UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
20-F





(Mark
One)





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


OR


[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
fiscal year endedDecember 31,
2009


OR


[  ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
transition period from _________________ to _________________


OR


[  ]
            SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934


Date of
event requiring this shell company report _________________





Commission
file number


SCORPIO
      TANKERS INC.(Exact
      name of Registrant as specified in its charter)(Translation
      of Registrant's name into English)Republic
      of The Marshall Islands(Jurisdiction
      of incorporation or organization)





9,
      Boulevard Charles III Monaco 98000(Address
      of principal executive offices)
              
              Mr.
      Emanuele Lauro,
              +377-9898-5716
              9,
      Boulevard Charles III Monaco 98000(Name,
      Telephone Number and Address of Company Contact
  Person)





Securities
registered or to be registered pursuant to section 12(b) of the
Act.


Name
      of each exchangeTitle
      of each class
            on
      which registeredCommon
      Stock, par value of $0.01 per share
            New
      York Stock Exchange





Securities
registered or to be registered pursuant to section 12(g) of the
Act.


NONE(Title
      of class)





Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act.


NONE(Title of class)





Indicate
the number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the annual
report.


As of
December 31, 2009, there were 1,500 outstanding common shares with a par value
$1.00 per share.








Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined by Rule 405 of the Securities Act.Yes  [   ]    No  [
      X ]If
      this report is an annual or transitional report, indicate by check mark if
      the registrant is not required to file reports pursuant to section 13 or
      15(d) of the Securities Exchange Act of
1934.Yes  [   ]  No  [
      X ]Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90
  days.Yes  [
      X ]  No  [   ]Indicate
      by check mark whether the registrant has submitted electronically and
      posted on its corporate Web site, if any, every Interactive Data File
      required to be submitted and posted pursuant to Rule 405 of Regulation S-T
      (§232.405 of this chapter) during the preceding 12 months (or for such
      shorter period that the registrant was required to submit and post such
      files).Yes  [  ]  No  [   ]Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of
      "accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
      one):Large
      accelerated filer  [   ]
              Accelerated
      filer  [  ]
              Non-accelerated
      filer [ X  ]Indicate
      by check mark which basis of accounting the registrant has used to prepare
      the financial statements included in this filing:U.S.
      GAAP   [   ]
              International
      Financial Reporting Standards as issued by the International Accounting
      Standards Board   [ X ]
              Other   [   ]If
      "Other" has been checked in response to the previous question, indicate by
      check mark which financial statement item the registrant has elected to
      follow.Item
      17  [   ]
      18  [   ]If
      this is an annual report, indicate by check mark whether the registrant is
      a shell company (as defined in Rule 12b-2 of the Exchange
      Act).Yes  [   ]
      No  [ X ]





















SCORPIO
TANKERS INC.


INDEX TO
REPORT ON FORM 20-F





PagePART
      I.ITEM
      1.
            IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
            3ITEM
      2.
            OFFER
      STATISTICS AND EXPECTED TIMETABLE
            3ITEM
      3.
            KEY
      INFORMATION
            3A.
            Selected
      Financial Data
            3B.
            Capitalization
      and Indebtedness
            6C.
            Reasons
      for the Offer and Use of Proceeds
            6D.
            Risk
      Factors
            6ITEM
      4.
            INFORMATION
      ON THE COMPANY
            20A.
            History
      and Development of the Company
            20B.
            Business
      Overview
            20C.
            Organizational
      Structure
            30D.
            Property,
      Plant and Equipment
            30ITEM
      4A.
            UNRESOLVED
      STAFF COMMENTS
            30ITEM
      5.
            OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
            30A.
            Operating
      Results
            30B.
            Liquidity
      and Capital Resources
            37C.
            Research
      and Development, Patents and Licenses, Etc.
            40D.
            Trend
      Information
            41E.
            Off
      Balance Sheet Arrangements
            41F.
            Tabular
      Disclosure of Contractual Obligations
            41G.
            Safe
      Harbor
            42ITEM
      6.
            DIRECTORS,
      SENIOR MANAGEMENT and EMPLOYEES
            43A.
            Directors
      and Senior Management
            43B.
            Compensation
            46C.
            Board
      Practices
            47D.
            Employees
            47E.
            Share
      Ownership
            47ITEM
      7.
            MAJOR
      SHAREHOLDERS AND CERTAIN RELATIONSHIPS AND RELATED PARTY
      TRANSACTIONS
            48A.
            Major
      Shareholders
            48B.
            Related
      Party Transactions
            48C.
            Interests
      of Experts and Counsel
            52ITEM
      8.
            FINANCIAL
      INFORMATION
            52A.
            Consolidated
      Statements and Other Financial Information
            52B.
            Significant
      Changes
            53ITEM
      9.
            THE
      OFFER AND LISTING
            53ITEM
      10.
            ADDITIONAL
      INFORMATION
            53A.
            Share
      Capital
            53B.
            Memorandum
      and Articles of Association
            53C.
            Material
      Contracts
            53D.
            Exchange
      Controls
            54E.
            Taxation
            54F.
            Dividends
      and Paying Agents
            60G.
            Statement
      by Experts
            61H.
            Documents
      on Display
            61I.
            Subsidiary
      Information
            61ITEM
      11.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            61ITEM
      12.
            DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES
            62    
   PART
      II.ITEM
      13.
            DEFAULTS,
      DIVIDENDS ARREARAGES AND DELINQUENCIES
            62ITEM
      14.
            MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
            62ITEM
      15T.
            CONTROLS
      AND PROCEDURES
            62A.
            Disclosure
      Controls and Procedures
            62B.
            Management's
      annual report on internal control over financial reporting
            62C.
            Changes
      in internal control over financial reporting
            63ITEM
      16A.
            AUDIT
      COMMITTEE FINANCIAL EXPERT
            63ITEM
      16B.
            CODE
      OF ETHICS
            63ITEM
      16C.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            63A.
            Audit
      Fees
            63B.
            Audit-Related
      Fees
            63C.
            Tax
      Fees
            63D.
            All
      Other Fees
            63E.
            Audit
      Committee's Pre-Approval Policies and Procedures
            63F.
            Audit
      Work Performed by Other Than Principal Accountant If Greater Than
      50%
            63ITEM
      16D.
            EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
            63ITEM
      16E
            PURCHASE
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
    PURCHASERS
            63ITEM
      16F.
            CHANGE
      IN REGISTRANT'S CERTIFYING ACCOUNTANT
            63ITEM
      16G.
            CORPORATE
      GOVERNANCE
            64PART
      III.ITEM
      17.
            FINANCIAL
      STATEMENTS
            64ITEM
      18.
            FINANCIAL
      STATEMENTS
            64ITEM
      19.
            EXHIBITS
            64INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS
            F-1SIGNATURE













Cautionary Statement
Regarding Forward-Looking Statement




Matters
discussed in this report may constitute forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides safe harbor protections for
forward-looking statements in order to encourage companies to provide
prospective information about their business. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements, which are other
than statements of historical facts. The Company desires to take advantage of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 and is including this cautionary statement in connection with this safe
harbor legislation. The words "believe," "anticipate," "intends," "estimate,"
"forecast," "project," "plan," "potential," "may," "should," "expect," "pending"
and similar expressions identify forward-looking statements.




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




In
addition to these important factors, other important factors that, in our view,
could cause actual results to differ materially from those discussed in the
forward-looking statements include the failure of counterparties to fully
perform their contracts with us, the strength of world economies and currencies,
general market conditions, including fluctuations in charter rates and vessel
values, changes in demand for tanker vessel capacity, changes in our operating
expenses, including bunker prices, drydocking and insurance costs, the market
for our vessels, availability of financing and refinancing, charter counterparty
performance, ability to obtain financing and comply with covenants in such
financing arrangements, changes in governmental rules and regulations or actions
taken by regulatory authorities, potential liability from pending or future
litigation, general domestic and international political conditions, potential
disruption of shipping routes due to accidents or political events, vessels
breakdowns and instances of off-hires and other factors. Please see our Risk
Factors in Item 3 of this report for a more complete discussion of these and
other risks and uncertainties.




In this
annual report, "we", "us", "our", and the "Company", all refer to Scorpio
Tankers Inc.




ITEM
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS




Not
applicable.




ITEM
2. OFFER STATISTICS AND EXPECTED TIMETABLE




Not
applicable.




ITEM
3. KEY INFORMATION




A.
            Selected
      Financial Data




The
following table sets forth our selected consolidated financial data and other
operating data. The selected financial data in the tables as of December 31,
2009 and 2008 and for each of the three years in the period ended December 31,
2009 are derived from our audited consolidated financial statements, which have
been presented herein, and which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). This data should be read in
conjunction with the consolidated financial statements and the notes thereto
included in "ITEM 18. Financial Statements" in this annual report and "ITEM 5.
Operating and Financial Review and Prospects."




The
selected financial data as of December 31, 2007 are derived from our audited
consolidated financial statements, which have been prepared in accordance with
IFRS as issued by the IASB, and which are not presented herein. The selected
financial data for 2006 has not been derived from audited financial statements
as consolidated financial statements of the Company for 2006 do not exist.
Rather, the selected financial data for 2006 has been prepared by aggregating
the historical stand alone IFRS financial information of each of the three
subsidiaries which were transferred to us. In accordance with Item 3.A.1 of
Form 20-F, we are omitting fiscal year 2005 from the selected financial data as
we did not prepare consolidated financial statements for this period and such
information cannot be provided without unreasonable effort and
expense.




3







Prior to
October 1, 2009, our historical consolidated financial statements were prepared
on a carve-out basis from the financial statements of our parent company,
Liberty Holding Company Ltd., or Liberty.  These carve-out financial
statements include all assets, liabilities and results of operations of the
three vessel-owning subsidiaries owned by us, formerly subsidiaries of Liberty,
for the periods presented. For the periods presented, certain of the expenses
incurred by these subsidiaries for commercial, technical and administrative
management services were under management agreements with other Scorpio Group
entities, which are parties related to us, consisting of Scorpio Ship Management
S.A.M., or SSM; and Scorpio Commercial Management S.A.M., or SCM; which provide
us and third parties with technical and commercial management services,
respectively; Liberty, which provides us with administrative services; and other
affiliated entities. Since agreements with related parties are by definition not
at arms length, the expenses incurred under these agreements may have been
different than the historical costs incurred if the subsidiaries had operated as
unaffiliated entities during prior periods. Our estimates of any differences
between historical expenses and the expenses that may have been incurred had the
subsidiaries been stand-alone entities have been disclosed in the notes to the
historical consolidated financial statements included elsewhere in this annual
report.







For
      the Year EndedDecember
      31,2009
            
            
            2008
            
            
            2007
            
            
            2006Income
      Statement DataVessel
      revenue
            
            $
            27,619,041
            
            
            $
            39,274,196
            
            
            $
            30,317,138
            
            
            $
            35,751,632Operating
      expensesCharterhire
            
            
            (3,072,916
            )
            
            
            (6,722,334
            )
            
            
            -
            
            
            
            -Vessel
      operating costs
            
            
            (8,562,118
            )
            
            
            (8,623,318
            )
            
            
            (7,600,509
            )
            
            
            (7,061,514
            )General
      and administrative expenses
            
            
            (416,908
            )
            
            
            (600,361
            )
            
            
            (590,772
            )
            
            
            (376,338
            )Depreciation
            
            
            (6,834,742
            )
            
            
            (6,984,444
            )
            
            
            (6,482,484
            )
            
            
            (7,058,093
            )Impairment
      of vessels(1)
            
            
            (4,511,877
            )
            
            
            -
            
            
            
            -
            
            
            
            -Total
      operating expenses
            
            
            (23,398,561
            )
            
            
            (22,930,457
            )
            
            
            (14,673,765
            )
            
            
            (14,495,945
            )Operating
      income
            
            
            4,220,480
            
            
            
            16,343,739
            
            
            
            15,643,373
            
            
            
            21,255,687Other
      income/(expense)Interest
      expense - bank loan
            
            
            (699,115
            )
            
            
            (1,710,907
            )
            
            
            (1,953,344
            )
            
            
            (3,041,684
            )Gain/(loss)
      on derivative financial instruments
            
            
            148,035
            
            
            
            (2,463,648
            )
            
            
            (1,769,166
            )
            
            
            816,219Interest
      income
            
            
            4,929
            
            
            
            35,492
            
            
            
            142,233
            
            
            
            152,066Other
      expenses, net
            
            
            (256,292
            )
            
            
            (18,752
            )
            
            
            (9,304
            )
            
            
            (24,034
            )Total
      other expenses, net
            
            $
            (802,443
            )
            
            $
            (4,157,815
            )
            
            $
            (3,589,581
            )
            
            $
            (2,097,433
            )Net
      income
            
            $
            3,418,037
            
            
            $
            12,185,924
            
            
            $
            12,053,792
            
            
            $
            19,158,254Dividends
      and earnings per common share(2)Weighted
      average shares outstanding
            
            
            5,589,147
            
            
            
            5,589,147
            
            
            
            5,589,147
            
            
            
            5,589,147Basic
      earnings per share
            
            $
            0.61
            
            
            $
            2.18
            
            
            $
            2.16
            
            
            $
            3.43Diluted
      earnings per share
            
            $
            0.61
            
            
            $
            2.18
            
            
            $
            2.16
            
            
            $
            3.43Dividends
      per share
            
            $
            1.55
            
            
            $
            3.36
            
            
            $
            1.27
            
            
            $
            2.01





4





As
      of December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006Balance
      Sheet DataCash
      and cash equivalents
            
            $
            444,496
            
            
            $
            3,607,635
            
            
            $
            1,153,743
            
            
            $
            6,016,470Vessels
      and drydock
            
            $
            99,594,267
            
            
            $
            109,260,102
            
            
            $
            116,244,546
            
            
            $
            122,727,030Total
      assets
            
            $
            104,423,386
            
            
            $
            117,111,827
            
            
            $
            122,555,022
            
            
            $
            137,728,758Total
      debt - bank loan
            
            $
            39,800,000
            
            
            $
            43,400,000
            
            
            $
            47,000,000
            
            
            $
            50,600,000Shareholder
      payable(3)
            
            $
            -
            
            
            $
            22,028,323
            
            
            $
            19,433,097
            
            
            $
            27,612,576Related
      party payable(3)
            
            $
            -
            
            
            $
            27,406,408
            
            
            $
            27,406,408
            
            
            $
            34,338,356Total
      shareholder's equity
            
            $
            61,328,542
            
            
            $
            20,299,166
            
            
            $
            26,897,242
            
            
            $
            21,936,949





For
      the Year EndedDecember
      31,2009
            
            
            2008
            
            
            2007
            
            
            2006Cash
      Flow DataNet
      cash provided by/(used by):Operating
      activities
            
            $
            9,305,851
            
            
            $
            24,837,892
            
            
            $
            5,830,773
            
            
            $
            13,226,007Financing
      activities
            
            $
            (12,468,990
            )
            
            $
            (22,384,000
            )
            
            $
            (10,693,500
            )
            
            $
            (14,850,000
            )





(1)
            In
      the year ended December 31, 2009, we recorded an impairment of two vessels
      for $4.5 million, see ITEM 5. "Operating and Financial Review and
      Prospects".


(2)
            Basic
      earnings per share is calculated by dividing the net income attributable
      to equity holders of the common shares by the weighted average number of
      common shares outstanding assuming that the transfer of the vessel owning
      subsidiaries was effective during the period. In addition, the stock split
      described in Note 10 in the consolidated financial statements as of and
      for the year ended December 31, 2009 has been given retroactive effect for
      all periods presented herein. Diluted earnings per share are calculated by
      adjusting the net income attributable to equity holders of the common
      shares and the weighted average number of common shares used for
      calculating basic earnings per share for the effects of all potentially
      dilutive shares. Such potentially dilutive common shares are excluded when
      the effect would be to increase earnings per share or reduce a loss per
      share. For the periods presented, we had no potentially dilutive
      common shares.


(3)
            On
      November 18, 2009, the shareholder payable and the related party
      payable balances, as of that date, were converted to equity as a capital
      contribution. See Note 11 in the consolidated financial statements as of
      and for the year ended December 31,
2009.





Other
      Operating DataFor
      the Year Ended December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006Average
      Daily ResultsTime
      charter equivalent per day(4)
            
            $
            23,423
            
            
            $
            29,889
            
            
            $
            27,687
            
            
            $
            33,165Vessel
      operating costs per day(5)
            
            $
            7,819
            
            
            $
            7,875
            
            
            $
            6,941
            
            
            $
            6,449TCE
      per revenue day - pool revenue
            
            $
            21,425
            
            
            $
            36,049
            
            
            $
            29,848
            
            
            $
            33,165TCE
      per revenue day - time charters
            
            $
            24,825
            
            
            $
            24,992
            
            
            
            24,382
            
            
            $
            -Expenditures
      for drydock
            
            $
            1,680,784
            
            
            $
            -
            
            
            $
            -
            
            
            $
            805,845Fleet
      Data(6)Average
      number of owned vessels
            
            
            3.00
            
            
            
            3.00
            
            
            
            3.00
            
            
            
            3.00Average
      number of time chartered-in vessels
            
            
            0.33
            
            
            
            0.59
            
            
            
            -
            
            
            
            -





5





(4)
            Freight
      rates are commonly measured in the shipping industry in terms of Time
      charter equivalent per day (or TCE per day), which represent subtracting
      voyage expenses, including bunkers and port charges, from vessel revenue
      and dividing the net amount (time charter equivalent revenues) by the
      number of days revenue days in the period. Revenue days are the number of
      days the vessel is owned less the number of days the vessel is offhire for
      drydock. Since our vessels are on time charter and operate in the pool, we
      do not have voyage expenses.


(5)
            Vessel
      operating costs per day represent vessel operating costs divided by the
      number of days the vessel is owned during the
  period.


(6)
            For
      a definition of items listed under "Fleet Data," please see the section of
      this annual report entitled ITEM 5. "Operating and Financial Review and
      Prospects". We do not currently have any time chartered-in vessels and do
      not intend to time charter-in any vessels into our fleet in the
      future.




B.
            Capitalization
      and indebtedness




Not
applicable.




C.
            Reasons
      for the offer and use of proceeds




Not
applicable.




D.
            Risk
      Factors




Some
of the following risks relate principally to the industry in which we operate
and our business in general. Other risks relate principally to the securities
market and ownership of our common stock. The occurrence of any of the events
described in this section could significantly and negatively affect our
business, financial condition, operating results or cash available for dividends
or the trading price of our common stock.




Risks
Related to Our Industry




If
the tanker industry, which historically has been cyclical, continues to be
depressed in the future, our earnings and available cash flow may be adversely
affected.




The
tanker industry is both cyclical and volatile in terms of charter rates and
profitability. The recent global financial crisis may adversely affect our
ability to charter or recharter our vessels or to sell them on the expiration or
termination of their charters and the rates payable in respect of our one vessel
currently operating in a tanker pool, or any renewal or replacement charters
that we enter into may not be sufficient to allow us to operate our vessels
profitably. Fluctuations in charter rates and tanker values result from changes
in the supply and demand for tanker capacity and changes in the supply and
demand for oil and oil products. The factors affecting the supply and demand for
tankers are outside of our control, and the nature, timing and degree of changes
in industry conditions are unpredictable.




The
factors that influence demand for tanker capacity include:




·
            demand
      for oil and oil products;




·
            supply
      of oil and oil products;




·
            regional
      availability of refining capacity;




·
            global
      and regional economic and political
conditions;




·
            the
      distance oil and oil products are to be moved by
  sea;




·
            changes
      in seaborne and other transportation
patterns;




·
            environmental
      and other legal and regulatory
developments;




·
            currency
      exchange rates;




·
            weather;


6




·
              competition
      from alternative sources of energy;
and


·
            international
      sanctions, embargoes, import and export restrictions, nationalizations and
      wars.




The
factors that influence the supply of tanker capacity include:




·
            the
      number of newbuilding deliveries;




·
            the
      scrapping rate of older vessels;




·
            conversion
      of tankers to other uses;




·
            the
      price of steel;




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




·
            environmental
      concerns and regulations.




Historically,
the tanker markets have been volatile as a result of the many conditions and
factors that can affect the price, supply and demand for tanker capacity. The
recent global economic crisis may further reduce demand for transportation of
oil over longer distances and supply of tankers to carry that oil, which may
materially affect our revenues, profitability and cash flows. Four of our six
vessels operate on long-term time charters, while the remaining two vessels
operate in the Scorpio Panamax Tanker Pool and Scorpio Handymax Tanker Pool,
which are spot-market oriented. Where we plan to employ a vessel in the spot
charter market, we intend to generally place such vessel in a tanker pool
managed by our commercial manager that pertains to that vessel's size class. If
time charter or spot charter rates decline, we may be unable to achieve a level
of charterhire sufficient for us to operate our vessels profitably.




We
are partially dependent on spot charters and any decrease in spot charter rates
in the future may adversely affect our earnings.




We
currently operate a fleet of six vessels. Of those, two are employed in spot
market-oriented tanker pools, partially exposing us to fluctuations in spot
market charter rates.




We may
employ additional vessels that we may acquire in the future in the spot charter
market. Where we plan to employ a vessel in the spot charter market, we intend
to generally place such vessel in a tanker pool managed by our commercial
manager that pertains to that vessel's size class. Although spot chartering is
common in the tanker industry, the spot charter market may fluctuate
significantly based upon tanker and oil supply and demand. The successful
operation of our vessels in the competitive spot charter market, including
within Scorpio Group pools, depends upon, among other things, obtaining
profitable spot charters and minimizing, to the extent possible, time spent
waiting for charters and time spent traveling unladen to pick up cargo. The spot
market is very volatile, and, in the past, there have been periods when spot
rates have declined below the operating cost of vessels. If future spot charter
rates decline, then we may be unable to operate our vessels trading in the spot
market profitably, meet our obligations, including payments on indebtedness, or
to pay dividends in the future. Furthermore, as charter rates for spot charters
are fixed for a single voyage which may last up to several weeks, during periods
in which spot charter rates are rising, we will generally experience delays in
realizing the benefits from such increases.




Our
ability to renew the charters on our vessels on the expiration or termination of
our current charters, or on vessels that we may acquire in the future, the
charter rates payable under any replacement charters and vessel values will
depend upon, among other things, economic conditions in the sectors in which our
vessels operate at that time, changes in the supply and demand for vessel
capacity and changes in the supply and demand for the seaborne transportation of
energy resources.




Declines
in charter rates and other market deterioration could cause us to incur
impairment charges.




We
evaluate the carrying amounts of our vessels to determine if events have
occurred that would require an impairment of their carrying amounts. The
recoverable amount of vessels is reviewed based on events and changes in
circumstances that would indicate that the carrying amount of the assets might
not be recovered. The review for potential impairment indicators and projection
of future cash flows related to the vessels is complex and requires us to make
various estimates including future freight rates, earnings from the vessels and
discount rates. All of these items have been historically volatile.




7







We
evaluate the recoverable amount as the higher of fair value less costs to sell
and value in use. If the recoverable amount is less than the carrying amount of
the vessel, the vessel is deemed impaired. The carrying values of our vessels
may not represent their fair market value at any point in time because the new
market prices of second-hand vessels tend to fluctuate with changes in charter
rates and the cost of newbuildings. For the year ended December 31, 2009,,
charter rates in the oil and petroleum products charter market declined
significantly and Panamax vessel values also declined, both as a result of a
slowdown in the availability of global credit and the significant deterioration
in charter rates. Due to these indicators of potential impairment, in the year
ended December 31, 2009, we evaluated the recoverable amount of our vessels, and
we recognized a total impairment loss of $4.5 million for two of our vessels.
Any additional impairment charges incurred as a result of further declines in
charter rates could negatively affect our business, financial condition,
operating results or the trading price of our common shares.




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




The
market supply of tankers is affected by a number of factors such as demand for
energy resources, oil, and petroleum products, as well as strong overall
economic growth in parts of the world economy including Asia. If the capacity of
new ships delivered exceeds the capacity of tankers being scrapped and lost,
tanker capacity will increase. In addition, the newbuilding order book which
extends to 2014 equaled approximately 28% of the existing world tanker fleet and
the order book may increase further in proportion to the existing fleet. If the
supply of tanker capacity increases and if the demand for tanker capacity does
not increase correspondingly, charter rates could materially decline. A
reduction in charter rates and the value of our vessels may have a material
adverse effect on our results of operations and available cash.




Acts
of piracy on ocean-going vessels have recently increased in frequency, which
could adversely affect our business.




Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia. Throughout 2008 and 2009 and continuing through the first half of 2010,
the frequency of piracy incidents against commercial shipping vessels has
increased significantly, particularly in the Gulf of Aden off the coast of
Somalia. For example, in November 2008, the M/V Sirius Star, a tanker vessel
not affiliated with us, was captured by pirates in the Indian Ocean while
carrying crude oil estimated to be worth $100 million. If these pirate attacks
result in regions in which our vessels are deployed being characterized as "war
risk" zones by insurers, as the Gulf of Aden temporarily was in May 2008,
premiums payable for insurance coverage could increase significantly and such
coverage may be more difficult to obtain. In addition, crew costs, including
costs in connection with employing onboard security guards, could increase in
such circumstances. We may not be adequately insured to cover losses from these
incidents, which could have a material adverse effect on us. In addition, any of
these events may result in loss of revenues, increased costs and decreased cash
flows to our customers, which could impair their ability to make payments to us
under our charters.




If
the contraction of the global credit markets and the resulting volatility in the
financial markets continues or worsens that could have a material adverse impact
on our results of operations, financial condition and cash flows, and results of
operation.




Recently,
a number of major financial institutions have experienced serious financial
difficulties and, in some cases, have entered into bankruptcy proceedings or are
in regulatory enforcement actions. These difficulties have resulted, in part,
from declining markets for assets held by such institutions, particularly the
reduction in the value of their mortgage and asset-backed securities portfolios.
These difficulties have been compounded by a general decline in the willingness
by banks and other financial institutions to extend credit, particularly in the
shipping industry due to the historically low asset values of ships. As the
shipping industry is highly dependent on the availability of credit to finance
and expand operations, it has been negatively affected by this decline. If we
are unable to obtain additional credit or draw down upon borrowing capacity, it
may negatively impact our ability to fund current and future
obligations.




If
further emergency governmental measures are implemented in response to the
economic downturn, that could have a material adverse impact on our results of
operations, financial condition and cash flows.




Since
2008, global financial markets have experienced extraordinary disruption and
volatility following adverse changes in the global credit markets. The credit
markets in the United States have experienced significant contraction,
deleveraging and reduced liquidity, and governments around the world have taken
significant measures in response to such events, including the enactment of the
Emergency Economic Stabilization Act of 2008 in the United States, and may
implement other significant responses in the future. Securities and futures
markets and the credit markets are subject to comprehensive statutes,
regulations and other requirements. The U.S. Securities and Exchange Commission,
or the SEC, other regulators, self-regulatory organizations and exchanges have
enacted temporary emergency regulations and may take other extraordinary actions
in the event of market emergencies and may effect permanent changes in law or
interpretations of existing laws. We cannot predict what, if any, such measures
would be, but changes to securities, tax, environmental, or the laws of
regulations, could have a material adverse effect on our results of operations,
financial condition or cash flows.




8







Changes
in fuel, or bunkers, prices may adversely affect profits.




Fuel, or
bunkers, is a significant, if not the largest, expense in our shipping
operations for our vessels employed on the spot market and can have a
significant impact on pool earnings. With respect to our vessels employed on
time charter, the charterer is generally responsible for the cost of fuel,
however such cost may affect the charter rates we are able to negotiate for our
vessels. Changes in the price of fuel may adversely affect our profitability.
The price and supply of fuel is unpredictable and fluctuates based on events
outside our control, including geopolitical developments, supply and demand for
oil and gas, actions by OPEC and other oil and gas producers, war and unrest in
oil producing countries and regions, regional production patterns and
environmental concerns. Further, fuel may become much more expensive in the
future, which may reduce the profitability and competitiveness of our business
versus other forms of transportation, such as truck or rail.




We
are subject to complex laws and regulations, including environmental laws and
regulations, that can adversely affect our business, results of operations, cash
flows and financial condition, and our available cash.




Our
operations are subject to numerous laws and regulations in the form of
international conventions and treaties, national, state and local laws and
national and international regulations in force in the jurisdictions in which
our vessels operate or are registered, which can significantly affect the
ownership and operation of our vessels. These requirements include, but are not
limited to, the U.S. Oil Pollution Act of 1990, or OPA, the International
Maritime Organization, or IMO, International Convention on Civil Liability for
Oil Pollution Damage of 1969 (as from time to time amended and generally
referred to as CLC), the IMO International Convention for the Prevention of
Pollution from Ships of 1973 (as from time to time amended and generally
referred to as MARPOL), the IMO International Convention for the Safety of Life
at Sea of 1974 (as from time to time amended and generally referred to as
SOLAS), the IMO International Convention on Load Lines of 1966 (as from time to
time amended) and the U.S. Maritime Transportation Security Act of 2002.
Compliance with such laws and regulations, where applicable, may require
installation of costly equipment or operational changes and may affect the
resale value or useful lives of our vessels. We may also incur additional costs
in order to comply with other existing and future regulatory obligations,
including, but not limited to, costs relating to air emissions including
greenhouse gases, the management of ballast waters, maintenance and inspection,
elimination of tin-based paint, development and implementation of emergency
procedures and insurance coverage or other financial assurance of our ability to
address pollution incidents. The recent oil spill in the Gulf of Mexico may also
result in additional regulatory initiatives or statutes that may affect our
operations or require us to incur additional expenses to comply with such
regulatory initiatives or statues.




These
costs could have a material adverse effect on our business, results of
operations, cash flows and financial condition and our available cash. A failure
to comply with applicable laws and regulations may result in administrative and
civil penalties, criminal sanctions or the suspension or termination of our
operations. Environmental laws often impose strict liability for remediation of
spills and releases of oil and hazardous substances, which could subject us to
liability without regard to whether we were negligent or at fault. Under OPA,
for example, owners, operators and bareboat charterers are jointly and severally
strictly liable for the discharge of oil in U.S. waters, including the
200-nautical mile exclusive economic zone around the United States. An oil spill
could also result in significant liability, including fines, penalties, criminal
liability and remediation costs for natural resource damages under other
international and U.S. federal, state and local laws, as well as third-party
damages, and could harm our reputation with current or potential charterers of
our tankers. We are required to satisfy insurance and financial responsibility
requirements for potential oil (including marine fuel) spills and other
pollution incidents. Although we have arranged insurance to cover certain
environmental risks, there can be no assurance that such insurance will be
sufficient to cover all such risks or that any claims will not have a material
adverse effect on our business, results of operations, cash flows and financial
condition and available cash.




If
we fail to comply with international safety regulations, we may be subject to
increased liability, which may adversely affect our insurance coverage and may
result in a denial of access to, or detention in, certain ports.




The
operation of our vessels is affected by the requirements set forth in the IMO's
International Management Code for the Safe Operation of Ships and Pollution
Prevention, or the ISM Code. The ISM Code requires shipowners, ship managers and
bareboat charterers to develop and maintain an extensive "Safety Management
System" that includes the adoption of a safety and environmental protection
policy setting forth instructions and procedures for safe operation and
describing procedures for dealing with emergencies. If we fail to comply with
the ISM Code, we may be subject to increased liability or our existing insurance
coverage may be invalidated or decreased for our affected vessels. Such failure
may also result in a denial of access to, or detention in, certain ports. Each
of our vessels, as well our technical manager, SSM, is currently ISM
Code-certified.




9







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




The
market values of tankers have generally experienced high volatility. The market
prices for tankers declined significantly from historically high levels reached
in early 2008 and remain at relatively low levels. You should expect the market
value of our vessels to fluctuate depending on general economic and market
conditions affecting the shipping industry and prevailing charterhire rates,
competition from other shipping companies and other modes of transportation,
types, sizes and ages of vessels, applicable governmental regulations and the
cost of newbuildings. If the market value of our fleet declines, we may not be
able to obtain other financing or incur debt on terms that are acceptable to us.
Further, while we believe that the current aggregate market value of our vessels
will be in excess of loan to value amounts required under our credit facility,
which requires that the fair market value of the vessels pledged as collateral
never be less than 150% of the aggregate principal amount outstanding. A
decrease in these values could cause us to breach certain covenants that are
contained in our credit facility and in future financing agreements that we may
enter into from time to time. If the recoverable amounts of our vessels further
decline and we do breach such covenants and we are unable to remedy the relevant
breach, our lenders could accelerate our debt and foreclose on vessels in our
fleet. If we sell any vessel at any time when vessel prices have fallen and
before we have recorded an impairment adjustment to our financial statements,
the sale may be at less than the vessel's carrying amount on our financial
statements, resulting in a loss and a reduction in earnings. Please see the
section of this annual report entitled "The International Tanker Industry" in
Item 4.B. for information concerning historical prices of tankers.




If
our vessels suffer damage due to the inherent operational risks of the tanker
industry, we may experience unexpected drydocking costs and delays or total loss
of our vessels, which may adversely affect our business and financial
condition.




Our
vessels and their cargoes will be at risk of being damaged or lost because of
events such as marine disasters, bad weather, business interruptions caused by
mechanical failures, grounding, fire, explosions and collisions, human error,
war, terrorism, piracy and other circumstances or events. For example, our
vessel, Senatore,
suffered damage to one of its ballast tanks in April 2010, which required a
repair. Changing economic, regulatory and political conditions in some
countries, including political and military conflicts, have from time to time
resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor
strikes and boycotts. These hazards may result in death or injury to persons,
loss of revenues or property, environmental damage, higher insurance rates,
damage to our customer relationships, market disruptions, delay or rerouting. In
addition, the operation of tankers has unique operational risks associated with
the transportation of oil. An oil spill may cause significant environmental
damage, and the associated costs could exceed the insurance coverage available
to us. Compared to other types of vessels, tankers are exposed to a higher risk
of damage and loss by fire, whether ignited by a terrorist attack, collision, or
other cause, due to the high flammability and high volume of the oil transported
in tankers.




If our
vessels suffer damage, they may need to be repaired at a drydocking facility.
The costs of drydock repairs are unpredictable and may be substantial. We may
have to pay drydocking costs that our insurance does not cover in full. The loss
of revenues while these vessels are being repaired and repositioned, as well as
the actual cost of these repairs, may adversely affect our business and
financial condition. In addition, space at drydocking facilities is sometimes
limited and not all drydocking facilities are conveniently located. We may be
unable to find space at a suitable drydocking facility or our vessels may be
forced to travel to a drydocking facility that is not conveniently located to
our vessels' positions. The loss of earnings while these vessels are forced to
wait for space or to travel to more distant drydocking facilities may adversely
affect our business and financial condition. Further, the total loss of any of
our vessels could harm our reputation as a safe and reliable vessel owner and
operator. If we are unable to adequately maintain or safeguard our vessels, we
may be unable to prevent any such damage, costs, or loss which could negatively
impact our business, financial condition, results of operations and available
cash.




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




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




International
shipping is subject to various security and customs inspection and related
procedures in countries of origin and destination and trans-shipment points.
Inspection procedures can result in the seizure of the cargo and/or our vessels,
delays in the loading, offloading or delivery and the levying of customs duties,
fines or other penalties against us. It is possible that changes to inspection
procedures could impose additional financial and legal obligations on us.
Furthermore, changes to inspection procedures could also impose additional costs
and obligations on our customers and may, in certain cases, render the shipment
of certain types of cargo uneconomical or impractical. Any such changes or
developments may have a material adverse effect on our business, results of
operations, cash flows, financial condition and available cash.




10







Political
instability, terrorist or other attacks, war or international hostilities can
affect the tanker industry, which may adversely affect our
business.




We
conduct most of our operations outside of the United States, and our business,
results of operations, cash flows, financial condition and available cash may be
adversely affected by the effects of political instability, terrorist or other
attacks, war or international hostilities. Terrorist attacks such as the attacks
on the United States on September 11, 2001, the bombings in Spain on
March 11, 2004 and in London on July 7, 2005 and the continuing
response of the international community to these attacks, as well as the threat
of future terrorist attacks, continue to contribute to world economic
instability and uncertainty in global financial markets. As a result of the
above, insurers have increased premiums and reduced or restricted coverage for
loses caused by terrorist acts generally. Future terrorist attacks could result
in increased volatility of the financial markets and negatively impact the U.S.
and global economy. These uncertainties could also adversely affect our ability
to obtain additional financing on terms acceptable to us or at all.




In the
past, political instability has also resulted in attacks on vessels, such as the
attack on the M/T Limburgin October 2002, mining of waterways and other efforts to disrupt
international shipping, particularly in the Arabian Gulf region. Acts of
terrorism and piracy have also affected vessels trading in regions such as the
South China Sea and the Gulf of Aden off the coast of Somalia. Any of these
occurrences could have a material adverse impact on our business, financial
condition, results of operations and available cash.




If
our vessels call on ports located in countries that are subject to restrictions
imposed by the U.S. government, that could adversely affect our reputation and
the market for our common stock.




From time
to time, vessels in our fleet may call on ports located in countries subject to
sanctions and embargoes imposed by the U.S. government and countries identified
by the U.S. government as state sponsors of terrorism. Although these sanctions
and embargoes do not prevent our vessels from making calls to ports in these
countries, potential investors could view such port calls negatively, which
could adversely affect our reputation and the market for our common stock. In
addition, certain institutional investors may have investment policies or
restrictions that prevent them from holding securities of companies that have
contracts with countries identified by the U.S. government as state sponsors of
terrorism. The determination by these investors not to invest in or to divest
our common shares may adversely affect the price at which our common shares
trade. Investor perception of the value of our common stock may be adversely
affected by the consequences of war, the effects of terrorism, civil unrest and
governmental actions in these and surrounding countries.




Maritime
claimants could arrest our vessels, which would have a negative effect on our
cash flows.




Crew
members, suppliers of goods and services to a vessel, shippers of cargo and
other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien
holder may enforce its lien by arresting or attaching a vessel through
foreclosure proceedings. The arrest or attachment of one or more of our vessels
could interrupt our business or require us to pay large sums of money to have
the arrest lifted, which would have a negative effect on our cash
flows.




In
addition, in some jurisdictions, such as South Africa, under the "sister ship"
theory of liability, a claimant may arrest both the vessel which is subject to
the claimant's maritime lien and any "associated" vessel, which is any vessel
owned or controlled by the same owner. Claimants could try to assert "sister
ship" liability against one vessel in our fleet for claims relating to another
of our ships.




Governments
could requisition our vessels during a period of war or emergency, which may
negatively impact our business, financial condition, results of operations and
available cash.




A
government could requisition for title or seize our vessels. Requisition for
title occurs when a government takes control of a vessel and becomes the owner.
Also, a government could requisition our vessels for hire. Requisition for hire
occurs when a government takes control of a vessel and effectively becomes the
charterer at dictated charter rates. Generally, requisitions occur during a
period of war or emergency. Government requisition of one or more of our vessels
may negatively impact our business, financial condition, results of operations
and available cash.




Technological
innovation could reduce our charterhire income and the value of our
vessels.




The
charterhire rates and the value and operational life of a vessel are determined
by a number of factors including the vessel's efficiency, operational
flexibility and physical life. Efficiency includes speed, fuel economy and the
ability to load and discharge cargo quickly. Flexibility includes the ability to
enter harbors, utilize related docking facilities and pass through canals and
straits. The length of a vessel's physical life is related to its original
design and construction, its maintenance and the impact of the stress of
operations. If new tankers are built that are more efficient or more flexible or
have longer physical lives than our vessels, competition from these more
technologically advanced vessels could adversely affect the amount of
charterhire payments we receive for our vessels once their initial charters
expire and the resale value of our vessels could significantly decrease. As a
result, our available cash could be adversely affected.




11







If
labor interruptions are not resolved in a timely manner, they could have a
material adverse effect on our business, results of operations, cash flows,
financial condition and available cash.




We,
indirectly through SSM, employ masters, officers and crews to man our vessels.
If not resolved in a timely and cost-effective manner, industrial action or
other labor unrest could prevent or hinder our operations from being carried out
as we expect and could have a material adverse effect on our business, results
of operations, cash flows, financial condition and available cash.




Risks
Related To Our Business




We
have a limited history of operations on which investors may assess our
performance.




We were
formed on July 1, 2009, and our initial three vessel-owning subsidiaries
were transferred to us on October 1, 2009. We have a limited performance
record and operating history, and, therefore, limited historical financial
information, upon which you can evaluate our operating performance, ability to
implement and achieve our business strategy or ability to pay dividends in the
future. We cannot assure you that we will be successful in implementing our
business strategy. We have recently acquired additional vessels but our initial
fleet was composed of only three vessels with a relatively short operating
history. As a newly formed company, we will face certain operational challenges
not faced by companies with a longer operating history.




We
have a limited history operating as a publicly traded entity and will incur
increased costs in 2010 as a result of being a publicly traded
corporation.




We have
only operated as a public company since April 2010. As a public company, we will
incur significant legal, accounting and other expenses that we did not incur as
a private company. Our incremental general and administrative expenses as a
publicly traded corporation will include costs associated with annual reports to
shareholders, tax returns, investor relations, registrar and transfer agent's
fees, incremental director and officer liability insurance costs and director
compensation.




Obligations
associated with being a public company require significant company resources and
management attention.




We have
recently become subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and the other rules and
regulations of the SEC, including the Sarbanes-Oxley Act of 2002.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and
determine the effectiveness of our internal controls over financial reporting.
If we have a material weakness in our internal control over financial reporting,
we may not detect errors on a timely basis and our financial statements may be
materially misstated. We will need to dedicate a significant amount of time and
resources to ensure compliance with these regulatory requirements.




We will
work with our legal, accounting and financial advisors to identify any areas in
which changes should be made to our financial and management control systems to
manage our growth and our obligations as a public company. We will evaluate
areas such as corporate governance, corporate control, internal audit,
disclosure controls and procedures and financial reporting and accounting
systems. We will make changes in any of these and other areas, including our
internal control over financial reporting, which we believe are necessary.
However, these and other measures we may take may not be sufficient to allow us
to satisfy our obligations as a public company on a timely and reliable basis.
In addition, compliance with reporting and other requirements applicable to
public companies will create additional costs for us and will require the time
and attention of management. Our limited management resources may exacerbate the
difficulties in complying with these reporting and other requirements while
focusing on executing our business strategy. Our incremental general and
administrative expenses as a publicly traded corporation will include costs
associated with annual reports to shareholders, tax returns, investor relations,
registrar and transfer agent's fees, incremental director and officer liability
insurance costs and director compensation.We cannot predict or estimate the amount of the additional costs we
may incur, the timing of such costs or the degree of impact that our
management's attention to these matters will have on our business.




12







If
we do not identify suitable tankers for acquisition or successfully integrate
any acquired tankers, we may not be able to grow or to effectively manage our
growth.




One of
our principal strategies is to continue to grow by expanding our operations and
adding to our fleet. Our future growth will depend upon a number of factors,
some of which may not be within our control. These factors include our ability
to:




·
            identify
      suitable tankers and/or shipping companies for acquisitions at attractive
      prices;




·
            obtain
      required financing for our existing and new
  operations;




·
            identify
      businesses engaged in managing, operating or owning tankers for
      acquisitions or joint ventures;




·
            integrate
      any acquired tankers or businesses successfully with our existing
      operations;




·
            hire,
      train and retain qualified personnel and crew to manage and operate our
      growing business and fleet;




·
            identify
      additional new markets; and




·
            improve
      our operating, financial and accounting systems and
    controls.




Our
failure to effectively identify, purchase, develop and integrate any tankers or
businesses could adversely affect our business, financial condition and results
of operations. The number of employees that perform services for us and our
current operating and financial systems may not be adequate as we implement our
plan to expand the size of our fleet, and we may not be able to effectively hire
more employees or adequately improve those systems. Finally, acquisitions may
require additional equity issuances or debt issuances (with amortization
payments), both of which could lower available cash. If we are unable to execute
the points noted above, our financial condition may be adversely
affected.




Growing
any business by acquisition presents numerous risks such as undisclosed
liabilities and obligations, difficulty in obtaining additional qualified
personnel and managing relationships with customers and suppliers and
integrating newly acquired operations into existing infrastructures. The
expansion of our fleet may impose significant additional responsibilities on our
management and staff, and the management and staff of our commercial and
technical managers, and may necessitate that we, and they, increase the number
of personnel. We cannot give any assurance that we will be successful in
executing our growth plans or that we will not incur significant expenses and
losses in connection with such growth plans.




Delays
in deliveries of additional vessels, our decision to cancel an order for
purchase of a vessel or our inability to otherwise complete the acquisitions of
additional vessels for our fleet, could harm our operating results.




We expect
to purchase additional vessels from time to time. For example, since our initial
public offering in April 2010, we agreed to purchase an additional six vessels,
of which three have been delivered and three are scheduled to be delivered by
September 2010. The delivery of these vessels could be delayed, not completed or
cancelled, which would delay or eliminate our expected receipt of revenues from
the employment of these vessels. The seller could fail to deliver these vessels
to us as agreed, or we could cancel a purchase contract because the seller has
not met its obligations.




If the
delivery of any vessel is materially delayed or cancelled, especially if we have
committed the vessel to a charter for which we become responsible for
substantial liquidated damages to the customer as a result of the delay or
cancellation, our business, financial condition and results of operations could
be adversely affected.




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




As of the
date of this annual report, we employed four tankers under fixed rate long-term
time charter agreements with an average remaining duration of approximately
eight months.
Vessels committed to medium- and long-term charters may not be available for
spot charters during periods of increasing charterhire rates, when spot charters
might be more profitable. Where we plan to employ a vessel in the spot charter
market, we intend to generally place such vessel in a tanker pool managed by our
commercial manager that pertains to that vessel's size class.




13







If
we purchase and operate secondhand vessels, we will be exposed to increased
operating costs which could adversely affect our earnings and, as our fleet
ages, the risks associated with older vessels could adversely affect our ability
to obtain profitable charters.




Our
current business strategy includes additional growth through the acquisition of
new and secondhand vessels. While we typically inspect secondhand vessels prior
to purchase, this does not provide us with the same knowledge about their
condition that we would have had if these vessels had been built for and
operated exclusively by us. Generally, we do not receive the benefit of
warranties from the builders for the secondhand vessels that we
acquire.




In
general, the costs to maintain a vessel in good operating condition increase
with the age of the vessel. Older vessels are typically less fuel-efficient than
more recently constructed vessels due to improvements in engine technology.
Cargo insurance rates increase with the age of a vessel, making older vessels
less desirable to charterers.




Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
our vessels and may restrict the type of activities in which the vessels may
engage. As our vessels age, market conditions may not justify those expenditures
or enable us to operate our vessels profitably during the remainder of their
useful lives.




An
increase in operating costs would decrease earnings and available
cash.




Under the
charter agreements for four of our vessels, the charterer is responsible for
voyage costs and we are responsible for the vessel operating costs. Under the
tanker pool agreement for two of our vessels, the pool is responsible for the
voyage expenses and we are responsible for vessel costs. Our vessel operating
costs include the costs of crew, fuel (for spot chartered vessels), provisions,
deck and engine stores, insurance and maintenance and repairs, which depend on a
variety of factors, many of which are beyond our control. Some of these costs,
primarily relating to insurance and enhanced security measures implemented after
September 11, 2001, have been increasing. If our vessels suffer damage,
they may need to be repaired at a drydocking facility. The costs of drydocking
repairs are unpredictable and can be substantial. Increases in any of these
expenses would decrease earnings and available cash.




If
we are unable to operate our vessels profitably, we may be unsuccessful in
competing in the highly competitive international tanker market, which would
negatively affect our financial condition and our ability to expand our
business.




The
operation of tanker vessels and transportation of crude and petroleum products
is extremely competitive, in an industry that is capital intensive and highly
fragmented. The recent global financial crisis may reduce the demand for
transportation of oil and oil products which could lead to increased
competition. Competition arises primarily from other tanker owners, including
major oil companies as well as independent tanker companies, some of whom have
substantially greater resources than we do. Competition for the transportation
of oil and oil products can be intense and depends on price, location, size,
age, condition and the acceptability of the tanker and its operators to the
charterers. We will have to compete with other tanker owners, including major
oil companies as well as independent tanker companies.




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




If
we do not set aside funds and are unable to borrow or raise 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, financial
condition, and available cash.




If we do
not set aside funds and are unable to borrow or raise funds for vessel
replacement, we will be unable to replace the vessels in our fleet upon the
expiration of their remaining useful lives, which we expect to occur from 2026
to 2033, depending on the vessel. Our cash flows and income are dependent on the
revenues earned by the chartering of our vessels. If we are unable to replace
the vessels in our fleet upon the expiration of their useful lives, our
business, results of operations, financial condition, and available cash per
share would be adversely affected. Any funds set aside for vessel replacement
will reduce available cash.




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




The
actual or perceived credit quality of our charterers, and any defaults by them,
may materially affect our ability to obtain the additional capital resources
that we will require to purchase additional vessels or may significantly
increase our costs of obtaining such capital. Our inability to obtain additional
financing at all or at a higher than anticipated cost may materially affect our
results of operation and our ability to implement our business
strategy.




14







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




A foreign
corporation will be treated as a "passive foreign investment company," or PFIC,
for United States federal income tax purposes if either (1) at least 75% of
its gross income for any taxable year consists of certain types of "passive
income" or (2) at least 50% of the average value of the corporation's
assets produce or are held for the production of those types of "passive
income." For purposes of these tests, "passive income" includes dividends,
interest, and gains from the sale or exchange of investment property and rents
and royalties other than rents and royalties which are received from unrelated
parties in connection with the active conduct of a trade or business. For
purposes of these tests, income derived from the performance of services does
not constitute "passive income." United States shareholders of a PFIC are
subject to a disadvantageous United States federal income tax regime with
respect to the income derived by the PFIC, the distributions they receive from
the PFIC and the gain, if any, they derive from the sale or other disposition of
their shares in the PFIC.




We should
not be a PFIC with respect to any taxable year. Based upon our operations
as described herein, we do not believe that our income from our time charters
should be treated as passive income for purposes of determining whether we are a
PFIC. Accordingly, our income from our time chartering activities should
not constitute "passive income," and the assets that we own and operate in
connection with the production of that income should not constitute passive
assets.




There is
substantial legal authority supporting this position consisting of case law and
United States Internal Revenue Service, or IRS, pronouncements concerning the
characterization of income derived from time charters and voyage charters as
services income for other tax purposes. However, it should be noted that
there is also authority which characterizes time charter income as rental income
rather than services income for other tax purposes. Accordingly, no
assurance can be given that the IRS or a court of law will accept this position,
and there is a risk that the IRS or a court of law could determine that we are a
PFIC. Moreover, no assurance can be given that we would not constitute a
PFIC for any future taxable year if the nature and extent of our operations
change.




If the
IRS were to find that we are or have been a PFIC for any taxable year, our
United States shareholders would face adverse United States federal income tax
consequences and information reporting requirements. Under the PFIC rules,
unless those shareholders make an election available under the Code (which
election could itself have adverse consequences for such shareholders, as
discussed below under Item 10.E. "Taxation—United States Federal Income
Taxation—United States Federal Income Taxation of United States Holders"), such
shareholders would be liable to pay United States federal income tax at the then
prevailing income tax rates on ordinary income plus interest, in respect of
excess distributions and upon any gain from the disposition of their common
shares, as if the excess distribution or gain had been recognized ratably over
the shareholder's holding period of the common shares. See Item 10.E.
"Taxation—United States Federal Income Taxation—United States Federal Income
Taxation of United States Holders" for a more comprehensive discussion of the
United States federal income tax consequences to United States shareholders if
we are treated as a PFIC.




We
may have to pay tax on United States source shipping income, which would reduce
our earnings.




Under the
United States Internal Revenue Code of 1986, or the Code, 50% of the gross
shipping income of a corporation that owns or charters vessels, as we and our
subsidiaries do, that is attributable to transportation that begins or ends, but
that does not both begin and end, in the United States may be subject to a 4%
United States federal income tax without allowance for deduction, unless that
corporation qualifies for exemption from tax under Section 883 of the Code
and the applicable Treasury Regulations promulgated thereunder.




For
taxable years after our initial public offering, we and our subsidiaries intend
to take the position that we qualify for this statutory tax exemption for United
States federal income tax return reporting purposes. However, there are
factual circumstances beyond our control that could cause us to lose the benefit
of this tax exemption after the offering and thereby become subject to United
States federal income tax on our United States source shipping income. For
example, in certain circumstances we may no longer qualify for exemption under
Code section 883 for a particular taxable year if shareholders with a five
percent or greater interest in our common shares owned, in the aggregate, 50% or
more of our outstanding common shares for more than half the days during the
taxable year. Due to the factual nature of the issues involved, there can
be no assurances on the tax-exempt status of us or any of our
subsidiaries.




If we or
our subsidiaries were not entitled to exemption under Section 883 for any
taxable year, they could be subject for such year to an effective 2% United
States federal income tax on the shipping income they derive during the year
which is attributable to the transport or cargoes to or from the United
States. The imposition of this taxation would have a negative effect on our
business and would decrease our earnings available for distribution to our
shareholders.




15







Any
dividends paid by us may not qualify for preferential rates of United States
federal income taxation in the hands of United States non-corporate
holders.




We expect
that any dividends paid on our common shares to a United States shareholder who
is an individual, trust or estate will generally be treated as "qualified
dividend income" that is taxable at preferential United States federal income
tax rates (through 2010). Our dividends will be so treated provided that
(1) our common shares are readily tradable on an established securities
market in the United States (such as the New York Stock Exchange, on which our
common stock is traded); (2) we are not a PFIC for the taxable year during
which the dividend is paid or the immediately preceding taxable year (which we
have not been, are not and do not anticipate being in the future); (3) the
recipient of the dividend has owned the common shares for more than 60 days in
the 121-day period beginning 60 days before the date on which the common shares
become ex-dividend; and (4) the recipient of the dividend is not under an
obligation to make related payments with respect to positions in substantially
similar or related property.




There is
no assurance that any dividends paid on our common stock will be eligible for
these preferential rates in the hands of a United States non-corporate
shareholder. For example, under current law, the preferential rate for qualified
dividend income is scheduled to expire on December 31, 2010. If the
preferential rate for such dividends is not extended, then any dividends paid by
us after December 31, 2010 will be treated as ordinary income. In addition,
legislation has been previously introduced in the United States Congress which,
if enacted in its present form, would preclude our dividends from qualifying for
such preferential rates prospectively from the date of enactment. Finally, as
discussed in more detail in Item 10.E. "Taxation—United States Federal Income
Tax Considerations—Passive Foreign Investment Company Status and Significant Tax
Consequences," we could be treated as a passive foreign investment company for
the taxable year in which we pay the dividend or the immediately preceding
taxable year.




We
will be required to make additional capital expenditures to expand the number of
vessels in our fleet and to maintain all our vessels, which will be dependent on
additional financing.




Our
business strategy is based in part upon the expansion of our fleet through the
purchase of additional vessels beyond the three vessels we have agreed to
acquire. We currently have outstanding commitments to purchase three additional
vessels for an aggregate purchase of approximately $73.0 million. If we are
unable to fulfill our obligations under the memorandum of agreement for future
vessel acquisitions, the sellers of such vessels may be permitted to terminate
such contracts and we may forfeit all or a portion of the down payments we
already made under such contracts, and we may be sued for any outstanding
balance.




In
addition, we will incur significant maintenance costs for our existing and any
newly-acquired vessels. A newbuilding vessel must be drydocked within five years
of its delivery from a shipyard, and vessels are typically drydocked every 30
months thereafter, not including any unexpected repairs. We estimate the cost to
drydock a vessel to be between $400,000 and $900,000, depending on the size and
condition of the vessel and the location of drydocking.




Risks
Related To Our Relationship With Scorpio Group and Its Affiliates




We
are dependent on our managers and there may be conflicts of interest between us
and our managers that may not be resolved in our favor.




Our
success depends to a significant extent upon the abilities and efforts of our
technical manager, SSM, our commercial manager, SCM, and our management team.
Our success will depend upon our and our managers' ability to hire and retain
key members of our management team. The loss of any of these individuals could
adversely affect our business prospects and financial condition.




Difficulty
in hiring and retaining personnel could adversely affect our results of
operations. We do not maintain "key man" life insurance on any of our
officers.




Our
technical and commercial managers are affiliates of Scorpio Group, which is
owned and controlled by the Lolli-Ghetti family, of which our founder, Chairman
and Chief Executive Officer, Mr. Emanuele Lauro, is a member. Conflicts of
interest may arise between us, on the one hand, and our commercial and technical
managers, on the other hand. As a result of these conflicts, our commercial and
technical managers, who have limited contractual duties, may favor their own or
their owner's interests over our interests. These conflicts may have unfavorable
results for us.




16







Our
founder, Chairman and Chief Executive Officer has affiliations with our
commercial and technical managers which may create conflicts of
interest.




Emanuele
Lauro, our founder, Chairman and Chief Executive Officer, is a member of the
Lolli-Ghetti family which owns and controls our commercial and technical
managers and owns 30.1% of our outstanding common shares as of the date of this
annual report. These responsibilities and relationships could create conflicts
of interest between us, on the one hand, and our commercial and technical
managers, on the other hand. These conflicts may arise in connection with the
chartering, purchase, sale and operations of the vessels in our fleet versus
vessels managed by other companies affiliated with our commercial or technical
managers. Our commercial and technical managers may give preferential treatment
to vessels that are time chartered in by related parties because our founder,
Chairman and Chief Executive Officer and members of his family may receive
greater economic benefits. In particular, our commercial and technical managers
currently provide commercial and technical management services to approximately
74 and 16 vessels respectively, other than the vessels in our fleet, that are
owned or operated by entities affiliated with Mr. Lauro, and such entities
may acquire additional vessels that will compete with our vessels in the future.
Such conflicts may have an adverse effect on our results of
operations.




Our
Chief Executive Officer and President do not devote all of their time to our
business, which may hinder our ability to operate successfully.




Messrs.
Lauro and Bugbee, our Chief Executive Officer and President, respectively, are
involved in other business activities with members of the Scorpio Group, which
may result in their spending less time than is appropriate or necessary to
manage our business successfully. Based solely on the anticipated relative sizes
of our initial fleet and the fleet owned by members of the Scorpio Group over
the next twelve months, we estimate that Messrs. Lauro and Bugbee will
spend approximately 70-85% of their monthly business time on our business
activities and their remaining time on the business of members of the Scorpio
Group. However, the actual allocation of time could vary significantly from time
to time depending on various circumstances and needs of the businesses, such as
the relative levels of strategic activities of the businesses. This could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.




Our
commercial and technical managers are each privately held companies and there is
little or no publicly available information about them.




SCM is
our commercial manager and SSM is our technical manager. SCM's and SSM's ability
to render management services will depend in part on their own financial
strength. Circumstances beyond our control could impair our commercial manager's
or technical manager's financial strength, and because each is a privately held
company, information about the financial strength of our commercial manager and
technical manager is not available. As a result, we and an investor in our
securities might have little advance warning of financial or other problems
affecting our commercial manager or technical manager even though their
financial or other problems could have a material adverse effect on us and our
security holders.




We
are subject to certain risks with respect to our counterparties on contracts,
and failure of such counterparties to meet their obligations could cause us to
suffer losses or negatively impact our results of operations and cash
flows.




We have
entered into various contracts, including charter agreements with our customers,
consisting of four long-term fixed-rate charter agreements and two tanker pool
agreements, and our credit facility entered into in June 2010,. Such agreements
subject us to counterparty risks. The ability of each of our counterparties to
perform its obligations under a contract with us will depend on a number of
factors that are beyond our control and may include, among other things, general
economic conditions, the condition of the maritime and offshore industries, the
overall financial condition of the counterparty, charter rates received for
specific types of vessels, and various expenses. For example, the combination of
a reduction of cash flow resulting from declines in world trade, a reduction in
borrowing bases under reserve-based credit facilities and the lack of
availability of debt or equity financing may result in a significant reduction
in the ability of our charterers to make charter payments to us. In addition, in
depressed market conditions, our charterers and customers may no longer need a
vessel that is currently under charter or contract or may be able to obtain a
comparable vessel at lower rates. As a result, charterers and customers may seek
to renegotiate the terms of their existing charter agreements or avoid their
obligations under those contracts. Should a counterparty fail to honor its
obligations under agreements with us, we could sustain significant losses which
could have a material adverse effect on our business, financial condition,
results of operations and cash flows.




17




The
failure of our charterers to meet their obligations under our time charter
agreements, on which we depend for a majority of our revenues, could cause us to
suffer losses or otherwise adversely affect our business.




As of the
date of this annual report, we employed four tankers under fixed rate long-term
time charter agreements with an average remaining duration of approximately
eight months. The ability and willingness of each of our counterparties to
perform its obligations under a time charter agreement with us will depend on a
number of factors that are beyond our control and may include, among other
things, general economic conditions, the condition of the tanker shipping
industry and the overall financial condition of the counterparties. Charterers
are sensitive to the commodity markets and may be impacted by market forces
affecting commodities such oil. In addition, in depressed market conditions,
there have been reports of charterers renegotiating their charters or defaulting
on their obligations under charters. Our customers may fail to pay charterhire
or attempt to renegotiate charter rates. Should a counterparty fail to honor its
obligations under agreements with us, it may be difficult to secure substitute
employment for such vessel, and any new charter arrangements we secure in the
spot market or on time charters may be at lower rates given currently decreased
tanker charter rate levels. Where we plan to employ a vessel in the spot charter
market, we intend to generally place such vessel in a tanker pool managed by our
commercial manager that pertains to that vessel's size class. If our charterers
fail to meet their obligations to us or attempt to renegotiate our charter
agreements, we could sustain significant losses which could have a material
adverse effect on our business, financial condition, results of operations and
cash flows, as well as our ability to pay dividends, if any, in the future, and
compliance with covenants in our credit facilities.




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




Our
charters may terminate earlier than the dates indicated in this annual report.
The terms of our charters vary as to which events or occurrences will cause a
charter to terminate or give the charterer the option to terminate the charter,
but these generally include a total or constructive loss of the relevant vessel,
the requisition for hire of the relevant vessel, the drydocking of the relevant
vessel for a certain period of time or the failure of the relevant vessel to
meet specified performance criteria. In addition, the ability of each of our
charterers to perform its obligations under a charter will depend on a number of
factors that are beyond our control. These factors may include general economic
conditions, the condition of the tanker industry, the charter rates received for
specific types of vessels and various operating expenses. The costs and delays
associated with the default by a charterer under a charter of a vessel may be
considerable and may adversely affect our business, results of operations, cash
flows and financial condition and our available cash.




We cannot
predict whether our charterers will, upon the expiration of their charters,
re-charter our vessels on favorable terms or at all. If our charterers decide
not to re-charter our vessels, we may not be able to re-charter them on terms
similar to our current charters or at all. In the future, we may also employ our
vessels on the spot charter market, which is subject to greater rate fluctuation
than the time charter market. Where we plan to employ a vessel in the spot
charter market, we intend to generally place such vessel in a tanker pool
managed by our commercial manager that pertains to that vessel's size
class.




If we
receive lower charter rates under replacement charters or are unable to
re-charter all of our vessels, our available cash may be significantly reduced
or eliminated.




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




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




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




18







Because
we obtain some of our insurance through protection and indemnity associations,
which result in significant expenses to us, we may be required to make
additional premium payments.




We may be
subject to increased premium payments, or calls, in amounts based on our claim
records, the claim records of our managers, as well as the claim records of
other members of the protection and indemnity associations through which we
receive insurance coverage for tort liability, including pollution-related
liability. In addition, our protection and indemnity associations may not have
enough resources to cover claims made against them. Our payment of these calls
could result in significant expense to us, which could have a material adverse
effect on our business, results of operations, cash flows, financial condition
and available cash.




Risks
Related To Our Indebtedness




Servicing
debt, which we may incur in the future, would limit funds available for other
purposes and if we cannot service our debt, we may lose our
vessels.




Borrowing
under our credit facility requires us to dedicate a part of our cash flow from
operations to paying interest on our indebtedness. These payments limit funds
available for working capital, capital expenditures and other purposes,
including further equity or debt financing in the future. Amounts borrowed under
our credit facility bear interest at variable rates. Increases in prevailing
rates could increase the amounts that we would have to pay to our lenders, even
though the outstanding principal amount remains the same, and our net income and
cash flows would decrease. We expect our earnings and cash flow to vary from
year to year due to the cyclical nature of the tanker industry. If we do not
generate or reserve enough cash flow from operations to satisfy our debt
obligations, we may have to undertake alternative financing plans, such
as:




·
            seeking
      to raise additional capital;




·
            refinancing
      or restructuring our debt;




·
            selling
      tankers; or




·
            reducing
      or delaying capital investments.




However,
these alternative financing plans, if necessary, may not be sufficient to allow
us to meet our debt obligations. If we are unable to meet our debt obligations
or if some other default occurs under our credit facility, the lender could
elect to declare that debt, together with accrued interest and fees, to be
immediately due and payable and proceed against the collateral vessels securing
that debt even though the majority of the proceeds used to purchase the
collateral vessels did not come from our credit facility.




Our
credit facility contains restrictive covenants which limit the amount of cash
that we may use for other corporate activities, which could negatively affect
our growth and cause our financial performance to suffer.




Our
credit facility imposes operating and financial restrictions on us. These
restrictions limit our ability, or the ability of our subsidiaries party thereto
to:




·
            pay
      dividends and make capital expenditures if we do not repay amounts drawn
      under our credit facility or if there is another default under our credit
      facility;




·
            incur
      additional indebtedness, including the issuance of
    guarantees;




·
            create
      liens on our assets;




·
            change
      the flag, class or management of our vessels or terminate or materially
      amend the management agreement relating to each
  vessel;




·
            sell
      our vessels;




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




·
            enter
      into a new line of business.




19







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




If
the recent volatility in LIBOR rates continues, it will affect the interest rate
under our credit facility which could affect our profitability, earnings and
cash flow.




Amounts
borrowed under our credit facility bear interest at an annual rate ranging from
3.0% to 3.5% above LIBOR. LIBOR rates have recently been volatile, with the
spread between those rates and prime lending rates widening significantly at
times. These conditions are the result of the recent disruptions in the
international credit markets. Because the interest rates borne by amounts that
we may drawdown under our credit facility fluctuate with changes in the LIBOR
rates, if this volatility were to continue, it would affect the amount of
interest payable on amounts that we were to drawdown from our credit facility,
which in turn, would have an adverse effect on our profitability, earnings and
cash flow.




ITEM
4. INFORMATION ON THE COMPANY




A.
            History
      and Development of the Company




Scorpio Tankers Inc. was incorporated
in the Republic of the Marshall Islands on July 1, 2009 by Simon Financial
Limited, or Simon, the 100% owner of Liberty Holding Company Ltd., or Liberty.
On October 1, 2009, Simon transferred to Scorpio Tankers Inc. three vessel
owning and operating subsidiary companies. Prior to becoming a public company,
the operating subsidiaries were owned by Simon. On April 6, 2010, we closed the
issuance of 12,500,000 shares of common stock at $13.00 per share in our initial
public offering and received net proceeds of $149.6 million, after deducting
underwriters' discounts and offering expenses.  A subsidiary of Liberty
retained ownership of the 5,589,147 shares it owned before the offering. Our
principal executive offices are located at 9, Boulevard Charles III, Monaco
98000.  Our telephone number is +377-9798-5716. Our stock trades on
the New York Stock Exchange (NYSE) under the symbol STNG.




On April
9, 2010, we repaid in full the outstanding balance of $38.9 million of our 2005
Credit Facility from the proceeds of the initial public offering.




On April
19 and 22, 2010, we entered into agreements to purchase four double-hulled
Handymax tankers for an aggregate purchase price of $99.0 million. The ships,
which are charter-free, are scheduled to be delivered by September
2010.  Three of the ships, STI Conqueror, STI Gladiator and STI Matador, were built at
the Shina Shipbuilding Co. Ltd. in South Korea, two ships in 2003; one ship in
2005.  The fourth ship, STI Highlander, was built at
the Hyundai Mipo Dockyard in South Korea in 2007.




On May 4,
2010, we closed the issuance of 450,000 shares of common stock at $13.00 and
received $5.4 million, after deducting underwriters' discounts, when the
underwriters in the Company's initial public offering partially exercised their
over-allotment option.




On May
13, 2010, we entered into agreements to purchase two LR1 ice class 1A product
tankers (STI Heritage
and STI Harmony) each
with an existing short-term time charter contract.  The two ships were
built in 2008 and 2007 at the Onomichi Dockyard in Japan.  The
aggregate purchase price of $92.0 million includes an estimated $2.5 million
related to the value of their existing time charter contracts.  The
time charter contracts of $25,500 per day per ship plus 50% profit sharing over
the base rate expire in October 2010 (plus or minus 30 days) for the vessel
built in 2007 and January 2011 (plus or minus 30 days) for the vessel built in
2008.  The time charters, which were signed in 2007, are with a
related party of Scorpio Tankers Inc.




On June
9, 2010, we announced that we took delivery of three products tanker vessels
that the Company previously agreed to acquire. Two of the tankers are LR1 ice
class 1A sister ships, STI
Harmony and STI
Heritage were acquired for an aggregate price of $92.0 million, which
includes an estimated $2.5 million related to the value of the existing time
charter contracts.  The third vessel delivered was STI Conqueror, which is an
ice class 1B ship, and was acquired for $26.0 million.


B.
            Business
      Overview




We are
engaged in seaborne transportation of crude oil and refined petroleum products
in the international shipping markets.  Our fleet as of December 31,
2009 consisted of three wholly owned tankers (two LR1 product tankers and one
post-Panamax tanker).  As of the date of this annual report, we have
taken delivery of three additional vessels. Below is our fleet list as of the
date of this annual report:




20







Time
      Charter InfoIce
            
            
            
            Daily
      BaseVessel
      Name
            
            Year
      Built
            
            
            DWT
            
            
            Class
            
            Employment
            
            Rate
            
            
            Expiry
      (A)1
            
            Noemi
            
            
            2004
            
            
            
            72,515
            
            
            
            -
            
            Time
      Charter (B)
            
            $
            24,500
            
            
            21-Jan-20122
            
            Senatore
            
            
            2004
            
            
            
            72,514
            
            
            
            -
            
            Time
      Charter
            
            $
            26,000
            
            
            04-Oct-20103
            
            Venice
            
            
            2001
            
            
            
            81,408
            
            
            
            1C
            
            SPTP
      (C)
            
            
            N/A
            
            
            
            N/A4
            
            STI
      Conqueror
            
            
            2005
            
            
            
            40,158
            
            
            
            1B
            
            SHTP
      (D)
            
            
            N/A
            
            
            
            N/A5
            
            STI
      Harmony
            
            
            2007
            
            
            
            73,919
            
            
            
            1A
            
            Time
      Charter (E)
            
            $
            25,500
            
            
            17-Oct-20106
            
            STI
      Heritage
            
            
            2008
            
            
            
            73,919
            
            
            
            1A
            
            Time
      Charter (E)
            
            $
            25,500
            
            
            08-Jan-2011414,433Vessels
      Agreed to be Acquired :1
            
            STI
      Gladiator
            
            
            2003
            
            
            
            40,083
            
            
            
            -
            
            SHTP
      (D)
            
            
            N/A
            
            
            
            N/A2
            
            STI
      Matador
            
            
            2003
            
            
            
            40,096
            
            
            
            -
            
            SHTP
      (D)
            
            
            N/A
            
            
            
            N/A3
            
            STI
      Highlander
            
            
            2007
            
            
            
            37,145
            
            
            
            1A
            
            SHTP
      (D)
            
            
            N/A
            
            
            
            N/A117,324531,757





(A)
            Redelivery
      from the charterer is plus or minus 30 days from the expiry
      date.(B)
            Noemi is time chartered
      by King Dustin, which is a related party.(C)
            The
      vessel operates in the Scorpio Panamax Tanker Pool Ltd., or
      SPTP.    The SPTP is operated by Scorpio Commercial
      Management, or SCM.  SPTP and SCM are related parties to the
      Company.(D)
            The
      vessel operates in Scorpio Handymax Tanker Pool Ltd., or
      SHTP.  The SHTP is operated by Scorpio Commercial
      Management.  SHTP and SCM are related parties to the
      Company.(E)
            STI Harmony and STI Heritage were
      acquired with their existing time charter contracts that commenced in
      October 2007 and January 2008, respectively.  The vessels are
      chartered to subsidiaries of Liberty, which are related
      parties.





Operations




We
operate our vessels on time charters or in commercial pools (such as the Scorpio
Panamax Tanker Pool and Scorpio Handymax Tanker Pool).  As of the date
of this annual report:




·
            Noemi,
      Senatore, STI Harmony and STI Heritage were on time
    charters.




·
            Venice
      was operating in the Scorpio Panamax Tanker
  Pool.




·
            STI
      Conqueror was operating in the Scorpio Handymax Tanker
    Pool.




The
remaining vessels that we have agreed to acquire will enter the Scorpio Handymax
Tanker Pool upon delivery.




Time
Charters




Time charters give us a fixed and
stable cash flow for a known period of time.  Time charters also
mitigate in part the seasonality of the spot market business, which is generally
weaker in the second and third quarters of the year.  In the future,
we may opportunistically look to enter our vessels into time charter contracts.
We may also enter into time charter contracts with profit sharing agreements,
which enable us to benefit if the spot market increases.




21







Commercial Pools




To
increase vessel utilization and thereby revenues, we participate in commercial
pools with other shipowners of similar modern, well-maintained vessels. By
operating a large number of vessels as an integrated transportation system,
commercial pools offer customers greater flexibility and a higher level of
service while achieving scheduling efficiencies. Pools employ experienced
commercial charterers and operators who have close working relationships with
customers and brokers, while technical management is performed by each
shipowner. Pools negotiate charters with customers primarily in the spot market.
The size and scope of these pools enable them to enhance utilization rates for
pool vessels by securing backhaul voyages and COAs, thus generating higher
effective TCE revenues than otherwise might be obtainable in the spot market
while providing a higher level of service offerings to customers.




Commercial
Management Agreement




Our
vessels are commercially managed by Scorpio Commercial Management S.A.M., or
SCM.  SCM is a related party and SCM's services include securing
employment, in the spot market and on time charters, for the Company's vessels.
SCM also manages the Scorpio Panamax Tanker Pool and the Scorpio Handymax Tanker
Pool.  When our vessels operate in one of the commercial pools managed
by SCM, we pay SCM an agent fee of $250 per vessel per day plus 1.25% commission
per charter fixture.  When our vessels are operating outside of such
commercial pools, we pay SCM a fee of $250 per vessel per day plus a 1.25%
commission of gross revenues per charter fixture for Panamax and LR1 vessels and
$300 per vessel per day for Handymax vessels, which are the same fees SCM
charges third parties.




We signed
commercial management agreements in December 2009 for Noemi, Senatore and Venice for a period of three
years, which may be terminated upon a two year notice.  We have also
signed similar agreements for the vessels that we acquired and agreed to acquire
so far in 2010, and we expect to sign similar agreements for additional vessels
that may acquire in the future.




Technical
Management Agreement




Our
vessels are technically managed by Scorpio Ship Management S.A.M., or SSM, a
related party, with the exception of two vessels we have recently acquired which
are being technically managed by unaffiliated technical manager.  SSM
is owned by members of the Lolli-Ghetti family. SSM facilitates vessel support
such as crew, provisions, deck and engine stores, insurance, maintenance and
repairs, and other services as necessary to operate the Company's vessels such
as drydocks and vetting/inspection under a technical management agreement. We
currently pay SSM $548 per vessel per day to provide technical management
services for each of our vessels.




We signed
the technical management agreements in December 2009 for a period of three
years, which may be terminated upon a two year notice.We have also signed
similar agreements for the vessels that we acquired and agreed to acquire so far
in 2010, and we expect to sign similar agreements for additional vessels that
may acquire in the future.




Administrative
Services Agreement




We have
an administrative services agreement with Liberty, or our
Administrator.  Liberty provides accounting, legal compliance,
financial, information technology services, and the provision of administrative
staff and office space. We will reimburse our Administrator for the reasonable
direct or indirect expenses it incurs in providing us with the administrative
services described above.  Liberty also arranges vessel sales and
purchases for us. Liberty sub-contracts its responsibilities to other entities
within the Scorpio Group.




We will
also pay our Administrator a fee for arranging vessel purchases and sales for
us, equal to 1% of the gross purchase or sale price, payable upon the
consummation of any such purchase or sale.  For the three vessels (STI
Conqueror, STI Harmony and STI Heritage) purchased as of the date of this annual
report, the Administrator earned $1.2 million. We believe this 1% fee on
purchases and sales is customary in the tanker industry.




Further,
pursuant to our administrative services agreement, Liberty, on behalf of itself
and other members of the Scorpio Group, has agreed that it will not directly own
product or crude tankers ranging in size from 35,000 dwt to 200,000
dwt.




Our
administrative services agreement, whose effective commencement began in
December 2009, has a duration of three years.




22







The
International Tanker Market




International
seaborne oil and petroleum products transportation services are mainly provided
by two types of operators: major oil company captive fleets (both private and
state-owned) and independent shipowner fleets.  Both types of
operators transport oil under short-term contracts (including single-voyage
"spot charters") and long-term time charters with oil companies, oil traders,
large oil consumers, petroleum product producers and government
agencies.  The oil companies own, or control through long-term time
charters, approximately one third of the current world tanker capacity, while
independent companies own or control the balance of the fleet.  The
oil companies use their fleets not only to transport their own oil, but also to
transport oil for third-party charterers in direct competition with independent
owners and operators in the tanker charter market.




The
current international financial crisis is affecting the international tanker
market. It is expected that the global fleet will increase during 2010 because
of the present order book. However, some shipping companies are now facing
challenges in financing their large newbuilding programs, as shipping banks are
more restrictive than before in granting credit. The current financial upheaval
may delay deliveries of newbuildings and may also lead to the cancellation of
newbuilding orders, and there have been reports of cancellations of tanker
newbuildings from certain yards. Shipping companies with high debt or other
financial commitments may be unable to continue servicing their debt, which
could lead to foreclosure on vessels.




The oil
transportation industry has historically been subject to regulation by national
authorities and through international conventions.  Over recent years,
however, an environmental protection regime has evolved which has a significant
impact on the operations of participants in the industry in the form of
increasingly more stringent inspection requirements, closer monitoring of
pollution-related events, and generally higher costs and potential liabilities
for the owners and operators of tankers.




In order
to benefit from economies of scale, tanker charterers will typically charter the
largest possible vessel to transport oil or products, consistent with port and
canal dimensional restrictions and optimal cargo lot sizes.  A
tanker's carrying capacity is measured in deadweight tons, or dwt, which is the
amount of crude oil measured in metric tons that the vessel is capable of
loading.  The oil tanker fleet is generally divided into the following
five major types of vessels, based on vessel carrying capacity: (i) Ultra Large
Crude Carrier, or ULCC, with a size range of approximately 320,000 to 450,000
dwt; (ii) Very Large Crude Carrier, or VLCC, with a size range of approximately
200,000 to 320,000 dwt; (iii) Suezmax-size range of approximately 120,000 to
200,000 dwt; (iv) Aframax-size range of approximately 80,000 to 120,000 dwt; (v)
Panamax-size range of approximately 60,000 to 70,000 dwt; and (v) small tankers
of less than approximately 60,000 dwt.  ULCCs and VLCCs typically
transport crude oil in long-haul trades, such as from the Arabian Gulf to
Rotterdam via the Cape of Good Hope.  Suezmax tankers also engage in
long-haul crude oil trades as well as in medium-haul crude oil trades, such as
from West Africa to the East Coast of the United States.  Aframax-size
vessels generally engage in both medium-and short-haul trades of less than 1,500
miles and carry crude oil or petroleum products.  Smaller tankers
mostly transport petroleum products in short-haul to medium-haul
trades.




The 2009 Tanker Market
(Source: Fearnleys)




Following the onset of the global
financial crisis in 2008, expectations, in general terms, were quite dismal for
2009. In a broader sense, the tanker market fared quite poorly in 2009, but had
huge discrepancies between the various sub-segments.




The oil tanker fleet is generally
divided into five major categories of vessels, based on carrying capacity and
the types of cargoes carried.  A tanker's carrying capacity is
measured in dwt, which is the amount of crude oil measured in metric tons that
the vessel is capable of loading. In the single voyage market the VLCC, whose
carrying capacity ranges from 200,000 dwt to 320,000 dwt, reached an average of
about $29,000 per day, a significant decrease from $88,000 per day in 2008.
Suezmaxes, whose carrying capacity ranges from 120,000 dwt to 200,000 dwt,
achieved an average rate of $31,500 per day, down from $67,000 the year before.
Corresponding rates for Aframaxes, whose carrying capacity ranges from 80,000
dwt to 120,000 dwt, were $10,000 per day compared with $50,000 per day in 2008.
In comparison with asset values the Suezmax market showed the strongest
resilience in the downturn.




Seaborne crude oil trade, measured in
ton-miles, declined approximately 1.0% in 2009.  This was markedly
less than anticipated. Crude oil imports to the United States declined
approximately 7.5%, but transportation work declined by about 13.5%. This was,
to a certain degree, offset by strongly increased imports to China resulting in
the U.S. becoming the second largest crude oil importing country.




The use of tankers for floating storage
increased in 2009. At the beginning of the year as a pure commodity price play
(contango in the oil futures market) but later in the year a significant number
of tankers were employed for storage due to brimming on-shore storage
facilities. For greater parts of the year more than 30 VLCCs were employed in
storage.




23







Periodically the crude tanker spot
market yielded negative time charter results during 2009. It was expected that
several single-hull, or SH, ships would have been sold for demolition given the
IMO phase out of SH ships scheduled for 2010. However, demolition sales were low
and only 8 VLCCs and 2 Suezmax tankers were sold for demolition. Currently,
according to Fearnresearch, the world fleet contains 66 SH VLCCs and 24 SH
Suezmax tankers that, given strict adherence to the IMO phase out schedule, are
supposed to cease oil trading by the end of 2010.




According to data from Fearnresearch,
in 2009 a total of 55 VLCCs and 46 Suezmax tankers were delivered from yards.
The Suezmax fleet expanded by 13% and the VLCC fleet by 8% (both measured by
deadweight). In total, net tanker fleet growth ended at 8.6%. Following the
decline in crude oil prices in mid-2008, prices gradually rose throughout 2009
despite the fact that global oil demand decreased 1.2 millions of barrels per
day, or mb/d, or 1.4%, to 85 mb/d. OPEC crude oil production declined 2.5 mb/d,
or 8%, to 28.7 mb/d, according to the International Energy Agency (IEA). OPEC
NGL (Natural Gas Liquids) production was only marginally up compared to
2008.




The sale and purchase market for
tankers, measured by the number of transactions, decreased again in 2009. A
total of about 155 transactions were concluded. There are several reasons for
this decline, but primarily the difficulties in securing financing for
acquisitions must be considered the prime cause. Secondly, the market was
characterized by few sellers willing to take losses on either newbuildings
ordered at record price levels or existing vessels purchased at the height of
the market in 2007/08.




The International Energy Agency, or
IEA, in their latest market report, has become quite optimistic for growth in
global oil demand in 2010. According to their May 2010 report global demand is
estimated to increase 2.0% this year.  At the same time, the downturn
in North Sea output as well as new infrastructure in the FSU (Former Soviet
Union) will have a quite negative impact on demand for short-haul crude oil
tankers. A similar development is observed in North America where Mexican crude
oil output is expected to continue falling. Both of these developments are
expected to have a negative impact on Aframax tankers whereas the effects for
Suezmax and VLCC crude tankers will be quite positive as crude oil has to be
sourced in areas farther away generating a significant growth in transportation
work.




Environmental
and Other Regulations




Government
laws and regulations significantly affect the ownership and operation of our
tankers. We are subject to international conventions, national, state and local
laws and regulations in force in the countries in which our vessels may operate
or are registered. Compliance with such laws, regulations and other requirements
entails significant expense, including vessel modifications and implementation
of certain operating procedures.




A variety
of government, quasi-governmental and private organizations subject our tankers
to both scheduled and unscheduled inspections. These organizations include the
local port authorities, national authorities, harbor masters or equivalent,
classification societies, flag state administrations (countries of registry),
labor organizations (including but not limited to the International Transport
Workers' Federation), charterers, terminal operators and oil companies. Some of
these entities require us to obtain permits, licenses, certificates and
approvals for the operation of our tankers. Our failure to maintain necessary
permits, licenses, certificates or approvals could require us to incur
substantial costs or temporarily suspend operation of one or more of the vessels
in our fleet, or lead to the invalidation or reduction of our insurance
coverage.




We
believe that the heightened levels of environmental and quality concerns among
insurance underwriters, regulators and charterers have led to greater inspection
and safety requirements on all vessels and may accelerate the scrapping of older
vessels throughout the tanker industry. Increasing environmental concerns have
created a demand for tankers that conform to stricter environmental standards.
We are required to maintain operating standards for all of our vessels that
emphasize operational safety, quality maintenance, continuous training of our
officers and crews and compliance with applicable local, national and
international environmental laws and regulations. Such laws and regulations
frequently change and may impose increasingly strict requirements. We cannot
predict the ultimate cost of complying with these requirements, or the impact of
these requirements on the resale value or useful lives of our tankers. In
addition, a future serious marine incident that results in significant oil
pollution or otherwise causes significant adverse environmental impact could
result in additional legislation or regulation that could negatively affect our
profitability.




International
Maritime Organization




The IMO,
the United Nations agency for maritime safety and the prevention of pollution,
has adopted the International Convention for the Prevention of Pollution from
Ships, or MARPOL, which has been updated through various amendments. MARPOL
establishes environmental standards relating to oil leakage or spilling, garbage
management, sewage, air emissions, handling and disposal of noxious liquids and
the handling of harmful substances in packaged forms.




24


Air
Emissions




In
September 1997, the IMO adopted Annex VI to MARPOL to address air pollution
from ships. Effective May 2005, Annex VI sets limits on sulfur oxide and
nitrogen oxide emissions from all commercial vessel exhausts and prohibits
deliberate emissions of ozone depleting substances (such as halons and
chlorofluorocarbons), emissions of volatile organic compounds from cargo tanks,
and the shipboard incineration of specific substances. Annex VI also
includes a global cap on the sulfur content of fuel oil and allows for special
areas to be established with more stringent controls on sulfur
emissions. Additional or new conventions, laws and regulations may be
adopted that could require the installation of expensive emission control
systems and adversely affect our business, cash flows, results of operations and
financial condition. In October 2008, the IMO adopted amendments to Annex VI
regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and
ozone-depleting substances, which amendments enter into force on July 1,
2010. The amended Annex VI will reduce air pollution from vessels by, among
other things, (i) implementing a progressive reduction of sulfur oxide
emissions from ships by reducing the global sulfur fuel cap initially to 3.50%
(from the current cap of 4.50%), effective from January 1, 2012, then
progressively to 0.50%, effective from January 1, 2020, subject to a
feasibility review to be completed no later than 2018; and
(ii) establishing new tiers of stringent nitrogen oxide emissions standards
for new marine engines, depending on their date of installation. The United
States ratified the Annex VI amendments in October 2008, and the U.S.
Environmental Protection Agency, or EPA, promulgated equivalent emissions
standards in late 2009.




The
Marine Environment Protection Committee, or MEPC, has designated the area
extending 200 miles from the territorial sea baseline adjacent to the
Atlantic/Gulf and Pacific coasts and the eight main Hawaiian Islands as an
Emission Control Area, or ECA, under the Annex VI amendments. The new ECA will
enter into force in August 2012, whereupon fuel used by all vessels operating in
the ECA cannot exceed 1.0% sulfur, dropping to 0.1% sulfur in 2015. From 2016,
nitrogen oxide after-treatment requirements will also apply. If other ECAs are
approved by the IMO or other new or more stringent requirements relating to
emissions from marine diesel engines or port operations by vessels are adopted
by the EPA or the states where we operate, compliance with these regulations
could entail significant capital expenditures or otherwise increase the costs of
our operations.




Safety
Management System Requirements




The IMO
also adopted the International Convention for the Safety of Life at Sea, or
SOLAS, and the International Convention on Load Lines, or LL, which impose a
variety of standards that regulate the design and operational features of
ships. The IMO periodically revises the SOLAS and LL
standards.




Our
operations are also subject to environmental standards and requirements
contained in the International Safety Management Code for the Safe Operation of
Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO under
SOLAS. The ISM Code requires the party with operational control of a vessel
to develop an extensive safety management system that includes, among other
things, the adoption of a safety and environmental protection policy setting
forth instructions and procedures for operating its vessels safely and
describing procedures for responding to emergencies. We rely upon the
safety management system that has been developed for our vessels for compliance
with the ISM Code.




The ISM
Code requires that vessel operators also obtain a safety management certificate
for each vessel they operate. This certificate evidences compliance by a
vessel's management with code requirements for a safety management
system. No vessel can obtain a certificate unless its manager has been
awarded a document of compliance, issued by each flag state, under the ISM
Code. SSM has obtained documents of compliance for its offices and safety
management certificates for all of our vessels for which the certificates are
required by the ISM Code. These documents of compliance and safety management
certificates are renewed as required.




Noncompliance
with the ISM Code and other IMO regulations may subject the shipowner or
bareboat charterer to increased liability, may lead to decreases in, or
invalidation of, available insurance coverage for affected vessels and may
result in the denial of access to, or detention in, some ports. The U.S. Coast
Guard and European Union authorities have indicated that vessels not in
compliance with the ISM Code by the applicable deadlines will be prohibited from
trading in U.S. and European Union ports, as the case may be.




Pollution
Control and Liability Requirements




IMO has
negotiated international conventions that impose liability for pollution in
international waters and the territorial waters of the signatory nations to such
conventions. For example, many countries have ratified and follow the
liability plan adopted by the IMO and set out in the International Convention on
Civil Liability for Oil Pollution Damage, or the CLC, although the United States
is not a party. Under this convention and depending on whether the country
in which the damage results is a party to the 1992 Protocol to the CLC, a
vessel's registered owner is strictly liable, subject to certain affirmative
defenses, for pollution damage caused in the territorial waters of a contracting
state by discharge of persistent oil. The limits on liability outlined in
the 1992 Protocol use the International Monetary Fund currency unit of Special
Drawing Rights, or SDR. The right to limit liability is forfeited under the
CLC where the spill is caused by the shipowner's actual fault and under the 1992
Protocol where the spill is caused by the shipowner's intentional or reckless
conduct. Vessels trading with states that are parties to these conventions
must provide evidence of insurance covering the liability of the owner. In
jurisdictions where the CLC has not been adopted, various legislative schemes or
common law govern, and liability is imposed either on the basis of fault or in a
manner similar to that of the CLC. We believe that our protection and
indemnity insurance will cover the liability under the plan adopted by the
IMO.




25







The IMO
adopted the International Convention on Civil Liability for Bunker Oil Pollution
Damage, or the Bunker Convention, to impose strict liability on ship owners for
pollution damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel. The Bunker Convention, which became effective on
November 21, 2008, requires registered owners of ships over 1,000 gross
tons to maintain insurance or other financial security for pollution damage in
an amount equal to the limits of liability under the applicable national or
international limitation regime (but not exceeding the amount calculated in
accordance with the Convention on Limitation of Liability for Maritime Claims of
1976, as amended). With respect to non-ratifying states, liability for spills or
releases of oil carried as fuel in ship's bunkers typically is determined by the
national or other domestic laws in the jurisdiction where the events or damages
occur.




In
addition, IMO adopted an International Convention for the Control and Management
of Ships' Ballast Water and Sediments, or BWM, in February 2004. BWM's
implementing regulations call for a phased introduction of mandatory ballast
water exchange requirements, to be replaced in time with mandatory concentration
limits. BWM will not become effective until 12 months after it has been
adopted by 30 states, the consolidated merchant fleets of which represent not
less than 35% of the gross tonnage of the world's merchant shipping. To
date, there has not been sufficient adoption of this standard for it to
take force.




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




U.S.
Regulations




The U.S.
Oil Pollution Act of 1990, or OPA, established an extensive regulatory and
liability regime for the protection and cleanup of the environment from oil
spills. OPA affects all owners and operators whose vessels trade in the
United States, its territories and possessions or whose vessels operate in U.S.
waters, which includes the U.S. territorial sea and its 200 nautical mile
exclusive economic zone. The United States has also enacted the
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
which applies to the discharge of hazardous substances other than oil, whether
on land or at sea. Both OPA and CERCLA impact our operations.




Under
OPA, vessel owners, operators and bareboat charterers are "responsible parties"
and are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from discharges or
threatened discharges of oil from their vessels. OPA defines these other
damages broadly to include:




·
            natural
      resources damage and related assessment
costs;




·
            real
      and personal property damage;




·
            net
      loss of taxes, royalties, rents, fees and other lost
    revenues;




·
            lost
      profits or impairment of earning capacity due to property or natural
      resources damage; and




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




Effective
July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to
the greater of $2,000 per gross ton or $17.088 million for any double-hull
tanker that is over 3,000 gross tons (subject to possible adjustment for
inflation), and our fleet is entirely composed of vessels of this size class.
CERCLA, which applies to owners and operators of vessels, contains a similar
liability regime and provides for cleanup, removal and natural resource
damages. Liability under CERCLA is limited to the greater of $300 per gross
ton or $5 million for vessels carrying a hazardous substance as cargo and the
greater of $300 per gross ton or $0.5 million for any other vessel. These OPA
and CERCLA limits of liability do not apply if an incident was directly caused
by violation of applicable U.S. federal safety, construction or operating
regulations or by a responsible party's gross negligence or willful misconduct,
or if the responsible party fails or refuses to report the incident or to
cooperate and assist in connection with oil removal activities.




26







OPA and
the U.S. Coast Guard also require owners and operators of vessels to establish
and maintain with the U.S. Coast Guard evidence of financial responsibility
sufficient to meet the limit of their potential liability under OPA and CERCLA.
Vessel owners and operators may satisfy their financial responsibility
obligations by providing a proof of insurance, a surety bond, self-insurance or
a guaranty. We plan to comply with the U.S. Coast Guard's financial
responsibility regulations by providing a certificate of responsibility
evidencing sufficient self-insurance.




The oil
spill in the Gulf of Mexico that began in April 2010 may also result in
additional regulatory initiatives or statutes, including the raising of
liability caps under OPA, that may affect our operations or require us to incur
additional expenses to comply with such regulatory initiatives or
statutes.




We expect
to maintain pollution liability coverage insurance in the amount of
$1 billion per incident for each of our vessels. If the damages from a
catastrophic spill were to exceed our insurance coverage, it could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.




The U.S.
Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances
in U.S. navigable waters unless authorized by a duly-issued permit or exemption,
and imposes strict liability in the form of penalties for any unauthorized
discharges. The CWA also imposes substantial liability for the costs of
removal and remediation and damages and complements the remedies available under
OPA and CERCLA.




The EPA
regulates the discharge of ballast water and other substances in U.S. waters
under the CWA. Effective February 6, 2009, EPA regulations require vessels
79 feet in length or longer (other than commercial fishing and recreational
vessels) to comply with a Vessel General Permit authorizing ballast water
discharges and other discharges incidental to the operation of vessels. The
Vessel General Permit imposes technology and water-quality based effluent limits
for certain types of discharges and establishes specific inspection,
monitoring, recordkeeping and reporting requirements to ensure the effluent
limits are met. U.S. Coast Guard regulations adopted under the U.S.
National Invasive Species Act, or NISA, also impose mandatory ballast water
management practices for all vessels equipped with ballast water tanks entering
or operating in U.S. waters, and in 2009 the Coast Guard proposed new ballast
water management standards and practices, including limits regarding ballast
water releases. Compliance with the EPA and the U.S. Coast Guard regulations
could require the installation of equipment on our vessels to treat ballast
water before it is discharged or the implementation of other port facility
disposal arrangements or procedures at potentially substantial cost, and/or
otherwise restrict our vessels from entering U.S. waters.




European
Union Regulations




In
October 2009, the European Union amended a directive to impose criminal
sanctions for illicit ship-source discharges of polluting substances, including
minor discharges, if committed with intent, recklessly or with serious
negligence and the discharges individually or in the aggregate result in
deterioration of the quality of water. Criminal liability for pollution may
result in substantial penalties or fines and increased civil liability
claims.




Greenhouse
Gas Regulation




In
February 2005, the Kyoto Protocol to the United Nations Framework Convention on
Climate Change, or UNFCCC, which we refer to as the Kyoto Protocol, entered into
force. Pursuant to the Kyoto Protocol, adopting countries are required to
implement national programs to reduce emissions of certain gases, generally
referred to as greenhouse gases, which are suspected of contributing to global
warming. Currently, the emissions of greenhouse gases from international
shipping are not subject to the Kyoto Protocol. However, international
negotiations are continuing with respect to a successor to the Kyoto Protocol,
which sets emission reduction targets through 2012, and restrictions on shipping
emissions may be included in any new treaty. In December 2009, more than 27
nations, including the United States and China, signed the Copenhagen Accord,
which includes a non-binding commitment to reduce greenhouse gas emissions. The
European Union has indicated that it intends to propose an expansion of the
existing European Union emissions trading scheme to include emissions of
greenhouse gases from vessels, if such emissions are not regulated through the
IMO or the UNFCCC by December 31, 2010. In the United States, the EPA has
issued a final finding that greenhouse gases threaten public health and safety,
and has proposed regulations governing the emission of greenhouse gases from
motor vehicles and stationary sources. The EPA may decide in the future to
regulate greenhouse gas emissions from ships and has already been petitioned by
the California Attorney General to regulate greenhouse gas emissions from
ocean-going vessels. Other federal and state regulations relating to the control
of greenhouse gas emissions may follow, including the climate change initiatives
that are being considered in the U.S. Congress. In addition, the IMO is
evaluating various mandatory measures to reduce greenhouse gas emissions from
international shipping, including market-based instruments. Any passage of
climate control legislation or other regulatory initiatives by the EU, U.S., IMO
or other countries where we operate that restrict emissions of greenhouse gases
could require us to make significant financial expenditures that we cannot
predict with certainty at this time.




27




Vessel
Security Regulations




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




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




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




·
            the
      development of vessel security
plans;




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




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




·
            compliance
      with flag state security certification
  requirements.




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




Inspection
by classification societies




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




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




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




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




28







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




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




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




Vessels
have their underwater parts inspected every 30 to 36 months. Depending on the
vessel's age and other factors, this inspection can often be done afloat with
minimal disruption to the vessel's commercial deployment. However, vessels are
required to be drydocked, meaning physically removed from the water, for
inspection and related repairs at least once every five years from delivery. If
any defects are found, the classification surveyor will issue a recommendation
which must be rectified by the ship owner within prescribed time
limits.




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




In
addition to the classification inspections, many of our customers regularly
inspect our vessels as a precondition to chartering them for voyages. We
believe that our well-maintained, high-quality vessels provide us with a
competitive advantage in the current environment of increasing regulation and
customer emphasis on quality.




Risk
of Loss and Liability Insurance




General




The
operation of any cargo vessel includes risks such as mechanical failure,
collision, property loss, cargo loss or damage and business interruption due to
political circumstances in foreign countries, hostilities and labor strikes. In
addition, there is always an inherent possibility of marine disaster, including
oil spills and other environmental mishaps, and the liabilities arising from
owning and operating vessels in international trade. OPA, which in certain
circumstances imposes virtually unlimited liability upon owners, operators and
demise charterers of any vessel trading in the United States exclusive economic
zone for certain oil pollution accidents in the United States, has made
liability insurance more expensive for vessel-owners and operators trading in
the United States market. While we believe that our present insurance coverage
is adequate, not all risks can be insured against, and there can be no guarantee
that any specific claim will be paid, or that we will always be able to obtain
adequate insurance coverage at reasonable rates.




Marine and
War Risks Insurance




We
have in force marine and war risks insurance for all of our
vessels. Our marine hull and machinery insurance covers risks of particular
average and actual or constructive total loss from collision, fire,
grounding, engine breakdown and other insured named perils up to an
agreed amount per vessel. Our war risks insurance covers the risks
of particular average and actual or constructive total loss from
confiscation, seizure, capture, vandalism, sabotage, and other
war-related named perils. We have also arranged coverage for increased
value for each vessel. Under this increased value coverage, in the event of
total loss of a vessel, we will be able to recover amounts in excess of those
recoverable under the hull and machinery policy in order to compensate for
additional costs associated with replacement of the loss
of the vessel. Each vessel is covered up to at
least its fair market value at the time of the
insurance attachment and subject to a fixed deductible per each single
accident or occurrence, but excluding actual or constructive total
loss.




29







Protection
and Indemnity Insurance




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




Our
current protection and indemnity insurance coverage for pollution is
$1 billion per vessel per incident. We are a member of a P&I Club that
is a member of the International Group of P&I Clubs, or the International
Group. The P&I Clubs that comprise the International Group insure
approximately 90% of the world's commercial tonnage and have entered into a
pooling agreement to reinsure each association's liabilities. Although the
P&I Clubs compete with each other for business, they have found it
beneficial to pool their larger risks under the auspices of the International
Group. This pooling is regulated by a contractual agreement which defines the
risks that are to be pooled and exactly how these risks are to be shared by the
participating P&I Clubs. The pool provides a mechanism for sharing all
claims in excess of $8 million up to approximately $5.5 billion. We are subject
to calls payable to the associations based on its claim records as well as the
claim records of all other members of the individual associations and members of
the pool of P&I Clubs comprising the International Group.




C.
            Organizational
      Structure




As of
December 31, 2009, Scorpio Tankers Inc. owned 100% of the four subsidiaries
listed below.




Company:
            Incorporated
      in:Noemi
      Shipping Company Limited
            The
      Republic of The Marshall IslandsSenatore
      Shipping Company Limited
            The
      Republic of The Marshall IslandsVenice
      Shipping Company Limited
            The
      Republic of The Marshall IslandsSting
      LLC
            State
      of Delaware, United States of
America




D.
            Property,
      Plant and Equipment




For a
description of our fleet, see "Item 4.A. – History and Development of the
Company" and " Item 4.B. Business Overview – Our Fleet".




ITEM
4A. UNRESOLVED STAFF COMMENTS




None.




ITEM
5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS




A.
            Operating
      Results




The
following presentation of management's discussion and analysis of results of
operations and financial condition should be read in conjunction with our
consolidated financial statements, accompanying notes thereto and other
financial information appearing in "ITEM 18. Financial Statements". You should
also carefully read the following discussion with "Risk Factors," "The
International Tanker Industry," "Cautionary Statement Regarding Forward-Looking
Statements." The consolidated financial statements as of December 31, 2009 and
2008 and  for the three  years in the period ended
December 31, 2009, have been prepared in accordance with IFRS as issued by
the IASB The consolidated financial statements are presented in U.S. Dollars
unless otherwise indicated. Any amounts converted from another non-U.S. currency
to U.S. Dollars in this registration statement are at the rate applicable at the
relevant date, or the average rate during the applicable period.




30






Prior to
October 1, 2009, our historical consolidated financial statements were prepared
on a carve-out basis from the financial statements of Liberty and include all
assets, liabilities and results of operations of our three vessel-owning
subsidiaries, formerly subsidiaries of Liberty, for those periods. The other
financial information included in this filing represents the aggregated
financial information of the operations of our three vessel-owning
subsidiaries.




We
anticipate additional opportunities to expand our fleet through acquisitions of
tankers, and we believe that recent downward pressure on tanker values will
present attractive investment opportunities to ship operators that have the
necessary capital resources. We may purchase secondhand vessels that meet our
specifications or newbuilding vessels, either directly from shipyards or from
the current owners with shipyard contracts. The timing of these acquisitions
will depend on our ability to identify suitable vessels on attractive purchase
terms.  Since our initial public offering, we have purchased six
vessels, three of which have been delivered as of June 23, 2010.




We
generate revenues by charging customers for the transportation of their crude
oil and other petroleum products using our vessels. Historically, these services
generally have been provided under the following basic types of contractual
relationships:




·
            Voyage charters, which
      are charters for short intervals that are priced on current, or "spot,"
      market rates; and




·
            Time charters, whereby
      vessels we operate and for which we are responsible for crewing and other
      voyage expenses are chartered to customers for a fixed period of time at
      rates that are generally fixed, but may contain a variable component based
      on inflation, interest rates, or current market
  rates.




The
      table below illustrates the primary distinctions among these types of
      charters and contracts:




Voyage
      Charter
            
            Time
      CharterTypical
      contract length
            Single
      voyage
            
            One
      year or moreHire
      rate basis(1)
            Varies
            
            DailyVoyage
      expenses(2)
            We
      pay
            
            Customer
      paysVessel
      operating costs (3)
            We
      pay
            
            We
      payOff-hire(4)
            Customer
      does not pay
            
            Customer
      does not pay





(1)
            "Hire rate" refers to
      the basic payment from the charterer for the use of the
      vessel.


(2)
            "Voyage expenses"
      refers to expenses incurred due to a vessel's traveling from a loading
      port to a discharging port, such as fuel (bunker) cost, port expenses,
      agent's fees, canal dues and extra war risk insurance, as well as
      commissions.


(3)
            Defined
      below under "—Important Financial and Operational Terms and
      Concepts."


(4)
            "Off-hire"refers to
      the time a vessel is not available for service due primarily to scheduled
      and unscheduled repairs or
drydocking.




As of
December 31, 2009, one of our vessels, Venice, was operating in the
Scorpio Panamax Tanker Pool, The majority of the vessels in the Scorpio Panamax
Tanker Pool trade in the spot market. The two other vessels, Noemi and Senatore, were chartered to
customers under fixed-rate long-term time charter contracts that, as of
January 1, 2010, have remaining durations of approximately 24 and nine
months, respectively.




IMPORTANT
FINANCIAL AND OPERATIONAL TERMS AND CONCEPTS




We use a
variety of financial and operational terms and concepts. These include the
following:




Vessel
revenues. Vessel revenues primarily include revenues from time
charters and pool revenues. Vessel revenues are affected by hire rates and the
number of days a vessel operates. Vessel revenues are also affected by the mix
of business between vessels on time charter and vessels in pools. Revenues from
vessels in pools are more volatile, as they are typically tied to prevailing
market rates.




Vessel operating
costs. We are responsible for vessel operating costs, which include
crewing, repairs and maintenance, insurance, stores, lube oils, communication
expenses, and technical management fees. The two largest components of our
vessel operating costs are crews and repairs and maintenance. Expenses for
repairs and maintenance tend to fluctuate from period to period because most
repairs and maintenance typically occur during periodic drydockings. Please read
"Drydocking" below. We expect these expenses to increase as our fleet matures
and to the extent that it expands.




31







Additionally,
these costs include technical management fees charged by SSM. Historically, our
fees under technical management arrangements with SSM were under management
agreements with other Scorpio Group entities, which are related parties of ours.
Since agreements with related parties are by definition not at arms length, the
expenses incurred under these agreements may have been different than the
historical costs incurred if the subsidiaries had operated as unaffiliated
entities during prior periods. Our estimates of any differences between
historical expenses and the expenses that may have been incurred had the
subsidiaries been stand-alone entities have been disclosed in the notes to the
historical consolidated financial statements included elsewhere in this annual
report. Prior to the closing of our initial public offering, we entered into a
technical management agreement with SSM. Under this agreement, since December 1,
2009, SSM continues to provide us technical services and we pay market-based
fees for this service which we believe are customary for the tanker
industry.




Drydocking. We
must periodically drydock each of our vessels for inspection, repairs and
maintenance and any modifications to comply with industry certification or
governmental requirements. Generally, each vessel is drydocked every 30 months.
We capitalize a substantial portion of the costs incurred during drydocking and
amortize those costs on a straight-line basis from the completion of a
drydocking to the estimated completion of the next drydocking. We immediately
expense costs for routine repairs and maintenance performed during drydocking
that do not improve or extend the useful lives of the assets. The number of
drydockings undertaken in a given period and the nature of the work performed
determine the level of drydocking expenditures.




Depreciation. Depreciation
expense typically consists of:




·
            charges
      related to the depreciation of the historical cost of our fleet (less an
      estimated residual value) over the estimated useful lives of the
      vessels; and




·
            charges
      related to the amortization of drydocking expenditures over the estimated
      number of years to the next scheduled
  drydocking.




Time Charter
Equivalent Rates.Time charter equivalent, or TCE, rates, are a standard
industry measure of the average daily revenue performance of a vessel. The TCE
rate achieved on a given voyage is expressed in U.S. dollars/day and is
generally calculated by subtracting voyage expenses, including bunkers and port
charges, from voyage revenue and dividing the net amount (time charter
equivalent revenues) by the number of days in the period.




Revenue
Days. Revenue days are the total number of calendar days our vessels were
in our possession during a period, less the total number of off-hire days during
the period associated with major repairs or drydockings. Consequently, revenue
days represent the total number of days available for the vessel to earn
revenue. Idle days, which are days when a vessel is available to earn revenue,
yet is not employed, are included in revenue days. We use revenue days to show
changes in net voyage revenues between periods.




Average Number of
Vessels. Historical average number of vessels consists of the average
number of vessels that were in our possession during a period. We use average
number of vessels primarily to highlight changes in vessel operating costs and
depreciation and amortization.




Contract of
Affreightment. A contract of affreightment, or COA, relates to the
carriage of specific quantities of cargo with multiple voyages over the same
route and over a specific period of time which usually spans a number of years.
A COA does not designate the specific vessels or voyage schedules that will
transport the cargo, thereby providing both the charterer and ship owner greater
operating flexibility than with voyage charters alone. The charterer has the
flexibility to determine the individual voyage scheduling at a future date while
the ship owner may use different ships to perform these individual voyages. As a
result, COAs are mostly entered into by large fleet operators such as pools or
ship owners with large fleets of the same vessel type. All of the ship's
operating, voyage and capital costs are borne by the ship owner while the
freight rate normally is agreed on a per cargo ton basis.




Commercial
Pools. To increase vessel utilization and thereby revenues, we
participate in commercial pools with other shipowners of similar modern,
well-maintained vessels. By operating a large number of vessels as an integrated
transportation system, commercial pools offer customers greater flexibility and
a higher level of service while achieving scheduling efficiencies. Pools employ
experienced commercial charterers and operators who have close working
relationships with customers and brokers, while technical management is
performed by each shipowner. Pools negotiate charters with customers primarily
in the spot market. The size and scope of these pools enable them to enhance
utilization rates for pool vessels by securing backhaul voyages and COAs, thus
generating higher effective TCE revenues than otherwise might be obtainable in
the spot market while providing a higher level of service offerings to
customers.




32







ITEMS YOU
SHOULD CONSIDER WHEN EVALUATING OUR RESULTS




You
should consider the following factors when evaluating our historical financial
performance and assessing our future prospects:




·
            Our voyage
      revenues are affected by cyclicality in the tanker
      markets. The cyclical nature of the tanker industry causes
      significant increases or decreases in the revenue we earn from our
      vessels, particularly those we trade in the spot market. If we choose to
      pay dividends in the future, this will, from period to period, affect the
      cash available to pay such dividends. We intend to employ
      a chartering strategy to capture upside opportunities in the spot
      market while using fixed-rate time charters to reduce downside risks,
      depending on SCM's outlook for freight rates, oil tanker market conditions
      and global economic conditions. Historically, the tanker industry has been
      cyclical, experiencing volatility in profitability due to changes in the
      supply of, and demand for, tanker capacity. The supply of tanker capacity
      is influenced by the number and size of new vessels built, vessels
      scrapped, converted and lost, the number of vessels that are out of
      service, and regulations that may effectively cause early obsolescence of
      tonnage. The demand for tanker capacity is influenced by, among other
      factors:




·
            global
      and regional economic and political
conditions;




·
            increases
      and decreases in production of and demand for crude oil and petroleum
      products;




·
            increases
      and decreases in OPEC oil production
quotas;




·
            the
      distance crude oil and petroleum products need to be transported by
      sea; and




·
            developments
      in international trade and changes in seaborne and other transportation
      patterns.




·
            Tanker
      rates also fluctuate based on seasonal variations in
      demand. Tanker markets are typically stronger in the winter
      months as a result of increased oil consumption in the northern hemisphere
      but weaker in the summer months as a result of lower oil consumption in
      the northern hemisphere and refinery maintenance. In addition,
      unpredictable weather patterns during the winter months tend to disrupt
      vessel scheduling. The oil price volatility resulting from these factors
      has historically led to increased oil trading activities in the winter
      months. As a result, revenues generated by our vessels have historically
      been weaker during the fiscal quarters ended June 30 and
      September 30, and stronger in the fiscal quarters ended March 31
      and December 31.




·
            Our general
      and administrative expenses will be affected by the commercial management,
      and administrative services agreements we have entered into with SCM and
      Liberty Holding Company Ltd., respectively, and costs we will incur from
      being a public company. Historically, we incurred management
      fees for commercial and administrative management under management
      agreements with other Scorpio Group entities, which are parties related to
      us. Since agreements with related parties are by definition not at arms
      length, the expenses incurred under these agreements may have been
      different than the historical costs incurred if the subsidiaries had
      operated as unaffiliated entities during prior periods. Our estimates of
      any differences between historical expenses and the expenses that may have
      been incurred had the subsidiaries been stand-alone entities have been
      disclosed in the notes to the historical consolidated financial statements
      included elsewhere in this annual
report.




We
entered into a commercial management agreement with SCM. We also entered into an
administrative services agreement with Liberty Holding Company Ltd., or our
Administrator. Under these agreements, since December 1, 2009, SCM provides us
with commercial services and our Administrator provides us with administrative
services. We pay market-based fees under our commercial management agreement,
which we believe is customary for the tanker industry. We reimburse our
Administrator for the reasonable direct or indirect expenses it incurs in
providing us with the administrative services described above. We will also pay
our Administrator a fee for arranging vessel purchases and sales for us equal to
1% of the gross purchase or sale price, payable upon the consummation of any
such purchase or sale. We believe this 1% fee on purchases and sales is
customary in the tanker industry. Our historical general and administrative
management fees are estimates of the value of the general and administrative
services provided by Scorpio Group affiliates to us. These fees may not be
equivalent to a market-based fee and, thus, our historical general and
administrative expenses may not reflect what we will incur in the future. As a
result of changes to our commercial management agreements agreed upon in
December 2009, we estimate that our commercial management fees in 2010 will
increase by $0.3 million. The new technical and administrative
services




33


agreements
were negotiated at rates similar to the rates under the previous agreements and
therefore we expect there will be no additional impact on the results of
operations in future periods for technical and administrative management
services. In addition, we will incur additional general and administrative
expenses as a result of being a publicly traded company, including costs
associated with annual reports to shareholders and Securities and Exchange
Commission, or SEC, filings, investor relations, New York Stock Exchange fees
and tax compliance expenses.




RESULTS
OF OPERATIONS




Vessel
revenue in our consolidated income statements represents TCE revenues. Revenues
and TCE are the same for us because our vessels are employed on time charter
contracts or in a pool. When a vessel is on time charter, the customer pays us
the contract revenue, and the customer is responsible for all of the voyage
expenses. When a vessel is in a pool, the pool pays us the vessel's allocated
earnings within the pool, which we record as revenue, and the pool is also
responsible for the voyage expenses. The vessel's allocated earnings in the pool
are reduced to reflect the commercial management fee charged by SCM, the pool
manager.




Shipowners
base economic decisions regarding the deployment of their vessels upon actual
and anticipated TCE rates, and industry analysts typically measure rates in
terms of TCE rates. This is because under time charters the customer usually
pays the voyage expenses, while under voyage charters, also known as spot market
charters, the shipowner usually pays the voyage expenses. Accordingly, the
discussion of revenue below focuses on TCE rates where applicable.




The
following tables separately present our operating results for the years ended
December 31, 2009, 2008 and 2007.




FOR
THE YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2008




For
      the Years EndedDecember
      31,
            
            
            
            
            
            Percentage2009
            
            
            2008
            
            
            Change
            
            
            ChangeVessel
      revenue
            
            $
            27,619,041
            
            
            $
            39,274,196
            
            
            $
            (11,655,155
            )
            
            
            (30
            )%Charterhire
            
            
            (3,072,916
            )
            
            
            (6,722,334
            )
            
            
            3,649,418
            
            
            
            (54
            )%Vessel
      Expenses
            
            
            (8,562,118
            )
            
            
            (8,623,318
            )
            
            
            61,200
            
            
            
            (1
            )%General
      and administrative expenses
            
            
            (416,908
            )
            
            
            (600,361
            )
            
            
            183,453
            
            
            
            (31
            )%Depreciation
            
            
            (6,834,742
            )
            
            
            (6,984,444
            )
            
            
            159,702
            
            
            
            (2
            )%Impairment
      of vessels
            
            
            (4,511,877
            )
            
            
            -
            
            
            
            (4,511,877
            )
            
            
            -Interest
      expense – bank loan
            
            
            (699,115
            )
            
            
            (1,710,907
            )
            
            
            1,011,792
            
            
            
            (59
            )%Gain/(loss)
      on derivative financial instruments
            
            
            148,035
            
            
            
            (2,463,648
            )
            
            
            2,611,683
            
            
            
            (106
            )%Interest
      income
            
            
            4,929
            
            
            
            35,492
            
            
            
            (30,563
            )
            
            
            (86
            )%Other
      expenses, net
            
            
            (256,292
            )
            
            
            (18,752
            )
            
            
            (237,540
            )
            
            
            1,267
            %Net
      income
            
            $
            3,418,037
            
            
            $
            12,185,924
            
            
            $
            (8,757,887
            )
            
            
            (72
            )%





Net income.Net income for the year ended December 31, 2009 was $3.4 million, a
decrease of $8.8 million, or 72%, when compared to net income of $12.2 million
for the year ended December 31, 2008. The differences between the two periods
are discussed below.




Vessel
revenue.Revenue
was $27.6 million for the year ended December 31, 2009, a decrease of $11.7
million, or 30%, from revenue of $39.3 million for the year ended December 31,
2008. The following table summarizes our revenue:




For
      the Years Ended
              December 31,2009
            
            
            2008
            
            
            ChangeOwned
      vessels:Time
      charter revenue
            
            $
            17,203,709
            
            
            $
            18,293,963
            
            
            $
            (1,090,254
            )Pool
      revenue
            
            
            7,438,726
            
            
            
            13,201,424
            
            
            
            (5,762,698
            )Time
      chartered-in vessels:Pool
      revenue
            
            
            2,976,606
            
            
            
            7,778,809
            
            
            
            (4,802,203
            )TOTAL
            
            $
            27,619,041
            
            
            $
            39,274,196
            
            
            $
            (11,655,155
            )





34





The
reduction in time charter revenue of $1.1 million or 6% was primarily the result
of Noemiand Senatore both being drydocked
in 2009. Noemi was
drydocked in August 2009 (off-hire for 23 days), which reduced revenue by $0.6
million, and Senatore
was drydocked in May 2009 (off-hire for 14 days), which reduced revenue by $0.4
million. Noemi and
Senatore were employed
on time charters that began in 2007 for the years ended December 31, 2009 and
2008.




The
reduction in pool revenue for the owned vessel Venice of $5.8 million or 44%
was due to a decrease in the spot market rates. The majority of the vessels in
the Scorpio Panamax Tanker Pool operate in the spot market.




The
reduction of the pool revenue for a time chartered-in vessel of $4.8 million, or
62%, was due to 95 less operating days in the year ended December 31, 2009 and a
decrease in spot market rates, which resulted in a decrease in the pool rates.
In May 2008, we time chartered-in a vessel until May 2009, and the vessel
operated in the Scorpio Panamax Tanker Pool.  We do not anticipate
time chartering-in vessels in the future.




Charterhire.Charterhire expense of $3.1 million for the year ended December 31, 2009
decreased $3.6 million, or 54%, from $6.7 million for the year ended December
31, 2008. The decrease was due to 95 less operating days in the year ended
December 31, 2009, and a reduction in the profit and loss arrangement included
in the charterparty. The vessel was chartered-in by us from May 29, 2008 to
May 1, 2009 at $26,750 per day plus a 50% profit and loss arrangement where
we agreed to pay 50% of the vessel's earnings in the pool above the daily
charterhire rate, and we would receive 50% of the vessels earnings in the pool
below $26,750 per day. For year ended December 31, 2009, we recorded a reduction
in the charterhire expense of $108,000 because the vessel's earnings in the pool
were less than $26,750 per day. For the year ended December 31, 2008, we
recorded an increase in the charterhire expense of $1.0 million because the
vessel's earnings in the pool were more than $26,750 per day.




Vessel operating
costs.Vessel operating costs for owned vessels for the years ended
December 31, 2009 and 2008 were $8.6 million in each year; there were no
significant changes in vessel operating costs from one year to
another.




General and
administrative expense.General and administrative expense, which
includes the commercial management and administrative fees, of $0.4 million for
the year ended December 31, 2009, decreased $0.2 million or 31% from $0.6
million for the year ended December 31, 2008. This decrease in 2009 primarily
resulted from the reduction in the administrative fees charged by the
provider.




Depreciation.Depreciation and
amortization expense of $6.8 million for the year ended December 31, 2009
decreased $0.2 million, or 2%, from $7.0 million for the year ended December 31,
2008. The decrease in depreciation expense was primarily due to a change in the
estimated residual value due to changes in scrap rates since December 31, 2008.
See discussion of this change in estimate in Note 5 to the audited consolidated
financial statements included in "ITEM 18 Financial Statements".




Impairment.In the year ended
December 31, 2009, we recognized an impairment loss of $4.5 million for Noemi and Senatore.  This
impairment loss was triggered by reductions in vessel values, and represented
the difference between the carrying value and   recoverable
amount, being fair value less cost to sell. We determined the fair value of each
vessel by adding (i) the charter free market value of the vessel to
(ii) the discounted value of each vessel's time charter, which is the
difference between each vessel's time charter contracted rate and the market
rate for a similar type of vessel with a similar contracted duration. In
determining the charter free market value, we took into consideration the
estimated valuations provided by an independent ship broker.




Interest
expense—bank loan. Interest expense-bank loan was $0.7 million for the
year ended December 31, 2009, a decrease of $1.0 million or 59% from $1.7
million for year ended December 31, 2008. The decrease in interest expense was
primarily due to a reduction in LIBOR and a decrease in the principal
outstanding during the periods the 2005 Credit Facility was outstanding, which
was paid in full from the proceeds of the initial public offering. The average
interest rate including margin decreased to 1.70% for the year ended December
31, 2009 from 3.71% for the year ended December 31, 2008. The average principal
for the year ended December 31, 2009 and 2008 was $41.6 million and $45.2
million, respectively.




Gain/(loss) on
derivative financial instruments.Gain/(loss) on
derivatives from our interest rate swap, which consists of realized and
unrealized gains and losses, was a gain of $0.1 million for the year ended
December 31, 2009; there was an unrealized gain of $0.95 million offset by a
realized loss of $0.8 million. For the year ended December 31, 2008, there was a
loss on derivatives of $2.5 million, which was from an unrealized loss of $2.1
million and a realized loss of $0.4 million. The unrealized gains and losses
reflect the adjustment of the market value of the swap (the contract rate versus
the current market rate). The realized loss is the result of the settlement
difference between contracted interest rates and the actual market interest
rates (LIBOR).




Interest income.Interest income was $4,929 for the year ended December 31, 2009, a
decrease of $30,563 or 86% from the $35,492 for the year ended December 31,
2008. The decrease was primarily due a reduction in interest rates for our cash
deposits and reduction in the cash balance.




35







Other expense,
net. Other expense, net was a loss of $256,292 for the year ended
December 31, 2009, and a net loss of $18,752 for the year ended December 31,
2008. This change was primarily the result of sundry finance expenses and
changes in foreign currency gains and losses.




FOR
THE YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2007





For
      the Year Ended
              December 31,2008
            
            
            2007
            
            
            Change
            
            
            Percentage
              ChangeVessel
      revenue
            
            $
            39,274,196
            
            
            $
            30,317,138
            
            
            $
            8,957,058
            
            
            
            30
            %Charterhire
            
            
            (6,722,334
            )
            
            
            —
            
            
            
            (6,722,334
            )
            
            
            —Vessel
      operating costs
            
            
            (8,623,318
            )
            
            
            (7,600,508
            )
            
            
            (1,022,810
            )
            
            
            (13
            )%Depreciation
            
            
            (6,984,444
            )
            
            
            (6,482,484
            )
            
            
            (501,960
            )
            
            
            (8
            )%General
      and administrative expenses
            
            
            (600,361
            )
            
            
            (590,773
            )
            
            
            (9,588
            )
            
            
            (2
            )%Interest
      expense—bank loan
            
            
            (1,710,907
            )
            
            
            (1,953,344
            )
            
            
            242,437
            
            
            
            12
            %Loss
      on derivative financial instruments
            
            
            (2,463,648
            )
            
            
            (1,769,166
            )
            
            
            (694,482
            )
            
            
            (39
            )%Interest
      income
            
            
            35,492
            
            
            
            142,233
            
            
            
            (106,741
            )
            
            
            (75
            )%Other
      expense, net
            
            
            (18,752
            )
            
            
            (9,304
            )
            
            
            (9,448
            )
            
            
            (102
            )%Net
      Income
            
            $
            12,185,924
            
            
            $
            12,053,792
            
            
            $
            132,132
            
            
            
            1
            %





Net Income.Net Income for the year end December 31, 2008 was $12.2 million, an
increase of $0.1 million or 1% when compared to net income of $12.1 million for
the year ended December 31, 2007. The differences between the two years are
discussed below.




Vessel
revenue.Revenue was $39.3
million for the year ended December 31, 2008, an increase of $9.0 million
from the revenue of $30.3 million for the year ended December 31, 2007. The
following table summarizes our revenue:




For
      the Years Ended
              December 31,2008
            
            
            2007
            
            
            ChangeOwned
      vessels:Time
      charter revenue
            
            $
            18,293,963
            
            
            $
            10,557,524
            
            
            $
            7,736,439Pool
      revenue
            
            
            13,201,424
            
            
            
            19,759,614
            
            
            
            (6,558,190
            )Time
      chartered-in vessels:Pool
      revenue
            
            
            7,778,809
            
            
            
            —
            
            
            
            7,778,809TOTAL
            
            $
            39,274,196
            
            
            $
            30,317,138
            
            
            $
            8,957,058




The
increase in time charter revenue of $7.7 million or 73% was the result
of:




·
            Noemi being on time
      charter for all of 2008 and only 344 days in 2007, an increase of $0.5
      million.




·
            Senatore being on time
      charter for all of 2008 and only 89 days in 2007, an increase of $7.2
      million.




The
reduction of pool revenue for the owned vessels of $6.6 million or 33% was due
to:




·
            Senatore operating in
      the pool for 276 days in 2007 and zero days in 2008, a decrease of $8.1
      million.




·
            Noemi operating in the
      pool for 21 days in 2007 and zero days in 2008, a decrease of $0.6
      million.




The
reduction in the number of days for the owned vessels in the pool (366 in 2008
and 662 in 2007) was partially offset by an increase of $2.2 million
(20%) in 2008 from Venice's revenue from the
pool. The vessel was in the pool for both years. The 20% increase in Venice's revenue was due to
higher rates in the spot market. The majority of the vessels in the Scorpio
Panamax Tanker Pool operated in the spot market.




The
increase of the pool revenue for the time chartered in-vessel of $7.8 million
was due to a vessel being time chartered-in from May 29, 2008 until
May 1, 2009. The vessel operated in the Scorpio Panamax Tanker
Pool.




36







Charterhire.
Charterhire expense for the year ended December 31, 2008 was $6.7 million.
There was no charterhire expense in 2007 since we did not charter in any vessels
during 2007. The vessel was chartered in from May 29, 2008 to May 1,
2009. The daily rate was at $26,750 per day plus a 50% profit and loss
arrangement where (i) we agreed to pay 50% of the vessel's earnings above
the daily charterhire rate and (ii) we received 50% of the vessel's
earnings below $26,750 per day. The profit sharing expense recorded during 2008
was $1.0 million.




Vessel operating
costs. Vessel operating costs for the owned vessels of $8.6 million for
the year ended December 31, 2008 increased $1.0 million, or 13%, from $7.6
million for the year ended December 31, 2007. The increase was primarily
due to higher crew expenses, which included higher salaries and training
expenses, and higher stores (e.g. lube oils).




General and
administrative expenses.General and
administrative expenses of $0.6 million for the year ended December 31,
2008 was similar to the expense for the year ended December 31,
2007.




Depreciation.
Depreciation and amortization expense of $7.0 million for the year ended
December 31, 2008 increased $0.5 million or 8% from $6.5 million for the
year ended December 31, 2007. The increase in depreciation expense was
primarily due to a change in the estimated residual value due to changes in
scrap rates in the period. See discussion of this change in estimate in Note 5
to the audited consolidated financial statements included elsewhere in this
annual report.




Interest
expense—bank loan.Interest expense-bank
loan was $1.7 million for year ended December 31, 2008, a decrease of $0.25
million or 12% from $1.95 million for the year ended December 31, 2007. The
decrease in interest expense was primarily due to a reduction in LIBOR and a
decrease in the outstanding principal. The average interest rate including
margin decreased to 3.71% for the year ended December 31, 2008 from 6.05%
for the year ended December 31, 2007. The average principal outstanding for
the years ended December 31, 2008 and 2007 was $45.2 million and $48.8
million, respectively.




Loss on
derivative financial instruments. Loss on derivatives from our interest
rate swap, which consists of realized and unrealized losses, was a loss of $2.5
million for the year ended December 31, 2008; there was an unrealized loss
of $2.1 million and a realized loss of $0.4 million. For the year ended
December 31, 2007, there was a loss on derivatives of $1.8 million, which
was from an unrealized loss of $1.3 million and a realized loss of $0.5 million.
The unrealized gains and losses reflect the adjustment of the market value of
the swap (the contract rate versus the current market rate). The realized loss
is the result of the settlement difference between contracted interest rates and
the actual market interest rates (LIBOR).




Interest income.Interest income was $35,492 for the year ended December 31, 2008, a
decrease of $106,741 or 75% from $142,233 for the year ended December 31,
2007. The decrease was primarily due a reduction in interest rates for our cash
deposits.




Other expense,
net. Other expense net, was a loss of $18,752 and $9,304 for the years
ended December 31, 2008 and 2007, respectively. The increase in the
loss of $9,448 or 102% was primarily due to a change in foreign currency
losses.




B.
            Liquidity and Capital
      Resources




On April
6, 2010, we closed the issuance of 12,500,000 shares of common stock at $13.00
per share in our initial public offering and received net proceeds of $149.6
million, after deducting underwriters' discounts and offering
expenses.  On April 9, 2010, we repaid in full the outstanding balance
of $38.9 million of our 2005 Credit Facility from the proceeds of the initial
public offering.  On May 4, 2010, we closed the issuance of 450,000
shares of common stock at $13.00 and received $5.4 million, after deducting
underwriters' discounts, when the underwriters in the Company's initial public
offering partially exercised their over-allotment option.  The
remaining proceeds of our initial public offering, including over-allotment
exercise, will be used for working capital, general corporate expenses, and
vessel acquisitions.




On June
2, 2010, we executed our $150 million loan facility, the 2010 Credit Facility,
which is described below.  The 2010 Credit Facility will be used and
has been used to partially finance the vessel acquisitions.   As
of June 23, 2010, we have drawn down $19.0 million to finance the acquisition of
vessels.




Our
primary source of funds for our short-term and long-term liquidity needs will be
the cash flows generated from our vessel operations, particularly cash flows
from our two vessels, Noemi and Senatore, on time charter and
future vessels that have time charters, such as STI Heritage and STI Harmony. Time charters
provide contracted revenue that reduces the volatility (rates can fluctuate
within months) and seasonality (rates are generally stronger in first and fourth
quarters of the year) from vessels that operate in the spot market. Venice, the third vessel in
our fleet as of December 31, 2009, operates in the Scorpio Panamax Tanker Pool,
and vessels that we acquire in the future that are not on time charter will
operate in pools. The pools reduce volatility because (i) they aggregate
the revenues and expenses of all pool participants and distribute net earnings
to the participants based on an agreed upon formula and (ii) some of the
vessels in the pool are on time charter. We believe these cash flows from
operations, the net proceeds from the initial public offering, and draw downs
from the 2010 Credit Facility will be sufficient to meet our existing liquidity
needs for the next 12 months.




37







As of
December 31, 2009, our cash balance was $0.5 million, which is down from our
cash balance of $3.6 million as of December 31, 2008.  For the
year ended December 31, 2009, our net cash inflow from operating activities was
$9.3 million and the net cash outflow from financing activities was $12.5
million, which included a dividend of $8.7 million.  For the year
ended December 31, 2008, our net cash inflow from operating activities was $24.8
million and the net cash outflow from financing activities was $22.4 million,
which included a dividend $18.8 million.




As of
December 31, 2009, our long-term liquidity needs were comprised of our debt
repayment obligations for our 2005 Credit Facility, which was fully repaid using
the proceeds of the initial public offering completed on April 6,
2010.




In April
and May 2010, we agreed to purchase six vessels for an aggregate of $191.0
million.  We expect to finance these acquisitions with the net
proceeds from the initial public offering and from the 2010 Credit Facility,
which is described further under "Long-Term Debt Obligations and Credit
Arrangements – 2010 Credit Facility" below.




The 2010
Credit Facility requires us to comply with a number of covenants, including
financial covenants related to liquidity, consolidated net worth, loan to value
ratios and collateral maintenance; delivery of quarterly and annual financial
statements and annual projections; maintaining adequate insurances; compliance
with laws (including environmental); compliance with ERISA; maintenance of flag
and class of the initial vessels; restrictions on consolidations, mergers or
sales of assets; approvals on changes in the manager of the vessels; limitations
on liens; limitations on additional indebtedness; prohibitions on paying
dividends if a covenant breach or an event of default has occurred or would
occur as a result of payment of a dividend; prohibitions on transactions with
affiliates; and other customary covenants.




Since two
of our vessels were in drydock in 2009 and the third received an underwater
survey in 2009, we do not anticipate the three vessels in our fleet as of
December 31, 2009 requiring a drydocking within the next 12
months.  We are assessing the need to perform drydocks for the ships
we agreed to acquire in 2010.




Cash
Flows




The table
below summarizes our sources and uses of cash for the periods
presented:




For
      the Year EndedDecember 31,2009
            
            
            2008
            
            
            2007Condensed
      Cash FlowsProvided
      (Used) By:Cash
      Provided by Operating Activities
            
            $
            9,305,851
            
            
            $
            24,837,892
            
            
            $
            5,830,773Cash
      Used by Investing Activities
            
            
            —
            
            
            
            —
            
            
            
            —Cash
      Used by Financing Activities
            
            
            (12,468,990
            )
            
            
            (22,384,000
            )
            
            
            (10,693,500
            )





For
the Year Ended December 31, 2009 Compared to the Year Ended
December 31, 2008




Cash
provided by operating activities




Net cash
provided by operating activities was $9.3 million for the year ended December
31, 2009, which was a decrease of $15.5 million from the year ended December 31,
2008. The primary reasons for the decrease were (i) lower revenues from the
vessels in the pool ($10.6 million), (ii) 37 off-hire days for two of the
vessels that were in drydock during 2009 ($1.0 million); changes in the
shareholder receivable and payable ($7.7 million) and (iii) drydock
payments for two of our vessels that were performed in 2009 ($1.6 million).
These reductions were partially offset by (i) a decrease in the charterhire
expense ($3.6 million), and (ii) changes in other assets and liabilities
($1.8 million).




Cash
used by investing activities




There was
no cash used in investing activities for any of the periods shown.




Cash
used by financing activities




Cash used
by financing activities was $12.5 million for the year ended December 31, 2009,
which was $9.9 million less than the cash used for the year ended December 31,
2008. This decrease was due to a reduction in dividends paid of $10.1 million
($8.7 million for the year ended December 31, 2009 and $10.8 million in the year
ended December 31, 2008). During the years ended December 31, 2009 and 2008, we
made scheduled principal payments on our debt of $3.6 million.




38







For
the Year Ended December 31, 2008 Compared to the Year Ended
December 31, 2007




Cash
provided by operating activities




Net cash
provided by operating activities was $24.8 million for the year ended
December 31, 2008, which was an increase of $19.0 million from the year
ended December 31, 2007. Changes in operating cash flows before movements
in working capital resulted in a net positive variance compared to 2007 of $1.4
million. The remaining changes in operating cash flows were due to changes in
assets and liabilities. The primary reasons for the increase were (i) a
decrease in cash payments of $8.4 million to a related party ($8.4 million was
paid in 2007 and none in 2008), (ii) an increase in net cash from the
shareholder of $10.8 million (a net payment of $8.2 million was made in 2007 and
a net receipt of $2.6 million in 2008); (iii) a decrease in receipts of
accounts receivable of $2.0 million due to collection of receivables; and
(iv) an increase in changes in other assets and liabilities of $0.3
million.




Cash
used by investing activities




There was
no cash used in investing activities for any of the periods shown.




Cash
used by financing activities




Cash used
by financing activities was $22.4 million for the year ended December 31,
2008, which was an increase of $11.7 million from the cash used by financing
activities for the year ended December 31, 2007. This change was due to an
increase of $11.7 million in dividends paid ($18.8 million for the year ended
December 31, 2008 and $7.1 million for the year ended December 31,
2007). During the years ended December 31, 2008 and 2007, we made scheduled
principal payments on our debt of $3.6 million.




Long-Term
Debt Obligations and Credit Arrangements




2005
Credit Facility




Two of
our wholly-owned subsidiaries, Senatore Shipping Company Limited and Noemi
Shipping Company Limited, were joint and several borrowers under a loan
agreement dated May 17, 2005, or the 2005 Credit Facility, entered into
with The Royal Bank of Scotland plc, as lender, which was secured by, among
other things, a first preferred mortgage over each of Senatore and Noemi. The initial amount of
the 2005 Credit Facility was $56,000,000 and consisted of two tranches, one for
each vessel-owning subsidiary. Each tranche was repayable in 40 consecutive
quarterly installments of $450,000, plus a balloon payment of $10,000,000, to be
made together with the 40th
installment of each tranche. The 2005 Credit Facility was due to mature on
May 18, 2015. The interest rate on the loan was 0.70% above LIBOR. As of
December 31, 2009, the outstanding balance was $39.8 million, with $3.6 million
due within the next 12 months. As of December 31, 2009, we were in compliance
with all of our loan covenants. On April 9, 2010, we repaid the outstanding
balance of $38.9 million with the proceeds from our initial public
offering.




2010
Credit Facility




On June
2, 2010, we executed a credit facility with Nordea Bank Finland plc, acting
through its New York branch, DnB NOR Bank ASA, acting through its New York
branch, and Fortis Bank Nederland, or the lead arrangers, for a senior secured
term loan facility of up to $150 million.  Borrowings under the
credit facility are available until December 2, 2011 and bear interest at LIBOR
plus an applicable margin of 3.00% per annum when our debt to
capitalization (total debt plus equity) ratio is equal to or less than 50% and
3.50% per annum when our debt to capitalization ratio is greater than 50%.
A commitment fee equal to 40% of the applicable margin is payable on the unused
daily portion of the credit facility. The credit facility matures on June 2,
2015 and can only be used to partially finance the cost of future vessel
acquisitions, which vessels would be the collateral for the credit
facility.




Borrowings
for each vessel financed under this facility, represent a separate tranche, with
repayment terms dependent on the age of the vessel at acquisition. Each tranche
under the new credit facility is repayable in equal quarterly installments, with
a lump sum payment at maturity, based on a full repayment of such tranche when
the vessel to which it relates is fifteen years of age. Our subsidiaries, which
may at any time own one or more of our initial vessels, will act as guarantors
under the credit facility.  As of June 23, 2010, we have drawn down
$19.0 million under this facility.




The
credit facility requires us to comply with a number of covenants, including
financial covenants; delivery of quarterly and annual financial statements and
annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA; maintenance of flag and class
of the initial vessels; restrictions on consolidations, mergers or sales of
assets; prohibitions on changes in the Manager of our initial vessels;
limitations on liens; limitations on additional indebtedness; prohibitions on
paying dividends if a covenant breach or an event of default has occurred or
would occur as a result of payment of a dividend; prohibitions on transactions
with affiliates; and other customary covenants.




39







The
financial covenants include:




·
            The
      ratio of debt to capitalization shall be no greater than 0.60 to
      1.00.




·
            Consolidated
      tangible net worth shall be no less than US$ 150,000,000 plus 25% of
      cumulative positive net income (on a consolidated basis) for each fiscal
      quarter from July 1, 2010 going forward and 75% of the value of any new
      equity issues from July 1, 2010 going
forward.




·
            The
      ratio of EBITDA to actual interest expense shall be no less than 2.50 to
      1.00 commencing with the fifth fiscal quarter following the closing of the
      credit facility. Such ratio shall be calculated quarterly on a trailing
      quarter basis from and including the fifth fiscal quarter however for the
      ninth fiscal quarter and periods thereafter the ratio shall be calculated
      on a trailing four quarter basis.




·
            Unrestricted
      cash and cash equivalents including amounts on deposit with the lead
      arrangers for the first five fiscal quarters following the closing of our
      initial public offering shall at all times be no less than the higher of
      (i) US$ 2,000,000 per vessel or (ii) US$ 10,000,000 and thereafter
      unrestricted cash and cash equivalents shall at all times be no less than
      the higher of (i) US$ 1,000,000 per vessel or (ii) US$
      10,000,000.




·
            The
      aggregate fair market value of the collateral vessels shall at all times
      be no less than 150% of the then aggregate outstanding principal amount of
      loans under the credit facility.




Interest
Rate Swaps




As of
December 31, 2009, we had one interest rate swap. The notional value was $19.9
million, and the effective fixed interest rate was 4.79%. The swap began in May
2005 and was scheduled to end in May 2015.  The interest rate swap was
terminated when the 2005 Credit Facility was repaid in April 2010.  In
the future, we may enter into interest rate swaps to manage our exposure
interest rates.




CAPITAL
EXPENDITURES




Vessel
Acquisitions




In April
and May 2010, we agreed to acquire six tankers for an aggregate purchase price
of $191.0 million.  These vessels will be paid for with the net
proceeds from our initial public offering and from our credit
facility.




Drydock




We do not
plan to drydock the three vessels in our fleet as of December 31, 2009 within
the next 12 months because (i)Noemi and Senatore were drydocked in
2009 for an aggregate cost of $1.6 million and 37 off-hire days, and
(ii) Venice
received an underwater survey in 2009. The vessels are not scheduled to be
drydocked until 2011 and 2012.




We have
not yet determined the need to do a drydock for the six vessels that we agreed
to acquire in April and May 2010 (three have been acquired as of the date of
this annual report).




As our
fleet matures and expands, our drydock expenses will likely increase. Ongoing
costs for compliance with environmental regulations and society classification
survey costs are a component of our vessel operating costs. We are not currently
aware of any regulatory changes or environmental liabilities that we anticipate
will have a material impact on our current or future operations.




Dividends




We do not
have immediate plans to pay dividends, but we will continue to assess our
dividend policy. In the future, our board of directors may determine it is in
the best interest of the Company to pay dividends.




C.
            Research
      and Development, Patents and Licenses,
Etc.




Not
applicable




40







D.
            Trend
      Information




See ITEM
4.B "The International Tanker Industry"




E.
            Off-Balance
      Sheet Arrangements




As of
December 31, 2009, we had no off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity or capital resources.




F.
            Tabular
      Disclosure of Contractual
Obligations




The
following table sets forth our total contractual obligations at December 31,
2009 (1):





in millions of
      $Less than
              1
      year
            
            
            1 to 3
              years
            
            
            3 to 5
              years
            
            
            More than
              5
      years
            
            
            ThereafterBank
      Loan(2)
            
            $
            3.6
            
            
            $
            7.2
            
            
            $
            7.2
            
            
            $
            21.8
            
            
            
            —Bank
      Loan—Interest payments(3)
            
            $
            1.2
            
            
            $
            2.1
            
            
            $
            1.6
            
            
            $
            0.5
            
            
            
            —Technical
      management fees(4)
            
            $
            0.6
            
            
            $
            1.2Commercial
      management fees(5)
            
            $
            0.4
            
            
            $
            0.2





(1)
            On
      June 2, 2010, we executed a new $150 million credit facility to partially
      finance the acquisition of new vessels.  As of June 23, 2010, we
      have drawn down $19.0 million under this credit
  facility.


(2)
            On
      April 9, 2010, we repaid the outstanding balance of $38.9 million under
      the 2005 Credit Facility from the proceeds of the initial public
      offering.


(3)
            The
      interest expense on the 2005 Credit Facility was variable and based on
      LIBOR. The payments in the above schedule were calculated using an
      interest swap rate of 2.31% plus a margin of 0.70%, which was the margin
      for the 2005 Credit Facility.


(4)
            We
      pay our technical manager, SSM, $548 per
day.


(5)
            We
      pay our commercial manager, SCM, $250 per day plus 1.25% of gross revenue
      for vessels that are not in a pool.




Restricted
Stock




On June
18, 2010, we issued 559,458 shares of restricted stock to our executive officers
at a price of $10.99 per share, for a total value of $ 6,148,443. The vesting
schedule of the restricted stock is (i) one-third of the shares vest on April 6,
2013, (ii) one-third of the shares vest on April 6, 2014, and (iii) one-third of
the shares vest on April 6, 2015. The expense for the restricted stock will be
recognized over the vesting periods for each third of the shares. The expense
for this restricted stock grant is:




·
            for
      the year ending December 31,
  2010,  $922,124;




·
            for
      the year ending December 31, 2011,
$1,702,383;




·
            for
      the year ending December 31, 2012,
$1,702,383;




·
            for
      the year ending December 31, 2013,
$1,151,776;




·
            for
      the year ending December 31, 2014, $562,848
and




·
            for
      the year ending December 31, 2015,
$106,929.




On June
18, 2010, we issued 9,000 shares to our independent directors at a price of
$10.99 per share, for a total value of $98,910.  These shares vest on
April 6, 2011 and were approved prior to the initial public
offering.




41




G. Safe Harbor




See "Cautionary Statement Regarding
Forward-Looking Statements" at the beginning of this annual report.




CRITICAL
ACCOUNTING ESTIMATES




In the
application of our accounting policies, which are prepared in conformity with
IFRS as issued by the IASB, we are required to make judgments, estimates and
assumptions about the carrying amounts of assets and liabilities, and revenues
and expenses that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these
estimates.




The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the estimate is
revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future
periods.




The
significant judgments and estimates are as follows:




Revenue
recognition




We
currently generate all of revenue from time charters and pools. Revenue
recognition for time charters and pools is generally not as complex or as
subjective as voyage charters.  Time charters are for a specific
period of time at a specific rate per day. For long-term time charters, revenue
is recognized on a straight-line basis over the term of the
charter.  Pool revenues are determined by the pool managers from the
total revenues and expenses of the pool and allocated to pool participants using
a mechanism set out in the pool agreement.




Vessel
impairment




The
Company evaluates the carrying amounts of itsvessels
to determine whether there is any indication that those vessels have suffered an
impairment loss.  If any such indication exists, the recoverable
amount of vessels is estimated in order to determine the extent of the
impairment loss (if any).




Recoverable
amount is the higher of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted. The projection
of cash flows related to vessels is complex and requires the Company to make
various estimates including future freight rates, earnings from the vessels and
discount rates. All of these items have been historically
volatile.  In assessing the fair value less cost to sell of the
vessel, the Company obtains vessel valuations from leading, independent and
internationally recognized ship brokers on an annual basis or when there is an
indication that an asset or assets may be impaired.




If an
indication of impairment is identified, the need for recognising an impairment
loss is assessed by comparing the carrying amount of the vessels to the higher
of the fair value less cost to sell and the value in use.




Vessel
lives and residual value




The
carrying value of each of our vessels represents its original cost at the time
it was delivered or purchased less depreciation. We depreciate our vessels to
their residual value on a straight-line basis over their estimated useful lives,
being 20 years from the date of initial delivery from the
shipyard.  The residual value is estimated as the lightweight tonnage
of each vessel multiplied by a forecast scrap value per ton. The scrap value per
ton is estimated taking into consideration the scrap market rate ruling at the
year end.  See Note 5 for discussion of changes in the residual values
during the period.




An
increase in the estimated useful life of a vessel or in its scrap value would
have the effect of decreasing the annual depreciation charge and extending it
into later periods. A decrease in the useful life of a vessel or scrap value
would have the effect of increasing the annual depreciation charge.




When
regulations place significant limitations over the ability of a vessel to trade
on a worldwide basis, the vessel's useful life is adjusted to end at the date
such regulations become effective. The estimated salvage value of the vessels
may not represent the fair market value at any one time since market prices of
scrap values tend to fluctuate.




42







Deferred
drydock cost




The
Company recognizes drydock costs as a separate component of the vessels'
carrying amounts and amortizes the drydock cost on a straight-line basis over
the estimated period until the next drydock. We use judgment when estimating the
period between drydocks performed, which can result in adjustments to the
estimated amortization of the drydock expense. If the vessel is disposed of
before the next drydock, the remaining balance of the deferred drydock is
written-off and forms part of the gain or loss recognized upon disposal of
vessels in the period when contracted.  We expect that our vessels
will be required to be drydocked approximately every 30 to 48 months for major
repairs and maintenance that cannot be performed while the vessels are
operating. Costs capitalized as part of the drydock include actual costs
incurred at the drydock yard and parts and supplies used in making such
repairs.




Standards
and interpretations in issue not yet adopted




At the
date of authorisation of these financial statements, the following Standards and
Interpretations which have not been applied in these financial statements were
in issue but not yet effective:




IFRS
      1 (amended)/IAS 27 (amended)
            Cost
      of an Investment in a Subsidiary, Jointly Controlled Entity or
      AssociateIFRS
      2 (amended)
            Share-based
      paymentsIFRS
      3 (revised 2008)
            Business
      CombinationsIFRS
      9
            Financial
      InstrumentsIAS
      27 (revised 2008)
            Consolidated
      and Separate Financial StatementsIAS
      28 (revised 2008)
            Investments
      in AssociatesIFRIC
      12
            Service
      Concession ArrangementsIFRIC
      17
            Distributions
      of Non-cash Assets to OwnersIFRIC
      18
            Transfers
      of Assets from CustomersIFRIC
      19
            Extinguishing
      Financial Liabilities with Equity
Instruments





Improvements
to IFRSs (April 2009)




The
directors do not expect that the adoption of these Standards and Interpretations
in future periods will have a material impact on the financial statements of the
Company except for the treatment of acquisition of subsidiaries and associates
when IFRS 3 (revised 2008), IAS 27 (revised 2008) and IAS 28 (revised 2008) come
into effect for business combinations for which the acquisition date is on or
after the beginning of the first annual period beginning on or after July 1,
2009.




ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
  A.
              Directors
      and Senior Management
  Set forth
below are the names, ages and positions of our directors and executive officers.
Our board of directors is elected annually, and each director elected holds
office for a three-year term or until his successor shall have been duly elected
and qualified, except in the event of his death, resignation, removal or the
earlier termination of his term of office. The initial term of office of each
director is as follows: The two Class I directors will serve for a term expiring
at the 2011 annual meeting of shareholders, the two Class II directors will
serve for a term expiring at the 2012 annual meeting of shareholders, and the
one Class III director will serve for a term expiring at the 2013 annual meeting
of the shareholders. Officers are elected from time to time by vote of our board
of directors and hold office until a successor is elected.




43







Name
            
            Age
            
            PositionEmanuele
      A. Lauro
            
            31
            
            Chairman,
      Class I Director, and Chief Executive OfficerRobert
      Bugbee
            
            50
            
            President
      and Class II DirectorBrian
      Lee
            
            43
            
            Chief
      Financial OfficerCameron
      Mackey
            
            41
            
            Chief
      Operating OfficerLuca
      Forgione
            
            34
            
            General
      CounselSergio
      Gianfranchi
            
            65
            
            Vice
      President, Vessel OperationsAlexandre
      Albertini
            
            33
            
            Class
      III DirectorAdemaro
      Lanzara
            
            67
            
            Class
      I DirectorDonald
      C. Trauscht
            
            76
            
            Class
      II Director





Biographical
information with respect to each of our directors and executive officers is set
forth below.




Emanuele A. Lauro,Chairman &
Chief Executive Officer




Emanuele
A. Lauro, our founder, Chairman and Chief Executive Officer, joined Scorpio
Group in 2003 and has continued to serve there in a senior management position
since 2004. Under Mr. Lauro's leadership, Scorpio Group has grown from an
owner of three vessels in 2003 to an owner of five vessels, an operator or
manager of approximately 60 vessels in 2008. Over the course of the last six
years, Mr. Lauro has founded and developed the Scorpio Aframax Tanker Pool,
Scorpio Panamax Tanker Pool and the Scorpio Handymax Tanker Pool which as of
June 20, 2010 employ 14, 22 and 38 vessels, respectively, from Scorpio Group and
third party participants. He also founded Scorpio Logistics in May 2007, a company within the Scorpio
Group which owns and operates specialized assets engaged in coal transhipment in
Indonesia and which engages in strategic investments in coastal shipping and
port development in India. Furthermore, Mr. Lauro formed a joint
venture with Koenig & cie., Scorship Navigation, in August 2005 which
engages in the identification, placement, and management of certain
international shipping investments on behalf of German investors. In
addition, Mr. Lauro developed a joint venture company, Crewtech
Philippines, in May 2007 which screens, trains, and manages vessel staff for
various third party owners of drybulk and tanker vessels. Mr. Lauro
has a degree in international business from the European Business School,
London, and he has served as the Vice President of the Chamber of Shipping of
Monaco since 2006.




Robert Bugbee,President
and Director




Robert
Bugbee, our President, has more than 25 years of experience in the shipping
industry. He joined Scorpio Group in February 2009 and has continued to serve
there in senior management. Prior to joining Scorpio Group, Mr. Bugbee was
a partner at Ospraie Management LLP between 2007 and 2008, a company which
advises and invests in commodities and basic industry. From 1995 to 2007, Mr
Bugbee was employed at OMI Corporation, or OMI, a NYSE-listed tanker company
sold in 2007. While at OMI, Mr. Bugbee most recently served as President
from January 2002 until the sale of the company, and he previously served as
Executive Vice President since January 2001, Chief Operating Officer since March
2000 and Senior Vice President of OMI from August 1995 to June 1998.
Mr. Bugbee joined OMI in February 1993. Prior to this, he was employed by
Gotaas-Larsen Shipping Corporation since 1984. During this time he took a two
year sabbatical from 1987 for the M.I.B. Programme at the Norwegian School for
Economics and Business administration in Bergen. He has a Fellowship from the
International Shipbrokers Association and a B.A. (Honors) in from London
University.




Brian Lee,Chief
Financial Officer




Brian
Lee, our Chief Financial Officer, joined Scorpio Group in April 2009. In June
2009, he became the Scorpio Group's Controller. He has been employed in the
shipping industry since 1998. Prior to joining Scorpio Group, he was the
Controller of OMI Corporation from 2001 until the sale of the company in 2007.
Mr. Lee has a M.B.A. from the University of Connecticut and has B.S. in
Business Administration from the University at Buffalo, State University of New
York.




Cameron Mackey,Chief
Operating Officer




Cameron
Mackey, our Chief Operating Officer, joined Scorpio Group in March 2009, where
he has served as Chief Operating Officer. Prior to joining Scorpio Group, he was
an equity and commodity analyst at Ospraie Management LLC from 2007-2008. Prior
to that, he was Senior Vice President of OMI Marine Services LLC from 2004-2007
and in Business Development at OMI Corporation from 2002-2004. He has been
employed in the shipping industry since 1994 and, earlier in his career, was
employed in unlicensed and licensed positions in the merchant navy, primarily on
tankers in the international fleet of Mobil Oil Corporation, where he held the
qualification of Master Mariner. He has an M.B.A. from the Sloan School of
Management at the Massachusetts Institute of Technology, a B.S. from the
Massachusetts Maritime Academy and a B.A. from Princeton
University.




44







Luca Forgione,General
Counsel




Luca
Forgione, our General Counsel, joined Scorpio Group in August 2009 as General
Counsel. He is licensed as a lawyer in his native Italy and as a Solicitor of
the Supreme Court of England & Wales. Mr. Forgione has six years
of shipping industry experience and has worked in the fields of shipping,
offshore logistics, commodity trading and energy since the beginning of his
in-house career, most recently with Constellation Energy Commodities Group Ltd.
in London, which is part of Constellation Energy Group Inc. listed on the NYSE
under "CEG," from 2007 to 2009., and previously with Coeclerici S.p.a. in Milan
from 2004 to 2007. He has experience with all aspects of the supply chain of
drybulk and energy commodities (upstream and downstream), and has developed
considerable understanding of the regulatory and compliance regimes surrounding
the trading of physical and financial commodities as well as the owning,
managing and chartering of vessels. Mr. Forgione was a Tutor in
International Trade Law and Admiralty Law at University College London
(U.K.) and more recently a Visiting Lecturer in International Trade Law at
King's College (U.K.). He has a Masters Degree in Maritime Law from the
University of Southampton (U.K.) and a Law Degree from the University of Genoa
(Italy).




Messers.
Lauro, Bugbee, Lee, Mackey, and Forgione collectively have over 65 years of
combined shipping experience and have developed strong tanker industry
relationships with leading charterers, lenders, shipbuilders, insurers and other
key industry participants.




Sergio Gianfranchi,Vice
President, Vessel Operations




Sergio
Gianfranchi, our Vice President of Vessel Operations, served as Operations
Manager of our technical manager, SSM, at its headquarters in Monaco from 2002
to 2004. He has been instrumental in launching and operating the Scorpio
Group's Panamax, Handymax and Aframax pools during the last five years, and was
employed as the Fleet Manager of SCM, the Scorpio Group affiliate that manages
the commercial operations of approximately 50 vessels grouped in the three
Scorpio Group pools, from 2007 to 2009. Mr. Gianfranchi is currently
employed as the Pool Fleet Manager of SCM. From 1999 to 2001,
Mr. Gianfranchi served as the on-site owner's representative of the Scorpio
Group affiliates named Doria Shipping, Tristan Shipping, Milan Shipping and Roma
Shipping, to survey the construction of their Panamax and Post-Panamax
newbuilding tankers being built at the 3Maj Shipyard in Rijeka, Croatia. When
Mr. Gianfranchi joined SSM in 1989, he began as vessel master of its OBOs
(multipurpose vessels that carry ore, heavy drybulk and oil). Upon
obtaining his Master Mariner License in 1972, he served until 1989 as a vessel
master with prominent Italian shipping companies, including NAI, which is the
largest private Italian shipping company and owned by the Lolli-Ghetti family,
and Almare, initially a subsidiary of NAI but later controlled by Finmare, the
Italian state shipping financial holding company. In this position he
served mostly on OBOs, tankers and drybulk carriers. He graduated from La Spezia
Nautical Institute in Italy in 1963.




Alexandre Albertini,Director




Alexandre
Albertini agreed to serve as a director effective as of the closing of our
initial public offering. Mr. Albertini has more than 10 years of
experience in the shipping industry. He has been employed by Marfin Management
SAM, a drybulk ship management company, since 1997 and has served as Managing
Director there since 2009, working in fields related to crew and human
resources, insurance, legal, financial, technical, commercial, and information
technology. He is a director of eight drybulk shipowning companies and serves as
President of Ant. Topic srl, a vessel and crewing agent based in Italy. The
aggregate valuation of the drybulk shipping companies for which
Mr. Albertini serves as a Secretary or director is approximately $300
million. In 2008, Mr. Albertini was elected as a member of the Executive
Committee of InterManager. He is a founding member of the Chamber of Shipping of
Monaco and has served as its Secretary General since 2006. Mr. Albertini
also holds various board positions in several other local business and
associations.




Ademaro Lanzara,Director




Ademaro
Lanzara agreed to serve as a director effective as of the closing of our initial
public offering. Mr. Lanzara has served as the Chairman of BPV Finance
(International) Plc Dublin, a subsidiary of Banca Popolare di Vicenza, Italy,
since 2008. He is also a director of Istituto dell'Enciclopedia Italiana fondata
da Giovanni Treccani Spa, Rome. From 1963 to 2006, Mr. Lanzara held a
number of positions with BNL spa Rome, a leading Italian banking group,
including acting as the Chairman of the Credit Committee, Chairman of
the Finance Committee and Deputy CEO. He also served as Chairman and/or director
of a number of BNL controlled banks or financial companies in Europe, the United
States and South America. He formerly served as a director of each of the
Institute of International Finance Inc. in Washington DC, Compagnie Financiere
Edmond de Rothschild Banque, in Paris, France, ABI—Italian Banking Association
in Rome, Italy, FITD—Interbank deposit Protection Fund, in Rome, Italy, ICC
International Chamber of Commerce Italian section, Rome, Italy Co-Chairman Round
Table of Bankers and Small and Medium Enterprises, European Commission, in
Brussels, Belgium. Mr. Lanzara has a economics degree (graduated magna cum laude) from the
University of Naples, a law degree from the University of Naples and a PMD from
Harvard Business School.




45







Donald C. Trauscht,Director




Donald C.
Trauscht agreed to serve as a director effective as of the closing of our
initial public offering. He has served as the Chairman of BW Capital
Corporation, a private investment company, since 1996. From 1967 to 1995,
Mr. Trauscht held a number of positions at Borg-Warner Corporation,
including Chairman and Chief Executive Officer. While at Borg Warner,
Mr. Trauscht supervised an annual capital budget of $250 million and was
responsible for risk assessment decisions involving the company's investments.
He has participated in acquisitions, divestments, financings, public offerings
and other transactions whose combined value is over $30 billion.
Mr. Trauscht is a director of Esco Technologies Inc., Hydac International
Corporation, Bourns Inc., and EyesForLearning LLC. He formerly served as a
director of Baker Hughes Inc., Cordant Technologies Inc., Blue Bird Corporation,
Imo Industries Inc., Mannesmann Capital Corporation, Wynn International Inc.,
Recon Optical Inc., Global Motorsport Group Inc., OMI Corporation, IES
Corporation, and NSK-Warner Ltd. He has served as the Chairman, Lead Director,
and Audit Committee, Compensation Committee, and Governance Committee Chairman
at numerous public and private companies.




B.
            Compensation




We did
not pay any compensation to members of our senior executive officers in 2009. We
expect to pay aggregate compensation to our senior executive officers in 2010
for the period April 6, 2010 to December 31, 2010 of approximately $2.1 million.
Each of our non-employee directors will receive annual cash compensation in the
aggregate amount of $45,000 annually, plus an additional fee of $5,000 for each
committee on which a director serves plus an additional fee of $15,000 for each
committee for which a director serves as Chairman, per year, plus an additional
fee of $20,000 to the lead independent director, plus reimbursements for actual
expenses incurred while acting in their capacity as a director. Our officers and
directors are eligible to receive awards under our equity incentive plan which
is described below under "—2010 Equity Incentive Plan."




We
believe that it is important to align the interests of our directors and
management with that of our shareholders. In this regard, we have determined
that it will generally be beneficial to us and to our shareholders for our
directors and management to have a stake in our long-term performance. We expect
to have a meaningful component of our compensation package for our directors and
management consist of equity interests in the Company in order to provide them
on an on-going basis with a meaningful percentage of ownership in the
Company.




We do not
have a retirement plan for our officers or directors.




2010
Equity Incentive Plan




We have
adopted an equity incentive plan, which we refer to as the plan, under which
directors, officers, employees, consultants and service providers of us and our
subsidiaries and affiliates are eligible to receive incentive stock options and
non-qualified stock options, stock appreciation rights, restricted stock,
restricted stock units and unrestricted common stock. We have reserved a total
of 1,148,916 common shares for issuance under the plan, subject to adjustment
for changes in capitalization as provided in the plan and it is not expected
that any additional common shares will be reserved for issuance under our equity
incentive plan prior to the third anniversary of the closing of our initial
public offering. The plan is administered by our compensation committee. We
issued a total of 559,458 restricted shares under the plan to our executive
officers in the second quarter of 2010 which will vest in three equal
installments on the third, fourth and fifth anniversaries, respectively, of the
grant date. In the second quarter of 2010, we also issued 9,000 restricted
shares to our independent directors.




Under the
terms of the plan, stock options and stock appreciation rights granted under the
plan will have an exercise price equal to the fair market value of a common
share on the date of grant, unless otherwise determined by the plan
administrator, but in no event will the exercise price be less than the fair
market value of a common share on the date of grant. Options and stock
appreciation rights will be exercisable at times and under conditions as
determined by the plan administrator, but in no event will they be exercisable
later than ten years from the date of grant.




The plan
administrator may grant shares of restricted stock and awards of restricted
stock units subject to vesting, forfeiture and other terms and conditions as
determined by the plan administrator. Following the vesting of a restricted
stock unit, the award recipient will be paid an amount equal to the number of
vested restricted stock units multiplied by the fair market value of a common
share on the date of vesting, which payment may be paid in the form of cash or
common shares or a combination of both, as determined by the plan administrator.
The plan administrator may grant dividend equivalents with respect to grants of
restricted stock units.




46







Adjustments
may be made to outstanding awards in the event of a corporate transaction or
change in capitalization or other extraordinary event. In the event of a "change
in control" (as defined in the plan), unless otherwise provided by the plan
administrator in an award agreement, awards then outstanding will become fully
vested and exercisable in full.




Our board
of directors may amend or terminate the plan and may amend outstanding awards,
provided that no such amendment or termination may be made that would materially
impair any rights, or materially increase any obligations, of a grantee under an
outstanding award. Shareholder approval of plan amendments will be required
under certain circumstances. Unless terminated earlier by our board of
directors, the plan will expire ten years from the date the plan is
adopted.




Employment
Agreements




We have
agreed to enter into employment agreements with each of our executives. We
expect that these employment agreements will be in effect for a period of up to
two years, and will automatically renew for the same successive employment
periods unless terminated in accordance with the terms of such agreements.
Pursuant to the terms of their respective employment agreements, our executives
will be prohibited from disclosing or unlawfully using any of our material
confidential information.




Upon a
change in control of the Company, the annual bonus provided under the employment
agreement becomes a fixed bonus of up to 150% of the executive's base salary. If
an executive's employment is terminated within two years of a change in control
due to either disability or a reason other than "for cause," he will be entitled
to receive upon termination an assurance bonus equal to such fixed bonus and an
immediate lump-sum payment in an amount equal to three times the sum of the
Executive's then current Base Salary and the assurance bonus, and he will
continue to receive all salary, compensation payment and benefits, including
additional bonus payments, otherwise due to him, to the extent permitted by
applicable law, for the remaining balance of his then-existing employment
period. If an executive's employment is terminated for cause or voluntarily by
the employee, he shall not be entitled to any salary, benefits or reimbursements
beyond those accrued through the date of his termination, unless he voluntarily
terminated his employment in connection with certain conditions. Those
conditions include a change in control combined with a significant geographic
relocation of his office, a material diminution of his duties and
responsibilities, and other conditions identified in the employment agreement,
substantially in the form of an exhibit attached to this registration
statement.




C.
            Board
      Practices




Our board
of directors currently consists of five directors, three of whom have been
determined by our board of directors to be independent under the rules of the
New York Stock Exchange and the rules and regulations of the SEC.  We
have an Audit Committee, a Nominating and Corporate Governance Committee and a
Compensation Committee, each of which is comprised of our three independent
directors, who are Messrs. Alexandre Albertini, Ademaro Lanzara and Donald
Trauscht. The Audit Committee, among other things, reviews our external
financial reporting, engage our external auditors and oversee our internal audit
activities, procedures and the adequacy of our internal accounting controls. In
addition, provided that no member of the Audit Committee has a material interest
in such transaction, the Audit Committee will be responsible for reviewing
transactions that we may enter into in the future with other members of the
Scorpio Group that our board believes may present potential conflicts of
interest between us and the Scorpio Group. The Nominating and Corporate
Governance Committee is responsible for recommending to the board of directors
nominees for director and directors for appointment to board committees and
advising the board with regard to corporate governance practices. Our
Compensation Committee oversees our equity incentive plan and recommends
director and senior employee compensation. Our shareholders may also nominate
directors in accordance with procedures set forth in our bylaws. There are no
service contracts between us and any of our directors providing for benefits
upon termination of their employment or service.




D.
            Employees




As of
December 31, 2009, we did not have employees.  We currently have six
employees. The commercial and operational responsibility of the Company was
administered by SSM and SCM.




E.
            Share
      Ownership




The
following table sets forth information regarding the share ownership of the our
common stock as of June 23, 2010 by our directors and officers, including the
559,458 restricted shares issued to our executive officers and the 9,000
restricted shares issued to our independent directors in the second quarter of
2010 pursuant to our equity incentive plan.




47







Name
            
            No.
      of Shares (1)
            
            
            %
      OwnedEmanuele
      A. Lauro
            
            
            225,868
            
            
            
            1.2
            %Robert
      Bugbee
            
            
            265,618
            
            
            
            1.4
            %Cameron
      Mackey
            
            
            117,108
            
            
            
            0.6
            %All
      other officers and directors individually
            
            
            *
            
            
            
            *





(1)
            Includes
      shares of restricted stock from the 2010 Equity Incentive
      Plan.


*    The
remaining officers and directors individually each own less than 1% of our
outstanding shares of common stock.




ITEM
7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




A.
            Major
      Shareholders




The
following table sets forth information regarding beneficial ownership as of June
23, 2010 of the Company's common stock for owners of more than five percent of
our common stocks of which we are aware.




Name
              
              No.
      of Shares
              
              
              %
      OwnedScorpio
      Owning Holding Ltd. (1)(2)
              
              
              5,589,147
              
              
              
              30.1
              %Steelhead
      Partners LLC (3)
              
              
              1,000,000
              
              
              
              5.4
              %Steelhead
      Navigator Master L.P.
              
              
              970,000
              
              
              
              5.2
              %


(1)
            Scorpio
      Owning Holding Ltd. is 100% owned by Liberty Holding Company Ltd, which is
      100% owned by Simon Financial Limited. Simon Financial Limited is
      beneficially owned by members of the Lolli-Ghetti
  family.


(2)
            Emanuele A.
      Lauro and Robert Bugbee own 2% and 1.75%, respectively, of Liberty Holding
      Company Ltd.


(3)
            James
      Michael Johnson and Brian Katz Klein, as member-managers of Steelhead
      Partners LLC, have shared voting power to direct the 1,000,000 shares held
      by Steelhead Partners LLC, and may consequently be deemed to be beneficial
      owners of such shares. As Steelhead Partners LLC is the investment manager
      of Steelhead Navigator Master L.P., James Michael Johnson and Brian Katz
      Klein may be deemed to beneficially own the 970,000 shares held by
      Steelhead Navigator Master L.P.  However, Steelhead Partners
      LLC, James Michael Johnson and Brian Katz Klein disclaim such beneficial
      ownership except to the extent of his or its pecuniary interests. All
      information regarding Steelhead Partners LLC, Steelhead Navigator Master
      L.P., James Michael Johnson and Brian Katz Klein is derived from the
      Schedule 13G filed with the SEC on May 11,
2010.





B.
            Related
      Party Transactions




Commercial
and Technical Management Agreements




As our
commercial and technical managers, SCM and SSM provide us with commercial and
technical services pursuant to their respective commercial and technical
management agreements with us. We expect to enter into similar agreements with
respect to each vessel we acquire going forward. Commercial management services
include securing employment, on both spot market and time charters, for our
vessels. Where we plan to employ a vessel on the spot charter market, we intend
to generally place such vessel in a tanker pool managed by our commercial
manager that pertains to that vessel's size class. Technical management services
include day-to-day vessel operation, performing general maintenance, monitoring
regulatory and classification society compliance, customer vetting procedures,
supervising the maintenance and general efficiency of vessels, arranging the
hiring of qualified officers and crew, arranging and supervising drydocking and
repairs, purchasing supplies, spare parts and new equipment for vessels,
appointing supervisors and technical consultants and providing technical
support. We pay our managers fees for these services and reimburse our managers
for the reasonable direct or indirect expenses they incur in providing us with
these services.




We pay
our commercial manager and technical manager management fees.  For the
years ended December 31, 2009, 2008 and 2007, certain of the expenses
incurred for commercial, technical and administrative management services were
under management agreements with other Scorpio Group entities, which are related
parties. Since agreements with related parties are by definition not at arms
length, the expenses incurred under these agreements may have been different
than the historical costs incurred if the subsidiaries had operated as
unaffiliated entities during prior periods. Our estimates of any differences
between historical expenses and the expenses that may have been incurred had the
subsidiaries been stand-alone entities have been disclosed below and in the
notes to the historical consolidated financial statements included elsewhere in
this filing.




48







Since
December 1, 2009, we pay SCM, our commercial manager, a fee of $250 per
vessel per day plus a 1.25% commission per charter fixture to provide commercial
management services for Noemi and Senatore.  Venice is part of the Scorpio
Panamax Tanker Pool, whose pool participants collectively pay SCM's agent fee of
$250 per vessel per day plus 1.25% commission per charter fixture. We pay our
technical manager $548 per vessel per day to provide technical management
services for each of our vessels. We have entered into separate commercial and
technical management agreements for each of our vessels, and both our commercial
management agreements with SCM and our technical management agreements with SSM
are for a period of three years, and may be terminated upon two year's
notice.




Administrative
Services Agreement




Liberty
Holding Company Ltd., which we refer to as our Administrator, provides us with
administrative services pursuant to an administrative services agreement. The
administrative services provided under the agreement primarily include
accounting, legal compliance, financial, information technology services, and
the provision of administrative staff and office space. Our Administrator will
also arrange vessel sales and purchases for us. Further, pursuant to our
administrative services agreement, Liberty, on behalf of itself and other
members of the Scorpio Group, has agreed that it will not directly own product
or crude tankers ranging in size from 35,000 dwt to 200,000 dwt. We expect that
our Administrator will sub-contract many of its responsibilities to other
entities within the Scorpio Group.




We will
reimburse our Administrator for the reasonable direct or indirect expenses it
incurs in providing us with the administrative services described above. We will
also pay our Administrator a fee for arranging vessel purchases and sales for us
equal to 1% of the gross purchase or sale price, payable upon the consummation
of any such purchase or sale. We believe this 1% fee on purchases and sales is
customary in the tanker industry.




Scorpio
Panamax Tanker Pool




To
increase vessel utilization and thereby revenues, we participate in a commercial
pool with other shipowners of similar modern, well-maintained vessels. By
operating a large number of vessels as an integrated transportation system,
commercial pools offer customers greater flexibility and a higher level of
service while achieving scheduling efficiencies. Pools employ experienced
commercial charterers and operators who have close working relationships with
customers and brokers, while technical management is performed by each
shipowner. The managers of the pools negotiate charters with customers primarily
in the spot market. The size and scope of these pools enable them to enhance
utilization rates for pool vessels by securing backhaul voyages and COAs, thus
generating higher effective TCE revenues than otherwise might be obtainable in
the spot market while providing a higher level of service offerings to
customers.




Where we
plan to employ a vessel in the spot charter market, we intend to generally place
such vessel in a tanker pool managed by our commercial manager that pertains to
that vessel's size class. Our vessel Venice participates in SCM's
Scorpio Panamax Tanker Pool. All tankers in the Scorpio Panamax Tanker Pool are
double-hull and trade both clean and dirty petroleum products. The earnings
allocated to vessels (charterhire expense for the pool) are aggregated and
divided on the basis of a weighted scale, or Pool Points, which reflect
comparative voyage results on hypothetical benchmark routes. The Pool Point
system generally favors those vessels with greater cargo-carrying capacity and
those with better fuel consumption. Pool Points are also awarded to vessels
capable of carrying clean products and to vessels capable of trading in certain
ice conditions. Venice
is significantly larger than the other tankers in the Scorpio Panamax Tanker
Pool yet has a similar fuel consumption; her earnings on benchmark voyages are
therefore approximately greater than the average for the pool. Also, Venice holds the class
notation "Ice 1C" which means it can travel through waters with thicker ice than
most of the other vessels in the pool. The above average earnings for Venice may not be reflective
of future earnings in the pool. The vessel can be withdrawn from the pool upon
90 days notice or after the vessel is free from any commitment, whichever is
later.




SCM is
responsible for the commercial management of the participating vessels,
including the marketing, chartering, operating and bunker (fuel oil) purchases
of the vessels. The pool is administered by Scorpio Panamax Tanker Pool Ltd., or
SPTP, a Cayman Islands corporation. Our founder, Chairman and Chief Executive
Officer is a member of the Lolli-Ghetti family which owns 100% of all issued and
outstanding stock of SPTP. Taking into account the recommendations of a pool
committee and a technical committee, each of which is comprised of
representatives of each pool participant, SPTP sets the pool's policies and
issues directives to the pool participants and SCM. The pool participants remain
responsible for all other costs including the financing, insurance, manning and
technical management of their vessels. The earnings of all of the vessels are
aggregated and divided according to the relative performance capabilities of the
vessel and the actual earning days each vessel is available.




49







Our
Relationship with Scorpio Group and its Affiliates




Our board
of directors consists of five individuals, three of whom are independent
directors. The three independent directors form the board's Audit Committee
and, pursuant to the Audit Committee charter, are required to review all
potential conflicts of interest between us and Scorpio Group. The two
non-independent directors, Emanuele Lauro and Robert Bugbee, serve in senior
management positions within the Scorpio Group and have an ownership stake in
Liberty, which is our Administrator, and which is also an affiliate of the
Scorpio Group.




The
Scorpio Group is owned and controlled by members of the Lolli-Ghetti family, of
which Mr. Lauro is a member. Mr. Lauro is considered to be the acting
Chief Executive Officer of Scorpio Group, and Mr. Bugbee is considered to
be the acting President of Scorpio Group. Mr. Lauro is employed by Scorpio
Ship Management and Mr. Bugbee is employed by Scorpio USA, and both
entities are affiliates within the Scorpio Group.  The ownership interest
for Mr. Lauro and Mr. Bugbee in Liberty, an affiliate of the Scorpio
Group, is a restricted stock ownership interest of 2% and 1.75%, respectively,
but they will have no other ownership interests in the Scorpio Group. This
restricted stock ownership interest cannot be sold or otherwise disposed, can be
forfeited under certain conditions such as termination of employment prior to
vesting, and has no voting rights. We are not affiliated with any other entities
in the shipping industry other than those that are members of the Scorpio
Group.




SCM
and SSM, which as noted previously are affiliates of Scorpio
Group, provide commercial and technical management services to us pursuant
to our commercial and technical management agreements. Under the commercial
management agreement, we pay SCM a fee of $250 per vessel per day plus a 1.25%
commission per charter fixture. For vessels operating in a Scorpio Group
pool, we pay SCM's agent fee of $250 per vessel per day plus 1.25% commission
per charter fixture. We pay SSM $548 per vessel per day to provide
technical management services for each of our vessels. We have entered into
separate commercial and technical management agreements in December 2009 for
each of our vessels and expect to enter into similar agreements with respect to
each vessel that we acquire going forward. The commercial and technical
management agreements with SCM and SSM are each for a period of three
years, and may be terminated upon two year's notice.




We will
reimburse Liberty, which as noted previously is our Administrator and also an
affiliate of the Scorpio Group, for the reasonable direct or indirect expenses
it incurs in providing us with the administrative services described above. We
will also pay our Administrator a fee for arranging vessel purchases and sales
for us equal to 1% of the gross purchase or sale price, payable upon the
consummation of any such purchase or sale. We believe this 1% fee on purchases
and sales is customary in the tanker industry.




Pursuant
to our administrative services agreement, Liberty, on behalf of itself and other
members of the Scorpio Group, has agreed that it will not directly own product
or crude tankers ranging in size from 35,000 dwt to 200,000 dwt. We have no
other agreements with SCM, SSM, our Administrator, or any other party providing
for a resolution of potential conflicts in our favor.




Related
Party Payable and Shareholder Payable




Prior to
November 18, 2009, we had a shareholder payable of $18.9 million and a related
party payable to a subsidiary of Liberty of $27.4 million.  On
November 30, 2009, these payables were converted to equity as a capital
contribution with no shares being exchanged in this transaction.




King
Dustin




King Dustin Tankschiffahrts
GmbH&Co.KG, or King Dustin, is a special purpose entity that is owned
equally by affiliates of Koenig & cie and Scorpio Group. King Dustin
time charters-in Noemi
from us at $24,500 per day pursuant to a time charter that expires in January
2012. The time charter began in January 2007. King Dustin time charters-out
Noemi to ST Shipping, a
wholly owned subsidiary of Glencore S.A. of Zug, Switzerland.




50







Transactions
with subsidiaries of Liberty (herein referred to as Liberty subsidiaries) and
transactions with entities outside of Liberty but controlled by members of the
Lolli-Ghetti family (herein referred to as related party affiliates) in the
consolidated income statements are as follows:




For
      the year ended December 31,2009
            
            
            2008
            
            
            2007Vessel
      revenue from pools(A)
            
            $
            10,425,129
            
            
            $
            20,980,233
            
            
            $
            19,759,614Vessel
      revenue from time charters (B)
            
            
            8,288,767
            
            
            
            8,879,913
            
            
            
            8,273,324Vessel
      operating costs (C)
            
            
            (600,000
            )
            
            
            (765,422
            )
            
            
            (739,994
            )General
      and administrative expenses (D)
            
            
            (344,162
            )
            
            
            (619,421
            )
            
            
            (536,910
            )







(A)
            The
      revenue earned was from the Scorpio Panamax Tanker Pool
      (SPTP).  SPTP is owned by Scorpio Panamax Tanker Pool Limited,
      which is a subsidiary of Liberty.




(B)
            The
      revenue earned was for Noemi's time charter
      with King Dustin, which is 50% jointly controlled by a Liberty subsidiary.
      The time charter with King Dustin began in January 2007 and expires in
      January 2012.




(C)
            The
      expenses represent technical management fees charged by SSM, a related
      party affiliate, and included in the vessel operating costs in the
      consolidated income statement.  The Company's fees under
      technical management arrangements with SSM were not at market rates for
      the years ended December 31, 2008 and 2007.  The Company
      estimates that its technical management fees for the years ended December
      31, 2008 and 2007 would have been $601,704 and $600,060, respectively, and
      would have increased net income for the periods by $163,718 and $139,934,
      respectively, had the Company operated as an unaffiliated entity. The
      Company's estimate is based upon the rates charged to third party
      participants by SSM in 2007 and
2008.




The
Company believes its technical management fees for the year ended December 31,
2009 were at market rates. Additionally, in December 2009, the Company signed a
technical management agreement for each ship with SSM.  Each ship will
pay $548 per day for technical management.  This fee is the same
charged to third parties by SSM, and therefore the Company believes it
represents a market rate for such services.




(D)
            These
      transactions represent commercial management fees charged by SCM, which
      prior to October 1, 2009 was a Simon subsidiary and from October 1, 2009
      is a related party affiliate, and administrative fees charged by SSM and
      are both included in general and administrative expenses in the
      consolidated income statement:




·
            The
      Company incurred commercial management fees of $70,418, $37,996 and
      $56,287 for the years ended December 31, 2009, 2008 and 2007,
      respectively.  The Company's commercial management fees for
      vessels not in the Pool were not at market rates in 2009, 2008 and
      2007.  The Company estimates that its commercial management fees
      for the years ended December 31, 2009, 2008 and 2007 would have been
      $397,546, $411,675 and $240,219, respectively, and would have decreased
      net income for the periods by $327,128, $373,679 and $183,932,
      respectively, had the Company operated as an unaffiliated
      entity.  The Company's estimate is based upon the rates charged
      to third party participants in the Pool for 2009, 2008 and
      2007.




·
            In
      December 2009, the Company signed the commercial management agreement with
      SCM.  Each of the vessels will pay $250 per day and 1.25% of
      their revenue when the vessels are not in the Pool.  When the
      Company's vessels are in the Pool, SCM, the pool manager, charges all
      vessels in the Pool (including third party participants) $250 per day and
      1.25% of their revenue.  The Company therefore believes that the
      commercial management agreement represents a market rate for such
      services.




·
            The
      Company incurred administrative management fees of $273,744, $581,425 and
      $1,042,203 for the years ended December 31, 2009, 2008 and 2007,
      respectively.  The administrative fee included services for
      accounting, administrative, information technology and management of the
      Company.  The Company's fees under administrative management
      arrangements may not have been at market rates.  The Company
      cannot estimate what the cost would have been if we operated as an
      unaffiliated party, but believes the costs for the years ended December
      31, 2009, 2008 and 2007 were reasonable and appropriate for the services
      provided.




51







Prior to
December 2009, SSM provided administrative services directly to the
Company.  In December 2009, the Company signed an Administrative
Management Agreement for each vessel with Liberty.  The Company will
pay Liberty the administrator a fixed monthly fee calculated at cost with no
profit for providing the Company with administrative services, and will
reimburse it for the reasonable direct or indirect expenses it incurs in
providing the Company with such services.  The Company will also pay
the administrator a fee for arranging vessel purchases and sales, on behalf of
the Company, equal to 1% of the gross purchase or sale price, payable upon the
consummation of any such purchase or sale.  SSM continues to provide
administrative services to the Company under this agreement, but now does so on
behalf of Liberty.




The
Company had the following assets and liabilities with related parties which have
been included in the consolidated balance sheets:




As
      of December 31,2009
            
            
            2008Assets:Accounts
      receivable
            
            $
            1,133,030
            
            
            $
            3,581,581Shareholder
      receivable
            
            
            1,928,253
            
            
            
            -Liabilities:Accounts
      payable
            
            
            -
            
            
            
            129,844Related
      party payable (E)
            
            
            -
            
            
            
            27,406,408Shareholder
      payable (F)
            
            
            -
            
            
            
            22,028,323







(E)
            During
      December 2009, the Company advanced $1,928,253 to the shareholder, which
      was a receivable on the Balance sheet as of December 31, 2009. The
      receivable was due upon demand and was non-interest bearing and unsecured.
      The amount was repaid to the Company in the first quarter of
      2010.




(F)
            The
      related party payable at December 31, 2008 and 2007 was $27,406,408 and
      was owed to a subsidiary of Simon. The payable was repayable upon demand
      and was non-interest bearing and unsecured. The outstanding balance as of
      November 18, 2009 of $27,406,408 was converted to equity as a capital
      contribution.




(G)
            The
      shareholder payable was owed to Simon. Historically, the Company and Simon
      transferred cash depending on the need of each entity and the excess cash
      available. The payable was non-interest bearing and unsecured. On November
      18, 2009, the outstanding balance of $18,865,931 was converted to equity
      as a capital contribution; therefore, the Company had no outstanding
      liability to Simon as of December 31,
2009.




Key
management remuneration




Executive
management of the Company was provided by a related party affiliate and included
in the management fees described in (D) above. The Company did not have any
employees throughout the periods presented.  If  the Company
was not part of Simon, and had the same ownership structure and a contract for
administrative services, the Company estimates its general and administrative
costs would have been comparable with the general and administrative costs
presented on the consolidated income statement for the years ended December 31,
2009, 2008 and 2007.




C.
            INTERESTS
      OF EXPERTS AND COUNSEL




Not
applicable.




ITEM 8. FINANCIAL
INFORMATION




A.
            Consolidated
      Statements and Other Financial
Information




See Item
18.




52







Legal
Proceedings




To the
best of our knowledge, we are not currently involved in any legal or arbitration
proceedings that would have a significant effect on our financial position or
profitability and no such proceedings are pending or known to be contemplated by
governmental authorities.




Dividend
Policy




Since our
initial public offering closed on April 6, 2010, we have not paid a
dividend.  We will continue to assess our dividend policy and our
board of directors may determine it is in the best interest of the Company to
pay dividends in the future. Upon the completion of our acquisition of
additional vessels funded in whole or in part with a portion of the net proceeds
of our initial public offering, and depending on prevailing charter market
conditions, our operating results and capital requirements and other relevant
factors, our board of directors will re-evaluate our dividend
policy.




B.
            Significant
      Changes




See ITEM
18 – Financial Statements: Note 18 – Subsequent Events.




ITEM 9. THE OFFER AND
LISTING




Share
History and Markets




Since our initial public offering, our
shares have traded on the New York Stock Exchange (NYSE) under the symbol
STNG.  The monthly high and low market prices for our common stock
since March 31, 2010 were as follows:




For
      the month of:
            
            High
            
            
            LowMarch
      2010
            
            $
            12.90
            
            
            $
            12.10April
      2010
            
            $
            13.01
            
            
            $
            12.13May
      2010
            
            $
            12.31
            
            
            $
            10.05June
      1 to 25, 2010
            
            $
            12.14
            
            
            $
            10.20







ITEM
10. ADDITIONAL INFORMATION




A.
            Share
      Capital




Not
applicable




B.
            Memorandum
      and articles of association




Our amended and restated articles of
incorporation have been filed as exhibit 3.1 to our Amendment No. 2 to our
Registration Statement on Form F-1 (Registration No. 333-164940), filed with the
SEC on March 18, 2010. Our amended and restated bylaws are filed as exhibit 1.2
to this Annual Report on Form 20-F. The information contained in these exhibits
is incorporated by reference herein.




Information regarding the rights,
preferences and restrictions attaching to each class of the shares is described
in the section entitled  "Description of Capital Stock" in our
Prospectus Supplement on Form 424B4, filed with the SEC on April 1, 2010, which
supplements our Registration Statement on Form F-1 (Registration No. 333-164940)
with an effective date of March 30, 2010, provided that since the date of that
Prospectus Supplement, our total issued and outstanding common shares has
increased to 18,539,147 as of the date of this Annual Report.




C.
            Material
      Contracts




For a
description of our credit facility, see ITEM 5. Operating and Financial Review
and Prospects – Liquidity and Capital Resources.




53







We have no other material contracts,
other than contracts entered into in the ordinary course of business, to which
the Company is a party.




D.
            Exchange
      Controls




Under the laws of the countries and
states of incorporation of the Company and its subsidiaries, there are currently
no restrictions on the export or import of capital, including foreign exchange
controls or restrictions that affect the remittance of dividends, interest or
other payments to non-resident holders of our common stock.




E.
            Taxation




The following is a discussion of the
material Marshall Islands and United States federal income tax considerations
applicable to the Company and to holders of the Company's common stock. You are
encouraged to consult your own tax advisors concerning the overall tax
consequences arising in your own particular situation under United States
federal, state, local or foreign law of the ownership of common
stock.




Marshall
Islands Tax Considerations




The
following are the material Marshall Islands tax consequences of our activities
to us and holders of our common shares. We are incorporated in the Marshall
Islands. Under current Marshall Islands law, we are not subject to tax on income
or capital gains, and no Marshall Islands withholding tax will be imposed upon
payments of dividends by us to our shareholders.




United
States Federal Income Tax Considerations




The
following are the material United States federal income tax consequences to us
of our activities and to United States Holders and Non-United States Holders,
each as defined below, of the common shares. This discussion does not purport to
deal with the tax consequences of owning common shares to all categories of
investors, some of which, such as dealers in securities, investors whose
functional currency is not the United States dollar and investors that own,
actually or under applicable constructive ownership rules, 10% or more of our
common shares, may be subject to special rules. This discussion deals only with
holders who hold common shares as capital assets. You are encouraged to consult
your own tax advisors concerning the overall tax consequences arising in your
particular situation under United States federal, state, or local or foreign law
of the ownership of common shares. The following discussion of United States
federal income tax matters is based on the United States Internal Revenue Code
of 1986, or the Code, judicial decisions, administrative pronouncements, and
existing and proposed regulations issued by the United States Department of the
Treasury, all of which are subject to change, possibly with retroactive effect.
The discussion below is based, in part, on the description of our business as
described herein and assumes that we conduct our business as described herein.
References in the following discussion to the "Company," "we," "our" and "us"
are to Scorpio Tankers Inc. and its subsidiaries on a consolidated
basis.




United
States Federal Income Taxation of Operating Income: In General




We
currently earn substantially all our income from the hiring or leasing of
vessels for use on a time charter basis, from participation in a pool or from
the performance of services directly related to those uses, all of which we
refer to as "shipping income."




Unless
exempt from United States federal income taxation under the rules of
Section 883 of the Code, or Section 883, as discussed below, a foreign
corporation such as the Company will be subject to United States federal income
taxation on its "shipping income" that is treated as derived from sources within
the United States, to which we refer as "United States source shipping income."
For tax purposes, "United States source shipping income" includes 50% of
shipping income that is attributable to transportation that begins or ends, but
that does not both begin and end, in the United States.




Shipping
income attributable to transportation exclusively between non-United States
ports will be considered to be 100% derived from sources entirely outside the
United States. Shipping income derived from sources outside the United States
will not be subject to any United States federal income tax.




Shipping
income attributable to transportation exclusively between United States ports is
considered to be 100% derived from United States sources. However, we are not
permitted by United States law to engage in the transportation of cargoes that
produces 100% United States source shipping income.




54







Unless
exempt from tax under Section 883, our gross United States source shipping
income would be subject to a 4% tax imposed without allowance for deductions as
described below.




Exemption
of Operating Income from United States Federal Income Taxation




Under
Section 883 and the regulations thereunder, a foreign corporation will be
exempt from United States federal income taxation on its United States source
shipping income if:




(1)           it
is organized in a qualified foreign country, which is one that grants an
"equivalent exemption" from tax to corporations organized in the United States
in respect of each category of shipping income for which exemption is being
claimed under Section 883; and




(2)           one
of the following tests is met:




(A)           more
than 50% of the value of its shares is beneficially owned, directly or
indirectly, by qualified shareholders, which as defined includes individuals who
are "residents" of a qualified foreign country, which we refer to as the "50%
Ownership Test"; or




(B)           its
shares are "primarily and regularly traded on an established securities market"
in a qualified foreign country or in the United States, to which we refer as the
"Publicly-Traded Test".




The
Republic of The Marshall Islands, the jurisdiction where we and our ship-owning
subsidiaries are incorporated, has been officially recognized by the IRS as a
qualified foreign country that grants the requisite "equivalent exemption" from
tax in respect of each category of shipping income we earn and currently expect
to earn in the future. Therefore, we will be exempt from United States federal
income taxation with respect to our United States source shipping income if we
satisfy either the 50% Ownership Test or the Publicly-Traded Test.




We
believe that for all taxable years after the initial public offering of our
shares it is highly likely that we will satisfy the Publicly-Traded Test, but,
as discussed below, this is a factual determination made on an annual basis. We
do not currently anticipate a circumstance under which we would be able to
satisfy the 50% Ownership Test for taxable years after the initial public
offering of our shares.




Publicly-Traded
Test




The
regulations under Section 883 provide, in pertinent part, that shares of a
foreign corporation will be considered to be "primarily traded" on an
established securities market in a country if the number of shares of each class
of shares that are traded during any taxable year on all established securities
markets in that country exceeds the number of shares in each such class that are
traded during that year on established securities markets in any other single
country. The Company's common shares, which constitute its sole class of issued
and outstanding shares are currently "primarily traded" on the New York Stock
Exchange.




Under the
regulations, our common shares will be considered to be "regularly traded" on an
established securities market if one or more classes of our shares representing
more than 50% of our outstanding shares, by both total combined voting power of
all classes of shares entitled to vote and total value, are listed on such
market, to which we refer as the "listing threshold." Since all our common
shares are currently listed on the New York Stock Exchange, we expect to satisfy
the listing threshold.




It is
further required that with respect to each class of shares relied upon to meet
the listing threshold, (i) such class of shares is traded on the market,
other than in minimal quantities, on at least 60 days during the taxable year or
one-sixth of the days in a short taxable year; and (ii) the aggregate
number of shares of such class of shares traded on such market during the
taxable year is at least 10% of the average number of shares of such class of
shares outstanding during such year or as appropriately adjusted in the case of
a short taxable year. The Company anticipates that it will satisfy the trading
frequency and trading volume tests. Even if this were not the case, the
regulations provide that the trading frequency and trading volume tests will be
deemed satisfied if, as is  the case with our common shares, such
class of shares is traded on an established market in the United States and such
shares are regularly quoted by dealers making a market in such
shares.




Notwithstanding
the foregoing, the regulations provide, in pertinent part, that a class of
shares will not be considered to be "regularly traded" on an established
securities market for any taxable year in which 50% or more of the vote and
value of the outstanding shares of such class are owned, actually or
constructively under specified share attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more of the vote and
value of such class of outstanding shares, to which we refer as the "5 Percent
Override Rule."




55







For
purposes of being able to determine the persons who actually or constructively
own 5% or more of the vote and value of our common shares, or "5% Shareholders,"
the regulations permit us to rely on those persons that are identified on
Schedule 13G and Schedule 13D filings with the SEC, as owning 5% or more of our
common shares. The regulations further provide that an investment company which
is registered under the Investment Company Act of 1940, as amended, will not be
treated as a 5% Shareholder for such purposes.




In the
event the 5 Percent Override Rule is triggered, the regulations provide that the
5 Percent Override Rule will nevertheless not apply if we can establish that
within the group of 5% Shareholders, there are sufficient qualified shareholders
for purposes of Section 883 to preclude non-qualified shareholders in such
group from owning 50% or more of our common stock for more than half the number
of days during the taxable year.




We
believe that we will satisfy the Publicly-Traded Test for our taxable year
ending December 31, 2010, and will not be subject to the 5 Percent Override
Rule. However, there are factual circumstances beyond our control that could
cause us to lose the benefit of the Section 883 exemption. For example, there is
a risk that we could no longer qualify for exemption under Code section 883 for
a particular taxable year if shareholders with a five percent or greater
interest in the common shares were to own 50% or more of our outstanding common
shares on more than half the days of the taxable year.




Under the
regulations, if we do not satisfy the Publicly-Traded Test and therefore are
subject to the 5 Percent Override Rule, we would have to satisfy certain
substantiation requirements regarding the identity of our shareholders in order
to qualify for the Code Section 883 exemption. These requirements are
onerous and there is no assurance that we would be able to satisfy
them.




Taxation
In Absence of Section 883 Exemption




If the
benefits of Section 883 are unavailable, our United States source shipping
income would be subject to a 4% tax imposed by Section 887 of the Code on a
gross basis, without the benefit of deductions, to the extent that such income
is not considered to be "effectively connected" with the conduct of a United
States trade or business, as described below. Since under the sourcing rules
described above, no more than 50% of our shipping income would be treated as
being United States source shipping income, the maximum effective rate of United
States federal income tax on our shipping income would never exceed 2% under the
4% gross basis tax regime.




To the
extent our United States source shipping income is considered to be "effectively
connected" with the conduct of a United States trade or business, as described
below, any such "effectively connected" United States source shipping income,
net of applicable deductions, would be subject to United States federal income
tax, currently imposed at rates of up to 35%. In addition, we would generally be
subject to the 30% "branch profits" tax on earnings effectively connected with
the conduct of such trade or business, as determined after allowance for certain
adjustments, and on certain interest paid or deemed paid attributable to the
conduct of our United States trade or business.




Our
United States source shipping income would be considered "effectively connected"
with the conduct of a United States trade or business only if:




·
            we
      have, or are considered to have, a fixed place of business in the United
      States involved in the earning of United States source shipping income;
      and




·
            substantially
      all of our United States source shipping income is attributable to
      regularly scheduled transportation, such as the operation of a vessel that
      follows a published schedule with repeated sailings at regular intervals
      between the same points for voyages that begin or end in the United
      States.




We do not
intend to have, or permit circumstances that would result in having, any vessel
sailing to or from the United States on a regularly scheduled basis. Based on
the foregoing and on the expected mode of our shipping operations and other
activities, it is anticipated that none of our United States source shipping
income will be "effectively connected" with the conduct of a United States trade
or business.




56







United
States Taxation of Gain on Sale of Vessels




If we
qualify for exemption from tax under Section 883 in respect of the shipping
income derived from the international operation of its vessels, then gain from
the sale of any such vessel is highly likely to likewise be exempt from tax
under Section 883, although there is no legal authority directly on point.
If, however, our shipping income from such vessels does not for whatever reason
qualify for exemption under Section 883, then any gain on the sale of a
vessel will be subject to United States federal income tax if such sale occurs
in the United States. To the extent possible, we intend to structure the sales
of our vessels so that the gain therefrom is not subject to United States
federal income tax. However, there is no assurance we will be able to do
so.




United
States Federal Income Taxation of United States Holders




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




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




Distributions




Subject
to the discussion of passive foreign investment companies below, any
distributions made by us with respect to our common shares to a United States
Holder will generally constitute dividends to the extent of our current or
accumulated earnings and profits, as determined under United States federal
income tax principles. Distributions in excess of such earnings and profits will
be treated first as a nontaxable return of capital to the extent of the United
States Holder's tax basis in his common shares on a dollar-for-dollar basis and
thereafter as capital gain. Because we are not a United States corporation,
United States Holders that are corporations will not be entitled to claim a
dividends received deduction with respect to any distributions they receive from
us. Dividends paid with respect to our common shares will generally be treated
as "passive category income" for purposes of computing allowable foreign tax
credits for United States foreign tax credit purposes.




Dividends
paid on our common shares to a United States Holder who is an individual, trust
or estate (a "United States Non-Corporate Holder") will generally be treated as
"qualified dividend income" that is taxable to such United States Non-Corporate
Holder at preferential tax rates (through 2010) provided that (1) the
common shares are readily tradable on an established securities market in the
United States (such as the New York Stock Exchange, on which our common stock is
traded); (2) we are not a passive foreign investment company for the
taxable year during which the dividend is paid or the immediately preceding
taxable year (which, as discussed below, we have not been, are not and do not
anticipate being in the future); (3) the United States Non-Corporate Holder
has owned the common shares for more than 60 days in the 121-day period
beginning 60 days before the date on which the common shares become ex-dividend;
and (4) the United States Non-Corporate Holder is not under an obligation
to make related payments with respect to positions in substantially similar or
related property.




There is
no assurance that any dividends paid on our common stock will be eligible for
these preferential rates in the hands of a United States Non-Corporate Holder,
although, as described above, they are highly likely to be so eligible.
Legislation has been previously introduced in the United States Congress which,
if enacted in its present form, would preclude our dividends from qualifying for
such preferential rates prospectively from the date of
enactment.  Further, in the absence of legislation extending the term
of the preferential tax rates for qualified dividend income, all dividends
received by a taxpayer in tax years beginning on January 1, 2011 or later
will be taxed at ordinary graduated tax rates.  Any dividends out of
earnings and profits we pay which are not eligible for these preferential rates
will be taxed as ordinary income to a United States Non-Corporate
Holder.




Special
rules may apply to any "extraordinary dividend"—generally, a dividend in an
amount which is equal to or in excess of 10% of a shareholder's adjusted basis
in a common share—paid by us. If we pay an "extraordinary dividend" on our
common shares that is treated as "qualified dividend income," then any loss
derived by a United States Non-Corporate Holder from the sale or exchange of
such common shares will be treated as long-term capital loss to the extent of
such dividend.




57




Sale,
Exchange or Other Disposition of Common Shares




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




Passive
Foreign Investment Company Status and Significant Tax Consequences




Special
United States federal income tax rules apply to a United States Holder that
holds shares in a foreign corporation classified as a "passive foreign
investment company", a PFIC, for United States federal income tax purposes. In
general, we will be treated as a PFIC with respect to a United States Holder if,
for any taxable year in which such holder holds our common shares,
either




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




·
            at
      least 50% of the average value of our assets during such taxable year
      produce, or are held for the production of, passive
  income.




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




It is
highly unlikely that our income from time charters is treated as passive income
for purposes of determining whether we are a PFIC, although there is no legal
authority directly on point. This position is based principally on the view that
the gross income we derive from our time chartering activities should constitute
services income, rather than rental income. Accordingly, such income should not
constitute passive income, and the assets that we own and operate in connection
with the production of such income, in particular, the vessels, should not
constitute passive assets for purposes of determining whether we are a PFIC.
There is substantial legal authority supporting this position consisting of case
law and IRS pronouncements concerning the characterization of income derived
from time charters as services income for other tax purposes. However, there is
also authority which characterizes time charter income as rental income rather
than services income for other tax purposes. It should be noted that in the
absence of any legal authority specifically relating to the statutory provisions
governing PFICs, the IRS or a court could disagree with this position.
Therefore, based on our current operations and future projections, we should not
be treated as a passive foreign investment company with respect to any taxable
year after our initial public offering. Accordingly, although we intend to
conduct our affairs in a manner to avoid being classified as a PFIC with respect
to any taxable year, we cannot assure you that the nature of our operations will
not change in the future.




As
discussed more fully below, if we were to be treated as a PFIC for any taxable
year, a United States Holder would be subject to different taxation rules
depending on whether the United States Holder makes an election to treat us as a
"Qualified Electing Fund," which election we refer to as a "QEF election." As an
alternative to making a QEF election, a United States Holder should be able to
make a "mark-to-market" election with respect to our common stock, as discussed
below.  In addition, if we were to be treated as a PFIC for any
taxable year after 2010, a U.S. Holder would be required to file an annual
report with the IRS for that year with respect to such holder's common
stock.




Taxation
of United States Holders Making a Timely QEF Election




If a
United States Holder makes a timely QEF election, which United States Holder we
refer to as an "Electing Holder," the Electing Holder must report for United
States federal income tax purposes its pro rata share of our ordinary earnings
and net capital gain, if any, for each taxable year of ours for which we are a
PFIC that ends with or within the taxable year of the Electing Holder,
regardless of whether distributions were received from us by the Electing
Holder. No portion of any such inclusions of ordinary earnings will be treated
as "qualified dividend income." Net capital gain inclusions of United States
Non-Corporate Holders would be eligible for preferential capital gains tax
rates. The Electing Holder's adjusted tax basis in the common shares will be
increased to reflect taxed but undistributed earnings and profits. Distributions
of earnings and profits that had been previously taxed will result in a
corresponding reduction in the adjusted tax basis in the common shares and will
not be taxed again once distributed. An Electing Holder would not, however, be
entitled to a deduction for its pro rata share of any losses that we incur with
respect to any year. An Electing Holder would generally recognize capital gain
or loss on the sale, exchange or other disposition of our common stock. A United
States Holder would make a timely QEF election for our shares by filing one copy
of IRS Form 8621 with his United States federal income tax return for the first
year in which he held such shares when we were a PFIC. If we were to be treated
as a PFIC for any taxable year, we would provide each United States Holder with
all necessary information in order to make the QEF election described
above.




58







Taxation
of United States Holders Making a "Mark-to-Market" Election




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




Taxation
of United States Holders Not Making a Timely QEF or Mark-to-Market
Election




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




·
            the
      excess distribution or gain would be allocated ratably over the
      Non-Electing Holder's aggregate holding period for the common
      shares;




·
            the
      amount allocated to the current taxable year, and any taxable year prior
      to the first taxable year in which we were a PFIC, would be taxed as
      ordinary income and would not be "qualified dividend income";
      and




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




United
States Federal Income Taxation of "Non-United States Holders"




A
beneficial owner of common shares (other than a partnership) that is not a
United States Holder is referred to herein as a "Non-United States
Holder."




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




Dividends
on Common Stock




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




59







Sale,
Exchange or Other Disposition of Common Shares




Non-United
States Holders generally will not be subject to United States federal income tax
or withholding tax on any gain realized upon the sale, exchange or other
disposition of our common shares, unless:




·
            the
      gain is effectively connected with the Non-United States Holder's conduct
      of a trade or business in the United States (and, if the Non-United States
      Holder is entitled to the benefits of an income tax treaty with respect to
      that gain, that gain is attributable to a permanent establishment
      maintained by the Non-United States Holder in the United States);
      or




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




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




Backup
Withholding and Information Reporting




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




·
            fail
      to provide an accurate taxpayer identification
  number;




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




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




Non-United
States Holders may be required to establish their exemption from information
reporting and backup withholding by certifying their status on IRS Form W-8BEN,
W-8ECI or W-8IMY, as applicable.




If you
are a Non-United States Holder and you sell your common shares to or through a
United States office of a broker, the payment of the proceeds is subject to both
United States backup withholding and information reporting unless you certify
that you are a non-United States person, under penalties of perjury, or you
otherwise establish an exemption. If you sell your common shares through a
non-United States office of a non-United States broker and the sales proceeds
are paid to you outside the United States, then information reporting and backup
withholding generally will not apply to that payment. However, United States
information reporting requirements, but not backup withholding, will apply to a
payment of sales proceeds, even if that payment is made to you outside the
United States, if you sell your common shares through a non-United States office
of a broker that is a United States person or has some other contacts with the
United States. Such information reporting requirements will not apply, however,
if the broker has documentary evidence in its records that you are a non-United
States person and certain other conditions are met, or you otherwise establish
an exemption.




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




F.
            Dividends
      and Paying Agents




Not
applicable.




60







G.
            Statement
      by Experts




Not
applicable.




H.
            Documents
      on Display




We file
reports and other information with the SEC.  These materials,
including this annual report and the accompanying exhibits, may be inspected and
copied at the public reference facilities maintained by the Commission at 100 F
Street, N.E. Washington, D.C. 20549, or from the SEC's website http://www.sec.gov.  You
may obtain information on the operation of the public reference room by calling
1 (800) SEC-0330, and you may obtain copies at prescribed rates.




I.
            Subsidiary
      Information




Not
applicable.




ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS




Interest
Rate Risk




We are
exposed to the impact of interest rate changes primarily through our unhedged
variable-rate borrowings. Significant increases in interest rates could
adversely affect our operating margins, results of operations and our ability to
service our debt. From time to time, we will use interest rate swaps to reduce
our exposure to market risk from changes in interest rates. The principal
objective of these contracts is to minimize the risks and costs associated with
our variable-rate debt and is not for speculative or trading purposes.
Currently, we are not using hedge accounting for our interest rate
swaps.




Since we
did not use hedge accounting for our interest rate swap that commenced in May
2005 and was terminated in April 2010, the changes in the fair value of the
interest rate swap were either offset against the fair value of assets or
liabilities through income. As of December 31, 2009, our outstanding floating
rate debt was $39.8 million and the notional balance of the interest rate swap
was $19.9 million. As of December 31, 2008 the floating rate debt was $43.4
million, and the notional balance of the interest rate swap was $21.7 million.
Based on the floating rate debt at December 31, 2009, a one-percentage point
increase in the floating interest rate would increase interest expense by $0.4
million per year.




The fair
market value of our interest rate swaps was a liability of $1.7 million as of
December 31, 2009, and $2.6 million as of December 31, 2008.




The
following table presents the due dates for the principal payments of our
floating rate debt and the notional balance reductions of our interest rate
swaps:




As
      of December 31, 2009 in millions of
      $2010
            
            
            2011 to
              2012
            
            
            2013 to
              2014
            
            
            ThereafterPrincipal
      payments- floating rate debt(1)
            
            $
            3.6
            
            
            $
            7.2
            
            
            $
            7.2
            
            
            $
            21.8Notional
      balance(1,2)
            
            
            1.8
            
            
            
            3.6
            
            
            
            3.6
            
            
            
            10.9





(1)
            On
      April 9, 2010, we repaid the outstanding balance of the $38.9 million and
      the market value of the interest rate swap of $1.8 million with the
      proceeds of the initial public
offering.


(2)
            We
      do not use hedge accounting for our interest rate
  swaps.




Spot
Market Rate Risk




The
cyclical nature of the tanker industry causes significant increases or decreases
in the revenue that we earn from our vessels, particularly those vessels that
participate in pools that are concentrated in the spot market such as the
Scorpio Panamax Tanker Pool. To reduce this risk, we have vessels that are on
time charter contracts.




61




Foreign
Exchange Rate Risk




Our
primary economic environment is the international shipping market. This market
utilizes the U.S. Dollar as its functional currency. Consequently,
virtually all of our revenues and the majority of our operating expenses are in
U.S. Dollars. However, we incur some of our combined expenses in other
currencies, particularly the Euro. The amount and frequency of some of these
expenses (such as vessel repairs, supplies and stores) may fluctuate from period
to period. Depreciation in the value of the U.S. dollar relative to other
currencies will increase the U.S. dollar cost of us paying such expenses. The
portion of our business conducted in other currencies could increase in the
future, which could expand our exposure to losses arising from currency
fluctuations.




There is
a risk that currency fluctuations will have a negative effect on our cash flows.
We have not entered into any hedging contracts to protect against currency
fluctuations. However, we have some ability to shift the purchase of goods and
services from one country to another and, thus, from one currency to another, on
relatively short notice. We may seek to hedge this currency fluctuation risk in
the future.




Inflation




We do not
expect inflation to be a significant risk to direct expenses in the current and
foreseeable economic environment.




ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES




Not applicable.




PART
II




ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES




Not applicable.




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




Not applicable.




ITEM
15T. CONTROLS AND PROCEDURES




A.  Disclosure Controls and
Procedures




The Chief Executive Officer and Chief
Financial Officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined by Rules 13a-15(e) and 15d-15(e)
under the Securities and Exchange Act of 1934) as of December 31, 2009, have
concluded that, as of such date,  the Company's disclosure controls
and procedures were effective to provide reasonable assurance that the
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms .
The Company further believes that a system of controls, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the controls are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.




B. Management's Annual Report on
Internal Control Over Financial Reporting




This annual report does not include a
report of management's assessment regarding internal control over financial
reporting or an attestation report of the Company's registered public accounting
firm due to a transition period established by rules of the Securities and
Exchange Commission for newly public companies.




62







C. Changes in Internal Control Over
Financial Reporting




There have been no changes in internal
controls over financial reporting (identified in connection with management's
evaluation of such internal controls over financial reporting) that occurred
during the year covered by this annual report that have materially affected, or
are reasonably likely to materially affect, the Company's internal controls over
financial reporting.




ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT




Our Board of Directors has determined
that Mr. Ademaro Lanzara, who serves on the Audit Committee, qualifies as an
"audit committee financial expert" and that he is "independent" according to
Securities and Exchange Commission rules.




ITEM
16B. CODE OF ETHICS




We have adopted a code of ethics
applicable to officers, directors and employees.  Our code of ethics
complies with applicable guidelines issued by the SEC and is filed as an exhibit
to this annual report.




ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES




A.
            Audit
      Fees




Our
principal accountant for fiscal years ended December 31, 2009 and 2008 was
Deloitte LLP (London, United Kingdom), and the audit related fees for those
periods were $155,338 and $89,640, respectively.




B.
            Audit-Related
      Fees




None.




C.
            Tax
      Fees




None.




D.
            All
      Other Fees




During
2009, our principal accountant provided services related to the initial public
offering, which was completed on April 6, 2010, of $355,545.




E.
            Audit
      Committee's Pre-Approval Policies and
Procedures




The audit
committee's pre-approval of policies and procedures was not applicable for the
year ended December 31, 2009 because our audit committee was not established
until after our initial public offering, which closed on April 6,
2010.




F.
            Audit
      Work Performed by Other Than Principal Accountant if Greater Than
      50%




Not
applicable.




ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES




Not applicable.




ITEM
16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS




There have been no purchases of the
Company's common shares by the Company or affiliated purchasers during the
period covered by this report.




ITEM
16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT




Not applicable.




63







ITEM
16G. CORPORATE GOVERNANCE




Pursuant to an exception for foreign
private issuers, we, as a Marshall Islands company, are not required to comply
with the corporate governance practices followed by U.S. companies under the
NYSE listing standards. We believe that our established practices in the area of
corporate governance are in line with the spirit of the NYSE standards and
provide adequate protection to our shareholders. In this respect, we have
voluntarily adopted NYSE required practices, such as (a) having a majority of
independent directors, (b) establishing audit, compensation and nominating
committees and (c) adopting a Code of Ethics.




There are two significant differences
between our corporate governance practices and the practices required by the
NYSE. The NYSE requires that non-management directors meet regularly in
executive sessions without management. The NYSE also requires that all
independent directors meet in an executive session at least once a year. As
permitted under Marshall Islands law and our bylaws, our non-management
directors do not regularly hold executive sessions without management and we do
not expect them to do so in the future. The NYSE requires companies to adopt and
disclose corporate governance guidelines. The guidelines must address, among
other things: director qualification standards, director responsibilities,
director access to management and independent advisers, director compensation,
director orientation and continuing education, management succession and an
annual performance evaluation. We are not required to adopt such guidelines
under Marshall Islands law and we have not adopted such guidelines.




PART
III




ITEM
17. FINANCIAL STATEMENTS




Not applicable




ITEM
18. FINANCIAL STATEMENTS




The financial information required by
this Item is set forth on pages F-1 to F-28 and is filed as part of this annual
report.




ITEM
19. EXHIBITS
  ExhibitNumber
              Description1.1
              Amended
      and Restated Articles of Incorporation of the Company
  (1)1.2
              Amended
      and Restated Bylaws of the Company2.1
              Form
      of Stock Certificate (2)4.1
              Loan
      Agreement for 2010 Credit Facility4.2
              2010
      Equity Incentive Plan4.3
              Administrative
      Services Agreement between the Company and Liberty Holding Company Ltd.
      (3)4.4
              Form
      of Commercial Management Agreement with SCM (4)4.5
              Form
      of Technical Management Agreement with
  SSM  (5)8.1
              Subsidiaries
      of the Company11.1
              Code
      of Ethics12.1
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer12.2
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer13.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200213.2
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002
   (1)
      Filed as Exhibit 3.1 to the Company's Amended Registration Statement on
      Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18,
      2010.
 
 (2)
      Filed as Exhibit 4.1 to the Company's Amended Registration Statement on
      Form F-1/A (Amendment No. 1) (File No. 333-164940) on March 10,
      2010.
 
 (3)
      Filed as Exhibit 10.1 to the Company's Amended Registration Statement on
      Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18,
      2010.
 
 (4)
      Filed as Exhibit 10.5 to the Company's Amended Registration Statement on
      Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18,
      2010.
 
 (5)
      Filed as Exhibit 10.8 to the Company's Amended Registration Statement on
      Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18,
      2010.
 
  64


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Report
      of Independent Registered Public Accounting Firm
                  
                  F-2Audited
      Consolidated Financial StatementsConsolidated
      Balance Sheets as of December 31, 2009 and 2008
                  
                  F-3Consolidated
      Income Statements for the years ended December 31, 2009, 2008 and
      2007
                  
                  F-4Consolidated
      Statements of Changes in Shareholder's Equity for the years ended December
      31, 2009, 2008 and 2007
                  
                  F-5Consolidated
      Cash Flow Statements for the years ended December 31, 2009, 2008 and
      2007
                  
                  F-6Notes
      to the Consolidated Financial Statements
                  
                  F-7
  F-1
  
  Report of
Independent Registered Public Accounting Firm
 
 To the
Board of Directors and Shareholders of Scorpio Tankers Inc.
  Majuro,
Marshall Island
  We have
audited the accompanying consolidated balance sheets of Scorpio Tankers Inc. and
subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related
consolidated income statements, consolidated statements of changes in
shareholder's equity, and consolidated cash flow statements for each of the
three years in the period ended December 31, 2009. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Scorpio Tankers Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009, in
conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
  
  DELOITTE
LLP
  London,
United Kingdom
  June 24,
2010
  F-2
 Scorpio
Tankers Inc. and Subsidiaries
 Consolidated
balance sheets
 December
31, 2009 and 2008
  2009
                    
                    
                    
                    2008Notes
                    
                    
                    
                    $
                    
                    
                    
                    $AssetsCurrent
      assetsCash
      and cash equivalents
                    
                    
                    
                    
                    
                    444,496
                    
                    
                    
                    3,607,635Accounts
      receivable
                    
                    
                    2
                    
                    
                    
                    1,438,998
                    
                    
                    
                    3,701,980Prepaid
      expenses
                    
                    
                    3
                    
                    
                    
                    583,944
                    
                    
                    
                    39,596Shareholder
      receivable
                    
                    
                    11
                    
                    
                    
                    1,928,253
                    
                    
                    
                    -Inventories
                    
                    
                    4
                    
                    
                    
                    433,428
                    
                    
                    
                    502,514Total
      current assets
                    
                    
                    
                    
                    
                    
                    4,829,119
                    
                    
                    
                    7,851,725Non-current
      assetsVessels
      and drydock
                    
                    
                    5
                    
                    
                    
                    99,594,267
                    
                    
                    
                    109,260,102Total
      assets
                    
                    
                    
                    
                    
                    
                    104,423,386
                    
                    
                    
                    117,111,827Current
      liabilitiesBank
      loan
                    
                    
                    8
                    
                    
                    
                    3,600,000
                    
                    
                    
                    3,600,000Accounts
      payable
                    
                    
                    7
                    
                    
                    
                    656,002
                    
                    
                    
                    841,070Accrued
      expenses
                    
                    
                    
                    
                    
                    
                    953,532
                    
                    
                    
                    495,430Shareholder
      payable
                    
                    
                    11
                    
                    
                    
                    -
                    
                    
                    
                    22,028,323Related
      party payable
                    
                    
                    11
                    
                    
                    
                    -
                    
                    
                    
                    27,406,408Derivative
      financial instruments
                    
                    
                    9
                    
                    
                    
                    814,206
                    
                    
                    
                    706,078Total
      current liabilities
                    
                    
                    
                    
                    
                    
                    6,023,740
                    
                    
                    
                    55,077,309Non-current
      liabilitiesBank
      loan
                    
                    
                    8
                    
                    
                    
                    36,200,000
                    
                    
                    
                    39,800,000Derivative
      financial instruments
                    
                    
                    9
                    
                    
                    
                    871,104
                    
                    
                    
                    1,935,352Total
      non-current liabilities
                    
                    
                    
                    
                    
                    
                    37,071,104
                    
                    
                    
                    41,735,352Total
      liabilities
                    
                    
                    
                    
                    
                    
                    43,094,844
                    
                    
                    
                    96,812,661Shareholder's
      equityIssued,
      authorized and fully paid in share capital:Share
      capital
                    
                    
                    10
                    
                    
                    
                    55,891
                    
                    
                    
                    55,891Additional
      paid-in capital
                    
                    
                    11
                    
                    
                    
                    46,272,339
                    
                    
                    
                    -Merger
      reserve
                    
                    
                    
                    
                    
                    
                    13,292,496
                    
                    
                    
                    20,243,275Retained
      earnings
                    
                    
                    
                    
                    
                    
                    1,707,816
                    
                    
                    
                    -Total
      Shareholder's equity
                    
                    
                    
                    
                    
                    
                    61,328,542
                    
                    
                    
                    20,299,166Total
      liabilities and shareholder's equity
                    
                    
                    
                    
                    
                    
                    104,423,386
                    
                    
                    
                    117,111,827
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-3
  Scorpio
Tankers Inc. and Subsidiaries
  Consolidated
income statements
 For
the years ended December 31, 2009, 2008 and 2007
  Notes
                    
                    
                    
                    2009
                    
                    
                    
                    2008
                    
                    
                    
                    2007$
                    
                    
                    
                    $
                    
                    
                    
                    $Revenue:Vessel
      revenue
                    
                    
                    12
                    
                    
                    
                    27,619,041
                    
                    
                    
                    39,274,196
                    
                    
                    
                    30,317,138Operating
      expenses:Charterhire
                    
                    
                    13
                    
                    
                    
                    (3,072,916
                    )
                    
                    
                    (6,722,334
                    )
                    
                    
                    -Vessel
      operating costs
                    
                    
                    14
                    
                    
                    
                    (8,562,118
                    )
                    
                    
                    (8,623,318
                    )
                    
                    
                    (7,600,509
                    )Depreciation
                    
                    
                    
                    
                    
                    
                    (6,834,742
                    )
                    
                    
                    (6,984,444
                    )
                    
                    
                    (6,482,484
                    )Impairment
      of vessels
                    
                    
                    6
                    
                    
                    
                    (4,511,877
                    )
                    
                    
                    -
                    
                    
                    
                    -General
      and administrative expenses
                    
                    
                    
                    
                    
                    
                    (416,908
                    )
                    
                    
                    (600,361
                    )
                    
                    
                    (590,772
                    )Total
      operating expenses
                    
                    
                    
                    
                    
                    
                    (23,398,561
                    )
                    
                    
                    (22,930,457
                    )
                    
                    
                    (14,673,765
                    )Operating
      income
                    
                    
                    
                    
                    
                    
                    4,220,480
                    
                    
                    
                    16,343,739
                    
                    
                    
                    15,643,373Other
      income/(expense)Interest
      expense – bank loan
                    
                    
                    
                    
                    
                    
                    (699,115
                    )
                    
                    
                    (1,710,907
                    )
                    
                    
                    (1,953,344
                    )Realized
      loss on derivative financial instruments
                    
                    
                    
                    
                    
                    
                    (808,085
                    )
                    
                    
                    (405,691
                    )
                    
                    
                    (523,694
                    )Unrealized
      gain/(loss) on derivative financial instruments
                    
                    
                    
                    
                    
                    
                    956,120
                    
                    
                    
                    (2,057,957
                    )
                    
                    
                    (1,245,472
                    )Interest
      income
                    
                    
                    
                    
                    
                    
                    4,929
                    
                    
                    
                    35,492
                    
                    
                    
                    142,233Other
      expense, net
                    
                    
                    
                    
                    
                    
                    (256,292
                    )
                    
                    
                    (18,752
                    )
                    
                    
                    (9,304
                    )Total
      other expense, net
                    
                    
                    
                    
                    
                    
                    (802,443
                    )
                    
                    
                    (4,157,815
                    )
                    
                    
                    (3,589,581
                    )Net
      income
                    
                    
                    
                    
                    
                    
                    3,418,037
                    
                    
                    
                    12,185,924
                    
                    
                    
                    12,053,792Attributable
      to:Equity
      holders of the Parent
                    
                    
                    
                    
                    
                    
                    3,418,037
                    
                    
                    
                    12,185,924
                    
                    
                    
                    12,053,792Earnings
      per share
                    
                    
                    16Basic
                    
                    
                    
                    
                    
                    $
                    0.61
                    
                    
                    $
                    2.18
                    
                    
                    $
                    2.16Diluted
                    
                    
                    
                    
                    
                    $
                    0.61
                    
                    
                    $
                    2.18
                    
                    
                    $
                    2.16
 For the
three years ended December 31, 2009 (i) there were no sources of comprehensive
income other than those shown above, and (ii) all operations were
continuing.
  The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-4
 
 Scorpio
Tankers Inc. and Subsidiaries
  Consolidated
statement of changes in shareholder's equity
 For
the years ended December 31, 2009, 2008 and 2007
  Common
      StockNumberof
                    shares
                  
                  
                  Sharecapital
                  
                  
                  Additional
                    paid-incapital
                  
                  
                  Merger
                    reserve
                  
                  
                  Retained
                    earnings
                  
                  
                  Total$
                  
                  
                  
                  $
                  
                  
                  
                  $
                  
                  
                  
                  $
                  
                  
                  
                  $Balance
      at January 1, 2007
                  
                  
                  5,589,147
                  
                  
                  
                  55,891
                  
                  
                  
                  
                  
                  
                  
                  21,881,059
                  
                  
                  
                  
                  
                  
                  
                  21,936,950Net
      income for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,053,792
                  
                  
                  
                  -
                  
                  
                  
                  12,053,792Dividends
      paid ($1.27 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (7,093,500
                  )
                  
                  
                  -
                  
                  
                  
                  (7,093,500
                  )Balance
      at December 31, 2007
                  
                  
                  5,589,147
                  
                  
                  
                  55,891
                  
                  
                  
                  -
                  
                  
                  
                  26,841,351
                  
                  
                  
                  -
                  
                  
                  
                  26,897,242Net
      income for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,185,924
                  
                  
                  
                  -
                  
                  
                  
                  12,185,924Dividends
      paid ($3.36 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (18,784,000
                  )
                  
                  
                  -
                  
                  
                  
                  (18,784,000
                  )Balance
      at December 31, 2008
                  
                  
                  5,589,147
                  
                  
                  
                  55,891
                  
                  
                  
                  -
                  
                  
                  
                  20,243,275
                  
                  
                  
                  -
                  
                  
                  
                  20,299,166Net
      income for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,710,221
                  
                  
                  
                  1,707,816
                  
                  
                  
                  3,418,037Dividends
      paid ($1.55 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (8,661,000
                  )
                  
                  
                  -
                  
                  
                  
                  (8,661,000
                  )Capital
      contribution (see Note 11)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  46,272,339
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  46,272,339Balance
      at December 31, 2009
                  
                  
                  5,589,147
                  
                  
                  
                  55,891
                  
                  
                  
                  46,272,339
                  
                  
                  
                  13,292,496
                  
                  
                  
                  1,707,816
                  
                  
                  
                  61,328,542
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 
 F-5
 Scorpio
Tankers Inc. and Subsidiaries
  Consolidated
cash flow statements
 For
the years ended December 31, 2009, 2008 and 2007
 2009
                
                
                
                2008
                
                
                
                2007$
                
                
                
                $
                
                
                
                $Operating
      activitiesNet
      income
                
                
                3,418,037
                
                
                
                12,185,924
                
                
                
                12,053,792Depreciation
                
                
                6,834,742
                
                
                
                6,984,444
                
                
                
                6,482,484Impairment
      of vessels
                
                
                4,511,877
                
                
                
                -
                
                
                
                -Unrealized
      (gain)/loss on derivatives
                
                
                (956,120
                )
                
                
                2,057,957
                
                
                
                1,245,47213,808,536
                
                
                
                21,228,325
                
                
                
                19,781,748Changes
      in assets and liabilities:Drydock
      payments
                
                
                (1,580,826
                )
                
                
                -
                
                
                
                -Decrease/(increase)
      in inventories
                
                
                69,086
                
                
                
                (112,778
                )
                
                
                18,029Decrease
      in accounts receivable
                
                
                2,262,984
                
                
                
                1,002,953
                
                
                
                2,953,719(Increase)/decrease
      in prepaid expenses
                
                
                (4,345
                )
                
                
                22,469
                
                
                
                83,250Increase
      in shareholder receivable
                
                
                (1,928,253
                )
                
                
                -
                
                
                
                -(Decrease)/increase
      in accounts payable
                
                
                (279,628
                )
                
                
                352,254
                
                
                
                (354,448
                )Decrease
      in related party payable
                
                
                -
                
                
                
                -
                
                
                
                (8,417,500
                )(Decrease)/increase
      in shareholder payable
                
                
                (3,162,344
                )
                
                
                2,595,226
                
                
                
                (8,186,213
                )Increase/(decrease)
      in accrued expenses
                
                
                120,641
                
                
                
                (250,557
                )
                
                
                (47,812
                )(4,502,685
                )
                
                
                3,609,567
                
                
                
                (13,950,975
                )Net
      cash inflow from operating activities
                
                
                9,305,851
                
                
                
                24,837,892
                
                
                
                5,830,773Financing
      activitiesDividends
      paid
                
                
                (8,661,000
                )
                
                
                (18,784,000
                )
                
                
                (7,093,500
                )Payments
      for stock offering
                
                
                (207,990
                )
                
                
                -
                
                
                
                -Bank
      loan repayment
                
                
                (3,600,000
                )
                
                
                (3,600,000
                )
                
                
                (3,600,000
                )Net
      cash outflow from financing activities
                
                
                (12,468,990
                )
                
                
                (22,384,000
                )
                
                
                (10,693,500
                )(Decrease)/increase
      in cash and cash equivalents
                
                
                (3,163,139
                )
                
                
                2,453,892
                
                
                
                (4,862,727
                )Cash
      and cash equivalents at January 1
                
                
                3,607,635
                
                
                
                1,153,743
                
                
                
                6,016,470Cash
      and cash equivalents at December 31
                
                
                444,496
                
                
                
                3,607,635
                
                
                
                1,153,743Supplemental
      information:Interest
      paid
                
                
                760,974
                
                
                
                1,821,439
                
                
                
                1,969,014
 
 During
2009 there were two significant non-cash transactions (i) the legal formation of
the Scorpio Tankers Inc. and subsidiaries (see Note 1) and (ii) the conversion
of the related party payable and shareholder payable to equity (see Note
11).
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-6
 Scorpio Tankers Inc. and
Subsidiaries
  Notes to the Consolidated Financial
Statements
 1.           
General information and significant accounting policies
  Company
  Scorpio
Tankers Inc. and its subsidiaries (together the Company) are engaged in seaborne
transportation of crude oil and refined petroleum products in the international
shipping markets.  Scorpio Tankers Inc. was incorporated in the
Republic of the Marshall Islands on July 1, 2009 by Simon Financial Limited
("Simon" or the "Parent").  On October 1, 2009, Simon transferred to
Scorpio Tankers Inc. three operating subsidiary companies, as described further
below. Simon is incorporated in Liberia and is the ultimate parent company and
controlling party of the Company. Simon is owned by members of the Lolli-Ghetti
family. Emanuele Lauro, our founder, Chairman and Chief Executive Officer is a
member of the Lolli-Ghetti family.  At December 31, 2009, the
Lolli-Ghetti family owned 100% of the Company's outstanding common shares and
therefore maintained a controlling interest in the Company.  See Note
10 which describes a change in control as a result of the Company's initial
public offering.
  Business
  The
Company's fleet at December 31, 2009 consisted of three wholly owned Panamax
tankers engaged in seaborne transportation of crude oil and refined petroleum
products in the international shipping markets.
  The
Company's vessels, as described in Note 11, are commercially managed by Scorpio
Commercial Management S.A.M. (SCM), which is owned by members of the
Lolli-Ghetti family.  SCM's services include securing employment for
the Company's vessels in a pool, in the spot market, or on time
charters.
  The
Company's vessels, as described in Note 11, are technically managed by Scorpio
Ship Management S.A.M. (SSM), which is also owned by members of the Lolli-Ghetti
family.  SSM facilitates vessel support such as crew, provisions, deck
and engine stores, insurance, maintenance and repairs, and other services as
necessary to operate the Company's vessels such as drydocks and
vetting/inspection under a technical management agreement.
  Prior to
December 2009, SSM also provided administrative services directly to the
Company. In December 2009, the Company signed an administrative services
agreement with Liberty Holding Company Ltd. (Liberty), a subsidiary of Simon.
Since December 2009, SSM has provided administrative services on behalf of
Liberty to the Company.  The administrative services provided under
the agreement primarily include accounting, legal compliance, financial,
information technology services, and the provision of administrative staff and
office space.
  The
Company pays their managers fees for these services and reimburses them for
direct or indirect expenses that they incur in providing these services to the
Company.
  Basis
of accounting
  The
consolidated financial statements have been presented in United States dollars
(USD or $), which is the functional currency of Scorpio Tankers Inc. and all its
subsidiaries.  The financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs) as issued by
the International Accounting Standards Board and on a historical cost basis,
except for the revaluation of certain financial instruments.
  Simon
transferred three subsidiaries to the Company (see below) on October 1, 2009 for
a nominal consideration. For accounting purposes, this transfer represents a
combination of entities under common control, with Simon being the ultimate
parent company of all entities in the Company throughout all periods shown. As
such, this business combination is outside the scope of IFRS 3 (2004), "Business
Combinations", and for the years ended December 31, 2009, 2008 and 2007 the
results have therefore been prepared using the principles of merger accounting.
Under this method:
  ● the
carrying values of the assets and liabilities of the parties to the combination
are recorded at the historical carrying amount of those assets and liabilities
and are not adjusted to fair value on combination;
  
 F-7
  1.           
General information and significant accounting policies
(continued)
  ● the
results and cash flows of all the combining entities are brought into the
consolidated financial statements of the combined entity from the beginning of
the financial year in which the combination occurred. Prior year comparatives
are also presented on the basis that the combination was in place throughout the
prior year; and
 ●     t he
difference between the historical carrying amount of net assets transferred and
the consideration provided on transfer has been recognized in equity through
share capital and the merger reserve.  The share capital as of
December 31, 2008 and 2007 represents the share capital of Scorpio Tankers Inc.
as if Scorpio Tankers Inc. has been incorporated throughout the periods
presented.  The remaining difference between historical carrying
amount of net assets transferred and consideration paid was recognized in a
merger reserve.
  Any
profits recognized after the October 1, 2009 reorganization have been recognized
in equity within retained earnings.
  Subsidiaries
transferred to Scorpio Tankers Inc. on October 1, 2009 were:
  Company
                
                Vessel
                
                Percent
      owned
                
                Incorporated
      inNoemi
      Shipping Company Limited
                
                Noemi
                
                100%
                
                The
      Republic of the Marshall IslandsSenatore
      Shipping Company Limited
                
                Senatore
                
                100%
                
                The
      Republic of the Marshall IslandsVenice
      Shipping Company Limited
                
                Venice
                
                100%
                
                The
      Republic of the Marshall Islands
  All
inter-company transactions, balances, income and expenses are eliminated on
combination. There have been no cost allocations from Simon, as all costs of
doing business have been included in the operations of the
subsidiaries.
  Going
concern
  The
financial statements have been prepared in accordance with the going concern
basis of accounting for the reasons outlined in the "Liquidity Risk" section of
Note 17.
  Significant Accounting
Policies
  Common
control transactions
 
 The
assets and liabilities transferred from entities under common control are
recorded at the transferor's carrying values. Any difference between the
carrying value of the net assets acquired, and the consideration paid by
the Company is accounted for as an adjustment to shareholder's equity. The
net assets transferred and their results are recognized from the date on which
control was obtained by the ultimate controlling party.
  Revenue
recognition
  Vessel
revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for services provided in the normal
course of business, net of discounts, and other sales-related or value added
taxes.
  Vessel
revenue is comprised of time charter revenue and pool revenue. Time charter
revenue is recognized as services are performed based on the daily rates
specified in the time charter contract. Pool revenue for each vessel is
determined in accordance with the profit sharing terms specified within each
pool agreement. In particular, the pool manager aggregates the revenues and
expenses of all of the pool participants and distributes the net earnings to
participants based on:
  
 F-8
  1.           
General information and significant accounting policies (continued)
 (i)
                the
      pool points (vessel attributes such as cargo carrying capacity, fuel
      consumption, and construction characteristics are taken into
      consideration); and
  (ii)
                the
      number of days the vessel participated in the pool in the
      period.
  The
Company recognizes pool revenue on a monthly basis, when the vessel has
participated in a pool during the period and the amount of pool revenue for the
month can be estimated reliably.  The Company receives estimated
vessel earnings based on the known number of days the vessel has participated in
the pool, the contract terms, and the estimated monthly pool
revenue.  On a quarterly basis, the Company receives a report from the
pool which identifies the number of days the vessel participated in the pool,
the total Pool Points for the period, the total pool revenue for the period, and
the calculated share of pool revenue for the vessel.  The Company
reviews the quarterly report for consistency with each vessel's pool agreement
and vessel management records.  The estimated pool revenue is
reconciled quarterly, coinciding with the Company's external reporting periods,
to the actual pool revenue earned, per the pool report. Consequently, in the
Company's financial statements, reported revenues represent actual pooled
revenues. While differences do arise in the performance of these quarterly
reconciliations, such differences are not material to total reported
revenues.
  Interest
receivable is accrued on a time basis and includes interest earned on cash
deposits.
  Vessel
operating costs
  Vessel
operating costs, which include crewing, repairs and maintenance, insurance,
stores, lube oils, communication expenses, and technical management fees, are
expensed as incurred.
  Earnings
per share
 
 Basic
earnings per share is calculated by dividing the net income attributable to
equity holders of the common shares by the weighted average number of common
shares outstanding assuming that the reorganization described under "Basis of
Accounting" was effective during the period. In addition, the stock split
described in Note 10 has been given retroactive effect for all periods presented
herein. Diluted earnings per share are calculated by adjusting the net income
attributable to equity holders of the parent and the weighted average number of
common shares used for calculating basic earnings per share for the effects of
all potentially dilutive shares. Such potentially dilutive common shares are
excluded when the effect would be to increase earnings per share or reduce a
loss per share.  For the years ended December 31, 2009, 2008 and 2007,
the Company had no potentially dilutive common shares.
  Operating
leases
  Costs in
respect of operating leases are charged to the consolidated income statement on
a straight line basis over the lease term.
  Foreign
currencies
  The
individual financial statements of Scorpio Tankers Inc. and each of its
subsidiaries are presented in the currency of the primary economic environment
in which the company operates (its functional currency), which in all cases is
US dollars. For the purpose of the consolidated financial statements, the
results and financial position of the Company are also expressed in US
dollars.
  In
preparing the financial statements of Scorpio Tankers Inc. and each of its
subsidiaries, transactions in currencies other than the US dollar are recorded
at the rate of exchange prevailing on the dates of the
transactions.  At the end of each reporting period, monetary assets
and liabilities denominated in other currencies are retranslated into the
functional currency at rates ruling at that date. All resultant exchange
differences have been recognized in the consolidated income statement. The
amount charged to the consolidated income statement during 2009 was a loss of
$36,626, a gain of $43,937 in 2008 and a loss of $17,433 in 2007.
  Segment
reporting
  In
previous periods, in accordance with IAS 14 "Segment Reporting", the Company has
reported one business segment and one geographical segment since (i) all of the
vessels are Panamax vessels that transport oil and refined petroleum products
and (ii) all of the vessels can trade in the international shipping market and
are not limited to specific parts of the world.
   F-9
  The
Company has adopted IFRS 8 "Operating Segments" on January 1, 2009. This
standard replaces the risks and rewards approach of IAS 14 with the concept of
"operating segments". An operating segment is a component of an
entity:
  a)
                that
      engages in business activities from which it may earn revenues and incur
      expenses (including revenues and expenses relating to transactions with
      other components of the same
entity),
  b)
                whose
      operating results are regularly reviewed by the entity's chief operating
      decision maker to make decisions about resources to be allocated to the
      segment and assess its performance,
and
  c)
                for
      which discrete financial information is
  available.
  Adoption
of this standard has not resulted in any change to the Company's reportable
segments. Historically, the chief operating decision makers of Simon did not
evaluate the operating results of the Company on a discrete basis including on
an individual subsidiary or individual vessel basis or by distinct geographical
locations. Rather, operating results for the Company have been assessed on an
aggregated owned vessel basis. The chief operating decision makers of the
Company expect to continue to evaluate the operating results of the Company on
an aggregated consolidated basis. Thus, the Company has determined that it
operates under one reportable segment.
  For the
years ended December 31, 2009 and 2008, the Company had revenue from three
customers (the Pool and the time charterers for Noemi and Senatore) in excess of
10%.  For the year ended December 31, 2007, the Company had revenue
from two customers (the Pool and the time charterer for Noemi) in excess of 10%. See
Note 12 for a breakdown of the revenue for each of these periods. It is not
practical to report revenue or non-current assets on a geographical basis due to
the international nature of the shipping market, as noted above.
  Vessels
and drydock
  The fleet
is measured at cost, which includes directly attributable financing costs and
the cost of work undertaken to enhance the capabilities of the vessels, less
accumulated depreciation and impairment losses.
  Depreciation
is calculated on a straight-line basis to the estimated residual value over the
anticipated useful life of the vessel from date of delivery. The estimated
useful life of each vessel is 20 years. The residual value is estimated as the
lightweight tonnage of each vessel multiplied by scrap value per ton. The scrap
value per ton is estimated taking into consideration the scrap market rate
ruling at the balance sheet date with changes accounted for in the period of
change and in future periods. See Note 5 for discussion of changes in the
residual values during the period.
  The
vessels are required to undergo planned drydocks for replacement of certain
components, major repairs and maintenance of other components, which cannot be
carried out while the vessels are operating, approximately every 30 months or 48
months depending on the nature of work and external requirements. These drydock
costs are capitalized and depreciated on a straight-line basis over the
estimated period until the next drydock.
  For an
acquired or newly built vessel, a portion of the vessels cost is allocated to
the components expected to be replaced or re-furbished at the next drydock. This
notional drydock cost is estimated by the Company, based on the expected costs
related to the first-coming drydock, which is based on experience and past
history of similar vessels, and carried separately from the cost of the vessel.
Subsequent drydocks are recorded at actual cost incurred. The drydock asset is
amortized on a straight-line basis to the next estimated drydock. The estimated
amortization period for a drydock is based on the estimated period between
drydocks. The Company estimates the period between drydocks to be 30 months
except for the drydock portion of a newly built vessel, which is amortized over
48 months. When the drydock expenditure is incurred prior to the expiry of the
period, the remaining balance is expensed.
  Impairment
of vessels and drydock
  At each
balance sheet date, the Company reviews the carrying amount of its vessels and
drydock to determine whether there is any indication that those assets have
suffered an impairment loss.  If any such indication exists, the
recoverable amount of the vessels and drydock is estimated in order to determine
the extent of the impairment loss (if any). The Company treats each vessel and
the related drydock as a cash generating unit.
   F-10
  Recoverable
amount is the higher of the fair value less cost to sell and value in
use.  In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have not been
adjusted.
  If the
recoverable amount of the cash generating unit is estimated to be less than its
carrying amount, the carrying amount of the cash-generating unit is reduced to
its recoverable amount. An impairment loss is recognized as an expense
immediately.
  Where an
impairment loss subsequently reverses, the carrying amount of the cash
generating unit is increased to the revised estimate of its recoverable amount,
but so that the increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been recognized for the
cash generating unit in the prior years. A reversal of impairment is recognized
as income immediately.
  Inventories
  Inventories
consist of lubricating oils and other items including stock provisions, and are
stated at the lower of cost and net realisable value. Cost is determined by an
average of the three last purchases, which is considered to be materially
equivalent to a weighted average basis. Stores and spares are charged to vessel
operating costs when purchased.
  Financial
instruments
  Financial
assets and financial liabilities are recognized in the Company's balance sheet
when the Company becomes a party to the contractual provisions of the
instrument.
  Financial
assets
  All
financial assets are recognized and derecognized on a trade date where the
purchase or sale of a financial asset is under a contract whose terms require
delivery within the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs, except for those
financial assets classified as at fair value through profit or loss, which are
initially measured at fair value.
  Financial
assets are classified into the following specified categories: financial assets
'at fair value through profit or loss' (FVTPL), and 'loans and receivables'. The
classification depends on the nature and purpose of the financial assets and is
determined at the time of initial recognition.
  Income is
recognized on an effective interest basis for debt instruments other than those
financial assets classified as at FVTPL.
  Financial
assets at FVTPL
  Financial
assets are classified as at FVTPL where the financial asset is held for
trading.
  A
financial asset is classified as held for trading if:
  ●
                  it
      has been acquired principally for the purpose of selling in the near
      future; or
  ●
                  it
      is a part of an identified portfolio of financial instruments that the
      Company manages together and has a recent actual pattern of short-term
      profit-taking; or
  ●
                  it
      is a derivative that is not designated and effective as a hedging
      instrument.
 
 Financial
assets at FVTPL are stated at fair value, with any resultant gain or loss
recognized in profit or loss. The net gain or loss recognized in profit or loss
incorporates any dividend or interest earned on the financial asset. Fair value
is determined in the manner described in Note 17.
  Receivables
  Amounts
due from the pool and other receivables that have fixed or determinable payments
and are not quoted in an active market are classified as accounts receivable.
Accounts receivable are measured at amortized cost using the effective interest
method, less any impairment. Interest income is recognized by applying the
effective interest rate, except for short-term receivables when the recognition
of interest would be immaterial.
   F-11
  Impairment
of financial assets
  Financial
assets, other than those at FVTPL, are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired where there is objective
evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the
investment have been impacted.
  Financial
assets objective evidence of impairment could include:
  ●
                significant
      financial difficulty of the issuer or counterparty;
  or
  ●
                default
      or delinquency in interest or principal payments;
  or
  ●
                it
      becomes probable that the borrower will enter bankruptcy or financial
      re-organization.
  Cash
and cash equivalents
  Cash and
cash equivalents comprise cash on hand and demand deposits, and other short-term
highly-liquid investments with maturities of three months or less from the date
of acquisition, and that are readily convertible to a known amount of cash and
are subject to an insignificant risk of changes in value.  The
carrying value of cash and cash equivalents approximates fair value due to the
short-term nature of these instruments.
  Financial
liabilities
  Financial
liabilities are classified as either financial liabilities 'at FVTPL' or 'other
financial liabilities'.
  Financial
liabilities at FVTPL
  Financial
liabilities are classified as at FVTPL where the financial liability is held for
trading, using the criteria set out above for financial assets.
  Financial
liabilities at FVTPL are stated at fair value, with any resultant gain or loss
recognized in profit or loss as the Company chooses not to disclose the
effective interest rate for debt instruments that are classified as at fair
value through profit or loss. The net gain or loss recognized in profit or loss
incorporates any interest paid on the financial liability. Fair value is
determined in the manner described in Note 17.
  Other
financial liabilities
  Other
financial liabilities, including borrowings, are initially measured at fair
value, net of transaction costs. Other financial liabilities are subsequently
measured at amortized cost using the effective interest method.
  Effective
interest method
  The
effective interest method is a method of calculating the amortized cost of a
financial asset and a financial liability.  It allocates interest
income and interest expense over the relevant period. The effective interest
rate is the rate that discounts estimated future cash flows (including all fees
on points paid or received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts) over the expected life
of the financial asset and financial liability, or, where appropriate, a shorter
period.
  Derivative
financial instruments
  The
Company enters into derivativefinancial instruments to
manage its exposure to interest rates. Further details of derivative financial
instruments are disclosed in Notes 9 and 17 to the consolidated financial
statements.
  Derivatives
are initially recognized at fair value at the date a derivative contract is
entered into and are subsequently remeasured to their fair value at each balance
sheet date. A derivative with a positive fair value is recognized as a financial
asset whereas a derivative with a negative fair value is recognized as a
financial liability. The resulting gain or loss is recognized in profit or loss
immediately.
  A
derivative is presented as a non-current asset or a non-current liability if the
remaining maturity of the instrument is more than 12 months, and it is not
expected to be realized or settled within 12 months.
  
 F-12
 
 Equity
instruments
  An equity
instrument is any contract that evidences a residual interest in the assets of
the Company after deducting all of its liabilities.  Equity
instruments issued by the Company are recorded at the proceeds received, net of
direct issue costs.
  The
Company has 1,500 registered shares authorized and issued with a par value of
$1.00 per share. These shares provide the holders with rights to dividends and
voting rights. See Note 10 for details of a stock split after the balance sheet
date which has been retroactively reflected in these financial
statements.
  Provisions
  Provisions
are recognized when the Company has a present obligation as a result of a past
event, and it is probable that the Company will be required to settle that
obligation. Provisions are measured at the Company's best estimate of the
expenditure required to settle the obligation at the balance sheet date, and are
discounted to present value where the effect is material.
  Dividends
  A
provision for dividends payable is recognized when the dividend has been
declared in accordance with the terms of the shareholder agreement.
  Dividend
per share presented in these consolidated financial statements is calculated by
dividing the aggregate dividends declared by all of Scorpio Tankers Inc's
subsidiaries by the number of Scorpio Tankers Inc shares assuming these shares
have been outstanding throughout the periods presented.
  Critical
accounting judgements and key sources of estimation uncertainty
  In the
application of the accounting policies, we are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these
estimates.
  The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the estimate is
revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future
periods.
  The
significant judgements and estimates are as follows:
  Revenue
recognition
  We
currently generate all of revenue from time charters and pools. Revenue
recognition for time charters and pools is generally not as complex or as
subjective as voyage charters.  Time charters are for a specific
period of time at a specific rate per day. For long-term time charters, revenue
is recognized on a straight-line basis over the term of the
charter.  Pool revenues are determined by the pool managers from the
total revenues and expenses of the pool and allocated to pool participants using
a mechanism set out in the pool agreement.
  Vessel
impairment
  The
Company evaluates the carrying amounts of itsvessels
to determine whether there is any indication that those vessels have suffered an
impairment loss.  If any such indication exists, the recoverable
amount of vessels is estimated in order to determine the extent of the
impairment loss (if any).
  Recoverable
amount is the higher of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted. The projection
of cash flows related to vessels is complex and requires the Company to make
various estimates including future freight rates, earnings from the vessels and
discount rates. All of these items have been historically
volatile.  In assessing the fair value less cost to sell of the
vessel, the Company obtains vessel valuations from leading, independent and
internationally recognized ship brokers on an annual basis or when there is an
indication that an asset or assets may be impaired.
   F-13
  If an
indication of impairment is identified, the need for recognising an impairment
loss is assessed by comparing the carrying amount of the vessels to the higher
of the fair value less cost to sell and the value in use.
  Vessel
lives and residual value
  The
carrying value of each of our vessels represents its original cost at the time
it was delivered or purchased less depreciation. We depreciate our vessels to
their residual value on a straight-line basis over their estimated useful
lives.  The estimated useful life of each vessel is 20 years from date
of initial delivery from the shipyard. The residual value is estimated as the
lightweight tonnage of each vessel multiplied by a forecast scrap value per ton.
The scrap value per ton is estimated taking into consideration the scrap market
rate ruling at the year end.  See Note 5 for discussion of changes in
the residual values during the period.
  An
increase in the estimated useful life of a vessel or in its scrap value would
have the effect of decreasing the annual depreciation charge and extending it
into later periods. A decrease in the useful life of a vessel or scrap value
would have the effect of increasing the annual depreciation charge.
  When
regulations place significant limitations over the ability of a vessel to trade
on a worldwide basis, the vessel's useful life is adjusted to end at the date
such regulations become effective. The estimated salvage value of the vessels
may not represent the fair market value at any one time since market prices of
scrap values tend to fluctuate.
  Deferred
drydock cost
  The
Company recognizes drydock costs as a separate component of the vessels'
carrying amounts and amortizes the drydock cost on a straight-line basis over
the estimated period until the next drydock. We use judgment when estimating the
period between drydocks performed, which can result in adjustments to the
estimated amortization of the drydock expense. If the vessel is disposed of
before the next drydock, the remaining balance of the deferred drydock is
written-off and forms part of the gain or loss recognized upon disposal of
vessels in the period when contracted.  We expect that our vessels
will be required to be drydocked approximately every 30 to 48 months for major
repairs and maintenance that cannot be performed while the vessels are
operating. Costs capitalized as part of the drydock include actual costs
incurred at the drydock yard and parts and supplies used in making such
repairs.
  Standards
and interpretations in issue not yet adopted
  At the
date of authorisation of these financial statements, the following Standards and
Interpretations which have not been applied in these financial statements were
in issue but not yet effective:
  IFRS
      1 (amended)/IAS 27 (amended)
                  Cost
      of an Investment in a Subsidiary, Jointly Controlled Entity or
      AssociateIFRS
      2 (amended)
                  Share-based
      paymentsIFRS
      3 (revised 2008)
                  Business
      CombinationsIFRS
      9
                  Financial
      InstrumentsIAS
      27 (revised 2008)
                  Consolidated
      and Separate Financial StatementsIAS
      28 (revised 2008)
                  Investments
      in AssociatesIFRIC
      12
                  Service
      Concession ArrangementsIFRIC
      17
                  Distributions
      of Non-cash Assets to OwnersIFRIC
      18
                  Transfers
      of Assets from CustomersIFRIC
      19
                  Extinguishing
      Financial Liabilities with Equity
Instruments
 
 Improvements
to IFRSs (April 2009)
  The
directors do not expect that the adoption of these Standards and Interpretations
in future periods will have a material impact on the financial statements of the
Company except for the treatment of acquisition of subsidiaries and associates
when IFRS 3 (revised 2008), IAS 27 (revised 2008) and IAS 28 (revised 2008) come
into effect for business combinations for which the acquisition date is on or
after the beginning of the first annual period beginning on or after July 1,
2009.
   F-14
 2.           Accounts
receivable
  As
      of December 31,2009
                  
                  
                  
                  2008$
                  
                  
                  
                  $Scorpio
      Panamax Tanker Pool Limited
                  
                  
                  1,133,030
                  
                  
                  
                  3,581,581Other
      receivables
                  
                  
                  305,968
                  
                  
                  
                  120,3991,438,998
                  
                  
                  
                  3,701,980
 
 Scorpio
Panamax Tanker Pool Limited is a related party, as described in Note
11.
  The
Company considers that the carrying amount of accounts receivable approximates
their fair value due to the short maturity thereof.  Accounts
receivable are non-interest bearing. At December 31, 2009 and December 31, 2008,
no material receivable balances were past due or impaired.
  3.           Prepaid
expenses
  As
      of December 31,2009
                
                
                
                2008$
                
                
                
                $Initial
      public offering fees
                
                
                540,054
                
                
                
                -Other
      prepayments
                
                
                43,890
                
                
                
                39,596583,944
                
                
                
                39,596
 The
initial public offering fees are fees incurred prior to December 31, 2009
related to the Company's initial public offering of its common shares, which was
completed on April 6, 2010 (see Note 10).  The fees include
professional fees (legal and accounting) and other fees totalling 540,054 which
were directly attributable to the issuance of the new shares.  These
fees will be recorded as a reduction to the additional paid in capital of the
common stock in April 2010. Additional fees of $241,475 which relate to the
listing of the Company's pre-existing shares were charged to the 2009 income
statement within "Other expenses, net".
 4.           Inventories
  As
      of December 31,2009
                
                
                
                2008$
                
                
                
                $Lubricating
      oils
                
                
                422,153
                
                
                
                465,643Other
                
                
                11,275
                
                
                
                36,871433,428
                
                
                
                502,514
 
 F-15
 5.           Vessels
and drydock
 
 Vessels
                  
                  
                  Drydock
                  
                  
                  TotalCost
                  
                  
                  $
                  
                  
                  
                  $
                  
                  
                  
                  $As
      of January 1, 2009
                  
                  
                  138,713,588
                  
                  
                  
                  2,105,847
                  
                  
                  
                  140,819,435Addition
                  
                  
                  -
                  
                  
                  
                  1,680,784
                  
                  
                  
                  1,680,784Drydock
      write off (1)
                  
                  
                  -
                  
                  
                  
                  (2,105,847
                  )
                  
                  
                  (2,105,847
                  )As
      of  December 31, 2009
                  
                  
                  138,713,588
                  
                  
                  
                  1,680,784
                  
                  
                  
                  140,394,372Accumulated
      depreciation and impairmentAs
      of January 1, 2009
                  
                  
                  (29,718,644
                  )
                  
                  
                  (1,840,689
                  )
                  
                  
                  (31,559,333
                  )Charge
      for the year
                  
                  
                  (6,268,981
                  )
                  
                  
                  (565,761
                  )
                  
                  
                  (6,834,742
                  )Impairment
      (See Note 6)
                  
                  
                  (4,511,877
                  )
                  
                  
                  -
                  
                  
                  
                  (4,511,877
                  )Drydock
      write off (1)
                  
                  
                  -
                  
                  
                  
                  2,105,847
                  
                  
                  
                  2,105,847As
      of December 31, 2009
                  
                  
                  (40,499,502
                  )
                  
                  
                  (300,603
                  )
                  
                  
                  (40,800,105
                  )Net
      book valueAs
      of December 31, 2009
                  
                  
                  98,214,086
                  
                  
                  
                  1,380,181
                  
                  
                  
                  99,594,267Vessels
                  
                  
                  Drydock
                  
                  
                  TotalCost
                  
                  
                  $
                  
                  
                  
                  $
                  
                  
                  
                  $As
      of January 1, and December 31, 2008
                  
                  
                  138,713,588
                  
                  
                  
                  2,105,847
                  
                  
                  
                  140,819,435Accumulated
      depreciation and impairmentAs
      of January 1, 2008
                  
                  
                  (23,267,993
                  )
                  
                  
                  (1,306,896
                  )
                  
                  
                  (24,574,889
                  )Charge
      for the year
                  
                  
                  (6,450,651
                  )
                  
                  
                  (533,793
                  )
                  
                  
                  (6,984,444
                  )As
      of December 31, 2008
                  
                  
                  (29,718,644
                  )
                  
                  
                  (1,840,689
                  )
                  
                  
                  (31,559,333
                  )Net
      book valueAs
      of December 31, 2008
                  
                  
                  108,994,944
                  
                  
                  
                  265,158
                  
                  
                  
                  109,260,102
 (1)
                Drydock
      write off represents the write off of drydock costs that were fully
      depreciated during the year. The Noemi and Senatore were drydocked
      as scheduled in 2009 for a total cost of $1,680,784 of which $1,580,826
      had been paid by December 31, 2009.
  Collateral
agreements
  Noemi and Senatorewith an
aggregated net book value as of December 31, 2009 of $77,404,810 and $85,328,080
as of December 31, 2008 were provided as collateral under a loan agreement dated
May 17, 2005 (the "2005 Credit Facility").  See Note 8 for full
details as to the nature of this collateral. On April 9, 2010, the Company
repaid all borrowings under the 2005 Credit Facility and consequently these
vessels are no longer collateralized under this agreement (see Note
18).
  Prior to
December 2009, the Venice was provided as
collateral to a third party under an agreement between a subsidiary of Liberty
and a third party.  Neither the Venice, Scorpio Tankers Inc.
nor any of its subsidiaries were party to this agreement, nor had they had a
relationship with the third party involved.  At the request of
Liberty, in December 2009, the third party agreed to release the Venice from the agreement in
exchange for Liberty providing other collateral in place of the Venice.  Scorpio
Tankers Inc. and its subsidiaries have no remaining collateral obligation under
the agreement.
  
 F-16
  Changes
in estimated residual values
  As
described in Note 1, General information and significant accounting policies,
Vessels and drydock, depreciation is calculated on a straight-line basis to the
estimated residual value over the anticipated useful life of vessels from date
of delivery. The residual value of vessels is estimated as the lightweight
tonnage of each vessel multiplied by scrap value per ton. The scrap value per
ton is estimated taking into consideration the scrap market rate ruling at the
balance sheet date. Where there is a significant change in the estimated
residual value, the resulting effect on depreciation expense is accounted for in
the period of change and in future periods.
  In
accordance with this accounting policy and due to the volatility in scrap rates
during the periods presented, the Company changed the estimated residual values
of its vessels at each of the years ended December 31, 2009, 2008 and
2007.  The change in the estimated residual value at December 31, 2007
resulted in a decrease in depreciation expense of $717,082 in the year ended
December 31, 2007 as compared to the depreciation which would have been recorded
using the estimated residual values prevailing at December 31,
2006.  The change in the estimated residual value at December 31, 2008
resulted in an increase in depreciation expense of $615,506 in the year ended
December 31, 2008, as compared to the depreciation which would have been
recorded using the estimated residual values prevailing at December 31, 2007.
The changes in the estimated residual values at December 31, 2009 resulted in a
decrease in depreciation expense of $96,274 in the year ended December 31, 2009,
as compared to the depreciation which would have been recorded using the
estimated residual values prevailing at December 31, 2008.
  Scrap
market rates are historically volatile and therefore it is impracticable for the
Company to estimate the effect of further changes in the scrap market rate and
the residual values of the vessels on the Company's depreciation expense in
periods subsequent to December 31, 2009.
  6.           Impairment
of vessels
  At the
end of each reporting period, the Company evaluates the carrying amounts of
vessels and related drydock costs to determine if there is any indication that
those vessels and related drydock costs have suffered an impairment
loss.  If such indication exists, the recoverable amount of the
vessels and related drydock costs is estimated in order to determine the extent
of the impairment loss (if any).  As part of this evaluation, the
Company considers certain indicators of potential impairment, such as discounted
projected operating cash flows, business plans and overall market
conditions.
  The
current economic and market conditions, including the significant disruptions in
the global credit markets, are having broad effects on participants in a wide
variety of industries. In the nine months ended September 30, 2009, the charter
rates in the oil and petroleum products charter market declined significantly
and Panamax vessel values also declined, both as a result of a slowdown in the
availability of global credit and the significant deterioration in charter
rates.  These were both conditions that the Company considered
indicators of a potential impairment, and therefore the Company performed an
impairment test as of September 30, 2009 for each vessel to determine if any
impairment loss had occurred.
  To test
for impairment, the Company estimated the recoverable amount by determining the
higher of fair value less costs to sell and value in use for each vessel as of
September 30, 2009.   The fair value less costs to sell was
estimated by adding (i) the charter free market value of the vessel and (ii) the
discounted value of each vessel's time charter, which is the difference between
each vessel's time charter contracted rate and the market rate for a similar
type of vessel with a similar contracted duration.  In determining the
charter free market value, the Company took into consideration the estimated
valuations provided by an independent ship broker. In assessing value in use,
the estimated future cash flows of each vessel were discounted to their present
value using a pre-tax discount rate reflecting current market assessments of the
time value of money and the risks specific to the vessel for which the estimates
of future cash flows have not been adjusted.
  As a
result of the test, the Company determined the recoverable amount of each vessel
to be the fair value less costs to sell.  The recoverable amounts of
Noemi and Senatore were below the
carrying values.  This resulted in an impairment loss of $4,511,877
for Noemi and Senatore which was recognized
as a loss in the unaudited condensed consolidated income statement for the
period ended September 30, 2009 and a reduction in the carrying value of the
vessels at that date.
   F-17
  At
December 31, 2009, the Company considered certain indicators of potential
impairment, such as discounted projected operating cash flows, business plans
and overall market conditions and concluded that there were no indications of a
further deterioration in the recoverable amount of the vessels and drydock costs
in the quarter ended December 31, 2009.
  7.           Accounts
payable
  As
      of December 31,2009
                  
                  
                  
                  2008$
                  
                  
                  
                  $Suppliers
                  
                  
                  656,002
                  
                  
                  
                  711,226Scorpio
      Panamax Tanker Pool Limited
                  
                  
                  -
                  
                  
                  
                  129,844656,002
                  
                  
                  
                  841,070
 
 Scorpio
Panamax Tanker Pool Limited is a related party, as described in Note
11.
  The
majority of accounts payable are settled with a cash payment within 90
days.  No interest is charged on accounts payable.  The
Company considers that the carrying amount of accounts payable approximate to
their fair value.
   8.           Bank
loan
  Two of
Scorpio Tankers Inc.'s wholly-owned subsidiaries, Senatore Shipping Company
Limited and Noemi Shipping Company Limited, are joint and several borrowers
under the 2005 Credit Facility, entered into with The Royal Bank of Scotland
plc.  The initial amount of the 2005 Credit Facility was $56,000,000,
consisting of two tranches, one for each vessel-owning
subsidiary.  Each tranche is repayable in 40 consecutive quarterly
installments of $450,000, plus a balloon payment of $10,000,000, to be made
together with the 40th
installment of each tranche (due on May 18, 2015).
  Interest
on the 2005 Credit Facility is currently payable at US$ LIBOR plus
0.70%.  The facility includes a variety of restrictive operating
covenants including a loan to value financial covenant and a change of control
covenant.  The Company was in compliance with all of its financial
covenants as of December 31, 2009.
  As
security for the loan the lender has:
  a)           a
first preferred mortgage on Senatore and Noemi; and
  b)           an
assignment of the earnings and any insurance proceeds onSenatore and Noemi.
  As
      of December 31,2009
                
                
                
                2008$
                
                
                
                $Current
      portion
                
                
                3,600,000
                
                
                
                3,600,000Non-current
      portion
                
                
                36,200,000
                
                
                
                39,800,00039,800,000
                
                
                
                43,400,000
  Also, in
connection with the offering noted above, the Company entered into a new credit
facility for the potential acquisition of vessels (see Note 18 for a description
of the new terms of this facility).
  F-18
  9.           
Derivative financial instruments
  The
Company is exposed to interest rate risk on the 2005 Credit Facility due to
changes in market interest rates. In order to fix the interest rate of the 2005
Credit Facility, Senatore Shipping Company Limited and Noemi Shipping Company
Limited each signed an amortizing interest rate swap with The Royal Bank of
Scotland plc on April 15, 2005 for an initial notional amount of
$56,000,000.
  On
February 15, 2007, these swap contracts were amended by reducing the then
notional amount by 50% to $24,850,000.  As a result of the amendment,
the Company received $366,000, which was recognized in the 2007 consolidated
income statement within the realized loss on derivative financial
instruments.
  The
notional interest rate swap amount was $19,900,000 as of December 31, 2009,
$21,700,000 as of December 31, 2008 and $23,500,000 as of December 31, 2007. The
Company has not elected to apply hedge accounting for these swaps.
  The
carrying value (liability) of the Company's interest rate swaps is as
follows:
  As
      of December 31,2009
                
                
                
                2008$
                
                
                
                $Current
      portion
                
                
                (814,206
                )
                
                
                (706,078
                )Non-current
      portion
                
                
                (871,104
                )
                
                
                (1,935,352
                )(1,685,310
                )
                
                
                (2,641,430
                )
  These instruments are carried at fair
value through profit and loss.  See Note 17 for further
details.
 
 On April
6, 2010, we completed an initial public offering of its common shares (see Note
18).  With a portion of the net proceeds from the offering, on April
9, 2010, we settled the outstanding portion of the interest rate swap, for a
payment of $1,850,000.
  10.           Common
shares
 
 At
December 31, 2009, the Company had 1,500 registered shares authorized and issued
with a par value of $1.00 per share. These shares provide the holders with
rights to dividends and voting rights.
 
 On March
17, 2010, the board of directors amended and restated the Articles of
Incorporation to (i) authorize 275,000,000 registered shares of which
250,000,000 were designated as common shares with a par value of $0.01 and
25,000,000 were designated as preferred shares with a par value of $0.01, and
(ii) authorize a stock split of 3,726.098 to 1 for the issued and outstanding
common shares, which increased the number of shares from 1,500 common shares
issued and outstanding to 5,589,147 common shares issued and outstanding. All
common share amounts in the consolidated financial statements have been
retroactively adjusted for all periods presented, to give effect to the stock
split.
 
 On April
6, 2010, we completed an initial public offering of its common shares on the New
York Stock Exchange.  In connection with the offering, the Company
issued and sold 12,500,000 additional common shares.  On May 4, 2010,
the underwriters of the initial public offering exercised their over-allotment
option to purchase an additional 450,000 shares.  Net proceeds from
the issuance of the common shares of 12,950,000, including the over-allotment,
were $155.0 million  Prior to the offering, the Lolli-Ghetti Family,
of which Emanuele Lauro, our Chairman and Chief Executive Officer, is a
member, owned 100% of our outstanding common shares and maintained a controlling
interest in Scorpio Tankers Inc.  As a result of the offering, the
exercise of the underwriters' over-allotment and the issuance of restricted
shares (see Note 18), the Lolli-Ghetti Family now owns 30% of our common stock
and no longer maintains a controlling interest (see Note 18).
 
 F-19
 
  11.           Related
party transactions
  Transactions
with subsidiaries of Simon (herein referred to as Simon subsidiaries) and
transactions with entities outside of Simon but controlled by members of the
Lolli-Ghetti family (herein referred to as related party affiliates) in the
consolidated income statements are as follows:
  For
      the year ended December 31,2009
                
                
                
                2008
                
                
                
                2007$
                
                
                
                $
                
                
                
                $Vessel
      revenue from pools (A)
                
                
                10,415,332
                
                
                
                20,980,233
                
                
                
                19,759,614Vessel
      revenue from time charters (B)
                
                
                8,288,767
                
                
                
                8,879,913
                
                
                
                8,273,324Vessel
      operating costs (C)
                
                
                (600,000
                )
                
                
                (765,422
                )
                
                
                (739,994
                )General
      and administrative expenses (D)
                
                
                (344,162
                )
                
                
                (619,421
                )
                
                
                (536,910
                )
  (A)
                These
      transactions relate to revenue earned in the Scorpio Panamax Tanker Pool
      (the Pool).  The Pool is operated by Scorpio Panamax Tanker Pool
      Limited, which is a subsidiary of
Simon.
  (B)
                The
      revenue earned was for Noemi's time charter
      with King Dustin, which is 50% jointly controlled by a Simon
      subsidiary.  The time charter began in January 2007 and expires
      in January 2012.
  (C)
                These
      transactions represent technical management fees charged by SSM, a related
      party affiliate, and included in the vessel operating costs in the
      consolidated income statement.  The Company's fees under
      technical management arrangements with SSM were not at market rates for
      the years ended December 31, 2008 and 2007.  The Company
      estimates that its technical management fees for the years ended December
      31, 2008 and 2007 would have been $601,704 and $600,060, respectively, and
      would have increased net income for the periods by $163,718 and $139,934,
      respectively, had the Company operated as an unaffiliated entity. The
      Company's estimate is based upon the rates charged to third party
      participants by SSM in 2007 and
2008.
  The
Company believes its technical management fees for the year ended December 31,
2009 were at market rates. Additionally, in December 2009, the Company signed a
Technical Management Agreement for each ship with SSM.  Each ship will
pay $548 per day for technical management.  This fee is the same
charged to third parties by SSM, and therefore the Company believes it
represents a market rate for such services.
  (D)
                These
      transactions represent commercial management fees charged by SCM (prior to
      October 1, 2009, a Simon subsidiary, and from October 1, 2009, a related
      party affiliate) and administrative fees charged by SSM and are both
      included in general and administrative expenses in the consolidated income
      statement
  ● The
Company incurred commercial management fees of $70,418, $37,996 and $56,287 for
the years ended December 31, 2009, 2008 and 2007, respectively.  The
Company's commercial management fees for vessels not in the Pool were not at
market rates in 2009, 2008 and 2007.  The Company estimates that its
commercial management fees for the years ended December 31, 2009, 2008 and 2007
would have been $397,546, $411,675 and $240,219, respectively, and would have
decreased net income for the periods by $327,128, $373,679 and $183,932,
respectively, had the Company operated as an unaffiliated entity.  The
Company's estimate is based upon the rates charged to third party participants
in the Pool for 2009, 2008 and 2007.
  In
December 2009, the Company signed the commercial management agreement with
SCM.  Each of the vessels will pay $250 per day and 1.25% of their
revenue when the vessels are not in the Pool.  When the Company's
vessels are in the Pool, SCM, the pool manager, charges all vessels in the Pool
(including third party participants) $250 per day and 1.25% of their
revenue.  The Company therefore believes that the commercial
management agreement represents a market rate for such services.
   F-20
  ● The
Company incurred administrative services fees of $273,744, $581,425 and
$1,042,203 for the years ended December 31, 2009, 2008 and 2007,
respectively.  The administrative fee included services for
accounting, administrative, information technology and management of the
Company.  The Company's fees under administrative services
arrangements may not have been at market rates.  The Company cannot
estimate what the cost would have been if we operated as an unaffiliated party,
but believes the costs for the years ended December 31, 2009, 2008 and 2007 were
reasonable and appropriate for the services provided.
  Prior to
December 2009, SSM provided administrative services directly to the
Company.  In December 2009, the Company signed an administrative
services agreement for each vessel with Liberty.  The Company will pay
the administrator (Liberty) a fixed monthly fee calculated at cost with no
profit for providing the Company with administrative services, and will
reimburse it for the reasonable direct or indirect expenses it incurs in
providing the Company with such services.  The Company will also pay
the administrator a fee for arranging vessel purchases and sales, on behalf of
the Company, equal to 1% of the gross purchase or sale price, payable upon the
consummation of any such purchase or sale.  SSM continues to provide
administrative services to the Company under this agreement, but now does so on
behalf of Liberty.
  The
Company had the following assets and liabilities with related parties which have
been included in the consolidated balance sheets:
  As
      of December 31,2009
                
                
                
                2008$
                
                
                
                $Assets:Accounts
      receivable (Note 2)
                
                
                1,133,030
                
                
                
                3,581,581Shareholder
      receivable (E)
                
                
                1,928,253
                
                
                
                -Liabilities:Accounts
      payable (Note 7)
                
                
                -
                
                
                
                129,844Related
      party payable (F)
                
                
                -
                
                
                
                27,406,408Shareholder
      payable (G)
                
                
                -
                
                
                
                22,028,323
  (E)
                During
      December 2009, the Company advanced $1,928,253 to the shareholder, which
      was a receivable on the Balance sheet as of December 31, 2009. The
      receivable was due upon demand and was non-interest bearing and unsecured.
      The amount was repaid to the Company in the first quarter of
      2010.
  (F)
                The
      related party payable at December 31, 2008 and 2007 was $27,406,408 and
      was owed to a subsidiary of Simon. The payable was repayable upon demand
      and was non-interest bearing and unsecured. The outstanding balance as of
      November 18, 2009 of $27,406,408 was converted to equity as a capital
      contribution.
  (G)
                The
      shareholder payable was owed to Simon. Historically, the Company and Simon
      transferred cash depending on the need of each entity and the excess cash
      available. The payable was non-interest bearing and unsecured. On November
      18, 2009, the outstanding balance of $18,865,931 was converted to equity
      as a capital contribution; therefore, the Company had no outstanding
      liability to Simon as of December 31,
2009.
  Key
management remuneration
  Executive
management of the Company was provided by a related party affiliate and included
in the management fees described in (D) above. The Company did not have any
employees throughout the periods presented.  If  the Company
was not part of Simon, and had the same ownership structure and a contract for
administrative services, the Company estimates its general and administrative
costs would have been comparable with the general and administrative costs
presented on the consolidated income statement for the years ended December 31,
2009, 2008 and 2007.
  F-21
   12.          Vessel
revenue
  During
2009, 2008 and 2007, the Company had two vessels that were time chartered
out.  The remaining revenue was from vessels operating in the
Pool.
  Revenue
sources
  For
      the year ended December 312009
                  
                  
                  2008
                  
                  
                  2007$
                  
                  
                  
                  $
                  
                  
                  
                  $Time
      charter revenue:Noemi
                  
                  
                  8,288,767
                  
                  
                  
                  8,878,913
                  
                  
                  
                  8,273,324Senatore
                  
                  
                  8,914,942
                  
                  
                  
                  9,415,050
                  
                  
                  
                  2,284,200Pool
      revenue
                  
                  
                  10,415,332
                  
                  
                  
                  20,980,233
                  
                  
                  
                  19,759,61427,619,041
                  
                  
                  
                  39,274,196
                  
                  
                  
                  30,317,138
  Time
charter out contracts (i):
  Time
      Charter OutVessel
                  Start
                  End
      (ii)
                  
                  Daily
      rateNoemi
                  Jan.
      2007
                  Jan.
      2012
                  
                  $
                  24,500Senatore
                  Sept.
      2007
                  Sept.
      2010
                  
                  $
                  26,000
 (i)
                When
      Noemi and Senatore were not on
      time charter, the vessels participated in the
  Pool.
  (ii)
                The
      time charter contracts terminate plus or minus 30 days from the end
      date.
   The
estimated minimum future time charter revenue to be received is as
follows:
  As
      of December 312009
                  
                  
                  2008
                  
                  
                  2007$
                  
                  
                  
                  $
                  
                  
                  
                  $Within
      1 year
                  
                  
                  16,144,500
                  
                  
                  
                  18,432,500
                  
                  
                  
                  18,483,000Between
      1 and 5 years
                  
                  
                  9,457,000
                  
                  
                  
                  25,601,500
                  
                  
                  
                  44,034,00025,601,500
                  
                  
                  
                  44,034,000
                  
                  
                  
                  62,517,000
 
 F-22
 
 13.          Charter
hire expense
  On May
29, 2008, one of the vessels owned by the Company that was chartered out was
chartered-in until May 1, 2009 at a rate of $26,750 per day and treated as an
operating lease.  The vessel operated in the Pool until the time
charter ended on May 1, 2009. The time charter contract also included a profit
and loss sharing arrangement where (i) the Company agreed to pay 50% of the
vessel's earnings from the pool in excess of $26,750 per day (an increase in
charter hire expense) to the charterer, and (ii) the charterer agreed to pay 50%
of the vessel's earnings from the Pool below $26,750 per day (a decrease in
charter hire expense).  The profit sharing arrangement resulted in
additional income of $108,426 in 2009, and an expense of $1,007,000 in
2008.
  The
minimum lease payments (excluding any adjustment for the profit and loss
arrangement) as of December 31, 2008 for 2009 were $4,012,500.  There
were no payments due after May 2009.
  Prior to
the charter in arrangement described above, the Company has not historically
entered into any other charter in agreements. Since the completion of the
charter-in arrangement in May 2009, the Company has not entered into any similar
arrangements and does not expect to enter into any future charter-in
arrangements.
  14.         
Vessel operating costs
  Vessel
operating costs primarily represents crew related costs, stores, routine
maintenance and repairs, insurance, technical management fees, and other related
costs.  The procurement of these services is managed on the Company's
behalf by its technical manager, SSM (see Note 11).
  15.           Tax
  Scorpio
Tankers Inc. and its subsidiaries are incorporated in the Republic of the
Marshall Islands, and in accordance with the income tax laws of the Marshall
Islands, are not subject to Marshall Islands' income tax.  The Company
is also exempt from income tax in other jurisdictions including the United
States of America due to tax treaties; therefore, the Company did not have any
tax charges, benefits, or balances at December 31, 2009, 2008 and
2007.
  16.           Earnings
per share
  The
calculation for both basic and diluted earnings per share is based on net income
attributable to equity holders of the parent of $ 3,418,037 in 2009 ($12,185,924
in 2008 and $12,053,792 in 2007) and a weighted average number of ordinary
shares of 5,589,147 in 2009 (5,589,147 in 2008 and 2007). There were no dilutive
instruments in any of these periods.
  17.           Financial
instruments
  Funding
and capital risk management
  The
Company manages its funding and capital resources to ensure the Company's
ability to continue as a going concern while maximizing the return to the
shareholder through optimization of the debt and equity balance.
  The
Company does not currently have any gearing targets and is not subject to
externally imposed capital requirements.
 
 F-23
 
 17.           Financial
instruments (continued)
  Categories
of financial instruments
  Carrying
      value
                    As
      of December 312009
                
                
                
                2008Financial
      assets
                
                
                $
                
                
                
                $Cash
      and cash equivalents
                
                
                444,496
                
                
                
                3,607,635Loans
      and receivable
                
                
                3,367,251
                
                
                
                3,701,980Financial
      liabilitiesFair
      value through profit and loss - Derivative financial
      instruments
                
                
                1,685,310
                
                
                
                2,641,430Other
      liabilities
                
                
                41,409,534
                
                
                
                94,171,231
 Derivative
financial instruments, comprised solely of interest rate swaps, are measured at
the present value of future cash flows estimated and discounted based on the
applicable yield curves derived from quoted interest rates to determine the fair
value.
  IFRS 7
requires classification of fair value measures into Levels 1, 2 and 3. Level 1
fair value measurements are those derived from quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2 fair value
measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair
value measurements are those derived from valuation techniques that include
inputs for the asset or liability that are not based on observable market data
(unobservable inputs). In accordance with IFRS 7, the fair value measurement for
the interest rate swap is classified as level 2.
  The fair
value of other financial assets and liabilities are approximately equal to their
carrying values.
  Financial
risk management objectives
  The
Company identifies and evaluates significant risks on an ongoing basis with the
objective of managing the sensitivity of the Company's results and financial
position to those risks. These risks include market risk, credit risk and
liquidity risk.
  The use
of financial derivatives is governed by the Company's policies approved by the
board of directors.
  Market
risk
  The
Company's activities expose it to the financial risks of changes in interest
rates. See Note 9 for a description of the interest rate risk.
  The
Company enters into interest rate swaps to mitigate the risk of rising interest
rates.
  The
consolidated income statement includes the following material items in respect
of such instruments:
   For
      the year ended December 312009
                  
                  
                  
                  2008
                  
                  
                  
                  2007$
                  
                  
                  
                  $
                  
                  
                  
                  $Realized
      loss on interest rate swaps
                  
                  
                  808,085
                  
                  
                  
                  405,691
                  
                  
                  
                  523,694Unrealized
      (gain)/loss on interest rate swaps
                  
                  
                  (956,120
                  )
                  
                  
                  2,057,957
                  
                  
                  
                  1,245,472(148,035
                  )
                  
                  
                  2,463,648
                  
                  
                  
                  1,769,166
  F-24
  17.           Financial
instruments (continued)
   Sensitivity
analysis – Interest rate swap
  The
sensitivity analyses below have been determined based on the exposure to
interest rates for both derivatives and non-derivative instruments at the
balance sheet date. For floating rate liabilities, the analysis is prepared
assuming the amount of liability outstanding at balance sheet date was
outstanding for the whole year.
  If
interest rates had been 1% higher/lower and all other variables were held
constant, the Company's net income for the year ended December 31, 2009 would
have decreased/increased by $1.0 million (2008: decreased/increased by $1.0
million and 2007: decreased/increased by $1.1 million). This is mainly
attributable to the Company's exposure to interest rate movements for the
portion of the 2005 Credit Facility that is not hedged by the interest rate swap
(see Note 8 and Note 9).
  Credit
risk
  Credit
risk is the potential exposure of the Company to loss in the event of
non-performance by customers and derivative instrument
counterparties.
  Accounts
receivable are generally not collateralized; however, the Company believes that
the credit risk is partially offset by the creditworthiness of the Company's
counterparties including the commercial and technical managers. The Company did
not experience material credit losses on its accounts receivables portfolio in
the years ended December 31, 2009, 2008 and 2007.
  The
carrying amount of financial assets recorded in the consolidated financial
statements represents the Company's maximum exposure to credit risk without
taking account of the value of any collateral obtained. The Company did not
experience any impairment losses on financial assets in the years ended December
31, 2009, 2008 and 2007.
  The
Company monitors exposure to credit risk, and they believe that there is no
substantial credit risk arising from counterparties.
  Liquidity
risk
  Liquidity
risk is the risk that an entity will encounter difficulty in raising funds to
meet commitments associated with financial instruments.
  The
Company manages liquidity risk by maintaining adequate reserves and borrowing
facilities and by continuously monitoring forecast and actual cash
flows.
  Current
economic conditions make forecasting difficult, and there is the possibility
that the Company's actual trading performance during the coming year may be
materially different from the Company's expectations.
  Based on
internal forecasts and projections that take into account reasonably possible
changes in the Company's trading performance, the Company believes that the
Company has adequate financial resources to continue in operation for a period
of at least twelve months from the date of approval of these consolidated
financial statements. Accordingly, the Company continues to adopt the going
concern basis in preparing the Company's financial statements.
  Remaining
contractual maturity on secured bank loan (Note 8)
  The
following tables detail the Company's remaining contractual maturity for its
secured bank loan. The amounts have been drawn up based on the undiscounted cash
flows of the financial liability based on the earliest date on which the Company
can be required to pay. The table includes both interest and principal cash
flows.
  
 F-25
 
 17.           Financial
instruments (continued)
  As the
interest cash flows are not fixed, the interest amount included has been
determined by reference to the projected interest rates as illustrated by the
yield curves existing at the reporting date.
  To be
repaid as follows:
  As
      of December 312009
                  
                  
                  
                  2008$
                  
                  
                  
                  $Less
      than 1 month
                  
                  
                  -
                  
                  
                  
                  -1-3
      months
                  
                  
                  1,273,280
                  
                  
                  
                  238,3203
      months to 1 year
                  
                  
                  3,757,572
                  
                  
                  
                  3,977,8181-5
      years
                  
                  
                  18,786,996
                  
                  
                  
                  20,986,7795+
      years
                  
                  
                  22,200,479
                  
                  
                  
                  22,813,61346,018,327
                  
                  
                  
                  48,016,530
  Liquidity
analysis on interest rate swap
  The
following table details the Company's liquidity analysis for its interest rate
swap.  The table has been drawn up based on the undiscounted net cash
inflows/(outflows) on the derivative instrument that settles on a net
basis.  As the amount payable or receivable is not fixed, the amount
disclosed has been determined by reference to the projected interest rates as
illustrated by the yield curves existing at the reporting date.
  As
      of December 312009
                  
                  
                  
                  2008$
                  
                  
                  
                  $Less
      than 1 month
                  
                  
                  -
                  
                  
                  
                  -1-3
      months
                  
                  
                  (92,557
                  )
                  
                  
                  (146,472
                  )3
      months to 1 year
                  
                  
                  (262,232
                  )
                  
                  
                  (563,627
                  )1-5
      years
                  
                  
                  (1,087,784
                  )
                  
                  
                  (1,716,177
                  )5+
      years
                  
                  
                  (99,301
                  )
                  
                  
                  (334,697
                  )(1,541,874
                  )
                  
                  
                  (2,760,973
                  )
 
 18.           Subsequent
events
  Initial
public offering
  On April
6, 2010, we closed on the initial public offering of 12,500,000 shares of common
stock at $13.00 per share.  The stock trades on the New York Stock
Exchange under the symbol STNG.  After deducting underwriters'
discounts and paying offering expenses, the net proceeds were approximately
$149.6 million.
  On May 4,
2010, we closed the issuance of 450,000 shares of common stock at $13.00 and
received $5.4 million, after deducting underwriters' discounts, when the
underwriters in the Company's initial public offering partially exercised their
over-allotment option.
  Restricted
stock issuance
  On June
18, 2010, we issued 559,458 shares of restricted stock to the executive
officers.  The share price at the date of issue was $10.99 per share,
and the restricted stock has an exercise price of $0.00 per
share.   The vesting schedule of the restricted stock for the
executive officers is (i) one-third of the shares vest on April 6, 2013, (ii)
one-third of the shares vest on April 6, 2014, and (iii) one-third of the shares
vest on April 6, 2015.  These shares were approved prior to the
initial public offering, and the IFRS 2 expense in the future periods will
be:
  ●
                $922,124
      for the year ended December 31,
2010
  ●
                $1,702,383
      for the year ended December 31,
2011
  F-26
  ●
                $1,702,383
      for the year ended December 31,
2012
  ●
                $1,151,776
      for the year ended December 31,
2013
  ●
                $562,848
      for the year ended December 31,
2014
  ●
                $106,929
      for the year ended December 31,
2015
  On June
18, 2010, we issued 9,000 shares to our independent directors.  The
share price at the date of issue was $10.99 per share, and the restricted stock
has an exercise price of $0.00 per share.  The total value of
restricted stock for the directors is $98,910.  These shares vest on
April 6, 2011 and were approved prior to the initial public
offering.
  Outstanding
Shares
  As a
result of the issuance of the new shares, the number of issued and authorized
shares increased from 5,589,147 to 19,107,605 as of June 23,
2010.  The Lolli-Ghetti Family, of which Mr. Lauro, our Chairman
and Chief Executive Officer, is a member, now owns 30% of the Company's existing
shares.
  New
credit facility
  On June
2, 2010, we executed a credit facility with Nordea Bank Finland plc, acting
through its New York branch, DnB NOR Bank ASA, acting through its New York
branch, and Fortis Bank Nederland, or the lead arrangers, for a senior secured
term loan facility of up to $150 million.  Borrowings under the
credit facility are available until December 2, 2011 and bear interest at LIBOR
plus an applicable margin of 3.00% per annum when our debt to
capitalization (total debt plus equity) ratio is equal to or less than 50% and
3.50% per annum when our debt to capitalization ratio is greater than 50%.
A commitment fee equal to 40% of the applicable margin is payable on the unused
daily portion of the credit facility. The credit facility matures on June 2,
2015 and can only be used to finance the cost of future vessel acquisitions,
which vessels would be the collateral for the credit facility.
  Borrowings
for each vessel financed under this facility, represent a separate tranche, with
repayment terms dependent on the age of the vessel at acquisition. Each tranche
under the new credit facility is repayable in equal quarterly installments, with
a lump sum payment at maturity, based on a full repayment of such tranche when
the vessel to which it relates is fifteen years of age. Our subsidiaries, which
may at any time own one or more of our initial vessels, will act as guarantors
under the credit facility. As of June 23, 2010, we have drawn down $19.0 million
under this facility.
  The
credit facility requires us to comply with a number of covenants, including
financial covenants; delivery of quarterly and annual financial statements and
annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA; maintenance of flag and class
of the initial vessels; restrictions on consolidations, mergers or sales of
assets; prohibitions on changes in the Manager of our initial vessels;
limitations on liens; limitations on additional indebtedness; prohibitions on
paying dividends if a covenant breach or an event of default has occurred or
would occur as a result of payment of a dividend; prohibitions on transactions
with affiliates; and other customary covenants.
  The
financial covenants include:
  ●
                The
      ratio of debt to capitalization shall be no greater than 0.60 to
      1.00.
  ●
                Consolidated
      tangible net worth shall be no less than US$ 150,000,000 plus 25% of
      cumulative positive net income (on a consolidated basis) for each fiscal
      quarter from July 1, 2010 going forward and 75% of the value of any new
      equity issues from July 1, 2010 going
forward.
  ●
                The
      ratio of EBITDA to actual interest expense shall be no less than 2.50 to
      1.00 commencing with the fifth fiscal quarter following the closing of the
      credit facility. Such ratio shall be calculated quarterly on a trailing
      quarter basis from and including the fifth fiscal quarter however for the
      ninth fiscal quarter and periods thereafter the ratio shall be calculated
      on a trailing four quarter basis.
   F-27
  ●
                Unrestricted
      cash and cash equivalents including amounts on deposit with the lead
      arrangers for the first five fiscal quarters following the closing of our
      initial public offering shall at all times be no less than the higher of
      (i) US$ 2,000,000 per vessel or (ii) US$ 10,000,000 and thereafter
      unrestricted cash and cash equivalents shall at all times be no less than
      the higher of (i) US$ 1,000,000 per vessel or (ii) US$
      10,000,000.
  ●
                The
      aggregate fair market value of the collateral vessels shall at all times
      be no less than 150% of the then aggregate outstanding principal amount of
      loans under the credit facility.
  Vessel
acquisitions
  On June
9, 2010, we announced that we took delivery of three products tanker vessels
that were previously agreed to be acquired. Two of the tankers are LR1 ice class
1A sister ships, STI
Harmony and STI
Heritage, which were acquired for an aggregate price of $92.0 million,
which includes an estimated $2.5 million related to the value of the existing
time charter contracts.  The third vessel delivered was STI Conqueror, which is an
ice class 1B ship, and was acquired for $26.0 million.
  The
Company has agreed to acquire three additional Handymax tankers that are
scheduled to be delivered by the end of September 2010 for an aggregate price of
$73.0 million.
 
  F-28


SIGNATURES





The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused and authorized the undersigned to sign this annual
report on its behalf.








Scorpio
      Tankers Inc.(Registrant)Dated:  June
      29, 2010
            /s/
      Emanuele
      LauroEmanuele
      LauroChief
      Executive Officer





























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