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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
 o REGISTRATION STATEMENT PURSUANT TO SECTION12(b)OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
 OR
 þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008
 OR
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 For the transition period from  to  .
 COMMISSION FILE NUMBER 333-124825
 FREESEAS INC.
  Republic of the Marshall Islands
 89 Akti Miaouli & 4 Mavrokordatou Street, Piraeus, Greece
 Fax: +30-210-4291010
  Title of each class
    
    Name of each exchange on which registeredShares of common stock, par value $0.001 per shareClass W Warrants to purchase shares of common stockClass Z Warrants to purchase shares of common stock
 
      o þ
  o þ
  þ o
  Large accelerated filer o
    
    Non-accelerated filer o
    
    Accelerated filer þ
  U.S. GAAP þ
    
    IFRS as issued by IASB o
    
    Other o
  o o
  o þ




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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
    
    
    20ITEM 4A.
    
    UNRESOLVED STAFF COMMENTS
    
    
    34ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    34ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    53ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    56ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    59ITEM 9.
    
    THE OFFER AND LISTING
    
    
    59ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    60ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    75ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    75PART II
    
    
    
    
    76ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    76ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    76ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    
    76ITEM 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    77ITEM 16B.
    
    CODE OF ETHICS
    
    
    77ITEM 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    77ITEM 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    77ITEM 16E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    77ITEM 16F.
    
    CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    77ITEM 16G.
    
    CORPORATE GOVERNANCE
    
    
    77PART III
    
    
    
    
    78ITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    78ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    78ITEM 19.
    
    EXHIBITS
    
    
    78EX-2.9EX-4.53EX-4.54EX-4.55EX-4.56EX-4.57EX-4.58EX-4.59EX-4.60EX-4.61EX-8.1EX-12.1EX-12.2EX-13.1EX-13.2EX-15.2




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our future operating or financial results;
    
    our financial condition and liquidity, including our ability to obtain additional financing
in the future to fund capital expenditures, acquisitions and other general corporate
activities;
    
    our ability to pay dividends in the future;
    
    dry bulk shipping industry trends, including charter rates and factors affecting vessel
supply and demand;
    
    future, pending or recent acquisitions, business strategy, areas of possible expansion, and
expected capital spending or operating expenses;
    
    the useful lives and value of our vessels;
    
    availability of crew, number of off-hire days, dry-docking requirements and insurance
costs;
    
    global and regional economic and political conditions;
    
    our ability to leverage to our advantage our managers relationships and reputation in the
dry bulk shipping industry;
    
    changes in seaborne and other transportation patterns;
    
    changes in governmental rules and regulations or actions taken by regulatory authorities;
    
    potential liability from future litigation and incidents involving our vessels;
    
    acts of terrorism and other hostilities; and
    
    other factors discussed in the section titled Risk Factors.




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PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 A. Selected Consolidated Financial Data
  Year Ended December 31,
    
    
    From Inception(April 23, 2004) to2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    December 31, 2004Statement of Operations Data:Operating revenues
    
    $
    66,689,000
    
    
    $
    20,147,000
    
    
    $
    11,727,000
    
    
    $
    10,326,000
    
    
    $
    2,830,000Income (loss) from operations
    
    
    26,570,000
    
    
    
    5,761,000
    
    
    
    (2,281,000
    )
    
    
    1,205,000
    
    
    
    706,000Other expense
    
    
    (7,378,000
    )
    
    
    (5,917,000
    )
    
    
    (1,043,000
    )
    
    
    (1,053,000
    )
    
    
    (236,000
    )Net income (loss)
    
    
    19,192,000
    
    
    
    (156,000
    )
    
    
    (3,324,000
    )
    
    
    152,000
    
    
    
    470,000Earnings Per Share Data:Net income (loss) per share:Basic earnings (loss) per share
    
    $
    0.91
    
    
    $
    (0.02
    )
    
    $
    (0.53
    )
    
    $
    0.03
    
    
    $
    0.10Diluted earnings (loss) per share
    
    $
    0.91
    
    
    $
    (0.02
    )
    
    $
    (0.53
    )
    
    $
    0.03
    
    
    $
    0.10Weighted average number of shares:Basic weighted average number of
shares
    
    
    21,006,497
    
    
    
    8,786,287
    
    
    
    6,290,100
    
    
    
    4,574,588
    
    
    
    4,500,000Diluted weighted average number
of shares
    
    
    21,051,963
    
    
    
    8,786,287
    
    
    
    6,290,100
    
    
    
    4,600,444
    
    
    
    4,500,000
 December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Selected Balance Sheet Data:Cash in hand and at bank
    
    $
    3,378,000
    
    
    $
    63,394,000
    
    
    $
    372,000
    
    
    $
    3,285,000
    
    
    $
    461,000Net working (deficiency) capital
    
    
    (23,584,000
    )
    
    
    47,343,000
    
    
    
    (8,843,000
    )
    
    
    (4,945,000
    )
    
    
    (3,528,000
    )Total assets
    
    
    307,861,000
    
    
    
    191,972,000
    
    
    
    23,086,000
    
    
    
    29,840,000
    
    
    
    18,335,000Long-term debt, including current portion
    
    
    160,350,000
    
    
    
    56,300,000
    
    
    
    7,830,000
    
    
    
    13,000,000
    
    
    
    10,150,000Shareholders loan and advance
    
    
    
    
    
    
    
    
    
    
    2,552,000
    
    
    
    3,200,00
    
    
    
    3,828,000Total shareholders equity
    
    
    120,855,000
    
    
    
    112,626,000
    
    
    
    7,007,000
    
    
    
    9,705,000
    
    
    
    3,386,000
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B. Capitalization and Indebtedness
  Historical as ofDecember 31, 2008Debt:Long-term debt, current portion
    
    $
    26,700Long-term debt, net of current portion
    
    
    133,650Total debt
    
    $
    160,350Shareholders equity:Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued
    
    
    Common stock, $0.001 par value, 40,000,000 shares authorized, 21,171,329 shares issued and outstanding
    
    
    21Additional paid-in capital
    
    
    110,322Retained earnings
    
    
    10,512Total shareholders equity
    
    $
    120,855Total capitalization
    
    $
    281,205
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 Our business faces certain risks. The risks described below may not be the only risks we face.
Additional risks that we do not yet know of or that we currently think are immaterial may also
impair our business. If any of the events or circumstances described as risks below or elsewhere in
this report actually occurs, our business, results of operations or financial condition could be
materially and adversely affected.
 Industry-Specific Risk Factors
 The cyclical nature of the international shipping industry may lead to volatile changes in
charter rates and vessel values, which may reduce our revenues and net income.
   2




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
    
    economic and market conditions affecting the shipping industry in general;
    
    supply of dry bulk vessels, including secondhand vessels;
    
    demand for dry bulk vessels;
    
    types and sizes of vessels;
    
    other modes of transportation;
    
    cost of newbuildings;
    
    new regulatory requirements from governments or self-regulated organizations; and
    
    prevailing level of charter rates.
  Disruptions in world financial markets and in the international charter market could have a
material adverse impact on our ability to obtain financing, our results of operations,
financial condition and cash flows and could cause the market price of our common stock to
decline.
    3




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Charter hire rates for dry bulk vessels have decreased significantly and may remain at low
rates or further decrease in the future, which may adversely affect our earnings.
     An economic slowdown in the Asia Pacific region could have a material adverse effect on our
business, financial position and results of operations.
  4




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Changes in the economic and political environment in China and policies adopted by the
government to regulate its economy may have a material adverse effect on our business,
financial condition and results of operations.
  Turbulence in the financial services markets and the tightening of credit may affect the
ability of purchasers of dry bulk cargo to obtain letters of credit to purchase dry bulk
goods, resulting in declines in the demand for vessels.
  If the recent volatility in LIBOR rates continues, it could affect our profitability,
earnings and cash flow.
  Charter rates are subject to seasonal fluctuations, which may adversely affect our operating
results.
  5




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The operation of dry bulk carriers has certain unique operational risks.
  We are subject to regulation and liability under environmental laws that could require
significant expenditures and reduce our cash flows and net income.
       6




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If any of our vessels fail to maintain their class certification and/or fail any annual
survey, intermediate survey, dry-docking or special survey, that vessel would be unable to
carry cargo, thereby reducing our revenues and profitability and violating certain loan
covenants of our third-party indebtedness.
    Maritime claimants could arrest our vessels, which could interrupt our cash flow.
   Governments could requisition our vessels during a period of war or emergency, resulting in
loss of earnings.
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World events outside our control such as terrorism and international and regional
hostilities may negatively affect our ability to operate, thereby reducing our revenues and
net income or our ability to obtain additional financing, thereby restricting the
implementation of our business strategy.
   Risks involved with operating ocean-going vessels could affect our business and reputation,
which may reduce our revenues.
  
    
    crew strikes and/or boycotts;
    
    marine disaster;
    
    piracy;
    
    environmental accidents;
    
    cargo and property losses or damage; and
    
    business interruptions caused by mechanical failure, human error, war,
terrorism, political action in various countries, labor strikes or adverse weather
conditions.
  Rising fuel prices may adversely affect our profits.
  8




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Our vessels may suffer damage and we may face unexpected dry-docking costs, which could
affect our cash flow and financial condition.
  Company-Specific Risk Factors
 The downturn in the dry bulk carrier charter market may have an adverse effect on our
earnings, affect compliance with our loan covenants, and require us to raise additional
capital in order to remain compliant with our loan covenants.
   Our charterers may terminate or default on their charters, which could adversely affect our
results of operations and cash flow.
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The current low dry bulk charter rates and dry bulk vessel values and any future declines in
these rates and values will affect our ability to comply with various covenants in our loan
agreements.
  Our earnings may be adversely affected if we do not successfully employ our vessels.
  We previously relied on spot charters and may spot charter certain of our vessels in the
future. The rates on spot charters are very competitive and volatile, which can result in
decreased revenues if spot charter rates decline.
  10




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A decline in the market value of our vessels could lead to a default under our loan
agreements and the loss of our vessels.
  Our loan agreements contain covenants that may limit our liquidity and corporate activities.
  
    
    incur additional indebtedness;
    
    create liens on our assets;
    
    sell capital stock of our subsidiaries;
    
    make investments;
    
    engage in mergers or acquisitions;
    
    pay dividends;
    
    make capital expenditures; and
    
    change the management of our vessels or terminate or materially amend the
management agreements and sell our vessels.
  Servicing debt may limit funds available for other purposes and inability to service debt
may lead to acceleration of debt and foreclosure on our fleet.
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We cannot assure you that we will pay dividends.
  If we fail to manage our planned growth properly, we may not be able to successfully expand
our market share.
  
    
    locating and acquiring suitable vessels;
    
    identifying and consummating acquisitions or joint ventures;
    
    integrating any acquired vessel successfully with our existing operations;
    
    enhancing our customer base;
    
    managing our expansion; and
    
    obtaining the required financing.
   We depend entirely on Free Bulkers and Safbulk to manage and charter our fleet.
  12




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If Free Bulkers is unable to perform under its vessel management agreements with us, our
results of operations may be adversely affected.
  We, and one of our executive officers, have affiliations with Free Bulkers that could create
conflicts of interest detrimental to us.
  Operational or financial problems experienced by Free Bulkers, our affiliate, may adversely
impact us.
  If Free Bulkers is unable to recruit suitable seafarers for our fleet or as we expand our
fleet, our results of operations may be adversely affected.
  Because our seafaring employees are covered by collective bargaining agreements, failure of
industry groups to renew those agreements may disrupt our operations and adversely affect
our earnings.
  13




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Increases in interest rates would reduce funds available to purchase vessels and service debt.
  The performance of our existing charters and the creditworthiness of our charterers may
hinder our ability to implement our business strategy by making additional debt financing
unavailable or available only at higher than anticipated cost.
  We are a holding company, and we will depend on the ability of our subsidiaries to
distribute funds to us in order to satisfy our financial obligations or to make dividend
payments.
  As we expand our business, we will need to upgrade our operational and financial systems,
and add more staff. If we cannot upgrade these systems or recruit suitable additional
employees, our performance may suffer.
  We are required by Section 404 of the Sarbanes-Oxley Act of 2002 to evaluate our controls,
which evaluation requires substantial resources. If these evaluations result in the
identification of material weaknesses, we may be adversely affected until these weaknesses
can be corrected.
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We may be unable to attract and retain key management personnel and other employees in the
shipping industry, which may reduce the effectiveness of our management and lower our
results of operations.
  Our vessels may suffer damage and may face unexpected dry-docking costs, which could reduce
our cash flow and impair our financial condition.
  Purchasing and operating previously owned, or secondhand, vessels may result in increased
operating costs and vessels off-hire, which could adversely affect our earnings.
    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.
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Because we will generate all of our revenues in U.S. dollars but will incur a portion of our
expenses in other currencies, exchange rate fluctuations could have an adverse impact on our
results of operations.
  Investment in derivative instruments such as freight forward agreements could result in
losses.
  We may not have adequate insurance to compensate us adequately for damage to, or loss of,
our vessels.
  We may have to pay tax on United States source income, which would reduce our earnings.
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U.S. tax authorities could treat us as a passive foreign investment company, which could
have adverse U.S. federal income tax consequences to U.S. holders.
     Legislation has been proposed in the United States which would prevent dividends on our
shares from qualifying for certain preferential rates for U.S. federal income tax purposes.
  17




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Risks Related to Our Common Stock
 The market price of our common stock has been and may in the future be subject to significant
fluctuations.
  
    
    quarterly variations in our results of operations;
    
    changes in sales or earnings estimates or publication of research reports by analysts;
    
    speculation in the press or investment community about our business or the
shipping industry generally;
    
    changes in market valuations of similar companies and stock market price and
volume fluctuations generally;
    
    strategic actions by us or our competitors such as acquisitions or restructurings;
    
    regulatory developments;
    
    additions or departures of key personnel;
    
    general market conditions; and
    
    domestic and international economic, market and currency factors unrelated to our
performance.
  If holders of our warrants exercise their warrants to purchase shares of our common stock,
you will experience immediate dilution.
  Two of our principal shareholders may effectively control the outcome of matters on which
our shareholders are entitled to vote, including the election of directors and other
significant corporate actions.
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Future sales of our stock could cause the market price of our common stock to decline.
  Because the Republic of the Marshall Islands, where we are incorporated, does not have a
well-developed body of corporate law, shareholders may have fewer rights and protections
than under typical United States law, such as Delaware, and shareholders may have difficulty
in protecting their interest with regard to actions taken by our Board of Directors.
  It may not be possible for investors to enforce U.S. judgments against us.
  Anti-takeover provisions in our organizational documents, and under Marshall Islands
corporate law, 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.
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
    
    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 two-thirds majority of the outstanding shares of
our common shares, voting as a single class, entitled to vote for the directors;
    
    limiting the persons who may call special meetings of shareholders;
    
    establishing advance notice requirements for election to our Board of Directors
or proposing matters that can be acted on by shareholders at shareholder meetings; and
    
    limiting our ability to enter into business combination transactions with certain
shareholders.
  
 ITEM 4. INFORMATION ON THE COMPANY
 Our Organization and Corporate Structure
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Our Fleet
  Vessel
    
    DWT
    
    Country Built
    
    Year Built
    
    Vessel Type
    
    Purchase PriceFree Destiny
    
    25,240
    
    Bulgaria
    
    1982
    
    Handysize
    
    $7.60 millionFree Envoy
    
    26,318
    
    Japan
    
    1984
    
    Handysize
    
    $9.50 millionFree Goddess
    
    22,051
    
    Japan
    
    1995
    
    Handysize
    
    $25.20 millionFree Hero
    
    24,318
    
    Japan
    
    1995
    
    Handysize
    
    $25.25 millionFree Impala
    
    24,111
    
    China
    
    1997
    
    Handysize
    
    $37.50 millionFree Jupiter
    
    47,777
    
    China
    
    2002
    
    Handymax
    
    $47.00 millionFree Knight
    
    24,111
    
    China
    
    1998
    
    Handysize
    
    $39.25 millionFree Lady
    
    50,246
    
    Japan
    
    2003
    
    Handymax
    
    $65.20 millionFree Maverick
    
    23,994
    
    Japan
    
    1998
    
    Handysize
    
    $39.60 million
  Competitive Strengths
  
    
    Experienced management team.Our management team has significant experience in
commercial, technical, operational and financial areas of our business and has
developed relationships with leading charterers, ship brokers and financial
institutions. Since 1997, Ion G. Varouxakis, our chairman, chief executive officer and
president, has served in various management roles for shipping companies in the dry
bulk sector.
    
    Affiliation with a leading shipping group. FS Holdings Limited and Benbay
Limited, entities controlled by the Restis family, are collectively one of our largest
shareholders with 3,240,653 shares of our common stock as of December 31, 2008. The
Restis family has been engaged in the international shipping industry for more than 40
years and their interests include ownership and operation of more than 60 vessels in
several segments of the shipping industry, as well as cargo and chartering interests.
The Restis family group is regarded as one of the largest independent ship-owning and
management groups in the shipping industry. Our management believes that affiliation
with and access to the resources of companies controlled by the Restis family
commercially enhances the operations of our fleet, our ability to obtain employment for
our vessels and our ability to obtain more favorable financing.
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
    
    Strong customer relationships. Through Free Bulkers, our ship management
company, and Safbulk, a Restis family controlled management company, we have
established and maintained customer relationships with leading charterers around the
world, such as major international industrial companies, commodity producers and
traders and a number of chartering brokerage houses. Free Bulkers has subcontracted the
charter and post-charter management of our fleet to Safbulk. We believe that the
established customer base and the reputation of our fleet managers enable us to secure
favorable employment for our vessels with well-known charterers. In addition, in light
of current economic conditions, we have worked to maintain our relationships with our
customers by negotiating strategically appropriate modifications to charters when
determined to be in our best long-term interests.
    
    Stable cash flow from well-established and reputable charterers. A majority of
the vessels in our fleet may be employed on time charters to well-established and
reputable charterers. We believe these time charters will provide us with steady cash
flow and high vessel utilization rates while limiting our exposure to freight rate
volatility.
    
    Efficient operations. Through Free Bulkers, we believe that we have
established a strong track record in the technical management of dry bulk carriers,
which has enabled us to maintain cost-efficient operations. We actively monitor and
control vessel operating expenses while maintaining the high quality of our fleet
through regular inspections, proactive maintenance programs, high standards of
operations, and retaining and training qualified crew members.
 Business Strategy
  
    
    Leveraging our strategic relationships.Free Bulkers, Safbulk, the Restis family
and their affiliates have extensive experience and relationships in the ship
brokerage and financial industries as well as directly with industrial charterers and
commodity traders. We use these relationships to identify chartering and acquisition
opportunities and make available to us sources of additional financing, make
contacts, and gain market intelligence.
    
    Handysize and Handymax focus.Our fleet of dry bulk carriers will consist
primarily of Handysize and Handymax vessels, although we may consider acquiring
larger vessels if we identify appropriate opportunities. Based on the relatively low
number of dry bulk newbuildings on order in the Handysize and Handymax categories, we
believe there will be continued high demand for such vessels. Handysize and Handymax
vessels are typically shallow-drafted and equipped with onboard cranes. This makes
Handysize and Handymax vessels more versatile and able to access a wider range of
loading and discharging ports than larger ships, which are unable to service many
ports due to their size or the local port infrastructure. Many countries in the Asia
Pacific region, including China, as well as countries in Africa and South America,
have shallow ports. We believe that our vessels, and any Handysize or Handymax
vessels that we acquire, will enable us to transport a wider variety of cargoes and
to pursue a greater number of chartering opportunities than if we owned larger dry
bulk vessels. Handysize and Handymax vessels have also historically achieved greater
charter rate stability than larger dry bulk vessels.
    
    Renew and expand our fleet.We intend to continue growing our fleet in a
disciplined manner through acquisition of well-maintained, secondhand vessels,
preferably not more than 15 years old. We perform technical review and financial
analysis of each potential acquisition and only purchase vessels as market conditions
and opportunities dictate and warrant. We are focused on purchasing such vessels,
because we believe that secondhand vessels, when operated in a cost-efficient manner,
should provide significant value given the prevailing charter rate environment and
currently provide better returns as compared to newbuildings. Furthermore, as part of
our fleet renewal, we will continue to sell vessels in order to renew our fleet when
we believe it is in the best interests of FreeSeas and our shareholders.
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
    
    Maintain balanced time charter employment.We intend to strategically deploy a
substantial portion of our fleet under period employment and our remaining vessels
under spot employment depending on market conditions. We actively pursue time charter
coverage to provide adequate cash flow to cover our fleets fixed costs, consisting
of vessel operating expenses, management fees, debt repayment and interest expense,
general and administrative expenses, and dry-docking costs for the upcoming 12-month
period. We look to deploy part of our fleet through spot charters, depending on our
view of the direction of the markets and other tactical or strategic considerations.
We believe this balanced employment strategy will provide us with more predictable
operating cash flows and sufficient downside protection, while allowing us to
participate in the potential upside of the spot market during periods of rising
charter rates.
    
    Use of flexible financial strategy.We have used and intend to continue to use a
combination of bank debt, cash flow and proceeds from equity offerings to fund our
vessel acquisitions. We assess the level of debt we will incur in light of our
ability to repay that debt based on the level of cash flow we expect to generate
pursuant to our chartering strategy and our operating cost structure. As of December
31, 2008, our ratio of debt to total capitalization is approximately 57%. We believe
that the maintenance of a reasonable ratio of debt to total capitalization will be
important to our ability to borrow funds to make additional vessel acquisitions, and
we have determined to suspend cash dividends to our shareholders while we focus on
reducing our debt.
 Vessel Employment
  Vessel Name
    
    Type
    
    Dwt
    
    EmploymentM/V Free Destiny
    
    Handysize
    
    
    25,240
    
    
    Spot time charter trip of two
to four months at $4,000 per
day through April/June 2009M/V Free Envoy
    
    Handysize
    
    
    26,318
    
    
    Balance of time charter at
$20,000 per day through
July/August 2009M/V Free Hero
    
    Handysize
    
    
    24,318
    
    
    60-day spot time charter
through April 2009 at $4,500
per dayM/V Free Jupiter
    
    Handymax
    
    
    47,777
    
    
    Balance of time charter
through February 2011 at
$32,000 per day for first
year, $28,000 per day for
second year and $24,000 per
day for third yearM/V Free Goddess
    
    Handysize
    
    
    22,051
    
    
    Balance of time charter
through September 2009 at
$8,000 per day plus 50%
profit sharing above $10,000
per day, which increases to
$10,500 per day on September
15, 2009 through
January/February 2010 plus
50% profit sharing above
$12,500 per dayM/V Free Knight
    
    Handysize
    
    
    24,111
    
    
    40-day spot time charter
through April 2009 at $7,000
per dayM/V Free Impala
    
    Handysize
    
    
    24,111
    
    
    45-day spot time charter
through March 2009 at $6,500
per dayM/V Free Lady
    
    Handymax
    
    
    50,246
    
    
    Balance of time charter at
$51,150 per day through May
2010M/V Free Maverick
    
    Handysize
    
    
    23,994
    
    
    Balance of time charter
through April 2009 at $32,000
per day
 23




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##### Table of Contents



Customers
  Management of Operations and Fleet
 
 General Administration
 Financial Accounting Services.
 Sale and Purchase of Vessels
  24




---



##### Table of Contents



Free Hero Free Maverick Free Envoy Free Destiny
  
   Crewing and Employees
  Loans for Vessels
  Free
Maverick Free Knight.
 25




---



##### Table of Contents



Free Knight Free Maverick Free Destiny
  Free Hero Free Goddess Free Jupiter Free Lady
 Free Impala
   Loan Agreement Covenants and Waivers
    26




---



##### Table of Contents




    
    100% commencing July 1, 2010
    
    110% commencing July 1, 2011
    
    120% commencing July 1, 2012
    
    125% commencing December 31, 2012
    Competition
  27




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##### Table of Contents



Seasonality
  Environmental and Other Regulations
    International Maritime Organization
  28




---



##### Table of Contents



The U.S. Oil Pollution Act of 1990
      29




---



##### Table of Contents



The United States Clean Water Act
  Northwest Environmental Advocate v. EPA
 Other Environmental Initiatives
    30




---



##### Table of Contents



Vessel Security Regulation
  
    
    on-board installation of automatic information systems, to enhance vessel-to-vessel
and vessel-to-shore communications;
    
    on-board installation of ship security alert systems;
    
    the development of vessel security plans; and
    
    compliance with flag state security certification requirements.
  Inspection by Classification Societies
 Free Destiny Free Maverick Free Envoy Free Hero Free Jupiter Free Goddess Free Knight Free Impala Free Lady
  31




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##### Table of Contents



Next Intermediate
    
    Next Special SurveyVessel
    
    Dry-docking
    
    Dry-dockingFree Destiny
    
    Third quarter 2010
    
    Third quarter 2012Free Envoy
    
    Third quarter 2011
    
    Third quarter 2013Free Goddess
    
    Third quarter 2013
    
    Third quarter 2010Free Hero
    
    Fourth quarter 2013
    
    Fourth quarter 2010Free Impala
    
    Third quarter 2009
    
    Third quarter 2012Free Jupiter
    
    Second quarter 2010
    
    Second quarter 2012Free Knight
    
    Third quarter 2010
    
    Second quarter 2013Free Lady
    
    Third quarter 2011
    
    Second quarter 2013Free Maverick
    
    Second quarter 2011
    
    First quarter 2010
     Risk of Loss and Liability Insurance
 General
  Hull and Machinery Insurance
  32




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##### Table of Contents



Protection and Indemnity Insurance
  Free Destiny, Free Envoy, Free Hero, Free Jupiter Free Maverick Free Goddess, Free Knight, Free Impala Free Lady
 Loss of Hire Insurance
 Free Jupiter
 Procedures in the Event of an Insured Event
  Free Jupiter
  33




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##### Table of Contents



Legal Proceedings
  Property
   
 Exchange Controls
  
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  General
   34




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##### Table of Contents



Free Knight Free Impala Free Lady Free
Maverick
  Vessel Name
    
    Type
    
    Dwt
    
    Employment
    
    Built
    
    Purchase Price
    
    Date of AcquisitionM/V Free Destiny
    
    Handysize
    
    
    25,240
    
    
    Spot time charter
trip of 2 to 4
months at $4,000
per day through
April/June 2009
    
    
    1982
    
    
    $7.60 million
    
    August 3, 2004M/V Free Envoy
    
    Handysize
    
    
    26,318
    
    
    Balance of time charter at $20,000
per day through July/August 2009
    
    
    1984
    
    
    $9.50 million
    
    September 20, 2004M/V Free Hero
    
    Handysize
    
    
    24,318
    
    
    60-day spot time
charter through
April 2009 at
$4,500 per day
    
    
    1995
    
    
    $25.25 million
    
    July 3, 2007M/V Free Jupiter
    
    Handymax
    
    
    47,777
    
    
    Balance of time
charter through
February 2011 at
$32,000 per day for
first year, $28,000
per day for second
year and $24,000
per day for third
year
    
    
    2002
    
    
    $47.00 million
    
    September 5, 2007M/V Free Goddess
    
    Handysize
    
    
    22,051
    
    
    Balance of time
charter through
September 2009 at
$8,000 per day plus
50% profit sharing
above $10,000 per
day, which
increases to
$10,500 per day on
September 15, 2009
through
January/February
2010 plus 50%
profit sharing
above $12,500 per
day
    
    
    1995
    
    
    $25.20 million
    
    October 30, 2007M/V Free Knight
    
    Handysize
    
    
    24,111
    
    
    40-day spot time
charter through
April 2009 at
$7,000 per day
    
    
    1998
    
    
    $39.25 million
    
    March 19, 2008M/V Free Impala
    
    Handysize
    
    
    24,111
    
    
    45-day spot time
charter through
March 2009 at
$6,500 per day
    
    
    1997
    
    
    $37.5 million
    
    April 2, 2008M/V Free Lady
    
    Handymax
    
    
    50,246
    
    
    Balance of time
charter at $51,150
per day through May
2010
    
    
    2003
    
    
    $65.2 million
    
    July 7, 2008M/V Free Maverick
    
    Handysize
    
    
    23,994
    
    
    Balance of time
charter through
April 2009 at
$32,000 per day
    
    
    1998
    
    
    $39.6 million
    
    September 1, 2008
 35




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##### Table of Contents



Free Jupiter
 Employment and Charter Rates
   Free Destiny Free Hero Free Knight Free Maverick Free
Impala
    36




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##### Table of Contents



Acquisition of Vessels
 Free
Lady Free
Maverick
     
    
    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, if applicable;
    
    Arrange for a new crew for the vessel;
    
    Replace all hired equipment on board the vessel, 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, if we change the flag state;
    
    Implement a new planned maintenance program for the vessel; and
    
    Ensure that the new technical manager obtains new certificates of compliance with the
safety and vessel security regulations of the flag state.
 37




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##### Table of Contents




    
    Employment and operation of our dry bulk carriers; and
    
    Management of the financial, general and administrative elements involved in the
ownership and operation of our dry bulk vessels.
  
    
    Vessel maintenance and repair;
    
    Planning and undergoing dry-docking, special surveys and other major repairs;
    
    Organizing and undergoing regular classification society surveys;
    
    Crew selection and training;
    
    Vessel spares and stores supply;
    
    Vessel bunkering;
    
    Contingency response planning;
    
    Onboard safety procedures auditing;
    
    Accounting;
    
    Vessel insurance arrangements;
    
    Vessel chartering;
    
    Vessel hire management; and
    
    Vessel performance monitoring.
 Important Measures for Analyzing Our Results of Operations
  Ownership days
 38




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##### Table of Contents



Available days
 Operating days
 Fleet utilization
 Off-hire
 Time charter
 Voyage charter
 Time charter equivalent (TCE).
 Adjusted EBITDA
 39




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##### Table of Contents



PERFORMANCE INDICATORS
  For the year ended December 31,2008
    
    
    2007
    
    
    2006Adjusted EBITDA (1)
    
    $
    40,658
    
    
    $
    8,350
    
    
    $
    2,582Fleet Data:Average number of vessels (2)
    
    
    7.36
    
    
    
    3.3
    
    
    
    3.0Ownership days (3)
    
    
    2,688
    
    
    
    1,206
    
    
    
    1,095Available days (4)
    
    
    2,605
    
    
    
    1,177
    
    
    
    1,005Operating days (5)
    
    
    2,441
    
    
    
    1,048
    
    
    
    941Fleet utilization (6)
    
    
    90.8
    %
    
    
    86.9
    %
    
    
    86.0
    %Average Daily Results:Average TCE rate (7)
    
    $
    25.719
    
    
    $
    17.925
    
    
    $
    10.881Vessel operating expenses (8)
    
    
    6.084
    
    
    
    4.976
    
    
    
    4.094Management fees (9)
    
    
    0.727
    
    
    
    0.726
    
    
    
    0.493General and administrative expenses(10)
    
    
    1.129
    
    
    
    2.014
    
    
    
    2.046Total vessel operating expenses (11)
    
    
    6.811
    
    
    
    5.702
    
    
    
    4.587
 
 (1)
    
    Adjusted EBITDA reconciliation to net income:  For the year ended December 31,2008
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    19,192
    
    
    $
    (156
    )
    
    $
    (3,324
    )Depreciation and amortization
    
    
    14,137
    
    
    
    5,192
    
    
    
    4,921Change in derivatives fair value
    
    
    1,061
    
    
    
    749
    
    
    
    Interest and finance cost
    
    
    5,629
    
    
    
    2,565
    
    
    
    985Loss on debt extinguishment
    
    
    639
    
    
    
    
    
    
    
    Adjusted EBITDA
    
    $
    40,658
    
    
    $
    8,350
    
    
    $
    2,582
 (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 total number of days in a period during which the vessels in our fleet
have 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 ownership days less the aggregate number of days that our
vessels are off-hire due to major repairs, dry dockings or special or intermediate surveys.
The shipping industry uses available days to measure the number of ownership days in a period
during which vessels should be capable of generating revenues.
 40




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##### Table of Contents



(5)
    
    Operating days are the number of available days less the aggregate number of days that our
vessels are off-hire due to any reason, including 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 our fleets operating days during a
period by the number of ownership 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 amount of days that its vessels are off-hire for reasons such as scheduled
repairs, vessel upgrades, or dry dockings or other surveys.
 (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 operating revenues (net of voyage expenses and
commissions) by operating days for the relevant time period. 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. 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:
 For the year ended December 31,2008
    
    
    2007
    
    
    2006Operating revenues
    
    $
    66,689
    
    
    $
    20,147
    
    
    $
    11,727Voyage expenses and commissions
    
    
    (3,910
    )
    
    
    (1,362
    )
    
    
    (1,488
    )Net operating revenues
    
    
    62,779
    
    
    
    18,785
    
    
    
    10,239Operating days
    
    
    2,441
    
    
    
    1,048
    
    
    
    941Time charter equivalent daily rate
    
    $
    25.719
    
    
    $
    17.925
    
    
    $
    10.881
 (8)
    
    Average daily vessel operating expenses, which includes crew costs, provisions, deck and
engine stores, lubricating oil, insurance, maintenance and repairs, is calculated by dividing
vessel operating expenses by ownership days for the relevant time periods:
 For the year ended December 31,2008
    
    
    2007
    
    
    2006Vessel operating expenses
    
    $
    16,354
    
    
    $
    6,001
    
    
    $
    4,483Ownership days
    
    
    2,688
    
    
    
    1,206
    
    
    
    1,095Daily vessel operating expense
    
    $
    6.084
    
    
    $
    4.976
    
    
    $
    4.094
 (9)
    
    Daily management fees are calculated by dividing total management fees paid on ships owned by
ownership days for the relevant time period.
 (10)
    
    Average daily general and administrative expenses are calculated by dividing general and
administrative expenses by operating days for the relevant period.
 (11)
    
    Total vessel operating expenses, or TVOE, is a measurement of our total expenses associated
with operating our vessels. TVOE is the sum of daily vessel operating expense and daily
management fees. Daily TVOE is calculated by dividing TVOE by fleet ownership days for the
relevant time period.
 41




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##### Table of Contents



Results of Operations
 Year ended December 31, 2008 (fiscal 2008) as compared to year ended December 31, 2007 (fiscal 2007)
 Consolidated Statements of Income
  For the Year Ended
    
    
    For the Year EndedDecember 31, 2008
    
    
    December 31, 2007OPERATING REVENUES
    
    $
    66,689
    
    
    $
    20,147OPERATING EXPENSES:Vessel operating expenses
    
    
    (16,354
    )
    
    
    (6,001
    )Voyage expenses
    
    
    (527
    )
    
    
    (267
    )Depreciation expenses
    
    
    (13,349
    )
    
    
    (4,435
    )Amortization of deferred charges
    
    
    (788
    )
    
    
    (757
    )Management and other fees to a related party
    
    
    (2,634
    )
    
    
    (875
    )Commissions
    
    
    (3,383
    )
    
    
    (1,095
    )Stock-based compensation expense
    
    
    (107
    )
    
    
    (96
    )General and administrative expenses
    
    
    (2,756
    )
    
    
    (2,111
    )Bad debt
    
    
    (221
    )
    
    
    (118
    )Gain on sale of vessel
    
    
    
    
    
    
    1,369Income from operations
    
    $
    26,570
    
    
    $
    5,761OTHER INCOME (EXPENSE):Interest and finance costs
    
    
    (6,209
    )
    
    
    (3,204
    )Loss on debt extinguishment
    
    
    (639
    )
    
    
    (2,570
    )Change in derivatives fair value
    
    
    (1,061
    )
    
    
    (749
    )Interest income
    
    
    580
    
    
    
    639Other
    
    
    (49
    )
    
    
    (33
    )Other (expense) income
    
    $
    (7,378
    )
    
    $
    (5,917
    )Net income (loss)
    
    $
    19,192
    
    
    $
    (156
    )Basic income (loss) per share
    
    $
    0.91
    
    
    $
    (0.02
    )Diluted income (loss) per share
    
    $
    0.91
    
    
    $
    (0.02
    )Basic weighted average number of shares
    
    
    21,006,497
    
    
    
    8,786,287Diluted weighted average number of shares
    
    
    21,051,963
    
    
    
    8,786,287
 REVENUES Free Jupiters
 OPERATING EXPENSES Free Envoy Free Impala
 VOYAGE EXPENSES
 42




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##### Table of Contents



DEPRECIATION AND AMORTIZATION Free Envoy Free Hero Free Goddess
 MANAGEMENT FEES
  COMMISSIONS AND GENERAL AND ADMINISTRATIVE EXPENSES
 STOCK-BASED COMPENSATION EXPENSE
 INTEREST AND FINANCE COSTS
 43




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##### Table of Contents



LOSS ON DEBT EXTINGUISHMENT 
 CHANGE IN FAIR VALUE OF DERIVATIVES 
 NET INCOME/(LOSS)
 Year ended December 31, 2007 (fiscal 2007) as compared to year ended December 31, 2006 (fiscal 2006)
 Consolidated Statements of Income
  For the Year Ended
    
    
    For the Year EndedDecember 31, 2007
    
    
    December 31, 2006OPERATING REVENUES
    
    $
    20,147
    
    
    $
    11,727OPERATING EXPENSES:Vessel operating expenses
    
    
    (6,001
    )
    
    
    (4,483
    )Voyage expenses
    
    
    (267
    )
    
    
    (689
    )Depreciation expenses
    
    
    (4,435
    )
    
    
    (4,479
    )Amortization of deferred charges
    
    
    (757
    )
    
    
    (442
    )Management fees to a related party
    
    
    (875
    )
    
    
    (540
    )Commissions
    
    
    (1,095
    )
    
    
    (799
    )Stock-based compensation expense
    
    
    (96
    )
    
    
    (651
    )General and administrative expenses
    
    
    (2,111
    )
    
    
    (1,925
    )Bad debt
    
    
    (118
    )Gain on sale of vessel
    
    
    1,369Income (loss) from operations
    
    $
    5,761
    
    
    $
    (2,281
    )OTHER INCOME (EXPENSE):Interest and finance costs
    
    
    (3,204
    )
    
    
    (1,004
    )Loss on debt extinguishment
    
    
    (2,570
    )Change in derivatives fair value
    
    
    (749
    )Interest income
    
    
    639
    
    
    
    19Other
    
    
    (33
    )
    
    
    (58
    )Other income (expense)
    
    $
    (5,917
    )
    
    $
    (1,043
    )Net loss
    
    $
    (156
    )
    
    $
    (3,324
    )Basic loss per share
    
    
    (0.02
    )
    
    
    (0.53
    )Diluted loss per share
    
    
    (0.02
    )
    
    
    (0.53
    )Basic weighted average number of shares
    
    
    8,786,287
    
    
    
    6,290,100Diluted weighted average number of shares
    
    
    8,786,287
    
    
    
    6,290,100
 44




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##### Table of Contents



REVENUES Free Jupiters
 OPERATING EXPENSES Free Envoy Free Destiny Free Jupiter
 VOYAGE EXPENSES
 DEPRECIATION AND AMORTIZATION Free Fighter Free Fighter
 MANAGEMENT FEES
 COMMISSIONS AND GENERAL AND ADMINISTRATIVE EXPENSES
 45




---



##### Table of Contents



STOCK-BASED COMPENSATION EXPENSE
 INTEREST AND FINANCE COSTS
 LOSS ON DEBT EXTINGUISHMENT 
 CHANGE IN FAIR VALUE OF DERIVATIVES 
 NET (LOSS) Free
Fighter Free Fighter
 Liquidity and Capital Resources
   Free Impala Free Knight Free
Lady Free Maverick
 46




---



##### Table of Contents



Cash Flows
 Free Knight Free Impala Free Lady Free Maverick
 OPERATING ACTIVITIES
 INVESTING ACTIVITIES Free Knight, Free Impala, Free Lady Free Maverick Free Hero Free Jupiter Free Fighter.
 FINANCING ACTIVITIES
 Capital Requirements
 Free Knight Free Impala Free
Lady Free
Maverick
 47




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##### Table of Contents



Free Hero Free Jupiter Free Hero Free Jupiter
 Free Goddess Free Goddess
 Free Hero Free Jupiter Free Goddess Free Hero Free Jupiter Free
Goddess
 Free Fighter
 Free Destiny Free Envoy Free Destiny Free Envoy Free Fighter Free Fighter
  Long-Term Debt
  Off-Balance Sheet Arrangements
  48




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More than(in thousands)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt
    
    $
    160,350
    
    
    $
    26,700
    
    
    $
    32,800
    
    
    $
    49,100
    
    
    $
    51,750Interest on variable-rate debt
    
    
    25,540
    
    
    
    5,636
    
    
    
    10,757
    
    
    
    6,373
    
    
    
    2,774Total obligations
    
    $
    185,890
    
    
    $
    32,336
    
    
    $
    43,557
    
    
    $
    55,473
    
    
    $
    54,524
 Critical Accounting Policies
   Impairment of long-lived assets.
    49




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##### Table of Contents



Depreciation. Free Fighter
 Deferred dry-dock and special survey costs.
   Accounting for revenues and expenses.
   Insurance claims.
 50




---



##### Table of Contents



Recent Accounting Pronouncements
      51




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##### Table of Contents



52




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##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and Senior Management
  Name
    
    Age
    
    Position
    
    Director ClassIon G. Varouxakis
    
    
    38
    
    
    Chairman of the Board of Directors,
Chief Executive Officer and President
    
    CDimitrios K. Filippas
    
    
    31
    
    
    Interim Chief Financial Officer
    
    Kostas Koutsoubelis
    
    
    54
    
    
    Director, Vice President and Treasurer
    
    AAlexis Varouxakis
    
    
    32
    
    
    Secretary
    
    Didier Salomon
    
    
    63
    
    
    Director
    
    AFocko H. Nauta
    
    
    51
    
    
    Director
    
    BDimitrios Panagiotopoulos
    
    
    48
    
    
    Director
    
    C
 Ion G. Varouxakis
 Dimitrios K. Filippas
 Kostas Koutsoubelis
 Alexis Varouxakis
 53




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##### Table of Contents



Didier Salomon
 Focko H. Nauta
 Dimitrios Panagiotopoulos
  B. Compensation
  Board Practices
    54




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##### Table of Contents



Employees
  E. Share Ownership
   Percentage ofNumber of Shares
    
    
    Shares of Commonof Common Stock
    
    
    Stock BeneficiallyName
    
    Beneficially Owned
    
    
    Owned(1)Ion G. Varouxakis
    
    
    2,314,697
    (2)
    
    
    10.9
    %Dimitrios K. Filippas
    
    
    
    
    
    
    *Focko H. Nauta
    
    
    15,000
    (3)
    
    
    *Dimitrios Panagiotopoulos
    
    
    15,000
    (3)
    
    
    *Kostas Koutsoubelis
    
    
    15,000
    (3)
    
    
    *Didier SalomonAlexis Varouxakis
    
    
    21,000
    (3)
    
    
    *All directors and executive officers as a group (seven persons)
    
    
    2,504,697
    (4)
    
    
    11.8
    %
 
 *Less than 1%.(1)
    
    For purposes of computing the percentage of outstanding shares of common stock held
by each person named above, any shares that the named person has the right to acquire within
60 days under warrants or options are deemed to be outstanding for that person, but are not
deemed to be outstanding when computing the percentage ownership of any other person.(2)
    
    Reflects 2,314,697 shares owned by The Midas Touch S.A., a Marshall Islands
corporation wholly owned by Mr. Varouxakis; Does not include 40,000 shares owned by V Estates
S.A., which is controlled by Mr. Varouxakis father, and 30,600 shares owned by Mr.
Varouxakis mother, as to which shares he disclaims beneficial ownership.(3)
    
    Reflects 6,000 shares owned by Edifice Holding, S.A. a Marshall Islands corporation
wholly owned by Mr. Alexis Varouxakis and 5,000 shares underlying fully vested options.(4)
    
    Includes an aggregate of 125,000 shares underlying fully vested options. Amended and Restated 2005 Stock Incentive Plan
  55




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##### Table of Contents



Employment of Our Executive Officers
  
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major Shareholders
  Percentage ofNumber of Shares of
    
    
    Shares of CommonCommon Stock
    
    
    Stock BeneficiallyName
    
    Beneficially Owned
    
    
    Owned(1)Ion G. Varouxakis
    
    
    2,314,697
    (2)
    
    
    10.9
    %FS Holdings Limited
    
    
    3,240,653
    (3)
    
    
    15.3
    %
 
 (1)
    
    For purposes of computing the percentage of outstanding shares of common stock held
by each person named above, any shares that the named person has the right to acquire within
60 days under warrants or options are deemed to be outstanding for that person, but are not
deemed to be outstanding when computing the percentage ownership of any other person.(2)
    
    Reflects 2,314,697 shares owned by The Midas Touch S.A., a Marshall Islands
corporation wholly owned by Mr. Varouxakis; Does not include 40,000 shares owned by V Estates
S.A., which is controlled by Mr. Varouxakis father, and 30,600 shares owned by Mr.
Varouxakis mother, as to which shares he disclaims beneficial ownership.(3)
    
    Reflects 2,808,782 shares owned by FS Holdings Limited, a Marshall Islands
corporation, and 431,811 shares owned by Benbay Limited, a Republic of Cyprus corporation,
each of which is controlled by the Restis Family.    56




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##### Table of Contents



B. Related Party Transactions
  Free Hero Free Maverick Free Envoy Free Destiny
   57




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##### Table of Contents



   
   Free Destiny Free Envoy
  58




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##### Table of Contents



Free Impala
  C. Interest of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 A. Consolidated Statements and Other Financial Information
  B. Significant Changes
  
 ITEM 9. THE OFFER AND LISTING
 A. Offer and Listing Details
  B. Plan of Distribution
  C. Markets
  59




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For the Years Ended:
    
    Common Stock
    
    
    Class W Warrants
    
    
    Class Z WarrantsHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    LowDecember 31, 2007
    
    $
    10.24
    
    
    $
    2.76
    
    
    $
    5.14
    
    
    $
    0.25
    
    
    $
    5.20
    
    
    $
    0.48December 31, 2008
    
    
    7.97
    
    
    
    0.90
    
    
    
    3.05
    
    
    
    0.02
    
    
    
    3.35
    
    
    
    0.05
 For the Quarters Ended:
    
    Common Stock
    
    
    Class W Warrants
    
    
    Class Z WarrantsHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    LowMarch 31, 2007
    
    $
    5.15
    
    
    $
    2.76
    
    
    $
    1.29
    
    
    $
    0.25
    
    
    $
    1.15
    
    
    $
    0.48June 30, 2007
    
    
    7.63
    
    
    
    4.55
    
    
    
    2.65
    
    
    
    0.81
    
    
    
    2.76
    
    
    
    1.00September 30, 2007
    
    
    9.35
    
    
    
    6.77
    
    
    
    3.30
    
    
    
    1.82
    
    
    
    3.35
    
    
    
    2.10December 31, 2007
    
    
    10.24
    
    
    
    5.12
    
    
    
    5.14
    
    
    
    1.68
    
    
    
    5.20
    
    
    
    1.73March 31, 2008
    
    
    6.09
    
    
    
    4.49
    
    
    
    2.45
    
    
    
    1.06
    
    
    
    2.45
    
    
    
    1.40June 30, 2008
    
    
    7.97
    
    
    
    5.90
    
    
    
    3.05
    
    
    
    1.85
    
    
    
    3.35
    
    
    
    1.85September 30, 2008
    
    
    7.07
    
    
    
    3.95
    
    
    
    2.24
    
    
    
    0.97
    
    
    
    2.65
    
    
    
    1.25December 31, 2008
    
    
    4.01
    
    
    
    0.90
    
    
    
    1.15
    
    
    
    0.02
    
    
    
    1.46
    
    
    
    0.05March 31, 2009
    
    
    1.88
    
    
    
    0.54
    
    
    
    0.24
    
    
    
    0.04
    
    
    
    0.33
    
    
    
    0.08
 For the Months Ended:
    
    Common Stock
    
    
    Class W Warrants
    
    
    Class Z WarrantsHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    LowOctober 31, 2008
    
    $
    4.01
    
    
    $
    1.99
    
    
    $
    1.15
    
    
    $
    0.24
    
    
    $
    1.46
    
    
    $
    0.25November 30, 2008
    
    
    2.50
    
    
    
    0.90
    
    
    
    0.24
    
    
    
    0.02
    
    
    
    0.50
    
    
    
    0.05December 31, 2008
    
    
    2.02
    
    
    
    1.11
    
    
    
    0.18
    
    
    
    0.03
    
    
    
    0.29
    
    
    
    0.12January 31, 2009
    
    
    1.88
    
    
    
    1.28
    
    
    
    0.24
    
    
    
    0.10
    
    
    
    0.33
    
    
    
    0.16February 28, 2009
    
    
    1.67
    
    
    
    1.21
    
    
    
    0.14
    
    
    
    0.09
    
    
    
    0.21
    
    
    
    0.16March 31, 2009
    
    
    1.48
    
    
    
    0.54
    
    
    
    0.15
    
    
    
    0.04
    
    
    
    0.15
    
    
    
    0.08
 D. Selling Shareholders
  E. Dilution
  F. Expenses of the Issue
  
 ITEM 10. ADDITIONAL INFORMATION
 A. Share Capital
  B. Memorandum and Articles of Incorporation
   60




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Shareholder Rights Plan
 General
    Detachment of the Rights
         61




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##### Table of Contents



Flip-In Event
   Flip-Over Event
  
    
    we are acquired in a merger or other business combination transaction; or
    
    50% or more of our assets, cash flows or earning power is sold or transferred.
  Antidilution
  Redemption of Rights
  62




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##### Table of Contents



Exchange of Rights
    Amendment of Terms of Rights
      C. Material Contracts
 Amended Credit Agreement dated August 12, 2008 among Adventure Two, Adventure Three Adventure
Seven and Adventure Eleven with Hollandsche Bank  Unie N.V.; Term sheet dated March 20, 2009
 Free
Maverick Free Knight
 Free Maverick, Free Knight Free Destiny Free Envoy
  63




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##### Table of Contents




    
    100% commencing July 1, 2010
    
    110% commencing July 1, 2011
    
    120% commencing July 1, 2012
    
    125% commencing December 31, 2012
  Memorandum of Agreement dated August 7, 2008 for the M/V Free Maverick
 Free Maverick Free Maverick
 Supplemental Agreement dated June 26, 2008 to the Facility Agreement dated December 24, 2007,
entered into between FreeSeas Inc. as borrower and Credit Suisse as lender; Supplemental Agreement
dated March 23, 2009 to the Facility Agreement dated December 24, 2007 between FreeSeas Inc. and
Credit Suisse
   Loan Agreement dated March 31, 2008 between Adventure Nine, S.A. and First Business Bank; First
Preferred Mortgage on the M/V Free Impala; Deed of Covenants dated April 2, 2008 between Adventure
Nine and First Business Bank; First Supplemental Agreement dated March 17, 2009 to Loan Agreement
dated March 31, 2008 with First Business Bank
 Free Impala th Free Impala
   64




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##### Table of Contents



Memorandum of Agreement dated March 10, 2008 for the M/V Free Lady
 Free Lady Free Lady
 Memorandum of Agreement dated January 22, 2008 for the M/V Free Impala
 Free Impala Free Impala
 Memorandum of Agreement dated January 22, 2008 for the M/V Free Knight
 Free Knight Free Knight
 Credit Agreement dated January 21, 2008 among Adventure Two, Adventure Three and Adventure Seven
with Hollandsche Bank  Unie N.V.; Short term Loan Agreement among Adventure Two, Adventure Three,
Adventure Seven and Hollandsche BankUnie N.V.; Rollover Loan Agreement dated April 3, 2008 among
Adventure Two, Adventure Three, Adventure Seven and Hollandsche BankUnie N.V.; First Preferred
Mortgage dated March 19, 2008 on the M/V Free Knight; Deed of Covenants between Adventure Seven and
Hollandsche Bank  Unie N.V; Second Preferred Mortgage on the M/V Free Destiny; Second Preferred
Mortgage on the M/V Free Envoy
 Free Knight Free Knight Free Knight Free Envoy Free Destiny
 Facility Agreement date December 24, 2007 between FreeSeas Inc. and Credit Suisse; First Preferred
Mortgage on the M/V Free Hero; First Preferred Mortgage on the M/V Free Goddess; First Preferred
Mortgage on the M/V Free Jupiter
 reducing revolving credit facility from Credit Suisse
in the aggregate amount of $87,000,000, consisti Free Hero Free Jupiter Free Goddess Free Hero Free Jupiter Free Goddess
 Free Hero Free Jupiter Free Goddess
 65




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##### Table of Contents



Memorandum of Agreement dated August 20, 2007 for the M/V Free Goddess
 Free Goddess Free Goddess
 Loan Agreement between FreeSeas Inc. and HSH Nordbank; Loan Agreement between FreeSeas Inc. and
BTMU Capital Corporation; Amendment to Loan Agreement between FreeSeas Inc, and HSH Nordbank
   Memoranda of Agreement dated May 1, 2007 regarding vessel acquisitions
  66




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##### Table of Contents



Promissory Note dated May 7, 2007 from FreeSeas Inc. to FS Holdings Limited
  D. Exchange Controls and Other Limitations Affecting Security Holders
  E. Taxation
  Marshall Islands Tax Consequences
  United States Federal Income Tax Consequences
  67




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##### Table of Contents



United States Federal Income Taxation of Our Company
 Taxation of Operating Income: In General
     Exemption of Operating Income from United States Federal Income Taxation
  
 
 
 
     68




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Taxation in Absence of Exemption
   69




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
 
  United States Taxation of Gain on Sale of Vessels
  United States Federal Income Taxation of U.S. Holders
   Distributions
  70




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##### Table of Contents



Sale, Exchange or Other Disposition of Common Stock
  Passive Foreign Investment Company Status and Significant Tax Consequences
  
 
   71




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##### Table of Contents



Taxation of U.S. Holders Making a Timely QEF Election
  Taxation of U.S. Holders Making a Mark-to-Market Election
  72




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##### Table of Contents



Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
  
 
 
  United States Federal Income Taxation of Non-U.S. Holders
  Dividends on Common Stock
  Sale, Exchange or Other Disposition of Common Stock
  
 
  73




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##### Table of Contents



Backup Withholding and Information Reporting
  
 
 
     F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
 http://www.sec.gov
  I. Subsidiary Information
  74




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##### Table of Contents



ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Fluctuation
    Vessel Name
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013Free Impala
    
    $
    272,966
    
    
    
    201,604
    
    
    
    171,188
    
    
    
    141,188
    
    
    
    110,354Free Knight
    
    
    200,000
    
    
    
    167,444
    
    
    
    137,028
    
    
    
    106,938
    
    
    
    76,194Free Hero/Free Goddess/Free Jupiter
    
    
    390,546
    
    
    
    347,351
    
    
    
    296,656
    
    
    
    246,676
    
    
    
    195,267Free Maverick
    
    
    281,856
    
    
    
    249,447
    
    
    
    225,114
    
    
    
    219,506
    
    
    
    Free Lady
    
    
    348,012
    
    
    
    298,177
    
    
    
    267,760
    
    
    
    238,025
    
    
    
    206,927
  Foreign Exchange Rate Risk
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  75




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##### Table of Contents



PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Managements Annual Report on Internal Control over Financial Reporting
  Attestation Report of the Registered Public Accounting Firm
 Changes in Internal Control over Financial Reporting
  76




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##### Table of Contents



ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
 www.freeseas.gr
 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2007(1)
    
    
    2008(1)Audit fees
    
    $
    1,078,000
    
    
    $
    749,000
 
 (1)
    
    Audit fees represent fees for professional services related to the audit of our
financial statements for the years ended December 31, 2007 and 2008, which include for 2007
fees for professional services related to the filing of our registration statement with the
SEC for our 2007 public offering. .
 
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 ITEM 16F. CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 ITEM 16G. CORPORATE GOVERNANCE
   77




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##### Table of Contents



PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  PageNumberIndex to Consolidated Financial Statements
    
    F-1Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets
    
    F-3Consolidated Statements of Operations
    
    F-4Consolidated Statements of Cash Flows
    
    F-5Consolidated Statements of Shareholders Equity
    
    F-7Notes to Consolidated Financial Statements
    
    F-8
 
 ITEM 19. EXHIBITS
 1.1
    
    
    Amended and Restated Articles of Incorporation of
FreeSeas Inc. (formerly known as Adventure Holdings
S.A.)
    
    Exhibit 3.1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on May 11, 2005 and
incorporated herein
by reference1.2
    
    
    Amended and Restated By-Laws of FreeSeas Inc.
(formerly known as Adventure Holdings S.A.)
    
    Exhibit 3.2 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on May 11, 2005 and
incorporated herein
by reference1.3
    
    
    First Amendment to the Amended and Restated Bylaws
of FreeSeas Inc.
    
    Exhibit 3.3 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-145203) filed
on October 15, 2007
and incorporated
herein by reference2.1
    
    
    Specimen Common Stock Certificate
    
    Exhibit 4.1 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference2.2
    
    
    Form of Class A Warrant
    
    Exhibit 4.2 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference2.3
    
    
    Warrant dated as of May 8, 2007 issued to FS
Holdings Limited
    
    Exhibit 4.3 to
Registrants
Registration
Statement on Form
F-3 filed on August
3, 2007 and
incorporated herein
by reference2.4
    
    
    Warrant dated as of June 22, 2007 issued to FS
Holdings Limited
    
    Exhibit 4.4 to
Registrants
Registration
Statement on Form
F-3 filed on August
3, 2007 and
incorporated herein
by reference2.5
    
    
    Form of Class W Warrant
    
    Exhibit 4.3 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference2.6
    
    
    Form of Class Z Warrant
    
    Exhibit 4.4 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference
 78




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##### Table of Contents



2.7
    
    
    Warrant Clarification Agreement dated May 10, 2007
between FreeSeas Inc. and American Stock Transfer &
Trust Company
    
    Exhibit 4.27 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2006
and incorporated
herein by reference2.8
    
    
    Form of Management Stock Option Agreement
    
    Exhibit 4.5 to
Amendment No. 2 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference2.9
    
    
    Shareholder Rights Agreement entered into effective
as of January 14, 2009 by and between FreeSeas Inc.
and American Stock Transfer & Trust Company, LLC
    
    Filed herewith4.1
    
    
    Employment Agreement between Ion G. Varouxakis and
FreeSeas Inc.
    
    Exhibit 10.2 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No
333-124825) filed
on July 22, 2005
and incorporated
herein by reference4.2
    
    
    Employment Agreement between Dimitris D.
Papadopoulos and FreeSeas Inc.
    
    Exhibit 10.2 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-145203) filed
on October 15, 2007
and incorporated
herein by reference4.3
    
    
    2005 Amended and Restated Stock Incentive Plan
    
    Annex A to
Registrants Form
6-K filed on
December 1, 2006
and incorporated
herein by reference4.4
    
    
    Credit Agreement dated June 24, 2004 between
Adventure Three S.A. and Hollandsche Bank-Unie N.V.
    
    Exhibit 10.7 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference4.5
    
    
    Mortgage dated September 29, 2004 by Adventure Three
S.A. in favor of Hollandsche Bank-Unie N.V.
    
    Exhibit 10.8 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference4.6
    
    
    Deed of Assignment dated September 29, 2004 between
Adventure Three S.A. and Hollandsche Bank-Unie N.V.
    
    Exhibit 10.9 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference4.7
    
    
    Short-Term Loan Agreement in Euros and Optional
Currencies dated July 8, 2004 between Adventure
Three S.A. and Hollandsche Bank-Unie N.V.
    
    Exhibit 10.10 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference4.8
    
    
    Standard Ship Management Agreement dated July 1,
2004 between Free Bulkers S.A. and Adventure Two
S.A.
    
    Exhibit 10.11 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on May 11, 2005 and
incorporated herein
by reference4.9
    
    
    Amendment No. 1 of July 22, 2005 to the Shipman 98
Agreement dated July 1, 2004 between Adventure Two
S.A. and Free Bulkers S.A.
    
    Exhibit 10.20 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference
 79




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##### Table of Contents



4.10
    
    
    Standard Ship Management Agreement dated July 1,
2004 between Free Bulkers S.A. and Adventure Three
S.A.
    
    Exhibit 10.12 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on May 11, 2005 and
incorporated herein
by reference4.11
    
    
    Amendment No. 1 of July 22, 2005 to the Shipman 98
Agreement dated July 1, 2004 between Adventure Three
S.A. and Free Bulkers S.A.
    
    Exhibit 10.13 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-145203) filed
on October 15, 2007
and incorporated
herein by reference4.12
    
    
    Loan Agreement dated August 2, 2004 among Adventure
Holdings S.A. (now known as FreeSeas Inc.), G. Bros
S.A., and V Capital S.A., regarding the M/V Free
Destiny
    
    Exhibit 10.13 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference4.13
    
    
    First Amendment to Loan Agreement dated effective as
of April 25, 2005 among Adventure Holdings S.A. (now
known as FreeSeas Inc.), G. Bros S.A., and V Capital
S.A., regarding the M/V Free Destiny
    
    Exhibit 10.14 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference4.14
    
    
    Loan Agreement dated September 20, 2004 among
Adventure Holdings S.A. (now known as FreeSeas
Inc.), G. Bros S.A., and V Capital S.A., regarding
the M/V Free Envoy
    
    Exhibit 10.15 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference4.15
    
    
    First Amendment to Loan Agreement dated effective as
of April 25, 2005 among Adventure Holdings S.A. (now
known as FreeSeas Inc.), G. Bros S.A., and V Capital
S.A., regarding the M/V Free Envoy
    
    Exhibit 10.16 to
Amendment No. 1 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on July 22, 2005
and incorporated
herein by reference4.16
    
    
    Credit Agreement dated September 23, 2005 between
Adventure Two S.A. and Hollandsche Bank-Unie N.V.
    
    Exhibit 10.22 to
Amendment No. 2 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference4.17
    
    
    Credit Agreement dated September 23, 2005 between
Adventure Three S.A. and Hollandsche Bank-Unie N.V.
    
    Exhibit 10.23 to
Amendment No. 2 of
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference4.18
    
    
    Second Amendment to Loan Agreement dated effective
as of October 7, 2005 among FreeSeas Inc., G. Bros
S.A., and V Capital regarding the M/V Free Destiny
    
    Exhibit 10.24 to
Amendment No. 2 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference4.19
    
    
    Second Amendment to Loan Agreement dated effective
as of October 7, 2005 among FreeSeas Inc., G. Bros
S.A., and V Capital regarding the M/V Free Envoy
    
    Exhibit 10.25 to
Registrants
Registration
Statement of
Amendment No. 2 of
Form F-1 (File No.
333-124825) dated
October 11, 2005
and incorporated
herein by reference4.20
    
    
    Mortgage dated October 24, 2005 by Adventure Two
S.A. in favor of Hollandsche Bank-Unie N.V.
    
    Exhibit 4.22 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2005
and incorporated
herein by reference4.21
    
    
    Deed of Assignment dated October 24, 2005 between
Adventure Two S.A. and Hollandsche Bank-Unie N.V.
    
    Exhibit 4.23 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2005
and incorporated
herein by reference
 80




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##### Table of Contents



4.22
    
    
    Amendment dated January 23, 2006 to Credit Agreement
dated September 23, 2005 between Adventure Two S.A.
and Hollandsche Bank-Unie N.V.
    
    Exhibit 4.27 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2005
and incorporated
herein by reference4.23
    
    
    Amendment dated January 23, 2006 to Credit Agreement
dated September 23, 2005 between Adventure Three
S.A. and Hollandsche Bank-Unie N.V.
    
    Exhibit 4.28 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2005
and incorporated
herein by reference4.24
    
    
    Loan Agreement dated September 2006 among Adventure
Four, S.A. and First Business Bank S.A.
    
    Exhibit 4.24 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2006
and incorporated
herein by reference4.25
    
    
    Deed of Assignment dated September 2006 between
Adventure Four, S.A. in favor of First Business Bank
S.A.
    
    Exhibit 4.25 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2006
and incorporated
herein by reference4.26
    
    
    Mortgage dated September 2006 by Adventure Four S.A.
in favor of First Business Bank S.A.
    
    Exhibit 4.26 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2006
and incorporated
herein by reference4.27
    
    
    Promissory Note dated May 7, 2007 from Free Seas
Inc. in favor of FS Holdings Limited
    
    Exhibit 4.28 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2006
and incorporated
herein by reference4.28
    
    
    Loan Agreement between FreeSeas Inc. and HSH Nordbank
    
    Exhibit 10.30 to
Amendment No. 2 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference4.29
    
    
    Loan Agreement between FreeSeas Inc. and BTMU
Capital Corporation
    
    Exhibit 10.31 to
Amendment No. 2 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference4.30
    
    
    Credit Agreement dated May 7, 2007 among Adventure
Two S.A., Adventure Three S.A. and Hollandsche Bank
 Unie N.V.
    
    Exhibit 10.32 to
Amendment No. 2 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference4.31
    
    
    Memorandum of Agreement dated May 1, 2007 for the
M/V Free Hero
    
    Exhibit 10.34 to
Amendment No. 2 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference4.32
    
    
    Memorandum of Agreement dated May 1, 2007 for the
M/V Free Jupiter
    
    Exhibit 10.35 to
Amendment No. 2 to
Registrants
Registration
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference4.33
    
    
    Memorandum of Agreement dated August 20, 2007 for
the M/V Free Goddess
    
    Exhibit 10.36 to
Amendment No. 2 to
Registrants
Registrations
Statement on Form
F-1 (File No.
333-124825) filed
on October 11, 2005
and incorporated
herein by reference4.34
    
    
    Supplemental Agreement with HSH Nordbank dated
December 28, 2007
    
    Exhibit 4.34 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference
 81




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##### Table of Contents



4.35
    
    
    Memorandum of Agreement dated January 22, 2008 for
the M/V Free Impala
    
    Exhibit 4.35 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.36
    
    
    Memorandum of Agreement dated January 22, 2008 for
the M/V Free Knight
    
    Exhibit 4.36 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.37
    
    
    Supplemental Agreement dated October 2007 to Loan
Agreement between FreeSeas Inc., and HSH Nordbank AG
    
    Exhibit 4.37 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.38
    
    
    Memorandum of Agreement dated March 10, 2008 for M/V
Free Lady
    
    Exhibit 4.38 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.39
    
    
    Facility Agreement dated December 24, 2007 between
FreeSeas Inc. and Credit Suisse
    
    Exhibit 4.39 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.40
    
    
    First Preferred Mortgage on the M/V Free Heroin
favor of Credit Suisse
    
    Exhibit 4.40 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.41
    
    
    First Preferred Mortgage on the M/V Free Goddessin
favor of Credit Suisse
    
    Exhibit 4.41 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.42
    
    
    First Preferred Mortgage on the M/V Free Jupiterin
favor of Credit Suisse
    
    Exhibit 4.42 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.43
    
    
    Loan Agreement dated March 31, 2008 between
Adventure Nine and First Business Bank
    
    Exhibit 4.43 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.44
    
    
    First Preferred Mortgage on the M/V Free Impalain
favor of First Business Bank
    
    Exhibit 4.44 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.45
    
    
    Deed of Covenants dated April 2, 2008 between
Adventure Nine and First Business Bank
    
    Exhibit 4.45 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.46
    
    
    Credit Agreement dated January 21, 2008 among
Adventure Two, Adventure Three and Adventure Seven
with Hollandsche Bank  Unie N.V.
    
    Exhibit 4.46 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.47
    
    
    Short Term Loan Agreement among Adventure Two,
Adventure Three, Adventure Seven and Hollandsche
BankUnie N.V.
    
    Exhibit 4.47 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.48
    
    
    Rollover Loan Agreement dated April 3, 2008 among
Adventure Two, Adventure Three, Adventure Seven and
Hollandsche BankUnie N.V.
    
    Exhibit 4.48 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.49
    
    
    First Preferred Mortgage dated March 19, 2008 on the
M/V Free Knightin favor of Hollandsche Bank  Unie
N.V.
    
    Exhibit 4.49 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference
 82




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##### Table of Contents



4.50
    
    
    Deed of Covenants between Adventure Seven and
Hollandsche Bank  Unie N.V
    
    Exhibit 4.45 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.51
    
    
    Second Preferred Mortgage on the M/V Free Destinyin
favor of Hollandsche Bank  Unie N.V.
    
    Exhibit 4.51 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.52
    
    
    Second Preferred Mortgage on the M/V Free Envoyin
favor of Hollandsche Bank  Unie N.V.
    
    Exhibit 4.52 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2007
and incorporated
herein by reference4.53
    
    
    Memorandum of Agreement dated August 7, 2008 for the
M/V Free Maverick
    
    Filed herewith.4.54
    
    
    First Preferred Mortgage on the M/V Free Maverickin
favor of Hollandsche Bank  Unie N.V
    
    Filed herewith.4.55
    
    
    Amended Credit Agreement dated August 12, 2008 among
Adventure Two, Adventure Three, Adventure Seven and
Adventure Eleven with Hollandsche Bank  Unie N.V.
    
    Filed herewith4.56
    
    
    Supplemental Agreement dated June 26, 2008 to the
Facility Agreement dated December 24, 2007 between
FreeSeas Inc. and Credit Suisse
    
    Filed herewith.4.57
    
    
    Supplemental Agreement dated March 23, 2009 to the
Facility Agreement dated December 24, 2007 between
FreeSeas Inc. and Credit Suisse
    
    Filed herewith4.58
    
    
    First Supplemental Agreement dated March 17, 2009 to
Loan Agreement dated March 31, 2008 with First
Business Bank S.A.
    
    Filed herewith.4.59
    
    
    Deed of Amendment dated March 17, 2009 of the Deed
of Covenant dated April 2, 2008 between Adventure
Nine S.A. and First Business Bank S.A.
    
    Filed herewith.4.60
    
    
    Term Sheet dated March 2009 between HBU and FreeSeas
    
    Filed herewith.4.61
    
    
    Amended and Restated Services Agreement dated
October 1, 2008 between FreeSeas Inc. and Free
Bulkers S.A.
    
    Filed herewith8.1
    
    
    Subsidiaries of the Registrant
    
    Filed herewith.12.1
    
    
    Section 302 Certification of Chief Executive Officer
    
    Filed herewith.12.2
    
    
    Section 302 Certification of Chief Financial Officer
    
    Filed herewith.
 83




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##### Table of Contents



13.1
    
    
    Section 906 Certification of Chief Executive Officer
    
    Filed herewith.13.2
    
    
    Section 906 Certification of Chief Financial Officer
    
    Filed herewith.15.1
    
    
    Code of Business Conduct and Ethics
    
    Exhibit 15.1 to
Registrants Annual
Report on Form 20-F
for the year ended
December 31, 2005
and incorporated
herein by reference15.2
    
    
    Consent of PriceWaterhouseCoopers, S.A.
    
    Filed herewith.
 84




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##### Table of Contents



SIGNATURES
  FREESEAS INC.By:
    /s/ Dimitris FilippasName:
    Dimitris FilippasTitle:
    Interim Chief Financial Officer  85




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31,2008 and 2007
    
    F-3Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
    
    F-5Consolidated Statements of Shareholders Equity for the years ended December 31, 2008, 2007 and 2006
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 To the Shareholders and the Board of Directors
    
 F-2




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##### Table of Contents



FREESEAS INC.
CONSOLIDATED BALANCE SHEETS
  Notes
    
    
    December 31, 2008
    
    
    December 31, 2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    
    
    
    
    $
    3,378
    
    
    $
    63,394Trade receivables, net
    
    
    
    
    
    
    812
    
    
    
    60Insurance claims
    
    
    
    
    
    
    17,807
    
    
    
    16,116Due from related party
    
    
    11
    
    
    
    1,634
    
    
    
    1,037Inventories
    
    
    
    
    
    
    579
    
    
    
    499Back log assets
    
    
    7
    
    
    
    907Restricted cash
    
    
    
    
    
    
    1,095Prepayments and other
    
    
    
    
    
    
    972
    
    
    
    334Total current assets
    
    
    
    
    
    $
    27,184
    
    
    $
    81,440Fixed assets, net
    
    
    3
    
    
    
    275,405
    
    
    
    108,021Deferred charges, net
    
    
    4
    
    
    
    3,772
    
    
    
    2,161Restricted cash
    
    
    
    
    
    
    1,500
    
    
    
    350Total assets
    
    
    
    
    
    $
    307,861
    
    
    $
    191,972LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    
    5
    
    
    $
    10,916
    
    
    $
    3,181Accrued liabilities
    
    
    6
    
    
    
    11,347
    
    
    
    16,713Unearned revenue
    
    
    
    
    
    
    1,320
    
    
    
    783Due to related party
    
    
    11
    
    
    
    12Derivative financial instruments at fair value  current portion
    
    
    8
    
    
    
    473Deferred revenue  current portion
    
    
    7
    
    
    
    
    
    
    
    1,620Bank loans  current portion
    
    
    9
    
    
    
    26,700
    
    
    
    11,800Total current liabilities
    
    
    
    
    
    $
    50,768
    
    
    $
    34,097Derivative financial instruments at fair value  net of current portion
    
    
    8
    
    
    
    1,337
    
    
    
    749Deferred revenue  net of current portion
    
    
    7
    
    
    
    1,251Bank loans  net of current portion
    
    
    9
    
    
    
    133,650
    
    
    
    44,500Total long term liabilities
    
    
    
    
    
    $
    136,238
    
    
    $
    45,249Commitments and Contingencies
    
    
    10SHAREHOLDERS EQUITY:Preferred stock, $0.001 par value; 5,000,000 shares authorized,
none issued
    
    
    14Common stock, $0.001 par value, 40,000,000 shares authorized,
21,171,329 shares issued and outstanding
    
    
    14
    
    
    
    21
    
    
    
    20Additional paid-in capital
    
    
    
    
    
    
    110,322
    
    
    
    115,464Retained earnings (Accumulated deficit)
    
    
    
    
    
    
    10,512
    
    
    
    (2,858
    )Total shareholders equity
    
    
    
    
    
    $
    120,855
    
    
    $
    112,626Total liabilities and shareholders equity
    
    
    
    
    
    $
    307,861
    
    
    $
    191,972
  F-3




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##### Table of Contents



FREESEAS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended December 31,2008
    
    
    2007
    
    
    2006OPERATING REVENUES
    
    $
    66,689
    
    
    $
    20,147
    
    
    $
    11,727OPERATING EXPENSES:Vessel operating expenses
    
    
    (16,354
    )
    
    
    (6,001
    )
    
    
    (4,483
    )Voyage expenses
    
    
    (527
    )
    
    
    (267
    )
    
    
    (689
    )Depreciation expense
    
    
    (13,349
    )
    
    
    (4,435
    )
    
    
    (4,479
    )Amortization of deferred charges
    
    
    (788
    )
    
    
    (757
    )
    
    
    (442
    )Management and other fees to a related party
    
    
    (2,634
    )
    
    
    (875
    )
    
    
    (540
    )Commissions
    
    
    (3,383
    )
    
    
    (1,095
    )
    
    
    (799
    )Stock-based compensation expense
    
    
    (107
    )
    
    
    (96
    )
    
    
    (651
    )General and administrative expenses
    
    
    (2,756
    )
    
    
    (2,111
    )
    
    
    (1,925
    )Bad debts
    
    
    (221
    )
    
    
    (118
    )Gains on sale of vessel
    
    
    
    
    
    
    1,369Income (loss) from operations
    
    $
    26,570
    
    
    $
    5,761
    
    
    $
    (2,281
    )OTHER INCOME (EXPENSE):Interest and finance costs
    
    
    (6,209
    )
    
    
    (3,204
    )
    
    
    (1,004
    )Loss on debt extinguishment
    
    
    (639
    )
    
    
    (2,570
    )Change in fair value of derivatives
    
    
    (1,061
    )
    
    
    (749
    )Interest income
    
    
    580
    
    
    
    639
    
    
    
    19Other
    
    
    (49
    )
    
    
    (33
    )
    
    
    (58
    )Other income (expense)
    
    $
    (7,378
    )
    
    $
    (5,917
    )
    
    $
    (1,043
    )Net income (loss)
    
    $
    19,192
    
    
    $
    (156
    )
    
    $
    (3,324
    )Basic earnings (loss) per share
    
    $
    0.91
    
    
    $
    (0.02
    )
    
    $
    (0.53
    )Diluted earnings (loss) per share
    
    $
    0.91
    
    
    $
    (0.02
    )
    
    $
    (0.53
    )Basic weighted average number of shares
    
    
    21,006,497
    
    
    
    8,786,287
    
    
    
    6,290,100Diluted weighted average number of shares
    
    
    21,051,963
    
    
    
    8,786,287
    
    
    
    6,290,100
  F-4




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##### Table of Contents



FREESEAS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
  Twelve Months EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Cash Flows from Operating Activities:Net income (loss)
    
    $
    19,192
    
    
    $
    (156
    )
    
    $
    (3,324
    )Adjustments to reconcile net income (loss) to net cashDepreciation
    
    
    13,349
    
    
    
    4,435
    
    
    
    4,479Amortization of deferred charges
    
    
    1,141
    
    
    
    757
    
    
    
    514Amortization of debt discount
    
    
    
    
    
    
    433
    
    
    
    77Provision for bad debts
    
    
    221
    
    
    
    118
    
    
    
    202Write off of deferred charges
    
    
    
    
    
    
    
    
    
    
    32Dry-docking and special survey
    
    
    (2,617
    )
    
    
    (907
    )
    
    
    (2,069
    )Compensation cost for stock options granted
    
    
    107
    
    
    
    96
    
    
    
    651Loss on debt extinguishment
    
    
    639
    
    
    
    2,570Change in fair value of derivatives
    
    
    1,061
    
    
    
    749Amortization of deferred revenue
    
    
    (368
    )
    
    
    (1,516
    )Gain on sale of vessel
    
    
    
    
    
    
    (1,369
    )Back log asset
    
    
    899Changes in:Trade receivables
    
    
    (973
    )
    
    
    100
    
    
    
    40Inventories
    
    
    (80
    )
    
    
    (257
    )
    
    
    (200
    )Prepayments and other
    
    
    (638
    )
    
    
    (334
    )Due from related party
    
    
    (597
    )
    
    
    (997
    )
    
    
    637Insurance claims
    
    
    (1,691
    )
    
    
    (15,631
    )
    
    
    277Accounts payable
    
    
    7,735
    
    
    
    1,178
    
    
    
    827Unearned revenue
    
    
    537
    
    
    
    604
    
    
    
    7Accrued liabilities
    
    
    (5,366
    )
    
    
    15,198
    
    
    
    (25
    )Due to related party
    
    
    12
    
    
    
    
    
    
    
    (893
    )Other liabilities
    
    
    
    
    
    
    
    
    
    
    (154
    )Net Cash from Operating Activities
    
    $
    32,563
    
    
    $
    5,071
    
    
    $
    1,078Cash flows from (used in) Investing Activities:Vessel acquisitions
    
    
    (182,539
    )
    
    
    (97,585
    )
    
    
    Cash from sale of vessel, net
    
    
    
    
    
    
    10,606Net Cash (used in) Investing Activities
    
    $
    (182,539
    )
    
    $
    (86,979
    )Cash flows from (used in) Financing Activities:(Increase) in restricted cash
    
    
    (2,245
    )
    
    
    (350
    )Net movement in bank overdraft
    
    
    
    
    
    
    (2,000
    )
    
    
    2,000Proceeds from long term loan
    
    
    153,650
    
    
    
    104,743
    
    
    
    2,330Payments of bank loans
    
    
    (49,600
    )
    
    
    (56,273
    )
    
    
    (7,500
    )Payments of shareholders loans
    
    
    
    
    
    
    (16,614
    )
    
    
    (750
    )Proceeds from issuance of common shares
    
    
    
    
    
    
    95,153Exercise of warrants
    
    
    836
    
    
    
    8,667Exercise of stock options
    
    
    1,250Shareholders loans
    
    
    
    
    
    
    14,000Common stock dividend
    
    
    (13,157
    )Deferred financing cost
    
    
    (774
    )
    
    
    (2,396
    )
    
    
    (71
    )Net Cash from (used in) Financing Activities
    
    $
    89,960
    
    
    $
    144,930
    
    
    $
    (3,991
    )Net increase (decrease) in cash in hand and at bank
    
    $
    (60,016
    )
    
    $
    63,022
    
    
    $
    (2,913
    )Cash and cash equivalents, Beginning of year
    
    
    63,394
    
    
    
    372
    
    
    
    3,285Cash and cash equivalents, End of year
    
    $
    3,378
    
    
    $
    63,394
    
    
    $
    372Supplemental Cash Flow Information:Cash paid for interest
    
    $
    4,410
    
    
    $
    2,629
    
    
    $
    758Non-cash shareholder distributions
    
    
    
    
    
    $
    6
    
    
    $
    25Discount on promissory note
    
    
    
    
    
    $
    1,865Liability assumed in connection with vessel acquisitions
    
    
    
    
    
    $
    3,136
  F-5




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##### Table of Contents



FREESEAS INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
  Additional
    
    
    RetainedCommon
    
    
    Common
    
    
    Paid-in
    
    
    Earnings
    
    
    Deferred StockShares
    
    
    Shares $
    
    
    Capital
    
    
    (Accumulated deficit)
    
    
    Compensation
    
    
    TotalBalance January 1, 2006
    
    
    6,290,100
    
    
    
    6
    
    
    
    9,242
    
    
    
    622
    
    
    
    (165
    )
    
    
    9,705Issuance of shares, net
(Note 13)
    
    
    Distributions to shareholders
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    (25
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    486
    
    
    
    
    
    
    
    165
    
    
    
    651Exercise of warrant
conversions
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,324
    )
    
    
    
    
    
    
    (3,324
    )Balance December 31, 2006
    
    
    6,290,100
    
    
    
    6
    
    
    
    9,703
    
    
    
    (2,702
    )
    
    
    
    
    
    
    7,007Issuance of shares, net
(Note 13)
    
    
    12,650,000
    
    
    
    12
    
    
    
    95,141
    
    
    
    
    
    
    
    
    
    
    
    95,153Distributions to shareholders
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    96Stock issued upon exercise
of warrants
    
    
    1,803,356
    
    
    
    2
    
    
    
    8,665
    
    
    
    
    
    
    
    
    
    
    
    8,667Discount on promissory note
    
    
    
    
    
    
    
    
    
    
    1,865
    
    
    
    
    
    
    
    
    
    
    
    1,865Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    (156
    )Balance December 31, 2007
    
    
    20,743,456
    
    
    
    20
    
    
    
    115,464
    
    
    
    (2,858
    )
    
    
    
    
    
    
    112,626Dividend payments
    
    
    
    
    
    
    
    
    
    
    (7,335
    )
    
    
    (5,822
    )
    
    
    
    
    
    
    (13,157
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    107Stock issued upon exercise
of warrants
    
    
    177,873
    
    
    
    
    
    
    
    836
    
    
    
    
    
    
    
    
    
    
    
    836Stock issued upon exercise
of options
    
    
    250,000
    
    
    
    1
    
    
    
    1,250
    
    
    
    
    
    
    
    
    
    
    
    1,250Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,192
    
    
    
    
    
    
    
    19,192Balance December 31, 2008
    
    
    21,171,329
    
    
    
    21
    
    
    
    110,322
    
    
    
    10,512
    
    
    
    
    
    
    
    120,855
  F-6




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation and General Information
    %
    
    
    
    
    
    
    
    
    
    Date of
    
    Date ofCompany
    
    Owned
    
    M/V
    
    Type
    
    Dwt
    
    Built
    
    Acquisition
    
    DisposalFreeSeas Inc.Adventure Two S.A.
    
    100%
    
    Free Destiny
    
    Handysize
    
    25,240
    
    1982
    
    08/04/04
    
    N/AAdventure Three S.A.
    
    100%
    
    Free Envoy
    
    Handysize
    
    26,318
    
    1984
    
    09/29/04
    
    N/AAdventure Four S.A.
    
    100%
    
    Free Fighter
    
    Handysize
    
    38,905
    
    1982
    
    06/14/05
    
    04/27/07Adventure Five S.A.
    
    100%
    
    Free Goddess
    
    Handysize
    
    22,051
    
    1995
    
    10/30/07
    
    N/AAdventure Six S.A.
    
    100%
    
    Free Hero
    
    Handysize
    
    24,318
    
    1995
    
    07/03/07
    
    N/AAdventure Seven S.A.
    
    100%
    
    Free Knight
    
    Handysize
    
    24,111
    
    1998
    
    03/19/08
    
    N/AAdventure Eight S.A.
    
    100%
    
    Free Jupiter
    
    Handymax
    
    47,777
    
    2002
    
    09/05/07
    
    N/AAdventure Nine S.A.
    
    100%
    
    Free Impala
    
    Handysize
    
    24,111
    
    1997
    
    04/02/08
    
    N/AAdventure Ten S.A.
    
    100%
    
    Free Lady
    
    Handymax
    
    50,246
    
    2003
    
    07/07/08
    
    N/AAdventure Eleven S.A
    
    100%
    
    Free Maverick
    
    Handysize
    
    23,994
    
    1998
    
    09/01/08
    
    N/A
 2. Significant Accounting Policies
 Principles of Consolidation
 Use of Estimates:
 Foreign Currency Translation:
 Trade Receivables:
 F-7




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Inventories:
 Insurance Claims:
 Vessels Cost:
 Vessels Depreciation:
 Restricted Cash:
 Impairment of Long-lived Assets:
  Accounting for Special Survey and Dry-docking Costs:
 Financing Costs:
 F-8




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Accounting for Revenue and Expenses:
   Unearned Revenue:
 Deferred Revenue and Back-log assets:
 Profit Sharing Arrangements:
 Repairs and Maintenance:
 Interest Rate Swaps:
 Financial Instruments:
 Financial Risk Management:
 F-9




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Credit Risk:
 Interest Rate Risk:
 Liquidity Risk:
 Foreign Exchange Risk:
 Stock-Based Compensation
 Segment Reporting:
 Comprehensive Income:
 Earnings per Share:
 F-10




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Recent Accounting Developments:
      F-11




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    3. Fixed Assets
 AccumulatedVessel Cost
    
    
    Depreciation
    
    
    Net book valueJanuary 1, 2006
    
    $
    28,273
    
    
    $
    (4,425
    )
    
    $
    23,848Depreciation for the year
    
    
    
    
    
    
    (4,479
    )
    
    
    (4,479
    )December 31, 2006
    
    $
    28,273
    
    
    $
    (8,904
    )
    
    $
    19,369Additions new vessels
    
    
    100,721
    
    
    
    
    
    
    
    100,721Depreciation for the year
    
    
    
    
    
    
    (4,435
    )
    
    
    (4,435
    )Disposal of vessel
    
    
    (11,213
    )
    
    
    3,579
    
    
    
    (7,634
    )December 31, 2007
    
    $
    117,781
    
    
    $
    (9,760
    )
    
    $
    108,021Depreciation for the year
    
    
    
    
    
    
    (13,349
    )
    
    
    (13,349
    )Additions new vessels
    
    
    180,733
    
    
    
    
    
    
    
    180,733December 31, 2008
    
    $
    298,514
    
    
    $
    (23,109
    )
    
    $
    275,405
 Free Knight Free Impala Free Lady Free Maverick Free Knight Free Impala Free Lady Free
Maverick
 F-12




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 4. Deferred Charges
 Dry-docking costs
    
    
    Special survey costs
    
    
    Financing costs
    
    
    TotalJanuary 1, 2006
    
    $
    321
    
    
    $
    235
    
    
    $
    150
    
    
    $
    706Additions
    
    
    715
    
    
    
    1,354
    
    
    
    71
    
    
    
    2,140Written-off
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    (32
    )Amortization
    
    
    (306
    )
    
    
    (136
    )
    
    
    (72
    )
    
    
    (514
    )December 31, 2006
    
    $
    730
    
    
    $
    1,453
    
    
    $
    117
    
    
    $
    2,300Additions
    
    
    147
    
    
    
    760
    
    
    
    2,396
    
    
    
    3,303Written-off
    
    
    (350
    )
    
    
    (1,252
    )
    
    
    (1,083
    )
    
    
    (2,685
    )Amortization
    
    
    (285
    )
    
    
    (209
    )
    
    
    (263
    )
    
    
    (757
    )December 31, 2007
    
    $
    242
    
    
    $
    752
    
    
    $
    1,167
    
    
    $
    2,161Additions
    
    
    737
    
    
    
    1,880
    
    
    
    774
    
    
    
    3,391Written-off
    
    
    
    
    
    
    
    
    
    
    (639
    )
    
    
    (639
    )Amortization
    
    
    (273
    )
    
    
    (515
    )
    
    
    (353
    )
    
    
    (1,141
    )December 31, 2008
    
    $
    706
    
    
    $
    2,117
    
    
    $
    949
    
    
    $
    3,772
 Free
Knight Free Impala, Free Lady, Free Maverick Free Jupiter Free Jupiter Free Fighter.
 5. Accounts Payable
  December 31, 2008
    
    
    December 31, 2007Suppliers
    
    $
    10,484
    
    
    $
    3,065Agents
    
    
    93
    
    
    
    68Insurers
    
    
    339
    
    
    
    48Total
    
    $
    10,916
    
    
    $
    3,181
 6. Accrued Liabilities
  December 31, 2008
    
    
    December 31, 2007Accrued interest
    
    $
    1,386
    
    
    $
    96Accrued insurance and related liabilities
    
    
    9,556
    
    
    
    16,089Accrued financial advisory costs
    
    
    196
    
    
    
    26Other accrued liabilities
    
    
    209
    
    
    
    502Total
    
    $
    11,347
    
    
    $
    16,713
 F-13




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 7. Deferred Revenue/Back-log Assets
  Free Jupiter
 8. Derivatives at Fair Value
      Fair Value Measurements as of December 31, 2008Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsLiabilities
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swap contracts
    
    $
    1,810
    
    
    $
    
    
    
    $
    1,810
    
    
    $
    Total
    
    $
    1,810
    
    
    $
    
    
    
    $
    1,810
    
    
    $
    
 F-14




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  9. Long-Term Debt
  December 31, 2008
    
    
    December 31, 2007Current
    
    
    Long-term
    
    
    
    
    
    
    Current
    
    
    Long-termLender
    
    portion
    
    
    portion
    
    
    Total
    
    
    portion
    
    
    portion
    
    
    TotalFirst Business Bank
    
    
    3,000
    
    
    
    21,750
    
    
    
    24,750
    
    
    
    
    
    
    
    
    
    
    
    (Free Impala) (e)

Hollandsche Bank 
Unie N.V.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,100
    
    
    
    
    
    
    
    3,100(M/V Free Destiny)

Hollandsche Bank 
Unie N.V. (a)
    
    
    4,000
    
    
    
    17,750
    
    
    
    21,750
    
    
    
    
    
    
    
    
    
    
    
    (M/V Free Knight)
Hollandsche Bank 
Unie N.V. (b)
    
    
    6,200
    
    
    
    25,900
    
    
    
    32,100
    
    
    
    
    
    
    
    
    
    
    
    (M/V Free Maverick)
HSH Nordbank AG
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,700
    
    
    
    24,300
    
    
    
    28,000( M/V Free Jupiter)

Credit Suisse
    
    
    6,725
    
    
    
    36,975
    
    
    
    43,700
    
    
    
    5,000
    
    
    
    20,200
    
    
    
    25,200(M/V Free Hero,
Free Goddess and
Free Jupiter) (c)Credit Suisse
    
    
    6,775
    
    
    
    31,275
    
    
    
    38,050
    
    
    
    
    
    
    
    
    
    
    
    (M/V Free Lady) (d)Total
    
    $
    26,700
    
    
    $
    133,650
    
    
    $
    160,350
    
    
    $
    11,800
    
    
    $
    44,500
    
    
    $
    56,300
 F-15




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Lender
    
    
    Vessel
    
    
    Repayment Terms(a) Hollandsche Bank 
Unie N.V.
    
    
    M/V FREE KNIGHT
    
    
    One quarterly
installment of $1,750,
then followed by
twenty-six
installments of $750
and one installment of
$500. Interest rate
at 1.30% above LIBOR.(b) Hollandsche Bank 
Unie N.V.
    
    
    M/V FREE MAVERICK
    
    
    Two quarterly
installments of $2,500
and one installment of
$27,100 on August 1,
2009. Interest rate at
1.30% above LIBOR. As
of March 20, 2009,
this last installment
has been refinanced by
a new three and
one-half year facility
with the following
schedule: thirteen
quarterly installments
of $600, beginning on
August 1, 2009 and one
balloon payment of
$19,300 on November 1,
2012. Interest rate at
3.00% above LIBOR
which will be
increased by a
liquidity premium,
to be determined on
August 01, 2009.(c) Credit Suisse
    
    
    M/V FREE HERO,
M/V FREE GODDESS,
M/V FREE JUPITER
    
    
    Twenty-eight quarterly
installments of $1,250
each, a prepayment of
$1,725 on July 31,
2009 and a balloon
payment of $6,975 on
final maturity.
Interest rate at 1.25%
above LIBOR.(d) Credit Suisse
    
    
    M/V FREE LADY
    
    
    One payment of $1,250,
twenty-eight
consecutive quarterly
installments of $750
and a prepayment of
$3,275 on July 31,
2009. The balloon
payment of $12,525 to
be paid with the last
installment. Interest
rate at 1.25% above
LIBOR.(e) First Business Bank
    
    
    M/V FREE IMPALA
    
    
    Twenty-six quarterly
consecutive
installments of $750
each, plus a balloon
payment in the amount
of $5,250, payable
together with the last
installment. Interest
rate at 1.375% above
LIBOR.
   Free Maverick Free Knight.
 F-16




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Free Knight Free Maverick Free
Destiny
 Free Hero Free Goddess Free Free Lady
 Free Impala
 Loan Agreement Covenants
  
 
 
 
 
     F-17




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
    
    100% commencing July 1, 2010
    
    110% commencing July 1, 2011
    
    120% commencing July 1, 2012
    
    125% commencing December 31, 2012
     Year
    
    Amount2009
    
    $
    26,7002010
    
    
    16,4002011
    
    
    16,4002012
    
    
    35,1002013
    
    
    14,0002014
    
    
    14,0002015
    
    
    24,4752016
    
    
    13,275Total
    
    $
    160,350
 10. Commitments and Contingencies
 Agreement with financial advisor
  Shares, warrants and options committed to HCFP Brenner Securities LLC
  F-18




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Warrants and Options
    Claims
 Free Jupiter
  Free Envoy
 F-19




---



##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 11 Related Party Transactions
 Purchases of services
 Free Fighter
    Free Impala
  Employment agreements
  F-20




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  
   Shareholders options and warrants
  12. Earnings Per Share
   For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006Numerator:Net income (loss)  basic and diluted
    
    $
    19,192
    
    
    $
    (156
    )
    
    $
    (3,324
    )Basic earnings per share denominator:Weighted average common shares outstanding
    
    
    21,006,497
    
    
    
    8,786,827
    
    
    
    6,290,100Diluted earnings per share denominator:Weighted average common shares outstanding
    
    
    21,051,963
    
    
    
    8,786,827
    
    
    
    6,290,100Dilutive common shares:Options
    
    
    17,229
    
    
    
    
    
    
    
    Warrants
    
    
    28,237
    
    
    
    
    
    
    
    Dilutive effect
    
    
    45,466
    
    
    
    
    
    
    
    Weighted average common shares  diluted
    
    
    21,051,963
    
    
    
    8,786,827
    
    
    
    6,290,100Basic income/(loss) per common share
    
    $
    0.91
    
    
    $
    (0.02
    )
    
    
    (0.53
    )Diluted income/(loss) per common share
    
    $
    0.91
    
    
    $
    (0.02
    )
    
    
    (0.53
    )
 F-21




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  13. Stock Option Plan
       Exercise
    
    
    Options
    
    
    Warrants
    
    
    
    
    
    
    ExerciseOptions
    
    
    Warrants
    
    
    Total
    
    
    Price
    
    
    Exercisable
    
    
    Exercisable
    
    
    Total
    
    
    PriceJanuary 1, 2006
    
    
    750,000
    
    
    
    200,000
    
    
    
    950,000
    
    
    $
    5.00
    
    
    
    250,000
    
    
    
    200,000
    
    
    
    450,000
    
    
    $
    5.00Options vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    $
    5.00December 31, 2006
    
    
    750,000
    
    
    
    200,000
    
    
    
    950,000
    
    
    $
    5.00
    
    
    
    500,000
    
    
    
    200,000
    
    
    
    450,000
    
    
    $
    5.00Options granted to
directors
    
    
    45,000
    
    
    
    
    
    
    
    45,000
    
    
    $
    8.25Options granted to
officers
    
    
    125,000
    
    
    
    
    
    
    
    125,000
    
    
    $
    8.25Options forfeited
    
    
    (165,000
    )
    
    
    
    
    
    
    (165,000
    )
    
    $
    5.00Options cancelled
    
    
    (335,000
    )
    
    
    
    
    
    
    (335,000
    )
    
    $
    5.00
    
    
    
    (335,000
    )
    
    
    
    
    
    
    
    
    
    $
    5.00Options vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,000
    
    
    
    
    
    
    
    
    
    
    $
    5.00December 31, 2007
    
    
    420,000
    
    
    
    200,000
    
    
    
    620,000
    
    
    $
    5.83
    
    
    
    250,000
    
    
    
    200,000
    
    
    
    450,000
    
    
    $
    5.00Options exercised
    
    
    (250,000
    )
    
    
    (50,000
    )
    
    
    (300,000
    )
    
    $
    5.00
    
    
    
    (250,000
    )
    
    
    (50,000
    )
    
    
    (300,000
    )
    
    $
    5.00Options vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,000
    
    
    
    
    
    
    
    140,000
    
    
    $
    8.25December 31, 2008
    
    
    170,000
    
    
    
    150,000
    
    
    
    320,000
    
    
    $
    6.73
    
    
    
    140,000
    
    
    
    150,000
    
    
    
    290,000
    
    
    $
    6.57
 F-22




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       14. Shareholders Equity
       F-23




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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    
 Common Stock Dividends
   st th
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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 15. Taxes
   16. Financial Instruments
  Interest rate risk:
 Concentration of credit risk:
 Fair value:
 17. Revenue from Voyages
  Operating revenuesCharterer
    
    December 31, 2008MUR Shipping FZCO
    
    
    38%Korea Line Corporation
    
    
    13%Navision Shipping Co. A/S
    
    
    10%Premuda S.p.A.
    
    Under 10%AWB Limited
    
    Under 10%
 Operating revenuesCharterer
    
    December 31, 2007Seaside Navigation ApS
    
    
    30%Armada Pacific Bulk Carriers
    
    
    19%Navision Shipping Co. A/S
    
    Under 10%Oldendorff
    
    Under 10%
 Operating revenuesCharterer
    
    December 31, 2006Oldendorff
    
    
    20%Seaside Navigation ApS
    
    
    12%Cargill
    
    Under 10%Copenship
    
    Under 10%
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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Operating revenuesDecember 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006Europe
    
    $
    13,026
    
    
    $
    2,855
    
    
    $
    3,031North America
    
    
    7,050
    
    
    
    2,715
    
    
    
    South America
    
    
    4,572
    
    
    
    2,674
    
    
    
    1,803Asia
    
    
    25,912
    
    
    
    6,811
    
    
    
    4,758Africa
    
    
    14,536
    
    
    
    5,092
    
    
    
    2,135Oceania
    
    
    1,593
    
    
    
    
    
    
    
    Total
    
    $
    66,689
    
    
    $
    20,147
    
    
    $
    11,727
 18. Subsequent Events
 Waivers
   
    
    100% commencing July 1, 2010
    
    110% commencing July 1, 2011
    
    120% commencing July 1, 2012
    
    125% commencing December 31, 2012
   Refinancing of Loan
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##### Table of Contents



FREESEAS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Insurance receivable
 Free Jupiter
 Series A Preferred Shares
  Charter extensions
     F-27