UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
DC 20549
 
 FORM
20-F
 
 
 o
              REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
      EXCHANGEORx
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
fiscal year ended December 31, 2007
 
 OR
  o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
transition period
from              to
 
 OR
  o
              SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
 
 Date
      of event requiring this shell company
      report. . . . . . . . . . . . . . . .
 
 For the
transition period
from              to
 
 Commission file number_____________________________
 DIANA
SHIPPING INC.
 (Exact
name of Registrant as specified in its charter)
  Diana
Shipping Inc.
 (Translation
of Registrant’s name into English)
  Republic
of The Marshall Islands
 (Jurisdiction
of incorporation or organization)
  Pendelis
16, 175 64 Palaio 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
 None
  Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual
report:
  As of
December 31, 2007, there were 74,375,000 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
                o
                Yes
                x
                NoIf
      this report is an annual or transition report, indicate by check mark if
      the registrant is not required to file reports pursuant to Section 13 or
      15(d) of the Securities Exchange Act of 1934.
                o
                Yes
                x
                NoNote-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
                o
                NoIndicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company.  See the definitions of “large accelerated filer,”
      “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
      Exchange Act. (Check one):
   
 Large
      accelerated filer o
              Accelerated
      filer xNon-accelerated
      filer
                (Do
      not check if a smaller
                reporting
      company)   o
              Smaller
      reporting company   o
 
  
 Indicate
      by check mark which financial statement item the registrant has elected to
      follow.
              o
              Item
      17
              x
              Item
      18If
      this is an annual report, indicate by check mark whether the registrant is
      a shell company (as defined in Rule 12b-2 of the Exchange
      Act).
              o
              Yes
              x
              No
 
 1
 TABLE
OF CONTENTS
   
  FORWARD-LOOKING
      STATEMENTSPART
      I
                
                4Item
      1.
                Identity
      of Directors, Senior Management and Advisers
                4Item
      2.
                Offer
      Statistics and Expected Timetable
                4Item
      3.
                Key
      Information
                4Item
      4.
                Information
      on the Company
                18Item
      4A.
                Unresolved
      Staff Comments
                30Item
      5.
                Operating
      and Financial Review and Prospects
                30Item
      6
                Directors,
      Senior Management and Employees
                45Item
      7
                Major
      Stockholders and Related Party Transactions
                50Item
      8.
                Financial
      information
                52Item
      9.
                Listing
      Details
                53Item
      10.
                Additional
      Information
                54Item
      11.
                Quantitative
      and Qualitative Disclosures about Market Risk
                57Item
      12.
                Description
      of Securities Other than Equity Securities
                58PART
      II
                
                58Item
      13.
                Defaults,
      Dividend Arrearages and Delinquencies
                58Item
      14.
                Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
                58Item
      15.
                Controls
      and Procedures
                58Item
      16A.
                Audit
      Committee Financial Expert
                59Item
      16B.
                Code
      of Ethics
                59Item
      16C.
                Principal
      Accountant Fees and Services
                60Item
      16D.
                Exemptions
      from the Listing Standards for Audit Committees
                60Item
      16E.
                Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
                60PART
      III
                
                61Item
      17.
                Financial
      Statements
                61Item
      18.
                Financial
      Statements
                61Item
      19.
                Exhibits
                61INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS
                F-1
 2
 
  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.
   3
  
  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, 2007, 2006, 2005, 2004, and 2003 and for the five year periods
ended December 31, 2007 are derived from our audited consolidated financial
statements and notes thereto which have been prepared in accordance with U.S.
generally accepted accounting principles (“U.S. 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.
  
 As
      of and for the
                Year
      Ended December 31,2007
              
              2006
              
              2005
              
              2004
              
              2003(in
      thousands of U.S. dollars,
                except
      for share and per share data and average daily results)Income
      Statement Data:Voyage
      and time charter revenues
              $
              190,480
              $
              116,101
              $
              103,104
              $
              63,839
              $
              25,277Voyage
      expenses
              
              8,697
              
              6,059
              
              6,480
              
              4,330
              
              1,549Vessel
      operating expenses
              
              29,332
              
              22,489
              
              14,955
              
              9,514
              
              6,267Depreciation
      and amortization
              
              24,443
              
              16,709
              
              9,943
              
              5,087
              
              3,978Management
      fees
              
              -
              
              573
              
              1,731
              
              947
              
              728Executive
      management services and rent
              
              -
              
              76
              
              455
              
              1,528
              
              1,470General
      and administrative expenses
              
              11,718
              
              6,331
              
              2,871
              
              300
              
              123Gain
      on vessel sale
              
              (21,504)
              
              -
              
              -
              
              -
              
              -Foreign
      currency losses (gains)
              
              (144)
              
              (52)
              
              (30)
              
              3
              
              20Operating
      income
              
              137,938
              
              63,916
              
              66,699
              
              42,130
              
              11,142Interest
      and finance costs
              
              (6,394)
              
              (3,886)
              
              (2,731)
              
              (2,165)
              
              (1,680)Interest
      income
              
              2,676
              
              1,033
              
              1,022
              
              136
              
              27Gain
      on vessel’s sale
              
              -
              
              -
              
              -
              
              19,982
              
              -Net
      income
              $
              134,220
              $
              61,063
              $
              64,990
              $
              60,083
              $
              9,489Preferential
      deemed dividend
              $
              -
              $
              (20,267)
              $
              -
              $
              -
              $
              -Net
      income available to common stockholders
              $
              134,220
              $
              40,796
              $
              64,990
              $
              60,083
              $
              9,489Basic
      earnings per share
              $
              2.11
              $
              0.82
              $
              1.72
              $
              2.17
              $
              0.37Weighted
      average basic and diluted shares outstanding
              
              63,748,973
              
              49,528,904
              
              37,765,753
              
              27,625,000
              
              25,340,596Dividends
      declared per share
              $
              2.05
              $
              1.50
              $
              1.60
              $
              1.85
              $
              -Balance
      Sheet Data:Cash
      and cash equivalents
              $
              16,726
              $
              14,511
              $
              21,230
              $
              1,758
              $
              7,441Total
      current assets
              
              21,514
              
              19,062
              
              26,597
              
              3,549
              
              9,072Vessels,
      Net
              
              867,632
              
              464,439
              
              307,305
              
              116,703
              
              132,853Total
      assets
              
              944,342
              
              510,675
              
              341,949
              
              155,636
              
              134,494Total
      current liabilities
              
              20,964
              
              7,636
              
              4,667
              
              11,344
              
              9,107Deferred
      revenue, non current portion
              
              23,965
              
              146
              
              -
              
              -
              
              -Long-term
      debt (including current portion)
              
              98,819
              
              138,239
              
              12,859
              
              92,246
              
              82,628Total
      stockholders' equity
              
              799,474
              
              363,103
              
              324,158
              
              59,052
              
              48,441Cash Flow
Data:Net
      cash flow provided by operating activities
              $
              148,959
              $
              82,370
              $
              69,256
              $
              47,379
              $
              15,218Net
      cash flow used in investing activities
              
              (409,085)
              
              (193,096)
              
              (169,241)
              
              (11,778)
              
              (52,723)Net
      cash flow provided by (used in) financing activities
              
              262,341
              
              104,007
              
              119,457
              
              (41,284)
              
              43,079Fleet
    Data:Average
      number of vessels (1)
              
              15.9
              
              13.4
              
              9.6
              
              6.3
              
              5.1Number
      of vessels at end of period
              
              18.0
              
              15.0
              
              12.0
              
              7.0
              
              6.0Weighted
      average age of fleet at end of period (in years)
              
              3.4
              
              3.7
              
              3.8
              
              3.4
              
              2.9Ownership
      days (2)
              
              5,813
              
              4,897
              
              3,510
              
              2,319
              
              1,852Available
      days (3)
              
              5,813
              
              4,856
              
              3,471
              
              2,319
              
              1,852Operating
      days (4)
              
              5,771
              
              4,849
              
              3,460
              
              2,315
              
              1,845Fleet
      utilization (5)
              
              99.3%
              
              99.9%
              
              99.7%
              
              99.8%
              
              99.6%Average Daily
      Results:Time
      charter equivalent (TCE) rate (6)
              $
              31,272
              $
              22,661
              $
              27,838
              $
              25,661
              $
              12,812Daily
      vessel operating expenses (7)
              
              5,046
              
              4,592
              
              4,261
              
              4,103
              
              3,384
 
 
 
 (1)
              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.
  (2)
              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.
  (3)
              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.
  (4)
              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.
  (5)
              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.
  4
    (6)
              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.
  Year
      Ended December 31,2007
              
              2006
              
              2005
              
              2004
              
              2003(in
      thousands of U.S. dollars, except for
                TCE
      rates, which are expressed in U.S. dollars, and available
      days)Voyage
      and time charter revenues
              $
              190,480
              $
              116,101
              $
              103,104
              $
              63,839
              $
              25,277Less:
      voyage expenses
              
              (8,697)
              
              (6,059)
              
              (6,480)
              
              (4,330)
              
              (1,549)Time
      charter equivalent revenues
              $
              181,783
              $
              110,042
              $
              96,624
              $
              59,509
              $
              23,728Available
      days
              
              5,813
              
              4,856
              
              3,471
              
              2,319
              
              1,852Time
      charter equivalent (TCE) rate
              $
              31,272
              $
              22,661
              $
              27,838
              $
              25,661
              $
              12,812
  (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.
  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 historically high levels.
Because we charter some of our vessels pursuant to short-term time charters, we
are exposed to changes in spot market and short-term charter 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.
  5
  
 Factors that influence demand for vessel capacity
include:
 
 ·
              demand
      for and production of dry bulk
products;
 
 ·
              global
      and regional economic and political
conditions;
 
 ·
              the
      distance dry bulk is to be moved by sea;
and
 
 ·
              changes
      in seaborne and other transportation
patterns.
 
 The factors that influence the supply
of vessel capacity include:
 
 ·
              the
      number of newbuilding deliveries;
 
 ·
              port
      and canal congestion;
 
 ·
              the
      scrapping rate of older vessels;
 
 ·
              vessel
      casualties; and
 
 ·
              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 near
historically high levels. You should expect the market value of our vessels to
fluctuate depending on general economic and market conditions affecting the
shipping industry and prevailing charter hire rates, competition from other
shipping companies and other modes of transportation, types, sizes and age of
vessels, applicable governmental regulations and the cost of newbuildings. If
the market value of our 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 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.
  6
  
 World
events could affect our results of operations and financial
condition
 
 The
threat of future terrorist attacks in the United States and 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 time 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.
  7
  
 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 some 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 certain 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 62 months for 15 of the vessels in our fleet, including
one of the vessels under construction that we expect to take delivery of in the
second quarter of 2010, and we may in the future employ additional vessels,
including any container vessel that we may acquire, on longer term time
charters. Currently, two 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.
  8
  
 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 certain 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, 15 of our vessels are currently fixed
on longer-term time charters ranging in duration from 18 months to
62 months, including one of our vessels under construction that we expect
to take delivery of in the second quarter of 2010. 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. 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.
  9
  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, we have taken
delivery of five Panamax dry bulk carriers and six Capesize dry bulk carriers,
sold one of our Capesize dry bulk carriers, and have agreed to purchase two
additional Capesize dry bulk carriers, which are expected to be delivered in the
second quarter of 2010.  The addition of these vessels to our fleet
has resulted in a significant increase in 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.
 
 Our
future growth will primarily depend on our ability to:
 
 ·
              locate
      and acquire suitable vessels;
 
 ·
              identify
      and consummate acquisitions or joint
ventures;
 
 ·
              enhance
      our customer base;
 
 ·
              manage
      our expansion; and
 
 ·
              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 may 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 $230 million secured revolving credit facility with The Royal
Bank of Scotland Plc in February 2005, amended in May 2006. 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. As of December 31, 2007, we
had $99.1 million outstanding under our facilities. In February and March
2008, we drew down an additional amount of $71.5 million and $27.0 million under
our revolving credit facility with the Royal Bank of Scotland to fund part of
the purchase price of the Norfolk, a 2002 built Capesize dry bulk carrier, which
was delivered to us in February 2008.  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.
  10
  
 The
credit facilities also impose operating and financial restrictions on us. These
restrictions may limit our ability to, among other things:
 
 ·
              pay
      dividends or make capital expenditures if we do not repay amounts drawn
      under our credit facilities, if there is a default under the credit
      facilities or if the payment of the dividend or capital expenditure would
      result in a default or breach of a loan
  covenant;
 
 ·
              incur
      additional indebtedness, including through the issuance of
      guarantees;
 
 ·
              change
      the flag, class or management of our
vessels;
 
 ·
              create
      liens on our assets;
 
 ·
              sell
      our vessels;
 
 ·
              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;
 
 ·
              merge
      or consolidate with, or transfer all or substantially all our assets to,
      another person; and
 
 ·
              enter
      into a new line of business.
 
 Therefore,
we may need to seek permission from our lenders in order to engage in some
corporate actions. Our lenders’ interests may be different from ours and we
cannot guarantee that we will be able to obtain our lenders' permission when
needed. This may limit our ability to pay dividends to you, finance our future
operations, make acquisitions or pursue business opportunities.
 
 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 with net proceeds of future
equity offerings and 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 facilities 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 two vessels that have not yet been delivered to us is
delayed or either of the vessels is delivered with significant defects, our
earnings and financial condition could suffer
 
 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 either of these vessels, or other vessels that we may enter into
agreements to acquire in the future, to us or the failure of the contract
counterparty to deliver such vessels to us at all could adversely affect our
earnings, our financial condition and the amount of dividends that we pay in the
future.
  11
  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 Executive 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 or other members of our management
team.
 
 Risks
associated with operating ocean-going vessels could affect our business and
reputation, which could adversely affect our revenues and stock
price
 
 The
operation of ocean-going vessels carries inherent risks. These risks include the
possibility of:
 
 ·
              marine
      disaster;
 
 ·
              environmental
      accidents;
 
 ·
              cargo
      and property losses or damage;
 
 ·
              business
      interruptions caused by mechanical failure, human error, war, terrorism,
      political action in various countries, labor strikes or adverse weather
      conditions; and
 
 ·
              piracy.
 
 Any
of these circumstances or events could increase our costs or lower our revenues.
The involvement of our vessels in an environmental disaster may harm our
reputation as a safe and reliable vessel owner and operator.
  12
  
 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. Currently, our fleet consists of thirteen Panamax
dry bulk carriers and six Capesize dry bulk carriers having a combined carrying
capacity of 2.0 million dwt and a weighted average age of 3.5 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.
  13
  
 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 2007 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, at December 31, 2007, our 5% shareholders owned
approximately 19.21% 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 2007 taxable year, 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.
   14
   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 2007, approximately 49% of our revenues derived from three
charterers. During 2006, approximately 50% of our revenues derived from three
charterers and in 2005, approximately 63% of our revenues derived from four
charterers. 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 encounter 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:
 
 ·
              actual
      or anticipated fluctuations in our quarterly and annual results and those
      of other public companies in our
industry;
 
 ·
              mergers
      and strategic alliances in the dry bulk shipping
  industry;
 
 ·
              market
      conditions in the dry bulk shipping
industry;
  15
  
 ·
              changes
      in government regulation;
 
 ·
              shortfalls
      in our operating results from levels forecast by securities
      analysts;
 
 ·
              announcements
      concerning us or our competitors;
and
 
 ·
              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 cannot 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
 
 As
of the date of this report Mr. Simeon Palios, our President and Chief Executive
Officer, beneficially owns 14,312,040 shares, or approximately 19.22% of our
outstanding common stock, the vast majority of which is held indirectly through
entities over which he exercises sole voting power. Please see Item 7.A. “Major
Stockholders.” While Mr. Palios and the non-voting shareholders of these
entities 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 as of December 31, 2007, 74,375,000 shares were outstanding. The number of
shares of common stock available for sale in the public market is limited by
restrictions applicable under securities laws and agreements that we and our
executive officers, directors and principal stockholders have entered
into.
  16
  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, 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, subject to any applicable lock-up agreement in effect at
such time, 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:
 
 ·
              authorizing
      our board of directors to issue “blank check” preferred stock without
      stockholder approval;
 
 ·
              providing
      for a classified board of directors with staggered, three year
      terms;
 
 ·
              prohibiting
      cumulative voting in the election of
directors;
 
 ·
              authorizing
      the removal of directors only for cause and only upon the affirmative vote
      of the holders of a majority of the outstanding shares of our common stock
      entitled to vote for the directors;
 
 ·
              prohibiting
      stockholder action by written
consent;
 
 ·
              limiting
      the persons who may call special meetings of stockholders;
    and
 
 ·
              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.
  17
  Item
4.   Information on the
Company
  A.
              History
      and development of the Company
  Diana
Shipping Inc. is 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 Pendelis 16, 175 64 Palaio Faliro, Athens, Greece. Our
telephone number at this address is +30-210-947-0100.
  We
are a global provider of shipping transportation services.  We
specialize in transporting dry bulk cargoes, including such commodities as iron
ore, coal, grain and other materials along worldwide shipping routes. Currently,
our fleet consists of 19 dry bulk carriers, of which 13 are Panamax and six are
Capesize dry bulk carriers, having a combined carrying capacity of approximately
2.0 million dwt and a weighted average age of 3.5 years. We also have assumed
shipbuilding contracts for two additional Capesize dry bulk carriers, which are
under construction by the China Shipbuilding Trading Company Ltd., and Shanghai
Waigaoqiao Shipbuilding Co. Ltd., and are expected to be delivered to us in the
second quarter of 2010.
  As
of December 31, 2007, our fleet consisted of 13 modern Panamax dry bulk carriers
and five Capesize dry bulk carriers that had a combined carrying capacity of
approximately 1.8 million dwt and a weighted average age of 3.4 years. As of
December 31, 2006, our fleet consisted of 13 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
February 2007, we entered into a memorandum of agreement to acquire one newly
built Capesize dry bulk carrier, the Semirio
that was 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 and the balance of the purchase price of
$78.4 million was paid on the delivery of the vessel to us in June 2007. We
financed $92.0 million of the purchase price with proceeds from our revolving
credit facility with the Royal Bank of Scotland and the remaining with cash on
hand.
  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 was released to us together with the balance of the purchase
price on delivery of the vessel to its new buyers in July 2007. We used the
proceeds from the sale of the Pantelis SP to repay $90.0 million of the then
outstanding debt with the Royal Bank of Scotland amounting to $109.0
million.
  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 hand. The balance of the
purchase price, amounting to $99.0 million, was paid on the delivery of the
vessel to us in April 2007 and was partly funded with an $87.0 million loan
drawn under our revolving credit facility with the Royal Bank of
Scotland.
  In April 2007, we completed a public offering of an
aggregate of 9,825,500 shares of our common stock at a price of $17.00 per
share, resulting in net proceeds to us of $159.3 million.  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 the Royal Bank of Scotland, amounting to $136.6
plus interest and costs, partly with the proceeds of our public offering that
was completed in the same month.
   18
   In
April 2007, we entered into a memorandum of agreement to acquire one newly built
Capesize dry bulk carrier, the Boston,
for the purchase price of $110.0 million. 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. We paid the balance of the purchase price of $88.0
million on the vessel’s delivery to us in November 2007, with the proceeds from
our September 2007 public offering, discussed below.
  In
September 2007, we completed a public offering of an aggregate of 11,500,000
shares of common stock at a price of $25.00 per share, resulting in net proceeds
to us of $273.7 million. We used a portion of the net proceeds of this offering
to repay the $100.8 million outstanding under our revolving credit facility with
the Royal Bank of Scotland, plus interest and costs. We also used a portion of
the proceeds of this offering to fund a portion of the purchase price of the
Boston.
  On
October 9, 2007, the Company entered into two Memoranda of Agreement to acquire
two secondhand Capesize dry bulk carriers, the Salt Lake
City and the Norfolk,
for a total consideration of $140.0 million and $135.0 million, respectively. On
signing of the agreements, we paid 20% of the respective purchase prices
amounting to $28.0 million and $27.0 million, respectively. The balance of the
purchase prices was paid on the delivery of the vessels to us in December 2007
and February 2008, respectively. In December 2007, we drew down an amount of
$75.0 million under our revolving credit facility with the Royal Bank of
Scotland to finance part of the purchase price of the Salt Lake
City. In February and March 2008, we drew down an amount of $71.5 million
and $27.0 million, respectively, under the same facility to finance part of the
purchase price of the Norfolk.
   B.
              Business
      overview
  During
2007, 2006 and 2005, we had a fleet utilization of 99.3%, 99.9% and 99.7%,
respectively, our vessels achieved daily time charter equivalent rates of
$31,272, $22,661 and $27,838, respectively, and we generated revenues of $190.5
million, $116.1 million and $103.1 million, respectively.
   19
 The
following table presents certain information concerning the dry bulk carriers in
our fleet, as of March 12, 2008.
  
 Vessel
              
              Operating
      Status
              
              Dwt
              
              Age
      (1)
              
              Time
      Charter
                Expiration
      Date (2)
              
              Daily
      Time
                Charter
      Hire Rate
              
              Sister
                Ships
      (3)Nirefs
              
              Delivered
      Jan 2001
              
              75,311
              
              6.9
      years
              
              Feb
      3, 2010 – Apr 3, 2010
              
              $60,500
              
              AAlcyon
              
              Delivered
      Feb 2001
              
              75,247
              
              6.9
      years
              
              Nov
      21, 2012 – Feb 21, 2013
              
              $34,500
              
              ATriton
              
              Delivered
      Mar 2001
              
              75,336
              
              6.8
      years
              
              Oct.
      17, 2009 – Jan 17, 20104
              
              $24,400
              
              AOceanis
              
              Delivered
      May 2001
              
              75,211
              
              6.6
      years
              
              Jul
      29, 2009 – Oct 29, 2009
              
              $40,000
              
              ADione
              
              Acquired
      May 2003
              
              75,172
              
              7.0
      years
              
              Jan
      7, 2009 – Mar 7, 2009
              
              $82,000
              
              ADanae
              
              Acquired
      Jul 2003
              
              75,106
              
              7.0
      years
              
              Feb
      18, 2009 – May 18, 2009
              
              $29,400
              
              AProtefs
              
              Delivered
      Aug 2004
              
              73,630
              
              3.3
      years
              
              Mar
      22, 2008 – Mar 25, 2008
              
              $31,650
              
              BCalipso
              
              Delivered
      Feb 2005
              
              73,691
              
              2.9
      years
              
              Jan
      14, 2009 – Mar 14, 2009
              
              $55,000
              
              BClio
              
              Delivered
      May 2005
              
              73,691
              
              2.6
      years
              
              Jan
      27, 2009 – Mar 27, 2009
              
              $27,000
              
              BThetis
              
              Acquired
      Nov 2005
              
              73,583
              
              3.4
      years
              
              Sep
      2, 2008 – Nov 2, 2008
              
              $60,250
              
              BErato
              
              Acquired
      Nov 2005
              
              74,444
              
              3.3
      years
              
              Jan
      1, 2009 – Mar 1, 2009
              
              $80,300
              
              CNaias
              
              Acquired
      Jun 2006
              
              73,546
              
              1.5
      years
              
              Aug
      24, 2009 – Oct 24, 2009
              
              $34,000
              
              BCoronis
              
              Delivered
      Jan 2006
              
              74,381
              
              1.9
      years
              
              Jan
      18, 2009 – Apr 9, 2009
              
              $27,500
              
              CSideris
      GS
              
              Delivered
      Nov 2006
              
              174,186
              
              1.1
      years
              
              Nov
      30, 2008
              
              $43,000
              
              DNov
      30, 2009
              
              $39,000Oct
      15, 2010 – Jan 15, 20115
              
              $36,000Aliki
              
              Acquired
      Apr 2007
              
              180,235
              
              2.8
      years
              
              May
      1, 2009
              
              $52,000
              
              -Mar
      1, 2011 – Jun 1, 20115
              
              $45,000Semirio
              
              Delivered
      Jun 2007
              
              174,261
              
              0.6
      years
              
              Jun
      15, 2009
              
              $51,000
              
              DApr
      30, 2011 – Jul 30, 20115
              
              $31,000Boston
              
              Delivered
      Nov 2007
              
              177,828
              
              0.1
      years
              
              Sep
      28, 2011 – Dec 28, 20116
              
              $52,000
              
              DSalt
      Lake City
              
              Acquired
      Dec 2007
              
              171,810
              
              2.3
      years
              
              Aug
      28, 2012 – Oct 28, 2012
              
              $55,800
              
              -Norfolk
              
              Acquired
      Feb 2008
              
              164,218
              
              -
              
              Jan
      12, 2013 – Mar 12, 2013
              
              $74,750
              
              -Hull
      H11077,
      8
              
              Expected
      2010
              
              177,000
              
              -
              
              Feb,
      28, 2015 – Jun 30, 20159
              
              $48,000
              
              DHull
      H11087,
      8
              
              Expected
      2010
              
              177,000
              
              -
              
              -
              
              -
              
              D
 
 (1)
              As
      of December 31, 2007.
  (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 other dry bulk carriers that have the
      same letter.
  20
  (4)
              The
      charterer has the option to employ the vessel for an additional 11-13
      month period at a daily rate based on the average rate of four
      pre-determined time charter routes as published by the Baltic Exchange.
      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.
  (5)
              The
      charterer has the option to employ the vessel for an additional 11-13
      month period. The optional period, if exercised, must be declared on
      or before the end of the 42nd month of employment and can only commence at
      the end of the 48th month, at the daily time charter rate of
      $48,500.
  (6)
              The
      charterer has the option to employ the vessel for an additional 11-13
      month period. The optional period, if exercised, must be declared on or
      before the end of the 42nd month of employment and can only commence at
      the end of the 48th month, at the daily time charter rate of
      $52,000.
  (7)
              Expected
      to be delivered in the second quarter of
2010.
  (8)
              The
      fixture relates to Hull
      1107 or Hull
      1108, depending on the date of their delivery to us. The gross rate
      will be either $50,000 per day for delivery between October 1, 2009 and
      January 31, 2010 or $48,000 for delivery between February 1, and April 30,
      2010.
  (9)
              Based
      on the latest possible date of delivery to us from the
    yard.
   Each
of our vessels is owned through a separate wholly-owned subsidiary.
  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 our
wholly-owned subsidiary, Diana Shipping Services S.A., to which we refer as DSS,
or our fleet manager. Prior to our acquisition of DSS effective 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 Executive Vice President and a
member of our board of directors.
  In
exchange for providing us with commercial and technical services, personnel and
office space, 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.
  The
following table presents a detail of commissions and management fees incurred
during the periods indicated.
  Year
      Ended December 31,2007
              
              2006
              
              2005(in
      thousands of U.S. dollars)Commissions
              $
              3,918
              $
              2,384
              $
              2,061Management
      fees
              
              2,859
              
              2,414
              
              1,731Total
              $
              6,777
              $
              4,798
              $
              3,792
  Effective
April 1, 2006 these amounts are considered inter-company transactions and
therefore eliminated from our consolidated financial statements. The total
amount shown for 2005 and $497 of the total amount shown for 2006 were included
in voyage expenses. The remaining amount of $1,887 for 2006 and the total amount
for 2007 have been eliminated as inter-company transactions.
   21
   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., Australian Wheat Board (AWB), BHP Billiton and
Bocimar N.V. Antwerp. During 2007, three of our charterers accounted for 49% of
our revenues; Australian Wheat Board (11%), BHP Billiton (15%) and Cargill
(23%).  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%).
  We
charter our dry bulk carriers to customers primarily pursuant to time charters.
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 canal and port charges. We remain responsible for paying the chartered
vessel's operating expenses, including the cost of crewing, insuring, repairing
and maintaining the vessel. We also 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 brokers associated with the charterer, depending on the number
of brokers involved with arranging the charter.
  We
strategically monitor developments in the dry bulk shipping industry on a
regular basis and, subject to market demand, seek to adjust the charter hire
periods for our vessels according to prevailing market conditions. In order to
take advantage of the relatively stable cash flow and high utilization rates
associated with long-term time charters along with the historically high charter
hire rates for Panamax and Capesize vessels, currently 15 of our vessels,
including one of the vessels under construction that we expect to take delivery
of in the second quarter of 2010, are fixed on longer-term time charters ranging
in duration from 18 months to 62 months. Those of our vessels on
short-term time charters provide us with flexibility in responding to market
developments. We will continue to evaluate our balance of short- and long-term
charters relative to developments in the dry bulk shipping industry and may
extend the charter hire periods of additional vessels in our fleet to take
advantage of these historically high charter hire rates.
  The
Dry Bulk Shipping Industry
  The
global dry bulk carrier fleet may be divided into four categories based on a
vessel's carrying capacity. These categories consist of:
   ·
              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.
  ·
              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.
  ·
              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.
  ·
              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.
  22
   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.
Currently, newbuilding statistics from shipping analysts show that approximately
225 million tons dwt of dry bulk vessels over 10,000 tons dwt are on order,
representing approximately 57% 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.
  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 2007, trade in all dry
bulk commodities increased from approximately 2.1 billion tons to
3.0 billion tons, equivalent to a compound average growth rate of 5.2%.
Demand for dry bulk carrier capacity is also affected by the operating
efficiency of the global fleet, with port congestion, which has been a feature
of the market since 2004, absorbing tonnage and therefore leading to a tighter
balance between supply and demand. 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.
  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.
  We
believe that we possess a number of strengths that provide us with a competitive
advantage in the dry bulk shipping industry:
   ·
              We own a modern, high quality
      fleet of dry bulk carriers.  We believe that owning a
      modern, high quality fleet reduces operating costs, improves safety and
      provides us with a competitive advantage in securing favorable time
      charters. We maintain the quality of our vessels by carrying out regular
      inspections, both while in port and at sea, and adopting a comprehensive
      maintenance program for each
vessel.
   ·
              Our fleet includes four groups
      of sister ships.  We believe that maintaining a fleet
      that includes sister ships enhances the revenue generating potential of
      our fleet by providing us with operational and scheduling flexibility. The
      uniform nature of sister ships also improves our operating efficiency by
      allowing our fleet manager to apply the technical knowledge of one vessel
      to all vessels of the same series and creates economies of scale that
      enable us to realize cost savings when maintaining, supplying and crewing
      our vessels.
   ·
              We have an experienced
      management team.  Our management team consists of
      experienced executives who have on average more than 22 years of
      operating experience in the shipping industry and have demonstrated
      ability in managing the commercial, technical and financial areas of our
      business. Our management team is led by Mr. Simeon Palios, a
      qualified naval architect and engineer who has 40 years of experience
      in the shipping industry.
   23
   ·
              Internal management of vessel
      operations.  We conduct all of the commercial and
      technical management of our vessels in-house through DSS. We believe
      having in-house commercial and technical management provides us with a
      competitive advantage over many of our competitors by allowing us to more
      closely monitor our operations and to offer higher quality performance,
      reliability and efficiency in arranging charters and the maintenance of
      our vessels.
   ·
              We benefit from strong
      relationships with members of the shipping and financial
      industries.  We have developed strong relationships with
      major international charterers, shipbuilders and financial institutions
      that we believe are the result of the quality of our operations, the
      strength of our management team and our reputation for
      dependability.
   ·
              We have a strong balance sheet
      and a relatively low level of indebtedness.  We believe
      that our strong balance sheet and relatively low level of indebtedness
      provide us with the flexibility to increase the amount of funds that we
      may draw under our credit facilities in connection with future
      acquisitions and enable us to use cash flow that would otherwise be
      dedicated to debt service for other purposes, including funding operations
      and making dividend payments.
  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 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 BalticExchange 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.
  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.
   24
   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.
  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.
  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.
   25
   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.
 
 Under
amendments to OPA that became effective on July 11, 2006, the liability of
responsible parties is limited to the greater of $950 per gross ton or
$0.8 million per non-tank 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.
 
  26
  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. Current United States Coast
Guard regulations require evidence of financial responsibility in the amount of
$900 per gross ton for non-tank vessels, which includes the OPA limitation on
liability of $600 per gross ton and the United States Comprehensive
Environmental Response, Compensation, and Liability Act, or CERCLA, liability
limit of $300 per gross ton. We expect the United States Coast Guard to increase
the amounts of financial responsibility to reflect the July 2006 increases
in liability. 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 are 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.
   27
   Vessel
Security Regulations
  Since
the terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the
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:
   ·
              on-board
      installation of automatic information systems, or AIS, to enhance
      vessel-to-vessel and vessel-to-shore
  communications;
  ·
              on-board
      installation of ship security alert
systems;
  ·
              the
      development of vessel security plans;
and
  ·
              compliance
      with flag state security certification
  requirements.
  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.
   28
   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.
   29
   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.
  C.
              Organizational
      structure
  Diana
Shipping Inc. is the sole owner of all of the issued and outstanding shares of
the subsidiaries listed in Note 1 of our consolidated financial statements under
Item 18 and in exhibit 8.1.
  D.
                Property,
      plants and equipment
 We
do not own any real 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, 14 of our vessels are currently employed on
longer-term time charters ranging in duration from 18 to 62 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.
   30
   Factors
Affecting Our Results of Operations
  We
believe that the important measures for analyzing trends in our results of
operations consist of the following:
  ·
              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.
  ·
              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.
  ·
              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.
  ·
              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.
  ·
              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 31,2007
              
              
              2006
              
              
              2005Ownership
      days
              
              
              5,813
              
              
              
              4,897
              
              
              
              3,510Available
      days
              
              
              5,813
              
              
              
              4,856
              
              
              
              3,471Operating
      days
              
              
              5,771
              
              
              
              4,849
              
              
              
              3,460Fleet
      utilization
              
              
              99.3
              %
              
              
              99.9
              %
              
              
              99.7
              %Time
      charter equivalent (TCE)
      rate
              
              $
              31,272
              
              
              $
              22,661
              
              
              $
              27,838
 
  31
   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:
   ·
              the
      duration of our charters;
  ·
              our
      decisions relating to vessel acquisitions and
  disposals;
  ·
              the
      amount of time that we spend positioning our
  vessels;
  ·
              the
      amount of time that our vessels spend in dry-dock undergoing
      repairs;
  ·
              maintenance
      and upgrade work;
  ·
              the
      age, condition and specifications of our
  vessels;
  ·
              levels
      of supply and demand in the dry bulk shipping industry;
  and
  ·
              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. Revenues have also increased during last year due to increasing
hire rates. 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. However, this commission is being eliminated from our consolidated
financial statements since April 1, 2006 (after DSS was acquired) and therefore,
since that date they do not constitute part of our voyage expenses.
  The
following table presents a breakdown of the commissions incurred during the
periods indicated.
  Year
      Ended December 31,2007
              
              
              2006
              
              
              2005(in
      thousands of U.S. dollars)Commissions
      to unaffiliated and in-house ship brokers
              
              
              8,913
              
              
              
              5,364
              
              
              
              4,731Commissions
      to fleet 
      manager
              
              
              -
              
              
              
              497
              
              
              
              2,061Total
              
              
              8,913
              
              
              
              5,861
              
              
              
              6,792
 
 We
believe that the amounts and the structures of our commissions are consistent
with industry practices.
   32
   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 and charter
hire rates.
  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 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,
in addition to a 2% commission on revenues. Effective April 1, 2006, management
fees have been eliminated from our consolidated financial statements as
intercompany transactions.
   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. Subsequent to April 2006, our general and administrative
expenses increased as a result of our acquisition of our fleet manager. Our
general and administrative expenses also include payroll expenses of employees,
executive officers and consultants, travelling, promotional and other expenses
of the public company. General and administrative expenses may increase as a
result of the enlargement of our fleet.
  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,
2007 and 2006, we had $75.0 million and $114.6 million of indebtedness
outstanding under our revolving credit facility, respectively. We incurred
additional indebtedness of $98.5 million in February and March 2008 under the
same facility. 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, 2007 and 2006, we had $24.1 million of indebtedness outstanding
under our facility with Fortis bank. Interest and finance costs incurred in
connection with this loan facility are capitalized in vessel cost.
   33
   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, we record all identified assets or liabilities at fair value. Fair
value is determined by reference to market data. We value 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, any
difference, capped to the vessel’s fair value on a charter free basis, 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.
  We have entered
into agreements to purchase vessels with time charters assumed for the Thetis,
the Salt
Lake City and
the Norfolk.
Up to December 31, 2007, we had evaluated the charters of the Thetis
and the Salt Lake
City and recognized an asset in the case of the Thetis
with a corresponding decrease of the vessel’s value and a liability in the case
of the Salt Lake
City, with a corresponding increase of the vessel’s value. The asset
recognized for the Thetis
was fully amortized to revenue in 2007. The liability recognized for the Salt Lake
City will be fully amortized in 2012 (when the charter contract
expires).
  When
we purchase a vessel and assume or renegotiate a related time charter, we must
take the following steps before the vessel will be ready to commence
operations:
   ·
              obtain
      the charterer’s consent to us as the new
owner;
  ·
              obtain
      the charterer’s consent to a new technical
  manager;
  ·
              in
      some cases, obtain the charterer’s consent to a new flag for the
      vessel;
  ·
              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;
  ·
              replace
      all hired equipment on board, such as gas cylinders and communication
      equipment;
  ·
              negotiate
      and enter into new insurance contracts for the vessel through our own
      insurance brokers;
  ·
              register
      the vessel under a flag state and perform the related inspections in order
      to obtain new trading certificates from the flag
  state;
  ·
              implement
      a new planned maintenance program for the vessel;
  and
  ·
              ensure
      that the new technical manager obtains new certificates for compliance
      with the safety and vessel security regulations of the flag
      state.
   34
   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:
  ·
              employment
      and operation of our dry bulk vessels; and·
              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:
  ·
              vessel
      maintenance and repair;
  ·
              crew
      selection and training;
  ·
              vessel
      spares and stores supply;
  ·
              contingency
      response planning;
  ·
              onboard
      safety procedures auditing;
  ·
              accounting;
  ·
              vessel
      insurance arrangement;
  ·
              vessel
      chartering;
  ·
              vessel
      security training and security response plans
  (ISPS);
  ·
              obtain
      ISM certification and audit for each vessel within the six months of
      taking over a vessel;
  ·
              vessel
      hire management;
  ·
              vessel
      surveying; and
  ·
              vessel
      performance monitoring.
  The
management of financial, general and administrative elements involved in the
conduct of our business and ownership of our vessels requires the following main
components:
  ·
              management
      of our financial resources, including banking relationships, i.e.,
      administration of bank loans and bank
accounts;
  ·
              management
      of our accounting system and records and financial
    reporting;
  ·
              administration
      of the legal and regulatory requirements affecting our business and
      assets; and
  ·
              management
      of the relationships with our service providers and
    customers.
   35
   The
principal factors that affect our profitability, cash flows and stockholders’
return on investment include:
  ·
              rates
      and periods of charter hire;
  ·
              levels
      of vessel operating expenses;
  ·
              depreciation
      expenses;
  ·
              financing
      costs; and
  ·
              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 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 and are usually paid fifteen days in
advance. Time charter agreements with the same charterer are accounted for as
separate agreements according to the terms and conditions of each agreement.
Time charter revenues over the term of the charter are recorded as service is
provided when they become fixed and determinable. Revenues from time charter
agreements providing for varying annual rates over their term are accounted for
on a straight line basis.  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, including any
deferred revenue resulting from charter agreements providing for varying annual
rates, which are accounted for on a straight line basis. 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
expenses, primarily consisting of port, canal and bunker expenses that are
unique to a particular charter, are paid for by the charterer under time charter
arrangements or by the Company under voyage charter arrangements, except for
commissions, which are always paid for by the Company, regardless of charter
type. All voyage and vessel operating expenses are expensed as incurred, except
for commissions. Commissions are deferred over the related voyage charter period
to the extent revenue has been deferred since commissions are earned as the
Company’s revenues are earned.
   36
    Prepaid/Deferred
Charter Revenue:
  The
Company records identified assets or liabilities associated with the acquisition
of a vessel at fair value, 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 contractual
cash flows of the time charter assumed is greater than its current fair value,
the difference is recorded as prepaid charter revenue.  When the
opposite situation occurs, any difference, capped to the vessel’s fair value on
a charter free basis, 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.
  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.
   37
   Results
of Operations
  Year
ended December 31, 2007 compared to the year ended December 31,
2006
  Voyage and Time
Charter Revenues.    Voyage and time charter revenues
increased by $74.4 million, or 64%, to $190.5 million for 2007, compared to
$116.1 million for 2006. The increase is attributable to an increase in the size
of the fleet resulting in a 19% increase in operating days, and a 38% increase
in average charter rates as a result of the favorable shipping rates in 2007
compared to the same period of 2006. The increase in operating days during 2007
resulted from the enlargement of our fleet following our acquisition of theAliki
in April, the Semirio
in June, the Boston
in November and the Salt Lake
City in December 2007 and was partly offset with days lost due to the
sale of the Pantelis
SP in July, 2007. In 2007 we had total operating days of 5,771 and fleet
utilization of 99.3%, compared to 4,849 total operating days and a fleet
utilization of 99.9%, in 2006.
  Voyage
Expenses.Voyage
expenses increased by $2.6 million, or 43%, to $8.7 million in 2007 compared to
$6.1 million in 2006. This increase in voyage expenses is attributable to the
increase in commissions and was partly offset by the 2% elimination in
commissions charged by our management company, after its acquisition by us on
April 1, 2006. Commissions paid to our fleet manager during 2007 and 2006
amounted to $0 and $0.5 million (due to their elimination upon acquisition
of our fleet manager), respectively, and commissions to unaffiliated ship
brokers and in-house ship brokers associated with charterers amounted to $8.9
million and $5.4 million, respectively. The increase in commissions was
primarily the result of the increase in the amount of charter hire revenue we
reported in 2007.
  Vessel
Operating Expenses.Vessel operating expenses
increased by $6.8 million, or 30%, to $29.3 million in 2007 compared to $22.5
million in 2006. The increase in operating expenses is attributable to the 19%
increase in ownership days resulting from the delivery of the new Capesize
vessels to our fleet having higher daily operating expenses than the Panamax
vessels as well as increased crew costs, insurances, repairs, taxes and other.
Daily operating expenses were $5,046 in 2007 compared to $4,592 in 2006,
representing an increase of 10%.
  Depreciation
and Amortization of Deferred Charges.    Depreciation
and amortization of deferred charges increased by $7.7 million, or 46%, to
$24.4 million for 2007, compared to $16.7 million for 2006. This
increase is the result of the increase in the number of vessels in our fleet and
was partly offset by decreased depreciation expenses for the vessel Pantelis
SP.
  General and
Administrative expenses.    General and
Administrative Expenses for 2007 increased by $5.4 million or 86% to $11.7
million compared to $6.3 million in 2006. The increase is mainly attributable to
increases in salaries, a bonus of $1.7 million to officers and employees,
expenses for contemplated due diligence issues related to a potential merger and
acquisition transaction in 2007, the exchange rate of USD to the Euro and
finally to the first quarter expenses of the fleet manager that did not exist in
2006.
  Gain on Vessel
Sale. In February 2007, we entered into a memorandum of agreement to sell
the Pantelis SP. The vessel was delivered to her new owners in July 2007 and
resulted in a gain of $21.5 million, which is reflected in the 2007 statement of
income.
  Interest and
Finance Costs.    Interest and finance costs
increased by $2.5 million or 64%, to $6.4 million compared to $3.9 million in
2006. The increase is attributable to interest expenses relating to long-term
debt outstanding. Interest costs in 2007 amounted to $5.5 million compared to
$3.1 million for the same period in 2006, which resulted from increased
long-term debt outstanding during the year, increased average interest rates and
increased interest relating to leased
property.
  Interest
Income. Interest income increased by $1.7 million or 170%, to $2.7
million compared to $1.0 million in 2006. The increase is attributable to
increased cash provided by our operating activities and proceeds resulting from
our secondary public offerings, which were temporarily invested in bank deposits
until being used to finance new vessel
acquisitions.
   38
   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 theCoronis, 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.
  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.
   39
   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. Working capital,
which is current assets minus current liabilities, including the current portion
of long-term debt, amounted to $0.6 million at December 31, 2007 compared to
$11.4 million as at December 31, 2006.
  We anticipate that internally generated cash flow
and borrowings under our credit facilities will be sufficient to fund the
operations of our fleet, including our working capital requirements. Currently,
we have $126.5 million available under our revolving credit facility with the
Royal Bank of Scotland to finance future vessel acquisitions, of which $50.0
million can be used for working capital purposes, and $36.1 million available
under our facility with Fortis Bank to finance the construction of our Hull
1107 and Hull
1108.
  It
is our current policy to fund our future acquisition related capital
requirements initially through borrowings under our credit facilities and to
repay those borrowings in excess of $150 million from time to time with the net
proceeds of equity issuances. 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. 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. We do not intend to obtain funds from other sources to
pay dividends. 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 increased to $16.7 million as of December 31, 2007,
compared to $14.5 million as of December 31, 2006.  We consider highly
liquid investments such as time deposits and certificates of deposit with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents are primarily held in U.S. Dollars.
  Net
Cash Provided By Operating Activities
  Net
cash provided by operating activities increased by $66.6 million, or 81%,
to $149.0 million in 2007 compared to $82.4 million million in 2006.
This increase was primarily attributable to the increase in the number of
operating days that we achieved during the year and the increased charter rates,
which resulted in an increase in our revenues. For 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 Used In Investing
Activities
  Net
cash used in investing activities was $409.1 million for 2007, which consists of
the advance and additional costs paid for the acquisition of the Norfolk,
amounting to $27.0 million and $1.8 million of construction costs we paid for
Hull
1107 and Hull
1108; $459.0 million paid for the delivery installment of the Semirio
and for the acquisition of Aliki,
the Boston
and the Salt Lake
City; $78.9 million of net proceeds from the sale of the Pantelis
SP and $0.2 million paid for other assets.
  Net
cash used in investing activities was $193.1 million for 2006, mainly 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.
   40
   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 Provided By / Used In Financing Activities
  Net
cash provided by financing activities in 2007 amounted to $262.3 million and
consists of $287.8 million of proceeds drawn under our revolving credit facility
for the acquisition of the Semirio
($92.0 million), the Aliki
($87.0 million), the Boston
($22.0 million) and the Salt Lake
City ($86.8 million); $327.4 million of indebtedness that we repaid under
our revolving credit facility with the Royal Bank of Scotland and $0.1 million
of financing fees relating to the 364 day loan facility with the Royal Bank of
Scotland. Net cash provided by financing activities also consists of $433.1
million of net proceeds from our public offerings in April and September 2007,
and $131.1 million of dividends paid to stockholders.
  Net
cash provided by financing activities was $104.0 million for 2006, mainly
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.
  Credit
Facilities
  In
February 2005, we entered into a $230.0 million secured revolving
credit facility with The Royal Bank of Scotland Plc., which was amended on
May 24, 2006, to increase the facility amount to $300.0 million. Our
credit facility permits us to borrow up to $50.0 million for working
capital. In January 2007, we entered into a supplemental agreement with The
Royal Bank of Scotland Plc. for a 364-day standby credit facility of up to
$200.0 million, which is available to us in connection with vessel
acquisitions or the acquisitions of vessel owning, chartering or operating
subsidiaries upon our full utilization of the existing $300.0 million
revolving credit facility. Because our strategy involves limiting the amount of
debt that we have outstanding, we intend to draw funds under our
$300.0 million credit facility to fund acquisitions and, as necessary, to
fund our working capital needs and to repay outstanding debt from time to time
with the net proceeds of future equity issuances.
  The
$300.0 million revolving credit facility has a term of ten years from
May 24, 2006, which we refer to as the availability date, and we are
permitted to borrow up to the facility limit, provided that conditions to
drawdown are satisfied and that borrowings do not exceed 75% of the aggregate
value of the vessels. The facility limit will be $300.0 million for a
period of six years from the availability date, 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 together with the last semi-annual
reduction. The terms of the $200.0 million credit facility were similar to
the terms of the $300.0 million facility. However, we were permitted to
draw down our $200.0 million standby credit facility only upon the full
utilization, and subject to the same conditions to drawdown, of the
$300.0 million facility at any time through March 6, 2008, as
amended.
   41
   The
credit facility has commitment fees of 0.25% per annum on the amount of the
undrawn balance of the facility, payable quarterly in arrears. Interest on
amounts drawn are payable at a rate ranging from 0.75% to 0.85% per annum over
LIBOR. During 2007 and 2006, the weighted average interest rate relating to the
amounts drawn under the credit facility were 6.17% and 5.99%,
respectively.
  In
November 2006, we entered into a loan agreement with Fortis Bank for a
secured term loan of $60.2 million and a guarantee facility of up to
$36.5 million, which we intend to use to finance the pre-delivery
installments of the two newbuilding Capesize dry bulk carriers that we expect to
take delivery of during the second quarter of 2010. Under this loan agreement,
principal payments are scheduled upon completion of certain stages of the
construction of the vessels, 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. The interest and finance costs
on this facility during the construction period are capitalized and included in
the construction cost of the vessels.
  Our
obligations under our credit facilities are secured by, or will be secured upon
drawdown, by a first priority mortgage on one or more of the vessels in our
fleet, currently on eleven vessels, and such other vessels that we may from time
to time include with the approval of our lender, and 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 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. To the
extent that the vessels in our fleet that secure our obligations under the
credit facilities 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 facilities
if we experience a change of control.
  The
credit facilities contain financial and other covenants requiring us, among
other things, to ensure that:
  ·
              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;
  ·
              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;
  ·
              we
      maintain $0.40 million of liquid funds per
  vessel.
  For
the purposes of the credit facilities, 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 facilities 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.
   42
   Our
credit facilities do not prohibit us from paying dividends as 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. When 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.
  As of December 31, 2007, we had
$75.0 million principal balance outstanding under our $300.0 million
revolving credit facility, which was used to fund a portion of the purchase
price of the Salt Lake
City. In February and March 2008, we drew down an
additional amount of $71.5 million and $27.0 million, respectively, under
our revolving credit facility to fund part of the acquisition cost of the Norfolk.
As of December 31, 2007, we had a $24.1 million principal balance
outstanding under our $60.2 million loan
facility.
  As
of December 31, 2007, 2006 and 2005 and as of the date of this annual report, we
did not use and have not used, any financial instruments for hedging
purposes.
  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 October 2007, we entered into a memorandum of agreement of acquire
the secondhand Capesize dry bulk carrier, Norfolk,
for the purchase price of $135.0 million. We financed the 20% advance, paid in
October 2007, of $27.0 million with cash on hand and the balance of the purchase
price, paid in February 2008, with $98.5 million of funds drawn under our
revolving credit facility.
  We
incur additional capital expenditures when our vessels undergo surveys. 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. According to analysts, between 2001 and 2007,
trade in all dry bulk commodities increased from approximately 2.1 billion
tons to 3.0 billion tons, equivalent to a compound average growth rate of
5.2%.
   43
   The
increasingly active grain market, with Asia again the largest contributor to
growth, should be incremental for transportation distances as shipments are
being sourced from origins such as the Black Sea, the U.S. Gulf and Argentina.
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.  The driver of this dramatic upsurge in charter rates was
primarily the high level of demand for raw materials imported by China. Rates
declined somewhat in 2006, but in 2007 have risen again to record highs on the
strength of continued high demand for dry bulk shipping capacity. Demand for dry
bulk carrier capacity is also affected by the operating efficiency of the global
fleet, with port congestion, which has been a feature of the market since 2004,
absorbing tonnage and therefore leading to a tighter balance between supply and
demand.
  It
is expected that increases in cargo demand will continue in 2008, and this is
likely to be broadly matched by increases in tonnage supply. Factors affecting
the supply and demand balance such as the ton-mile effect and congestion will
continue having a generally beneficial effect on this balance. Given the
imbalance in iron ore flows, it is more likely than not that the second half of
2008 will be stronger than the first half. Risks on the downside include the
down side risks of the whole commodity cycle, the growing bottlenecks in cargo
generation and over investment in ships and shipbuilding capacity.
  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.
Currently, newbuilding statistics from shipping analysts, show that
approximately 225 million tons dwt of dry bulk vessels over 10,000 tons dwt are
on order, representing approximately 57% of the existing fleet.  These
vessels are scheduled for delivery over the next four-and-a-half
years.  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 U.S.$,
and their maturity dates as of December 31, 2007:
  
 Within
                One
      Year
              
              
              One
      to
                Three
      Years
              
              
              Three
      to
                Five
      Years
              
              
              More
      than
                Five
      years
              
              
              Total(in
      thousands of U.S. dollars)Shipbuilding
      contracts (1)
              
              $
              -
              
              
              
              96,320
              
              
              
              -
              
              
              
              -
              
              
              $
              96,320Long
      term debt
      (2)
              
              
              -
              
              
              
              24,080
              
              
              
              -
              
              
              
              75,000
              
              
              
              99,080Financing
      lease obligations (3)
              
              
              233
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              233Operating
      lease obligations (4)
              
              
              168
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              168
 
 
 
 (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. We have 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.
   44
  
  (2)
              As
      of December 31, 2007, we had an aggregate principal of $99.1 million of
      indebtedness outstanding under our loan facilities. This indebtedness was
      incurred in connection with our acquisition of the Salt Lake Cityand in
      connection with the first predelivery installments of Hull 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 February and March 2008, we incurred
      additional debt of $71.5 million and $27.0 million of principal balance
      under our revolving credit facility in order to finance part of the
      purchase price of the Norfolk.
  (3)
              Since
      our acquisition of our fleet manager, effective April 1, 2006, we pay rent
      to Universal Shipping and Real Estates Inc., a related party company
      controlled by our Chairman and Chief Executive Officer, Mr. Palios,
      pursuant to a lease agreement signed between DSS and Universal Shipping
      and Real Estates Inc. in January 2006, and amended in December 2006. This
      finance lease has a term of three years and minimum estimated lease
      payments until expiration of the agreement in 2008, using the exchange
      rate at December 31, 2007 of U.S.$ 1.494 to €1.00 are estimated to be
      around $0.2 million. See also item 7B. “Related Party
      Transactions”.
  (4)
              We
      pay rent to Altair Travel Agency Ltd. and Diana Shipping Agencies S.A.,
      both related companies controlled by our Chairman and Chief Executive
      Officer, Mr. Palios, pursuant to lease agreements signed between the two
      companies and DSS in January and December 2006, respectively. Both
      agreements expire in December 2008, and minimum estimated lease payment
      amounts, using the exchange rate at December 31, 2007 of U.S.$ 1.494 to
      €1.00, are estimated to be around $19,000 and $148,580, respectively. See
      also item 7B. “Related Party
Transactions”.
   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, 2007.
  In
October 2007, we entered into an agreement to acquire a secondhand Capesize dry
bulk carrier for $135.0 million, which was delivered to us in February 2008. We
paid a 20% advance of $27.0 million on signing of the agreement and the balance
of the purchase price of $108.0 million on its delivery to us in February 2008,
partly with funds drawn under our revolving credit facility with the Royal Bank
of Scotland mentioned above under “Credit Facilities”.
  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.
   45
  
 Name
              
              Age
              
              PositionSimeon
      Palios
              
              66
              
              Class
      I Director, Chief Executive Officer and ChairmanAnastassis
      Margaronis
              
              52
              
              Class
      I Director and PresidentIoannis
      Zafirakis
              
              36
              
              Class
      I Director, Executive Vice President and SecretaryAndreas
      Michalopoulos
              
              37
              
              Chief
      Financial Officer and TreasurerMaria
      Dede
              
              35
              
              Chief
      Accounting OfficerWilliam
      (Bill) Lawes
              
              64
              
              Class
      II DirectorKonstantinos
      Psaltis
              
              69
              
              Class
      II DirectorBoris
      Nachamkin
              
              74
              
              Class
      III DirectorApostolos
      Kontoyannis
              
              59
              
              Class
      III Director
  The
term of our Class I directors expires in 2009, the term of our
Class II directors expires in 2010 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 40 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 27 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. Zafirakishas served as our Executive Vice President and Secretary since February
14, 2008, 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 ourbehalf
the services he now performs as Executive 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.
   46
   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 U.S. 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 Dedehas 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. Since December 2007, he serves as an independent member of the Board of
Directors and Chairman of the Audit Committee of Teekay Tankers Ltd.
Mr. Lawes is qualified as a member of the Institute of Chartered
Accountants of Scotland.
  Konstantinos Psaltishas 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. He is an
independent member of the Board of Directors of Excel Maritime Carriers Ltd.
Mr. Kontoyannis holds a bachelors degree in Finance and Marketing and an
M.B.A. in Finance from Boston University.
   47
   B. Compensation
  The
aggregate compensation to members of our senior management for 2007, 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, $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) that we would have paid to members of our
senior management, had we been a public company would have been $0.3 million,
had such services been charged to us at fair value by our fleet manager during
those periods. We did not pay any benefits in 2007, 2006 and 2005. In February
2008, our senior management received a cash bonus of $0.9 million, relating to
2007 performance, and restricted stock certificates of an aggregate of 65,100
shares of common stock. The restricted stock will vest ratably over three years.
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
2007, 2006 and 2005 fees to non-executive directors amounted to $220,000,
$220,000 and $173,500, respectively. In February 2008, non-employee directors
received restricted stock certificates of an aggregate of 10,400 shares of
common stock. The restricted stock will vest ratably over three years. We do not
have a retirement plan for our officers or directors.
  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.
  We
have established an Executive Committee comprised of the three executive
directors, Mr. Simeon Palios, Mr. Anastassis Margaronis and Mr. Ioannis
Zafirakis. The Executive Committee has, to the extent permitted by law, the
powers of the Board of Directors in the management of the business and affairs
of the Corporation.
  We also maintain directors’ and officers’ insurance,
pursuant to which we provide insurance coverage against certain liabilities to
which our directors and officers may be subject, including liability incurred
underU.S. securities law.  The maximum coverage under this
insurance is currently U.S.$45 million per incident and in the aggregate per
policy year.
   48
   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 Diana Shipping Inc. 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.
We are responsible for identifying our Greek officers, which are hired by our
vessel owning subsidiaries. Our Filipino officers and seamen are referred to 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 2005 and until April 1, 2006 when our fleet
manager became our wholly owned subsidiary, 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 and the
number of seafaring personnel employed by our vessel owning subsidiaries during
the periods indicated.
  
 Year
      Ended December 31,2007
              
              
              2006
              
              
              2005Shoreside
              
              
              39
              
              
              
              36
              
              
              
              30Seafaring
              
              
              389
              
              
              
              329
              
              
              
              263Total
              
              
              428
              
              
              
              365
              
              
              
              293
  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, which we refer to as the plan, which
entitles employees, officers and directors to receive options to acquire our
common stock. A total of 2,800,000 shares of common stock are 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 a)
incentive stock options, b) non-qualified stock options, c) stock
appreciation rights, d) dividend equivalent rights, e) restricted stock, f)
unrestricted stock, g) restricted stock units, and h) performance shares. No
options, stock appreciation rights or restricted stock units can be exercisable
prior to the first anniversary or subsequent to the tenth anniversary of the
date on which such award was granted. The plan will expire 10 years from the
adoption of the Plan by the Board of Directors. As of December 31, 2007, no
awards were granted under the plan. However, in February 2008, our Board of
Directors granted 75,500 shares of restricted common stock to our senior
management and non-executive directors. These shares will be vested over a
period of three years by 1/3 per annum. The restricted shares are subject to
forfeiture until they become vested. Unless they forfeit, grantees have the
right to vote, to receive and retain all dividends paid and to exercise all
other rights, powers and privileges of a holder of shares.
   49
  Item
7.   Major Stockholders and Related Party
Transactions
  A. Major
Stockholders
  The
following table sets forth current information regarding (i) the owners of
more than five percent of our common stock that we are aware of and
(ii) the total amount of common stock owned by all of our officers and
directors, individually and as a group. All of the stockholders, including the
stockholders listed in this table, are entitled to one vote for each share of
common stock held.
  
 Title
      of Class
              Identity
      of Person or Group
              
              Number
      of
                Shares
      Owned
              
              
              Percent
      of ClassCommon
      Stock, par value $0.01
              Simeon
      Palios (1)
              
              
              14,312,040
              
              
              
              19.22
              %All
      officers and directors as a group (2)
              
              
              14,365,040
              
              
              
              19.29
              %
 
 
 (1)
              Currently,
      Mr. Simeon Palios beneficially owns 25,500 restricted common shares
      granted through the Company’s Equity Incentive Plan on February 26, 2007
      and 14,286,540 shares indirectly through Corozal Compania Naviera S.A. and
      Ironwood Trading Corp. over which Mr. Simeon Palios exercises sole
      voting and dispositive power. In March 2005, when we became public, Mr.
      Simeon Palios beneficially owned 51.8% of our outstanding stock. Following
      several secondary offerings as of December 31, 2005, 2006, 2007 and
      currently, Mr. Simeon Palios owned indirectly through Corozal and Ironwood
      46.04%, 39.06%, 19.21% and 19.22%, respectively, of our common
      stock.
  (2)
              Mr. Simeon
      Palios is our only director or officer that beneficially owns 5% or more
      of our common stock.: Mr. Anastassis Margaronis, our President and a
      member of our board of directors, and Mr. Ioannis Zafirakis, our
      Executive Vice President and a member of our board of directors, are
      indirect stockholders through ownership of stock held in 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
      shares held through Corozal Compania Naviera S.A..  Messrs.
      Lawes, Psaltis, Nachamkin and Kontoyannis, each a non-executive director
      of ours, owns shares of our common stock of less than 1%,
      each.
   Since
we became public, 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., beneficially owned 12.63% of our common
stock.  Following secondary offerings Zoe S. Company Ltd., owned as of
December 31, 2005, 2006 and 2007, 11.22%, 9.52% and 4.68%, respectively, of our
common stock. As of September 2007 and the date of this annual report, Zoe S.
Company Ltd. owns less than 5% of our issued and outstanding 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 and amended in December 2006, in 2007 and 2006,
we paid rent amounting to about $205,000 and $227,000, respectively. The
duration of the agreement is three years. The part of the rent paid in 2006 and
all of the rent paid in 2007 was classified as interest expense of a financing
lease. For 2008, when the rent agreement expires, we expect to pay about
$233,000 of rent expense to Universal, which will be classified as interest
expense.
   50
   Diana
Shipping Agencies S.A. Management Agreements
  Diana
Shipping Agencies S.A., or DSA, is an affiliated entity that is majority owned
and controlled by our Chairman and Chief Executive Officer. 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 and in 2007 we paid rent amounting to about $138,000. Rent
increases annually by the rate of 3% above inflation and in 2008, the year that
the agreement expires, we expect to pay approximately $149,000 in rent
expense.
  Commercial
Banking, Financial Advisory and Investment Banking Services
  Fortis
Bank (Nederland) N.V., which prior to September 2007 owned more than 5% of our
issued and outstanding shares, 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 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. In
2007, 2006 and 2005, we paid to these companies $1.6 million, $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 2007, 2006 and 2005 amounted to $1.2
million, $0.9 million and $0.7 million, 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 2007 and 2006 amounted to about $17,000
and $13,000. The duration of the agreement is three years and rent is increased
annually at the rate of 3% above inflation. In 2008, when the agreement expires,
we expect to pay to Altair approximately $19,000 of rent expense.
   51
   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 anyproceedings 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, 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. 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.
  In
times when we have in excess of $150.0 million of debt outstanding,
excluding construction pre-delivery financing, we intend to calculate our
dividends per share as if any debt, excluding construction pre-delivery
financing, in excess of $150.0 million were financed entirely with equity
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 related period, 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). Depending on the circumstances, we may or may not be
required to use sources other than our available cash from operations to fund
such dividends. From time to time we may use the net proceeds from equity
offerings to temporarily reduce our outstanding debt, excluding construction
pre-delivery financing, to less than $150.0 million pending the application
of such proceeds to vessel acquisitions or other uses. As of December 31, 2007,
we had total debt outstanding of $99.1 million of principal balance,
including $24.1 million of construction pre-delivery
financing.
  We believe that, under currentlaw, 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 United States 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 was recently introduced in the United States
Congress, which, if enacted in its present form, would preclude dividends
received after the date of enactment from qualifying as “qualified dividend
income.” Please see the section of this annual report entitled “Taxation” under
item 10.E for additional information relating to the tax treatment of our
dividend payments.
   52
   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 any amounts will actually be declared. 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.
  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 of 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.
  Since
our initial public offering in March 2005, we have declared and paid dividends
of $2.19 per share, $1.56 per share and $1.485 per share, representing our cash
available from operations for 2007, 2006 and 2005, respectively.
  B.           Significant
Changes
  There
have been no significant changes since the date of the annual financial
statements included in this annual report.
  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:
  
 2008
              
              
              2007
              
              
              2006
              
              
              2005Period
              
              High
              
              
              Low
              
              
              High
              
              
              Low
              
              
              High
              
              
              Low
              
              
              High
              
              
              LowAnnual
              
              
              -
              
              
              
              -
              
              
              $
              44.82
              
              
              $
              15.79
              
              
              $
              13.55
              
              
              $
              11.19
              
              
              $
              17.50
              
              
              $
              12.141st
      quarter
              
              
              -
              
              
              
              -
              
              
              $
              20.31
              
              
              $
              15.79
              
              
              $
              13.55
              
              
              $
              11.192nd
      quarter
              
              
              -
              
              
              
              -
              
              
              
              23.00
              
              
              
              17.95
              
              
              
              12.53
              
              
              
              9.853rd
      quarter
              
              
              -
              
              
              
              -
              
              
              
              29.24
              
              
              
              21.62
              
              
              
              13.95
              
              
              
              10.234th
      quarter
              
              
              -
              
              
              
              -
              
              
              
              44.82
              
              
              
              25.05
              
              
              
              15.83
              
              
              
              13.24September
              
              
              
              
              
              
              -
              
              
              $
              28.62
              
              
              $
              25.05October
              
              
              
              
              
              
              
              
              
              
              44.82
              
              
              
              29.68November
              
              
              
              
              
              
              
              
              
              
              42.92
              
              
              
              27.94December
              
              
              
              
              
              
              
              
              
              
              34.65
              
              
              
              28.18January
              
              $
              30.85
              
              
              $
              21.12February
              
              
              31.10
              
              
              
              25.99
 
  53
   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 and our amended and
restated bylaws have been filed as exhibit 1.2 to our form 6-K filed with the
Securities and Exchange Commission on December 4, 2007 with file number
001-32458.  The information contained in these exhibits is
incorporated by reference herein.
  Information
regarding the rights, preferences and restrictions attaching to each class of
the shares is described in 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 74,450,500.
  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.”
   54
  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, 2007, approximately4.6%, of the Company’s shipping
income was attributable to the transportation of cargoes either to or from a
U.S. port. Accordingly, 2.3% of the Company’s shipping income would be
treated as derived from U.S. sources for the year ended December 31, 2007.
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 $0.2 million for the year ended December 31,
2007.
  Application
of Code Section 883
  Under
the relevant provisions of Section 883 of the Code and the final
regulations promulgated thereunder, or the final regulations, which became
effective on January 1, 2005 for calendar year taxpayers like ourselves and our
subsidiaries, a foreign corporation will be exempt from U.S. taxation on
its U.S. source shipping income if:
  (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:
  §
              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
  §
              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 2007, as a qualified foreign country. Accordingly, the Company and each
of the subsidiaries satisfy the country of organization
requirement.
  For
the 2007 tax year, the Company believes that it will be unlikely to satisfy the
50% Ownership Test. Therefore, the eligibility of the Company and each
subsidiary to qualify for exemption under Section 883 is wholly dependent
upon being able to satisfy the Publicly Traded Test.
  Under
the final regulations, the Company’s common stock, which is the sole class of
issued and outstanding stock, was “primarily traded” on the New York Stock
Exchange during 2007.
   55
  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 2007, 19.21% of the Company’s common
stock was owned by 5% Stockholders.  Therefore, the Company is not
subject to the 5 Percent Override Rule for 2007.  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 2007 and intends to take this position on its 2007 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 2007, the Company would be subject to
U.S. federal income tax of approximately $0.2 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.
   56
   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-0330 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 relating
to our revolving credit facility. At December 31, 2007, we had
$98.8 million of indebtedness outstanding of which $74.7 under our
revolving credit facility with the Royal Bank of Scotland and $24.1 under our
loan facility with Fortis. Interest costs incurred under our revolving credit
facility are included in our statement of income and interest costs incurred
under our loan facility are included in vessel cost.
  In
2007, the weighted average interest rate for both of our facilities was 6.23%
and the respective interest rates ranged from 5.46% to 6.54%, including margins.
An average increase of 1% in the interest rates of 2007 would have resulted in
interest costs of $7.7 million instead of $6.6 million, an increase of
17%.
  The
weighted average interest rate relating to our revolving credit facility with
The Royal Bank of Scotland was 6.17% and the respective interest rates ranged
from 5.72% to 6.54%, including margins. An average increase of 1% in the
interest rates of 2007 would have resulted in interest expenses of $6.3 million,
instead of $5.5 million, an increase of 15%.
  The
weighted average interest rate relating to our facility with Fortis was 5.91%
and the respective interest rates ranged from 5.46% to 6.15% including margins.
An average increase of 1% in the interest rates of 2007 would have resulted in
interest costs $1.7 million instead of $1.4 million, an increase of
21%.
  Currently, we have
$24.1 million of indebtedness outstanding relating to Hull
1107 and Hull 1108under our facility with Fortis and $173.5 million of principal balance
outstanding under our credit facility with the Royal Bank of
Scotland.
  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 up to $150.0 million, 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.
   57
 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.
   PART
II
  Item
13.   Defaults, Dividend Arrearages and Delinquencies
  None.
  Item
14.   Material Modifications to the Rights of Security Holders and Use
of Proceeds
  None.
  Item
15.   Controls and Procedures
  a)  Disclosure Controls and
Procedures
 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, 2007 is effective.
  c)  Attestation
Report of Independent Registered Public Accounting Firm
 The
registered public accounting firm that audited the consolidated financial
statements, Ernst Young (Hellas) Certified Auditors Accountants S.A., has issued
an attestation report on the Company’s internal control over financial
reporting, appearing under Item 18, and is incorporated herein by
reference.
  d) 
Changes inInternal
Control over Financial Reporting
  None.
 58
  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.
  Statement
of Significant Differences
  Pursuant
to an exemption for foreign private issuers, we are not required to comply with
all of the corporate governance requirements of the New York Stock Exchange that
are applicable to U.S. listed companies. A description of the significant
differences between our corporate governance practices and the New York Stock
Exchange requirements may be found on our website under "Corporate Governance"
at http://www.dianashippinginc.com.
   Item
16A.  Audit Committee Financial Expert
  Our
Board of Directors has determined that both the members of our Audit Committee,
Mr. William Lawes and Mr. Apostolos Kontoyannis, qualify as “Audit Committee
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., Pendelis 16, 175 64
Palaio 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.
   59
   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:
   
  2007
              
              
              2006Stated
      in EuroAudit
      fees
              
              
              589,050
              
              
              
              429,450Audit-related
      fees
              
              
              197,000
              
              
              
              -Tax
      fees
              
              
              -
              
              
              
              -All
      other fees
              
              
              -
              
              
              
              1,180Total
              
              
              786,050
              
              
              
              430,630
 
  Audit
fees in 2007 relate to audit services provided in connection with our public
offerings (Euro 149,100), SAS 100 reviews (Euro 105,000), the audit of our
consolidated financial statements and the audit of internal control (Euro
334,950). Audit related fees related to financial due diligence services
provided in connection with potential business acquisitions.
  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). Other fees paid to Ernst and
Young (Hellas) amounting to Euro 1,180 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., were pre-approved by the Audit
Committee.
  Item
16D.  Exemptions from the Listing Standards for Audit
Committees
  Our
Audit Committee consists of two independent members of our Board of Directors.
Our Audit Committee conforms to each other requirement applicable to audit
committees as required by the applicable listing standards of the New York Stock
Exchange.
  Item
16E.  Purchases of Equity Securities by the Issuer and Affiliated
Purchasers.
  None.
   60
  
  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
                  Number
              Description1.1
              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 (7)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 ScotlandJanuary
      2007 supplement (3)4.8
              Loan
      Agreement with Fortis Bank (4)4.9
              First
      Amendment to Technical Manager Purchase Option Agreement
    (5)4.10
              Supplemental
      Loan Agreement with Royal Bank of Scotland dated May 24,
    20068.1
              Subsidiaries
      of the Company11.1
              Code
      of Ethics (6)12.1
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer12.2
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer13.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200213.2
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200215.1
              Consent
      of Independent Registered Public Accounting Firm
  (1)
              Filed
      as an Exhibit to the Company’s 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.
 (7)
              Filed
      as an Exhibit to Form 6-K filed on December 4,
  2007.
  61
  
 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 MichalopoulosAndreas MichalopoulosChief Financial Officer  Dated:  
March 13, 2008




62





DIANA
      SHIPPING INC.


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS








PageReport
      of Independent Registered Public Accounting Firm
            
            F-2Report
      of Independent Registered Public Accounting Firm on Internal Control over
      Financial Reporting
            
            F-3Consolidated
      Balance Sheets as ofDecember
      31, 2007and
      2006
            
            F-4Consolidated
      Statements of Income for theyears
      endedDecember
      31, 2007,2006and
      2005
            
            F-5Consolidated
      Statements of Stockholders' Equity for theyears
      endedDecember
      31, 2007,2006and
      2005
            
            F-6Consolidated
      Statements of Cash Flows fortheyears
      endedDecember
      31, 2007,2006
      and2005
            
            F-7Notes
      to Consolidated Financial Statements
            
            F-8





F-1


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





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





We have
audited the accompanying consolidated balance sheets of Diana Shipping Inc. (the
“Company”) as of December 31, 2007 and 2006, and the related consolidated
statements of income, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2007. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.




We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Diana Shipping Inc. at
December 31, 2007 and 2006, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2007, in conformity with U.S. generally accepted accounting
principles.




We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Diana Shipping Inc.'s internal control
over financial reporting as of December 31, 2007, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 13, 2008
expressed an unqualified opinion thereon.








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








Athens,
Greece,


March 13,
2008








F-2





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





We have
audited Diana Shipping Inc.’s (the “Company”) internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). The Company’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the Management’s annual Report on Internal Control over
Financial Reporting appearing under Item 15.b) in the Company’s annual report on
Form 20-F for the year ended December 31, 2007. Our responsibility is to express
an opinion on the company’s internal control over financial reporting based on
our audit.





We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A company’s
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.





Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on the COSO
criteria.





We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company
as of December 31, 2007 and 2006, and the related consolidated statements of
income, stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2007 of the Company and our report dated March 13,
2008 expressed an unqualified opinion thereon.











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








Athens,
Greece,


March 13,
2008


F-3


DIANA SHIPPING INC.CONSOLIDATED
      BALANCE SHEETSDECEMBER
      31, 2007 AND 2006(Expressed
      in thousands of U.S. Dollars – except for share and per share
      data)2007
            
            
            2006ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            16,726
            
            
            $
            14,511Accounts
      receivable, trade
            
            
            1,822
            
            
            
            1,000Inventories
      (Note 4)
            
            
            2,102
            
            
            
            1,279Prepaid
      insurance and other
            
            
            864
            
            
            
            450Prepaid
      charter revenue (Note 5)
            
            
            -
            
            
            
            1,822Total
      current assets
            
            
            21,514
            
            
            
            19,062FIXED
      ASSETS:Advances
      for vessels under construction and acquisitions and other vessel costs
      (Note 6)
            
            
            53,104
            
            
            
            24,347Vessels
      (Note 7)
            
            
            924,838
            
            
            
            504,493Accumulated
      depreciation (Note 7)
            
            
            (57,206
            )
            
            
            (40,054
            )Vessels'
      net book value
            
            
            867,632
            
            
            
            464,439Property
      and equipment, net
            
            
            956
            
            
            
            897Total
      fixed assets
            
            
            921,692
            
            
            
            489,683OTHER
      NON-CURRENT ASSETS:Deferred
      charges, net (Note 8)
            
            
            1,136
            
            
            
            1,930Total
      assets
            
            $
            944,342
            
            
            $
            510,675LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Accounts
      payable, trade and other
            
            
            3,718
            
            
            
            2,868Due
      to related companies (Note 3)
            
            
            161
            
            
            
            154Accrued
      liabilities (Note 9)
            
            
            4,159
            
            
            
            2,202Deferred
      revenue, current portion (Notes 2 and 10)
            
            
            12,122
            
            
            
            2,341Other
      current liabilities (Note 12)
            
            
            804
            
            
            
            71Total
      current liabilities
            
            
            20,964
            
            
            
            7,636LONG-TERM
      DEBT(Note 9)
            
            
            98,819
            
            
            
            138,239DEFERRED
      REVENUE, non-current portion (Notes 2 and 10)
            
            
            23,965
            
            
            
            146OTHER
      NON-CURRENT LIABILITIES (Note 11)
            
            
            1,120
            
            
            
            1,551COMMITMENTS
      AND CONTINGENCIES
            
            
            -
            
            
            
            -STOCKHOLDERS'
      EQUITY:Preferred
      stock, $0,01 par value; 25,000,000 shares authorized, none
      issued
            
            
            -
            
            
            
            -Common
      stock, $0.01 par value; 100,000,000 shares authorized; 74,375,000 and
      53,050,000 issued and outstanding at December 31, 2007 and 2006,
      respectively. (Note 13)
            
            
            744
            
            
            
            531Additional
      paid-in capital
            
            
            801,349
            
            
            
            368,477Other
      comprehensive income (Notes 2 and 11)
            
            
            110
            
            
            
            -Accumulated
      deficit
            
            
            (2,729
            )
            
            
            (5,905
            )Total
      stockholders' equity
            
            
            799,474
            
            
            
            363,103Total
      liabilities and stockholders' equity
            
            $
            944,342
            
            
            $
            510,675


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


F-4











DIANA
      SHIPPING INC.CONSOLIDATED
      STATEMENTS OF INCOMEFOR
      THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005(Expressed
      in thousands of U.S. Dollars – except for share and per share
      data)December
      31,2007
            
            
            2006
            
            
            2005REVENUES:Voyage
      and time charter revenues
            
            $
            190,480
            
            
            $
            116,101
            
            
            $
            103,104EXPENSES:Voyage
      expenses (Notes 2  and 14)
            
            
            8,697
            
            
            
            6,059
            
            
            
            6,480Vessel
      operating expenses  (Notes 2 and 14)
            
            
            29,332
            
            
            
            22,489
            
            
            
            14,955Depreciation
      and amortization of deferred charges  (Notes 7 and
      8)
            
            
            24,443
            
            
            
            16,709
            
            
            
            9,943Management
      fees
            
            
            -
            
            
            
            573
            
            
            
            1,731Executive
      management services and rent (Note 13)
            
            
            -
            
            
            
            76
            
            
            
            455General
      and administrative expenses
            
            
            11,718
            
            
            
            6,331
            
            
            
            2,871Gain
      on vessel sale  (Note 7)
            
            
            (21,504
            )
            
            
            -
            
            
            
            -Foreign
      currency losses/(gains)
            
            
            (144
            )
            
            
            (52
            )
            
            
            (30
            )Operating
      income
            
            
            137,938
            
            
            
            63,916
            
            
            
            66,699OTHER
      INCOME (EXPENSES):Interest
      and finance costs (Notes 9 and 15)
            
            
            (6,394
            )
            
            
            (3,886
            )
            
            
            (2,731
            )Interest
      income
            
            
            2,676
            
            
            
            1,033
            
            
            
            1,022Total
      other income (expenses), net
            
            
            (3,718
            )
            
            
            (2,853
            )
            
            
            (1,709
            )Net
      income
            
            $
            134,220
            
            
            $
            61,063
            
            
            $
            64,990Preferential
      Deemed Dividend (Notes 1.5 and 13)
            
            $
            -
            
            
            $
            (20,267
            )
            
            $
            -Net
      income available to common stockholders
            
            $
            134,220
            
            
            $
            40,796
            
            
            $
            64,990Earnings
      per common share, basic and diluted
            
            $
            2.11
            
            
            $
            0.82
            
            
            $
            1.72Weighted
      average number of common shares, basic and diluted
            
            
            63,748,973
            
            
            
            49,528,904
            
            
            
            37,765,753





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


F-5


DIANA SHIPPING INC.CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005(Expressed
      in thousands of U.S. Dollars – except for share and per share
      data)




Common
      StockComprehensiveIncome
            
            
            
            #
      ofShares
            
            
            
            Par

                  Value
            
            
            
            Additional

                    Paid-in

                      Capital
            
            
            
            Appropriation

                      of retained

                        earnings
            
            
            
            ComprehensiveIncome
            
            
            
            Retained

                Earnings /

                  (Accumulated

                    Deficit)
            
            
            
            TotalBALANCE,
      December 31, 2004
            
            
            
            
            
            27,625,000
            
            
            $
            276
            
            
            $
            39,489
            
            
            $
            -
            
            
            $
            -
            
            
            $
            19,287
            
            
            $
            59,052-
      Net income
            
            
            64,990
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            64,990
            
            
            
            64,990-
      Contribution to additional-paid in capital
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            455
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            455-
      Issuance of common stock
            
            
            
            
            
            
            17,375,000
            
            
            
            174
            
            
            
            256,887
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            257,061-
      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
            
            $
            64,990BALANCE,
      December 31, 2005
            
            
            
            
            
            
            45,000,000
            
            
            $
            450
            
            
            $
            296,831
            
            
            $
            -
            
            
            $
            -
            
            
            $
            26,877
            
            
            $
            324,158-
      Net income
            
            
            61,063
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            61,063
            
            
            
            61,063-
      Contribution to additional-paid in capital
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            76
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            76-
      Issuance of common stock
            
            
            
            
            
            
            8,050,000
            
            
            
            81
            
            
            
            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
            )-
      Preferrential deemed dividend
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (20,267
            )
            
            
            (20,267
            )Comprehensive
      income
            
            $
            61,063BALANCE,
      December 31, 2006
            
            
            
            
            
            
            53,050,000
            
            
            $
            531
            
            
            $
            368,477
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (5,905
            )
            
            $
            363,103-
      Net income
            
            
            134,220
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            134,220
            
            
            
            134,220-
      Issuance of common stock
            
            
            
            
            
            
            21,325,000
            
            
            
            213
            
            
            
            432,872
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            433,085-
      Dividends declared and paid
              ($
      0.46 per share)
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (24,403
            )
            
            
            (24,403
            )-
      Dividends declared and paid
              ($
      0.50 per share)
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (31,437
            )
            
            
            (31,437
            )-
      Dividends declared and paid
              ($
      0.51 per share)
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (32,066
            )
            
            
            (32,066
            )-
      Dividends declared and paid
              ($
      0.58 per share)
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (43,138
            )
            
            
            (43,138
            )-
      Actuarial gains
            
            
            110
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            110
            
            
            
            -
            
            
            
            110Comprehensive
      income
            
            $
            134,330BALANCE,
      December 31, 2007
            
            
            
            
            
            
            74,375,000
            
            
            $
            744
            
            
            $
            801,349
            
            
            $
            -
            
            
            $
            110
            
            
            $
            (2,729
            )
            
            
            799,474




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


F-6


DIANA SHIPPING INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005(Expressed
      in thousands of U.S. Dollars – except for share and per share
      data)2007
            
            
            2006
            
            
            2005Cash
      Flows from Operating Activities:Net
      income
            
            $
            134,220
            
            
            $
            61,063
            
            
            $
            64,990Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
      and amortization of deferred charges
            
            
            24,443
            
            
            
            16,709
            
            
            
            9,943Gain
      on vessel sale
            
            
            (21,504
            )
            
            
            -
            
            
            
            -Executive
      management services and rent
            
            
            -
            
            
            
            76
            
            
            
            455Amortization
      and write off of financing costs
            
            
            111
            
            
            
            128
            
            
            
            590Amortization
      of free lubricants benefit
            
            
            (87
            )
            
            
            (71
            )
            
            
            (99
            )Actuarial
      gains
            
            
            110
            
            
            
            -
            
            
            
            -(Increase)
      Decrease in:Receivables
            
            
            (822
            )
            
            
            7
            
            
            
            (879
            )Inventories
            
            
            (823
            )
            
            
            (407
            )
            
            
            (355
            )Prepayments
      and other
            
            
            (314
            )
            
            
            (164
            )
            
            
            91Prepaid
      charter revenue
            
            
            1,822
            
            
            
            3,322
            
            
            
            (5,144
            )Increase
      (Decrease) in:Accounts
      payable
            
            
            850
            
            
            
            988
            
            
            
            865Due
      to related companies
            
            
            7
            
            
            
            50
            
            
            
            (147
            )Accrued
      liabilities
            
            
            1,957
            
            
            
            (421
            )
            
            
            739Deferred
      revenue
            
            
            8,600
            
            
            
            1,235
            
            
            
            (764
            )Other
      liabilities
            
            
            389
            
            
            
            988
            
            
            
            -Dry
      dockings
            
            
            -
            
            
            
            (1,133
            )
            
            
            (1,029
            )Net
      Cash provided by Operating Activities
            
            
            148,959
            
            
            
            82,370
            
            
            
            69,256Cash
      Flows from Investing Activities:Advances
      for vessels under construction and acquisitions and other vessel
      costs
            
            
            (28,757
            )
            
            
            (24,347
            )
            
            
            (4,221
            )Vessel
      acquisitions
            
            
            (458,989
            )
            
            
            (168,749
            )
            
            
            (165,020
            )Proceeds
      from sale of vessel
            
            
            78,857
            
            
            
            -
            
            
            
            -Other
      Assets
            
            
            (196
            )
            
            
            -
            
            
            
            -Net
      Cash used in Investing Activities
            
            
            (409,085
            )
            
            
            (193,096
            )
            
            
            (169,241
            )Cash
      Flows from Financing Activities:Proceeds
      from long-term debt
            
            
            287,750
            
            
            
            197,180
            
            
            
            150,925Proceeds
      from public offering, net of related issuance costs
            
            
            433,085
            
            
            
            71,651
            
            
            
            257,061Decrease
      in restricted cash
            
            
            -
            
            
            
            -
            
            
            
            789Financing
      costs
            
            
            (100
            )
            
            
            (100
            )
            
            
            (1,200
            )Payments
      of long-term debt
            
            
            (327,350
            )
            
            
            (71,425
            )
            
            
            (230,718
            )Preferential
      deemed dividend
            
            
            -
            
            
            
            (19,721
            )
            
            
            -Cash
      dividends
            
            
            (131,044
            )
            
            
            (73,578
            )
            
            
            (57,400
            )Net
      Cash provided by Financing Activities
            
            
            262,341
            
            
            
            104,007
            
            
            
            119,457Net
      increase (decrease) in cash and cash equivalents
            
            
            2,215
            
            
            
            (6,719
            )
            
            
            19,472Cash
      and cash equivalents at beginning of year
            
            
            14,511
            
            
            
            21,230
            
            
            
            1,758Cash
      and cash equivalents at end of year
            
            $
            16,726
            
            
            $
            14,511
            
            
            $
            21,230SUPPLEMENTAL
      CASH FLOW INFORMATIONCash
      paid during the year for:Interest
      payments, net of amounts capitalized
            
            $
            5,733
            
            
            $
            2,062
            
            
            $
            1,572Non-cash
      financing activities:Executive
      management services and rent
            
            $
            -
            
            
            $
            76
            
            
            $
            455Fair value of
      charter assumed in connection with vessel
    acquisition
            
            
            (25,000
            )
            
            
            -
            
            
            
            -




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




F-7
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)


1.
            Basis of Presentation and General
      Information:




The accompanying consolidated financial
statements include the accounts of 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, June 2006, April
2007 and September 2007, the Company completed its initial and four 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,
$71,651,$159,342 and $273,743,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.The
      vessel was sold in February 2007 and was delivered to her new owners in
      July 2007 (Note7).




(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.




F-8
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)


1.2.
            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.




(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 174,186dwt dry bulk carrier vessel
      “Sideris GS”, which was built and delivered in November
      2006.




(e)
            Kili
      Shipping Company Inc. (“Kili”),owner of the Marshall Islands’
      flag 174,261 dwt bulk carrier vessel “Semirio”, which wasbuilt anddelivered in June 2007 (Note
      7).




(f)
            Knox
      Shipping Company Inc. (“Knox”), owner of the Marshal Islands
      flag 180,235 dwt bulk carrier vessel “Aliki” (built 2005), which was
      delivered in April 2007 (Note 7).




(g)
            Lib
      Shipping Company Inc. (“Lib”),owner of the Marshal Islands flag177,828dwt bulk carrier vessel “Boston”,which was built anddelivered in November
      2007 (Note7).




(h)
            Majuro
      Shipping Company Inc. (“Majuro”), was established in September
      2006 and is a wholly owned subsidiary of the Company. AtDecember 31, 2007, 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. AtDecember 31, 2007, 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.
            Subsidiaries incorporated in theRepublic of
      Cyprus:




(a)
            Marfort
      Navigation Company Limited(“Marfort”),owner of the Cyprus
      flag 171,810 dwt bulk carrier vessel “Salt Lake City” (built
      2005),which was delivered in December
      2007 (Note 7).




(b)
            Silver
      Chandra Shipping Company Limited(“Silver”),entered into a
      Memorandum of agreement for the purchase of the 164,218 dwt bulk carrier
      vessel “Norfolk”, expected to be delivered on or about February 6, 2008
      (Note 6).




1.5.   Diana
Shipping Services S.A. (the “Manager” or “DSS”).DSS was acquired in April 2006 and
provides the Company and the vessels with management services since November 12,
2004, pursuant to management agreements, for a fixed monthly fee of $15 per
vessel and 2% commission on all voyage and time charter revenues. Management
fees and commissions charged by DSS, effective April1,2006, are eliminated from the
consolidated financial statements as intercompany transactions.During 2006 (from January 1 until April
1, when the company was acquired) and 2005, management fees amounted to $573 and
$1,731, respectively and are separately reflected in the accompanying
consolidated statements of income. During 2006 (from January 1 until April 1,
when the company was acquired) and 2005 commissions charged by DSS amounted to
$497 and $2,061, respectively and are included in Voyage expenses in the
accompanying consolidated statements of income (Note14).




F-9
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)


During2007,2006and 2005,sevencharterers individually accounted for
more than 10% of the Company’s voyage and time charter revenues as
follows:




Charterer
            
            
            2007
            
            
            2006
            
            
            2005A
            
            
            
            23
            %
            
            
            20
            %
            
            
            26
            %B
            
            
            
            -
            
            
            
            -
            
            
            
            12
            %C
            
            
            
            -
            
            
            
            15
            %
            
            
            14
            %D
            
            
            
            -
            
            
            
            -
            
            
            
            11
            %E
            
            
            
            -
            
            
            
            15
            %
            
            
            -F
            
            
            
            15
            %
            
            
            -
            
            
            
            -G
            
            
            
            11
            %
            
            
            -
            
            
            
            -




2.
            Significant
      Accounting Policies and Recent Accounting Pronouncements:




(a)
            Principles
      of Consolidation:The accompanying consolidated financial
      statements have been prepared in accordance with U.S. generally accepted
      accounting principles and include the accounts of 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 had no such transactions which affected comprehensive
      income in 2006 and 2005 and, accordingly, comprehensive income was equal
      to net income. In 2007, Other comprehensive income increased with gains of
      $110 that resulted from the actuarial valuation of the employees’
      retirement and staff leaving indemnities (Notes 2(s) and
    11).




(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 any 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, 2007 and
      2006.




(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.




F-10
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







(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: The Company records identified assets or
      liabilities associated with the acquisition of a vessel at fair value,
      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
      contractual cash flows of the time charter assumed is greater than its
      current fair value, the difference is recorded as prepaid charter
      revenue.  When the opposite situation occurs, any difference,
      capped to the vessel’s fair value on a charter free basis, 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 2007, 2006 and 2005. 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, 2007, 2006 and 2005, 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.




F-11
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







(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,
      computer software and hardware and vehicles. The useful life of the office
      furniture, equipment and vehicles 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 and are usually paid fifteen
      days in advance. Time charter agreements with the same charterer are
      accounted for as separate agreements according to the terms and conditions
      of each agreement. Time charter revenues over the term of the charter are
      recorded as service is provided when they become fixed and determinable.
      Revenues from time charter agreements providing for varying annual rates
      over their term are accounted for on a straight line basis.  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 2007, 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 have not been
      met, including any deferred revenue resulting from charter agreements
      providing for varying annual rates, which are accounted for on a straight
      line basis. 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
      expenses, primarily consisting of port, canal and bunker expenses that are
      unique to a particular charter, are paid for by the charterer under time
      charter arrangements or by the Company under voyage charter arrangements,
      except for commissions, which are always paid for by the Company,
      regardless of charter type. All voyage and vessel operating expenses are
      expensed as incurred, except for commissions. Commissions are deferred
      over the related voyage charter period to the extent revenue has been
      deferred since commissions are earned as the Company’s revenues are
      earned.




(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 2007 and for the
      period from April 1, 2006 (acquisition date of the management company) to
      December 31, 2006 amounted to $526 and $273,
  respectively.




F-12
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







(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, 2007 and 2006 the projected
      benefit obligation amounted to $954 and $850, respectively (Note 11). 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 2007, 2006 and
2005.




(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)
            Fair Value
      Measurements: 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.




F-13
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







(x)
            Employer’s
      Accounting for Defined Benefit Pension and Other Postretirement Plans: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.




(y)
            Reporting
      Assets held for sale:It is the Company's policy to dispose of
      vessels and other fixed assets when suitable opportunities occur and not
      necessarily to keep them until the end of their useful life. The Company
      classifies assets and disposal groups as being held for sale in accordance
      with SFAS No. 144 ‘‘Accounting for the Impairment or the Disposal of
      Long-Lived Assets’’, when the following criteria are met: (i) management
      possessing the necessary authority has committed to a plan to sell the
      asset (disposal group); (ii)  the asset (disposal group) is
      immediately available for sale on an “as is” basis; (iii) an active
      program to find the buyer and other actions required to execute the plan
      to sell the asset (disposal group) have been initiated; (iv) the sale of
      the asset (disposal group) is probable, and transfer of the asset
      (disposal group) is expected to qualify for recognition as a completed
      sale within one year; and (v) the asset (disposal group) is being actively
      marketed for sale at a price that is reasonable in relation to its current
      fair value and actions required to complete the plan indicate that it is
      unlikely that significant changes to the plan will be made or that the
      plan will be withdrawn. Long-lived assets or disposal groups classified as
      held for sale are measured at the lower of their carrying amount or fair
      value less cost to sell. These assets are not depreciated once they meet
      the criteria to be held for sale.




(z)
            Share Based
      Payment:According to Statement 123R “Share Based Payment” a public
      entity is required to measure the cost of employee services received in
      exchange for an award of equity instruments based on the grant-date fair
      value of the award (with limited exceptions). That cost will be recognized
      over the period during which an employee is required to provide service in
      exchange for the award—the requisite service period (usually the vesting
      period). No compensation cost is recognized for equity instruments for
      which employees do not render the requisite service. Employee share
      purchase plans will not result in recognition of compensation cost if
      certain conditions are met; those conditions are much the same as the
      related conditions in Statement 123. A public entity will initially
      measure the cost of employee services received in exchange for an award of
      liability instruments based on its current fair value; the fair value of
      that award will be remeasured subsequently at each reporting date through
      the settlement date. Changes in fair value during the requisite service
      period will be recognized as compensation cost over that period. The
      grant-date fair value of employee share options and similar instruments
      will be estimated using option-pricing models adjusted for the unique
      characteristics of those instruments (unless observable market prices for
      the same or similar instruments are available). If an equity award is
      modified after the grant date, incremental compensation cost will be
      recognized in an amount equal to the excess of the fair value of the
      modified award over the fair value of the original award immediately
      before the modification.




F-14
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







3.
            Transactions with Related
      Parties:




(a)
            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 for2007,2006and 2005amounted to$1,109,$923and $716, respectively, and are included in
      Vessels, Vessel operatingexpenses 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
      leasedby DSSin January 2006, for
      a period of three years, without renewal, and for the monthly rent of Euro
      935 plus stamp duty. Rent increases annually at a rate of 3% above
      inflation. Rent expense for2007and 2006 amounted to
      $17and $13, respectively, and is included in
      General and administrative expenses in the accompanying consolidated
      statements of income. AtDecember 31, 2007and 2006 an amount of
      $105and $99, respectively, was payable to
      Altair and is included in Due to related companies in the accompanying
      consolidated balance sheets.Minimum lease payments to Altair,
      until expiration of the lease term, are estimated to $19.




(b)
            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 for a monthly rent of Euro 19,700 plus stamp duty, for
      a period of three years. Rent increases 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 for2007and 2006 amounted to
      $205and $227, respectively of which
      $205and $128, respectively, is included in
      Interest and finance costs and the remainder of 2006 is included in
      General and administrative expenses in the accompanying2006consolidated statement of income.
      No amounts were payable to or receivable from Universal as atDecember 31, 2007and 2006.Minimum lease payments to
      Universal until expiration of the lease term are estimated to
      $233.




(c)
            Diana
      Shipping Agencies S.A. (“DSA”):DSA is a company controlled by the
      Company’s CEO and Chairman. In December 2006, DSS entered into a lease
      agreement with DSA for the lease of office space for a monthly rent of
      Euro 8,000 plus stamp duty, for a period of 25 months. Rent increases
      annually at a rate of 3% above inflation. Rent expense for2007and 2006amounted to $138and $11and is included in General and
      administrative expenses in the accompanying consolidated
      statementsof income. No amounts were
      payable to or receivable from DSA as atDecember 31, 2007and 2006. Minimum lease payments
      to DSA until expiration of the lease term are estimated to $149.




4.
            Inventories:




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




2007
            
            
            2006Lubricants
            
            
            1,855
            
            
            
            1,077Victualling
            
            
            247
            
            
            
            202Total
            
            
            2,102
            
            
            
            1,279









F-15
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)









5.
            Prepaid Charter
      Revenue




The amounts shown in the accompanying2006consolidatedbalance sheetreflectsan 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 expiredon October2,2007,wasat 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 ofDecember 31, 2007and 2006 the unamortized balance of the
assetamounted to $0 and $1,822, respectively
and is reflected in Prepaid charter revenue in the accompanying consolidated
balance sheets. The amortization for2007,2006and 2005amounted to $1,822,$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 amounts 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:




2007
            
            
            2006Pre-delivery
      installments
            
            
            24,080
            
            
            
            24,080Advances for vessel
      acquisitions
            
            
            27,000
            
            
            
            -Capitalized interest and finance
      costs
            
            
            1,999
            
            
            
            257Other related
      costs
            
            
            25
            
            
            
            10Total
            
            
            53,104
            
            
            
            24,347





The movement of the account, duringDecember 31,
2007and 2006, was as
follows:




2007
            
            
            2006Beginning
      balance
            
            
            24,347
            
            
            
            4,221- Advances for vessels under
      construction and other vessel costs
            
            
            1,753
            
            
            
            24,347- Advances for vessel acquisitions
      and other vessel costs(Note 7)
            
            
            108,593
            
            
            
            22,509- Transferred to vessel
      cost(Note
      7)
            
            
            (81,589
            )
            
            
            (26,730
            )Ending
      balance
            
            
            53,104
            
            
            
            24,347







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% each, and a final predelivery installment of 50%.The Company also pays
additional construction costs and interest and finance charges (Note 9) relating
to the amounts drawn under the facility the Company has entered into to partly
finance the vessels’ construction.As atDecember 31, 2007and 2006, the Company had paid one
predelivery installment for each vessel amounting to $12,040 each or 20% of the
vessels’ contract price and $2,020and $267 of additional construction
costs, respectively.




F-16
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







OnOctober 9,2007, the Company, through the newly established wholly
owned subsidiary Silver Chandra Shipping Company Limited (“Silver”)entered intoaMemorandumof Agreement withanunrelated thirdpartyto acquirethe164,218dwtCapesize dry bulk carrier “Thalassini
Kyra” to be renamed to“Norfolk”(built 2002)for a total consideration
of $135,000.As part of the Memorandum of Agreement
the Company agreed to assume a charter party contract, effective upon delivery
of the vessel to the Company through a tripartite novation agreement of the
contract between the sellers, the charterers and the buyers, providing for a
charter period of 59 to 61 months at a daily rate of $74.75.On signing of the agreements, the Companymade an advance payment, representing
the 20% of the vessel’spurchase price,amounting to$27million and as of December 31, 2007 has
incurred additional acquisition costs amounting to $4.TheCompany took delivery of the Norfolk onFebruary11,2008(Note 18(c)).




7.
            Vessels:




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




Vessel Cost
            
            
            Accumulated
      Depreciation
            
            
            Net Book
    ValueBalance,
      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- Vessel
      disposals
            
            
            (63,644
            )
            
            
            6,291
            
            
            
            (57,353
            )- Transfer from advances for
      vessels under construction and acquisition and other vessel
      costs
            
            
            81,589
            
            
            
            -
            
            
            
            81,589-  Vessels acquisitions
      and other vessels’ costs
            
            
            402,400
            
            
            
            -
            
            
            
            402,400- Depreciationfor the
    year
            
            
            -
            
            
            
            (23,443
            )
            
            
            (23,443
            )Balance,December 31,
      2007
            
            
            924,838
            
            
            
            (57,206
            )
            
            
            867,632







In February 2007, the Company entered
into a Memorandum of Agreement with an unrelated third party company to acquire
a newly built Capesize dry bulk carrier, the 175,000 dwt “Semirio”, for a total
consideration of $98,000. The vessel was delivered in June 2007. On signing of
the agreement, the Company paid 20% of the purchase price, or $19,600 and the
balance of the purchase price was paid on the vessel’s delivery to the
Company.The Company
incurred additional acquisition costs amounting to $186.




In February 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.
Upon signing of the agreement, the new owners paid 10% of the purchase price in
an escrow account until the vessel’s delivery to them, when the advance together
with the balance of the sale price was released to the Company. The vessel was
delivered to its new owners in July 2007 together with its existent time
charter.At the date on
which the Memorandum of Agreement was signed, the Company classified the vessel
as “held for sale”.The
vessel’stotal net book
value at that date amounted to $57,353.The gain from the vessel’s sale
amounted to $21,504 and is reflected in Gain on vessel sale in the accompanying
2007consolidatedstatement of
income.




F-17
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







In March 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 was paid upon delivery of the
vessel in April 2007.The Company incurred additional
acquisition costs amounting to $74.




On April 17, 2007, the Company entered
into a Memorandum of agreement with an unrelated third party company to purchase
the 177,828dwt newbuilding dry bulk carrier,
Boston, for the price of $110,000. On signing of the agreement, the Company paid
a 20% advance of the purchase priceamounting to $22,000andthe balance was paid upon delivery of
the vessel in November 2007. The Company incurred additional acquisition costs
amounting to $263.




OnOctober 9,2007, the Companyentered into aMemorandumof Agreement withanunrelated thirdpartycompanytopurchase the171,810 dwt(2005 built) Capesize dry bulk carrier,Salt Lake City, for a total
consideration of$140,000.On signing of the agreement, the Companypaid 20% of thepurchase priceamounting to $28,000 and the balance was
paid on the vessel’s delivery to the Company in December 2007. As part of the
Memorandum of Agreement the Company agreed to assume a charter party contract
through a tripartite novation agreement between the sellers, the charterers and
the buyers, providing for a charter period of 59 to 61 months at a daily rate of
$55.8.The Company, upon
delivery of the vessel, evaluated the charter contract assumed andrecognized a liability of$25,000representing theexcess of thefair value of the charter contract
assumed at current market ratesand the net present value of future
contractual cash flows, up to the vessel’s fair market value on a charter free
basis, with a corresponding increase in the vessel’s cost. The $25,000 liability
is included in current and non-current deferred revenue in the accompanying
consolidated 2007 balance sheet (Note 10). The Company incurred additional
acquisition costs amounting to $466.




Eleven of the Company’s
vessels, having a total
carrying value of$225,868as ofDecember 31, 2007, have been provided as collateral to
secure the revolving credit facility discussed in Note 9. As ofDecember 31, 2007, all vessels were operating under time
charters, the last of which expires inNovember2012.




8.
            Deferred
      Charges:




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




Financing
    Costs
            
            
            Drydock
    Costs
            
            
            TotalBalance,
      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-
      Amortization
            
            
            (110
            )
            
            
            (864
            )
            
            
            (974
            )- Financing costs previously
      presented as a contra to debt
            
            
            180
            
            
            
            -
            
            
            
            180Balance,December 31,
      2007
            
            
            783
            
            
            
            353
            
            
            
            1,136







Financing costs represent fees paid to
the lenders relating to the $300 million secured revolving credit facility
signedin February 2005
with the Royal Bank of Scotland and amended in May 2006.Financing costs presented as a contra to
debtrelate to the
unamortized portionof
financing feeswhich was
reclassified as a result of the reduction in the balance of thedebt outstandingunder the revolving facilityatyear-end.




F-18
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







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.
            Long-term
    Debt:




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




2007
            
            
            2006Revolving credit
      facility
            
            
            75,000
            
            
            
            114,600Secured term loan
      facility
            
            
            24,080
            
            
            
            24,080Less related deferred financing
      costs
            
            
            (261
            )
            
            
            (441
            )Total
            
            
            98,819
            
            
            
            138,239





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 1.5) 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
aggregatemarketvalue 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 from May 24, 2006, the new availability date. At the end of
the sixth year it will be reduced by $15 million and over the remaining period
of four years will be reducing in semiannual amounts of $15 million with a final
reduction of $165 million together with the last semi-annual
reduction.




In January 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 Company under the
facility agreement an additional 364 day standby facility of up to $200,000 upon
full utilization of the Facility. An amount of $100 was paid on signing of the
agreement.The facilitywillbear interest at LIBOR plus margin andwould beterminated the date falling 364 days
after the availability date (January 30, 2007), but this termination day was extended
until March 6, 2008 (Note 18(b)).




In March 2007, the Company drew down an
amount of $22,000 under its revolving credit facility 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 note 7.




In April 5, 2007, the Company repaid the
then outstanding balance under its revolving credit facility amounting to
$136,600 plus interest with part of the proceeds from its public offering
completed in the same month (Note 13e(e)).




In April, May and June 2007, the Company
drew down additional amounts tofund part of the purchase price of the
Aliki ($87,000), the Boston ($22,000) and the Semirio ($70,000), respectively,
of which an amount of $90,000 was repaid in July 2007 with the proceeds from the
sale of the vessel Pantelis SP(Note 7)and cash on hand.




In August 2007, the Company drew down an
amount of $11,750 under its revolving credit facility to partly fund the advance
payments initially made by the Company from its own funds in connection with the
purchase of the vesselsNorfolk and Salt Lake City.




F-19
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







On September 28, 2007 the Company repaid
the then outstanding balance under its revolving credit facility,amounting to $100,750. Long term debtatDecember 31, 2007,includes theamount of $75,000 that was drawn downunder the revolving credit
facility on December 7,
2007 to partly fund the balance of the purchase price of the Salt Lake
City.




The credit facility is secured by a
first priority or preferred ship mortgage on all vessels in the fleet excluding
the Coronis, the Naias, the Sideris GS, the Aliki,theSemirio, the Boston and Salt Lake
City,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 July 17, 2007, the Royal Bank of
Scotland provided the Company with a supplemental letter to the Loan Agreement
dated 18 February 2005, as amended on 24 May 2006, according to which the two
parties agreed to delete the requirement the major shareholders to maintain
ownership of more than 20% of the Company’s common stock, buttocontinue to be involved as officers of
the management company until the bank consents to the removal of this
requirement.




The Company pays commitment
feeson the undrawn portion of the facility,
which for theyears2007,2006and 2005 amounted to $548,
$648and $604, respectively and are included in
Interest and finance costs in the accompanying consolidated statements of
income(Note
15).The weighted
average interest rate of the revolving credit facility as at December 31, 2007
and 2006 was 6.17% and 5.99%, respectively.




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
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 is
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.




As atDecember 31, 2007 and 2006the Company had $24,080 of debt
outstanding under the facility agreement relating to the first installment for
the construction of the two Capesize dry bulk carriers (Note6). During2007 and 2006, the Company paid guarantee commission
amounting to$240 and$64and is included in Advances for vessels
under construction and acquisitions and other vessel costs in the accompanying
consolidated balance sheets.




F-20
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







Total interest incurred on long-term
debt for2007,2006and 2005amounted to$6,635, $2,989and $1,503, respectively. Of the above amounts,
$1,440, $133and $122, respectively, were capitalized and
included in Advances for vessels under construction and acquisitions and other
vessel costs in the accompanying consolidated balance sheets (Note
6). Interest expense on
long-term debt, net of interest capitalized, is included in Interest and finance
costs in the accompanying consolidated statements of income.




10.
            Deferred Revenue, current and
      non-current:




The amountspresented as current and non-current
deferred revenuein the
accompanying consolidated balance sheets as ofDecember 31, 2007and 2006 reflect(a)cash received prior to the balance sheet
datefor which all criteria
to recognize as revenue have not been met, (b) any deferred revenue resulting from charter agreements
providing for varying annual charter rates over their term, which were accounted
for on a straight line basis at their average rate and (c) the unamortized
balance of the liability associated with the acquisition of the Salt Lake City
(Note 7)with a charter
party assumed at a value below its fair market value at the date of delivery of
the vessel.




2007
            
            
            2006Hires collected in
      advance
            
            
            7,004
            
            
            
            2,341Charter revenue resulting from
      varying charter rates
            
            
            4,377
            
            
            
            146Unamortized balance of charter
      assumed
            
            
            24,706
            
            
            
            -Total
            
            
            36,087
            
            
            
            2,487Less current
      portion
            
            
            (12,122
            )
            
            
            (2,341
            )Non-current
      portion
            
            
            23,965
            
            
            
            146




As of December 31, 2007 and 2006, cash
received prior to the balance sheet date for which all criteria to recognize as
revenue have not been met amounted to $7,004 and $2,341, respectively and is
included in Deferred revenue, current portion in the accompanying consolidated
balance sheets.




In November 2006, the Company entered
into a long term time charter agreement with an unrelated third party company to
charter the Sideris GS for a period of four years atvarying rates for eachyear. In Februaryand March2007, the Company entered intotwosimilarlong term time charter
agreementswithunrelated third party companiesto charter the Semirioand the Alikifor a period of four yearseach,atvarying rates. The Company
accountsfortherevenuesderiving from the above agreements on a
straight line basis at the average rate ofthe agreements and the balance was
recorded in deferred revenue. As at December 31, 2007 and 2006 deferred revenue
deriving from those agreements amounted to $4,377 and $146 respectively and is
included in Deferred revenue, non-current portion in the accompanying
consolidated balance sheets.




In December 2007, upon delivery of the
Salt Lake City (Note 7), the Company assumed the then existing time charter
agreement of the vessel. According to the Company’s policy, the time charter
agreement was valued on the date of the vessel’s delivery and resulted in the
recognition of a deferred income of $25,000. As of December 31, 2007 the
unamortized balance of the liability amounted to $24,706 and is included in
Deferred revenue, current portion ($5,118) and non-current portion ($19,588), in
the accompanying 2007 consolidated balance sheet. The amortization from the
vessel’s delivery up to December 31, 2007 amounted to $294 and is included in
voyage and time charter revenues in the accompanying 2007 consolidated statement
of income.




F-21
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







11.
            Othercurrent and non-currentliabilities:




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




2007
            
            
            2006Projected benefit obligation for
      employees’ compensation
            
            
            954
            
            
            
            850Financing
      obligations
            
            
            693
            
            
            
            586Other
            
            
            459
            
            
            
            264Total
            
            
            2,106
            
            
            
            1,700Less current
      portion:Projected benefit obligation for
      employees’ compensation
            
            
            (182
            )
            
            
            (78
            )Financing
      obligations
            
            
            (693
            )
            
            
            -Other
            
            
            (111
            )
            
            
            (71
            )Long term
      portion
            
            
            1,120
            
            
            
            1,551




Reconciliation
of the projected benefit obligation is as follows:




2007
            
            
            2006Beginning
      balance
            
            
            850
            
            
            
            736Service
      Cost
            
            
            80
            
            
            
            50Interest
      Cost
            
            
            38
            
            
            
            24Benefits
      paid directly by the Company
            
            
            (4
            )
            
            
            (13
            )Additional
      termination benefits
            
            
            2
            
            
            
            9Actuarial
      loss/(gain)
            
            
            (110
            )
            
            
            (36
            )Exchange
      differences
            
            
            98
            
            
            
            80Balance
      December 31, 2006
            
            
            954
            
            
            
            850Less
      current liabilities
            
            
            (182
            )
            
            
            (78
            )Non-current
      liabilities
            
            
            772
            
            
            
            772






The
projected benefit obligation on employees compensation is valued in Euro and its
translation in US$ results in exchange differences. At December 31, 2007 and
2006 the year-end exchange rate of US$/Euro that was used was 1.494 and 1.34,
respectively. For 2007 and 2006, net periodic benefit cost amounted to $120 and
$83, respectively consisting of service cost ($80 and $50, respectively),
interest cost ($38 and $24, respectively) and extra payments or expenses
incurred due to termination ($2 and $9, respectively). At December 31, 2007 and
2006, the accumulated benefit obligation amounted to $688 and $543,
respectively. The actuarial gain of $110 in 2007 is reflected in Other
comprehensive income in the 2007 accompanying consolidated balance sheet, while
the actuarial gain of $36 in 2006 was recognized in the period and is included
in General and administrative expenses in the accompanying 2006 statement of
income. The expected benefit payments in each of the next five years and in the
aggregate for the five years thereafter are estimated as follows:




F-22
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







2008
            1842009
            –2010
            542011
            –2012
            2672013
      – 2017
            251







For
2007 and 2006, the weighted average discount rate used for the calculations
above was 4.80% and 4.10%, respectively and the rate of salaries’ increase was
5.00% and 6.00% respectively.




Net
periodic benefit cost for the year 2008 is expected to be $96, consisting of $58
of service cost and $41 of interest cost, offset by the amortization of the
Unrecognized Net Gain of $3.




In December 2005, DSS (acquired by the
Company in April 2006) (Note 1.5) sold its property consisting of office
space, a warehouse and parking spaces to Universal (Note 3(b)) 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 existence of continuing involvement. 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
initially recorded in financing obligationsand is increasedwith interest expense, which
for2007 and2006 amounted to $107and $71, respectively and is included in
Interest and finance costs
in the accompanyingconsolidated statements of income. 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.




Other liabilities reflect the long term
portion of the unamortized balance of the benefit the Company obtained from
quantities of lubricants that were supplied for free from 2004 until2007. The Company entered
into agreements with an unrelated international supplier, according to which,
the Companymustbe exclusively supplied by theinternationalsupplier for a period of three to five
years in order to gain such benefit. AtDecember 31, 2007and2006 the unamortized balance of
thesefree
lubricantbenefits amounted
to $459and $264,respectively of which their current
portion amounting to $110and $71is included in Other current liabilities
in the accompanying consolidated balance sheets.




12.
            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.




F-23
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







13.
            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, on April 1, 2006. 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)
            Incentive
      plan: In February
      2005, the Company adopted an equity incentive plan(the “Plan”)which entitles the Company’s
      employees,officers 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 Directorsisable to granta) incentive stock options, b)
      non-qualified stock options, c) stock appreciation rights, d) dividend
      equivalent rights, e) restricted stock, f) unrestricted stock, g)
      restricted stock units, and h) performance shares. No options, stock
      appreciation rights or restricted stock units can be exercisable prior to
      the first anniversary or subsequent to the tenth anniversary of the date
      on which such award was granted.The plan will expire 10 years
      from theadoption of
      the plan by the Board of Directors. As ofDecember 31, 2007, noawardswere granted under the
      plan.In January
      2008, the Company’s Board of Directors resolved to grant an amount of
      restricted common stock to the Company’s officers and directors (Note
      18(a)).




(d)
            Sale
      of common stock from principal stockholders:In January 2007 the Company
      completed a secondary public offeringin the United States under the
      United States Securities Act of 1933, as amended,offering 5,750,000 shares of
      common stock offered by three selling shareholders at a price of $15.75
      per share. The three selling shareholders were Zoe S. Company Ltd.,
      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.




(e)
            Secondary
      public offerings and sale of common stock from principal
      stockholders: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 $17.00 per share. The Company received
      $159,342 of net proceeds 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.In September 2007 the Company
      completed a secondary pubic offering in the United States under the United
      States Securities Act at 1933, as amended of 11,500,000 shares
      of common stock at a price of $25.00 per share, the net proceeds of which
      amounted to
      $273,743.




F-24
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







14.
            Voyage
      and Vessel Operating Expenses:




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




2007
            
            
            2006
            
            
            2005Voyage ExpensesPort
      charges
            
            
            1
            
            
            
            2
            
            
            
            17Bunkers
            
            
            (251
            )
            
            
            70
            
            
            
            (341
            )Commissions
      charged by third parties
            
            
            8,913
            
            
            
            5,364
            
            
            
            4,731Commissions
      charged by a related party (Note 1.5)
            
            
            -
            
            
            
            497
            
            
            
            2,061Miscellaneous
            
            
            34
            
            
            
            126
            
            
            
            12Total
            
            
            8,697
            
            
            
            6,059
            
            
            
            6,480Vessel Operating ExpensesCrew
      wages and related costs
            
            
            16,938
            
            
            
            12,748
            
            
            
            8,690Insurance
            
            
            2,963
            
            
            
            2,274
            
            
            
            1,724Spares
      and consumable stores
            
            
            6,604
            
            
            
            5,557
            
            
            
            3,157Repairs
      and maintenance
            
            
            2,223
            
            
            
            1,490
            
            
            
            1,014Tonnage
      taxes (Note 16)
            
            
            207
            
            
            
            129
            
            
            
            94Miscellaneous
            
            
            397
            
            
            
            291
            
            
            
            276Total
            
            
            29,332
            
            
            
            22,489
            
            
            
            14,955





15.
            Interest
      and Finance Costs:




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




2007
            
            2006
            
            2005Interest
      expense
            
            5,508
            
            3,055
            
            1,381Amortization
      and write-off of financing costs
            
            110
            
            128
            
            590Commitment
      fees
            
            548
            
            648
            
            604Other
            
            228
            
            55
            
            156Total
            
            6,394
            
            3,886
            
            2,731







Interest
expense for 2007 and 2006 includes an amount of $311 and $199, respectively
relating to the financing method of accounting of the sale and leaseback
transaction between DSS and Universal (Notes 3(b) and 11).




16.
            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  14).




F-25
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







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 2007 and 2006 tax years, and
following the public offerings of common stock discussed in Note 1 and 13, 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. Based on its U.S. source Shipping Income for 2007, 2006 and 2005, the
Company would be subject to U.S. federal income tax of approximately $0.2
million, $0.25 million and $0.2 million, respectively, in the absence of an
exemption under Section 883.




17.
            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.




F-26
 DIANA
SHIPPING INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
 (Expressed
in thousands of U.S. Dollars – except share and per share data, unless otherwise
stated)







18.
            Subsequent
      Events:




(a)
            Stock
      incentive plan: On
      January 15, 2008 the Company’s Board of Directors approved a policy for
      Annual Incentive Bonuses of up to approximately 3% of the Company’s annual
      net profit, consisting of cash bonuses and restricted stock. Pursuant to
      this policy the Board of Directors granted a cash bonus of about $1.7
      million to all employees and executive management of the Company, which is
      included in the General and administrative expenses in the accompanying
      2007 consolidated statement of income. In February 2008, the Board of
      Directors also granted 75,500 shares of restricted common stock to
      executive management and non-executive directors, pursuant to the
      Company’s 2005 equity incentive plan and in accordance with terms and
      conditions of Restricted Shares Award Agreements signed by the grantees.
      The restricted stock will be vested over a period of 3 years, by one-third
      each year.The
      restricted shares are subject to forfeiture until they become vested.
      Unless they forfeit, grantees have the right to vote, to receive and
      retain all dividends paid and to exercise all other rights, powers and
      privileges of a holder of shares. The Company will follow the
      provisions of FASB Statement 123(R) “Share-Based Payment” for purposes of
      accounting for such awards and classify such compensation as General and
      administrative expenses.




(b)
            Loan
      extension:On February 1, 2008 the Standby
      Facility that was signed between the Company and the Royal Bank of
      Scotland (Note 9) as
      a Supplemental agreement to the Loan agreement of February 18, 2005 and
      its amendment of May 24, 2006, was amended so that the termination date
      was extended to March 6, 2008, when it
  expired.




(c)
            Loan
      Drawdown and vessel delivery:On February 11, 2008, the Company
      took delivery of the Norfolk and in February and March 2008 drew down an
      amount of $71,500 and $27,000, respectively, under the revolving credit
      facility with the Royal Bank of Scotland to partly fund the balance of the
      vessel’s purchase price of $108,000 (Note 6).




(d)
            Declaration
      of dividends:OnFebruary
      15, 2008, the Company declared dividends
      amounting to $44,670, or $0.60per share, payable on or aboutMarch 6,
      2008to stockholders
      of record as ofFebruary 29, 2008.









SK
23159 0002 863888