UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 20-F

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

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

                                       OR

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

                   for the fiscal year ended December 31, 2006

                                       OR

|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from              to

Commission file number _____________________________-

                                       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 .................

     For the transition period from        to

                               DIANA SHIPPING INC.
             (Exact name of Registrant as specified in its charter)

                               Diana Shipping Inc.
                 (Translation of Registrant's name into English)

                                Marshall Islands
                 (Jurisdiction of incorporation or organization)

               16, Pentelis Str., 175 64 P. Faliro, Athens, Greece
                    (Address of principal executive offices)

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

     Title of each class               Name of each exchange on which registered
     -------------------               -----------------------------------------
Common share, $0.01 par value                   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

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

     Title of each class               Name of each exchange on which registered
     -------------------               -----------------------------------------
Common share, $0.01 par value                   New York Stock Exchange

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, 2006, there were 53,050,000 shares of the registrant's Common
Shares outstanding.

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

                                                                |_| Yes |X| No

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

                                                                |_| Yes |X| No

Note-Checking  the box above will not  relieve any  registrant  required to file
reports  pursuant to Section 13 or 15(d) of the Securities  Exchange Act of 1934
from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                                                                |X| Yes |_| No

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

Large accelerated filer|_|    Accelerated filer|X|    Non-Accelerated filer|_|

Indicate by check mark which financial statement item the registrant has elected
to follow.
                                                         |_| Item 17  |X|Item 18

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

                                                                |_| Yes |X| No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY  PROCEEDINGS  DURING THE LAST
FIVE YEARS)

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.
                                                                |X| Yes |_| No
<PAGE>


                                TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS.....................................................3
PART I.........................................................................4
   Item 1.   Identity of Directors, Senior Management and Advisers.............4
   Item 2.   Offer Statistics and Expected Timetable...........................4
   Item 3.   Key Information...................................................4
   Item 4.   Information on the Company.......................................18
   Item 4A.  Unresolved Staff Comments........................................30
   Item 5.   Operating and Financial Review and Prospects.....................30
   Item 6    Directors, Senior Management and Employees.......................44
   Item 7    Major Shareholders and Related Party Transactions................48
   Item 8.   Financial information............................................50
   Item 9.   Listing Details..................................................51
   Item 10.  Additional Information...........................................52
   Item 11.  Quantitative and Qualitative Disclosures about Market Risk.......55
   Item 12.  Description of Securities Other than Equity Securities...........56
PART II.......................................................................57
   Item 13.  Defaults, Dividend Arrearages and Delinquencies..................57
   Item 14.  Material Modifications to the Rights of Security Holders
             and Use of Proceeds..............................................57
   Item 15.  Controls and Procedures..........................................57
   Item 16A. Audit Committee Financial Expert.................................58
   Item 16B. Code of Ethics...................................................58
   Item 16C. Principal Accountant Fees and Services...........................58
   Item 16D. Exemptions from the Listing Standards for Audit Committees.......59
   Item 16E. Purchases of Equity Securities by the Issuer and
             Affiliated Purchasers............................................59
PART III......................................................................60
   Item 17.  Financial Statements.............................................60
   Item 18.  Financial Statements.............................................60
   Item 19.  Exhibits.........................................................60

<PAGE>

                           FORWARD-LOOKING STATEMENTS

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

Please note in this annual report,  "we", "us", "our", "The Company",  all refer
to Diana Shipping Inc. and its subsidiaries.

The  forward-looking   statements  in  this  document  are  based  upon  various
assumptions,  many of which  are  based,  in  turn,  upon  further  assumptions,
including without limitation,  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 and matters  discussed  elsewhere herein,
important  factors  that,  in our view,  could  cause  actual  results to differ
materially from those discussed in the  forward-looking  statements  include the
strength of world  economies,  fluctuations  in currencies  and interest  rates,
general  market  conditions,  including  fluctuations  in charter hire rates and
vessel values,  changes in demand in the dry-bulk shipping industry,  changes in
the Company's  operating  expenses,  including  bunker  prices,  drydocking  and
insurance costs,  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,  and other
important  factors  described  from  time to time in the  reports  filed  by the
Company with the Securities and Exchange Commission.

<PAGE>

                                     PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not Applicable.

Item 2. Offer Statistics and Expected Timetable

Not Applicable.

Item 3. Key Information

     A.   Selected Financial Data

The  following  table sets forth our selected  consolidated  financial  data and
other operating data. The selected  consolidated  financial data in the table as
of December 31, 2006,  2005,  2004,  2003 and 2002 and for the five year periods
ended  December  31, 2006 are derived  from our audited  consolidated  financial
statements  and notes thereto  which have been prepared in accordance  with U.S.
generally  accepted  accounting  principles ("US GAAP") and have been audited by
Ernst & Young (Hellas) Certified Auditors Accountants S.A. ("Ernst & Young"), an
independent registered public accounting firm. The following data should be read
in conjunction with Item 5. "Operating and Financial Review and Prospects",  the
consolidated financial statements, related notes and other financial information
included elsewhere in this annual report.

<table>
                                                                                    As of and for the
                                                                                 Year Ended December 31,
                                                   2006             2005          2004          2003              2002
                                                   ----             ----          ----          ----              ----
                                                                              (in thousands of US dollars,
                                                             except for share and per share data and average daily results)
<S>                                           <C>            <C>              <C>              <C>             <C>
Income Statement Data:
Voyage and time charter revenues....          $   116,101    $      103,104   $      63,839    $      25,277   $      11,942
Voyage expenses.....................                6,059             6,480           4,330            1,549             946
Vessel operating expenses...........               22,489            14,955           9,514            6,267           3,811
Depreciation and amortization.......               16,709             9,943           5,087            3,978           3,004
Management fees.....................                  573             1,731             947              728             576
Executive management services and rent                 76               455           1,528            1,470           1,404
General and administrative expenses.                6,331             2,871             300              123             140
Foreign currency losses (gains).....                  (52)              (30)              3               20               5
                                                ----------        -----------    ------------   ------------    ---------------
Operating income....................               63,916            66,699          42,130           11,142           2,056
                                                ----------        -----------    ------------   ------------    ---------------
Interest and finance costs..........               (3,886)           (2,731)         (2,165)          (1,680)         (2,001)
Interest income.....................                1,033             1,022              136              27              21
Gain on vessel's sale...............                    -                 -           19,982                -             -
                                                ----------        -----------    ------------   ------------    ---------------

Net income .........................          $    61,063    $       64,990   $       60,083   $       9,489   $          76
                                                ==========      ===========      ===========    ============    ===============
Preferential deemed dividend........          $   (20,267)   $           -    $           -    $          -    $           -
                                                ==========      ===========      ===========    ============    ===============
Net income available to common stockholders   $    40,796    $       64,990   $       60,083   $       9,489   $          76
                                                ==========      ===========      ===========    ============    ===============
Basic earnings per share............          $      0.82    $         1.72   $         2.17   $        0.37   $        0.02
                                                ==========      ===========      ===========    ============    ===============
Weighted average basic shares outstanding      49,528,904        37,765,753       27,625,000      25,340,596    4  4,297,161
                                                ==========      ===========      ===========    ============    ===============
Diluted earnings per share..........          $      0.82    $         1.72   $         2.17   $        0.37   $        0.00
                                                ==========      ===========      ===========    ============    ===============
Weighted average diluted shares outstanding    49,528,904        37,765,753       27,625,000      25,340,596    4 18,416,667
                                                ==========      ===========      ===========    ============    ===============
Dividends declared per share........          $      1.50    $         1.60   $         1.85   $           -   $        0.06
                                                ==========      ===========      ===========    ============    ===============

Balance Sheet Data:
Cash and cash equivalents...........          $    14,511    $       21,230   $        1,758   $       7,441   $      1,867
Total current assets................               19,062            26,597            3,549           9,072           3,347
Total assets........................              510,675           341,949          155,636         134,494          79,947
Total current liabilities...........                7,636             4,667           11,344           9,107           5,863
Long-term debt (including current portion)        138,239            12,859           92,246          82,628          53,810
Total stockholders' equity..........              363,103           324,158           59,052          48,441          23,482

Cash Flow Data:
Net cash flow provided by operating activities $   82,370     $      69,256    $      47,379    $     15,218    $      5,451
Net cash flow used in investing activities      (193,096)         (169,241)          (11,778)        (52,723)             -
Net cash flow provided by (used in) financing
activities..........................              104,007           119,457          (41,284)         43,079          (4,894)

Fleet Data: (1)
Average number of vessels (2).......                 13.4               9.6              6.3             5.1             4.0
Number of vessels at end of period..                 15.0              12.0              7.0             6.0             4.0
Weighted average age of fleet at end of
   period (in years)................                  3.7               3.8              3.4             2.9             1.8
Ownership days (3)..................                4,897             3,510            2,319           1,852           1,460
Available days (4)..................                4,856             3,471            2,319           1,852           1,460
Operating days (5)..................                4,849             3,460            2,315           1,845           1,459
Fleet utilization (6)...............                99.9%             99.7%            99.8%           99.6%           99.9%

Average Daily Results: (1)
Time charter equivalent (TCE) rate (7)        $    22,661    $       27,838   $       25,661   $      12,812   $       7,532
Daily vessel operating expenses (8).                4,592             4,261            4,103           3,384           2,610
</table>

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

(1)  The fleet data and average daily results presented above do not give effect
     to our sale of the Amfitrite. In October 2004, prior to the delivery of the
     Amfitrite  to us, we entered  into a  memorandum  of  agreement to sell the
     vessel to Orthos Shipping  Corporation,  an unaffiliated  third party, upon
     its delivery to us for a total purchase price of $42.0 million.  We elected
     to sell the  Amfitrite  rather than  include it in our  operating  fleet in
     order to take advantage of strong market  conditions and to sell the vessel
     at a favorable  price.  In November 2004, we took delivery of the Amfitrite
     from the shipyard and thereupon delivered the vessel to the buyer.  Because
     we did not operate  the  Amfitrite  prior to the sale,  and because we took
     possession  of the vessel only for the purposes of  redelivering  it to the
     buyer, we do not consider the vessel to have been part of our fleet.

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

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

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

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

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

(7)  Time charter  equivalent rates, or TCE rates, are defined as our voyage and
     time charter  revenues less voyage  expenses during a period divided by the
     number of our available  days during the period,  which is consistent  with
     industry  standards.  Voyage expenses  include port charges,  bunker (fuel)
     expenses,  canal charges and commissions.  TCE rate is a standard  shipping
     industry  performance  measure  used  primarily to compare  daily  earnings
     generated  by vessels on time  charters  with daily  earnings  generated by
     vessels on voyage  charters,  because  charter  hire  rates for  vessels on
     voyage  charters  are  generally  not  expressed  in per day amounts  while
     charter hire rates for vessels on time charters are generally  expressed in
     such amounts. The following table reflects the calculation of our TCE rates
     for the periods presented.

<table>

                                                              Year Ended December 31,
                                                 --------------------------------------------------
                                                    2006     2005       2004      2003      2002
                                                    ----     ----       ----      ----      ----
                                                           (in thousands of US dollars, except for
                                                      TCE rates, which are expressed in US dollars,
                                                                   and available days)
<S>                                            <C>         <C>        <C>       <C>       <C>
Voyage and time charter revenues.........      $ 116,101   $ 103,104  $  63,839 $  25,277 $  11,942
Less: voyage expenses....................        (6,059)     (6,480)    (4,330)   (1,549)     (946)
                                                 ---------  --------- ---------  --------  --------

Time charter equivalent revenues.........      $  110,042  $  96,624  $  59,509 $  23,728 $  10,996
                                                 =========  ========= =========  ========  ========

Available days...........................           4,856      3,471      2,319     1,852     1,460
Time charter equivalent (TCE) rate.......      $   22,661  $  27,838  $  25,661 $  12,812 $   7,532
</table>

(8)  Daily  vessel  operating  expenses,  which  include  crew wages and related
     costs, the cost of insurance, expenses relating to repairs and maintenance,
     the  costs of  spares  and  consumable  stores,  tonnage  taxes  and  other
     miscellaneous   expenses,  are  calculated  by  dividing  vessel  operating
     expenses by ownership days for the relevant period.

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.
<PAGE>


                         Industry Specific Risk Factors

Charter hire rates for dry bulk  carriers may decrease in the future,  which may
adversely affect our earnings


The dry bulk shipping industry is cyclical with attendant  volatility in charter
hire rates and  profitability.  For  example,  the  degree of charter  hire rate
volatility among different types of dry bulk carriers has varied widely. Charter
hire  rates  for  Panamax  and  Capesize  dry  bulk   carriers  are  near  their
historically high levels.  Because we generally charter a significant portion of
our vessels  pursuant to short-term time charters,  we are exposed to changes in
spot market rates for dry bulk carriers and such changes may affect our earnings
and the value of our dry bulk  carriers at any given time.  We cannot assure you
that we will be able to successfully  charter our vessels in the future or renew
existing  charters at rates sufficient to allow us to meet our obligations or to
pay dividends to our stockholders.  Because the factors affecting the supply and
demand for vessels are outside of our control and are unpredictable, the nature,
timing,  direction  and  degree  of  changes  in  industry  conditions  are also
unpredictable.


Factors that influence demand for vessel capacity include:

     o    demand for and production of dry bulk products;

     o    global and regional economic and political conditions;

     o    the distance dry bulk is to be moved by sea; and

     o    changes in seaborne and other transportation patterns.


The factors that influence the supply of vessel capacity include:

     o    the number of newbuilding deliveries;

     o    port and canal congestion;

     o    the scrapping rate of older vessels;

     o    vessel casualties; and

     o    the number of vessels that are out of service.


We anticipate that the future demand for our dry bulk carriers will be dependent
upon continued  economic  growth in the world's  economies,  including China and
India,  seasonal and regional changes in demand,  changes in the capacity of the
global dry bulk carrier fleet and the sources and supply of dry bulk cargo to be
transported  by sea.  The  capacity of the global dry bulk  carrier  fleet seems
likely to  increase  and there can be no  assurance  that  economic  growth will
continue. Adverse economic, political, social or other developments could have a
material adverse effect on our business and operating results.

The market values of our vessels may  decrease,  which could limit the amount of
funds that we can borrow under our credit facilities

The  fair  market  values  of  our  vessels  have  generally   experienced  high
volatility.  The market  prices for  secondhand  Panamax and  Capesize  dry bulk
carriers are at historically high levels.  You should expect the market value of
our vessels to  fluctuate  depending on general  economic and market  conditions
affecting the shipping industry and prevailing  charter hire rates,  competition
from other shipping  companies and other modes of  transportation,  types, sizes
and  age of  vessels,  applicable  governmental  regulations  and  the  cost  of
newbuildings.  If the market value of our fleet declines,  we may not be able to
draw down the full  amount of our  credit  facilities  and we may not be able to
obtain other  financing or incur debt on terms that are  acceptable  to us or at
all.

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

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

World events could affect our results of operations and financial condition

Terrorist  attacks such as those in New York on September 11, 2001 and in London
on July 7,  2005 and the  continuing  response  of the  United  States  to these
attacks,  as well as the threat of future terrorist attacks in the United States
or elsewhere,  continues to cause  uncertainty in the world's  financial markets
and may affect our  business,  operating  results and financial  condition.  The
continuing  conflict in Iraq may lead to additional  acts of terrorism and armed
conflict around the world, which may contribute to further economic  instability
in the global financial markets. These uncertainties could also adversely affect
our ability to obtain additional  financing on terms acceptable to us or at all.
In the past,  political  conflicts  have also  resulted  in attacks on  vessels,
mining of  waterways  and  other  efforts  to  disrupt  international  shipping,
particularly in the Arabian Gulf region.  Acts of terrorism and piracy have also
affected  vessels  trading in regions  such as the South China Sea. Any of these
occurrences  could  have a material  adverse  impact on our  operating  results,
revenues and costs.

Our operating results are subject to seasonal  fluctuations,  which could affect
our  operating  results and the amount of  available  cash with which we can pay
dividends

We operate  our vessels in markets  that have  historically  exhibited  seasonal
variations in demand and, as a result,  in charter hire rates.  This seasonality
may result in  quarter-to-quarter  volatility  in our operating  results,  which
could  affect  the  amount of  dividends  that we pay to our  stockholders  from
quarter to quarter.  The dry bulk carrier  market is  typically  stronger in the
fall and winter  months in  anticipation  of increased  consumption  of coal and
other raw  materials in the northern  hemisphere  during the winter  months.  In
addition,  unpredictable weather patterns in these months tend to disrupt vessel
scheduling and supplies of certain  commodities.  As a result, our revenues have
historically  been weaker during the fiscal quarters ended June 30 and September
30, and,  conversely,  our revenues  have  historically  been stronger in fiscal
quarters  ended  December  31 and  March  31.  While  this  seasonality  has not
materially  affected  our  operating  results,  it could  materially  affect our
operating  results and cash available for  distribution  to our  stockholders as
dividends in the future.

Rising fuel prices may adversely affect our profits

While we generally do not bear the cost of fuel  (bunkers)  under our  charters,
fuel is a significant,  if not the largest,  expense in our shipping  operations
when  vessels  are  under  voyage  charter.  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  international  safety  regulations  and the failure to comply
with these  regulations  may subject us to increased  liability,  may  adversely
affect  our  insurance  coverage  and may  result in a denial  of access  to, or
detention in, certain ports

The  operation of our vessels is affected by the  requirements  set forth in the
United Nations' International Maritime Organization's  International  Management
Code for the Safe Operation of Ships and Pollution Prevention,  or ISM Code. The
ISM Code requires  shipowners,  ship managers and bareboat charterers to develop
and maintain an extensive "Safety  Management System" that includes the adoption
of a safety and environmental  protection policy setting forth  instructions and
procedures  for safe  operation  and  describing  procedures  for  dealing  with
emergencies. The failure of a shipowner or bareboat charterer to comply with the
ISM  Code  may  subject  it to  increased  liability,  may  invalidate  existing
insurance or decrease available  insurance coverage for the affected vessels and
may result in a denial of access to, or detention in, certain  ports.  As of the
date of this annual report, each of our vessels is ISM code-certified.

Maritime  claimants  could  arrest  one or  more  of our  vessels,  which  could
interrupt our cash flow

Crew members, suppliers of goods and services to a vessel, shippers of cargo and
other  parties  may  be  entitled  to a  maritime  lien  against  a  vessel  for
unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek
to obtain  security  for its claim by  arresting  a vessel  through  foreclosure
proceedings.  The  arrest  or  attachment  of one or more of our  vessels  could
interrupt  our cash flow and  require  us to pay large sums of money to have the
arrest or attachment lifted. In addition,  in some jurisdictions,  such as South
Africa, under the "sister ship" theory of liability,  a claimant may arrest both
the vessel which is subject to the claimant's maritime lien and any "associated"
vessel,  which is any vessel owned or  controlled  by the same owner.  Claimants
could attempt to assert "sister ship" liability  against one vessel in our fleet
for claims relating to another of our vessels.

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

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

                          Company Specific Risk Factors

We charter a significant portion of our vessels on short-term time charters in a
volatile  shipping industry and a decline in charter hire rates would affect our
results of operations and ability to pay dividends

We charter a  significant  portion of our vessels  pursuant to  short-term  time
charters,  although we have also entered into  longer-term time charters ranging
in  duration  from 18 months to 48 months  for 13 of the  vessels  in our fleet,
including  the two Capesize dry bulk carriers that we expect to take delivery of
in  June  and  November  2007,  respectively,  and we may in the  future  employ
additional  vessels,  including  any  container  vessel that we may acquire,  on
longer term time charters.  Currently,  five of our vessels are employed on time
charters scheduled to expire within the next six months, at which time we expect
to enter into new charters for those vessels.  Although  significant exposure to
short-term time charters is not unusual in the dry bulk shipping  industry,  the
short-term  time charter  market is highly  competitive  and spot market charter
hire rates (which affect time charter rates) may fluctuate  significantly  based
upon  available  charters and the supply of, and demand for,  seaborne  shipping
capacity.  While the short-term  time charter market may enable us to benefit in
periods  of  increasing  charter  hire  rates,  we must  consistently  renew our
charters and this dependence makes us vulnerable to declining  charter rates. As
a result of the volatility in the dry bulk carrier charter market, we may not be
able to employ our vessels upon the  termination of their  existing  charters at
their  current  charter  hire  rates.  The dry bulk  carrier  charter  market is
volatile, and in the past, short-term time charter and spot market charter rates
for dry bulk carriers have declined below operating costs of vessels.  We cannot
assure you that future  charter hire rates will enable us to operate our vessels
profitably or to pay you dividends.

Our earnings  and the amount of dividends  that we are able to pay in the future
may be  adversely  affected if we are not able to take  advantage  of  favorable
charter rates

We charter a significant  portion of our dry bulk carriers to customers pursuant
to  short-term  time  charters  that range in duration  from  several days to 13
months. However, as part of our business strategy, 13 of our vessels,  including
the Capesize dry bulk  carriers  that we expect to take  delivery of in June and
November 2007, respectively, are currently employed on longer-term time charters
ranging in duration from 18 to 48 months.  We may extend the charter periods for
additional  vessels in our fleet,  including  additional  dry bulk  carriers  or
container  vessels that we may purchase in the future,  to take advantage of the
relatively  stable cash flow and high utilization rates that are associated with
long-term time charters.  While we believe that longer-term  charters provide us
with relatively stable cash flows and higher utilization rates than shorter-term
charters,  our vessels  that are  committed to  longer-term  charters may not be
available for  employment on short-term  charters  during  periods of increasing
short-term  charter hire rates when these charters may be more  profitable  than
long-term charters.

Investment in derivative  instruments  such as freight forward  agreements could
result in losses

From time to time,  we may take  positions in derivative  instruments  including
freight forward agreements,  or FFAs. FFAs and other derivative  instruments may
be used to hedge a vessel  owner's  exposure to the charter  market by providing
for the sale of a contracted  charter rate along a specified route and period of
time. Upon settlement,  if the contracted  charter rate is less than the average
of the rates,  as reported by an identified  index,  for the specified route and
period,  the seller of the FFA is required  to pay the buyer an amount  equal to
the difference  between the contracted rate and the settlement rate,  multiplied
by the number of days in the specified  period.  Conversely,  if the  contracted
rate is greater  than the  settlement  rate,  the buyer is  required  to pay the
seller the  settlement  sum. If we take  positions  in FFAs or other  derivative
instruments  and do not correctly  anticipate  charter rate  movements  over the
specified  route and time  period,  we could  suffer  losses in the  settling or
termination  of the FFA. This could  adversely  affect our results of operations
and cash flows.

We cannot assure you that our board of directors will declare dividends

Our  policy  is to  declare  quarterly  distributions  to  stockholders  by each
February,  May,  August and November  substantially  equal to our available cash
from operations during the previous quarter after cash expenses and reserves for
scheduled  drydockings,  intermediate  and special surveys and other purposes as
our board of directors may from time to time  determine are required,  and after
taking into account contingent liabilities,  the terms of our credit facilities,
our  growth  strategy  and other  cash needs and the  requirements  of  Marshall
Islands law. The  declaration  and payment of dividends,  if any, will always be
subject to the  discretion of our board of  directors.  The timing and amount of
any  dividends  declared  will depend on,  among  other  things,  our  earnings,
financial  condition  and cash  requirements  and  availability,  our ability to
obtain debt and equity  financing on  acceptable  terms as  contemplated  by our
growth strategy and provisions of Marshall  Islands law affecting the payment of
dividends.  The international dry bulk shipping industry is highly volatile, and
we cannot  predict  with  certainty  the  amount of cash,  if any,  that will be
available for distribution as dividends in any period. Also, there may be a high
degree of  variability  from  period  to  period  in the  amount of cash that is
available for the payment of dividends.

We may incur expenses or liabilities or be subject to other circumstances in the
future that reduce or eliminate  the amount of cash that we have  available  for
distribution as dividends,  including as a result of the risks described in this
section of the annual  report.  Our growth  strategy  contemplates  that we will
finance the acquisition of additional  vessels through a combination of debt and
equity  financing on terms acceptable to us. If financing is not available to us
on  acceptable  terms,  our board of  directors  may  determine  to  finance  or
refinance  acquisitions  with cash from  operations,  which would reduce or even
eliminate the amount of cash available for the payment of dividends.

Marshall  Islands law generally  prohibits  the payment of dividends  other than
from surplus (retained earnings and the excess of consideration received for the
sale of  shares  above  the par  value  of the  shares)  or while a  company  is
insolvent or would be rendered  insolvent by the payment of such a dividend.  We
may not have sufficient  surplus in the future to pay dividends.  We can give no
assurance that we will continue to pay dividends in the future.

We may have  difficulty  effectively  managing  our  planned  growth,  which may
adversely affect our ability to pay dividends

Since the  completion of our initial  public  offering in March 2005,  and after
giving effect to the delivery of the four additional  Capesize dry bulk carriers
that we have  agreed  to  purchase  and  sale of one of our  Capesize  dry  bulk
carriers,  we will have taken delivery of five Panamax dry bulk carriers and six
Capesize  dry bulk  carriers.  The  addition  of these  vessels to our fleet has
resulted  in a  significant  increase  of the  size  of our  fleet  and  imposes
significant  additional  responsibilities  on our management and staff. While we
expect our fleet to grow further,  this may require us to increase the number of
our  personnel.  We will also have to  increase  our  customer  base to  provide
continued  employment for the new vessels.  In addition,  our acquisition of our
fleet manager,  effective April 1, 2006, has imposed further  requirements  upon
our management and staff.

Our future growth will primarily depend on our ability to:

     o    locate and acquire suitable vessels;

     o    identify and consummate acquisitions or joint ventures;

     o    enhance our customer base;

     o    manage our expansion; and

     o    obtain required financing on acceptable terms.


Growing any business by acquisition presents numerous risks, such as undisclosed
liabilities and  obligations,  the possibility that  indemnification  agreements
will be unenforceable or insufficient to cover potential losses and difficulties
associated with imposing common  standards,  controls,  procedures and policies,
obtaining additional qualified personnel,  managing relationships with customers
and   integrating   newly   acquired   assets  and   operations   into  existing
infrastructure.  We cannot  give any  assurance  that we will be  successful  in
executing  our growth plans or that we will not incur  significant  expenses and
losses in connection with our future growth.  If we are not able to successfully
grow the size of our company or increase  the size of our fleet,  our ability to
pay dividends will be adversely affected.

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

We  entered  into a secured  revolving  credit  facility  with The Royal Bank of
Scotland  Plc in  February  2005 and amended  the  facility in May 2006,  and in
January 2007 we entered into a  supplemental  loan  agreement  for an additional
credit facility with the Royal Bank of Scotland Plc. We have also entered into a
loan agreement with Fortis Bank for a secured term loan of $60.2 million,  which
we intend to use to finance the  pre-delivery  installments  of two  newbuilding
Capesize dry bulk  carriers that we expect to take delivery of during the second
quarter of 2010. We have used and intend to use our  facilities in the future to
finance future vessel  acquisitions  and our working capital  requirements.  Our
ability  to borrow  amounts  under  the  credit  facilities  is  subject  to the
execution  of  customary  documentation  relating to the  facilities,  including
security documents,  satisfaction of certain customary  conditions precedent and
compliance with terms and conditions  included in the loan  documents.  Prior to
each drawdown,  we are required,  among other things, to provide the lender with
acceptable valuations of the vessels in our fleet confirming that the vessels in
our fleet have a minimum value and that the vessels in our fleet that secure our
obligations  under the  facilities are  sufficient to satisfy  minimum  security
requirements.  To the extent that we are not able to satisfy these requirements,
including  as a result of a decline in the value of our  vessels,  we may not be
able to draw down the full amount under the credit facilities  without obtaining
a waiver or consent  from the lender.  We will also not be  permitted  to borrow
amounts under the facilities if we experience a change of control.


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

     o    pay dividends or make capital  expenditures if we do not repay amounts
          drawn  under our  credit  facility,  if there is a  default  under the
          credit  facility  or  if  the  payment  of  the  dividend  or  capital
          expenditure would result in a default or breach of a loan covenant;

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

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

     o    create liens on our assets;

     o    sell our vessels;

     o    enter into a time charter or consecutive  voyage  charters that have a
          term that exceeds,  or which by virtue of any optional  extensions may
          exceed, thirteen months;

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

     o    enter into a new line of business.


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

We cannot  assure you that we will be able to  refinance  indebtedness  incurred
under our credit facilities

We intend to finance  our future  vessel  acquisitions  initially  with  secured
indebtedness drawn under our credit  facilities.  While our current policy is to
refinance  amounts in excess of $150.0 million drawn under our credit facilities
with the net proceeds of future equity  offerings,  we cannot assure you that we
will be able to do so on terms that are  acceptable  to us or at all.  If we are
not able to refinance these amounts with the net proceeds of equity offerings on
terms  acceptable to us or at all, we will have to dedicate a greater portion of
our  cash  flow  from  operations  to pay the  principal  and  interest  of this
indebtedness than if we were able to refinance such amounts.  If we are not able
to satisfy these  obligations,  we may have to undertake  alternative  financing
plans. The actual or perceived credit quality of our charterers, any defaults by
them,  and the market value of our fleet,  among other  things,  may  materially
affect our ability to obtain alternative  financing.  In addition,  debt service
payments  under our credit  facility or  alternative  financing  may limit funds
otherwise  available  for  working  capital,   capital  expenditures  and  other
purposes.  If we are  unable to meet our debt  obligations,  or if we  otherwise
default under our credit facilities or an alternative financing arrangement, our
lenders could declare the debt,  together with accrued  interest and fees, to be
immediately  due and payable and  foreclose on our fleet,  which could result in
the  acceleration  of other  indebtedness  that we may have at such time and the
commencement of similar foreclosure proceedings by other lenders.

If the delivery of any of the four  vessels that have not yet been  delivered to
us is delayed or delivered with significant  defects, our earnings and financial
condition could suffer

We have entered into  agreements  to purchase two  additional  Capesize dry bulk
carriers  that we  expect  to be  delivered  to us in June  and  November  2007,
respectively.  Additionally,  we have  assumed  shipbuilding  contracts  for two
Capesize  dry bulk  carriers  that we expect to be  delivered  to us during  the
second  quarter of 2010. A delay in the delivery of one or more of these vessels
to us or the  failure of the  contract  counterparty  to deliver  one or more of
these  vessels  at all  could  adversely  affect  our  earnings,  our  financial
condition and the amount of dividends that we pay in the future.

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

While we have  the  right  to  inspect  previously  owned  vessels  prior to our
purchase of them and we intend to inspect all secondhand vessels that we acquire
in the future,  such an inspection  does not provide us with the same  knowledge
about their condition that we would have if these vessels had been built for and
operated  exclusively by us. A secondhand  vessel may have conditions or defects
that we were not aware of when we bought the vessel and which may  require us to
incur costly repairs to the vessel. These repairs may require us to put a vessel
into drydock which would reduce our fleet utilization.  Furthermore,  we usually
do not receive the benefit of warranties on secondhand vessels.

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

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

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

Our success  depends to a  significant  extent upon the abilities and efforts of
our management team. We have entered into employment contracts with our Chairman
and Chief Executive Officer,  Mr. Simeon Palios,  our President,  Mr. Anastassis
Margaronis, our Chief Financial Officer, Mr. Andreas Michalopoulos, and our Vice
President,  Mr. Ioannis  Zafirakis.  Our success will depend upon our ability to
retain key  members  of our  management  team and to hire new  members as may be
necessary.  The loss of any of these  individuals  could  adversely  affect  our
business prospects and financial  condition.  Difficulty in hiring and retaining
replacement  personnel could have a similar effect. We do not currently,  nor do
we intend to, maintain "key man" life insurance on any of our officers.

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

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

     o    marine disaster;

     o    environmental accidents;

     o    cargo and property losses or damage;

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

     o    piracy.

Any of these  circumstances  or  events  could  increase  our costs or lower our
revenues.  The involvement of our vessels in an environmental  disaster may harm
our reputation as a safe and reliable vessel owner and operator.

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

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

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

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

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

In  general,  the cost of  maintaining  a  vessel  in good  operating  condition
increases  with the age of the vessel.  Our fleet,  after  giving  effect to the
delivery of the two additional Capesize dry bulk carriers that we have agreed to
purchase and sale of one of our Capesize dry bulk  carriers,  which we expect to
occur in 2007,  will  consist of  thirteen  Panamax  dry bulk  carriers  and six
Capesize dry bulk carriers  having a combined  carrying  capacity of 2.2 million
dwt and as of November 2007 a weighted  average age,  excluding the two Capesize
dry bulk carriers that are under construction,  of 3.1 years. As our fleet ages,
we will incur increased  costs.  Older vessels are typically less fuel efficient
and more  costly to  maintain  than more  recently  constructed  vessels  due to
improvements in engine  technology.  Cargo insurance rates increase with the age
of a vessel,  making older vessels less  desirable to  charterers.  Governmental
regulations  and  safety  or other  equipment  standards  related  to the age of
vessels may also require  expenditures  for  alterations  or the addition of new
equipment to our vessels and may restrict  the type of  activities  in which our
vessels may  engage.  We cannot  assure you that,  as our  vessels  age,  market
conditions  will justify those  expenditures or enable us to operate our vessels
profitably during the remainder of their useful lives.

We are exposed to U.S. dollar and foreign currency fluctuations and devaluations
that could harm our reported revenue and results of operations

We generate all of our revenues in U.S. dollars but currently incur over half of
our  operating  expenses  and the  majority of our  general  and  administrative
expenses in currencies other than the U.S. dollar, primarily the euro. Because a
significant  portion of our expenses are incurred in  currencies  other than the
U.S.  dollar,  our  expenses  may from  time to time  increase  relative  to our
revenues as a result of fluctuations in exchange rates, particularly between the
U.S.  dollar and the euro,  which could  affect the amount of net income that we
report in future  periods.  While we  historically  have not  mitigated the risk
associated  with  exchange  rate  fluctuations  through  the  use  of  financial
derivatives,  we may employ such  instruments from time to time in the future in
order to minimize  this risk.  Our use of financial  derivatives  would  involve
certain risks,  including the risk that losses on a hedged position could exceed
the nominal amount invested in the instrument and the risk that the counterparty
to the  derivative  transaction  may be  unable  or  unwilling  to  satisfy  its
contractual obligations, which could have an adverse effect on our results.

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

Under the United States  Internal  Revenue Code of 1986, or the Code, 50% of the
gross  shipping  income of a vessel  owning or chartering  corporation,  such as
ourselves and our  subsidiaries,  that is  attributable to  transportation  that
begins or ends,  but that does not both begin and end,  in the United  States is
characterized as United States source shipping income and such income is subject
to a 4% United  States  federal  income tax without  allowance  for  deductions,
unless that  corporation  qualifies for exemption  from tax under Section 883 of
the Code and the Treasury Regulations.


We expect that we and each of our  subsidiaries  qualify for this  statutory tax
exemption  for the 2006 taxable  year and we will take this  position for United
States federal income tax return reporting purposes.  However, there are factual
circumstances beyond our control that could cause us to lose the benefit of this
tax  exemption  in future  years and  thereby  become  subject to United  States
federal income tax on our United States source income. For example, in 2006, our
5% shareholders owned approximately  48.58% of our outstanding stock. There is a
risk that we could no longer qualify for exemption  under Code section 883 for a
particular  taxable  year if other  shareholders  with a five percent or greater
interest in our stock were, in combination with our existing 5% shareholders, to
own 50% or more of our  outstanding  shares  of our  stock on more than half the
days during the taxable year. Due to the factual nature of the issues  involved,
we can  give  no  assurances  on our  tax-exempt  status  or  that of any of our
subsidiaries.


If we or our  subsidiaries  are not entitled to this exemption under Section 883
for any taxable year, we or our subsidiaries would be subject for those years to
a 4% United States federal income tax on our U.S.-source  shipping  income.  The
imposition  of this  taxation  could have a negative  effect on our business and
would  result  in  decreased   earnings   available  for   distribution  to  our
stockholders.  For the 2006 and 2007 taxable years, we estimate that our maximum
United States federal income tax liability  would be immaterial if we were to be
subject to this taxation.  Please see the section of this annual report entitled
"Taxation"  under  item 10E for a more  comprehensive  discussion  of the United
States federal income tax consequences.

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

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

Based on our current and proposed method of operation, we do not believe that we
will be a PFIC with respect to any taxable  year.  In this regard,  we intend to
treat  the  gross  income  we  derive  or are  deemed  to  derive  from our time
chartering   activities  as  services   income,   rather  than  rental   income.
Accordingly, we believe that our income from our time chartering activities does
not  constitute  "passive  income,"  and the assets  that we own and  operate in
connection with the production of that income do not constitute passive assets.

There is, however, no direct legal authority under the PFIC rules addressing our
proposed  method of operation.  Accordingly,  no assurance can be given that the
United States Internal  Revenue  Service,  or IRS, or a court of law will accept
our position, and there is a risk that the IRS or a court of law could determine
that we are a PFIC.  Moreover,  no  assurance  can be given  that we  would  not
constitute a PFIC for any future taxable year if there were to be changes in the
nature and extent of our operations.

If the IRS were to find  that we are or have been a PFIC for any  taxable  year,
our United States stockholders will face adverse United States tax consequences.
Under the PFIC rules, unless those stockholders make an election available under
the Code  (which  election  could  itself  have  adverse  consequences  for such
stockholders,  such  stockholders  would be liable to pay United States  federal
income tax at the then  prevailing  income  tax rates on  ordinary  income  plus
interest upon excess distributions and upon any gain from the disposition of our
common shares, as if the excess distribution or gain had been recognized ratably
over the stockholder's holding period of our common shares.

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

We have  historically  derived a  significant  part of our revenues from a small
number of charterers.  During the years 2006 and 2005 approximately 50% and 63%,
respectively   of  our  revenues   derived  from  three  and  four   charterers,
respectively.  If one or more  of our  charterers  chooses  not to  charter  our
vessels or is unable to perform  under one or more  charters  with us and we are
not able to find a replacement  charter, we could suffer a loss of revenues that
could adversely affect our financial  condition,  results of operations and cash
available for distribution as dividends to our stockholders.

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

We are a holding company and our subsidiaries  conduct all of our operations and
own all of our operating  assets.  We have no significant  assets other than the
equity interests in our subsidiaries.  As a result, our ability to make dividend
payments  depends on our  subsidiaries  and their ability to distribute funds to
us.  If we are  unable  to  obtain  funds  from our  subsidiaries,  our board of
directors may exercise its discretion not to declare or pay dividends. We do not
intend to obtain funds from other sources to pay dividends.

As we expand our  business,  we may need to improve our  operating and financial
systems and will need to recruit suitable employees and crew for our vessels

Our current operating and financial systems may not be adequate as we expand the
size of our fleet and our attempts to improve those systems may be  ineffective.
In addition, as we expand our fleet, we will need to recruit suitable additional
seafarers and shoreside  administrative and management personnel.  While we have
not experienced  any difficulty in recruiting to date, we cannot  guarantee that
we will be able to continue to hire  suitable  employees as we expand our fleet.
If we or our crewing agent encounters business or financial difficulties, we may
not be able to  adequately  staff  our  vessels.  If we are  unable  to grow our
financial and operating  systems or to recruit  suitable  employees as we expand
our fleet, our financial  performance may be adversely affected and, among other
things,  the amount of cash  available  for  distribution  as  dividends  to our
stockholders may be reduced.

                       Risks Relating to Our Common Stock

There is no guarantee that there will continue to be an active and liquid public
market for you to resell our common stock in the future

The price of our common stock may be volatile and may  fluctuate  due to factors
such as:

     o    actual or anticipated fluctuations in our quarterly and annual results
          and those of other public companies in our industry;

     o    mergers and strategic alliances in the dry bulk shipping industry;

     o    market conditions in the dry bulk shipping industry;

     o    changes in government regulation;

     o    shortfalls in our operating results from levels forecast by securities
          analysts;

     o    announcements concerning us or our competitors; and

     o    the general state of the securities market.


The dry bulk shipping industry has been highly  unpredictable and volatile.  The
market for common stock in this industry may be equally volatile.

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

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

Certain existing  stockholders will be able to exert  considerable  control over
matters on which our stockholders are entitled to vote

Entities  affiliated with our President and Chief Executive  Officer and certain
other  large  stockholders  currently  own  17,768,750  shares  or 28.26% of our
outstanding  common  stock.  Please see the  section A of item 7 of this  annual
report  entitled  "Major   Stockholders".   While  these  stockholders  have  no
agreement,  arrangement or understanding  relating to the voting of their shares
of our common stock,  they  effectively  control the outcome of matters on which
our stockholders  are entitled to vote,  including the election of directors and
other significant  corporate actions. The interests of these stockholders may be
different from your interests.

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

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

We  intend  to issue  additional  shares of our  common  stock in the  future to
refinance  indebtedness in excess of $150.0 million  incurred in connection with
the acquisition of vessels and our  stockholders may elect to sell large numbers
of shares held by them from time to time.  Our amended and restated  articles of
incorporation authorize us to issue up to 100,000,000 shares of common stock, of
which 62,875,000  shares are  outstanding.  The number of shares of common stock
available for sale in the public market are limited by  restrictions  applicable
under  securities  laws  and  agreements  that  we and our  executive  officers,
directors and principal stockholders have entered into.

Prior to our initial  public  offering,  we entered into a  registration  rights
agreement with Corozal Compania Naviera S.A.,  Ironwood Trading Corp. and Zoe S.
Company  Ltd.,  certain of our  stockholders,  pursuant to which we have granted
them, their affiliates  (including Mr. Simeon Palios, Mr. Anastassis  Margaronis
and Mr. Ioannis  Zafirakis) and certain of their  transferees,  the right, under
certain   circumstances   and   subject  to  certain   restrictions,   including
restrictions  included in the lock-up  agreements to which they are a party,  to
require us to register  under the  Securities  Act of 1933,  as amended,  or the
Securities Act, shares of our common stock held by them.  Under the registration
rights  agreement,  these  persons  have the right to request us to register the
sale of shares held by them on their behalf and may require us to make available
shelf  registration  statements  permitting sales of shares into the market from
time to time over an  extended  period.  In  addition,  these  persons  have the
ability to exercise  certain  piggyback  registration  rights in connection with
registered  offerings requested by stockholders or initiated by us. Registration
of such shares under the  Securities Act would,  except for shares  purchased by
affiliates,  result in such shares becoming freely tradable without  restriction
under  the  Securities  Act   immediately   upon  the   effectiveness   of  such
registration.  In addition,  shares not registered  pursuant to the registration
rights  agreement may, be resold pursuant to an exemption from the  registration
requirements  of the Securities Act,  including the exemptions  provided by Rule
144 and Regulation S under the Securities Act.

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

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


These provisions include:

     o    authorizing  our board of directors to issue "blank  check"  preferred
          stock without stockholder approval;

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

     o    prohibiting cumulative voting in the election of directors;

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

     o    prohibiting stockholder action by written consent;

     o    limiting  the persons who may call special  meetings of  stockholders;
          and

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


In addition,  we have adopted a  stockholder  rights plan  pursuant to which our
board of  directors  may cause  the  substantial  dilution  of any  person  that
attempts to acquire us without the approval of our board of directors.


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


Item 4. Information on the Company

A.      History and development of the Company

We are Diana Shipping  Inc., a holding  company  incorporated  under the laws of
Liberia in March 1999 as Diana Shipping  Investments Corp. In February 2005, the
Company's articles of incorporation were amended.  Under the amended articles of
incorporation  the Company was renamed Diana  Shipping Inc. and was  redomiciled
from the Republic of Liberia to the Marshall Islands.  Our executive offices are
located at Pentelis  16, 175 64 Palaio  Faliro,  Athens  Greece.  Our  telephone
number at this address is +30-210-947-0100.

B.      Business overview

Our fleet consists of dry bulk carriers that transport iron ore, coal, grain and
other dry cargoes along  worldwide  shipping  routes that currently have a total
capacity of 2.0 million dwt.  Please see information in the section "Our Fleet",
below.  During 2006, 2005 and 2004, we had a fleet  utilization of 99.9%,  99.7%
and 99.8%,  respectively,  our vessels  achieved  daily time charter  equivalent
rates of $22,661, $27,838 and $25,661,  respectively,  and we generated revenues
of $116.1 million, $103.1 million and $63.8 million, respectively.


Our Business Strategy


Our main objective is to manage and expand our fleet in a manner that enables us
to pay attractive  dividends to our stockholders.  To accomplish this objective,
we intend to:

     o    Continue to operate a high quality fleet.  We believe that our ability
          to maintain and increase our customer  base will depend on the quality
          of our fleet.  We intend to limit our  acquisition of ships to vessels
          that meet rigorous industry  standards and that are capable of meeting
          charterer certification  requirements.  At the same time, we intend to
          maintain  the quality of our  existing  fleet by carrying  out regular
          inspections of our vessels and  implementing  appropriate  maintenance
          programs for each vessel.

     o    Strategically  expand  the size of our  fleet.  We  intend to grow our
          fleet through timely and selective acquisitions of vessels in a manner
          that is accretive to dividends  per share.  We expect to focus our dry
          bulk carrier  acquisitions  primarily on Panamax and Capesize dry bulk
          carriers.  We believe  that  Panamax dry bulk  carriers are subject to
          relatively  less  volatility  in  charter  hire  rates and are able to
          access a greater  number  of ports and carry a broader  range of cargo
          compared to larger vessels. Capesize dry bulk carriers offer economies
          of scale due to their  increased  cargo carrying  capacity and provide
          relatively  stable cash flows and high utilization  rates due to their
          generally  being  employed  on longer term time  charters  compared to
          smaller  carriers.  We intend to continue to monitor  developments  in
          market  conditions  regularly  and may acquire other dry bulk carriers
          when  those  acquisitions   would,  in  our  view,  present  favorable
          investment  opportunities.  We may also consider acquisitions of other
          types of vessels  but do not intend to acquire  tankers.  We intend to
          capitalize on the experience and expertise of our management team when
          making  acquisition  related decisions and expect to continue to place
          an emphasis on sister ships.

     o    Pursue  an  appropriate  balance  of  short-term  and  long-term  time
          charters.  We  historically  have  chartered  our vessels to customers
          primarily  pursuant to short-term  time  charters.  While we expect to
          continue to pursue short-term time charter  employment for our Panamax
          dry bulk  carriers,  we have also entered into time charters in excess
          18 months  for  several of our  vessels.  We  believe  that  employing
          short-term  time  charters  generally  increases  our  flexibility  in
          responding  to market  developments  and assists us in  enhancing  the
          amount of charter hire that we are paid,  particularly  during periods
          of  increasing  charter  hire rates,  while  long-term  time  charters
          provide us the  benefit  of  relatively  stable  cash  flows.  We will
          continue  to  strategically  monitor  developments  in  the  dry  bulk
          shipping  industry  on a regular  basis and  adjust our  charter  hire
          periods according to market conditions.

     o    Maintain a strong  balance sheet with low leverage.  We expect to draw
          funds under our credit facility to fund vessel acquisitions. We intend
          to repay our  acquisition  related  debt in excess of 150 million from
          time to time  with the net  proceeds  of equity  issuances.  While our
          leverage  will vary  according  to our  acquisition  strategy  and our
          ability to refinance acquisition related debt through equity offerings
          on  terms  acceptable  to  us,  we  intend  to  limit  the  amount  of
          indebtedness  that  we have  outstanding  at any  time  to  relatively
          conservative  levels.  We  believe  that  maintaining  a low  level of
          leverage  will allow us to  maintain a strong  balance  sheet and will
          provide  us  with  flexibility  in  pursuing   acquisitions  that  are
          accretive to dividends per share.  We also believe that  maintaining a
          low  level of  indebtedness  will  allow us to remain  competitive  in
          adverse market  conditions,  particularly when compared to competitors
          who are burdened with significant levels of debt.

     o    Maintain low cost, highly efficient operations. We believe that we are
          a cost-efficient  and reliable owner and operator of dry bulk carriers
          due to the  strength  of our  management  team and the  quality of our
          vessels.  We intend to actively  monitor and control vessel  operating
          expenses without  compromising the quality of our vessel management by
          utilizing regular inspection and maintenance  programs,  employing and
          retaining qualified crew members and taking advantage of the economies
          of scale that result from operating a fleet of sister ships.

     o    Capitalize on our established  reputation.  We believe that we have an
          established   reputation  in  the  dry  bulk  shipping   industry  for
          maintaining high standards of performance,  reliability and safety. We
          intend  to  capitalize  on  this   reputation  in   establishing   and
          maintaining  relationships  with major  international  charterers  who
          consider the  reputation  of a vessel owner and operator when entering
          into time charters and with shipyards and financial  institutions  who
          consider reputation to be an indicator of creditworthiness.


Our Fleet

Our fleet consists of dry bulk carriers that transport iron ore, coal, grain and
other dry cargoes along worldwide  shipping routes. As of December 31, 2006, our
operating  fleet  consisted of thirteen modern Panamax dry bulk carriers and two
Capesize  dry  bulk   carriers  that  had  a  combined   carrying   capacity  of
approximately 1.1 million dwt and a weighted average age of 3.7 years.

In January and August 2006, we took delivery of two newly built Panamax dry bulk
carriers,  the Coronis and the Naias for the purchase price of $42.0 million and
$39.6 million,  respectively, and in November 2006 we took delivery of our newly
built Capesize dry bulk carrier,  the Sideris GS for the purchase price of $91.0
million. We financed part of the acquisition cost of the Coronis,  the Naias and
the Sideris GS with proceeds under our revolving  credit  facility  amounting to
$38.5 million, $39.6 million and $75.0 million, respectively.

Effective April 1, 2006, we acquired our fleet manager, Diana Shipping Services,
S.A. for the price of $20.0 million,  which was financed with proceeds under our
revolving credit facility.  In June 2006, we repaid all loans  outstanding as of
that date,  amounting to $71.4 million plus interest with the proceeds  obtained
from our secondary public offering in June 2006.

In  September   2006,  we  entered  into  novation   agreements  to  assume  the
shipbuilding contracts for the construction of two 177,000 dwt Capesize dry bulk
carriers  for the  contract  price of $60.2  million  each.  We  expect  to take
delivery of the vessels in the second quarter of 2010. In November 2006, we paid
the first  installment for the  construction of the vessels  amounting to $12.04
million for each vessel,  representing  20% of their contract price. We financed
the first  predelivery  installments  with funds  under our loan  facility  with
Fortis.

Recent Developments


In February  2007,  we entered  into a  memorandum  of  agreement to acquire one
additional newly built Capesize dry bulk carrier,  the Semirio,  currently under
construction at the Shanghai Waigaoqiao Shipbuilding Co. Ltd., in China, for the
price of $98.0 million.  We paid a 20% advance,  amounting to $19.6 million,  on
signing of the agreement with cash on hand and the balance of the purchase price
will be paid on the delivery of the vessel, which is expected in or around June
2007.

In February 2007, we entered into a memorandum of agreement to sell the Pantelis
SP for the  price of $81.0  million  less 2.5%  commission.  On  signing  of the
agreement,  the buyers of the vessels paid a 10% advance of the purchase  price,
amounting  to $8.1  million,  which will be  released  to us  together  with the
balance of the purchase price on delivery of the vessel to its new buyers, which
is expected in early July 2007.

In March 2007,  we entered into a memorandum  of agreement to acquire one second
hand Capesize dry bulk carrier,  the Aliki, for the price of $110.0 million.  We
paid a 10% advance, amounting to $11.0 million, on signing of the agreement with
cash on hands. The balance of the purchase price was paid on the delivery of the
vessel on April 30, 2007 and was partly  funded with an $87.0 million loan drawn
under our revolving credit facility with RBS.

On March 14, 2007 we paid a cash dividend of $0.46 per share, or an aggregate of
$24.4  million,  to our  shareholders  of record  on March 7, 2007  based on our
available cash from operations  during the fourth quarter of 2006 and on May 23,
2007 we paid a cash  dividend  of $0.50  per  share,  or an  aggregate  of $31.4
million,  to our  shareholders  of record on May 16, 2007 based on our available
cash from operations during the first quarter of 2007.

In April,  2007,  we  completed a public  offering of an  aggregate of 9,825,500
shares of our common stock,  resulting in net proceeds to us of $159.5  million,
before  expenses.  In the same  offering  certain  of our  shareholders  sold an
additional  2,250,000  shares of our common stock,  for which we did not receive
any proceeds.  As described below, we used a portion of the net proceeds of this
offering  to repay  outstanding  indebtedness  and we used the balance to fund a
portion of the acquisition costs of the vessels Semirio and Aliki.

In April  2007,  we drew  down an amount of $22.0  million  under our  revolving
credit  facility to fund part of the advances paid for the vessels'  Semirio and
Aliki.  During the same month,  we repaid in full the then  outstanding  balance
under our revolving  credit  facility with RBS amounting to $136.6 plus interest
and costs, partly with the proceeds of our public offering that was completed in
the same month.

In April 2007,  we entered into a  memorandum  of agreement to acquire one newly
built Capesize dry bulk carrier,  the H1043 to be named Boston, for the purchase
price of $110,000. On signing of the agreement, we paid a 20% advance, amounting
to $22.0  million,  with  available cash on hand and in May 2007 we drew down an
amount of $22.0  million  under our  revolving  credit  facility  to finance the
advance.  The vessel,  which is under  construction  at the Shanghai  Waigaoqiao
Shipbuilding Co., Ltd, is expected to be delivered in or around November 2007.

In November 2007, after the expected  delivery of all of our new vessels and the
sale of the Pantelis SP, our fleet will consist of 13 Panamax dry bulk  carriers
and six Capesize dry bulk carriers,  having a combined  carrying capacity of 2.2
million dwt and an average age (excluding the vessels under construction) of 3.1
years.

The  following  table  presents  certain  information  concerning  the dry  bulk
carriers in our combined fleet.
<table>
                                                                Time Charter          Daily Time        Sister
Vessel            Operating Status       Dwt      Age (1)    Expiration Date (2)    Charter Hire Rate   Ships (3)
------            ----------------       ---      -------    -------------------    -----------------   ---------
<S>              <C>                   <C>       <C>          <C>                    <C>                    <C>

Nirefs           Delivered Jan 2001     75,311   5.9 years    10/2007 to 01/2008     4tcs Average +         A
                                                                                        4.5% (4)
Alcyon           Delivered Feb 2001     75,247   5.9 years    10/2007 to 02/2008        $22,582             A
Triton           Delivered Mar 2001     75,336   5.8 years    10/2009 to 01/2010      $24,400 (5)           A
Oceanis          Delivered May 2001     75,211   5.6 years         06/2007              $17,000             A
Dione            Acquired May 2003      75,172   6.0 years    11/2007 to 01/2008        $28,500             A
Danae            Acquired July 2003     75,106   6.0 years    02/2009 to 05/2009        $29,400             A
Protefs          Delivered Aug 2004     73,630   2.3 years    02/2008 to 04/2008        $31,650             B
Calipso          Delivered Feb 2005     73,691   1.9 years    12/2007 to 02/2008        $26,750             B
Pantelis SP(6)   Acquired Feb 2005     169,883   7.9 years    01/2008 to 03/2008        $47,500             -
Clio             Delivered May 2005     73,691   1.6 years    01/2009 to 03/2009        $27,000             B
Erato            Acquired Nov 2005      74,444   2.3 years    11/2007 to 01/2008        $30,500             C
Thetis           Acquired Nov 2005      73,583   2.4 years    08/2007 to 10/2007        $25,000             B
Coronis          Delivered Jan 2006     74,381   0.9 years    01/2009 to 04/2009        $27,500             C
Naias            Delivered Aug 2006     73,546   0.5 years    06/2007 to 09/2007        $21,000             B
Sideris GS       Delivered Nov 2006    174,186   0.1 years    10/2010 to 01/2011      $41,000 (7)           D
Aliki            Acquired Apr 2007     180,235       -        03/2011 to 06/2011      $48,500 (8)           -
Semirio          Expected Jun 2007     175,000       -        04/2011 to 07/2011      $41,000 (9)           D
Boston           Expected Nov 2007     177,000       -        10/2011 to 01/2012      $52,000 (10)          D
Hull H1107       Expected 2010         177,000       -                -                    -                D
Hull H1108       Expected 2010         177,000       -                -                    -                D
</table>

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

(1)  As of December 31, 2006.

(2)  The date range  provided  represents  the earliest and latest date on which
     the charterer may  redeliver the vessel to us upon the  termination  of the
     charter.

(3)  Each dry bulk  carrier is a sister ship of each other dry bulk carrier that
     has the same letter.

(4)  Adjustable every 15 days based on the average of four  pre-determined  time
     charter routes.

(5)  The charterer has the option to employ the vessel for a further 11-13 month
     period at a daily rate  based on the  average  rate of four  pre-determined
     time charter routes. The optional period, if exercised, must be declared on
     or before the end of the 30th month of employment  and can only commence at
     the end of the 36th month.

(6)  The vessel has been sold to an unrelated  third party and is expected to be
     delivered to its new owners in early July 2007.

(7)  The daily time  charter  rate is $46,000  during  the first  year;  $43,000
     during the second year;  $39,000  during the third year and $36,000  during
     the fourth year.  The  charterer  has the option to employ the vessel for a
     further 11-13 month period, counting from the end of the 48th month, at the
     daily time charter rate of $48,500.

(8)  The daily time  charter  rate is $52,000  for the first and second year and
     $45,000  for the third and fourth  year.  The  charterer  has the option to
     employ the vessel for a further 11-13 month  period,  counting from the end
     of the 48th month, at the daily time charter rate of $48,500.

(9)  The daily time  charter  rate is $51,000  for the first and second year and
     $31,000  for the third and fourth  year.  The  charterer  has the option to
     employ the vessel for a further 11-13 month  period,  counting from the end
     of the 48th month, at the daily time charter rate of $48,500.

(10) The charterer has the option to employ the vessel for a further 11-13 month
     period  counting  from  the end of the 48th  month,  at the  daily  rate of
     $52,000.  The vessel is expected to be delivered  on or about  November 20,
     2007.

Each of our  vessels is owned  through a separate  wholly-owned  Panamanian  and
Marshall Islands subsidiary.

We  charter  our dry bulk  carriers  to  customers  primarily  pursuant  to time
charters.  A time  charter  involves the hiring of a vessel from its owner for a
period of time  pursuant to a contract  under which the vessel  owner places its
ship (including its crew and equipment) at the disposal of the charterer.  Under
a time charter, the charterer  periodically pays a fixed daily charter hire rate
and bears all voyage expenses,  including the cost of bunkers and port and canal
charges.  Subject to any restrictions in the contract,  the charterer determines
the type and  quantity  of cargo to be  carried  and the  ports of  loading  and
discharging.  The technical  operation and navigation of the vessel at all times
remains the responsibility of the vessel owner,  which is generally  responsible
for the vessel's operating  expenses,  including the cost of crewing,  insuring,
repairing and  maintaining  the vessel,  costs of spares and consumable  stores,
tonnage taxes and other miscellaneous  expenses.  In connection with the charter
of each of our vessels, we pay commissions ranging from 0% to 6.25% of the total
daily  charter  hire rate of each  charter to  unaffiliated  ship brokers and to
in-house ship brokers associated with the charterers, depending on the number of
brokers involved with arranging the relevant  charter.  We also pay a commission
equal to 2% of the total daily  charter hire rate of each vessel  charter to our
fleet manager.  However after our  acquisition  of DSS effective  April 1, 2006,
this amount is being eliminated from the consolidated financial statements as an
intercompany transaction.

We  strategically  monitor  developments in the dry bulk shipping  industry on a
regular  basis and adjust the charter hire periods for our vessels  according to
market  conditions.  Historically,  we have primarily  employed  short-term time
charters  that have  ranged in duration  from a few days to 13 months,  which we
believe have provided us with  flexibility in responding to market  developments
and have  assisted us in enhancing  the amount of charter hire that we are paid.
As part of our business strategy, 13 of our vessels,  including the Capesize dry
bulk  carriers  that we expect to take  delivery of in June and  November  2007,
respectively,  are currently  employed on longer-term  time charters  ranging in
duration  from 18 months to 48 months.  We may extend the  charter  periods  for
additional  vessels in our fleet to take advantage of the relatively stable cash
flow  and high  utilization  rates  that  are  associated  with  long-term  time
charters.

Our vessels operate worldwide within the trading limits imposed by our insurance
terms and do not operate in areas where United States,  European Union or United
Nations sanctions have been imposed.


Management of Our Fleet

The  commercial  and  technical  management of our fleet is carried out by Diana
Shipping  Services S.A., to which we refer as DSS, or our fleet  manager.  Until
April 1, 2006, DSS was majority  owned and controlled by Mr. Simeon Palios,  our
Chairman and Chief Executive Officer.  The stockholders of DSS also included Mr.
Anastassis Margaronis, our President and a member of our board of directors, and
Mr.  Ioannis  Zafirakis,  our  Vice  President  and a  member  of our  board  of
directors.  As further  discussed  below and in Item 8.B  "Significant  Changes"
effective April 1, 2006, DSS became our wholly owned subsidiary.


Under our management agreements,  our fleet manager is responsible for providing
us with:

     o    commercial management services, which include obtaining employment for
          our vessels and managing our relationships with charterers;

     o    accounting services

     o    technical  management  services,  which  include  managing  day-to-day
          vessel  operations,  performing general vessel  maintenance,  ensuring
          regulatory and  classification  society  compliance,  supervising  the
          maintenance and general  efficiency of vessels,  arranging our hire of
          qualified officers and crew, arranging and supervising dry docking and
          repairs, arranging insurance for vessels, purchasing stores, supplies,
          spares and new  equipment  for  vessels,  appointing  supervisors  and
          technical consultants and providing technical support; and

     o    shoreside  personnel  who  carry  out the  management  and  accounting
          functions described above.


In  addition,  we have entered  into a separate  agreement  with DSS pursuant to
which DSS has agreed to provide us with office space and secretarial services at
its  offices in  Athens,  Greece.  The fair  value of the annual  rental for the
office space and the secretarial services for the years ended December 31, 2006,
2005 and 2004 was approximately  $76,000,  $150,000 and $146,000,  respectively.
Furthermore,  executive management services provided by DSS free of charge until
March 17, 2005,  when our initial  public  offering was completed were accounted
for in our historical financial statements at fair value. The fair value of such
executive  management  services for the period from January 1, 2005 to March 17,
2005 was  $0.3  million,  and for the  year  ended  December  31,  2004 was $1.4
million.

In exchange  for  providing  us with the  services,  personnel  and office space
described  above,  we pay our fleet manager a commission  that is equal to 2% of
our revenues and a fixed  management fee of $15,000 per month for each vessel in
our operating fleet. A historical  breakdown of the amounts that we have paid to
our fleet manager is presented in the following table.

                                        Year Ended December 31,
                                 -----------------------------------
                                 2006     2005       2004
                                 ----     ----       ----
                                (in thousands of U.S. dollars)
Commissions ....................$2,384  $ 2,061  $ 1,276
Management fees..................2,414    1,731      947
                                ------  -------    -------
Total...........................$4,798  $ 3,792  $ 2,223
                                 =====  =======   ========


On March 27, 2006, the  stockholders  of DSS exercised their option to sell all,
but not less  than  all,  of their  outstanding  shares  of DSS to us for  $20.0
million in cash, pursuant to an agreement signed between the stockholders of DSS
and us in  February  2005.  On  April  1,  2006,  DSS  became  our  wholly-owned
subsidiary  and the 2%  commission  and  management  fees that we paid after the
acquisition  amounting  to $1.9  million and $1.8  million,  respectively,  were
eliminated   from  our   consolidated   financial   statements  as  intercompany
transactions.


Our Customers


We generally charter our vessels to major trading houses (including  commodities
traders),  major  producers and  government-owned  entities  rather than to more
speculative  or  undercapitalized  entities.  Our  customers  include  national,
regional and international  companies,  such as China National Chartering Corp.,
Cargill  International S.A., Norden A/S, Navios  International Inc., and Bocimar
N.V.  Antwerp.  During 2006,  three or our  customers  accounted  for 50% of our
revenues;  Cargill (20%),  Bocimar (15%) and China National (15%).  During 2005,
four of our customers  accounted for 63% of our revenues;  Cargill (26%),  China
National (14%), Navios International Inc. (12%) and Norden A/S (11%).


The Dry Bulk Shipping Industry


The marine  industry is a vital link in  international  trade,  with  oceangoing
vessels  representing  the  most  efficient,   and  often  the  only  method  of
transporting large volumes of basic commodities and finished products.  In 2006,
approximately  2.76  billion  tons of dry bulk  cargo  was  transported  by sea,
comprising more than one-third of all  international  seaborne  trade.  Dry bulk
cargo is cargo that is shipped in large quantities and can be easily stowed in a
single  hold with  little  risk of cargo  damage.  Dry bulk  cargo is  generally
categorized as either major bulk or minor bulk. Major bulk cargo constitutes the
vast  majority of dry bulk cargo by weight,  and  includes,  among other things,
iron  ore,  coal  and  grain.   Minor  bulk  cargo  includes  products  such  as
agricultural  products,  mineral  cargoes,  cement,  forest  products  and steel
products and represents the balance of the dry bulk industry. Other dry cargo is
categorized  as  container  cargo,  which  is  cargo  shipped  in 20 or 40  foot
containers and includes a wide variety of finished  products,  and non-container
cargo,  which  includes  other dry cargoes that cannot be shipped in a container
due to size,  weight  or  handling  requirements,  such as  large  manufacturing
equipment or large industrial  vehicles.  The balance of seaborne trade involves
the transport of liquids or gases in tanker  vessels and includes  products such
as oil, refined oil products and chemicals.

The demand for dry bulk carrier capacity is determined by the underlying  demand
for commodities transported in dry bulk carriers, which in turn is influenced by
trends in the global economy. Seaborne dry bulk trade increased by slightly more
than 2% annually  during the 1980s and 1990s.  However,  this rate of growth has
increased  dramatically in recent years. Between 2001 and 2006, trade in all dry
bulk  commodities  increased  from 2.14 billion tons to 2.76  billion  tons,  an
increase of 29%.

One of the  primary  reasons for the  resurgence  in dry bulk trade has been the
growth in imports by China of iron ore, coal and steel products  during the last
five years.  Chinese  imports of iron ore alone increased from 55.3 million tons
in 1999 to more than 270 million tons in 2006.

Demand  for  dry  bulk  carrier  capacity  is  also  affected  by the  operating
efficiency of the global fleet,  with port  congestion,  which was a significant
feature of the market in 2004 and the second part of 2006 and to a lesser extent
in 2005 and the first part of 2006, absorbing additional tonnage.

In evaluating demand factors for dry bulk carrier  capacity,  it is important to
bear in mind that dry bulk  carriers  can be the most  versatile  element of the
global  shipping fleets in terms of employment  alternatives.  Dry bulk carriers
seldom  operate  on  round  trip  voyages.  Rather,  the norm is  triangular  or
multi-leg  voyages.  Hence,  trade  distances  assume greater  importance in the
demand equation.

The global dry bulk carrier fleet may be divided into four categories based on a
vessel's carrying capacity. These categories consist of:

     o    Capesize  vessels which have  carrying  capacities of more than 85,000
          dwt. These vessels generally operate along long haul iron ore and coal
          trade routes. There are relatively few ports around the world with the
          infrastructure to accommodate vessels of this size.

     o    Panamax vessels have a carrying  capacity of between 60,000 and 85,000
          dwt. These vessels carry coal, grains, and, to a lesser extent,  minor
          bulks,  including  steel products,  forest  products and  fertilizers.
          Panamax  vessels are able to pass through the Panama Canal making them
          more versatile than larger vessels.

     o    Handymax vessels have a carrying capacity of between 35,000 and 60,000
          dwt.  These  vessels  operate  along a large number of  geographically
          dispersed  global trade routes mainly carrying grains and minor bulks.
          Vessels  below 60,000 dwt are  sometimes  built with  on-board  cranes
          enabling them to load and discharge  cargo in countries and ports with
          limited infrastructure.

     o    Handysize  vessels have a carrying capacity of up to 35,000 dwt. These
          vessels  carry  exclusively  minor  bulk  cargo.  Increasingly,  these
          vessels have operated along regional trading routes. Handysize vessels
          are well  suited for small  ports with  length and draft  restrictions
          that may lack the infrastructure for cargo loading and unloading.

The supply of dry bulk  carriers is dependent on the delivery of new vessels and
the removal of vessels from the global fleet,  either through scrapping or loss.
As of December  2006,  the global dry bulk carrier  orderbook  amounted to 80.10
million dwt, or 21.8% of the existing fleet. The level of scrapping  activity is
generally a function of scrapping  prices in relation to current and prospective
charter market  conditions,  as well as operating,  repair and survey costs. The
average age at which a vessel is  scrapped  over the last five years has been 26
years.  However,  due to recent strength in the dry bulk shipping industry,  the
average age at which the vessels are scrapped has increased.

Competition

Our business fluctuates in line with the main patterns of trade of the major dry
bulk cargoes and varies  according to changes in the supply and demand for these
items. We operate in markets that are highly  competitive and based primarily on
supply  and  demand.  We  compete  for  charters  on the basis of price,  vessel
location, size, age and condition of the vessel, as well as on our reputation as
an owner and operator.  We compete with other owners of dry bulk carriers in the
Panamax and smaller class sectors and with owners of Capesize dry bulk carriers.
Ownership of dry bulk carriers is highly fragmented.

Charter Hire Rates

Charter  hire rates  fluctuate  by varying  degrees  among dry bulk carrier size
categories.  The volume and  pattern of trade in a small  number of  commodities
(major  bulks) affect demand for larger  vessels.  Therefore,  charter rates and
vessel values of larger vessels often show greater volatility. Conversely, trade
in a greater number of  commodities  (minor bulks) drives demand for smaller dry
bulk  carriers.  Accordingly,  charter rates and vessel values for those vessels
are subject to less volatility.

Charter hire rates paid for dry bulk  carriers  are  primarily a function of the
underlying  balance  between  vessel supply and demand,  although at times other
factors  may play a role.  Furthermore,  the  pattern  seen in charter  rates is
broadly  mirrored  across the different  charter types and between the different
dry bulk carrier categories. However, because demand for larger dry bulk vessels
is affected by the volume and pattern of trade in a  relatively  small number of
commodities,  charter hire rates (and vessel  values) of larger ships tend to be
more volatile than those for smaller vessels.

In the time charter  market,  rates vary  depending on the length of the charter
period and vessel specific factors such as age, speed and fuel consumption.

In the voyage charter  market,  rates are  influenced by cargo size,  commodity,
port dues and canal transit fees, as well as delivery and redelivery regions. In
general,  a larger  cargo  size is quoted at a lower rate per ton than a smaller
cargo size.  Routes with costly ports or canals  generally  command higher rates
than  routes with low port dues and no canals to  transit.  Voyages  with a load
port within a region that includes ports where vessels  usually  discharge cargo
or a discharge port within a region with ports where vessels load cargo also are
generally quoted at lower rates,  because such voyages generally increase vessel
utilization  by reducing the unloaded  portion (or ballast leg) that is included
in the calculation of the return charter to a loading area.

Within the dry bulk shipping  industry,  the charter hire rate  references  most
likely to be  monitored  are the  freight  rate  indices  issued  by the  Baltic
Exchange.  These references are based on actual charter hire rates under charter
entered into by market participants as well as daily assessments provided to the
Baltic Exchange by a panel of major shipbrokers. The Baltic Panamax Index is the
index with the longest  history.  The Baltic  Capesize Index and Baltic Handymax
Index are of more recent  origin.  In 2003 and 2004,  rates for all sizes of dry
bulk carriers strengthened appreciably to historically high levels.

Vessel Prices

Vessel prices,  both for  newbuildings  and secondhand  vessels,  have increased
significantly  as a result of the  strength of the dry bulk  shipping  industry.
Because sectors of the shipping industry (dry bulk carrier, tanker and container
ships) are in a period of  prosperity,  newbuilding  prices for all vessel types
have  increased  significantly  due to a  reduction  in  the  number  of  berths
available for the construction of new vessels in shipyards.

In the  secondhand  market,  the steep  increase in  newbuilding  prices and the
strength of the charter  market have also affected  vessel  prices.  With vessel
earnings at relatively  high levels and a limited  availability  of  newbuilding
berths,  the ability to deliver a vessel  early has resulted in a premium to the
purchase  price.  Consequently,  secondhand  prices of five year old Panamax and
Capesize dry bulk carriers  have reached  higher levels than those of comparably
sized  newbuildings.  However,  recently secondhand prices have since slipped in
line with the weaker  freight  market,  and the slight  downturn in  newbuilding
prices


Environmental and Other Regulations

Government  regulation  significantly affects the ownership and operation of our
vessels. 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.

A variety  of  government  and  private  entities  subject  our  vessels to both
scheduled and  unscheduled  inspections.  These entities  include the local port
authorities   (United  States  Coast  Guard,   harbor  master  or   equivalent),
classification  societies;  flag state administrations (country of registry) and
charterers,  particularly terminal operators.  Certain of these entities require
us to  obtain  permits,  licenses  and  certificates  for the  operation  of our
vessels.  Failure to maintain necessary permits or approvals could require us to
incur substantial  costs or temporarily  suspend the operation of one or more of
our vessels.

We believe that the heightened level of environmental and quality concerns among
insurance  underwriters,   regulators  and  charterers  is  leading  to  greater
inspection  and  safety  requirements  on all  vessels  and may  accelerate  the
scrapping of older vessels throughout the dry bulk shipping industry. Increasing
environmental  concerns  have  created a demand for vessels  that conform to the
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
United States and  international  regulations.  We believe that the operation of
our vessels is in substantial compliance with applicable  environmental laws and
regulations applicable to us as of the date of this annual report.


        International Maritime Organization

The United Nation's International Maritime Organization,  or IMO, has negotiated
international   conventions   that  impose   liability   for  oil  pollution  in
international  waters and a signatory's  territorial  waters. In September 1997,
the IMO adopted Annex VI to the  International  Convention for the Prevention of
Pollution from Ships to address air pollution from ships.  Annex VI was ratified
in May 2004,  and became  effective  in May 2005.  Annex VI set limits on sulfur
oxide and nitrogen oxide  emissions from ship exhausts and prohibits  deliberate
emissions of ozone depleting substances,  such as chlorofluorocarbons.  Annex VI
also  includes  a global  cap on the  sulfur  content of fuel oil and allows for
special  areas  to  be  established  with  more  stringent  controls  on  sulfur
emissions. Our fleet has conformed to the Annex VI regulations.

The operation of our vessels is also affected by the  requirements  set forth in
the  IMO's  Management  Code  for the Safe  Operation  of  Ships  and  Pollution
Prevention,  or ISM  Code.  The ISM  Code  requires  ship  owners  and  bareboat
charterers to develop and maintain an extensive "Safety  Management System" that
includes the adoption of a safety and  environmental  protection  policy setting
forth  instructions and procedures for safe operation and describing  procedures
for dealing with emergencies.  The failure of a ship owner or bareboat charterer
to comply with the ISM Code may subject such party to increased  liability,  may
decrease available insurance coverage for the affected vessels and may result in
a denial of access to, or detention in, certain ports.  As of December 31, 2006,
each of our vessels was ISM code-certified.


        The United States Oil Pollution Act of 1990

The United States Oil Pollution  Act of 1990, or OPA,  established  an extensive
regulatory  and  liability   regime  for  the  protection  and  cleanup  of  the
environment from oil spills.  OPA affects all owners and operators whose vessels
trade in the United States,  its  territories  and  possessions or whose vessels
operate in United States waters,  which includes the United States'  territorial
sea and its two hundred nautical mile exclusive economic zone.

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:

     o    natural resources damage and the costs of assessment thereof;

     o    real and personal property damage;

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

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

     o    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.


OPA limits the liability of responsible parties to the greater of $600 per gross
ton or $0.5 million per dry bulk vessel that is over 300 gross tons  (subject to
possible adjustment for inflation). These limits of liability do not apply if an
incident was directly  caused by violation of applicable  United States  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.

We currently 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 an adverse  effect on
our business and results of operation.

OPA requires  owners and operators of vessels to establish and maintain with the
United  States Coast Guard  evidence of financial  responsibility  sufficient to
meet their  potential  liabilities  under the OPA. In December  1994, the United
States  Coast Guard  implemented  regulations  requiring  evidence of  financial
responsibility  in the amount of $1,500 per gross ton,  which  includes  the OPA
limitation  on  liability  of  $1,200  per  gross  ton  and  the  United  States
Comprehensive Environmental Response,  Compensation, and Liability Act liability
limit of $300 per gross ton. Under the regulations,  vessel owners and operators
may evidence  their  financial  responsibility  by showing  proof of  insurance,
surety bond,  self-insurance  or guaranty.  Under OPA, an owner or operator of a
fleet  of  vessels  is  required  only  to  demonstrate  evidence  of  financial
responsibility  in an amount sufficient to cover the vessels in the fleet having
the greatest maximum liability under OPA.

The United States Coast Guard's regulations concerning certificates of financial
responsibility  provide,  in accordance  with OPA, that claimants may bring suit
directly  against  an  insurer  or  guarantor  that  furnishes  certificates  of
financial  responsibility.  In the event that such  insurer or guarantor is sued
directly,  it is prohibited from asserting any  contractual  defense that it may
have had  against  the  responsible  party and is  limited  to  asserting  those
defenses  available to the  responsible  party and the defense that the incident
was  caused  by  the  willful  misconduct  of  the  responsible  party.  Certain
organizations,   which  had  typically   provided   certificates   of  financial
responsibility  under pre-OPA laws, including the major protection and indemnity
organizations,  have declined to furnish evidence of insurance for vessel owners
and  operators  if they are  subject  to direct  actions  or  required  to waive
insurance policy defenses.

The United States Coast Guard's financial responsibility regulations may also be
satisfied by evidence of surety bond,  guaranty or by self-insurance.  Under the
self-insurance  provisions, the ship owner or operator must have a net worth and
working  capital,  measured  in assets  located  in the  United  States  against
liabilities located anywhere in the world, that exceeds the applicable amount of
financial  responsibility.  We have  complied with the United States Coast Guard
regulations  by  providing  a  certificate  of  responsibility  from third party
entities  that are  acceptable  to the  United  States  Coast  Guard  evidencing
sufficient self-insurance.

OPA specifically permits individual states to impose their own liability regimes
with regard to oil pollution  incidents  occurring within their boundaries,  and
some states have enacted  legislation  providing for unlimited liability for oil
spills. In some cases, states, which have enacted such legislation, have not yet
issued implementing  regulations defining vessels owners' responsibilities under
these laws. We intend to comply with all  applicable  state  regulations  in the
ports where our vessels call.


Other Environmental Initiatives

Although the United States is not a party thereto,  many countries have ratified
and currently  follow the  liability  plan adopted by the IMO and set out in the
International Convention on Civil Liability for Oil Pollution Damage of 1969, or
the 1969 Convention. Under this convention, and depending on whether the country
in which the damage results is a party to the 1992 Protocol to the International
Convention on Civil Liability for Oil Pollution  Damage,  a vessel's  registered
owner is strictly liable for pollution  damage caused in the territorial  waters
of a  contracting  state by  discharge  of  persistent  oil,  subject to certain
complete defenses. Under an amendment that became effective in November 2003 for
vessels of 5,000 to  140,000  gross  tons (a unit of  measurement  for the total
enclosed  spaces within a vessel),  liability is limited to  approximately  $6.5
million plus  approximately  $913 for each additional  gross ton over 5,000. For
vessels of over 140,000 gross tons, liability is limited to approximately $129.9
million.  As the  1969  Convention  calculates  liability  in  terms  of  basket
currencies,  these  figures  are based on currency  exchange  rates on March 20,
2006. Under the 1969 Convention, the right to limit liability is forfeited where
the spill is caused by the owner's  actual  fault;  under the 1992  Protocol,  a
shipowner  cannot  limit  liability  where the  spill is  caused by the  owner's
intentional  or reckless  conduct.  Vessels  trading in  jurisdictions  that are
parties to these  conventions  must provide  evidence of insurance  covering the
liability of the owner. In jurisdictions  where the 1969 Convention has not been
adopted,  including the United States, various legislative schemes or common law
govern,  and  liability  is imposed  either on the basis of fault or in a manner
similar  to that  convention.  We  believe  that our  protection  and  indemnity
insurance will cover the liability under the plan adopted by the IMO.


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
Maritime  Transportation Security Act of 2002, or the MTSA, came into effect. To
implement  certain  portions of the MTSA, in July 2003,  the United States 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 the International
Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of the
convention  dealing  specifically with maritime  security.  The new chapter came
into effect in July 2004 and imposes various  detailed  security  obligations on
vessels and port  authorities,  most of which are contained in the newly created
International  Ship and Port  Facilities  Security Code or ISPS Code.  Among the
various requirements are:

     o    on-board  installation of automatic  information  systems,  or AIS, to
          enhance vessel-to-vessel and vessel-to-shore communications;

     o    on-board installation of ship security alert systems;

     o    the development of vessel security plans; and

     o    compliance with flag state security certification requirements.


The United States Coast Guard regulations,  intended to align with international
maritime security  standards,  exempt non-United States vessels from MTSA vessel
security measures provided such vessels have on board a valid International Ship
Security  Certificate,  or ISSC,  that attests 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.


Inspection by Classification Societies

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

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

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

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

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

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

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

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


Risk of Loss and Liability Insurance

        General

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

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


        Hull & Machinery and War Risks Insurance

We maintain marine hull and machinery and war risks  insurance,  which cover the
risk of actual or constructive  total loss, for all of our vessels.  Our vessels
are each covered up to at least fair market value with  deductibles  of $100,000
per vessel per incident.  We also maintain  increased value coverage for each of
our vessels.  Under this increased value coverage, in the event of total loss of
a vessel,  we are entitled to recover amounts not recoverable under our hull and
machinery policy due to under-insurance.


        Protection and Indemnity Insurance

Protection  and  indemnity  insurance  is  provided  by  mutual  protection  and
indemnity  associations,  or P&I  Associations,  which  insure  our third  party
liabilities  in  connection   with  our  shipping   activities.   This  includes
third-party  liability and other related  expenses  resulting from the injury or
death of crew,  passengers and other third parties, the loss or damage to cargo,
claims arising from collisions with other vessels,  damage to other  third-party
property, pollution arising from oil or other substances and salvage, towing and
other related costs, including wreck removal. Protection and indemnity insurance
is a form of mutual  indemnity  insurance,  extended by protection and indemnity
mutual  associations,  or "clubs." 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. The fourteen P&I Associations 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.  As a  member  of a P&I  Association,  which  is a  member  of  the
International  Group, we are subject to calls payable to the associations  based
on the group's  claim  records as well as the claim records of all other members
of the  individual  associations  and  members  of the pool of P&I  Associations
comprising the International Group.


Permits and Authorizations

We are  required  by various  governmental  and  quasi-governmental  agencies to
obtain certain permits,  licenses and certificates  with respect to our vessels.
The kinds of permits,  licenses and  certificates  required  depend upon several
factors,  including  the commodity  transported,  the waters in which the vessel
operates,  the nationality of the vessel's crew and the age of a vessel. We have
been able to obtain all permits, licenses and certificates currently required to
permit our vessels to operate. Additional laws and regulations, environmental or
otherwise,  may be adopted  which  could  limit our  ability to do  business  or
increase the cost of us doing business.

C.      Organizational structure

Diana  Shipping Inc. is the sole owner of all of the  outstanding  shares of the
subsidiaries  listed in Note 1 of our  consolidated  financial  statements under
Item 18 and in exhibit 8.1.

D.      Property, plant and equipment

We do not own any property.  We lease property  through our  management  company
under  finance and operating  leases.  Our interests in the vessels in our fleet
are our only material properties.


Item 4A.  Unresolved Staff Comments


None.


Item 5. Operating and Financial Review and Prospects


The following management's discussion and analysis should be read in conjunction
with our historical  consolidated  financial statements and their notes included
elsewhere in this report.  This discussion contains  forward-looking  statements
that  reflect  our current  views with  respect to future  events and  financial
performance.  Our actual results may differ materially from those anticipated in
these  forward-looking  statements as a result of certain factors, such as those
set forth in the section entitled "Risk Factors" and elsewhere in this report.


A.   Operating results

We charter our dry bulk carriers to customers  primarily  pursuant to short-term
and  long-term  time  charters.  Currently,  13 of our  vessels,  including  the
Capesize  dry bulk  carriers  that we  expect  to take  delivery  of in June and
November 2007, are currently  employed on longer-term  time charters  ranging in
duration from 18 to 48 months. Under our time charters,  the charterer typically
pays us a fixed daily charter hire rate and bears all voyage expenses, including
the cost of bunkers (fuel oil) and port and canal charges. We remain responsible
for paying the  chartered  vessel's  operating  expenses,  including the cost of
crewing, insuring, repairing and maintaining the vessel, the costs of spares and
consumable stores,  tonnage taxes and other miscellaneous  expenses, and we also
pay commissions to one or more unaffiliated ship brokers and to in-house brokers
associated with the charterer for the arrangement of the relevant charter.


Factors Affecting Our Results of Operations

We believe that the important  measures for  analyzing  trends in our results of
operations consist of the following:

     o    Ownership  days. We define  ownership days as the aggregate  number of
          days in a period  during which each vessel in our fleet has been owned
          by us. Ownership days are an indicator of the size of our fleet over a
          period  and  affect  both the  amount of  revenues  and the  amount of
          expenses that we record during a period.

     o    Available  days.  We  define  available  days  as  the  number  of our
          ownership days less the aggregate  number of days that our vessels are
          off-hire due to scheduled  repairs or repairs under guarantee,  vessel
          upgrades or special  surveys and the aggregate  amount of time that we
          spend  positioning our vessels.  The shipping  industry uses available
          days to measure the number of days in a period  during  which  vessels
          should be capable of generating revenues.

     o    Operating  days.  We  define  operating  days  as  the  number  of our
          available days in a period less the aggregate  number of days that our
          vessels  are  off-hire  due  to  any  reason,   including   unforeseen
          circumstances.  The shipping  industry uses  operating days to measure
          the aggregate number of days in a period during which vessels actually
          generate revenues.

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

     o    TCE rates. We define TCE rates as our voyage and time charter revenues
          less  voyage  expenses  during a period  divided  by the number of our
          available  days during the period,  which is consistent  with industry
          standards.  TCE  rate  is a  standard  shipping  industry  performance
          measure used primarily to compare daily earnings  generated by vessels
          on time  charters with daily  earnings  generated by vessels on voyage
          charters,  because  charter hire rates for vessels on voyage  charters
          are  generally  not  expressed in per day amounts  while  charter hire
          rates for vessels on time  charters  generally  are  expressed in such
          amounts.


The following table reflects our ownership days, available days, operating days,
fleet utilization and TCE rates for the periods indicated.

                                                     Year Ended December 31,
                                                   2006       2005       2004
                                                   ----       ----       ----
Ownership days ...............................     4,897      3,510      2,319
Available days ...............................     4,856      3,471      2,319
Operating days ...............................     4,849      3,460      2,315
Fleet utilization ............................     99.9%      99.7%      99.8%
Time charter equivalent (TCE) rate............   $22,661    $27,838    $25,661


        Voyage and Time Charter Revenue

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

     o    the duration of our charters;

     o    our decisions relating to vessel acquisitions and disposals;

     o    the amount of time that we spend positioning our vessels;

     o    the  amount  of time that our  vessels  spend in  dry-dock  undergoing
          repairs;

     o    maintenance and upgrade work;

     o    the age, condition and specifications of our vessels;

     o    levels of supply and demand in the dry bulk shipping industry; and

     o    other  factors  affecting  spot  market  charter  rates  for dry  bulk
          carriers.


Our  revenues  have  grown  significantly  in recent  periods as a result of the
enlargement  of our fleet,  which has  increased  our  ownership,  available and
operating  days. At the same time,  we have  maintained  relatively  high vessel
utilization rates.


        Voyage Expenses

We incur voyage expenses that include port and canal charges,  bunker (fuel oil)
expenses and commissions.  Port and canal charges and bunker expenses  primarily
increase in periods during which vessels are employed on voyage charters because
these  expenses are for the account of the owner of the vessels.  Port and canal
charges and bunker expenses  currently  represent a relatively  small portion of
our vessels' overall expenses because all of our vessels are employed under time
charters that require the charterer to bear all of those expenses.

As is common in the shipping  industry,  we pay  commissions  ranging from 0% to
6.25% of the total daily charter hire rate of each charter to unaffiliated  ship
brokers and in-house  brokers  associated with the charterers,  depending on the
number  of  brokers  involved  with  arranging  the  charter.   In  addition  to
commissions paid to third parties, we have historically paid our fleet manager a
commission that is equal to 2% of our revenues in exchange for providing us with
technical and commercial  management  services in connection with the employment
of our fleet. This commission is in addition to the fixed management fees we pay
to our fleet manager for the same services, as described below.

The  following  table  presents a breakdown of the  commissions  paid during the
periods indicated.

                                                    Year Ended December 31,
                                                  ---------------------------
                                                   2006    2005       2004
                                                 (in thousands of U.S. dollars)
Commissions paid to unaffiliated and
in-house ship brokers...........................  5,364    4,731     3,019
Commissions paid to fleet manager................ 2,384    2,061     1,276
                                                  -------  -------  --------

Total............................................ 7,748    6,792     4,295
                                                  =======  =======  ========



We believe that the amounts and the structures of our commissions are consistent
with industry practices.


We expect that the amount of our total  commissions  will  continue to grow as a
result of our increased revenues related to the growth of our fleet. As of April
1, 2006,  the 2% commissions  that we pay our fleet manager are eliminated  from
our consolidated  financial statements as intercompany  transactions (Please see
the section of this annual report entitled "Management of Our Fleet " under item
4B). However,  this reduction in costs has been offset by additional general and
administrative expenses as a result of our acquisition of DSS.


        Vessel Operating Expenses

Vessel  operating  expenses  include crew wages and related  costs,  the cost of
insurance,  expenses relating to repairs and maintenance, the cost of spares and
consumable stores,  tonnage taxes and other miscellaneous  expenses.  Our vessel
operating  expenses,  which generally  represent fixed costs,  have historically
increased as a result of the  enlargement of our fleet. We expect these expenses
to increase  further as a result of the enlargement of our fleet.  Other factors
beyond our control,  some of which may affect the shipping  industry in general,
including,  for instance,  developments relating to market prices for insurance,
may also cause these expenses to increase.


        Depreciation

The  cost of our  vessels  is  depreciated  on a  straight-line  basis  over the
expected  useful life of each vessel.  Depreciation  is based on the cost of the
vessel less its  estimated  residual  value.  We estimate the useful life of our
vessels to be 25 years from the date construction is completed, which we believe
is  common in the dry bulk  shipping  industry.  Furthermore,  we  estimate  the
residual  values of our  vessels to be $150 per  light-weight  ton which we also
believe is common in the dry bulk shipping  industry.  Our depreciation  charges
have increased in recent  periods due to the  enlargement of our fleet which has
also led to an increase of  ownership  days.  We expect that these  charges will
continue to grow as a result of our acquisition of additional vessels.


        Management Fees

We pay DSS, our fleet manager,  a fixed  management fee of $15,000 per month for
each vessel in our operating  fleet in exchange for providing us with  technical
and  commercial  management  services in connection  with the  employment of our
fleet.  This fee is in addition to the 2%  commission  on revenues we pay to our
fleet  manager  for the  services  as  described  above.  As of April  1,  2006,
management fees have been eliminated from our consolidated  financial statements
as  intercompany  transactions  and replaced by direct expenses of operating the
manager as a wholly-owned subsidiary.


        Executive Management Services and Rent

We have recognized expenses relating to executive management  services,  as well
as the value of the  lease  expense  for the  office  space and the  secretarial
services  that  were  provided  to  us at  no  additional  charge  by  DSS.  The
recognition  of these  expenses as executive  management  services and rent, for
historical purposes,  is based on our estimates of the value of the amounts that
we would have incurred had our fleet  manager not provided the related  services
and office  space to us. The value of the services  and rent was  determined  by
reference to the amounts that we intended to compensate  our executive  officers
and to the lease  agreement  between DSS and the owner of the office  space that
was previously owned by DSS.


        General and Administrative Expenses

We incur general and  administrative  expenses  which include our onshore vessel
related  expenses  such as legal and  professional  expenses  and other  general
vessel  expenses.  Our  general and  administrative  expenses  also  include our
payroll expenses,  including those relating to our executive  officers.  General
and  administrative  expenses may increase as a result of the enlargement of our
fleet.  Furthermore,  subsequent to April 2006,  our general and  administrative
expenses  increased as a result of our  acquisition of our fleet manager,  which
resulted in the recognition of additional expenses,  including payroll expenses,
relating to our fleet manager's operations.


        Interest and Finance Costs

We have historically incurred interest expense and financing costs in connection
with the vessel specific debt of our  subsidiaries.  As of December 31, 2006, we
had $114.6  million  of  indebtedness  outstanding  under our  revolving  credit
facility and incurred  additional  indebtedness  of $22.0 million in March 2007.
While  this debt of $136.6  was repaid  with part of the net  proceeds  from our
public  offering in April 2007,  we incurred  additional  indebtedness  of $87.0
million in April and $22.0  million in May 2007. We incur  interest  expense and
financing  costs  relating  to our  outstanding  debt and our  available  credit
facility and interest  expense  relating to our  financing  lease.  We expect to
incur  additional  debt to finance future  acquisitions.  However,  we intend to
limit  the  amount  of these  expenses  and costs by  repaying  our  outstanding
indebtedness  in excess of  approximately  $150.0 million from time to time with
the net proceeds of future  equity  issuances.  As of December 31, 2006,  we had
$24.1 million of  indebtedness  outstanding  under our loan facility with Fortis
bank.  Interest and finance costs incurred in connection with this loan facility
are capitalized in vessel cost.


        Inflation

Inflation  has only a moderate  effect on our expenses  given  current  economic
conditions.  In the event that significant global inflationary pressures appear,
these  pressures  would  increase  our  operating,  voyage,  administrative  and
financing costs.


        Lack of Historical Operating Data for Vessels before Their Acquisition

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

Where we identify  any  intangible  assets or  liabilities  associated  with the
acquisition of a vessel with an existing time charter,  we record all identified
tangible  and  intangible  assets or  liabilities  at fair value.  Fair value is
determined  by  reference to market data and the  discounted  amount of expected
future  cash flows.  Where we have  assumed an existing  charter  obligation  or
entered into a time charter with the existing  charterer in connection  with the
purchase of a vessel at charter rates that are less than market  charter  rates,
we record a liability,  based on the difference between the assumed charter rate
and the market charter rate for an equivalent  vessel to the extent the vessel's
capitalized  cost  would not  exceed  its fair  value  without  a time  charter.
Conversely,  where we assume an existing charter obligation or enter into a time
charter with the existing  charterer in connection with the purchase of a vessel
at charter rates that are above market charter rates, we record an asset,  based
on the difference  between the market  charter rate and the  contracted  charter
rate for an equivalent vessel. This determination is made at the time the vessel
is delivered  to us, and such assets and  liabilities  are  amortized to revenue
over the remaining period of the charter.

In  September  2005,  we entered  into a  Memorandum  of Agreement to purchase a
secondhand  Panamax  dry bulk  carrier,  the  Thetis,  for a  purchase  price of
$44,250.  The  vessel,  upon her  delivery in  November  2005,  was placed on an
existing  time  charter  contract  assumed  from  its  previous  owners  through
arrangements with the respective charterers.  The contract which expires between
July and September 2007 is at the rate of $25,000 per day, gross of commissions.
The Company,  upon delivery of the vessel evaluated the charter contract assumed
and recognized an asset of $5,443 with a corresponding  decrease in the vessel's
purchase price.

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

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

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

     o    in some cases,  obtain the  charterer's  consent to a new flag for the
          vessel;

     o    arrange  for a new crew for the  vessel,  and where  the  vessel is on
          charter, in some cases, the crew must be approved by the charterer;

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

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

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

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

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


When we charter a vessel  pursuant to a long-term  time charter  agreement  with
varying  rates,  we  recognize  revenue on a straight  line basis,  equal to the
average revenue during the term of the charter.  However, we calculate quarterly
dividends  based on the  available  cash from  operations  during  the  relevant
quarter.  We have  entered  into such time  charter  agreements  for our  recent
acquisitions, the Sideris GS, the Aliki and the Semirio.

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

Our business is comprised of the following main elements:

     o    employment and operation of our dry bulk vessels; and

     o    management  of the  financial,  general  and  administrative  elements
          involved in the conduct of our business and  ownership of our dry bulk
          vessels.

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

     o    vessel maintenance and repair;

     o    crew selection and training;

     o    vessel spares and stores supply;

     o    contingency response planning;

     o    onboard safety procedures auditing;

     o    accounting;

     o    vessel insurance arrangement;

     o    vessel chartering;

     o    vessel security training and security response plans (ISPS);

     o    obtain  ISM  certification  and audit for each  vessel  within the six
          months of taking over a vessel;

     o    vessel hire management;

     o    vessel surveying; and

     o    vessel performance monitoring.


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

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

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

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

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


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

     o    rates and periods of charter hire;

     o    levels of vessel operating expenses;

     o    depreciation expenses;

     o    financing costs; and

     o    fluctuations in foreign exchange rates.


Critical Accounting Policies


The discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance  with  U.S.  GAAP.  The  preparation  of those  financial  statements
requires us to make estimates and judgments that affect the reported  amounts of
assets  and  liabilities,  revenues  and  expenses  and  related  disclosure  of
contingent  assets  and  liabilities  at the date of our  financial  statements.
Actual results may differ from these estimates  under different  assumptions and
conditions.

Critical  accounting  policies are those that reflect  significant  judgments of
uncertainties  and  potentially  result in  materially  different  results under
different  assumptions and  conditions.  We have described below what we believe
are our most critical  accounting  policies,  because they  generally  involve a
comparatively higher degree of judgment in their application.  For a description
of all our  significant  accounting  policies,  see  Note 2 to our  consolidated
financial statements included in this annual report.


        Accounts Receivable, Trade

Accounts receivable, trade, at each balance sheet date, include receivables from
charterers  for hire,  freight and  demurrage  billings,  net of a provision for
doubtful  accounts.  At each balance sheet date, all  potentially  uncollectible
accounts are assessed  individually  for purposes of determining the appropriate
provision for doubtful accounts.


        Accounting for Revenues and Expenses

Revenues are generated from time charter agreements.  Time charter revenues over
the term of the  charter are  recorded  as service is provided  when they become
fixed and  determinable.  A voyage is deemed to commence upon the  completion of
discharge  of the  vessel's  previous  cargo  and is  deemed  to  end  upon  the
completion of discharge of the current cargo. Income representing  ballast bonus
payments  by the  charterer  to the  vessel  owner is  recognized  in the period
earned.  Deferred revenue includes cash received prior to the balance sheet date
for which all  criteria  to  recognize  as revenue  have not been met.  Deferred
revenue also includes the unamortized  balance of the liability  associated with
the  acquisition of second-hand  vessels with time charters  attached which were
acquired at values below fair market value at the date the acquisition agreement
is  consummated.  Voyage  related  and vessel  operating  costs are  expensed as
incurred.


        Depreciation

We record the value of our  vessels at their cost  (which  includes  acquisition
costs directly  attributable to the vessel and expenditures  made to prepare the
vessel for its initial voyage) less accumulated depreciation.  We depreciate our
dry bulk vessels on a  straight-line  basis over their  estimated  useful lives,
estimated  to be 25 years from the date of initial  delivery  from the  shipyard
which we  believe  is also  consistent  with that of other  shipping  companies.
Second hand vessels are depreciated from the date of their  acquisition  through
their remaining  estimated  useful life.  Depreciation is based on cost less the
estimated residual scrap value. Furthermore,  we estimate the residual values of
our  vessels to be $150 per  light-weight  ton which we believe is common in the
dry bulk shipping  industry.  A decrease in the useful life of a dry bulk vessel
or in its  residual  value  would  have the  effect  of  increasing  the  annual
depreciation  charge.  When  regulations  place  limitations on the ability of a
vessel to trade on a worldwide  basis,  the vessel's  useful life is adjusted at
the date such regulations are adopted.


        Deferred Drydock Cost

Our vessels are required to be drydocked approximately every 30 to 36 months for
major  repairs and  maintenance  that cannot be performed  while the vessels are
operating. We capitalize the costs associated with drydockings as they occur and
amortize  these  costs  on  a  straight-line   basis  over  the  period  between
drydockings.  Unamortized dry-docking costs of vessels that are sold are written
off and included in the calculation of the resulting gain or loss in the year of
the vessel's sale.  Costs  capitalized as part of the drydocking  include actual
costs  incurred at the yard and parts used in the  drydocking.  We believe  that
these  criteria are  consistent  with  industry  practice and that our policy of
capitalization reflects the economics and market values of the vessels.


        Impairment of Long-lived Assets

We evaluate  the carrying  amounts  (primarily  for vessels and related  drydock
costs) and periods over which long-lived  assets are depreciated to determine if
events have occurred which would require  modification  to their carrying values
or useful lives.  In evaluating  useful lives and carrying  values of long-lived
assets,  we  review  certain  indicators  of  potential   impairment,   such  as
undiscounted  projected  operating  cash  flows,  vessel  sales  and  purchases,
business  plans  and  overall  market  conditions.   We  determine  undiscounted
projected net operating cash flow for each vessel and compare it to the vessel's
carrying value. If our estimate of undiscounted future cash flows for any vessel
is lower  than the  vessel's  carrying  value plus any  unamortized  dry-docking
costs,  the carrying value is written down, by recording a charge to operations,
to the fair  market  value if the fair market  value is lower than the  vessel's
carrying value. We estimate fair market value primarily through the use of third
party valuations  performed on an individual vessel basis.  Furthermore,  in the
period a long lived asset meets the "held for sale"  criteria of SFAS No.144,  a
loss is recognized for any initial adjustment of the long lived asset's carrying
amount to fair  value less cost to sell.  As vessel  values  are  volatile,  the
actual fair market  value of a vessel may differ  significantly  from  estimated
fair market values within a short period of time.


        Employees' retirement and staff leaving indemnities.

Administrative  personnel  are  entitled to an indemnity in case of dismissal or
retirement unless they resign or are dismissed with cause. As of the acquisition
date of our fleet  manager  (April 1, 2006),  we recognized in the balance sheet
the estimated  benefit  obligation  for the past service of our fleet  manager's
employees. This is an unfunded plan and is being accounted for under SFAS 158.


Results of Operations

     Year ended December 31, 2006 compared to the year ended December 31, 2005

Voyage and Time Charter Revenues.  Voyage and time charter revenues increased by
$13.0  million,  or 13%, to $116.1 million for the year ended December 31, 2006,
compared  to $103.1  million  for the same  period  in 2005.  This  increase  is
primarily  attributable  to an increase in the number of operating  days that we
achieved. The increase in operating days during 2006 resulted primarily from the
enlargement of our fleet following our acquisition of the Coronis, the Naias and
the Sideris GS in January,  August and November 2006,  respectively and the full
operation  in 2006 of  Pantelis  SP, the  Calipso,  the Clio,  the Erato and the
Thetis all acquired in 2005.  In 2006 we had total  operating  days of 4,849 and
fleet  utilization of 99.9%,  compared to 3,460 total operating days and a fleet
utilization of 99.7% in 2005.

Voyage  Expenses.  Voyage  expenses  decreased by $0.4  million,  or 6%, to $6.1
million for the year ended  December 31, 2006,  compared to $6.5 million for the
same period in 2005.  This decrease is attributable to the elimination of the 2%
commission paid to the management company effective April 1, 2006. This decrease
was partly  offset with  increases in  commissions  due to  increased  revenues.
Commissions  paid  during  2006 and 2005 to our fleet  manager  amounted to $2.4
million (of which $1.9  million was  eliminated  upon  acquisition  of our fleet
manager)  and  $2.1  million,   respectively,   and  commissions   paid  to  the
unaffiliated  ship brokers and in-house ship brokers  associated with charterers
amounted  to $5.4  million  and $4.7  million,  respectively.  The  increase  in
commissions was primarily the result of the increase in the amount of revenue we
reported due to increased operating days in 2006.

Vessel Operating Expenses.  Vessel operating expenses increased by $7.5 million,
or 50%, to $22.5 million for the year ended  December 31, 2006 compared to $15.0
million for the same period in 2005.  This  increase was primarily the result of
the  increased  number  of  ownership  days  during  2006,  resulting  from  the
enlargement of our fleet.  Daily vessel  operating  expenses  increased by 8% to
$4,592  for  2006,  compared  to $4,261  for  2005.  This  increase  was  mainly
attributable to increased crew costs, stores, spares and repairs.

Depreciation and Amortization of Deferred Charges. Depreciation and amortization
of deferred charges increased by $6.8 million,  or 69%, to $16.7 million for the
year ended  December 31,  2006,  compared to $9.9 million for the same period in
2005. This increase was primarily the result of increased  number of vessels and
ownership  days, as described  above and the increase in vessels that  underwent
drydock and special surveys during the year.

Management  Fees  and  General  and  Administrative  expenses.  Management  fees
decreased by $1.1 million,  or 65%, to $0.6 million for the year ended  December
31, 2006, compared to $1.7 million for the same period in 2005. This decrease is
attributable  to the  elimination of the  management  fees paid to DSS after its
acquisition  effective April 1, 2006.  However,  due to this acquisition General
and  Administrative  Expenses  during  2006  increased  by $3.4  million to $6.3
million compared to $2.9 million in 2005.

Interest  and Finance  Costs.  Interest  and  finance  costs  increased  by $1.2
million,  or 44%, to $3.9 million for the year ended December 31, 2006, compared
to $2.7  million  for the  same  period  in 2005.  Interest  and  finance  costs
increased due to increased interest costs which as of December 31, 2006 amounted
to $3.1  million  compared to $1.4  million  for the same period in 2005,  which
resulted from increased  long-term debt outstanding  during the year,  increased
average  interest  rates and interest  relating to leased  property that did not
exist in 2005.

     Year ended December 31, 2005 compared to the year ended December 31, 2004

Voyage and Time Charter Revenues.  Voyage and time charter revenues increased by
$39.3  million,  or 62%, to $103.1 million for the year ended December 31, 2005,
compared  to  $63.8  million  for the same  period  in 2004.  This  increase  is
primarily  attributable  to an increase in the number of operating  days that we
achieved. The increase in operating days during 2005 resulted primarily from the
enlargement  of our fleet  following  our  acquisition  of the Protefs in August
2004,  which was fully  operated  in 2005,  the  delivery of the Calipso and the
Pantelis  SP in  February  2005,  the  delivery  of the Clio in May 2005 and the
delivery  of the Erato and the  Thetis in  November  2005.  In 2005 we had total
operating days of 3,460 and fleet utilization of 99.7%,  compared to 2,315 total
operating days and a fleet utilization of 99.8% in 2004.

Voyage  Expenses.  Voyage  expenses  increased by $2.2 million,  or 51%, to $6.5
million for the year ended  December 31, 2005,  compared to $4.3 million for the
same period in 2004.  This increase is  attributable  to increased  commissions.
Commissions  paid  during  2005 and 2004 to our fleet  manager  amounted to $2.1
million and $1.3 million, respectively, and commissions paid to the unaffiliated
ship brokers and in-house ship brokers  associated with  charterers  amounted to
$4.7 million and $3.0 million,  respectively.  The increase in  commissions  was
primarily the result of the increase in operating days in 2005,  which increased
the amount of revenue we reported.  However, the increase in voyage expenses due
to the increase in commissions was partly offset by gains incurred from the sale
and  purchase of bunkers on the delivery  and  redelivery  of the vessels to and
from their time charterers.

Vessel Operating Expenses.  Vessel operating expenses increased by $5.5 million,
or 58%, to $15.0  million for the year ended  December 31, 2005 compared to $9.5
million for the same period in 2004.  This  increase was primarily the result of
the  increased  number  of  ownership  days  during  2005,  resulting  from full
operation of the Protefs,  which was acquired in August 2004 and the delivery of
four  additional  Panamax dry bulk carriers and one Capesize dry bulk carrier in
2005.  Daily  vessel  operating  expenses  increased  by 4% to $4,261  for 2005,
compared to $4,103 for 2004. This increase was mainly  attributable to increased
crew wages and related costs.

Depreciation and Amortization of Deferred Charges. Depreciation and amortization
of deferred charges  increased by $4.8 million,  or 94%, to $9.9 million for the
year ended  December 31,  2005,  compared to $5.1 million for the same period in
2004. This increase was primarily the result of increased  number of vessels and
ownership days, as described  above, and from the fact that in 2005 three of our
vessels  underwent  their first  scheduled  surveys  compared to no such surveys
performed in 2004.

Management  Fees.  Management  fees  increased by $0.8 million,  or 89%, to $1.7
million for the year ended  December 31, 2005,  compared to $0.9 million for the
same period in 2004.  This increase is  attributable  to the  increased  average
number of vessels  under  management,  as well as the  increase  in the  monthly
management fee per vessel from $12,000 to $15,000 beginning in November 2004.

Interest  and Finance  Costs.  Interest  and  finance  costs  increased  by $0.5
million,  or 23%, to $2.7 million for the year ended December 31, 2005, compared
to $2.2  million  for the  same  period  in 2004.  Interest  and  finance  costs
increased due to the  commitment  fees we incurred  under our  revolving  credit
facility,  which for the year ended December 31, 2005, amounted to $0.6 million,
and the write off of $0.5 million of financing  costs due to  prepayment  of the
outstanding  loans in March  2005.  This  increase  was offset by a decrease  in
interest expense by $0.6 million,  or 32%, to $1.4 million in 2005,  compared to
$2.0 million in 2004, which resulted from the payment in full of the outstanding
balance of all loans as of March 2005 with the  proceeds of our  initial  public
offering  in  March  2005  and  the  fact  that  we did not  incur  any  further
indebtedness until November 2005.

B.   Liquidity and Capital Resources

We have  historically  financed  our  capital  requirements  with cash flow from
operations,  equity contributions from stockholders and long-term bank debt. Our
main uses of funds have been capital  expenditures  for the  acquisition  of new
vessels,  expenditures  incurred in  connection  with  ensuring that our vessels
comply with international and regulatory standards, repayments of bank loans and
payments of dividends.  We will require capital to fund ongoing operations,  the
construction of new vessels,  acquisitions and debt service.  We anticipate that
internally  generated cash flow and borrowings under our credit facility will be
sufficient to fund the  operations of our fleet,  including our working  capital
requirements.

It is our  current  policy  to  fund  our  future  acquisition  related  capital
requirements initially through borrowings under our credit facility and to repay
those  borrowings  in  excess  of $150  million  from  time to time with the net
proceeds of equity issuances.  We believe that excess funds will be available to
support our growth  strategy,  which  involves  the  acquisition  of  additional
vessels, and will allow us to distribute substantially all of our available cash
from operations as dividends to our stockholders as contemplated by our dividend
policy.  Depending on market  conditions in the dry bulk  shipping  industry and
acquisition  opportunities  that  may  arise,  we  may  be  required  to  obtain
additional debt or equity financing which could affect our dividend policy.


Cash Flow

Cash and cash  equivalents  decreased to $14.5  million as of December 31, 2006,
from $21.2 million as of December 31, 2005.  Working  capital,  which is current
assets minus current  liabilities,  including  the current  portion of long-term
debt,  amounted to $11.4  million as at December  31, 2006  compared to $21.9 at
December 31, 2005.


        Net Cash Provided By Operating Activities

For the year ended December 31, 2006, net cash provided by operating  activities
increased by $13.1 million,  or 19%, to $82.4 million  compared to $69.3 million
in 2005. The increase was primarily the result of the increase in operating days
in 2006 compared to 2005. Net cash provided by operating activities increased by
$21.9  million,  or 46%, to $69.3  million for the year ended  December 31, 2005
compared to $47.4 million in 2004.  This increase was primarily  attributable to
the increase in the number of operating  days that we achieved  during the year,
which resulted in an increase in our revenues.


        Net Cash Used In Investing Activities

Net cash used in  investing  activities  was $193.1  million  for the year ended
December 31, 2006,  consisting of the first predelivery  advance we paid for our
vessels under construction,  Hull 1107 and Hull 1108, amounting to $24.1 million
plus  additional  construction  costs and $168.7  million  paid for the delivery
installment of the Coronis and the acquisition of the Naias and the Sideris GS.

Net cash used in  investing  activities  amounted  to $169.2  million  for 2005,
consisting  of the  final  installments  that  we paid in  connection  with  our
acquisitions of the Calipso,  the Clio and the Pantelis SP, the  acquisitions of
the Erato and the Thetis and the 10% advance we paid for the Coronis.

Net cash used in investing activities was $11.8 million for 2004,  consisting of
the final  installments  that we paid in connection with our acquisitions of the
Amfitrite and the Protefs, 10% advance payment for the acquisition of the second
hand bulk carrier vessel Pantelis SP and  installments  paid for the Calipso and
the  Clio,  netted  off with the  proceeds  from  the sale of the  Amfitrite  in
November 2004.


        Net Cash Provided By / Used In Financing Activities

Net cash provided by financing  activities was $104.0 million for the year ended
December  31, 2006,  consisting  of $197.2  million of proceeds  drawn under our
revolving  credit and loan  facilities for the acquisition of the Coronis ($38.5
million),  the fleet manager or DSS ($20.0 million),  the Naias ($39.6 million),
the Sideris GS ($75.0 million) and Hulls 1107 and 1108 ($24.1 million). From the
above loan  proceeds an amount of $71.4 million was repaid with the net proceeds
of our  additional  public  offering in June 2006,  amounting to $71.7  million.
Also,  an amount of $19.7  million was the net cash  consideration  paid for the
acquisition of DSS, the fleet manager,  which  represents the  consideration  of
$20.0  paid,  net of  $0.3  million  of cash  acquired  in the  transaction.  In
addition, $73.6 million was paid as dividends in 2006.

Net cash  provided  by  financing  activities  was $119.5  million  in 2005.  We
borrowed  $150.9 million of long-term debt to partially  finance the acquisition
of the  Calipso,  the  Pantelis  SP,  the Erato and the Clio and  incurred  $1.2
million of financing  costs.  We repaid $230.7 million of outstanding  long-term
debt with the net proceeds of our initial public  offering in March 2005,  which
amounted to $194.0  million and with the net  proceeds of our follow on offering
in December  2005,  which amounted to $63.1 million and released $0.8 million of
restricted cash. We paid our stockholders $57.4 million in cash dividends.

Net cash used in financing  activities  was $41.3  million in 2004.  In 2004, we
borrowed $15.7 million of long-term debt to partially finance the acquisition of
the Protefs.  We repaid $6.3 million of outstanding  long-term debt and paid our
stockholders $51.0 million in cash dividends.


Credit Facility

In February  2005, we entered into a $230.0  million  secured  revolving  credit
facility  with The Royal  Bank of  Scotland  Plc.  The  credit  facility  became
effective in March 2005 upon the  successful  completion  of our initial  public
offering. In May 2006, the credit facility was amended to increase the amount of
borrowings to $300.0 million. Pursuant to the amended agreement we are permitted
to borrow amounts up to the facility limit, provided that certain pre-conditions
are  satisfied and that  borrowings do not exceed 75% of the aggregate  value of
the mortgaged vessels.  The credit facility may be used to fund our acquisitions
of vessels  and  companies  with  shipping  interests  and our  working  capital
requirements  in an amount not to exceed  $50.0  million,  including up to $20.0
million that was used for our acquisition of our fleet manager.

We paid a fee of $1.2 million on the date that we signed the loan  agreement and
$0.1 million on the date of the amendment of the agreement. We paid a commitment
fee of 0.375%  per annum on the  amount of the  undrawn  balance  from the first
available draw down date until July 1, 2005. On July 1, 2005, the commitment fee
under the loan agreement  decreased to 0.35% per annum and on May 24, 2006 under
our amended  agreement,  the commitment fee,  further  decreased to 0.25% and is
payable  quarterly in arrears for the term of the facility.  Interest on amounts
drawn are payable at a rate ranging from 0.75% to 0.85% per annum over LIBOR.

The credit  facility has a term of ten years.  We are  permitted to borrow up to
the facility  limit,  provided that  conditions to drawdown are  satisfied.  The
facility  limit is $300.0 million for a period of six years from the date of the
amended  loan  agreement  at which  time the  facility  limit will be reduced to
$285.0 million.  Thereafter, the facility limit will be reduced by $15.0 million
semi-annually  over a period  of four  years  with a final  reduction  of $165.0
million at the time of the last semi-annual reduction.

Our  obligations  under the credit  facility  are  secured  by a first  priority
mortgage on twelve of the vessels in our combined fleet  (excluding the Coronis,
the Naias and the Sideris GS)),  and such other vessels that we may from time to
time  include  with  the  approval  of our  lender,  a first  assignment  of all
freights,  earnings,  insurances  and  requisition  compensation.  We may  grant
additional security from time to time in the future.

Our  ability  to borrow  amounts  under the  credit  facility  is subject to the
execution  of  customary  documentation  relating  to  the  facility,  including
security documents,  satisfaction of certain customary  conditions precedent and
compliance  with terms and  conditions  included in the loan  documents.  To the
extent  that the  vessels in our fleet that  secure  our  obligations  under the
credit facility are  insufficient to satisfy minimum security  requirements,  we
will be required to grant additional security or obtain a waiver or consent from
the lender.  We will also not be permitted to borrow  amounts under the facility
if we experience a change of control.

The amended credit facility contains financial and other covenants requiring us,
among other things, to ensure that:

     o    the aggregate market value of the vessels in our fleet that secure our
          obligations under the credit facility at all times exceeds 120% of the
          aggregate  principal  amount  of debt  outstanding  under  the  credit
          facility and the notional or actual cost of  terminating  any relating
          hedging arrangements;

     o    our total assets minus our debt will not at any time be less than $150
          million and at all times will exceed 25% of our total assets;

     o    we maintain $0.40 million of liquid funds per vessel.

For the  purposes  of the credit  facility,  our "total  assets"  are defined to
include our tangible  fixed assets and our current  assets,  as set forth in our
consolidated  financial statements,  except that the value of any vessels in our
fleet that secure our obligations  under the credit facility will be measured by
their fair market value  rather than their  carrying  value on our  consolidated
balance sheet.

The credit facility also contains general  covenants that require us to maintain
adequate insurance coverage and to obtain the lender's consent before we acquire
new vessels,  change the flag,  class or management  of our vessels,  enter into
time charters or consecutive  voyage charters that have a term that exceeds,  or
which by virtue of any optional extensions may exceed,  thirteen months or enter
into a new line of business. In addition, the credit facility includes customary
events of default,  including  those  relating to a failure to pay  principal or
interest, a breach of covenant,  representation and warranty, a cross-default to
other indebtedness and non-compliance with security documents.

Our credit  facility  does not  prohibit us from paying  dividends so long as an
event of default has not occurred and we are not, and after giving effect to the
payment of the dividend would not be, in breach of a covenant.  If we incur debt
under the credit facility, however, the amount of cash that we have available to
distribute  as dividends in a period may be reduced by any interest or principal
payments that we are required to make.

In January  2007, we entered into a 364-day loan facility with the Royal Bank of
Scotland of $200.0  million to be made  available  upon full  utilization of the
existing credit  facility.  An amount of $100 was paid on signing the agreement,
which will expire 364 days after its availability date.


Loan Facility

In November 2006 our subsidiaries Eniwetok and Bikini (the "Borrowers"), entered
into a facility agreement with Fortis Bank for a loan of up to $60.2 million and
a guarantee facility of up to $36.5 million,  each to be used for the purpose of
financing  and  guaranteeing  the  payment  of  part  of  the  construction  and
acquisition  cost of our two  177,000 dwt  Capesize  dry bulk  carriers  that we
expect to take delivery of in the second quarter of 2010.

The loan  facility  will be  available  in  advances,  according  to the payment
schedule provided in the ship-building  contracts,  until December 30, 2010 (the
termination date) and such advances will be repaid in full at the earlier of the
repayment date (December 31, 2010) or the delivery of each vessel. The guarantee
facility will be available  until  December 31, 2010. The loan bears interest at
LIBOR plus a margin  ranging  from 0.65% to 0.85% and  commitment  fees of 0.10%
until issuance of the guarantee.  The bank guarantee bears guarantee  commission
equal to the margin.  An  arrangement  fee of $60,200 was paid upon  signing the
agreement.

The  loan  is  secured  with  a  corporate  guarantee,   pre-delivery   security
assignments,  an account  pledge,  a refund  guarantee  assignment  consents and
acknowledgements,  a contract  assignment  consents  and  acknowledgements.  The
facility also includes covenants requiring that we:

     o    maintain on a consolidated basis, an amount of liquid funds of no less
          $0.4 million per vessel;

     o    our total assets minus our debt will not at any time be less than $150
          million and at all times will exceed 25% of our total assets;

Our loan facility  prohibits the borrowers  from  distributing  funds,  changing
their  beneficial  ownership  or  the  ownership  of  the  corporate  guarantor,
disposing or acquiring assets, issuing guarantees.


Capital Expenditures

We make capital  expenditures  from time to time in  connection  with our vessel
acquisitions.  We have  entered  into  agreements  to  assume  the  shipbuilding
contracts for two 177,000  Capesize dry bulk  carriers,  which we expect to take
delivery of in the second quarter of 2010. We financed the 20% first predelivery
installments of the two vessels under construction,  amounting to $12.04 million
each,  with funds under our loan  facility with Fortis and expect to finance the
second,  third and fourth  predelivery  installments  of $6.0 million each, with
funds under the same facility. In February, March and April 2007 we entered into
agreements to acquire three additional Capesize dry bulk carriers,  the Semirio,
the  Aliki and the  Boston,  for the  purchase  price of $98.0  million,  $110.0
million and $110.0 million,  respectively. We financed the 20% advances of $19.6
million for the Semirio and $22.0 million for the Boston and the purchase  price
of $110.0  million  for the Aliki with cash on hands and with funds  drawn under
our revolving  credit  facility.  We expect to draw  additional  funds under our
revolving  credit  facility to finance the delivery  instalments  of the vessels
that we expect to take delivery of.

We incur additional capital expenditures when our vessels undergo surveys. Three
of our vessels in our operating  fleet underwent  scheduled  surveys in 2005 and
2006. We do not expect any vessels to undergo  scheduled  surveys in 2007.  This
process of  recertification  may require us to  reposition  these vessels from a
discharge  port to shipyard  facilities,  which will reduce our  operating  days
during  the  period.  The  loss of  earnings  associated  with the  decrease  in
operating  days,  together with the capital  needs for repairs and upgrades,  is
expected  to  result  in  increased  cash flow  needs.  We expect to fund  these
expenditures with cash on hand.

C.   Research and development, patents and licenses

We incur from time to time  expenditures  relating to inspections  for acquiring
new vessels that meet our standards.  Such  expenditures are  insignificant  and
they are expensed as they incur.

D.   Trend information

Our results of operations depend primarily on the charter hire rates that we are
able to realize.  Charter hire rates paid for dry bulk  carriers are primarily a
function of the underlying balance between vessel supply and demand.

The demand for dry bulk carrier capacity is determined by the underlying  demand
for commodities transported in dry bulk carriers, which in turn is influenced by
trends in the  global  economy.  Between  2001 and  2006,  trade in all dry bulk
commodities  increased  from 2.14 billion tons to 2.76 billion tons, an increase
of 29%. One of the primary reasons for the resurgence in dry bulk trade has been
the growth in imports by China of iron ore, coal and steel  products  during the
last five years.  Chinese  imports of iron ore alone increased from 55.3 million
tons in 1999 to more than 270 million tons in 2006.  Demand for dry bulk carrier
capacity is also affected by the operating  efficiency of the global fleet, with
port congestion,  which was a significant  feature of the market in 2004 and the
second  part of 2006 and to a lesser  extent in 2005 and the first part of 2006,
absorbing additional tonnage.

The supply of dry bulk  carriers is dependent on the delivery of new vessels and
the removal of vessels from the global fleet,  either through scrapping or loss.
As of December  2006,  the global dry bulk carrier  orderbook  amounted to 80.10
million dwt, or 21.8% of the existing fleet. The level of scrapping  activity is
generally a function of scrapping  prices in relation to current and prospective
charter market  conditions,  as well as operating,  repair and survey costs. The
average age at which a vessel is  scrapped  over the last five years has been 26
years.  However,  due to recent strength in the dry bulk shipping industry,  the
current average age at which dry bulk vessels are being scrapped has increased.

E.   Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

F.   Contractual Obligations

The following table sets forth our contractual obligations, in thousands of US$,
and their maturity dates as of December 31, 2006:
<table>

                                    Within     One to      Three to    More than
                                   One Year  Three Years   Five Years  Five years   Total
                                   --------  -----------   ----------  ----------   -----
                                                (in thousands of U.S. dollars)
<S>                                  <C>     <C>              <C>       <C>         <C>
Shipbuilding contracts (1).........  -       96,320           -           -          96,320
Long term debt (2).................  -       24,080           -         114,600     138,680
Financing lease obligations (3)....  194        206           -           -             400
Operating lease obligations (4)....  147        156           -           -             303
</table>

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

(1)  We have entered into  agreements to assume the  shipbuilding  contracts for
     the  construction  of two Capesize dry bulk carriers for the purchase price
     of $60.2  million  each.  In  November  2006 we paid the first  predelivery
     installment  of $12.04  million  for each  vessel,  or 20% of the  contract
     price. We financed the first  predelivery  installment  with proceeds under
     our loan facility with Fortis,  mentioned in note (2) below.  The remaining
     installments  amounting  to $48.2  million  for each vessel will be paid as
     certain stages of  construction  are completed,  pursuant to the respective
     shipbuilding  contracts.  The amounts  included in this line do not include
     agreements  relating  to the three dry bulk  carriers  entered  into  after
     December 31, 2006.

(2)  As of  December  31,  2006,  we had  an  aggregate  of  $138.7  million  of
     indebtedness  outstanding  under our revolving credit facility and our loan
     facility. This indebtedness was incurred in connection with our acquisition
     of the  Naias  and  the  Sideris  GS  and  in  connection  with  the  first
     predelivery installments of Hulls 1107 and Hull 1108, mentioned in note (1)
     above and does not include  projected  interest payments which are based on
     LIBOR plus a margin. In March,  April and May 2007, we incurred  additional
     debt of $22.0 million, $87.0 million and $22.0 million, respectively, under
     our  revolving  credit  facility in order to finance  the  advance  paid in
     connection with our acquisition of the Semirio,  part of the purchase price
     of the Aliki,  which was  delivered  in April 2007 and the advance  paid in
     connection with our acquisition of the Boston. In April 2006, following our
     secondary  offering  we  repaid  $136.6  million  plus  interest  under our
     outstanding credit facility with RBS.

(3)  After our acquisition of our fleet manager, effective April 1, 2006, we pay
     rent to Universal  Shipping and Real Estates  Inc., a related party company
     controlled  by our  Chairman  and  Chief  Executive  Officer,  Mr.  Palios,
     pursuant to a lease agreement signed between DSS and Universal Shipping and
     Real  Estates  Inc.  in January  2006 and amended in  December  2006.  This
     finance  lease  has a term of  three  years  and  minimum  estimated  lease
     payments  until  expiration of the agreement  amount during the term of the
     agreement,  using the  exchange  rate at  December  31, 2006 of US$ 1.34 to
     (euro)1.00 of $0.4 million. See also item 7B. "Related Party Transactions".

(4)  We pay rent to Altair Travel Agency Ltd. and Diana Shipping  Agencies S.A.,
     both related  companies  controlled  by our  Chairman  and Chief  Executive
     Officer,  Mr. Palios,  pursuant to lease agreements  signed between the two
     companies  and  DSS  in  January  and  December  2006,  respectively.  Both
     agreements  expire in December  2008 and minimum  estimated  lease  payment
     amounts  during  the term of the  agreements,  using the  exchange  rate at
     December 31, 2006 of US$ 1.34 to  (euro)1.00,  are  estimated to be $33,000
     and $270,000, respectively. See also item 7B. "Related Party Transactions".


On November  12,  2004,  we entered  into  management  agreements  with DSS with
respect to each vessel in our  operating  fleet and have  entered  into the same
agreements  with respect to the  additional  vessels that we have acquired since
then.  Under these  agreements,  we pay a monthly flat fee of $15,000 per vessel
and a 2%  commission  on revenues  for the  services  of DSS. In July 2005,  the
management  agreements  were amended as to the services  provided by DSS and the
liabilities  of the  parties.  On the same date,  we entered  into a  management
agreement with DSS with respect to the services provided  specifically to us and
our officers and executives for no additional charge by DSS. Amounts paid to DSS
are  eliminated  from our  consolidated  financial  statements  as  intercompany
transactions after April 1, 2006, on our acquisition of DSS.

We have entered into  agreements  with an unrelated  supplier for the  exclusive
supply  of  lubricants  for  some of our  vessels.  Under  the  terms  of  those
agreements,  we were  provided with free  lubricants  provided that the specific
supplier remains our exclusive  supplier for a specified period.  Please see the
notes to the consolidated  financial statements as of December 31, 2006 and 2005
included herein.

In February 2007, we entered into an agreement to acquire a newbuilding Capesize
dry bulk  carrier for $98.0  million,  which we expect to be  delivered to us in
June  2007.  We have paid a 20%  advance  of $19.6  million  and we will pay the
balance of the purchase price of $78.4 million on its delivery to us.

In March 2007, we entered into an agreement to acquire a secondhand Capesize dry
bulk carrier for $110.0  million.  We paid a 10% advance of $11.0 million and we
paid the balance of the purchase price of $99.0 million on its delivery to us on
April 30, 2007,  part of which was financed with funds drawn under our revolving
credit facility with RBS.

In April 2007,  we entered into an  agreement to acquire a newly built  Capesize
dry bulk carrier for $110.0 million, which we expect to be delivered to us in or
around  November  2007.  We have paid a 20% advance of $22.0 million and we will
pay the balance of the purchase price of $88.0 million on its delivery to us.

G.   Safe Harbor

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


Item 6  Directors, Senior Management and Employees


A.   Directors and Senior Management

Set forth below are the names, ages and positions of our directors and executive
officers.  Our board of directors is elected  annually on a staggered basis, and
each director elected holds office for a three year term. Officers are appointed
from time to time by our board of directors and hold office until a successor is
appointed or their employment is terminated.


Name                      Age               Position

Simeon Palios             65      Class I Director, Chief Executive Officer
                                     and Chairman
Anastassis Margaronis     51      Class I Director and President
Ioannis Zafirakis         35      Class I Director, Vice President and Secretary
Andreas Michalopoulos     36      Chief Financial Officer and Treasurer
Maria Dede                34      Chief Accounting Officer
William (Bill) Lawes      63      Class II Director
Konstantinos Psaltis      68      Class II Director
Boris Nachamkin           73      Class III Director
Apostolos Kontoyannis     58      Class III Director

The term of our  Class I  directors  expires  in 2009,  the term of our Class II
directors  expires  in 2007 and the term of our Class III  directors  expires in
2008.

The  business  address  of each  officer  and  director  is the  address  of our
principal  executive  offices,  which are located at Pendelis  16, 175 64 Palaio
Faliro, Athens, Greece.

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

Simeon P. Palios has served as our Chief  Executive  Officer and Chairman  since
February 21, 2005 and as a Director  since March 9, 1999. Mr. Palios also serves
as an employee of DSS.  Prior to November 12, 2004,  Mr. Palios was the Managing
Director  of Diana  Shipping  Agencies  S.A.  and  performed  on our  behalf the
services he now performs as Chief Executive Officer.  Since 1972, when he formed
Diana Shipping  Agencies,  Mr. Palios has had the overall  responsibility of our
activities.  Mr.  Palios has 39 years  experience  in the shipping  industry and
expertise in technical and operational issues. He has served as an ensign in the
Greek  Navy for the  inspection  of  passenger  boats on behalf of  Ministry  of
Merchant Marine and is qualified as a naval  architect and engineer.  Mr. Palios
is a member of various leading  classification  societies  worldwide and he is a
member of the board of directors of the United  Kingdom  Freight  Demurrage  and
Defense  Association  Limited. He holds a bachelors degree in Marine Engineering
from Durham University.

Anastassis C.  Margaronis  has served as our  President and as a Director  since
February 21, 2005.  Mr.  Margaronis  also serves as an employee of DSS. Prior to
February 21, 2005, Mr.  Margaronis was employed by Diana Shipping  Agencies S.A.
and performed on our behalf the services he now performs as President. He joined
Diana  Shipping  Agencies in 1979 and has been  responsible  for  overseeing our
insurance  matters,  including hull and machinery,  protection and indemnity and
war  risks  cover.  Mr.  Margaronis  has 26 years  of  experience  in  shipping,
including in ship finance and insurance. He is a member of the Governing Council
of the Greek  Shipowner's  Union and a member of the board of  directors  of the
United Kingdom Mutual Steam Ship Assurance  Association  (Bermuda)  Limited.  He
holds a  bachelors  degree in  Economics  from the  University  of Warwick and a
master's degree from the Wales Institute of Science and Technology.

Ioannis  G.  Zafirakis  has served as our Vice  President  and  Secretary  since
February  21, 2005 and as a Director  since March 9, 1999.  Mr.  Zafirakis  also
serves as an employee of DSS.  Prior to February 21,  2005,  Mr.  Zafirakis  was
employed  by Diana  Shipping  Agencies  S.A.  and  performed  on our  behalf the
services he now performs as Vice  President.  He joined Diana Shipping  Agencies
S.A. in 1997 where he held a number of positions  in its finance and  accounting
department. He holds a bachelors degree in Business Studies from City University
Business School in London and a master's degree in International  Transport from
the University of Wales in Cardiff.

Andreas  Michalopoulos  has served as our Chief Financial Officer since March 8,
2006. Mr. Michalopoulos started his career in 1993 where he joined Merrill Lynch
Private Banking in Paris. In 1995, he became an International  Corporate Auditor
with Nestle SA based in Vevey,  Switzerland and moved in 1998 to the position of
Trade  Marketing  and  Merchandising  Manager.  From 2000 to 2002, he worked for
McKinsey  and Company in Paris,  France as an  Associate  Generalist  Consultant
before joining from 2002 to 2005, a major Greek Pharmaceutical Group,  Lavipharm
SA, with US R&D activity as a Vice President International Business Development,
Member of the Executive  Committee.  From 2005 to 2006, he joined Diana Shipping
Agencies as a Project  Manager.  Mr.  Michalopoulos  has graduated from Paris IX
Dauphine  University  with Honours in 1993  obtaining an MSc in Economics  and a
Masters degree in Management  Sciences  specialized in Finance. In 1995, he also
obtained  an MBA from  Imperial  College,  University  of  London.  Mr.  Andreas
Michalopoulos is married to the youngest daughter of Mr. Simeon Palios.

Maria Dede has served as our Chief  Accounting  Officer since  September 1, 2005
during  which  time  she  has  been  responsible  for  all  financial  reporting
requirements.  Mrs. Dede has also served as an employee of DSS since March 2005.
In 2000,  Mrs.  Dede joined the Athens branch of Arthur  Andersen,  which merged
with Ernst and Young (Hellas) in 2002,  where she served as an external  auditor
of shipping  companies  until 2005. From 1996 to 2000, Mrs. Dede was employed by
Venus  Enterprises  SA, a  ship-management  company,  where she held a number of
positions  primarily in  accounting  and  supplies.  Mrs. Dede holds a bachelors
degree in Maritime  Studies from the University of Piraeus and a Master's Degree
in Business Administration from ALBA.

William  (Bill)  Lawes has served as a Director  and the  Chairman  of our Audit
Committee since March 2005. Mr. Lawes served as a Managing Director and a member
of the Regional  Senior  Management  Board of JPMorgan  Chase (London) from 1987
until  2002.  Prior to joining  JPMorgan  Chase,  he was Global Head of Shipping
Finance at Grindlays  Bank.  Mr. Lawes is qualified as a member of the Institute
of Chartered Accountants of Scotland.

Konstantinos  Psaltis has served as a Director since March 2005. Since 1981, Mr.
Psaltis  has served as Managing  Director  of Ormos  Compania  Naviera  S.A.,  a
company that  specializes  in  operating  and  managing  multipurpose  container
vessels.   Prior  to  joining  Ormos   Compania   Naviera  S.A.,   Mr.   Psaltis
simultaneously  served  as a  technical  manager  in the  textile  manufacturing
industry and as a shareholder of shipping  companies managed by M.J. Lemos. From
1961 to 1964, he served as ensign in the Royal  Hellenic  Navy. Mr. Psaltis is a
member  of the  Germanischer  Lloyds  Hellas  Committee.  He holds a  degree  in
Mechanical  Engineering from Technische  Hochschule Reutlingen & Wuppertal and a
bachelor's  degree  in  Business  Administration  from  Tubingen  University  in
Germany.

Boris  Nachamkin  has served as a Director  and as a member of our  Compensation
Committee  since March 2005. Mr.  Nachamkin was with Bankers Trust Company,  New
York,  for 37 years,  from 1956 to 1993 and was  posted to London in 1968.  Upon
retirement in 1993, he acted as Managing Director and Global Head of Shipping at
Bankers Trust.  Mr.  Nachamkin was also the UK  Representative  of Deutsche Bank
Shipping from 1996 to 1998 and Senior  Executive and Head of Shipping,  based in
Paris, for Credit Agricole Indosuez between 1998 and 2000. Previously,  he was a
Director  of Mercur  Tankers,  a  company  which  was  listed on the Oslo  Stock
Exchange,  and Ugland  International,  a  shipping  company.  He also  serves as
Managing Director of Seatrust Shipping Services Ltd., a private consulting firm.

Apostolos  Kontoyannis  has  served as a  Director  and as the  Chairman  of our
Compensation  Committee and a member of our Audit  Committee  effective as since
March 2005. Since 1987, Mr. Kontoyannis has been the Chairman of Investments and
Finance  Ltd., a financial  consultancy  firm he founded,  that  specializes  in
financial and structuring issues relating to the Greek maritime  industry,  with
offices in Piraeus and London.  He was employed by Chase  Manhattan Bank N.A. in
Frankfurt  (Corporate  Bank),  London (Head of Shipping  Finance  South  Western
European  Region) and Piraeus  (Manager,  Ship Finance Group) from 1975 to 1987.
Mr.  Kontoyannis holds a bachelors degree in Finance and Marketing and an M.B.A.
in Finance from Boston University.

B.   Compensation

The  aggregate  compensation  to members of our senior  management  for the year
ended  December  31,  2006 and for the period  from March 17, 2005 (the date our
initial  public  offering was  completed) to December 31, 2005, was $1.9 million
and $1.6 million,  respectively. We have not paid senior management compensation
for any years prior to 2005. Those members of our senior  management during 2004
were employed and paid  compensation  by our fleet  manager from the  management
fees  that we paid to it.  We  estimated  that  the  fair  market  value  of the
aggregate  compensation  for the period  from  January 1, 2005 to March 17, 2005
(the date our initial  public  offering  was  completed)  and for the year ended
December  31,  2004,  and that we  would  have  paid to  members  of our  senior
management  had we been a public  company  would have been $0.3 million and $1.4
million, respectively, had such services been charged to us at fair value by our
fleet manager  during those periods.  We did not pay any benefits in 2006,  2005
and 2004. We do not have a retirement plan for our officers or directors.

Non-employee  directors  receive  annual  fees in the  amount  of  $40,000  plus
reimbursement of their out-of-pocket  expenses. In addition,  each non-executive
serving as chairman or member of the committees  receives annual fees of $20,000
and $10,000,  respectively,  plus reimbursement of their out-of-pocket expenses.
For the years ended December 31, 2006 and 2005 fees to  non-executive  directors
amounted to $220,000 and $173,500, respectively.

C.   Board Practices

We have established an Audit Committee, comprised of two board members, which is
responsible for reviewing our accounting controls,  recommending to the board of
directors the engagement of our independent  auditors,  and pre-approving  audit
and audit related services and fees. Each member is an independent  director. As
directed  by its  written  charter,  the  Audit  Committee  is  responsible  for
appointing,  and  overseeing  the work of the  independent  auditors,  including
reviewing  and  approving  their  engagement  letter  and all  fees  paid to our
auditors,  reviewing the adequacy and effectiveness of the Company's  accounting
and internal  control  procedures and reading and discussing with management and
the independent auditors the annual audited financial statements.

In addition,  we have  established  a  Compensation  Committee  comprised of two
members,  which is responsible for establishing executive officers' compensation
and benefits. The members of the Audit Committee are Mr. William Lawes (Chairman
and  financial  expert) and Mr.  Apostolos  Kontoyannis  (member  and  financial
expert)  and  the  members  of the  Compensation  Committee  are  Mr.  Apostolos
Kontoyannis  (Chairman) and Mr. Boris  Nachamkin  (member).  While we are exempt
from New York  Stock  Exchange  rules on  independent  directors,  we  currently
conform to those rules.

D.   Crewing and Shore Employees

Prior to  February  21,  2005,  the  shoreside  personnel  provided by our fleet
manager  included Mr. Simeon  Palios,  Mr.  Anastassis  Margaronis,  Mr. Ioannis
Zafirakis and Evangelos  Monastiriotis,  who, as employees of our fleet manager,
performed  services that were  substantially  identical to services  provided by
executive  officers.  On February 21, 2005,  Mr. Simeon Palios,  Mr.  Anastassis
Margaronis, and Mr. Ioannis Zafirakis became executive officers and employees of
our Company  effective  March 17, 2005.  From  February 21, 2005 to September 1,
2005, Mr.  Monastiriotis,  while  employed by our fleet  manager,  served as our
acting Chief  Accounting  Officer.  On September 1, 2005, Mrs. Maria Dede became
our Chief  Accounting  Officer and  provides  her services to us pursuant to her
employment  with our  fleet  manager.  Effective  March  8,  2006,  Mr.  Andreas
Michalopoulos  became our Chief Financial Officer and Mr.  Koutsomitopoulos  who
served as our Chief  Financial  Officer until then became our Vice President and
Head of Corporate Development until April 30, 2007.

We crew our vessels  primarily  with Greek  officers and  Filipino  officers and
seamen.  Our fleet manager is responsible  for  identifying  our Greek officers,
which are hired by our vessel  owning  subsidiaries.  Our Filipino  officers and
seamen are referred to our fleet manager by Crossworld  Marine Services Inc., an
independent  crewing agency.  The crewing agency handles each seaman's training,
travel and payroll.  We ensure that all our seamen have the  qualifications  and
licenses  required  to  comply  with  international   regulations  and  shipping
conventions.  Additionally,  our seafaring  employees perform most commissioning
work and supervise  work at shipyards and drydock  facilities.  We typically man
our  vessels  with more crew  members  than are  required  by the country of the
vessel's  flag in order to allow  for the  performance  of  routine  maintenance
duties.

Although we had no shoreside  employees in 2004,  our fleet manager has informed
us of the number of persons  employed by it that were  dedicated to managing our
fleet.  The following  table presents the average number of shoreside  personnel
that  were  employed  by our  fleet  manager  on our  behalf  and the  number of
seafaring  personnel  employed  by our  vessel  owning  subsidiaries  during the
periods indicated.


                                          Year Ended December 31,
                                     --------------------------------
                                      2006        2005        2004
                                      ----        ----        ----
Shoreside                               36          30         28
Seafaring                              329         263        159
                                     -------  ----------  ---------
Total                                  365         293        187
                                     =======  ==========  =========

E.   Share Ownership

With  respect to the total  amount of common  stock owned by all of our officers
and directors,  individually and as a group, see Item 7 "Major  Stockholders and
Related Party Transactions".


Equity Incentive Plan

We have adopted an equity  incentive plan, to which we refer as the plan,  which
entitles our officers, key employees and directors to receive options to acquire
our common stock. A total of 2,800,000  shares of common stock were reserved for
issuance  under the plan.  The plan is  administered  by our board of directors.
Under the terms of the plan,  our board of  directors  will be able to grant new
options  exercisable  at a price  per  share to be  determined  by our  board of
directors.  Under the terms of the plan, no options will be exercisable until at
least two years  after the closing of our initial  public  offering.  Any shares
received  on  exercise  of the  options  will not be able to be sold until three
years after our initial public  offering.  All options will expire 10 years from
the date of grant. The plan will expire in March, 2015. At December 31, 2006 and
2005 no options were issued pursuant to the plan.


Item 7  Major Stockholders and Related Party Transactions

A.   Major Stockholders

The following table sets forth information regarding (i) the owners of more than
five  percent of our common stock that we are aware of and (ii) the total amount
of common stock owned by all of our officers and directors,  individually and as
a  group,  in each  case  as of  December  31,  2006.  All of the  stockholders,
including the  stockholders  listed in this table,  are entitled to one vote for
each share of common stock held.
<table>
<caption>

                                                                  Number of
Title of Class                  Identity of Person or Group      Shares Owned   Percent of Class
--------------                  ---------------------------      ------------   ----------------
<S>                             <C>                               <C>              <C>
Common Stock, par value $0.01   Simeon Palios(1)                  20,718,750       39.06%
                                Fortis Bank (Nederland) N.V.(2)    5,050,000        9.50%

                                All officers and directors as
                                a group(3)                        20,718,750       39.06%
</table>
-------------------------------------------------------------------------------

(1)  By virtue of shares owned indirectly  through Corozal Compania Naviera S.A.
     and Ironwood  Trading Corp.  over which Mr. Simeon  Palios  exercises  sole
     voting and dispositive  power.  Prior to the formation of Ironwood  Trading
     Corp. in 2002, Mr. Simeon Palios beneficially owned 100% of our outstanding
     stock.  Following secondary offerings in January and March 2007, Mr. Simeon
     Palios owns indirectly  through Corozal and Ironwood as of the date of this
     annual report 22.72% of our common stock.

(2)  By virtue  of shares  owned  indirectly  through  Zoe S.  Company  Ltd.,  a
     wholly-owned  subsidiary  of Maas Capital  Investments,  which in turn is a
     wholly-owned  subsidiary of Fortis Bank  (Nederland)  N.V. In 2002,  Zoe S.
     Company Ltd. entered into a Share Purchase and Subscription  Agreement with
     Ironwood Trading Corp., pursuant to which Zoe S. Company Ltd. purchased 50%
     of our then outstanding stock. Zoe S. Company Ltd. subsequently sold 25% of
     our then  outstanding  common stock to Corozal  Compania  Naviera  S.A., an
     entity  controlled by Mr. Simeon  Palios,  on September 3, 2004.  Following
     secondary  offerings in January and March 2007, Zoe S. Company Ltd. owns as
     of the date of this annual report 5.54% of our common stock.

(3)  Mr. Simeon Palios is our only  director or officer that  beneficially  owns
     our common stock. Mr. Anastassis Margaronis,  our President and a member of
     our board of directors, and Mr. Ioannis Zafirakis, our Vice President and a
     member of our board of  directors,  are  indirect  stockholders  of Corozal
     Compania  Naviera S.A., which is the registered owner of some of our common
     stock.  Mr.  Margaronis and Mr. Zafirakis do not have dispositive or voting
     power with regard to shares held by Corozal Compania S.A. and, accordingly,
     are not considered to be beneficial owners of our common stock.


B.   Related Party Transactions

Universal Shipping and Real Estates Inc.

Following our  acquisition of DSS, we pay rent for our office space to Universal
Shipping  and Real Estates  Inc.,  or  Universal,  a company  controlled  by our
Chairman and Chief Executive Officer,  Mr. Simeon Palios.  Pursuant to the lease
agreement  signed  between DSS and  Universal,  we paid rent for the first year,
following our acquisition of DSS, amounting to about $175 thousand. The duration
of the agreement is three years.  In December 2006, the agreement was amended to
reduce the leased  office  space and monthly  rent,  all other  terms  remaining
unchanged. Rent is increased annually at a rate of 3% above inflation


Diana Shipping Agencies S.A. Management Agreements

Prior to November 12, 2004, we were a party to management  agreements with Diana
Shipping  Agencies S.A., or DSA, an affiliated entity that is majority owned and
controlled by our Chairman and Chief Executive Officer,  with respect to each of
our vessels from our founding until November 12, 2004. The  stockholders  of DSA
also include Mr. Anastassis Margaronis,  our President and a member of our board
of directors,  and Mr. Ioannis Zafirakis, our Vice President and a member of our
board of  directors.  Under  the  terms of the  agreements,  we paid DSA a fixed
monthly fee of $12 thousand  per vessel and a  commission  equal to 2% of vessel
revenue.  Under  the  terms  of  the  management  agreement,  DSA  provided  the
commercial,  strategic and technical  management of our vessels. We believe that
the  amounts  we paid to DSA were  comparable  to  amounts  that we  would  have
negotiated in an arms length  transaction with an unaffiliated  third party. DSA
also  provided us with  office  space in Athens,  Greece.  The fair value of the
annual rent for the office space and the  secretarial  services  provided during
2004 was estimated at approximately $146,000. Our management agreements with DSA
were  terminated on November 12, 2004. In December 2006, we entered into a lease
agreement  with DSA to lease office  space.  The duration of the lease is for 25
months.  Until  December 31, 2006 we paid one monthly rent amounting to $11,000.
Rent increases annually by the rate of 3% above inflation.


Commercial Banking, Financial Advisory and Investment Banking Services

Fortis  Bank  (Nederland)  N.V.,  one  of  our  current  stockholders,  and  its
affiliates  have  provided  and may  provide in the future  commercial  banking,
financial advisory and investment banking services for us for which they receive
customary  compensation.  Fortis Bank (Nederland)  N.V.  provided us with bridge
loans that we repaid in 2001 and acted as the  counterparty  under two  separate
interest  rate option  contracts  that we terminated  in November  2004.  Fortis
Securities LLC, an affiliate of Fortis Bank (Nederland) N.V., was an underwriter
in our  initial  public  offering  in March 2005 and our  follow-on  offering in
December 2005. In November 2006, we entered into a loan facility  agreement with
Fortis  Bank  for a loan of up to  $60,200  and a  guarantee  facility  of up to
$36,451 for the purpose of financing and guaranteeing the payment of part of the
construction  cost  of  our  two  Capesize  dry  bulk  carriers  we  have  under
construction at the Shanghai  Waigaoqiao  Shipbuilding  Co. Ltd, in China and we
expect to take delivery of in 2010.


Registration Rights Agreement

We have entered  into a  registration  rights  agreement  with Corozal  Compania
Naviera S.A.,  Ironwood Trading Corp., and Zoe S. Company Ltd., our stockholders
of record  immediately  prior to our  initial  public  offering  in March  2005,
pursuant to which we have granted them, their  affiliates  (including Mr. Simeon
Palios,  Mr.  Anastassis  Margaronis and Mr.  Ioannis  Zafirakis) and certain of
their transferees, the right, under certain circumstances and subject to certain
restrictions,  including any applicable  lock-up  agreements  then in place,  to
require us to register  under the Securities Act shares of our common stock held
by them. Under the registration  rights  agreement,  these persons will have the
right to request us to register  the sale of shares held by them on their behalf
and may require us to make available shelf  registration  statements  permitting
sales of shares into the market from time to time over an  extended  period.  In
addition,  these  persons  will have the ability to exercise  certain  piggyback
registration  rights  in  connection  with  registered  offerings  requested  by
stockholders or initiated by us. Our stockholders of record immediately prior to
our  initial  public  offering,   owned  25,768,750  shares  entitled  to  these
registration  rights.  In December  2006, we filed a  Registration  Statement to
register  8,000,000 of these shares of which  5,750,000 were sold in a secondary
offering  in January  2007,  at the price of $15.75 per share and the  remaining
2,250,000 in April 2007 at the price of $17.00 per share.


Consultancy Agreements

We have consulting agreements with companies owed by Mr. Palios, Mr. Margaronis,
Mr. Zafirakis, Mr. Michalopoulos (as of March 1, 2006), and until March 31, 2006
with Mr.  Koutsomitopoulos,  respectively.  As at December 31, 2006 and 2005, we
paid to these  companies  $1.6  million  and  $1.4  million,  respectively,  for
services provided by their owners and performed outside of Greece.


Travel Services

Altair  Travel  Agency S.A.,  an  affiliated  entity that is  controlled  by our
Chairman and Chief Executive Officer, Mr. Simeon Palios, provides us with travel
related  services.  Travel related  expenses in 2006,  2005 and 2004 amounted to
$923, $716 and $287 thousand, respectively. We believe that the fees that we pay
to  Altair  Travel  Agency  S.A.  are no  greater  than  fees we would pay to an
unrelated  third party for comparable  services in an arm's length  transaction.
Following  our  acquisition  of DSS, we also pay rent to Altair for the lease of
parking  space,  which for 2006 amounted to about  $13,000.  The duration of the
agreement is three years and rent is increased  annually at the rate of 3% above
inflation.


C.   Interests of Experts and Counsel

Not Applicable.


Item 8. Financial information


A.   Consolidated statements and other financial information

See Item 18.


Legal Proceedings


We have not been involved in any legal  proceedings which may have, or have had,
a significant effect on our business,  financial position, results of operations
or liquidity, nor are we aware of any proceedings that are pending or threatened
which may have a significant effect on our business, financial position, results
of  operations  or  liquidity.  From time to time,  we may be  subject  to legal
proceedings and claims in the ordinary course of business,  principally personal
injury and  property  casualty  claims.  We expect  that these  claims  would be
covered by insurance,  subject to customary  deductibles.  Those claims, even if
lacking merit,  could result in the  expenditure  of  significant  financial and
managerial resources.


Dividend policy

Our  policy  is to  declare  quarterly  distributions  to  stockholders  by each
February,  May,  August and November  substantially  equal to our available cash
from  operations  during the previous  quarter  after  expenses and reserves for
scheduled  drydockings,  intermediate  and special surveys and other purposes as
our board of  directors  may from time to time  determine  are  required,  after
taking into account  contingent  liabilities,  the terms of our credit facility,
our  growth  strategy  and other  cash needs and the  requirements  of  Marshall
Islands law.

In times when we have debt outstanding in excess of $150.0 million, we intend to
limit our  dividends per share to the amount that we would have been able to pay
if we were  financed  with  equity  for the  excess  amount  such  that  (i) the
available cash from  operations as determined by our board of directors would be
increased  by the  amount  of  interest  expense  incurred  on  account  of such
outstanding  debt  during  the  current  year,  and (ii) the  number  of  shares
outstanding would be deemed to include an additional number of shares, which, if
issued,  would have  generated net proceeds  that would have been  sufficient to
have  allowed  us to repay  such  outstanding  debt as of the  beginning  of the
related  period  (based  on the  market  price  of our  common  stock  as of the
determination  date).  Our board of directors  may review and amend our dividend
policy  from  time to time in light of our  plans for  future  growth  and other
factors.  Depending on the  circumstances,  we may or may not be required to use
sources other than our available cash from operation to fund such dividends.

We believe  that,  under  current law, our dividend  payments  from earnings and
profits will constitute  "qualified  dividend income" and as such will generally
be subject  to a 15%  United  States  federal  income  tax rate with  respect to
non-corporate individual  stockholders.  Distributions in excess of our earnings
and  profits  will be treated  first as a  non-taxable  return of capital to the
extent  of a United  States  stockholder's  tax basis in its  common  stock on a
dollar-for-dollar basis and thereafter as capital gain. We note that legislation
has been recently  introduced in the United States Senate,  which, if enacted in
its present form, would preclude  dividends received after the date of enactment
from qualifying as "qualified dividend income".

Since our  initial  public  offering in March 2005,  we have  declared  and paid
dividends  of  $1.485  per  share  and 1.56  per  share,  representing  our cash
available from operations for 2005 and 2006, respectively. We have also declared
and paid a dividend  of $0.50 per share  representing  our cash  available  from
operations for the first quarter of 2007.

The dry bulk  shipping  industry is highly  volatile,  and we cannot  accurately
predict the amount of cash distributions that we may make in any period. Factors
beyond our  control  may  affect the  charter  market  for our  vessels  and our
charterers'  ability  to satisfy  their  contractual  obligations  to us, and we
cannot assure you that  dividends in amounts  similar to those  described  above
will actually be declared.  In  particular,  the dividends  described  above are
based on past  charter  hire rates that are not  necessarily  representative  of
future rates,  which are subject to volatile  changes due to the cyclical nature
of the dry bulk shipping industry.

Marshall  Islands law generally  prohibits  the payment of dividends  other than
from  surplus or when a company is  insolvent  or if the payment of the dividend
would render the company insolvent. For a description of the restrictions on the
payment  of  dividends  contained  in our credit  facility,  we refer you to the
section  entitled  "Credit  Facility".  In  addition,  we may incur  expenses or
liabilities,  including  extraordinary  expenses,  which could  include costs of
claims and related litigation expenses,  or be subject to other circumstances in
the future that reduce or  eliminate  the amount of cash that we have  available
for  distribution as dividends or for which our board of directors may determine
we require the establishment or reserves.  Our growth strategy contemplates that
we will finance the  acquisition of additional  vessels through a combination of
debt and  equity  financing  on terms  acceptable  to us.  If  financing  is not
available to us on  acceptable  terms,  our board of directors  may determine to
finance or refinance acquisitions with cash from operations,  which would reduce
or even eliminate the amount of cash available for the payment of dividends.

B.   Significant Changes

On March 27, 2006, DSS stockholders  exercised their option to sell their shares
to us and we agreed to acquire  such shares  effective  April 1, 2006,  on which
date DSS became our wholly owned subsidiary.  We paid the purchase price for the
shares of DSS,  amounting  to $20.0  million  with funds  drawn under our credit
facility.  We recorded our  acquisition of our fleet manager at historical  cost
under a method similar to the pooling of interests, due to the fact that when we
and our fleet manager signed the put option agreement were under common control.
The  amount  in  excess  of DSS  historical  book  value  of $20.3  million  was
considered a  preferential  deemed  dividend and was reflected as a reduction in
net income in the period the acquisition was consummated.

Item 9. Listing Details

The  trading  market  for  shares  of our  common  stock is the New  York  Stock
Exchange,  on which our shares trade under the symbol "DSX". The following table
sets forth the high and low closing  prices for shares of our common stock since
our initial public offering on March 17, 2005, as reported by the New York Stock
Exchange:
<table>
<caption>

                                 2007                 2006                   2005
                                 ----                 ----                   ----
Period                   High          Low       High        Low         High       Low
------                   ----          ---       ----        ---         ----       ---
<S>                     <C>          <C>        <C>         <C>         <C>       <C>
Annual.................      -            -     $13.55      $11.19      $17.50    $12.14

1st quarter............ $20.31       $15.79     $13.55      $11.19      $17.50    $15.63
2nd quarter............      -            -      12.53        9.85       17.06     13.16
3rd quarter............      -            -      13.95       10.23       16.78     12.46
4th quarter............      -            -      15.83       13.24       16.85     12.14

December...............                          15.81       14.75
January................ $16.96       $15.79
February...............  20.31        16.24
March..................  19.74        17.92
April..................  20.49        17.95
May....................  23.33        19.95
</table>

Item 10.       Additional Information

A.   Share Capital

Not Applicable.

B.   Memorandum and articles of association

Our amended and restated articles of incorporation and bylaws have been filed as
exhibit  3.1 and 3.2 to our  Registration  Statement  on form F-1 filed with the
Securities and Exchange Commission on March 1, 2005 with file number 333-123052.
The information contained under "Description of Capital Stock" contained in that
Registration Statement in incorporated by reference herein.

Information regarding the rights, preferences and restrictions attaching to each
class of the shares is described in section  "Description  of Capital  Stock" in
our  Registration  Statement on Form F-1 filed with the  Securities and Exchange
Commission on November 23, 2005 with file number 333-129726, provided that since
the date of that Registration Statement,  our outstanding shares of common stock
has increased to 62,875,000.

C.      Material Contracts

We refer you to Item 7.B for a discussion of our  registration  rights agreement
with  our  stockholders  of  record  before  our  initial  public  offering  and
agreements  with  companies  controlled  by our  Chairman  and  Chief  Executive
Officer,  Mr. Simeon Palios.  Other than these  agreements,  we have no material
contracts, other than contracts entered into in the ordinary course of business,
to which the Company or any member of the group is a party.

D.      Exchange Controls

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

E.      Taxation

United States Taxation


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


Taxation of the Company's Shipping Income: In General

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

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

Based upon the Company's anticipated shipping operations,  the Company's vessels
will operate in various  parts of the world,  including  to or from U.S.  ports.
Unless exempt from U.S. taxation under Section 883 of the Code, the Company will
be subject to U.S.  federal income  taxation,  in the manner discussed below, to
the extent its shipping  income is  considered  derived from sources  within the
United States.

In the year  ended  December  31,  2006,  approximately  11%,  of the  Company's
shipping income was attributable to the  transportation  of cargoes either to or
from a U.S. port.  Accordingly,  5.5% of the Company's  shipping income would be
treated as derived from U.S.  sources for the year ended  December 31, 2006.  In
the absence of exemption from tax under Section 883, the Company would have been
subject  to a 4%  tax  on  its  gross  U.S.  source  shipping  income  equal  to
approximately $0.25 million for the year ended December 31, 2006.


Application of Code Section 883

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

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

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

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

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

The U.S. Treasury Department has recognized the Marshall Islands,  the Company's
country  of  organization  since  February  2005,  and  Panama,  the  country of
incorporation of each of the Company's  subsidiaries that earned shipping income
during 2006, as a qualified foreign country.  Accordingly,  the Company and each
of the subsidiaries satisfy the country of organization requirement.

For the 2006 tax year, the Company  believes that it will be unlikely to satisfy
the 50%  Ownership  Test.  Therefore,  the  eligibility  of the Company and each
subsidiary to qualify for exemption  under Section 883 is wholly  dependent upon
being able to satisfy the Publicly Traded Test.

Under the final regulations, the Company's common stock, which is the sole class
of issued and outstanding  stock,  was "primarily  traded" on the New York Stock
Exchange during 2006.

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

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

For more than half the days of the tax year 2006, 48.58% of the Company's common
stock was owned by 5% Stockholders. Therefore, the Company is not subject to the
5  Percent  Override  Rule for 2006.  However,  there is no  assurance  that the
Company will continue to qualify for  exemption  under Section 883. For example,
the Company could be subject to the 5% Override  Rule if another 5%  Stockholder
in combination  with the Company's  existing 5% Stockholders  were to own 50% or
more of the Company's stock. In such a case, the Company would be subject to the
5% Override Rule unless it could establish  that,  among the shares owned by the
5%  Stockholders,  sufficient  shares  are owned by  qualified  shareholders  to
preclude  non-qualified  shareholders  from  owning  50  percent  or more of the
Company's  stock for more than half the number of days during the taxable  year.
These  requirements  are onerous and there is no  assurance  the Company will be
able to satisfy them.

Based on the  foregoing,  the Company  believes  that it satisfied  the publicly
traded test for 2006 and intends to take this position on its 2006 United States
income tax returns.


Taxation in Absence of Internal Revenue Code Section 883 Exemption

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

Based on its U.S.  source Shipping Income for 2006, the Company would be subject
to U.S. federal income tax of  approximately  $0.25 million under Section 887 in
the absence of an exemption under Section 883.


Gain on Sale of Vessels.

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


Marshall Islands Tax Considerations

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

F.      Dividends and paying agents

Not Applicable.

G.      Statement by experts

Not Applicable.

H.      Documents on display

We 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-330 and you may obtain copies at prescribed rates.

I.      Subsidiary information

Not Applicable.


Item 11. Quantitative and Qualitative Disclosures about Market Risk


Interest Rates

We are exposed to market risks  associated  with changes in interest  rates.  At
December 31, 2006, we had $138.7 million of indebtedness outstanding relating to
our vessels  Naias,  Sideris GS, Hull 1107 and Hull 1108.  The weighted  average
interest rate for 2006 was 5.99% and interest  rates ranged from 5.36% to 6.16%,
including margins. An average increase of 1% in the interest rates of 2006 would
have  resulted  in an increase of about 19% of the  interest  expense  incurred.
Currently,  we have $24.1 million of indebtedness  outstanding  relating to Hull
1107 and Hull 1108 under our facility  with Fortis and $109.0  million under our
credit facility with RBS.

We  expect  to  incur   additional  debt  outstanding  in  connection  with  our
acquisition  of the  Semirio  and the  Boston.  We will  continue  to have  debt
outstanding,  which  could  impact  our  results  of  operations  and  financial
condition.  However,  we intend to limit the amount of indebtedness that we have
outstanding  at any  time  to  relatively  conservative  levels  through  equity
offerings  on terms  acceptable  to us.  We expect to  manage  any  exposure  in
interest rates through our regular operating and financing  activities and, when
deemed appropriate, through the use of derivative financial instruments.


Currency and Exchange Rates

We generate all of our revenues in U.S. dollars but currently incur over half of
our  operating  expenses  and the  majority of our  general  and  administrative
expenses in  currencies  other than the U.S.  dollar,  primarily  the euro.  For
accounting purposes,  expenses incurred in euros are converted into U.S. dollars
at the  exchange  rate  prevailing  on the date of each  transaction.  Because a
significant  portion of our expenses are incurred in  currencies  other than the
U.S.  dollar,  our  expenses  may from  time to time  increase  relative  to our
revenues as a result of fluctuations in exchange rates, particularly between the
U.S.  dollar and the euro,  which could  affect the amount of net income that we
report in future  periods.  While we  historically  have not  mitigated the risk
associated  with  exchange  rate  fluctuations  through  the  use  of  financial
derivatives,  we may determine to employ such  instruments  from time to time in
the future in order to  minimize  this risk.  Our use of  financial  derivatives
would involve certain risks, including the risk that losses on a hedged position
could exceed the nominal amount invested in the instrument and the risk that the
counterparty to the derivative transaction may be unable or unwilling to satisfy
its contractual obligations, which could have an adverse effect on our results.


Item 12. Description of Securities Other than Equity Securities

Not Applicable.
<PAGE>

                                     PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies


None.


Item 14.  Material  Modifications  to the Rights of Security  Holders and Use of
          Proceeds


None.


Item 15T.   Controls and Procedures


a)   Disclosure Controls and Procedures


Management,  including our Chief Executive Officer and Chief Financial  Officer,
has conducted an evaluation of the effectiveness of our disclosure  controls and
procedures  (as defined in Rules  13a-15(e) and 15d-15(e)  under the  Securities
Exchange Act of 1934) as of the end of the period covered by this report.  Based
upon that evaluation,  our Chief Executive  Officer and Chief Financial  Officer
have  concluded  that our  disclosure  controls and  procedures are effective to
ensure that  information  required to be disclosed by the Company in the reports
that it files or submits to the SEC under the  Securities  Exchange Act of 1934,
as amended,  is recorded,  processed,  summarized  and reported  within the time
periods specified in SEC rules and forms.

b)   Management's annual Report on Internal Control over Financial Reporting

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

Management  has conducted an assessment  of the  effectiveness  of the Company's
internal control over financial reporting based on the framework  established in
Internal  Control - Integrated  Framework  issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on this assessment,  management
has determined that the Company's  internal control over financial  reporting as
of December 31, 2006 is effective.

This  annual  report does not include an  attestation  report of our  registered
public accounting firm regarding  internal control over financial  reporting due
to a  transition  period  established  by rules of the  Securities  and Exchange
Commission for foreign private issuers.

c)   Attestation Report of Independent Registered Public Accounting Firm

Not applicable.


d)   Changes in Internal Control over Financial Reporting


Not applicable.

Inherent Limitations on Effectiveness of Controls

Our management,  including our Chief  Executive  Officer and our Chief Financial
Officer,  does not expect that our disclosure  controls or our internal  control
over  financial  reporting  will  prevent or detect  all error and all fraud.  A
control  system,  no matter how well  designed  and  operated,  can provide only
reasonable, not absolute, assurance that the control system's objectives will be
met. Our disclosure  controls and procedures are designed to provide  reasonable
assurance of achieving  their  objectives.  The design of a control  system must
reflect  the fact that  there are  resource  constraints,  and the  benefits  of
controls must be  considered  relative to their costs.  Further,  because of the
inherent  limitations  in all control  systems,  no  evaluation  of controls can
provide  absolute  assurance that  misstatements  due to error or fraud will not
occur or that all control  issues and  instances  of fraud,  if any,  within the
Company have been  detected.  These inherent  limitations  include the realities
that judgments in  decision-making  can be faulty and that  breakdowns can occur
because of simple  error or mistake.  Controls can also be  circumvented  by the
individual  acts of some  persons,  by collusion  of two or more  people,  or by
management  override  of the  controls.  The design of any system of controls is
based in part on certain  assumptions about the likelihood of future events, and
there can be no assurance  that any design will succeed in achieving  its stated
goals under all potential  future  conditions.  Projections of any evaluation of
controls  effectiveness  to future  periods  are  subject  to risks.  Over time,
controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with policies or procedures.


Item 16A. Audit Committee Financial Expert

Our  Board of  Directors  has  determined  that  both the  members  of our Audit
Committee  qualify  as  financial  experts  and they are both  considered  to be
independent according to the SEC rules.


Item 16B. Code of Ethics

We have  adopted a code of ethics that applies to officers  and  employees.  Our
code of ethics is posted in our website: http://www.dianashippinginc.com,  under
"Corporate  Governance"  and was filed as Exhibit 11.1 to the 2004 annual report
on Form 20-F filed with the Securities and Exchange  Commission on June 29, 2005
with number 001-32458.  Copies of our Code of Ethics are available in print upon
request to Diana  Shipping Inc.,  16,  Pentelis Str., 175 64 P. Faliro,  Athens,
Greece. We intend to satisfy any disclosure requirements regarding any amendment
to,  or waiver  from,  a  provision  of this  Code of  Ethics  by  posting  such
information on our website.


Item 16C. Principal Accountant Fees and Services.


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

                                          2006             2005
                                       -----------    -------------
                                             Stated in Euro

            Audit fees                    429,450          618,250
            Audit-related fees                  -                -
            Tax fees                            -                -
            All other fees                  1,180            1,180
                                       -----------    -------------

            Total                         430,630          619,430
                                       ===========    =============


Audit fees in 2006  relate to audit  services  provided in  connection  with our
public offerings (Euro 135,450), SAS 100 reviews (Euro 94,500), the audit of our
consolidated financial statements (Euro 199,500).  Audit fees in 2005 related to
audit services  provided in connection with our initial public offering in March
2005 (Euro 334,750),  our follow on offering in December 2005 (Euro 178,500) and
the audit of our consolidated  financial  statements (Euro 105,000).  Other fees
paid to Ernst and Young  (Hellas) in 2006 and 2005  amounting  to Euro 1,180 and
1,180,  respectively  relate to an  annual  subscription  to a website  database
providing global accounting and auditing information.

The  Audit   Committee  is  responsible   for  the   appointment,   replacement,
compensation,  evaluation and oversight of the work of the independent auditors.
As part of this responsibility,  the Audit Committee  pre-approves the audit and
non-audit services performed by the independent auditors in order to assure that
they do not  impair  the  auditor's  independence  from the  Company.  The Audit
Committee  has  adopted  a  policy  which  sets  forth  the  procedures  and the
conditions   pursuant  to  which  services  proposed  to  be  performed  by  the
independent auditors may be pre-approved.

All audit  services  and other  services  provided by Ernst and Young  (Hellas),
Certified Auditors  Accountants S.A., after the formation of our audit committee
in March 2005 were pre-approved by the Audit Committee.


Item 16D. Exemptions from the Listing Standards for Audit Committees.


Not Applicable.


Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers


Not Applicable.

<PAGE>


                                    PART III

Item 17. Financial Statements


See Item 18.


Item 18. Financial Statements


The following financial  statements beginning on page F-1 are filed as a part of
this annual report.


Item 19. Exhibits

     (a)  Exhibits

          Exhibit                                     Description
          Number                                      -----------
          --------
          1.1       Amended and Restated Articles of Incorporation of Diana
                    Shipping Investment Corp. (changing name to Diana Shipping
                    Inc. and increasing the authorized shares) (1)
          1.2       Amended and restated by-laws of the Company (2)
          2.1       Form of Share Certificate (1)
          4.1       Form of Stockholders Rights Agreement (2)
          4.2       Form of Registration Rights Agreement (2)
          4.3       Form of 2005 Stock Incentive Plan (2)
          4.4       Form of Technical Manager Purchase Option Agreement (2)
          4.5       Form of Management Agreement (1)
          4.6       Loan Agreement with Royal Bank of Scotland (2)
          4.7       Amendment to the Loan Agreement with the Royal Bank of
                    Scotland (3)
          4.8       Loan Agreement with Fortis Bank (4)
          4.9       First Amendment to Technical Manager Purchase Option
                    Agreement (5)
          8.1       Subsidiaries of the Company
          11.1      Code of Ethics (6)
          12.1      Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
                    Officer
          12.2      Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
                    Officer
          13.1      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 2002
          13.2      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 an Exhibit to the Company's Amended Registration Statement (File
     No. 123052) on March 15, 2005.
(2)  Filed as an Exhibit to the Company's Registration Statement (File No.
     123052) on March 1, 2005.
(3)  Filed as an Exhibit VI to the Form 6-K filed on March 19, 2007.
(4)  Filed as an Exhibit to Form 6-K filed on December 13, 2006.
(5)  Filed as an exhibit to the Company amended annual report filed on Form 20-F
     on April 14, 2006.
(6)  Filed as an Exhibit to the Company's 2004 Annual Report on Form 20-F (File
     No. 001-32458) on June 29, 2005.

<PAGE>

                                   SIGNATURES

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




                                                       DIANA SHIPPING INC.
                                                --------------------------------

                                                By:    /s/ Andreas Michalopoulos
                                                    ----------------------------
                                                       Andreas Michalopoulos
                                                       Chief Financial Officer


Dated: June 11, 2007

<PAGE>

                               DIANA SHIPPING INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                      Page
                                                               -----------------

Report of Independent Registered Public
                Accounting Firm ......................................    F-2

Consolidated Balance Sheets as of December 31, 2006
                and 2005..............................................    F-3

Consolidated Statements of Income for the years ended
                December 31, 2006, 2005 and 2004......................    F-4

Consolidated Statements of Stockholders' Equity for
                the years ended December 31, 2006, 2005 and 2004......    F-5

Consolidated Statements of Cash Flows for the years ended
                December 31, 2006, 2005 and 2004......................    F-6

Notes to Consolidated Financial Statements............................    F-7

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of DIANA SHIPPING INC.

     We have  audited  the  accompanying  consolidated  balance  sheets of Diana
Shipping Inc. (the  "Company") as of December 31, 2006 and 2005, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three  years in the period  ended  December  31,  2006.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the consolidated financial position of Diana Shipping
Inc.  at  December  31,  2006 and  2005,  and the  consolidated  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December  31,  2006,  in  conformity  with U.S.  generally  accepted  accounting
principles.



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


Athens, Greece,
March 15, 2007

<PAGE>

DIANA SHIPPING INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005

(Expressed in thousands of U.S. Dollars - except for share and per share data)
<TABLE>
<CAPTION>

                                                                                                     2006                 2005
                                                                                                ---------------     ----------------
<S>                                                                                         <C>                     <C>
ASSETS

CURRENT ASSETS:
 Cash and cash equivalents                                                                  $           14,511      $         21,230
 Accounts receivable, trade                                                                              1,000                 1,007
 Inventories (Note 4)                                                                                    1,279                   872
 Prepaid insurance and other                                                                               450                   166
 Prepaid charter revenue, current portion (Note 5)                                                       1,822                 3,322
                                                                                                ---------------     ----------------
               Total current assets                                                                     19,062                26,597
                                                                                                ---------------     ----------------

FIXED ASSETS:
 Advances for vessels under construction and acquisitions and other vessel costs (Note 6)               24,347                 4,221
 Vessels (Note 7)                                                                                      504,493               331,523
 Accumulated depreciation (Note 7)                                                                    (40,054)              (24,218)
                                                                                                ---------------     ----------------
              Vessels' net book value                                                                  464,439               307,305
                                                                                                ---------------     ----------------
Property and equipment, net (Note 9)                                                                       897                     -
                                                                                                ---------------     ----------------

               Total fixed assets                                                                      489,683               311,526
                                                                                                ---------------     ----------------

OTHER NON-CURRENT ASSETS:
 Deferred charges, net (Note 8)                                                                          1,930                 2,004
 Prepaid charter revenue, non-current portion (Note 5)                                                       -                 1,822
                                                                                                ---------------     ----------------
               Total assets                                                                 $          510,675      $        341,949
                                                                                                ===============     ================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Accounts payable, trade and other                                                          $            2,868      $          1,590
 Due to related companies (Note 3)                                                                         154                   215
 Accrued liabilities (Note 10)                                                                           2,202                 1,685
 Deferred revenue (Note 2(p))                                                                            2,341                 1,106
 Other current liabilities (Notes  15)                                                                      71                    71
                                                                                                ---------------     ----------------

               Total current liabilities                                                                 7,636                 4,667
                                                                                                ---------------     ----------------

LONG-TERM DEBT  (Note 11)                                                                              138,239                12,859
                                                                                                ---------------     ----------------

OTHER NON-CURRENT LIABILITIES (Notes 12 and 15)                                                          1,697                   265
                                                                                                ---------------     ----------------

COMMITMENTS AND CONTINGENCIES (Note 13)                                                                      -                     -
                                                                                                ---------------     ----------------

STOCKHOLDERS' EQUITY:
Preferred stock, $0,01 par value; 25,000,000 shares authorized, none issued (Note 14)                        -                     -

Common stock, $0.01 par value; 100,000,000 shares authorized; 45,000,000 and
53,050,000 issued and outstanding at December 31, 2005 and 2006, respectively (Note 14)                    531                   450
Additional paid-in capital (Note 14)                                                                   368,477               296,831
Retained earnings / (accumulated deficit)                                                              (5,905)                26,877
                                                                                                ---------------     ----------------

               Total stockholders' equity                                                              363,103               324,158
                                                                                                ---------------     ----------------

               Total liabilities and stockholders' equity                                   $          510,675      $        341,949
                                                                                                ===============     ================
            The  accompanying  notes are an integral part of these  consolidated financial statements.

</TABLE>
<PAGE>

DIANA SHIPPING INC.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Expressed in thousands of U.S. Dollars - except for share and per share data)


<TABLE>
<CAPTION>

                                                                            2006                  2005                  2004
                                                                      ------------------     ----------------      ----------------
 <S>                                                               <C>                    <C>                   <C>
 REVENUES:
 Voyage and time charter revenues                                  $            116,101   $          103,104    $           63,839

 EXPENSES:
       Voyage expenses (Notes 3 and 15)                                           6,059                6,480                 4,330
       Vessel operating expenses (Note 15)                                       22,489               14,955                 9,514
       Depreciation and amortization of deferred charges (Notes
      7, 8 and 9)                                                                16,709                9,943                 5,087
       Management fees (Note 3)                                                     573                1,731                   947
       Executive management services and rent (Note 14)                              76                  455                 1,528
       General and administrative expenses                                        6,331                2,871                   300
       Foreign currency losses/(gains)                                             (52)                 (30)                     3
                                                                      ------------------     ----------------      ----------------
       Operating income                                                          63,916               66,699                42,130
                                                                      ------------------     ----------------      ----------------

 OTHER INCOME (EXPENSES):
       Interest and finance costs (Notes 11 and 16)                             (3,886)              (2,731)               (2,165)
       Interest income                                                            1,033                1,022                   136
       Gain on sale of vessel                                                         -                    -                19,982
                                                                      ------------------     ----------------      ----------------

       Total other income (expenses), net                                       (2,853)              (1,709)                17,953
                                                                      ------------------     ----------------      ----------------

 Net income                                                        $             61,063   $           64,990    $           60,083
                                                                      ==================     ================      ================

      Preferential Deemed Dividend (Notes 1.4, 3 and 14)           $           (20,267)   $                -    $                -
                                                                      ------------------     ----------------      ----------------

 Net income available to common stockholders                       $             40,796   $           64,990    $           60,083
                                                                      ==================     ================      ================

Earnings per common share, basic and diluted                       $               0.82   $             1.72    $             2.17
                                                                      ==================     ================      ================

Weighted average number of common shares, basic and diluted                  49,528,904           37,765,753            27,625,000
                                                                      ==================     ================      ================
            The  accompanying  notes are an integral part of these  consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

DIANA SHIPPING INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Expressed in thousands of U.S. Dollars - except for share and per share data)

 <S>                                                               <C>                      <C>            <C>
                                                                                                       Common Stock
                                                                                                ----------------------------
                                                                       Comprehensive            # of             Par
                                                                          Income               Shares           Value
                                                                      ------------------    --------------     ---------

 BALANCE, December 31, 2003                                                                    27,625,000  $        276
                                                                                            ==============     =========
       - Net income                                                              60,083                 -             -
       - Contribution to additional-paid in capital  (Note 14(b))                                       -             -
       - Dividends declared and paid ($ 1.85 per share)                                                 -             -
                                                                      ------------------
       Comprehensive income                                         $            60,083
                                                                      ==================

                                                                                            --------------     ---------
 BALANCE, December 31, 2004                                                                    27,625,000  $        276
                                                                                            ==============     =========
       - Net income                                                              64,990                 -             -
       - Contribution to additional-paid in capital  (Note 14(b))                                       -             -
       - Issuance of common stock (par value $0.01, at $17.00)                                 12,375,000           124
       - Issuance of common stock (par value $0.01, at $13.50)                                  5,000,000            50
       - Appropriation of retained earnings                                                             -             -
       - Removal of restrictions on appropriated retained earnings
       - Dividends declared and paid ($ 0.51 per share)                                                 -             -
       - Dividends declared and paid ($ 0.08 per share)
       - Dividends declared and paid ($ 0.54 per share)
       - Dividends declared and paid ($ 0.465 per share)
                                                                      ------------------
       Comprehensive income                                         $            64,990
                                                                      ==================

                                                                                            --------------     ---------
 BALANCE, December 31, 2005                                                                    45,000,000  $        450
                                                                                            ==============     =========
       - Net income                                                              61,063                 -             -
       - Contribution to additional-paid in capital  (Note 14(b))                                       -             -
       - Issuance of common stock (Note 14 (c))                                                 8,050,000            81
       - Dividends declared and paid ($ 0.40 per share)                                                 -             -
       - Dividends declared and paid ($ 0.345 per share)                                                -             -
       - Dividends declared and paid ($ 0.355 per share)                                                -             -
       - Dividends declared and paid ($ 0.40 per share)                                                 -             -
       - Preferential deemed dividend                                                                   -             -
                                                                      ------------------
       Comprehensive income                                         $            61,063
                                                                      ==================

                                                                                              --------------     ---------
 BALANCE, December 31, 2006                                                                      53,050,000  $        531
                                                                                              ==============     =========

<CAPTION>
 <S>                                                                <C>            <C>             <C>                <C>
                                                                                                          Retained
                                                                      Additional    Appropriation         Earnings/
                                                                        Paid-in      Of Retained         (Accumulated
                                                                        Capital        Earnings            Deficit)           Total
                                                                    --------------  --------------     --------------     ----------

 BALANCE, December 31, 2003                                         $      37,961  $            -  $          10,204  $      48,441
                                                                    ==============  ==============     ==============     ==========
       - Net income                                                             -               -             60,083         60,083
       - Contribution to additional-paid in capital  (Note 14(b))           1,528               -                  -          1,528
       - Dividends declared and paid ($ 1.85 per share)                         -               -           (51,000)       (51,000)

       Comprehensive income                                                                                                       -


                                                                    --------------  --------------     --------------     ----------
 BALANCE, December 31, 2004                                         $      39,489  $            -  $          19,287  $      59,052
                                                                    ==============  ==============     ==============     ==========
       - Net income                                                             -               -             64,990         64,990
       - Contribution to additional-paid in capital  (Note 14(b))             455               -                  -            455
       - Issuance of common stock (par value $0.01, at $17.00)            193,852               -                  -        193,976
       - Issuance of common stock (par value $0.01, at $13.50)             63,035               -                  -         63,085
       - Appropriation of retained earnings                                     -          15,850           (15,850)              -
       - Removal of restrictions on appropriated retained earnings                       (15,850)             15,850              -
       - Dividends declared and paid ($ 0.51 per share)                         -               -           (14,000)       (14,000)
       - Dividends declared and paid ($ 0.08 per share)                                                      (3,200)        (3,200)
       - Dividends declared and paid ($ 0.54 per share)                                                     (21,600)       (21,600)
       - Dividends declared and paid ($ 0.465 per share)                                                    (18,600)       (18,600)

       Comprehensive income                                                                                                       -


                                                                    --------------  --------------     --------------     ----------
 BALANCE, December 31, 2005                                         $     296,831  $            -  $          26,877        324,158
                                                                    ==============  ==============     ==============     ==========
       - Net income                                                             -               -             61,063         61,063
       - Contribution to additional-paid in capital  (Note 14(b))              76               -                  -             76
       - Issuance of common stock (Note 14 (c))                            71,570               -                  -         71,651
       - Dividends declared and paid ($ 0.40 per share)                         -               -           (18,000)       (18,000)
       - Dividends declared and paid ($ 0.345 per share)                        -               -           (15,525)       (15,525)
       - Dividends declared and paid ($ 0.355 per share)                        -               -           (18,833)       (18,833)
       - Dividends declared and paid ($ 0.40 per share)                         -               -           (21,220)       (21,220)
       - Preferential deemed dividend                                           -               -           (20,267)       (20,267)

       Comprehensive income


                                                                    --------------  --------------     --------------     ----------
 BALANCE, December 31, 2006                                         $     368,477  $            -  $         (5,905)        363,103
                                                                    ==============  ==============     ==============     ==========
            The accompanying notes are an integral part of these consolidated financial statements

</TABLE>
<PAGE>

DIANA SHIPPING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Expressed in thousands of U.S. Dollars - except for share and per share data)

<TABLE>
<CAPTION>

                                                                                              2006          2005            2004
                                                                                           ----------     ----------     ----------
 <S>                                                                                    <C>            <C>            <C>
 Cash Flows from Operating Activities:
       Net income                                                                       $     61,063   $     64,990   $     60,083
       Adjustments to reconcile net income to net cash from operating activities:
          Depreciation and amortization of deferred charges                                   16,709          9,943          5,087
          Executive management services and rent                                                  76            455          1,528
          Amortization and write off of financing costs                                          128            590             88
          Gain on sale of vessel                                                                   -              -       (19,982)
          Change in fair value of interest rate option contracts                                   -              -            (9)
          Recognition / (amortization) of free lubricants benefit                               (71)           (99)          (255)
       (Increase) Decrease in:
          Receivables                                                                              7          (879)           (50)
          Due from related companies                                                               -              -            149
          Inventories                                                                          (407)          (355)          (151)
          Prepayments and other                                                                (164)             91          (277)
          Prepaid charter revenue                                                              3,322        (5,144)              -
       Increase (Decrease) in:
          Accounts payable                                                                       988            865             43
          Due to related companies                                                                50          (147)            362
          Accrued liabilities                                                                  (421)            739            330
          Deferred revenue                                                                     1,235          (764)            433
          Other non current liabilities                                                          988              -              -
      Dry dockings                                                                           (1,133)        (1,029)              -
                                                                                           ----------     ----------     ----------
 Net Cash provided by Operating Activities                                                    82,370         69,256         47,379
                                                                                           ----------     ----------     ----------
 Cash Flows from Investing Activities:
      Advances for vessels under construction and acquisitions and other vessel costs       (24,347)        (4,221)       (17,021)
      Vessel acquisitions                                                                  (168,749)      (165,020)       (35,956)
      Net proceeds from sale of vessel                                                             -              -         41,199
                                                                                           ----------     ----------     ----------
 Net Cash used in Investing Activities                                                     (193,096)      (169,241)       (11,778)
                                                                                           ----------     ----------     ----------
 Cash Flows from Financing Activities:
      Proceeds from long-term debt                                                           197,180        150,925         15,750
      Proceeds from public offering, net of related issuance costs                            71,651        257,061              -
      Decrease in restricted cash                                                                  -            789            169
      Financing costs                                                                          (100)        (1,200)              -
      Payments of long-term debt                                                            (71,425)      (230,718)        (6,289)
      Proceeds from settlement of financial instruments                                            -              -             86
      Consideration paid for DSS acquisition, net                                           (19,721)              -              -
      Cash dividends                                                                        (73,578)       (57,400)       (51,000)
                                                                                           ----------     ----------     ----------
 Net Cash provided by/(used in)  Financing Activities                                        104,007        119,457       (41,284)
                                                                                           ----------     ----------     ----------
 Net increase (decrease) in cash and cash equivalents                                        (6,719)         19,472        (5,683)
 Cash and cash equivalents at beginning of year                                               21,230          1,758          7,441
                                                                                           ----------     ----------     ----------
 Cash and cash equivalents at end of year                                               $     14,511   $     21,230   $      1,758
                                                                                           ==========     ==========     ==========
 SUPPLEMENTAL CASH FLOW INFORMATION
      Cash paid during the year for:
         Interest payments, net of amounts capitalized                                  $      2,062   $      1,572   $      2,279
                                                                                           ==========     ==========     ==========
       Non-cash financing activities:
         Executive management services and rent                                         $         76   $        455   $      1,528
                                                                                           ==========     ==========     ==========
                                  The accompanying notes are an integral part of these consolidated financial statements

</TABLE>
<PAGE>

                               DIANA SHIPPING INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006
           (Expressed in thousands of U.S. Dollars - except share and
                    per share data, unless otherwise stated)

     1.   Basis of Presentation and General Information:

The accompanying consolidated financial statements include the accounts of Diana
Shipping Inc.  ("Diana") and its wholly-owned  subsidiaries  (collectively,  the
"Company").  Diana  was  formed on March 8,  1999 as Diana  Shipping  Investment
Corp.,  under  the laws of the  Republic  of  Liberia.  In  February  2005,  the
Company's articles of incorporation were amended.  Under the amended articles of
incorporation,  the Company was renamed Diana Shipping Inc. and was  redomiciled
from the Republic of Liberia to the Republic of the Marshall  Islands.  In March
2005,  December  2005 and June 2006 the  Company  completed  its initial and two
secondary  public  offerings  in the  United  States  under  the  United  States
Securities  Act of 1933,  as  amended,  the net  proceeds  of which  amounted to
$193,976, $63,085 and $71,651, respectively.

The Company is engaged in the ocean transportation of dry bulk cargoes worldwide
through the  ownership  and  operation of bulk  carrier  vessels and is the sole
owner of all outstanding shares of the following subsidiaries:

1.1  Shipowning companies incorporated in the Republic of Panama:

(a)  Skyvan Shipping Company S.A.  ("Skyvan"),  owner of the Bahamas flag 75,311
     dwt bulk carrier vessel "Nirefs",  which was built and delivered in January
     2001.

(b)  Buenos Aires Compania Armadora S.A.  ("Buenos"),  owner of the Bahamas flag
     75,247 dwt bulk carrier vessel  "Alcyon",  which was built and delivered in
     February 2001.

(c)  Husky Trading,  S.A.  ("Husky"),  owner of the Bahamas flag 75,336 dwt bulk
     carrier vessel "Triton", which was built and delivered in March 2001.

(d)  Panama Compania Armadora S.A. ("Panama"),  owner of the Bahamas flag 75,211
     dwt bulk carrier  vessel  "Oceanis",  which was built and  delivered in May
     2001.

(e)  Eaton  Marine  S.A.  ("Eaton"),  owner of the Greek  flag  75,106  dwt bulk
     carrier vessel "Danae" (built in 2001), which was acquired in July 2003.

(f)  Chorrera  Compania  Armadora  S.A.  ("Chorrera"),  owner of the Greek  flag
     75,172 dwt bulk carrier vessel "Dione" (built in 2001),  which was acquired
     in May 2003.

(g)  Cypres Enterprises Corp.  ("Cypres"),  owner of the Bahamas flag 73,630 dwt
     bulk  carrier  vessel  "Protefs"  (Hull  No.  H2301),  which  was built and
     delivered in August 2004.

(h)  Darien Compania Armadora S.A. ("Darien"),  owner of the Bahamas flag 73,691
     dwt bulk carrier vessel  "Calipso"  (Hull No.  H2303),  which was built and
     delivered in February 2005.

(i)  Cerada International S.A ("Cerada"),  owner of the Bahamas flag 169,883 dwt
     bulk carrier  vessel  "Pantelis SP" (built in 1999),  which was acquired in
     February 2005.

(j)  Texford  Maritime  S.A.  ("Texford"),  owner of the Bahamas flag 73,691 dwt
     bulk carrier vessel "Clio" (Hull No. H2304),  which was built and delivered
     in May 2005.

(k)  Urbina Bay Trading,  S.A. ("Urbina"),  owner of the Bahamas flag 74,444 dwt
     bulk carrier vessel "Erato" (built in 2004), which was acquired in November
     2005.

(l)  Changame  Compania  Armadora S.A.  ("Changame"),  owner of the Bahamas flag
     73,583 dwt bulk carrier vessel "Thetis" (built in 2004), which was acquired
     in November 2005.

(m)  Vesta Commercial, S.A. ("Vesta"), owner of the Bahamas flag 74,381 dwt bulk
     carrier vessel  "Coronis" (Hull No. H1307A),  which was built and delivered
     in January 2006 (Note 7).

1.2. Subsidiaries incorporated in the Republic of the Marshall Islands:

(a)  Ailuk Shipping Company Inc. ("Ailuk"),  owner of the Marshall Islands' flag
     73,546  dwt dry bulk  carrier  vessel  "Naias"  (built in 2006),  which was
     delivered in August 2006 (Note 7).

(b)  Bikini  Shipping  Company  Inc.  ("Bikini")  has assumed  from its original
     buyers a shipbuilding  contract for the construction of one 177,000 dwt dry
     bulk  carrier with Hull No.  H1107,  expected to be delivered in the second
     quarter of 2010 (Note 6).

(c)  Eniwetok  Shipping Company Inc.  ("Eniwetok") has assumed from its original
     buyers a shipbuilding  contract for the construction of one 177,000 dwt dry
     bulk  carrier with Hull No.  H1108,  expected to be delivered in the second
     quarter of 2010 (Note 6).

(d)  Jaluit Shipping  Company Inc.  ("Jaluit"),  owner of the Marshall  Islands'
     flag 174,187 dwt capesize dry bulk carrier  vessel  "Sideris GS", which was
     built and delivered in November 2006 (Note 7).

(e)  Kili Shipping  Company Inc.  ("Kili") was established in September 2006 and
     is a wholly owned subsidiary of the Company. At December 31, 2006, Kili did
     not have any operations.

(f)  Knox Shipping  Company Inc.  ("Knox") was established in September 2006 and
     is a wholly owned subsidiary of the Company. At December 31, 2006, Knox did
     not have any operations.

(g)  Lib Shipping  Company Inc. ("Lib") was established in September 2006 and is
     a wholly owned subsidiary of the Company. At December 31, 2006, Lib did not
     have any operations.

(h)  Majuro Shipping  Company Inc.  ("Majuro") was established in September 2006
     and is a wholly  owned  subsidiary  of the  Company.  At December 31, 2006,
     Majuro did not have any operations.

(i)  Taka Shipping  Company Inc.  ("Taka") was established in September 2006 and
     is a wholly owned subsidiary of the Company. At December 31, 2006, Taka did
     not have any operations.

1.3. Subsidiaries incorporated in the United States of America:

(a)  Bulk Carriers  (USA) LLC ("Bulk  Carriers"),  was  established in September
     2006,  in the State of Delaware,  USA, to act as the  Company's  authorized
     representative in the United States.

1.4.  Diana Shipping  Services S.A. (the "Manager" or "DSS").  On April 1, 2006,
the  Company  acquired  100% of the issued and  outstanding  shares of DSS,  the
management company,  for a cash consideration of $20,000. The purchase price was
financed  with funds drawn under the  revolving  credit  facility with the Royal
Bank of Scotland (Note 11). The Company  recorded the  acquisition at historical
cost under a method  similar to a pooling of interests,  due to the fact that in
February 2005, the date the agreement to acquire DSS was originally  signed, DSS
and the Company were under common control. The purchase price in excess of DSS's
historical  book value at the date of  acquisition  of $20,267 is  considered  a
preferential  deemed  dividend  and is  reflected  as a reduction  in net income
available to common stockholders in the accompanying 2006 consolidated statement
of income.

DSS provides the Company and the vessels with management  services,  pursuant to
management  agreements,  for a  fixed  monthly  fee of  $15  per  vessel  and 2%
commission on all voyage and time charter revenues.  Until November 11, 2004 the
vessel owning subsidiaries had a management agreement with Diana Shipping Agency
S.A. ("DSA"), a related Panamanian corporation,  under which management services
were provided in exchange for a fixed  monthly fee of $12 per vessel,  which was
renewable annually. Furthermore, DSA was charging the vessel owning subsidiaries
2% commission on all voyage and time charter  revenues.  Effective  November 12,
2004 and following the  termination of the management  agreements  with DSA, the
operations of the vessels are managed by Diana Shipping Services S.A. (Note 3).

During 2006, 2005 and 2004,  seven  charterers  individually  accounted for more
than 10% of the Company's voyage and time charter revenues as follows:

    Charterer            2006           2005           2004
------------------     ----------    -----------    -----------
      A                      -              -            25%
      B                      -              -            15%
      C                    20%            26%            20%
      D                      -            12%            16%
      E                    15%            14%              -
      F                      -            11%              -
      G                    15%              -              -

2.   Significant Accounting Policies adopted in the period and Recent Accounting
     Pronouncements:

(a)  Principles  of  Consolidation:   The  accompanying  consolidated  financial
     statements  have been prepared in accordance with U.S.  generally  accepted
     accounting  principles  and include the accounts of Diana Shipping Inc. and
     its wholly-owned  subsidiaries referred to in Note 1 above. All significant
     intercompany   balances   and   transactions   have  been   eliminated   in
     consolidation.

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

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

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

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

(f)  Accounts Receivable, Trade: The amount shown as accounts receivable, trade,
     at each balance sheet date, includes  receivables from charterers for hire,
     freight and demurrage  billings,  net of a provision for doubtful accounts.
     At each balance  sheet date,  all  potentially  uncollectible  accounts are
     assessed individually for purposes of determining the appropriate provision
     for  doubtful  accounts.  No  provision  for  doubtful  accounts  has  been
     established as of December 31, 2006 and 2005.

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

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

(i)  Prepaid/Deferred  Charter Revenue:  Where the Company identifies any assets
     or liabilities  associated  with the  acquisition of a vessel,  the Company
     records all identified  assets or liabilities at fair value.  Fair value is
     determined  by reference to market  data.  The Company  values any asset or
     liability arising from the market value of the time charters assumed when a
     vessel is  acquired.  The amount to be recorded as an asset or liability at
     the date of vessel delivery is based on the difference  between the current
     fair  market  value of the  charter  and the net  present  value of  future
     contractual cash flows.  When the present value of the time charter assumed
     is  greater  than  the  current  fair  market  value of such  charter,  the
     difference  is  recorded  as prepaid  charter  revenue.  When the  opposite
     situation  occurs,  the  difference is recorded as deferred  revenue.  Such
     assets and liabilities,  respectively,  are amortized as a reduction of, or
     an increase in, revenue over the period of the time charter assumed.

(j)  Impairment of Long-Lived  Assets: The Company uses SFAS No. 144 "Accounting
     for the  Impairment  or Disposal of  Long-lived  Assets",  which  addresses
     financial  accounting  and  reporting  for the  impairment  or  disposal of
     long-lived assets. The standard requires that long-lived assets and certain
     identifiable  intangibles  held  and  used by an  entity  be  reviewed  for
     impairment  whenever events or changes in  circumstances  indicate that the
     carrying amount of the assets may not be recoverable.  When the estimate of
     undiscounted  cash  flows,  excluding  interest  charges,  expected  to  be
     generated  by the use of the asset is less than its  carrying  amount,  the
     Company should  evaluate the asset for an impairment  loss.  Measurement of
     the impairment  loss is based on the fair value of the asset as provided by
     third parties. In this respect,  management  regularly reviews the carrying
     amount of the  vessels  in  comparison  with the fair value of the asset as
     provided by third parties for each of the Company's vessels.  No impairment
     loss was recorded in 2006, 2005 and 2004. Furthermore, in the period a long
     lived asset meets the "held for sale"  criteria of SFAS  No.144,  a loss is
     recognized  for any initial  adjustment of the long lived asset's  carrying
     amount to fair value less cost to sell.  For the years ended  December  31,
     2006, 2005 and 2004, no such adjustments were identified.

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

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

(m)  Financing  Costs:   Fees  paid  to  lenders  for  obtaining  new  loans  or
     refinancing  existing  ones are  deferred and recorded as a contra to debt.
     Other fees paid for obtaining loan facilities not used at the balance sheet
     date are  capitalized as deferred  financing  costs.  Fees are amortized to
     interest  and  finance  costs over the life of the  related  debt using the
     effective  interest  method and,  for the loan  facilities  not used at the
     balance sheet date, according to their availability terms. Unamortized fees
     relating to loans repaid or refinanced are expensed as interest and finance
     costs in the period the repayment or refinancing is made.  Loan  commitment
     fees are charged to expense in the period incurred.

(n)  Property and  equipment.  The Company  leases from a related party property
     consisting  of office  space,  a warehouse  and parking  spaces,  which was
     previously owned by DSS, the management company. The sale and leaseback was
     accounted  for by the  financing  method  and the  property  remains in the
     Company's  consolidated  financial statements and is being depreciated on a
     straight-line  basis over its remaining  useful life. The estimated  useful
     life of the property is 20 years and no residual value has been  estimated.
     Equipment  consists of office furniture and equipment and computer software
     and  hardware.  The useful life of the office  furniture and equipment is 5
     years and of the computer software and hardware is 3 years. Depreciation is
     calculated on a straight-line basis.

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

(p)  Accounting  for Revenues and  Expenses:  Revenues are  generated  from time
     charter agreements.  Time charter revenues over the term of the charter are
     recorded as service is provided when they become fixed and determinable.  A
     voyage  is deemed to  commence  upon the  completion  of  discharge  of the
     vessel's  previous  cargo  and is  deemed  to end  upon the  completion  of
     discharge of the current cargo. Income representing  ballast bonus payments
     by the charterer to the vessel owner is  recognized  in the period  earned.
     The related amounts for 2006 and 2005 were not material.  Deferred  revenue
     includes  cash  received  prior to the  balance  sheet  date for  which all
     criteria to  recognize as revenue has not been met.  Deferred  revenue also
     includes  the  unamortized  balance of the  liability  associated  with the
     acquisition of second-hand  vessels with time charters  attached which were
     acquired  at values  below fair  market  value at the date the  acquisition
     agreement is  consummated.  Voyage related and vessel  operating  costs are
     expensed as incurred.

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

(r)  Pension and retirement benefit  obligations.  Administrative  employees are
     covered by  state-sponsored  pension funds.  Both employees and the Company
     are required to contribute a portion of the employees'  gross salary to the
     fund. Upon retirement,  the  state-sponsored  pension funds are responsible
     for paying the employees  retirement  benefits and  accordingly the Company
     has no  such  obligation.  Employer's  contributions  for the  period  from
     acquisition  of the  management  company to December  31, 2006  amounted to
     $273.

(s)  Employees'   retirement  and  staff  leaving  indemnities.   Administrative
     personnel  are entitled to an indemnity in case of dismissal or  retirement
     unless they resign or are  dismissed  with cause.  The  Company,  as of the
     acquisition  date of DSS (April 1, 2006),  recognized  in the balance sheet
     the estimated  benefit  obligation for the past service of DSS's employees,
     which  amounted  to  $736.  At  December  31,  2006 the  projected  benefit
     obligation  amounted  to $850 (Note 12).  This is an  unfunded  plan and is
     being accounted for under SFAS 158.

(t)  Earnings per Common Share:  Basic earnings per common share are computed by
     dividing  net  income  available  to common  stockholders  by the  weighted
     average  number of  common  shares  outstanding  during  the year.  Diluted
     earnings per common share, reflects the potential dilution that could occur
     if securities or other contracts to issue common stock were exercised.  The
     Company had no dilutive securities during 2006, 2005 and 2004.

(u)  Segmental  Reporting:   The  Company  reports  financial   information  and
     evaluates its operations by charter  revenues and not by the length of ship
     employment for its customers,  i.e. spot or time charters. The Company does
     not use discrete  financial  information to evaluate the operating  results
     for each such type of charter. Although revenue can be identified for these
     types of  charters,  management  cannot  and does  not  identify  expenses,
     profitability  or other  financial  information  for these  charters.  As a
     result,  management,  including the chief operating decision maker, reviews
     operating  results  solely by revenue per day and operating  results of the
     fleet  and thus the  Company  has  determined  that it  operates  under one
     reportable  segment.  Furthermore,  when the Company charters a vessel to a
     charterer,  the charterer is free to trade the vessel  worldwide  and, as a
     result, the disclosure of geographic information is impracticable.

(v)  Variable   Interest   Entities:   In   December   2003,   the  FASB  issued
     Interpretation  No. 46R,  Consolidation of Variable Interest  Entities,  an
     Interpretation  of  ARB  No.  51  (the  "Interpretation"),   which  revised
     Interpretation No. 46, issued in January 2003. The Interpretation addresses
     the consolidation of business  enterprises  (variable interest entities) to
     which the usual  condition  (ownership  of a majority  voting  interest) of
     consolidation  does not apply.  The  Interpretation  focuses  on  financial
     interests that indicate control.  It concludes that in the absence of clear
     control through voting interests,  a company's exposure (variable interest)
     to the economic  risks and  potential  rewards  from the variable  interest
     entity's  assets and activities are the best evidence of control.  Variable
     interests are rights and  obligations  that convey economic gains or losses
     from  changes in the value of the  variable  interest  entity's  assets and
     liabilities.  Variable  interests  may arise  from  financial  instruments,
     service  contracts,  and  other  arrangements.  If an  enterprise  holds  a
     majority of the variable interests of an entity, it would be considered the
     primary  beneficiary.  The primary beneficiary would be required to include
     assets, liabilities, and the results of operations of the variable interest
     entity in its financial  statements.  The Company was required to adopt the
     provisions of FIN 46R for entities created prior to February 2003, in 2004.
     The  adoption  of FIN  46R  did  not  have  any  impact  on  the  Company's
     consolidated financial position, results of operations or cash flows.

(w)  Accounting for Corrections: In May 2005, the FASB issued FASB Statement No.
     154,  "Accounting  Changes and Error  Corrections" (SFAS No. 154). SFAS No.
     154 is a replacement of APB Opinion No. 20,  "Accounting  Changes" (APB 20)
     and  FASB  Statement  No.  3,  "Reporting  Accounting  Changes  in  Interim
     Financial  Statements"  (SFAS No. 3). SFAS No. 154 provides guidance on the
     accounting for and reporting of accounting  changes and error  corrections.
     It  establishes  retrospective  application  as  the  required  method  for
     reporting a voluntary  change in  accounting  principle.  APB 20 previously
     required that most voluntary changes in accounting  principle be recognized
     by  including  in net income of the  period of the  change  the  cumulative
     effect of changing to the new accounting  principle.  SFAS No. 154 provides
     guidance for determining whether  retrospective  application of a change in
     accounting  principle  is  impracticable  and for  reporting  a change when
     retrospective application is impracticable. SFAS No. 154 also requires that
     a  change  in  method  of  depreciation,  amortization,  or  depletion  for
     long-lived,  nonfinancial assets be accounted for as a change in accounting
     estimate  that is  effected  by a change in  accounting  principle.  APB 20
     previously  required  that  such  a  change  be  reported  as a  change  in
     accounting  principle.  SFAS No. 154 carries forward many provisions of APB
     20 without change,  including the provisions  related to the reporting of a
     change in accounting  estimate,  a change in the reporting entity,  and the
     correction of an error. SFAS No. 154 also carries forward the provisions of
     SFAS No. 3 that govern reporting  accounting  changes in interim  financial
     statements.   SFAS  No.  154  is  effective  for  accounting   changes  and
     corrections  of errors made in fiscal years  beginning  after  December 31,
     2005. The Company adopted this pronouncement beginning in fiscal year 2006.

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

(y)  Recent  Accounting  Pronouncements:  In September 2006 the FASB issued FASB
     Statement No. 158,  "Employer's  Accounting for Defined Benefit Pension and
     Other  Postretirement  Plans"  (SFAS No.  158).  SFAS No. 158  requires the
     employers to recognize the  overfunded or  underfunded  status of a defined
     benefit  postretirement  plan as an asset or liability in its  statement of
     financial  position and to recognize  changes in that funded  status in the
     year in which the changes occur through  comprehensive income of a business
     entity  or  changes  in  unrestricted  net  assets  of  a  not  for  profit
     organization.  SFAS No, 158 requires an employer that is a business  entity
     and  sponsors one or more  single-employer  defined  benefit  plans to: (a)
     recognize the funded status of a benefit plan - measured as the  difference
     between plan assets at fair value (with limited exceptions) and the benefit
     obligation - in its  statement of financial  position.  (b)  recognize as a
     component of other  comprehensive  income,  net of tax, the gains or losses
     and prior service costs or credits that arise during the period but are not
     recognized  as  components  of net periodic  benefit cost  pursuant to FASB
     Statement  No.  87,  Employers'   Accounting  for  Pensions,  or  No.  106,
     Employers' Accounting for Postretirement  Benefits Other Than Pensions. (c)
     measure  defined  benefit plan assets and obligations as of the date of the
     employer's  fiscal year-end  statement of financial  position (with limited
     exceptions)  and  (d)  disclose  in  the  notes  to  financial   statements
     additional  information  about certain effects on net periodic benefit cost
     for the next fiscal year that arise from delayed  recognition  of the gains
     or  losses,  prior  service  costs  or  credits,  and  transition  asset or
     obligation.  SFAS No. 158 is effective for financial  statements issued for
     fiscal years  beginning after December 15, 2006, and interim periods within
     those fiscal years. Early adoption is permitted.  The Company fully adopted
     this  pronouncement  on December 31, 2006. The adoption of the standard did
     not have a material effect on the Company's  financial  position or results
     of operations.

(z)  Recent Accounting  Pronouncements:  In September 13, 2006, with the release
     of Staff Accounting Bulletin No.108 ("SAB 108") "Considering the effects of
     prior year  misstatements  when  quantifying  misstatements in current year
     financial statement" the SEC staff provided  interpretative guidance on the
     consideration  of the effects of prior year  misstatements  in  quantifying
     current year  misstatements  for the purposes of a materiality  assessment.
     The  adoption of this SEC  release did not have an effect on the  Company's
     financial position or results of operations

3.   Transactions with Related Parties:

(a)  Diana Shipping Agencies S.A. ("DSA") and Diana Shipping Services S.A ("DSS"
     or the  "Manager"):  As  discussed  in Note 1, until  November 11, 2004 the
     vessel owning  subsidiaries  had management  agreements with DSA, a company
     controlled  by the  Company's  CEO and  Chairman,  under which,  management
     services  were  provided  in  exchange  for a fixed  monthly fee of $12 per
     vessel, which was renewable annually.  Furthermore,  DSA charged the vessel
     owning  subsidiaries 2% commission on all voyage and time charter revenues.
     Effective  November 12, 2004,  following the  termination of the management
     agreements with DSA, the operations of the vessels are managed by DSS under
     new  management  agreements,  amended  in  July  2005.  Under  the  amended
     agreements,  DSS is the sole and  exclusive  manager of the  vessel  owning
     subsidiaries and any other subsidiaries to be included in the group, having
     vessels in  operation  or under  construction,  with  terms and  conditions
     specified in management  agreements signed between DSS and each subsidiary.
     The  manager  provides  the  Company,  its  Officers,  Executives  and  the
     subsidiaries  with management  services in exchange for a fixed monthly fee
     of $15 per  vessel  plus 2%  commission  on all  voyage  and  time  charter
     revenues,  for a non specific  period of time provided that such agreements
     may be terminated by either party giving three months notice at any time.

     During the year ended  December  31, 2006  management  fees  charged by DSS
     amounted to $2,414 of which $1,841 was eliminated due to the acquisition of
     DSS,  effective  April  1,  2006 and $573 is  separately  reflected  in the
     accompanying  2006 statement of income.  The management fees charged by DSA
     (until  November  11,  2004) and DSS (after  November  11, 2004) during the
     years  ended  December  31,  2005  and  2004  amounted   $1,731  and  $947,
     respectively, and are separately reflected in the accompanying consolidated
     statements  of income.  For the year ended  December  31, 2006  commissions
     charged by DSS amounted to $2,384 of which $1,887 was eliminated due to the
     acquisition  of  DSS  and  $497  is  included  in  voyage  expenses  in the
     accompanying 2006 consolidated  statement of income (Note 14).  Commissions
     charged by DSA (until  November 11, 2004) and DSS (after November 11, 2004)
     during the years ended  December  31, 2005 and 2004  amounted to $2,061 and
     $1,276,   respectively,   and  are  included  in  voyage  expenses  in  the
     accompanying  consolidated  statements of income (Note 15). The balance due
     to DSS at December 31, 2006 amounting to $124 has been  eliminated from the
     accompanying 2006 consolidated  balance sheet and the balance due to DSS at
     December 31, 2005 amounting to $164 is included in due to related companies
     in the accompanying 2005 consolidated balance sheet.

     Effective  December 1, 2006, the Company entered into an agreement with DSA
     to lease office  space.  The lease  agreement,  classified  as an operating
     lease,  has a term of 25 months without options for renewal and the monthly
     rent  amounts  to Euro 8,000 plus stamp  duty.  Annual  rent will  increase
     annually by 3% above inflation for each year the lease is in effect.  As of
     December  31, 2006 rent paid to DSA amounted to $11 and no amounts were due
     to or from DSA.  The  Company  also paid a  guarantee  amount  equal to one
     monthly rent, being refundable at the end of the lease term.  Minimum lease
     payments to DSA until  expiration  of the lease  agreement are estimated to
     $131 for 2007 and $139 for 2008.

(b)  Altair Travel Agency S.A.  ("Altair"):  The Company uses the services of an
     affiliated travel agent,  Altair,  which is controlled by the Company's CEO
     and  Chairman.  Travel  expenses for 2006,  2005 and 2004 amounted to $923,
     $716  and  $287,  respectively,  and are  included  in  vessel  predelivery
     expenses, vessel operating expenses and general and administrative expenses
     in the accompanying  consolidated financial statements.  Effective April 1,
     2006 the Company  also pays  Altair rent for parking  space and a warehouse
     leased  by DSS in  January  2006,  for a  period  of three  years,  without
     renewal,  and for the monthly  rent of Euro 935 plus stamp duty.  Rent will
     increase annually at a rate of 3% above inflation. Rent paid for the period
     from the  acquisition  of DSS,  on April 1,  2006,  to  December  31,  2006
     amounted to $13. No amounts  were payable to or  receivable  from Altair at
     December  31,  2005.  At December  31, 2006 an amount of $99 was payable to
     Altair and is  included  in due to related  companies  in the  accompanying
     consolidated  balance  sheet.  Minimum  lease  payments  to  Altair,  until
     expiration  of the lease term,  are  estimated  to $16 for 2007 and $17 for
     2008.

(c)  Universal  Shipping  and Real Estates  Inc.  ("Universal"):  Universal is a
     company controlled by the Company's CEO and Chairman.  In January 2006, DSS
     entered  into a lease  agreement  with  Universal  for the  lease of office
     space,  a warehouse and parking spaces (see also Note 9) for a monthly rent
     of Euro  19,700  plus stamp duty,  for a period of three  years.  Rent will
     increase  annually at a rate of 3% above inflation.  Effective  December 1,
     2006,  the Company  entered into an amended  agreement to reduce the office
     space leased from  Universal  and reduced  monthly rent to Euro 11,187 plus
     stamp  duty.  The lease is  accounted  for by the  financing  method.  Rent
     expense for the period from the  acquisition  of DSS, on April 1, 2006,  to
     December  31, 2006  amounted to $227 of which an amount of $128 is included
     in Interest and finance costs (Notes 9 and 16) and the remainder in General
     and administrative expenses in the accompanying 2006 consolidated statement
     of income.  No amounts were payable to or receivable  from  Universal as at
     December 31, 2006.  Minimum lease payments to Universal until expiration of
     the lease term are estimated to $194 for 2007 and to $206 for 2008.

(d)  Fortis Bank ("Fortis") ultimate shareholder of Zoe S. Company Ltd. ("Zoe"):
     On December 30,  2002, a share  purchase  and  subscription  agreement  was
     signed by Zoe,  Ironwood  Trading Corp.  (the then sole  shareholder of the
     Company),  certain  executives  (including Mr. Simeon Palios, the Company's
     Chairman and Chief Executive  Officer) and the Company.  Under the terms of
     this  agreement,  Zoe acquired from Ironwood  Trading Corp. 50% of the then
     issued and outstanding common share capital of the Company for a fixed sum,
     and in September  2004,  sold 25% of its common  stock to Corozal  Compania
     Naviera SA,  ("Corozal"),  a company  controlled by Mr. Simeon  Palios.  In
     February 2005, the agreement was amended, so as to facilitate the Company's
     initial public offering and was terminated on its closing in March 2005. As
     at December  31, 2006 and 2005,  Zoe owned  5,050,000  shares  representing
     9.52% and 11.22%, respectively,  of the Company's outstanding common stock.
     In January 2007,  Zoe sold part of its stock in a secondary  offering (Note
     19) and reduced its shares to 4,475,000 or 8.44%.

     Fortis,  through  Fortis  Securities  LLC,  an  affiliate  of  Fortis  Bank
     (Nederland)  N.V.,  was an  underwriter  in the  Company's  initial  public
     offering in March 2005 and the  secondary  offering  in  December  2005 and
     received  a  total  of  $1,659  in  underwriting  commissions  in  2005  in
     connection with both offerings.

     In November 2006 the Company,  acting as the Corporate  Guarantor,  through
     its  subsidiaries  Eniwetok  and Bikini (the  "Borrowers"),  entered into a
     facility  agreement  with Fortis Bank (Note 11) for a loan of up to $60,200
     and a guarantee facility of up to $36,451,  each to be used for the purpose
     of financing and  guaranteeing  the payment of part of the construction and
     acquisition cost of two 177,000 dwt Capesize dry bulk carriers, expected to
     be  delivered to the Company in the second  quarter of 2010 (Notes  1.2(b),
     1.2(c), 6 and 11).

4.      Inventories:

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

                                                       2006              2005
                                                 --------------    -------------
      Lubricants ............................            1,077               686
      Victualling............................              202               186
                                                 --------------    -------------
               Total.........................            1,279               872
                                                 ==============    =============

5.   Prepaid Charter Revenue

The amounts shown in the  accompanying  consolidated  balance  sheets reflect an
asset  recognized  by the  Company  pursuant  to the  acquisition  of the vessel
Thetis.  The vessel,  upon her delivery on November  28, 2005,  was placed on an
existing  time  charter  contract  assumed  from  its  previous  owners  through
arrangements with the respective charterer.  The contract, which expires between
July to September 2007, is at the rate of $25 per day, gross of commissions. The
Company, upon delivery of the vessel, evaluated the charter contract assumed and
recognized an asset of $5,443  representing  the excess of the fair value of the
charter  contract  assumed  over the then fair value of such  charter at current
market  rates with the  balance of the total  contract  price  allocated  to the
vessel's  purchase  price.  As of December  31, 2006 and 2005,  the  unamortized
balance  of the  asset  amounted  to  $1,822  and  $5,144,  respectively  and is
reflected in prepaid charter revenue,  current and non-current  portion,  in the
accompanying  consolidated balance sheets. The amortization during 2006 and 2005
amounted to $3,322 and $299,  respectively,  and is  included as a reduction  of
voyage and time charter revenues in the accompanying  consolidated statements of
income.

6.   Advances for Vessels Construction and Acquisition and Other Vessel Costs:

The amount in the accompanying  consolidated  balance sheets include payments to
sellers  of  vessels  or,  in the case of  vessels  under  construction,  to the
shipyards and other costs as analyzed below:

                                                          2006         2005
                                                        ---------    --------

      Advance payments on contract signing...........          -        4,200
      Pre-delivery installments......................     24,080            -
      Capitalized interest and finance costs.........        257            -
      Other related costs............................         10           21

                                                        ---------    --------
               Total................................      24,347        4,221
                                                        =========    ========

The movement of the account, during 2006 and 2005, was as follows:

                                                           2006        2005
                                                        ---------    --------


      Beginning balance.............................       4,221       19,234
       - Advances  for vessels  under  construction
         and other  vessel costs, delivered during the
         year........................................          -       29,728
       - Advances  for vessels  under  construction
         and other  vessel costs.....................     24,347            -
       - Advances for vessels acquisition and other
         vessel costs................................     22,509       12,726
       - Transferred to vessel cost..................   (26,730)     (57,467)
                                                        ---------    --------
      Ending balance................................      24,347        4,221
                                                        =========    ========


On September 13, 2006, the Company  entered into agreements with unrelated third
parties to assume two  shipbuilding  contracts  dated  March 30,  2006,  for the
construction  of two 177,000 dwt Capesize dry bulk  carriers with Hull No. H1107
and H1108 for the price of $60,200 each.  The vessels will be constructed by the
China Shipbuilding Trading Company Ltd. and Shanghai Waigaoqiao Shipbuilding Co.
Ltd.  (collectively  the  "Builders")  and are  expected to be  delivered to the
Company in the second  quarter of 2010.  The contract price will be paid in five
installments,  one of 20%,  three  subsequent  installments  of 10%, and a final
predelivery  installment  of 50%. As at December 31, 2006,  the Company had paid
one predelivery  installment for each vessel amounting to $12,040 each or 20% of
the vessels'  contract  price and $267 of  additional  construction  costs.  The
balance as of  December  31,  2005,  relates to an advance  payment  (10% of the
purchase price) of $4,200 plus expenses, made by the Company for the acquisition
of the Coronis as discussed in Note 7, below.

7.   Vessels:

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

<TABLE>
<CAPTION>

                                                                                  Accumulated          Net Book Value
                                                             Vessel Cost          Depreciation
                                                           ----------------    -------------------    ------------------
    <S>                                                    <C>                 <C>                    <C>
    Balance, December 31, 2004......................               147,269               (14,416)               132,853
    - Transfers  from  advances  for vessels  under
       construction  and acquisitions and other vessel
       costs........................................                57,467                      -                57,467
    - Vessel acquisitions...........................               126,787                      -               126,787
    - Depreciation..................................                     -                (9,802)               (9,802)
                                                           ----------------    -------------------    ------------------
    Balance, December 31, 2005.....................                331,523               (24,218)               307,305
    - Transfers  from  advances  for vessels  under
       construction  and acquisitions and other vessel
       costs........................................                26,730                      -               26, 730
    - Vessel acquisitions...........................               146,240                      -               146,240
    - Depreciation..................................                     -               (15,836)              (15,836)
                                                           ----------------    -------------------    ------------------
    Balance, December 31, 2006....................                 504,493               (40,054)               464,439
                                                           ================    ===================    ==================

</TABLE>

In October 2005, the Company  entered into an agreement with an unrelated  third
party company to acquire a Panamax dry bulk carrier,  the 74,381 dwt  "Coronis",
for a total consideration of $42,000.  The vessel, at the time the agreement was
concluded,  was under  construction  at the Hudong Shipyard in China. As part of
the Memorandum of Agreement, the Company concluded a time charter agreement with
a company  related to the seller of the  vessel,  commencing  upon the  vessel's
delivery,  for a period of minimum  11 to  maximum 13 months at the  charterer's
option,  at the rate of $21 per day,  gross of  commissions.  As of December 31,
2005,  the Company had made an advance  payment (10% of the  purchase  price) of
$4,200  plus  expenses,  while the  remaining  balance of $37,800  was paid upon
delivery  of the  vessel  in  January  2006.  The  Company  incurred  additional
pre-acquisition  costs,  which amounted to $138 and are included in the vessel's
cost.

In June 2006,  the  Company  entered  into a  Memorandum  of  Agreement  with an
unrelated  third  party  company to acquire  the  73,546  dwt  Panamax  dry bulk
carrier, the Naias, for the purchase price of $39,600. As part of the Memorandum
of  Agreement,  the Company  concluded a time charter  agreement  with a company
related to the seller of the vessel,  commencing upon the vessel's delivery, for
a period of minimum 11 to maximum 13 months at the  charterer's  option,  at the
rate of $21 per day,  net of  commissions.  Upon signing of the  agreement,  the
Company paid a 10% advance and on the  vessel's  delivery in August 2006 the 90%
balance of the  purchase  price  amounting  to  $35,640.  The  Company  incurred
additional  pre-acquisition costs, which amounted to $64 and are included in the
vessel's cost.

In September  2006,  the Company  entered into a Memorandum of Agreement with an
unrelated  third party company to acquire the 174,187 dwt dry bulk carrier,  the
Sideris  GS, for the  purchase  price of $91,000.  The  vessel,  at the time the
agreement  was  concluded,  was under  construction  at the Shanghai  Waigaoqiao
Shipbuilding Co. Ltd., in China. Upon signing of the agreement, the Company paid
a 20% advance and on the vessel's  delivery in November  2006 the 80% balance of
the  purchase  price  amounting  to  $72,800.  The Company  incurred  additional
pre-acquisition  costs,  which amounted to $168 and are included in the vessel's
cost.

All  Company's  vessels,  with the  exception of the Coronis,  the Naias and the
Sideris GS, having a total  carrying  value of $293,871 as of December 31, 2006,
have been  provided  as  collateral  to secure  the  revolving  credit  facility
discussed in Note 11. As of December 31, 2006, all vessels were operating  under
time charters, the last of which expires in January 2008.

8.   Deferred Charges:

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

<TABLE>
<CAPTION>

                                                                       Financing Costs         Drydock Costs          Total
                                                                    ---------------------  -------------------- -----------------
    <S>                                                             <C>                    <C>                  <C>
    Balance, December 31, 2004....................                                   -                     -                 -
     - Additions........................................                         1,200                 1,029             2,229
     - Transfer from prepaid insurance and other........                           100                     -               100
     - Amortization.....................................                         (118)                 (141)             (259)
     - Financing costs presented as a contra to debt....                          (66)                     -              (66)
                                                                    ---------------------  -------------------- -----------------
    Balance, December 31, 2005....................                               1,116                   888             2,004
     - Additions........................................                           100                 1,133             1,233
     - Amortization.....................................                         (128)                 (804)             (932)
     - Financing costs presented as a contra to debt....                         (375)                     -             (375)
                                                                    ---------------------  -------------------- -----------------
    Balance, December 31, 2006....................                                 713                 1,217             1,930
                                                                    =====================  ==================== =================
</TABLE>

Financing costs represent fees paid to the lenders  relating to the $230 million
secured revolving credit facility signed in February 2005 with the Royal Bank of
Scotland.  Additions to financing  costs represent fees paid to the bank for the
amendment of the  agreement to extend the facility  amount to $300 million (Note
11).  Financing  costs  presented as a contra to debt represent the  unamortized
balance  of  financing  fees  relating  to the  long-term  debt  outstanding  at
year-end.

Additions  to deferred  drydock  cost  represent  expenditures  incurred for the
drydocking of the vessels  Danae,  Triton and Oceanis,  which were  completed in
January, February and April 2006, respectively.

The  amortization  of loan  financing  costs is included in interest and finance
costs in the accompanying consolidated statements of income and the amortization
of drydock  costs is  included  in  depreciation  and  amortization  of deferred
charges in the accompanying consolidated statements of income.

9.   Property and equipment, net:

The amount shown in the accompanying 2006 consolidated balance sheet is analyzed
as follows:

<TABLE>
<CAPTION>
                                                                         Property       Furniture and Equipment       Total

                                                                    ------------------- ------------------------ -----------------
    <S>                                                             <C>                 <C>                      <C>
    Balance, December 31, 2005..........................                           -                        -                 -
     -Additions as a result of DSS acquisition..........                         890                       40               930
     -Other Additions...................................                           -                       35                35
     -Depreciation......................................                        (48)                     (20)              (68)
                                                                    ------------------- ------------------------ -----------------
    Balance, December 31, 2006..........................                         842                       55               897
                                                                    =================== ======================== =================
</TABLE>

In December  2005,  DSS (which was  acquired by the company in April 2006) (Note
1.4) sold its  property  consisting  of office  space,  a warehouse  and parking
spaces to Universal  (Note 3(c)) for $515. In January  2006,  DSS entered into a
lease  agreement  with  Universal  to lease back the property  sold,  as well as
additional  office space owned by  Universal,  for a period of three years.  The
sale and  subsequent  leaseback of the property  has been  accounted  for by the
financing method, due to the affiliated  transaction  involved. As a result, DSS
continues to carry the property sold and leased back as an asset and depreciates
it until expiration of the lease  agreement.  The purchase price was recorded in
financing  obligations and is included in other  non-current  liabilities in the
accompanying 2006 consolidated  balance sheet (Note 12). As at December 31, 2006
financing  obligations  amounted  to $586 of which an amount of $71 of  interest
expense is included  in interest  and  finance  costs in the  accompanying  2006
consolidated  statement  of  income  (Note  16).  Upon  expiration  of the lease
agreement,  such finance obligation will be de-recognized from the balance sheet
along with the net book value of the property.

10.  Accrued Liabilities:

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

<TABLE>
<CAPTION>

                                                                     2006           2005
                                                                 ------------     ----------

      <S>                                                        <C>             <C>
      Interest and finance costs..........................               983            188
      Vessels' operating and voyage expenses..............               879          1,085
      General and administrative expenses.................               262            412
      Current portion of projected benefit obligation (Note 12)           78              -
                                                                 ------------     ----------
               Total....................................               2,202          1,685
                                                                 ============     ==========
</TABLE>

11.  Long-term Debt:

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

                                                       2006          2005
                                                     ----------   ----------
    Revolving credit facility.....................     114,600       12,925
    Secured term loan facility ...................      24,080            -
    Less related deferred financing costs ........       (441)         (66)
                                                     ----------   ----------
             Total................................     138,239       12,859
    Less: Current portion.........................           -            -
                                                     ----------   ----------
    Long-term portion.............................     138,239       12,859
                                                     ==========   ==========

Revolving  Credit  Facility:  In  February  2005,  the Company  entered  into an
agreement with the Royal Bank of Scotland for a $230 million  secured  revolving
credit  facility,  to finance the  acquisition  of  additional  dry bulk carrier
vessels or cellular  container  ships, the acquisition of DSS (Note 1.4) and for
working capital.  On May 24, 2006, the Company entered into an amended agreement
to extend the facility amount to $300 million. Pursuant to the amended agreement
the Company is permitted to borrow  amounts up to the facility  limit,  provided
that certain  pre-conditions are satisfied and that borrowings do not exceed 75%
of the  aggregate  value of the  mortgaged  vessels.  The maturity of the credit
facility is ten years and the interest  rate on amounts drawn is at LIBOR plus a
margin.

The amended  facility is available in full for six years (instead of five years)
from May 24, 2006,  the new  availability  date. At the end of the sixth year it
will be reduced by $15 million  (instead of $20 million) and over the  remaining
period of four years  will be  reducing  in  semiannual  amounts of $15  million
(instead of $13.5  million) with a final  reduction of $165 million  (instead of
$75 million) together with the last semi annual reduction.

In January and May 2006, the Company drew down an amount of $38,500 and $20,000,
respectively,  under  the  revolving  credit  facility  with the  Royal  Bank of
Scotland,  to fund part of the purchase price of the Coronis acquired in January
2006  (Note 7) and the  purchase  price of DSS  acquired  on April 1, 2006 (Note
1.4). In June 2006,  the Company  repaid in full the then  outstanding  balance,
amounting to $71,425 plus  interest,  with the proceeds of the secondary  public
offering completed in June 2006 (Note 14(c)).

As at December 31, 2006 a principal amount of $114,600 was outstanding under the
revolving credit facility,  relating to a draw down of $39,600 in August 2006 to
fund the  purchase  price of the  vessel  Naias and to a draw down of $75,000 in
November 2006 to fund part of the purchase price of the Sideris GS (Note 7).

The credit facility is secured by a first priority or preferred ship mortgage on
all vessels in the fleet  excluding  the Coronis,  the Naias and the Sideris GS,
assignment of all freights,  earnings,  insurances and requisition compensation.
The lenders may also require additional  security in the future in the event the
Company  breaches  certain  covenants  under the credit  facility,  as described
below.

The credit facility contains covenants  including  restrictions as to changes in
management  and ownership of the vessels,  additional  indebtedness,  as well as
minimum requirements regarding hull cover ratio (vessels' market values at least
120% of the outstanding  balance of the credit  facility),  minimum liquidity of
$400 per each mortgaged vessel in the fleet unless the available credit facility
for  working  capital  exceeds  this  amount  and  other  financial   covenants.
Furthermore, the Company is not permitted to pay any dividends that would result
in a breach of the financial covenants.

On the undrawn portion of the facility the Company pays commitment  fees,  which
for 2006 and 2005  amounted to $648 and $604,  respectively  and are included in
interest  and  finance  costs in the  accompanying  consolidated  statements  of
income.  The weighted  average interest rate of the revolving credit facility as
at December 31, 2006 and 2005 was 5.99% and 4.08%, respectively.

On November 23, 2006 the Company accepted an offer letter from the Royal Bank of
Scotland for a loan  facility of up to $200,000,  to be used for the purchase of
vessels or shipping  companies upon full  utilization of the existing  revolving
credit  facility.  The facility  will be available for a period of 364 days from
the First  Availability  Date (January 30, 2007) and will bear interest at LIBOR
plus a margin.  An  arrangement  fee of $100 will be payable upon signing of the
agreement. The Company has granted an extension to execute the loan agreement by
January 31, 2007 (Note 19(b)).

Secured  term  loan  facility:  In  November  2006 the  Company,  acting  as the
Corporate  Guarantor,   through  its  subsidiaries   Eniwetok  and  Bikini  (the
"Borrowers"), entered into a facility agreement with Fortis Bank (Note 3(c)) for
a loan of up to $60,200  and a guarantee  facility of up to $36,451,  each to be
used for the purpose of financing  and  guaranteeing  the payment of part of the
construction and acquisition cost of two 177,000 dwt Capesize dry bulk carriers,
expected to be delivered to the Company in the second  quarter of 2010 (Note 6).
The loan  facility  will be  available  in  advances,  according  to the payment
schedule provided in the ship-building  contracts,  until December 30, 2010 (the
termination date) and such advances will be repaid in full at the earlier of the
repayment date (December 31, 2010) or the delivery of each vessel. The guarantee
facility will be available  until  December 31, 2010. The loan bears interest at
LIBOR  plus a  margin  and  commitment  fees  of  0.10%  until  issuance  of the
guarantee. The bank guarantee bears guarantee commission equal to the margin. An
arrangement fee of $60 was paid upon signing the agreement.  The loan is secured
with a  corporate  guarantee,  pre-delivery  security  assignments,  an  account
pledge, a refund guarantee assignment consents and acknowledgements,  a contract
assignment consents and  acknowledgements.  The facility also includes covenants
regarding  minimum  liquidity  and net  worth of the  Company,  restrictions  in
distributions and shareholding, and other events of default.

On  November  29,  2006 the  Company  drew down an amount of  $24,080  under the
facility  agreement in order to fund the first installment for the constructions
of the two Capesize  dry bulk  carriers  (Note 6).  During 2006 the Company paid
guarantee  commission and commitment fees which amounted to $64 and are included
in advances for vessels under  construction  and  acquisitions  and other vessel
costs in the accompanying 2006 consolidated  balance sheet. The interest rate at
December 31, 2006 was 6.02%.

Total interest  incurred on long-term  debt for 2006,  2005 and 2004 amounted to
$2,989, $1,503 and $2,382,  respectively.  Of the above amounts,  $133, $122 and
$339 were  capitalized  as part of the vessel cost for advances paid for vessels
under construction during 2006, 2005 and 2004, respectively. Interest expense on
long-term debt, net of interest capitalized, is included in Interest and finance
costs in the accompanying consolidated statements of income.

12.  Other non-current liabilities:

The amounts in the accompanying  consolidated  balance sheets as of December 31,
2006 and 2005 are analyzed as follows:

                                                            2006         2005
                                                         ---------     --------

    Projected benefit obligation for employees
        compensation...................................       772            -
    Financing obligations (Note 9).....................       586            -
    Deferred income (Note 15)..........................       339          265
                                                         ---------     --------
             Total....................................      1,697          265
                                                         =========     ========

Reconciliation of the projected benefit obligation is as follows:

                                                               2006
                                                          ----------------

      Balance on acquisition of DSS (April 1, 2006)                   736
      Service Cost.....................................                50
      Interest Cost....................................                24
      Benefits paid directly by the Company                          (13)
      Additional termination benefits                                   9
      Actuarial loss/(gain)............................              (36)
      Exchange differences.............................                80
                                                          ----------------
      Balance December 31, 2006........................               850
                                                          ----------------
               Less current liabilities (Note 10)......              (78)
                                                          ----------------
               Non-current liabilities.................               772
                                                          ================


The projected benefit obligation on employees compensation is valued in Euro and
its translation in US$ results in exchange  differences.  The year-end  exchange
rate of US$/Euro  that was used was 1.34.  For 2006,  net periodic  benefit cost
amounted to $83, consisting of the service cost, the interest cost and the extra
payments or expenses incurred.  The accumulated  benefit obligation  amounted to
$543.  The actuarial  gain of $36 was  recognized in the period and therefore is
included in general and administrative  expenses.  The expected benefit payments
in  each of the  next  five  years  and in the  aggregate  for  the  five  years
thereafter are estimated as follows:

                    2007                   $78

                    2008                   $68

                    2009                     -

                    2010                   $42

                    2011                     -

               2012-2016                  $466

The weighted average discount rate used for the calculations above was 4.10% and
the rate of salaries' increase was 6.00%.

Net periodic  benefit cost for the year 2007 is expected to be $105,  consisting
of $72 of service cost and $33 of interest cost.

13.  Contingencies:

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

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

14.  Common Stock and Additional Paid-In Capital:

(a)  Preferred   stock  and  common  stock:   Under  the  amended   articles  of
     incorporation  in  February  2005,  discussed  in  Note  1,  the  Company's
     authorized  capital stock consists of 100,000,000 shares (all in registered
     form) of common stock,  par value $0.01 per share and of 25,000,000  shares
     (all in registered form) of preferred stock, par value $0.01 per share. The
     holders  of the  common  shares  are  entitled  to one vote on all  matters
     submitted to a vote of stockholders and to receive all dividends, if any.

(b)  Additional   paid-in  capital:   The  amounts  shown  in  the  accompanying
     consolidated  balance sheets, as additional paid-in capital,  represent (i)
     payments  made by the  stockholders  at  various  dates to  finance  vessel
     acquisitions  in excess of the amounts of bank loans  obtained and advances
     for working  capital  purposes,  (ii) payments made by the  stockholders in
     excess  of the par value of common  stock  purchased  by them and (iii) the
     value of executive  management  services  provided  through the  management
     agreement with DSS to the Company until  consummation of the initial public
     offering in March 2005,  as well as the value of the lease  expense for the
     office space and of the secretarial services that have been provided to the
     Company  at no  additional  charge  by DSS  until  its  acquisition  by the
     Company. The value of the executive management services (until consummation
     of the  Company's  initial  public  offering in March 2005) and rent (until
     acquisition of DSS in April 2006) for 2006, 2005 and 2004, amounted to $76,
     $455  and  $1,528,  respectively,   and  is  separately  reflected  in  the
     accompanying  consolidated  statements of income. The value of the services
     was  determined  by reference to the amounts of the  employment  agreements
     signed  between the Company and its  executives.  The value of the rent for
     the free office space was  determined  by reference to the lease  agreement
     between DSS and Universal, which acquired the office space previously owned
     by DSS.

(c)  Secondary public offering: In June 2006 the Company completed an additional
     secondary  public  offering in the United  States  under the United  States
     Securities Act of 1933, as amended,  and issued  8,050,000 shares of common
     stock with par value $0.01 per share.  The net  proceeds  of the  secondary
     public offering amounted to $71,651.

(d)  Dividends and preferential  deemed dividend:  During 2006, the Company paid
     dividends of $73,578.  In addition,  upon  acquisition  of DSS the purchase
     price paid in excess of DSS's  historical  book value  amounting to $20,267
     was considered a preferential  deemed dividend and decreased the net income
     available to common stockholders for the year ended December 31, 2006.

(e)  Incentive plan: In February 2005, the Company  adopted an equity  incentive
     plan which entitles the Company's officers,  key employees and directors to
     receive options to acquire the Company's common stock. A total of 2,800,000
     shares of common stock are reserved for issuance  under the plan.  The plan
     is administered by the Company's Board of Directors. Under the terms of the
     plan,  the Company's  Board of Directors  will be able to grant new options
     exercisable at a price per share to be determined by the Company's Board of
     Directors.  No options will be  exercisable  until at least two years after
     the closing of the initial  public  offering  discussed  above.  Any shares
     received on exercise of the options will not be able to be sold until three
     years after the closing of the initial  public  offering.  All options will
     expire 10 years from the date of grant.  The plan will expire 10 years from
     the closing of the initial  public  offering.  As of December 31, 2006,  no
     options were granted under the plan.

15.  Voyage and Vessel Operating Expenses:

The amounts in the accompanying  consolidated  statements of income are analyzed
as follows:

<TABLE>
<CAPTION>

                                                                                   2006           2005            2004
                                                                                 ----------    ----------- --- -----------
     <S>                                                                         <C>           <C>             <C>
     Voyage Expenses
     Port charges........................................                                2             17              32
     Bunkers.............................................                               70          (341)            (23)
     Commissions charged by third parties................                            5,364          4,731           3,019
     Commissions charged by a related party (Note 3(a))..                              497          2,061           1,276
     Miscellaneous.......................................                              126             12              26
                                                                                 ----------    -----------     -----------
              Total....................................                              6,059          6,480           4,330
                                                                                 ==========    ===========     ===========
     Vessel Operating Expenses
     Crew wages and related costs........................                           12,748          8,690           5,403
     Insurance...........................................                            2,274          1,724           1,157
     Spares and consumable stores........................                            5,557          3,157           1,899
     Repairs and maintenance.............................                            1,490          1,014             703
     Tonnage taxes (Note 17).............................                              129             94              68
     Miscellaneous ......................................                              291            276             284
                                                                                 ----------    -----------     -----------
              Total......................................                           22,489         14,955           9,514
                                                                                 ==========    ===========     ===========
</TABLE>

In 2001, the Company signed agreements with an unrelated, international supplier
for the exclusive supply of lubricants to the vessels Nirefs, Alcyon, Triton and
Oceanis,  for  periods  up to  December  31,  2005.  Under  the  terms  of these
contracts,  lubricants  supplied during the first two years of operations of the
vessels  were free of charge.  The free of charge  periods for the four  vessels
expired  between  January and May 2003. The market value of lubricants  consumed
during  the free of charge  period,  for all four  vessels,  was  $1,649.  As at
December 31, 2005 the benefit from those contracts was fully amortized.

In 2004, the Company entered into an agreement with an unrelated,  international
supplier for the exclusive supply of lubricants to the vessels Protefs,  Calipso
and Clio and, in 2005 the Company entered into a similar agreement with the same
supplier  for the vessel  Pantelis SP.  Under the terms of these  agreements,  a
fixed  quantity of main engine and auxiliary  diesel engine oils for each vessel
was supplied free of charge.  The above  discount offer assumes that the Company
remains  exclusively  supplied by the specific  supplier for at least five years
following  the date of the first supply.  In case contract  duration will not be
satisfied,  the  free  quantities  purchased  until  the  time of the  premature
termination  will be charged  at normal  prices to the  Company  for the 100% of
their value if the contract is terminated  within the first year,  then reducing
by 20% each year until the fifth year, the year the contract expires.

The Company classifies  lubricant expense in spares and consumable stores in the
aforementioned  table of Voyage  and  Vessel  Operating  Expenses.  During  free
lubricant  periods,  the Company  recorded  the market  value of the  lubricants
consumed as an expense and amortizes the benefit of the free lubricants consumed
over the periods from the  inception of each of the lubricant  contract  through
the date of their expiration.

The  unamortized  balance of the above  benefits at  December  31, 2006 and 2005
amounted to and $265 and $336,  respectively,  and is included in other  current
liabilities  and in  non-current  liabilities in the  accompanying  consolidated
balance sheets (Note 12).

16.  Interest and Finance Costs:

The amounts in the accompanying  consolidated  statements of income are analyzed
as follows:

<TABLE>
<CAPTION>

                                                                                  2006            2005           2004
                                                                               -----------     -----------    ------------

      <S>                                                                      <C>             <C>            <C>
      Interest expense....................................                          3,055           1,381           2,043
      Amortization and write-off of financing costs.......                            128             590              88
      Commitment fees.....................................                            648             604               -
      Financial instruments...............................                              -               -             (9)
      Other...............................................                             55             156              43
                                                                               -----------     -----------    ------------
               Total....................................                            3,886           2,731           2,165
                                                                               ===========     ===========    ============
</TABLE>


Interest  expense for 2006  includes an amount of $199 relating to the financing
method of  accounting  of the sale and  leaseback  transaction  between  DSS and
Universal (Notes 3(c) and 9).

In July 2003, the Company  concluded two separate interest rate option contracts
(cap and floor) with Fortis Bank for a period of five years  (through July 2008)
for a notional  amount of $38,000 in order to  partially  hedge its  exposure to
fluctuations in interest rates on its long-term debt. The Company's strategy was
to limit the interest rate on a long-term debt principal  amount of $38,000,  at
5.5% through July 2008.  These option  agreements did not meet hedge  accounting
criteria.  In November  2004,  the  agreements  were  terminated and the Company
recorded  the positive  change in the fair value of the options  amounting to $9
and is included in interest and finance costs in the  accompanying  consolidated
statements of income.

17.  Income Taxes:

Under  the  laws  of the  countries  of the  companies'  incorporation  and / or
vessels'  registration,  the companies  are not subject to tax on  international
shipping  income;  however,  they are subject to registration and tonnage taxes,
which are included in vessel operating expenses in the accompanying consolidated
statements of income (Note 15).

Pursuant to the Internal  Revenue Code of the United States (the  "Code"),  U.S.
source income from the  international  operations  of ships is generally  exempt
from U.S.  tax if the company  operating  the ships meets both of the  following
requirements,  (a) the Company is organized in a foreign  country that grants an
equivalent  exception to  corporations  organized  in the United  States and (b)
either (i) more than 50% of the value of the Company's stock is owned,  directly
or indirectly,  by individuals who are  "residents" of the Company's  country of
organization or of another foreign country that grants an "equivalent exemption"
to corporations  organized in the United States (50% Ownership Test) or (ii) the
Company's stock is "primarily and regularly traded on an established  securities
market"  in its  country of  organization,  in another  country  that  grants an
"equivalent  exemption" to United States  corporations,  or in the United States
(Publicly-Traded Test).

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

During 2005, a majority of the  Company's  shares were  ultimately  owned by the
Company's  Chairman and Chief  Executive  Officer,  Mr.  Simeon  Palios  through
certain  holding  companies,  the shares of which were in bearer  form.  Under a
literal  reading of the  Section  883  regulations,  these  shares  would not be
treated as being owned by a  "qualified  shareholder."  However,  based upon Mr.
Palios's  affirmation  that he has direct  physical  possession and control over
such  bearer  shares  and has been in such  possession  and  control  since  the
creation of the Company,  the Company has taken the  position for United  States
federal income tax reporting purposes that,  notwithstanding the language of the
Section  883   regulations,   Mr.  Palios  should  be  treated  as  a  qualified
shareholder. However, there is no assurance that the Internal Revenue Service or
a court  would  agree  with our  position.  If Mr.  Palios is not  treated  as a
qualified  shareholder,  then the Company will not qualify for  exemption  under
Section 883 for the 2005 taxable year and will be subject to a 4% United  States
federal  income tax on its United States  source  shipping  income.  The Company
estimates  that  since no more  than  the 50% of its  shipping  income  would be
treated as being United States source income, the effective tax rate is expected
to be 2% and  accordingly  it  anticipates  that the  impact on its  results  of
operations will not be material.  Regarding the 2006 tax year, and following the
public  offerings of common stock discussed in Note 1, the Company believes that
it  satisfies  the  Publicly-Traded  Test and all of its  United  States  source
shipping income will be exempt from U.S. federal income tax.

18.  Financial Instruments:

The carrying  values of temporary  cash  investments,  accounts  receivable  and
accounts payable  approximate  their fair value due to the short-term  nature of
these financial instruments. The fair values of long-term bank loans approximate
the recorded values, due to their variable interest rates.

19.  Subsequent Events:

(a)  Sale of common stock from principal stockholders:  On January 29, 2007, the
     Company completed a secondary public offering of 5,750,000 shares of common
     stock offered by three selling stockholders at a price of $15.75 per share.
     The three selling  stockholders  are Zoe S. Company Ltd. (Note 3), Ironwood
     Trading Corp. and Corozal  Compania  Naviera S.A.  Ironwood and Corozal are
     controlled  by the  Company's  Chairman and Chief  Executive  Officer,  Mr.
     Palios. The Company did not receive any proceeds from the sale.

(b)  New loan  agreement:  On January  30,  2007,  the  Company  entered  into a
     supplemental  loan  agreement  with the  Royal  Bank of  Scotland,  for the
     purpose of amending  the terms and  conditions  applicable  to the existing
     revolving credit facility agreement to make available to the Borrower under
     the facility  agreement  an  additional  364 day standby  facility of up to
     $200,000  upon full  utilization  of the  Facility.  The facility will bear
     interest at LIBOR plus margin and will be  terminated  the date falling 364
     days after the availability  date (January 30, 2007). An amount of $100 was
     paid on signing of the agreement.

(c)  Agreement  to  purchase a new  vessel:  On  February  5, 2007,  the Company
     entered  into a  Memorandum  of  Agreement  with an  unrelated  third party
     company to acquire a Capesize dry bulk carrier,  the 175,000 dwt "Semirio",
     for a total consideration of $98,000. At the time the agreement was signed,
     the vessel was under construction at the Shanghai  Waigaoqiao  Shipbuilding
     Co.  Ltd.,  in China,  and is expected  to be  delivered  in June 2007.  On
     signing of the agreement,  the Company paid 20% of the purchase  price,  or
     $19,600.

(d)  Declaration  of  dividends:  On February  21,  2007,  the Company  declared
     dividends  amounting  to $24,403,  or $0.46 per share,  payable on or about
     March 14, 2007 to stockholders of record as of March 7, 2007.

(e)  Sale of vessel: On February 14, 2007, the Company entered into a Memorandum
     of  Agreement  with an  unrelated  third  party  company to sell the vessel
     Pantelis SP, for a total  consideration  of $81,000 less a 2.5% commission.
     The  vessel is  expected  to be  delivered  to its new  owners in July 2007
     together with its existent time charter. At December 31, 2006, the vessel's
     net book value was $57,744.

(f)  Agreement to purchase a new vessel:  On March 2, 2007, the Company  entered
     into a Memorandum  of Agreement  with an unrelated  third party  company to
     acquire a secondhand  Capesize dry bulk  carrier,  the 180,235 dwt "Aliki",
     for a total  consideration  of $110,000.  On signing of the agreement,  the
     Company paid 10% of the purchase price, or $11,000, and the balance will be
     paid on delivery of the vessel which is expected in April 2007.

(g)  Vessel off hire: In February 2007, the vessel Coronis was grounded during a
     ballast trip. The reduction in revenues, due to off hire days caused by the
     grounding  incident,  is expected to be approximately  $605 and the repairs
     and other  expenses  are  expected  to be around  $500.  The total  cost of
     repairs,  in excess of $100  which is the  deductible,  is  expected  to be
     covered by the vessel's Hull and Machinery insurance.

(h)  Loan  Draw-down:  On March 7,  2007,  the  Company  drew  down an amount of
     $22,000  under  its  revolving  credit  facility  with  the  Royal  Bank of
     Scotland,  discussed  in Note  11,  to  partly  fund the  advance  payments
     initially  made by the Company  from its own funds in  connection  with the
     purchase of the vessels Semirio and Aliki, discussed in (c) and (f) above.

(i)  Secondary public offering (unaudited): In April 2007, the Company completed
     a secondary  public  offering in the United  States under the United States
     Securities Act of 1933, as amended, of 12,075,000 shares of common stock of
     which  2,250,000 were offered by selling  shareholders  at a price of $17.0
     per share.  The Company  received  $159,509 of net proceeds before expenses
     from the total of 9,825,000  shares sold by the Company and did not receive
     any  proceeds  from the sale of the  2,250,000  shares  offered  by selling
     shareholders.

(j)  Loan  repayment  (unaudited):  On April 5, 2007, the Company repaid in full
     the then  outstanding  balance of $136,600  plus  interest and costs of the
     revolving credit facility with the Royal Bank of Scotland,  partly with the
     net proceeds of the offering mentioned in (i) above.

(k)  Agreement  to  acquire a new vessel  (unaudited):  On April 17,  2007,  the
     Company  entered into a Memorandum  of  agreement  with an unrelated  third
     party company to purchase a 177,000 dwt  newbuilding dry bulk carrier to be
     named Boston, for the price of $110,000.  On signing of the agreement,  the
     Company  paid a 20%  advance of the  purchase  amounting  to  $22,000.  The
     balance of the purchase  price will be paid on the vessel's  delivery.  The
     vessel  is  currently  under   construction  at  the  Shanghai   Waigaoqiao
     Shipbuilding  Co.,  Ltd., and is expected to be delivered to the Company in
     November 2007.

(l)  Loan drawdown and delivery of vessel  (unaudited):  On April 27, 2007,  the
     Company drew down $87,000  under the  revolving  credit  facility  with the
     Royal Bank of Scotland to fund part of the purchase price of the Aliki, the
     180,235  capesize dry bulk carrier it had agreed to purchase in March 2007,
     which was delivered on April 30, 2007.

(m)  Declaration of dividends (unaudited):  On May 3, 2007, the Company declared
     dividends amounting to $31,438, or $0.50 per share, payable on or about May
     23, 2007 to stockholders of record as of May 16, 2007.

(n)  Loan  Draw-down  (unaudited):  On May 18,  2007,  the Company  drew down an
     amount of $22,000 under its revolving  credit  facility with the Royal Bank
     of Scotland,  discussed in Note 11, to fund the advance  payment  initially
     made by the Company from its own funds in  connection  with the purchase of
     the vessel Boston discussed in (k) above.

SK 23159 0002 781644