            
            228,800
            
            
            
            52,502
            
            
            
            29,661Add:
      Dilutive effect of warrants
            
            
            131,435
            
            
            
            500,000
            
            
            
            449,315Weighted
      average common shares outstanding, diluted
            
            
            15,185,237
            
            
            
            12,610,219
            
            
            
            12,488,976Class
      B common stockWeighted
      average common shares outstanding, basic and diluted
            
            
            825,863
            
            
            
            3,140,000
            
            
            
            3,140,000





The
components of the calculation of basic and diluted earnings/ (loss) per share
for years ended December 31, 2009, 2008 and 2007 are presented
below:





2009Continuing
      operations
            
            
            Discontinued
      operations
            
            
            TotalNet
      income
            
            
            5,722
            
            
            
            -
            
            
            
            5,722-
      Less dividends paid for non vested shares
            
            
            (102
            )
            
            
            -
            
            
            
            (102
            )Net
      income available to common shareholders
            
            
            5,620
            
            
            
            -
            
            
            
            5,620-
      Less dividends paidClass
      A shares
            
            
            (6,082
            )
            
            
            -
            
            
            
            (6,082
            )Class
      B shares
            
            
            (1,570
            )
            
            
            -
            
            
            
            (1,570
            )Undistributed
      earnings/ (loss)
            
            
            (2,032
            )
            
            
            -
            
            
            
            (2,032
            )






F-31


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)




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








Allocation
      of undistributed earnings:To
      Class A shares-
      15,811,535 shares at $0.13 per share in total
            
            
            (2,032
            )
            
            
            -
            
            
            
            (2,032
            )Undistributed
      earnings/ (loss)
            
            
            (2,032
            )
            
            
            -
            
            
            
            (2,032
            )





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





2007Continuing
      operations
            
            
            Discontinued
      operations
            
            
            TotalNet
      income/(loss)
            
            
            14,886
            
            
            
            (155
            )
            
            
            14,731-
      Less dividends paid for non vested shares
            
            
            (111
            )
            
            
            -
            
            
            
            (111
            )Net
      income/(Loss) 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
            )







Basic and
diluted per share amounts:





2009
            
            
            2008
            
            
            2007Continuing
      Operations
            
            Class
      A
              shares
            
            
            Class
      B
              Shares
            
            
            Class
      A
              shares
            
            
            Class
      B
              shares
            
            
            Class
      A
              Shares
            
            
            Class
      B
              SharesBasicDistributed
      earnings
            
            
            0.41
            
            
            
            1.90
            
            
            
            2.00
            
            
            
            2.00
            
            
            
            2.00
            
            
            
            2.00Undistributed
      earnings/ (loss)
            
            
            (0.14
            )
            
            
            -
            
            
            
            (1.29
            )
            
            
            (1.29
            )
            
            
            (1.02
            )
            
            
            (1.02
            )Total
            
            
            0.27
            
            
            
            1.90
            
            
            
            0.71
            
            
            
            0.71
            
            
            
            0.98
            
            
            
            0.98







F-32


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


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








DilutedDistributed
      earnings
            
            
            0.41
            
            
            
            1.90
            
            
            
            1.92
            
            
            
            2.00
            
            
            
            1.93
            
            
            
            2.00Undistributed
      earnings/ (loss)
            
            
            (0.14
            )
            
            
            -
            
            
            
            (1.23
            )
            
            
            (1.29
            )
            
            
            (0.98
            )
            
            
            (1.02
            )Total
            
            
            0.27
            
            
            
            1.90
            
            
            
            0.69
            
            
            
            0.71
            
            
            
            0.95
            
            
            
            0.98





Discontinued
      OperationsBasicDistributed
      earnings
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Undistributed
      earnings/ (loss)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (0.01
            )
            
            
            (0.01
            )Total
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (0.01
            )
            
            
            (0.01
            )





DilutedDistributed
      earnings
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Undistributed
      earnings/ (loss)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (0.01
            )
            
            
            (0.01
            )Total
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (0.01
            )
            
            
            (0.01
            )





Continuing
      and Discontinued OperationsBasicDistributed
      earnings
            
            
            0.41
            
            
            
            1.90
            
            
            
            2.00
            
            
            
            2.00
            
            
            
            2.00
            
            
            
            2.00Undistributed
      earnings/ (loss)
            
            
            (0.14
            )
            
            
            -
            
            
            
            (1.29
            )
            
            
            (1.29
            )
            
            
            (1.03
            )
            
            
            (1.03
            )Total
            
            
            0.27
            
            
            
            1.90
            
            
            
            0.71
            
            
            
            0.71
            
            
            
            0.97
            
            
            
            0.97





DilutedDistributed
      earnings
            
            
            0.41
            
            
            
            1.90
            
            
            
            1.92
            
            
            
            2.00
            
            
            
            1.93
            
            
            
            2.00Undistributed
      earnings/ (loss)
            
            
            (0.14
            )
            
            
            -
            
            
            
            (1.23
            )
            
            
            (1.29
            )
            
            
            (0.99
            )
            
            
            (1.03
            )Total
            
            
            0.27
            
            
            
            1.90
            
            
            
            0.69
            
            
            
            0.71
            
            
            
            0.94
            
            
            
            0.97








12.  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
vessel actions, mainly for sea pollution, are covered by the Protection and
Indemnity (P&I) Club insurance.





Contracts for vessels under
construction: Refer to discussion made in Note 5(a), in connection with
the Company's  newbuildings under construction.





Contracts for vessels
acquisitions: Refer to discussion made in Note 5(b) in connection with
the Company's Memorandum of Agreement for the purchase of one
newbuilding.





Corporate Guarantee to
Blizzard: Refer to discussion made in Note 6 in connection with the
corporate guarantee between the Company and Lloyds bank.





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 with Target Marine S.A. to
lease office space in Piraeus,




F-33


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)




12.  Commitments
and contingencies (continued):





Greece.
The termination date of agreements, following their amendment in April 2008 was
February 28, 2009. The agreement was extended without written notice on a
monthly basis up to December 20, 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 average monthly rental from
January 1, 2009 until December 20, 2009 was Euro 4,962 (U.S. dollars 7,113 using
the exchange rate of U.S. dollar/Euro at December 31, 2009). On October 20,
2009, the Company entered into rental agreement with unrelated parties. The
monthly rental for the first five months commencing December 1, 2009 is Euro
5,000, and for the remaining period is Euro 14,000 ($U.S. dollars 7,168 and
$U.S. dollars 20,070, respectively, using the exchange rate of U.S. dollar/Euro
at December 31, 2009). Rental expense for the years ended December 31 2009, 2008
and 2007 amounted to $109, $79 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 using the exchange rate of U.S. dollar/Euro at
December 31, 2009 are approximately $189, $241, $221 for 2010, 2011 and 2012,
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 the
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 or three years annual base
salary, over and above the lump sum described above.








Periodic survey fees:
The Company 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 2010, 2011, 2012 and 2013 will be $112,
$112, $87 and $3, respectively.





Software fees:On
February 12, 2009, the Company entered into agreement with an unrelated party
for software support on the vessels managed. The agreement includes payments of
licence fees during 2010 and 2011. The future minimum payments for 2010 and 2011
using the exchange rate of U.S. dollar/Euro at December 31, 2009 will be
approximately $ 114 and $81, respectively.





13.  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




F-34


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


13.  Stock
(continued):








will be
subordinated to the right of Class A common stockholders to receive dividends
during the subordination period. The subordination period commenced upon the
issuance of the shares of Class B common stock upon completion of the initial
public offering discussed below and ended on the first day after the quarter
ending December 31, 2008, subject to preconditions, as defined in the Company's
amended and restated articles of incorporation. Following the payment of the
dividend on March 9, 2009 with respect to the fourth quarter 2008, all issued
and outstanding subordinated Class B shares were converted into Class A common
shares on a one-for-one basis. The Class A shares were issued on April 7, 2009.
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.





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





(c)
            Dividends:
      During the years ended December 31, 2009 and 2008, the Company declared
      dividends of $7,755 and $30,584,
respectively.





(d)
            Warrants:
      On March 31, 2009, the Company received a Notice of Exercise of Warrants
      from the sellers of Omega Emmanuel and Omega Theodore (Note 7). By
      cashless exercise pursuant to the warrant agreement, 499,724 class A
      shares were issued on April 13, 2009. In accordance with the warrants'
      agreement the Company further paid $1.0 million ($0.5 million per vessel)
      in cash on April 3, 2009, as the average closing price of the Company's
      Class A share 15 business days immediately preceding the exercise date was
      US $3.63.





(e)
            Equity
      Incentive plan: In February 2006, the Company adopted an equity
      incentive plan which entitles the Company to grant its officers, key
      employees and directors with options to acquire the Company's common stock
      or restricted stock. A total of 1.5 million shares of common stock are
      reserved for issuance under the plan. The plan is administered by the
      Company's Board of Directors. Under the terms of the plan, the Company's
      Board of Directors will be able to grant new stock and/or options
      exercisable at a price per share to be determined by the Company's Board
      of Directors. No stock and/or options will be exercisable until at least
      two years after the closing of the initial public offering discussed
      above. Any shares received on exercise of the options will not be able to
      be sold until three years after the closing of the initial public
      offering. All options will expire 10 years from the date of grant. The
      plan will expire 10 years from the closing of the initial public offering.
      As of December 31, 2006, no stock and/or options were granted under the
      plan. During the years ended December 31, 2007, 2008 and 2009, the Company
      granted restricted shares as
follows:





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





The grant
date fair value of the restricted shares granted amounted to $828 and is being
recognized rateably over the three year vesting period, of which $149, $265 and
$400 was recognized as "General and administrative expenses" in the accompanying
2009, 2008 and 2007 consolidated statements of income. As of December 31, 2009,
the total unrecognized cost related to restricted shares is $14 which is
expected to be recognized until February 2010. The grant date fair value of the
13,535 shares that vested on February 8, 2009 was $207.




F-35


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)





13.  Stock
(continued):





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





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





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





The grant
date fair value of the restricted shares granted, net of forfeitures, amounted
to $818 and is being recognized rateably over the three year vesting period, of
which $280 and $348 recognized as "General and administrative expenses" in the
accompanying 2009 and 2008 consolidated statements of income, respectively. As
of December 31, 2009, the total unrecognized cost related to restricted shares
is $190 which is expected to be recognized until March 2011. The grant date fair
value of the 16,018 shares that became vested on March 20, 2009 was
$208.





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





6.
            On
      February 4, 2009, the Company granted 54,342 immediately vesting Class A
      common stock to its Officers pursuant to the Company's Stock Incentive
      Plan (the "Plan"). The grant date fair value of the restricted shares
      granted amounted to $387 and was recognized in full as "General and
      administrative expenses" in the accompanying 2009 consolidated statement
      of income.





7.
            On
      February 4, 2009, the Company granted restricted Class A common stock
      pursuant to the Company's Stock Incentive Plan (the "Plan"), to the
      Company's officers and key persons. The plan is administered by the Board
      of Directors and granted 108,685 restricted shares of Class A common stock
      to CEO, COO and CFO and 25,109 to key persons. The shares will be vested
      in three years of which 25% will become immediately vested on the first
      anniversary of the agreement, 25% will be become vested on the second
      anniversary of the agreement and the balance of 50% on the third
      anniversary of the agreement. In relation to the dividend payments which
      those shares are eligible to receive, same will be deposited to the
      existing Company's accounts, while the shares forfeited due to cessation
      of the employment, such dividends will remain in the Company's
      custody.




F-36


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)




13.  Stock
(continued):





The grant
date fair value of the restricted shares granted amounted to $923 and is being
recognized rateably over the three year vesting period, of which $463 recognized
as "General and administrative expenses" in the accompanying 2009 consolidated
statement of income . As of December 31, 2009, the total unrecognized cost
related to restricted shares is $460 which is expected to be recognized until
February 2012.





8.
            On
      July 23, 2009, the Company's Board of Directors granted 21,000 restricted
      shares of Class A common stock to all non executive directors pursuant to
      its Stock Incentive Plan. Such restricted shares will vest on the first
      anniversary of the date of grant. The grant date fair value of the
      restricted shares granted amounted to $76 and is being recognized rateably
      over the one year vesting period, of which $34 recognized as "General and
      administrative expenses" in the accompanying 2009 consolidated statements
      of income. As of December 31, 2009, the total unrecognized cost related to
      restricted shares is $42 which is expected to be recognized until July
      2010.





The
Company follows the provisions of ASC 718 "Compensation - Stock 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 ASC 718 and is classified as "General and administrative expenses"
in the accompanying 2009, 2008 and 2007 consolidated statements of income. The
fair value of each share granted is equal to the market value of the Company's
common stock as of the grant date.





The
dividends declared on shares granted under the plan during the year ended 2009,
2008 and 2007 amounted to $180, $285 and $111 respectively and is recognized in
the financial statements as a charge to retained earnings. In 2009, the amount
of dividends paid on shares vested during the year was $170.





A summary
of the status of the Company's vested and non-vested restricted shares as of
December 31, 2007, 2008 and 2009 and movement during the year 2007, 2008 and
2009 is as follows:








Number
      of non-vested restricted shares
            
            
            Number
      of vested restricted shares
            
            
            Grant
      date fair values per restricted shareAs
      at December 31, 2006
            
            
            -
            
            
            
            -
            
            
            
            -Granted
      on February 8, 2007
            
            
            54,138
            
            
            
            -
            
            
            
            $15.29Granted
      on July 26, 2007
            
            
            6,000
            
            
            
            -
            
            
            
            $21.84Vested
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -
            
            
            
            -As
      at December 31, 2007
            
            
            60,138
            
            
            
            -Vested
      on February 8, 2008
            
            
            (13,535
            )
            
            
            13,535
            
            
            
            $15.29Granted
      on March 20, 2008
            
            
            104,231
            
            
            
            -
            
            
            
            $14.23Vested
      on March 20, 2008
            
            
            (42,059
            )
            
            
            42,059
            
            
            
            $14.23Vested
      on July 26, 2008
            
            
            (6,000
            )
            
            
            6,000
            
            
            
            $21.84Granted
      on July 31, 2008
            
            
            10,500
            
            
            
            -
            
            
            
            $15.65Forfeited
            
            
            (3,650
            )
            
            
            -
            
            
            
            $14.23As
      at December 31, 2008
            
            
            109,625
            
            
            
            61,594Granted
      on February 4, 2009
            
            
            188,136
            
            
            
            -
            
            
            
            $7.11Granted
      on July 23, 2009
            
            
            21,000
            
            
            
            -
            
            
            
            $3.64Vested
      February 4, 2009
            
            
            (54,342
            )
            
            
            54,342
            
            
            
            $7.11Vested
      February 8, 2009
            
            
            (13,535
            )
            
            
            13,535
            
            
            
            $15.29Vested
      March 20, 2009
            
            
            (14,631
            )
            
            
            14,631
            
            
            
            $14.23Vested
      July 31, 2009
            
            
            (10,500
            )
            
            
            10,500
            
            
            
            $15.65Vested
      September 30, 2009
            
            
            (7,210
            )
            
            
            7,210
            
            
            
            $3.29As
      at December 31, 2009
            
            
            218,543
            
            
            
            161,812




F-37


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


13.  Stock
(continued):





As of
December 31, 2009 and 2008, the  weighted average grant date fair
value of non vested shares was $9.35 and $14.76, respectively.




14.  Voyage
and Vessel Operating Expenses:





Voyage
and Vessel Operating Expenses are analyzed as follows:





Continuing
      operations2009
            
            
            2008
            
            
            2007Voyage
      expensesCommissions
            
            
            821
            
            
            
            917
            
            
            
            864Bunkers
            
            
            362
            
            
            
            38
            
            
            
            22Port
      Charges
            
            
            299
            
            
            
            -
            
            
            
            -Other
            
            
            53
            
            
            
            77
            
            
            
            441,535
            
            
            
            1,032
            
            
            
            930





Vessel
      Operating ExpensesCrew
      wages and related costs
            
            
            10,153
            
            
            
            9,468
            
            
            
            7,314Spares
      and consumables
            
            
            3,055
            
            
            
            2,774
            
            
            
            2,394Pre
      delivery expenses
            
            
            -
            
            
            
            -
            
            
            
            778Insurances
            
            
            1,799
            
            
            
            1,680
            
            
            
            1,507Inspection-Surveys-Safety
            
            
            782
            
            
            
            642
            
            
            
            644Repairs
      and maintenance
            
            
            536
            
            
            
            241
            
            
            
            144Other
            
            
            935
            
            
            
            681
            
            
            
            34017,260
            
            
            
            15,486
            
            
            
            13,121





Discontinued
      operations2009
            
            
            2008
            
            
            2007Voyage
      expenses
            
            
            -
            
            
            
            -
            
            
            
            8Vessel
      Operating Expenses/(income)
            
            
            -
            
            
            
            (20
            )
            
            
            135








15.  Interest
and finance costs:





Interest
and finance costs are analyzed as follows:





2009
            
            
            2008
            
            
            2007Continuing
      operationsInterest
      expense
            
            
            6,160
            
            
            
            14,516
            
            
            
            18,464Less:
      Interest capitalized
            
            
            (598
            )
            
            
            (1,657
            )
            
            
            (590
            )Interest
      expense, net
            
            
            5,562
            
            
            
            12,859
            
            
            
            17,874Bank
      credit facility commitment fees
            
            
            524
            
            
            
            526
            
            
            
            173Amortization
      and write-off of financing costs
            
            
            782
            
            
            
            667
            
            
            
            307Other
      finance costs
            
            
            313
            
            
            
            333
            
            
            
            2257,181
            
            
            
            14,385
            
            
            
            18,579





Discontinued
      operationsInterest
      on bank credit facilities
            
            
            -
            
            
            
            -
            
            
            
            84Amortization
      and write-off of financing costs
            
            
            -
            
            
            
            -
            
            
            
            41Other
      finance costs
            
            
            -
            
            
            
            -
            
            
            
            4-
            
            
            
            -
            
            
            
            129





F-38


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


16.  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, the 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 the
Company's 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 2009, 2008
and 2007, the Company would be subject to U.S. federal income tax of
approximately $0.4 million per year in the absence of an exemption under Section
883.





17.  Segment
information:





The table
below presents information about the Company's reportable segments as of
December 31, 2009, 2008 and 2007 and for the years ended December 31, 2009, 2008
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.








F-39


OMEGA
NAVIGATION ENTERPRISES, INC.
 Notes to
consolidated financial statements December 31, 2009
 (Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)


17.  Segment
information (continued):








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
            
            
            15,233
            
            
            
            2,777
            
            
            
            129
            
            
            
            569
            
            
            
            18,708Interest
      income
            
            
            118
            
            
            
            4
            
            
            
            -
            
            
            
            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)
            
            
            15,518
            
            
            
            4,866
            
            
            
            (155
            )
            
            
            (5,498
            )
            
            
            14,731Total
      assets
            
            
            400,360
            
            
            
            107,428
            
            
            
            22
            
            
            
            14,675
            
            
            
            522,485





Product
      tankers2008
            
            Panamax
      tankers
            
            
            Handymax
      tankers
            
            
            Dry
      bulk carriers
            
            
            Other
            
            
            TotalRevenues
      from external customers
            
            
            62,214
            
            
            
            15,499
            
            
            
            -
            
            
            
            -
            
            
            
            77,713Interest
      expense and finance costs
            
            
            11,096
            
            
            
            3,177
            
            
            
            -
            
            
            
            112
            
            
            
            14,385Interest
      income
            
            
            10
            
            
            
            220
            
            
            
            -
            
            
            
            481
            
            
            
            711Depreciation
      and amortization
            
            
            14,883
            
            
            
            3,939
            
            
            
            -
            
            
            
            46
            
            
            
            18,868Change
      in fair value of warrants
            
            
            3,156
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,156Loss
      on derivative instruments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (13,586
            )
            
            
            (13,586
            )Segment
      income/ (loss)
            
            
            25,790
            
            
            
            4,453
            
            
            
            20
            
            
            
            (19,304
            )
            
            
            10,959Total
      assets
            
            
            387,501
            
            
            
            115,475
            
            
            
            22
            
            
            
            22,298
            
            
            
            525,296





Product
      tankers2009
            
            Panamax
      tankers
            
            
            Handymax
      tankers
            
            
            Dry
      bulk carriers
            
            
            Other
            
            
            TotalRevenues
      from external customers
            
            
            52,273
            
            
            
            12,183
            
            
            
            -
            
            
            
            -
            
            
            
            64,456Interest
      expense and finance costs
            
            
            5,195
            
            
            
            1,950
            
            
            
            -
            
            
            
            36
            
            
            
            7,181Interest
      income
            
            
            16
            
            
            
            35
            
            
            
            -
            
            
            
            87
            
            
            
            138Depreciation
      and amortization
            
            
            15,192
            
            
            
            3,939
            
            
            
            -
            
            
            
            42
            
            
            
            19,173Loss
      from Joint Venture companies
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            278
            
            
            
            278Change
      in fair value of warrants
            
            
            1,127
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,127Loss
      on derivative instruments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,149
            )
            
            
            (4,149
            )Loss
      on termination of purchase agreements
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,000
            
            
            
            3,000Segment
      income/ (loss)
            
            
            17,690
            
            
            
            (1,454
            )
            
            
            -
            
            
            
            (10,514
            )
            
            
            5,722Investments
      in Joint Ventures
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,347
            
            
            
            5,347Total
      assets
            
            
            385,081
            
            
            
            127,693
            
            
            
            22
            
            
            
            14,637
            
            
            
            527,433





The dry
bulk carriers segment was discontinued effective September 2006. For the year
ended December 31, 2009, the segment of panamax tankers includes the advances,
interest expense and finance cost and interest income of the four panamax new
building vessels and the segment of handymax tankers includes the advances,
interest expense and finance cost and interest income of the two handymax new
building vessels, and the vessel





F-40


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)








17.  Segment
information (continued):





Omega
Duke up to its delivery (Note 5). Segment information for the years ended
December 31, 2008 and 2007 has been adjusted according to the amended
shipbuilding contracts as discusses in Note 5(a).





18.  Subsequent
events:





a)
            Cash sweep: According to
      the cash sweep clause of the BTMU and NIBC junior facility, discussed in
      Note 9, in the event that at any time during the security period the fair
      market value of the secured vessels is less than 130% of the aggregate of
      the senior and junior credit facilities, the Company shall prepay part of
      the facility. On January 19, 2010, an amount of $1,991 was prepaid under
      the cash sweep clause of the junior
facility.





b)
            Amendment of the loan facility
      with National Bank of Greece: On January 27, 2010, the Company,
      through Ice Navigation Inc., has entered into a term sheet to amend the
      loan agreement with NBG dated June 10, 2009 to take into account the
      amendments of the shipbuilding contract to a double hull product tanker of
      74,000 dwt with expected delivery in January 2011. The purpose of the
      facility is to provide predelivery and postdelivery financing for the
      acquisition of a double hull product tanker of 74,000 dwt with expected
      delivery in January 2011. The total amount of the facility shall not
      exceed the lower of a) $36,330 and b) 70% of the market value of the
      vessel on delivery. The facility shall be repaid by 40 equal, consecutive,
      quarterly instalments of $545 each plus a balloon payment of $14,530.
      During the post delivery period, the facility will be secured by the
      Company's corporate guarantee for the 50% of the outstanding debt and
      Glencore for the remaining 50% of the outstanding debt. All other terms of
      the loan agreement dated June 10, 2009 remain unchanged. The amended loan
      agreement was signed on July 2,
2010.





c)
            Amendment of the loan facility
      with Bank of Scotland:On March 26, 2010, the Company,
      through  Fire Navigation Inc. and Hurricane Navigation Inc., has
      entered into a supplemental agreement to amend the loan agreement with
      Bank of Scotland dated June 29, 2009 to (i) increase the amount of the
      postdelivery financing for the acquisition of Megacore Honami by raising a
      top up loan, and (ii) to amend the predelivery and postdelivery financing
      to take into account the amendment of the shipbuilding contract to a
      double hull product tanker of 74,000 dwt with expected delivery in October
      2010.





In
respect of the vessel Megacore Honami, the total financing amounts to $28,167
that consists of $22,875 of senior loan facility and $5,292 of top up loan
facility. The loan was drawn down on vessels' delivery (Note 18(d)). The top up
loan facility shall be repayable in 12 equal consecutive quarterly. According to
the amended terms the ratio of fair market value of the secured vessels to
outstanding senior debt should  not be less than to 125% or 115% in
case that the top up loan is included.





In
respect to the double hull product tanker of 74,000 dwt with expected delivery
in October 2010, the amount of the loan was amended in order to take into
consideration the contact price of the amended shipbuilding contract as well as
the increased amounts of the predelivery instalments (Note 5(a)). As a result
the loan amount should not exceed the lesser of (i) $38,925 and (ii) 75% of the
fair market value of the vessel on delivery date.





d)
            Delivery of Megacore Honami:On February 25, 2010, the vessel Megacore Honami was delivered to
      the Company, through Fire Navigation Inc. The acquisition of the vessel
      was financed by the loan facility with the Bank of Scotland described in
      Notes 9 and 18(c) and own equity.





e)
            Interest rate swap with the
      Bank of Scotland: On February 25, 2010 the Company, through Fire
      Navigation Inc. and Hurricane Navigation Inc. has entered into a fixed
      rate swap agreement with the Bank of Scotland to hedge its exposure to
      fluctuations in interest rate. The interest rate was fixed at 0.59% for
      one year and the notional amount is $16,649. The effective date of the
      agreement was March 9, 2010. The swap matures on March 9,
      2011.





F-41


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)




18.  Subsequent
events (continued):




f)
            New time charter agreement of
      the vessel Omega Queen:On March 23, 2010 the vessel Omega Queen
      has entered into commercial agreement with ST Shipping on an evergreen
      basis with two months termination notice. According to the commercial
      agreement the amount of revenues is calculated based on the monthly
      average time charter equivalent of a pool of ten similar
      vessels





g)
            Change of technical manager:Effective March 25, 2010 and May 8, 2010, Omega Management is the
      technical manager of Omega Emmanuel and Omega Theodore
      respectively.





h)
            Delivery of the vessel Megacore
      Hibiscus: On May 6, 2010, the vessel Megacore Hibiscus was
      delivered to the Megacore Joint Venture. Omega Management Inc. provides
      technical management and financial services to Megacore Hibiscus for an
      annual fee of $183.





i)
            Amendments to JV agreement and
      settlement agreement for the second vessel that the Company has agreed to
      purchase on May 9, 2008 (Note 5 (b)): On June 2, 2010, the Company
      cancelled the Memorandum of Agreement and the time charter agreement
      discussed in Note (5(b)), by paying a settlement fee of $3.0 million, and
      as a result both parties were released from further liabilities regarding
      the two agreements. On June 2, 2010, the Company has entered into Addendum
      2 to the joint venture agreement dated April 8, 2009, as further amended
      by Addendum 1. According to the Addendum 2 the equity required to be
      contributed by the Company is
$7,275.





Tornado
has entered into an MOA agreement for the acquisition of the Alpine Marina, a
handymax product tanker for a consideration of $45,000. The Alpine Marina was
delivered on July 8, 2010 and it was financed by a loan facility with Lloyds
described below, a top up facility described below, and equal equity
contributions of the joint venture partners of $7,275 each.





On April
24, 2009, Blizzard and Tornado have entered into a senior secured loan facility
with Lloyds bank. The facility was divided in two tranches. The first advance
amounted to $33,750 and it was used for the financing of the acquisition of
Omega Duke. The second advance amounted to $28,500 and it was used for the
financing of the acquisition of the vessel Alpine Marina. The loan is repayable
in 28 equal quarterly instalments and a balloon payment payable together with
the 28th
instalment. The facility bears interest at LIBOR plus margin, commitment fees of
0.7% and annual agency fees of $15. The facility is secured by: (i) first
priority mortgage, (ii) first priority assignment of insurances, (iii) first
priority assignment of earnings of the vessel plus any time charter exceeding 12
months, (iv) first priority pledge over vessel earnings accounts, (v) first
priority pledge over the shares of Stone, Topley and Omnicrom, (vi) Omnicrom's
guarantee for the 50% of the loan and Omega's guarantee for 100% of Omnicrom's
obligations. The facility contains financial covenants calculated on Omega's and
Glencore's consolidated financial statements. Also a ratio of the secured vessel
to outstanding net debt of the secured vessel shall be in excess of 125%. The
bank has provided a waiver of the security value coverage up to and including
the 2nd
anniversary of the delivery date of each vessel. After the drawdown of the
second advance the notional amount of the Company's swap with Lloyds, amounting
to $66,250 as of December 31, 2009, was decreased by $28,500 because it was
novated to Tornado. The swap matures on May 12, 2011 and it has a fixed rate of
$2.655%.





Glencore
has provided a top up loan facility of $1,950. The facility will bear interest
at LIBOR plus margin and will be repaid from the available net cash flow of
Tornado. The ratio of the fair market value of the vessel to the loan
outstanding, including the senior and the top up facility, shall be in excess of
115%. No dividends can be declared or paid until the repayment of the facility.
The Company and Topley will provide 50/50 guarantee of the obligations of the
borrower.





j)
            Loan repayment:On June
      2, 2010, part of the pre-delivery loan with Lloyds bank, discussed in Note
      9 (VI) that amounted to $4,950 was fully
repaid.





k)
            New fixed rate time charter
      agreement of Omega King:On June 9, 2010,the vessel Omega
      King entered into a 1 year time charter agreement with an unrelated third
      party at a daily rate of $16.





F-42


OMEGA
NAVIGATION ENTERPRISES, INC.


Notes to
consolidated financial statements December 31, 2009


(Expressed
in thousands of U.S. Dollars - except share and per share data, unless otherwise
stated)




18.  Subsequent
events (continued):





l)
            Seller's credit for the
      acquisition of Hull 2288: On June 25, 2010 the Company paid to
      Hyundai Mipo Dockyard the amount of $8,611 relating to the 4th
      instalment for the acquisition of Hull 2288. The total amount of the
      instalment due was $10,763. The payment was financed by the loan facility
      with the Bank of Scotland described in Note 18(c) above. The remaining
      amount of $2,152 bears interest at 6% and is payable within a day after
      the delivery of the vessel.





m)
            Amended Megacore joint venture
      agreement: On June 30, 2010 the Company has entered into an
      agreement to amend and restate the Megacore joint venture agreement to
      take into account amended shipbuilding contracts signed in 2009 (Note
      5(a)). Also there were additions at the clauses relating to the total loss
      of vessels, sale of vessels and termination of the joint venture agreement
      before or after the delivery of the vessels that are currently under
      construction.










F-43