UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K




(Mark
One)


xAnnual Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934




For
the fiscal year ended December 31, 2007


or


oTransition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934




For the
transition period
from              to




Commission
File Number 000-51368




TBS
INTERNATIONAL LIMITED




(Exact name of registrant as specified
in its charter)


Bermuda
            98-0225954(State
      or other jurisdiction of
              incorporation
      or organization)
            (IRS
      Employer Identification No.)Commerce Building,
              Chancery
      Lane,
              Hamilton
      HM 12, Bermuda(Address
      of principal executive offices)(Registrant's
      telephone number, including area code)(441)
      295-9230Securities
      registered pursuant to section 12(b) of the Act:Title
      of each class
            
            Name
      of each exchangeon
      which registeredClass
      A common shares, par value $0.01
            
            The
      NASDAQ Global Select Market


Securities
registered pursuant to section 12(g) of the Act:  None




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.   Yes  ̈NoxIndicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or Section 15(d) of the Act. Yes ̈NoxIndicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90
      days.Yes  x No oIndicate by check mark if
      disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
      229.405 of this chapter) is not contained herein, and will not be
      contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form
      10-K or any amendment to this Form 10-K.    Yes oIndicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer or a smaller reporting
      company in Rule 12b-2 of the Exchange Act check one):
              Large
      Accelerated Filer  ̈  Accelerated
      Filer x
      Non-accelerated Filer  ̈ (Do
      not check if a smaller reporting
      company)     Smaller Reporting Filer   ̈Indicate
      by check mark whether the registrant is a shell company (as
      defined in Rule 12b-2 of the Act).                    Yes ̈NoxThe
      aggregate market value of voting and non-voting common equity held by
      non-affiliates was $311 million on June 30, 2007, based upon the last
      reported sales price of such stock on the NASDAQ Global Select Market on
      that date.





As
      of March
      12, 2008,  the registrant had outstanding 14,350,996Class A common shares, par value $0.01 per share, and
      13,404,461 ClassB common shares, par value $0.01 per
      share.DOCUMENTS
      INCORPORATED BY REFERENCEPortions
      of the Proxy Statement for the 2008 Annual Meeting of Stockholders (the
      “Proxy Statement”), to be filed within 120 days of the end of the fiscal
      year ended December 31, 2007, are incorporated in Part III to the extent
      described herein.








TBS
      INTERNATIONAL LIMITED2007
      FORM 10-KTable of ContentsPagePart
      IItem
      1
            BusinessA
            Overview
            
            4B
            Our Business Strategy
            
            7C
            Fleet Overview
            
            8D
            Classification and
      Inspection
            
            10E
            Operations Management, Ship
      Management and Commercial Agents
            
            10F
            Employees and Labor
    Relations
            
            12G
            Customers
            
            12H
            Competition
            
            13I
            Environmental and Other
      Regulations
            
            13J
            Security
            
            14K
            Insurance
            
            14L
            Taxation
            
            15M
            Website Access to Reports
            
            16Item
      1A
            Risk Factors
            
            17Item 1B
            Unresolved Staff
    Comments
            
            27Item
      2
            Properties
            
            27Item
      3
            Legal Proceedings
            
            28Item
      4
            Submission of Matters to a Vote of
      Security Holders
            
            28Part
      IIItem
      5
            Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
            
            28Item
      6
            Selected Financial Data
            
            31Item
      7
            Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
            
            34Item
      7A
            Quantitative and Qualitative Disclosures about
      Market Risk
            
            60Item
      8
            Financial Statements and Supplementary
      Data
            
            61Item
      9
            Changes in and Disagreements with
      Accountants on Accounting and Financial Disclosure
            
            61Item
      9A
            Controls and
    Procedures
            
            61Item
      9B
            Other Information
            
            61Part
      IIIItem
      10
            Directors, Executive Officers and Corporate
      Governance
            
            62Item
      11
            Executive Compensation
            
            63Item
      12
            Security Ownership of Certain Beneficial
      Owners and Management and Related Stockholder Matters
            
            63Item
      13
            Certain Relationships and Related
      Transactions and Director Independence
            
            63Item
      14
            Principal Accounting Fees and
      Services
            
            63Part
      IVItem
      15
            Exhibits, Financial Statement Schedules
      Index
            
            64Signatures


Table of Contents
 2


As
used in this Annual Report on Form 10-K, the terms "we," "our," and "us" refer
to TBS International Limited and its consolidated subsidiaries. We use the term
"International" and "Company" when we wish to refer only to TBS International
Limited, the holding company that is the issuer of our common shares, and not to
TBS International Limited and its consolidated subsidiaries.
 
 Forward-Looking
Statements
 
 This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, among other things, the information concerning our possible
or assumed future results of operations, our newbuilding plan, our accelerated
drydocking program, business strategies, financing plans, competitive position,
potential growth opportunities, customer demand and the effects of future
regulation and competition.
 
 Generally,
you can identify these statements because they use words like "anticipates,"
"believes," "estimates," "expects," "future," "intends," "plans" and similar
terms. These statements appear throughout this Annual Report, including in the
sections entitled "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." These statements are only our
current expectations. They are based on our management's beliefs and assumptions
and on information currently available to our management. Forward-looking
statements involve risks, uncertainties and assumptions. Although we do not make
forward-looking statements unless we believe we have a reasonable basis for
doing so, we cannot assure you of their accuracy. Actual results may differ
materially from those expressed in these forward-looking statements due to a
number of uncertainties and risks, including those described in Item 1A - Risk
Factors and other unforeseen risks, including:
  ·
              changes
      in demand for our services;
  ·
              changes
      in the typical seasonal variations in charter
  rates;
  ·
              a
      material decline or prolonged weakness in rates in the shipping
      market;
  ·
              changes
      in trading patterns significantly affecting overall vessel tonnage
      requirements;
  ·
              increases
      in the cost of our drydocking program or delays in our anticipated
      drydocking schedule;
  ·
              increases
      in costs, including changes in production of or demand for oil and
      petroleum products, crew wages, insurance, provisions, repairs and
      maintenance; generally or in particular
regions;
  ·
              changes
      in the condition of our vessels or applicable maintenance or regulatory
      standards, which may affect our anticipated drydocking or maintenance and
      repair costs;
  ·
              changes
      in rules and regulations applicable to the shipping industry, including
      legislation adopted by international organizations such as the
      International Maritime Organization and the European Union or by
      individual countries;
  ·
              actions
      taken by regulatory authorities;
  ·
              changes
      in general domestic and international political
  conditions;
  ·
              China
      Communications Construction Company Ltd./Nantong Yahua Shipbuilding Co.,
      Ltd.’s ability to complete and deliver the vessels on the anticipated
      schedule and the ability of the parties to satisfy the conditions in the
      tweendecker shipbuilding agreements;
and
  ·
              other
      factors that we describe in the "Risk Factors" section of this Form
      10-K.
  You
should not rely on any forward-looking statements.  We undertake no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as otherwise
required by law.
 
 Table of Contents
 3
 PART
I
 
 Item
1. BUSINESS
 
 A.  Overview
 
 We are an
ocean transportation services company that offers worldwide shipping solutions
to a diverse client base of industrial shippers.  We offer liner,
parcel, bulk and charter services supported by a fleet of multipurpose
tweendeckers and handysize and handymax bulk carriers.  Over the past
15 years, we have developed our franchise around key trade routes between Latin
America and Japan, South Korea and China, as well as ports in North America,
Africa, the Caribbean, the Mediterranean and the Middle East. In addition to
providing frequent, regularly scheduled voyages within our shipping network, we
offer additional services such as cargo scheduling, loading and discharge that
offer a fully integrated shipping solution to our customers.   As
of December 31, 2007, our controlled fleet totaled 36 vessels, including 34
ships that we own and two that we charter-in with an option to purchase. At
December 31, 2007 we had entered into Memoranda of Agreement (“MOA”) to purchase
three multipurpose tweendeckers and three bulk carriers that are scheduled to
deliver to us in the first quarter of 2008.  In addition, on February
19, 2008, we entered into an MOA for another bulk carrier.  After
delivery in 2008 of all the vessels that we have currently contracted for, our
fleet will total 43 vessels.  Total assets at December 31, 2007, and
2006 was $559.1 million and $403.1 million, respectively. For the year ended
December 31, 2007, we carried 6.6 million revenue tons of cargo, operated 276
voyages and generated total revenue and net income of $355.6 million and $98.2
million, respectively.  For the year ended December 31, 2006, we
carried 4.4 million revenue tons of cargo, operated 226 voyages and generated
total revenue and net income of $253.6 million and $39.1 million,
respectively.  For the year ended December 31, 2005, we carried 3.2
million revenue tons of cargo, operated 198 voyages and generated total revenue
and net income of $248.0 million and $55.7 million, respectively.
  We target
niche markets, which include trade routes, ports and cargo not efficiently
served by container and large dry bulk vessel operators.  In order to
effectively serve these markets, we offer regularly scheduled voyages using our
fleet of multipurpose tweendeckers and handysize and handymax dry bulk
carriers.  Tweendeck vessels are differentiated by their retractable
decks that can create separate holds, facilitating the transportation of
non-containerized cargoes.  Our vessels are able to navigate and
service many ports with restrictions on vessel size and transport the many types
of cargo that cannot be carried efficiently by container or large dry bulk
carriers.  The flexibility of our fleet allows us to carry a wide
range of cargo, including steel products, metal concentrates, fertilizer, salt,
sugar, grain, chemicals, industrial goods, aggregates and general
cargo.
  As part
of our comprehensive ocean transportation service offering, we provide portside
and inland logistics, related support services and solutions for challenging
cargoes.  To provide these services, we employ a professional staff of
approximately 130 employees at December 31, 2007, with extensive experience and
diverse backgrounds.  In addition, our affiliate, TBS Commercial Group
Ltd. ("TBS Commercial Group"), has fully staffed agencies and representative
offices on five continents, with local teams of commercial agents and port
captains who meet regularly with customers to tailor solutions to their
logistics needs. We believe this full-service approach to shipping provides a
superior level of service that has resulted in the development of long-term
relationships with our customers.
  Our
customers rely on our regular service as an integral part of their supply chain,
and many of these relationships have been established for over ten
years.  We serve approximately 300 customers in 15
countries.  We have developed long-term relationships with established
and well-respected industrial shippers in diverse markets including mining,
steel manufacturing, trading, heavy industry, industrial equipment and
construction.  We believe our business model allows us to respond
rapidly to our customers’ changing demands and short delivery windows,
increasing the value of our services to them as we enable them to schedule
production and distribution.
  Table of Contents
 4
 Our ocean
transportation services focus on Asia and Latin America.  Based on
increasing customer demand, we have extended our business model into several new
markets, including the Middle East and the Mediterranean.  We
currently operate our vessels on six principal liner, parcel and bulk
services:
  Service
              Routes
              
              CargoesTBS
      Pacific Service
              Eastbound:
              
              Eastbound:Japan,
      South Korea and China to the West, North and East Coasts of
      South America
              
              Steel
      products, project cargo and general cargoWestbound:
                Peru
      and Chile to East Asia
              
              Westbound:
                Minerals,
      metals and fertilizerTBS
      Latin America Service
              Northbound:
                Brazil
      to Colombia, Venezuela, Caribbean basin and the West Coast of South
      America
                
                Southbound:
                Colombia
      and Venezuela to Brazil and Argentina
              
              Steel
      products, project cargo and general cargo
                
                
                Coal
      and petroleum cokeTBS
      North America
      Service
              North
      America to the Caribbean basin, Brazil, and Argentina
              
              Fertilizer
      and agricultural productsTBS
      Middle East Carriers
              Middle
      East region including ports in United Arab Emirates, Qatar and
      Kuwait
              
              Bulk
      aggregatesTBS
      Mediterranean
      Service
              Brazil
      and Argentina to ports in the Mediterranean
              
              Steel
      products, project cargo and general cargoTBS
      Ocean
      Carriers
              Brazil
      to the West Coast of Africa
              
              Bulk
      sugar and salt
  In
addition to our liner, parcel and bulk services, we offer short- and long-term
time charter services. Time charters offer our customers an alternative means to
contract for ocean transportation of their cargoes.  These contractual
arrangements make the carrying capacity of entire vessels available to our
customers at a flat per day rate.  As a complementary offering, in
conjunction with our time charters services, we also offer complete voyage
management services.  As of December 31, 2007, 12 of our owned vessels
were hired out under time charters with an average remaining duration of 60
days.
  Our
Competitive Strengths
  Trade
Routes and Ports of Call
  We
currently operate our vessels on six trade routes. We commenced operations in
1993, sailing between East Asia and the West Coast of South America. In 1995, we
expanded our routes by adding sailings between the East and West Coasts of South
America. In 2002, we began offering cargo service between North America and the
East and West Coasts of South America and further expanded our routes by
offering service from Brazil to West Africa and within the Middle
East.  During the third quarter of 2007 we began cargo service between
the East Coast of South America and the Mediterranean.
  We have
taken a conservative approach to building our liner and parcel cargo service
network. The initial sailings on each route typically are based on the
requirements of a major customer. After regular sailings are established, we
notify other potential customers of the service so their cargoes may be
transported as well. As demand increases, we evaluate committing additional
resources to serve the route, either by purchasing or chartering-in additional
vessels. We plan the loading and stowage of cargo on each sailing to maximize
our ability to add cargo as vessels call in selected ports to discharge cargo,
increasing our utilization rate and maximizing revenue per sailing.
  Table of Contents
 5
 A summary
of our services is as follows:
  TBS Pacific
Eastbound Liner Service operates routes from East Asia to the West,
North, and East Coasts of South America. The service commenced operations in
1993 and currently provides on average two sailings per month. This service has
regular sailing dates from ports in Japan, South Korea, and China. One vessel
calls at ports in Colombia, Ecuador, Peru and Chile, and another sails through
the Panama Canal to call at ports in Venezuela and the Caribbean basin. This
service typically carries steel products, project cargo and general
cargo.
  TBS Pacific
Westbound Parcel Service originates in Peru or Chile and generally
carries parcels of minerals, metal concentrate, and fertilizers to East Asia.
The service currently operates at least two sailings per month.
  TBS Latin America
Northbound Parcel Service commenced operations in 1995 and sails monthly
from ports in Brazil to Colombia, Venezuela and the Caribbean basin. In
addition, we provide sailings to ports on the West Coast of South America. The
service is flexible with respect to types of cargoes, and typically carries
mixed steel products, project cargo and general cargo. On occasion, cargoes on
this service are supplemented in the course of a sailing, as discharged cargo is
replaced by additional cargo along the route. As a result, this service requires
particular consideration and monitoring of cargo organization and vessel
scheduling, and benefits from our port captains' experienced oversight of the
loading and unloading of cargoes.
  TBS Latin America
Southbound Parcel Service commenced operations in 2007 and sails monthly
from ports in Colombia and Venezuela to Brazil and Argentina.  The
service generally carries coal and petroleum coke.
  TBS North America
Service commenced operations in 1996, sailing between North America and
South America. In 2002, we began operating sailings on demand from the East
Coast of the United States to the Caribbean basin, Brazil, and Argentina
carrying fertilizer, and agricultural products.
  TBS Middle East
Carriersoffers bulk service within the Middle East region with service
from the United Arab Emirates to ports in Qatar and Kuwait. The service was
suspended in September 2004 and resumed in January 2006.
  TBS Mediterranean
Serviceoffers parcel and bulk service to the East Coast of South America
and the Mediterranean.  TBS Mediterranean Service commenced operations
in 2007 and transports cargoes of steel products, project cargo and general
cargo from Brazil and Argentina to ports in the Mediterranean.
  TBS Ocean
Carriers offers shipping solutions worldwide on a customer-by-customer
basis. Services include transporting bulk sugar and salt from Brazil to the West
Coast of Africa.
  Our
liner, parcel and bulk services primarily carry steel products, salt, sugar,
grain, fertilizers, chemicals, metal concentrates, aggregates and general
cargo.
  ·
              Steel
      products include specialty and carbon steel coils, steel pipe and
      structural steel used in the infrastructure development, construction, oil
      and gas transmission and automotive and appliance manufacturing
      industries.
  ·
              Fertilizers
      include ammonium sulfate shipped in bulk for use in commercial
      agriculture.
  ·
              Metal
      concentrates include copper, zinc, silver and other metals generally
      shipped in small break-bulk lots from 1,000 to 10,000 metric ton parcels
      that are processed at their destinations by smelters into purer
      forms.
  ·
              General
      cargo includes industrial machinery, spare parts, oil well supplies,
      trailers, industrial tanks, project cargo and other commercial goods used
      in industrial applications.
  In
addition to our liner, parcel and bulk services on the trade routes described
above, we offer shipping solutions worldwide on a customer-by-customer basis,
primarily by time chartering-out vessels. Generally, we time charter vessels out
on a long-term basis to customers seeking vessel tonnage and on a short-term
basis to reposition a vessel or to take advantage of favorable charter hire
rates through TBS Ocean Carriers; however, any of our services may time charter
a vessel to meet customer needs. A time charter is a contractual arrangement
under which a shipowner is paid for the use of a vessel on a per day basis for a
fixed period of time. The shipowner is responsible for providing the crew and
paying vessel operating expenses while the charterer is responsible for paying
the voyage expenses. At December 31, 2007, the following 12 vessels of our
controlled and owned fleet were time chartered out under charters expiring
within one year:  Navajo
Princess,Inca Maiden,Ainu Princess, Kiowa
Princess,TainoMaiden, Wichita Belle,
Chesapeake Belle, Maori Maiden, Nyack Princess,Shinnecock Belle, Sioux MaidenandYakima
Princess.  The Navajo PrincessandInca Maiden are
chartered-out until September and July 2008, respectively.  These
charters, which are renewable every six months have been in effect with the same
customer since January 2004 and November 2003, respectively.
 
 Table of Contents
 6
 The
following table shows the annual number of time charters out, related duration
and gross charter revenue since 2003.


Year
            
            Number
      of Charters
            
            Duration
            
            Gross Revenue(days)
            
            (in
      thousands)2003
            
            
            58
            
            
            2,439
            
            $
            23,6252004
            
            
            46
            
            
            2,780
            
            
            50,7462005
            
            
            55
            
            
            4,257
            
            
            71,4562006
            
            
            57
            
            
            4,301
            
            
            63,1142007
            
            
            67
            
            
            3,659
            
            
            88,365




B. 
Our Business Strategy
  Our
business strategy consists of providing reliable transportation services to
leading industrial shippers over ocean trade routes. The key elements of our
business strategy are:
  Focus on Increasing Cargo Volumes on
Our Key Routes.  We intend to increase cargo volumes on our key
Pacific and Latin American trade routes.  In addition to our liner,
parcel and general cargo services, we are establishing a third sailing from
China and Korea carrying steel parcels to Mexico, Central and South
America.  By adding additional vessels and sailings to the markets we
already serve, we believe we will be able to provide more regular service to our
clients, which we expect will allow us to capture a larger share of their
shipping needs, and win new clients.  Our affiliate, TBS Commercial
Group Ltd., (“TBS Commercial Group”) plans to increase the number of local
commercial agents and port captains in order to expand our ability to serve
additional customers.
  Develop New Trade
Routes.  We intend to continue developing new trade routes,
such as our Brazil-Nigeria route, and liner and parcel services, such as our
Mediterranean service.  Our agents and port captains work closely with
our clients, as well as potential clients, to identify additional services that
we can provide.  We target routes that share the characteristics of
our established routes and appear suited to our fleet and our full service
approach.  When developing new trade routes, we initially utilize
chartered-in vessels and commit resources to acquire vessels for operation on
those routes once we have determined that the economics of the route are
favorable and sustainable.
  Expand Our Fleet of Focused Vessel
Types.  We expect to acquire additional handysize and handymax
bulk carriers in the secondhand market, subject to availability and market price
considerations.  We expect to expand our fleet of multipurpose
tweendeckers primarily through our newbuilding program.  These vessels
are well suited for our business strategy, for the needs of our customers and
for the growth opportunities that we have identified.  As part of our
fleet management, we regularly evaluate the suitability of our vessels in
meeting our anticipated needs and the anticipated needs of our
customers.  During 2007, in connection with our expansion plans,
we:


·
            purchased and took delivery of four
vessels;





·
            sold two vessels;




·
            entered
      into Memoranda of Agreement to purchase six vessels,which are expected to
      be delivered to us during the first quarter of 2008;








·
              entered
      in a Memoranda of Agreement to purchase one vessel, which is expected to
      be delivered in the second quarter of 2008,
and




·
            entered into
      ship building contracts with a Chinese shipyard to build six newly
      designed multipurpose tweendeck vessels.  These 34,000 dwt
      vessels are a new larger class of multipurpose tweendecker and their
      addition to our fleet will be a significant milestone in the
      implementation of our business plan to modernize and expand our
      tweendecker fleet.  The ships were designed by a TBS team drawn
      from all phases of our operations specifically to optimize our efficient
      cargo transportation in our trade lanes, support the requirements of our
      loyal customer base and enhance the growth of our
  business.










Table of Contents
 7


C.Fleet Overview
 
 Our
controlled fleet at December 31, 2007, consisted of 36 vessels and is comprised
of multipurpose tweendeckers, handysize and handymax bulk carriers. All vessels
are dual flagged in Panama and the Philippines. The following table provides
information regarding the 36 vessels in our controlled fleet, which excludes
vessels chartered in under short-term charter.




Vessel
      Name
            
            Vessel
      Type
            
            Year
      Built
            
            Deadweight
      TonsAinu
      Princess
            
            Multipurpose
      Tweendecker
            
            1987
            
            
            17,324Siboney
      Belle
            
            Multipurpose
      Tweendecker
            
            1987
            
            
            17,324Tamoyo
      Maiden
            
            Multipurpose
      Tweendecker
            
            1986
            
            
            17,235Kiowa
      Princess (3)
            
            Multipurpose
      Tweendecker
            
            1986
            
            
            19,762Seneca
      Maiden (3)
            
            Multipurpose
      Tweendecker
            
            1986
            
            
            19,762Aztec
      Maiden
            
            Multipurpose
      Tweendecker
            
            1984
            
            
            19,777Navajo
      Princess (3)
            
            Multipurpose
      Tweendecker (1)
            
            1987
            
            
            21,902Inca
      Maiden (3)
            
            Multipurpose
      Tweendecker (1)
            
            1986
            
            
            22,133Shawnee
      Princess
            
            Multipurpose
      Tweendecker
            
            1984
            
            
            22,323Taino
      Maiden
            
            Multipurpose
      Tweendecker
            
            1985
            
            
            23,278Tuckahoe
      Maiden
            
            Multipurpose
      Tweendecker
            
            1985
            
            
            23,278Cherokee
      Princess (3)
            
            Multipurpose
      Tweendecker
            
            1990
            
            
            23,286Apache
      Maiden (3)
            
            Multipurpose
      Tweendecker
            
            1987
            
            
            23,325Kickapoo
      Belle (3)
            
            Multipurpose
      Tweendecker
            
            1987
            
            
            23,319Mohegan
      Princess
            
            Multipurpose
      Tweendecker
            
            1983
            
            
            26,276Tayrona
      Princess
            
            Multipurpose
      Tweendecker
            
            1983
            
            
            26,320Laguna
      Belle (2)
            
            Multipurpose
      Tweendecker
            
            1996
            
            
            28,503Seminole
      Princess (2)
            
            Multipurpose
      Tweendecker
            
            1997
            
            
            28,503Nanticoke
      Belle
            
            Multipurpose
      Tweendecker
            
            1989
            
            
            28,835Wichita
      Belle
            
            Multipurpose
      Tweendecker
            
            1991
            
            
            28,843Savannah
      Belle
            
            Handysize
      Bulk Carrier
            
            1982
            
            
            22,558Arapaho
      Belle
            
            Handysize
      Bulk Carrier
            
            1998
            
            
            24,021Rockaway
      Belle
            
            Handymax
      Bulk Carrier
            
            1982
            
            
            35,025Shinnecock
      Belle
            
            Handymax
      Bulk Carrier
            
            1985
            
            
            37,451Maori
      Maiden
            
            Handymax
      Bulk Carrier
            
            1984
            
            
            37,734Nyack
      Princess
            
            Handymax
      Bulk Carrier
            
            1984
            
            
            38,885Biloxi
      Belle
            
            Handymax
      Bulk Carrier
            
            1984
            
            
            39,225Miami
      Maiden
            
            Handymax
      Bulk Carrier
            
            1984
            
            
            39,333Iroquois
      Maiden
            
            Handymax
      Bulk Carrier
            
            1983
            
            
            40,876Alabama
      Belle
            
            Handymax
      Bulk Carrier
            
            1986
            
            
            41,808Sioux
      Maiden
            
            Handymax
      Bulk Carrier
            
            1989
            
            
            42,248Mohawk
      Princess
            
            Handymax
      Bulk Carrier
            
            1982
            
            
            42,360Yakima
      Princess
            
            Handymax
      Bulk Carrier
            
            1990
            
            
            42,475Chesapeake
      Belle
            
            Handymax
      Bulk Carrier
            
            1984
            
            
            44,146Tuscarora
      Belle
            
            Handymax
      Bulk Carrier
            
            1984
            
            
            44,189Manhattan
      Princess
            
            Handymax
      Bulk Carrier
            
            1982
            
            
            45,526






Table of Contents
 8


(1)
              These
      vessels are multipurpose tweendeckers with the ability to carry wheeled
      cargo such as automobiles, tractors or trailers. The vessel allows cargo
      to be "rolled on" and "rolled off" in addition to allowing cargo to
      be "lifted-on" and
"lifted-off".
  (2)
              On
      January 30, 2007, International's wholly owned subsidiaries Fairfax
      Shipping Corp. ("Fairfax") and Beekman Shipping Corp. ("Beekman") each
      sold and leased back a vessel pursuant to a sale-leaseback arrangement.
      Fairfax sold the vesselSeminole Princess to Adirondack Shipping LLC ("Adirondack") for
      $23.0 million, and Beekman sold the vesselLaguna Belle
      to Rushmore Shipping LLC ("Rushmore") for $22.0 million each pursuant to a
      Memoranda of Agreement. Fairfax had taken delivery of the vesselSeminole Maiden (formerly theClipper Flamingo) for $23.1 million on November 10, 2006.
      Beekman had taken delivery of the vesselLaguna Belle (formerly theClipper Frontier) for $22.0 million on November 15, 2006. Under the
      sale-leaseback arrangement, Fairfax entered into a seven-year bareboat
      charter with Adirondack and Beekman entered into a seven-year bareboat
      charter with Rushmore for their respective vessels. We used the proceeds
      from the sale to repay advances under the revolving credit facility.
      During 2007, we installed retractable decks into three of the cargo
      holds in each vessel; accordingly, the vessels were reclassified from bulk
      carriers to multipurpose
tweendeckers.
  (3)
              These
      vessels were chartered in under sale-lease back agreements, which were
      classified as capital leases until December 2007, when the purchase
      options were exercised.
  (4)
              At
      December 31, 2007, we had contracted for the purchase of six vessels under
      separate Memoranda of Agreement to acquire the Ypermachos
      (to be renamed Zuni
      Princess), the African
      Sanderling (to be renamed Hopi
      Princess), the Gebe
      Oldendorff (to be renamed Oneida
      Princess), the Diasozousa
      (to be renamed Mohave
      Maiden), Wedellsborg
      (to be renamed Ottawa
      Princess),  and the vessel Frijsenborg
      (to be renamed Caribe
      Maiden).  The following table provides information
      regarding the six vessels, which have delivered or are expected to be
      delivered during the first quarter of
2008:




Year
              
              Deadweight
              
              Actual
      / AnticipatedVessel
      Name
              
              Vessel
      Type
              
              Built
              
              Weight
      Tons
              
              Delivery
      DateZuni
      Princess
              
              Handysize
      Bulk Carrier
              
              1984
              
              28,166
              
              Jan-08Hopi
      Princess
              
              Multipurpose
      Tweendecker
              
              1984
              
              20,401
              
              Feb-08Oneida
      Princess
              
              Handysize
      Bulk Carrier
              
              1998
              
              24,247
              
              Feb-08Mohave
      Maiden
              
              Handysize
      Bulk Carrier
              
              1984
              
              28,074
              
              Feb-08Ottawa
      Princess
              
              Multipurpose
      Tweendecker
              
              1987
              
              22,800
              
              Mar-08Caribe
      Maiden
              
              Multipurpose
      Tweendecker
              
              1987
              
              22,800
              
              Mar-08




(5)
            We
      entered into a newbuilding program to build six newly-designed
      multipurpose tweendeck
  vessels.


Multipurpose
Tweendeckers


Most of
our multipurpose tweendecker vessels have retractable tweendecks that can
convert a multipurpose tweendecker to a bulk carrier, and back again, depending
on the cargo. Unlike container ships, which can carry only cargo that can be or
has been pre-packaged into standard 20-foot or 40-foot containers, or bulk
carriers that limit the ability to mix different cargoes in any one hold,
multipurpose tweendeckers can be divided into multiple cargo compartments by a
mezzanine deck, or tweendeck. The tweendeck permits the carriage of cargoes of
differing sizes and shapes in the same or separate holds and permits greater
flexibility in the stowage and carriage of cargo. Many of our vessels sailing
eastbound from Asia will call at multiple Latin American ports to discharge
cargo and load additional cargo for shipment to other ports. Cargoes are stowed
in a manner that facilitates efficient loading and discharging.
 
 Table of Contents
 9
 The
following diagram shows a typical multipurpose tweendeck ship fitted for
different types of cargo. The diagram illustrates how the tweendeck structure
permits the carriage of different types of cargo on any voyage.
 tweendecker
 
 Bulk
Carriers
  Our bulk
carriers range in size from 22,558 dwt to 45,526 dwt. Several of the vessels
have equipment that enables self-loading and discharging in an effort to enhance
our ability to serve a broad range of ports.
  D. 
Classification and Inspection
  The hull
and machinery of every commercial vessel must be "classed" by a classification
society authorized by its country of registry. Our vessels currently are
enrolled with Lloyds Register of Shipping, or LR, Nippon Kaiji Kyokai, or NKK,
American Bureau of Shipping, or ABS, Det Norske Veritas, or DNV, and Bureau
Veritas, or BV. The classification society certifies that a vessel is safe and
seaworthy in accordance with the applicable rules and regulations of the country
of registry of the vessel and international conventions promulgated by the
International Maritime Organization, or IMO. These include the Convention on
Maritime Pollution Prevention, the International Safety Management Code, or ISM
Code, and International Convention for the Safety of Life at Sea, or SOLAS. All
of our vessels have been certified as being "in class" by their respective
classification societies.
  A vessel
must undergo annual surveys, intermediate surveys and special surveys. In lieu
of a special survey, a vessel's machinery may be on a continuous survey cycle,
under which the machinery would be surveyed periodically over a five-year
period. All of our controlled vessels are on special survey cycles for hull
inspection and continuous survey cycles for machinery inspection. Every vessel
also is required to be drydocked every two to three years for inspection of the
underwater parts of the vessel. Our fleet of 36 vessels will result in
approximately 72 drydockings over a five-year period. We anticipate drydocking
approximately 14 vessels per year.  We drydocked 21 vessels during
2007.  The higher than normal number of vessels being drydocked in
2007 is principally due to the concurrence of required interim or special
surveys for many of the vessels that we acquired during the last two or three
years. Of the 21 vessels drydocked in 2007, three vessels were acquired in 2007,
two vessels were acquired in 2006 and ten vessels were acquired in 2005,
respectively.  During 2008, we anticipate drydocking 17 vessels, which
include three vessels to be delivered during the first quarter of 2008 and one
vessel acquired in 2007.
  We have
decided to use the drydockings as an opportunity to make steel renewal and
reinforcements on many of the vessels to upgrade each vessel to our high
standards. This includes making steel renewal and reinforcements that might be
required during the next five to ten years. If any defects are found in the
course of a survey or drydocking, the classification surveyor will recommend
appropriate repairs that must be made by the shipowner within the prescribed
time limit.
  Our
drydocking expenditures and surveys are being accounted for using the deferral
method. Under the deferral method of accounting for drydocking, the actual costs
incurred are deferred and amortized on a straight-line basis over the period
through the date of the next drydocking.
  E.  Operations Management, Ship Management and
Commercial Agents
  Substantially
all of the operations, ship maintenance, supervision of crewing, technical
support, purchasing, insurance, financial management services and network of
commercial agents necessary to support our fleet and operate our business are
supervised by three service companies.
  Table of Contents
 10
 Two of
the service companies, TBS Shipping Services Inc. (“TBS Shipping Services”) and
Roymar Ship Management Inc., (“Roymar”), are our wholly-owned subsidiaries that
we acquired from our principal shareholders at the time of our initial public
offering in June 2005. These service companies manage the accounts of our other
subsidiaries and, on their behalf, make payments and advances for costs
associated with the operation of our business. The third service company, TBS
Commercial Group, is affiliated with us by common ownership. It is owned by our
principal shareholders, Lawrence A. Blatte, Gregg L. McNelis, Captain Alkis N.
Meimaris, James W. Bayley and Joseph E. Royce. Collectively these individuals
own 63.2% of our common shares and hold 53.8% of the voting power of our
shares.  Together these three companies employ approximately 270
experienced professionals who meet regularly with shippers and consignees to
market our services in more than 15 countries and address the needs and concerns
of our customers.
  Operations
management
  TBS
Shipping Services coordinates services to customers, integrates the activities
of our commercial agency network, oversees charter activities, administers
voyages and provides accounting services, including the preparation of the
account ledgers and financial statements of International and its
subsidiaries.
  Ship
management
  Roymar
manages our controlled fleet providing an experienced technical management staff
and a full range of vessel maintenance capabilities to ensure that we maintain a
high-level of ship performance. The services provided by Roymar
include:
  •
              supervising the recruiting of
  crew;•
              obtaining
      spares, stores and provisions necessary on board the
    vessels;•
              implementing
      our maintenance program;•
              arranging
      for and supervising all drydocking procedures;•
              arranging
      for surveys and inspections according to requirements of classification
      society, flag state and port state rules and
  regulations;•
              maintaining
      high safety and environmental protection standards in compliance with the
      ISM Code and SOLAS;•
              arranging
      for insurance of the vessels; and•
              identifying
      vessels to acquire and negotiating purchase options on vessels that we
      charter.
  We are
fully responsible for the maintenance of our controlled fleet. We make every
effort to prevent delays at sea or in port caused by malfunctions or breakdowns.
Roymar deploys superintendents, including master mariners and engineers, to
supervise the maintenance of our controlled fleet. We minimize operation costs
through continuous onboard supervision of our vessels and use of the vessels'
crews for ship maintenance. We believe that our preventive maintenance practice
has extended the lives of the vessels in our controlled fleet, minimized
drydocking expenses and nearly eliminated downtimes and off-hire periods
resulting from speed deficiencies, stoppages at sea and vessel breakdowns. Every
two to three years each of the vessels in our controlled fleet is drydocked and
undergoes maintenance, and every five years each of the vessels in our
controlled fleet is subject to special surveys.
  Commercial
agents
  We have
established a network of long-term commercial and operational relationships with
affiliated commercial agency service companies. The majority of these service
companies are wholly- or partly-owned by TBS Commercial Group. Our principal
shareholders own TBS Commercial Group. These service companies employ sales and
customer service professionals who meet regularly with shippers and consignees
to anticipate the needs and address the concerns of our customers. These
professionals are locally-based personnel who give us a competitive advantage by
enabling us to have our representatives meet personally with our customers. We
believe that personal attention to customers has played a critical role in our
growth and success. Our method of operation focuses on sales and service for
long-term sustained expansion. The agreements with TBS Commercial Group are
subject to the approval of the compensation committee of our board of directors.
We paid TBS Commercial Group approximately $8.0 million, $6.2 million, and $6.2
million in 2007, 2006, and 2005, respectively.  See note "15 — Related
Party Transactions" to our consolidated financial statements.
 
 Table of Contents
 11
 F.  Employee and Labor Relations
  As of
December 31, 2007, we had approximately 130 office employees located in Yonkers
and Scarsdale, New York. Additionally, we have contracted with three
unaffiliated manning agents, Aboitiz Jebsen Bulk Transport Corp., Intermodal
Shipping, Inc., and Magsaysay Maritime Corp. to provide approximately 960
Filipino officers and non-officers to crew our vessels. We are not a party to
the contracts with the seagoing personnel who are required to have appropriate
maritime licenses.  Historically our labor relations have been
good.
  G.  Customers
  We
believe we distinguish ourselves from our competition by offering proven
reliability, frequent and on-time service, flexible cargo management, expert
loading and stowage and close client coordination in the ports and on the
vessels. This customer focus has enabled us, through our affiliated agents, to
develop long-term relationships with established and well-respected industrial
shippers in diverse markets including mining companies, steel manufacturers,
trading companies, heavy industry, industrial equipment enterprises and
construction companies. Our business model allows us to respond rapidly to our
customers' changing demands and short delivery windows, increasing the value of
our services to them as we enable them to schedule production and
distribution.
  A
substantial majority of our repeat business is based on our relationships and
reputation with our customers, and is not governed by long-term contracts. The
percentages of consolidated revenues from our major customers are as
follows:


Year
      Ended December 31,Customer
            
            2007
            
            
            2006
            
            
            2005Dangote
      Industry Limited
            
            
            13.4
            %
            
            
            15.1
            %
            
            
            12.1
            %Nippon
      Yusen Kaisha
            
            
            3.5
            %
            
            
            4.6
            %
            
            
            5.7
            %




No other
customer accounted for more than 5% of our gross revenues.
  We transport cargo throughout the
world, including the United States. The amount of voyage revenue generated by
country is as follows:


Year
      Ended December 31,Country
              
              2007
              
              2006
              
              2005Brazil
              
              $
              72,965,220
              
              $
              52,254,353
              
              $
              50,922,219Japan
              
              
              40,615,093
              
              
              33,424,214
              
              
              27,102,181Chile
              
              
              11,348,157
              
              
              15,249,919
              
              
              21,602,403United
      States
              
              
              20,425,292
              
              
              21,729,772
              
              
              15,906,784Peru
              
              
              32,149,714
              
              
              16,825,238
              
              
              16,311,236United
      Arab Emirates
              
              
              24,572,954
              
              
              9,415,493
              
              
              655,879Venezuela
              
              
              4,611,675
              
              
              8,516,162
              
              
              12,327,840Korea
              
              
              5,778,944
              
              
              6,022,940
              
              
              6,633,213Argentina
              
              
              15,189,231
              
              
              1,574,104
              
              
              3,280,876China
              
              
              21,692,570
              
              
              16,171,405
              
              
              11,815,693Others
              
              
              14,844,527
              
              
              7,828,589
              
              
              9,037,486$
              264,193,377
              
              $
              189,012,189
              
              $
              175,595,810


Revenue
attributed to these countries is based on the location where the cargo is
loaded. Time charter revenue by country cannot be allocated because we do not
control the itinerary of the vessel.
  Table of Contents
 12
 H.  Competition
  The cargo
markets we serve are highly competitive. Our competition on the routes we serve
consists primarily of regional shipping companies focused on the breakbulk
market; international bulk shipping companies competing in the large lot segment
of the bulk metal concentrates market and larger shipping concerns that compete
in diverse shipping segments in addition to the breakbulk market. We compete on
the basis of targeting niche markets that include trade routes, ports and
cargoes not efficiently served by many larger shipping companies. We focus on
smaller lots of 1,000 to 10,000 metric tons in the bulk metal concentrates
market in Chile and Peru, whereas other bulk shipping companies focus on
shipments of 20,000 to 45,000 metric tons of bulk metal concentrates. We also
compete with the regional shipping companies by delivering customer service and
global solutions that are superior.
  I. 
Environmental and Other Regulations
  Vessel
Environmental Regulations
  Ocean
shipping is affected by extensive and changing environmental protection and
other laws and regulations. These laws and regulations take the form of
international conventions and agreements, including the IMO conventions and
regulations and SOLAS, with which all internationally trading vessels must
comply, and national, state and local laws and regulations, all of which are
amended frequently. Compliance with these laws and regulations may entail
significant expenses at any time, including expenses for ship modifications and
changes in operating procedures, which could have an adverse effect on our
results of operations. Subject to the discussion below and to the fact that the
kinds of permits, licenses and certificates required for the operation of the
owned vessels will depend upon a number of factors, we believe that we have and
will be able to obtain all permits, licenses and certificates material to the
conduct of our operations.
  In the
United States, we may be exposed to various federal, state and local
environmental laws, ordinances and regulations, may be required to clean up
environmental contamination resulting from a discharge of oil or hazardous
substances and may be held liable to a governmental entity or to third parties
in connection with any such contamination. These laws typically impose cleanup
responsibility, and liability under these laws has been interpreted to be
strict, joint and several, and subject to very limited statutory defenses. The
costs of investigation, remediation or removal of such substances and damages
resulting from releases may be substantial.
  Although
we do not transport petroleum products, we are subject to the U.S. Oil Pollution
Act of 1990, or OPA 90, because we use petroleum products for fuel and because
of the possibility of accidents involving oil tankers presents an exposure to
our vessels. Under OPA 90, 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 cleanup costs and other damages resulting
from the discharge or threatened discharge of oil into the navigable waters,
adjoining shorelines or the 200 nautical mile exclusive economic zone of the
United States.  OPA 90 limits the liability of responsible parties for
such costs and damages to the greater of $600 per gross ton of the vessel or
$500,000 per non-oil tanker vessel that is over 300 gross tons, subject to
possible adjustment for inflation. The Federal Water Pollution Control Act, or
FWPCA, imposes significant civil penalties as well as strict, joint and several
liability on responsible parties for removal costs and natural resource damages
arising from the discharge of oil or other hazardous substances into U.S.
navigable waters, adjoining shorelines, waters of the contiguous zone and areas
of the outer continental shelf and deepwater ports. The Comprehensive
Environmental Response, Compensation & Liability Act of 1980, or CERCLA,
imposes strict, joint and several liability on responsible parties for releases
and threatened releases of hazardous substances (other than oil) whether on land
or at sea, subject to limits depending on the nature of the vessel and its
cargo. Liability under CERCLA is limited to the greater of $300 per gross ton or
$5 million. The limits on liability under OPA 90, FWPCA and CERCLA do not apply
if the discharge is caused by gross negligence, willful misconduct, or in the
cases of OPA 90 and CERCLA, the violation by a responsible party or its agent of
any applicable safety, construction or operating regulation. The statutory
limits on liability may not apply in certain other instances, including if the
responsible parties fail or refuse to report the incident or refuse to cooperate
and assist in connection with oil removal activities. In addition, OPA 90, FWPCA
and CERCLA specifically permit individual states to impose their own liability
regimes with regard to oil and hazardous waste releases occurring within their
boundaries, and many states have enacted legislation providing for unlimited
liability for oil spills. In some cases, states that have enacted such
legislation have not yet issued implementing regulations under these laws. We
intend to comply with all applicable state regulations in ports where we
call.
  Pursuant
to regulations promulgated by the U.S. Coast Guard, responsible parties (as
defined in such regulations) must establish and maintain evidence of financial
responsibility in the amount of $1,500 per gross ton, which includes the OPA 90
limitation on liability of $1,200 per gross ton and the CERCLA liability limit
of $300 per gross ton. The P&I Associations, which historically provided
shipowners and operators financial assurance, have refused to furnish evidence
of insurance to responsible parties, and therefore responsible parties have
obtained financial assurance from other sources at additional cost, including
evidence of surety bond, guaranty or by self-insurance.
  Table of Contents
 13
 Port
State authorities in general and in certain jurisdictions in particular have
become more active in inspecting older vessels visiting their ports and, in
certain instances, demanding that repairs be made before allowing a vessel to
sail, even though that vessel may be fully insured, in class and in compliance
with all relevant maritime conventions including SOLAS.
  The IMO
has adopted regulations that are designed to reduce oil pollution in
international waters. In complying with OPA 90 and IMO regulations and other
regulations that may be adopted, shipowners and operators may be forced to meet
new maintenance and inspection requirements, develop, contingency arrangements
for potential spills and obtain insurance coverage.
  Other
Regulations
  Operation
of our vessels also is affected by the recently adopted requirements of the ISM
Code. The ISM Code mandates an extensive "Safety Management System" that
includes, among other things, the adoption of a safety and environmental
protection policy setting forth instructions and procedures for operating
vessels safely and describing procedures for dealing with
emergencies.  Our owned vessels and Roymar, the technical manager for
our vessels, are currently ISM Code certified.
  We also
are required by various governmental and quasi-governmental agencies and other
regulatory authorities to obtain permits, licenses and certificates in
connection with our operations. Some countries in which we operate, have laws
that restrict the carriage of cargoes depending on the registry of a vessel, the
nationality of its crew and prior and future ports of call, as well as other
considerations relating to particular national interest. See "― Classification and
Inspection" for more information.
  J.  Security
  Since the
terrorist attacks of September 11, 2001, a variety of initiatives intended to
enhance vessel security have been enacted, including the Maritime Transportation
Security Act of 2002, or MTSA. Coast Guard regulations require that vessels
operating in waters subject to the jurisdiction of the United States implement a
number of security measures. Similarly, a new chapter of SOLAS, which came into
effect in July 2004, dealing specifically with maritime security 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. The ISPS Code is designed to protect ports and international
shipping against terrorism. Since July 1, 2004, to engage in international
trade, a vessel must have an International Ship Security Certificate, or ISSC,
which attests to the vessel's compliance with SOLAS security requirements and
the ISPS Code, from a recognized security organization approved by the vessel's
flag state. ISPS Code requirements include:
  ·
              on-board
      installation of automatic identification systems to provide a means for
      the  automatic transmission of safety-related information among
      similarly equipped ships and shore stations, including information on a
      ship's identity, position, course, speed and navigational
      status;·
              on-board
      installation of ship security alert systems that do not sound on the
      vessel but instead alert the onshore authorities;·
              development
      of vessel security plans;·
              permanent
      marking of a ship's identification number on its hull;·
              maintenance
      of a continuous synopsis record onboard showing a vessel's history,
      including the name of the vessel and of the state whose flag the ship is
      entitled to fly, the date on which the ship was registered with that
      state, the ship's identification number, the port at which the ship is
      registered and the name of the registered owners and their registered
      address; and·
              compliancewith flag state security certification
      requirements.
  Coast
Guard regulations, intended to align with international maritime security
standards, exempt non-U.S. vessels from MTSA vessel security measures, provided
they have a valid ISSC on board. Our vessels comply with all MTSA, SOLAS and
ISPS Code requirements and vessel certifications, which are kept current by
Roymar.
  K.  Insurance
  Our
business is subject to normal hazards associated with owning and operating
vessels in international trade. The operation of ocean going vessels carries an
inherent risk of catastrophic marine disaster, including oil spills and other
environmental accidents, as well as property losses caused by adverse weather
conditions, cargo loss or damage, mechanical failures, human error, war,
terrorism and business interruption due to political circumstances in foreign
countries, hostilities, piracy and labor action. Not all risk can be insured
against and the policies have certain deductibles for which we are responsible.
We believe that our current insurance coverage is adequate to protect us against
normal accident-related risk involved in the conduct of our business. Our
principal insurance policies include:
  Table of Contents
 14
 Hull and machinery and war risks
insuranceincludes
coverage for damages to a vessel’s hull and machinery in a collision, as well as
basic perils of the sea and contributions for general average and salvage
charges. This coverage includes the risk of actual or constructive total loss
for our controlled fleet. Each vessel is insured for at least its fair market
value, with a deductible of $75,000 per vessel per incident under the hull and
machinery coverage and no deductible under the war risk coverage. The respective
owners of the other vessels that we charter-in maintain insurance on those
vessels, and we maintain time charter liability insurance to a limit of $500
million per incident.
  Protection and Indemnity, or
P&I, Insurance includes coverage
for oil pollution, damage to docks and other installations and coverage against
third-party liabilities encountered in our commercial operations. It also
includes coverage for the death, injury or illness of our crew. Our P&I
insurance is provided by mutual marine insurance associations, or P&I Clubs.
P&I Clubs are formed by shipowners to provide protection from large
financial losses to one member by contribution towards the loss by all members.
We are subject to potential additional premiums for prior years due to funding
requirements and coverage shortfalls of the clubs in the event claims exceed
available funds and reserves. We also are subject to future premium increases
based on prior year underwriting loss experience.  We have an overall
coverage limit of $4.5 billion for damage to cargo and third party liabilities
and a sublimit for oil pollution of $1.0 billion per vessel for each accident or
occurrence.  Deductibles range from $5,000 to $20,000 depending on the
nature of the claim.
  Other Insurance is maintained
for legal expenses with respect to freight and demurrage and defense claims. We
also carry limited insurance covering the loss of revenue resulting from
extended vessel off-hire periods.
  L.  Taxation
  U.S.
Taxation of TBS International Limited – Shipping Income
  Unless
exempt from U.S. federal income taxation under the rules discussed below, a
foreign corporation generally is subject to U.S. federal income tax in respect
of shipping income derived from sources within the United States. For these
purposes, 50% of shipping income that is attributable to transportation that
begins or ends, but that does not both begin and end, in the United States
constitutes income from sources within the United States ("U.S. source shipping
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.  Accordingly, in the absence of an exemption from tax under
Section 883 of the Code, our gross U.S. source shipping income would be subject
to either a 4% tax imposed without allowance for deductions or to a net basis
tax.
  The net
tax regime is applicable if we are considered to have a fixed place of business
in the United States that is involved in the earning of U.S. source shipping
income and substantially all of such shipping income is attributable to
regularly scheduled transportation.  The U.S. source shipping income to
which the net tax regime is applicable, net of applicable deductions, would be
subject to an effective tax rate of up to 54.5% and certain interest paid would
be subject to a 30% branch interest tax, or such lesser percentage as may be
available under an applicable treaty. Any gain derived from the sale of a
vessel, if considered to be from U.S. sources, also would be partly or wholly
subject to the net tax regime.  If the net tax regime does not apply, the
gross tax regime will apply. Under the gross tax regime, our U.S. source
shipping income, which, by operation of the source rule, cannot be more than 50%
of our total shipping income, would be subject to a 4% tax imposed on a gross
basis, without allowance for deductions.
  U.S.
source shipping income of a foreign corporation will qualify for exemption from
U.S. federal income tax under Section 883 of the Code if (i) the corporation is
organized in a foreign country that grants an equivalent exemption to U.S.
corporations (the "country of organization requirement"), (ii) the stock of the
corporation, or the direct or indirect corporate parent thereof (provided the
parent is organized in a country that satisfies the country of organization
requirement) is "primarily and regularly traded on an established securities
market" in such country, in another country that grants the equivalent exemption
from tax to U.S. corporations or in the United States, and (iii) certain other
requirements are met, including that non-qualified shareholders, each holding 5%
or more of a class of stock of the corporation, do not own 50% or more of the
total value of such class of stock for more than one-half the days of taxable
year (together, the "publicly traded test").  This exemption is available
whether or not the corporation has or is considered to have a fixed place of
business in the United States that is involved in the earning of U.S. source
shipping income.  Regardless of whether our U.S. source shipping income
qualifies for exemption under Section 883, gain realized on a sale of a vessel
generally will not be subject to U.S. federal income tax, provided the sale is
considered to occur outside of the United States for U.S. federal income tax
purposes.
  Table of Contents
 15
 We
currently qualify for exemption under Section 883, because International and its
subsidiaries currently are incorporated in jurisdictions that satisfy the
country of organization requirement and we satisfy the publicly traded test by
virtue of International’s Class A common shares being primarily traded on the
Nasdaq Global Select Market.  Further, the aggregate ownership of all
non-qualified 5% shareholders is less than 50% of the total value of the Class A
common shares.  If at any time we fail to satisfy the publicly traded test
and we were unable to qualify for another applicable exemption, our U.S. source
shipping income would be subject to U.S. federal income tax, either under the
gross tax or net tax regime, each of which is described above.
  Federal
and State Taxation of TBS International Limited’s U.S. Subsidiaries
  Our U.S.
subsidiaries, TBS Shipping Services and Roymar, are subject to U.S. federal and
state income taxes on the income earned by the respective
subsidiary.
  Bermuda
Taxation of TBS International Limited
  There
currently is no Bermuda income or profits tax, withholding tax, capital gains
tax, capital transfer tax, estate duty or inheritance tax payable by us or by
our shareholders in respect of our shares. We have obtained an assurance from
the Minister of Finance of Bermuda under the Exempted Undertakings Tax
Protection Act 1966 that, in the event that any legislation is enacted in
Bermuda imposing any tax computed on profits or income, or computed on any
capital asset, gain or appreciation or any tax in the nature of estate duty or
inheritance tax, such tax shall not, until March 28, 2016, be applicable to us
or to any of our operations or to our shares, debentures or other obligations
except insofar as such tax applies to persons ordinarily resident in Bermuda or
to any taxes payable by us in respect of real property owned or leased by us in
Bermuda.
  Marshall
Islands Taxation of TBS International Limited
  Pursuant
to the Marshall Islands Revised Code (the Association Law), a Marshall Islands
non-resident corporation is exempt from any corporate profit tax, income tax,
withholding tax on revenues of the entity, asset tax, tax reporting requirement
on revenues of the entity, stamp duty, exchange controls or other fees. There is
an agreement between the Marshall Islands and the United States for the exchange
of information with respect to taxes.
  M. 
Website Access to Reports
 
 We make
all of our filings with the Securities Exchange Commission ("SEC"), including
this annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all related amendments, available free of charge on our website
at www.tbsship.com,
Investor Relations, SEC Filings.  These reports are available soon
after they are filed electronically with the SEC.  Our SEC filings are
also at the SEC’s Public Reference Room at 100 F. Street, N.W., Washington, DC
20549.  Investors may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.  In
addition, the SEC maintains an Internet site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC, from which investors
can electronically access our SEC filings.
  Additionally,
our corporate governance materials, including the charters of the Audit,
Compensation, and Nominating and Corporate Governance Committees; and the Code
of Business Conduct and Ethics may also be found under the “Governance” section
of our website at www.tbsship.com.  A
copy of the foregoing corporate governance materials is available free of charge
upon written request.  In addition, we intend to post on our website
at www.tbsship.com any
amendment to, or waiver from, a provision of our Code of Business Conduct and
Ethics that applies to our principal executive officer, principal financial
officer, corporate controller and other employees performing similar functions
within four business days following the date of such amendment or waiver.
 
 Table of Contents
 16
 Item
1A. Risk Factors
  The
following risk factors and other information included in or incorporated by
reference into this report should be carefully considered.  The risks
and uncertainties described below are not the only ones we
face.  Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may impair our business
operations.  If any of the following risks occur, our business,
financial condition, operating results and cash flows could be materially
adversely affected and the trading price of our Class A common shares could
decline.
  Risk
Factors Relating to the Shipping Industry
  Costs
and revenues in the shipping industry are volatile.
  The
shipping industry historically has experienced volatility in freight rates, the
cost of fuel oil, the cost and availability of crew, port charges and currency
exchange rates, as well as in vessel charter rates and values, due to changes in
the level and pattern of global economic activity and the highly competitive
nature of the world shipping industry.  Changes to marine regulatory
regimes in the ports at which our vessels call also may increase our
costs.  Our revenue is influenced by a number of factors that are
difficult to predict with certainty, including global and regional economic
conditions, developments in international trade, changes in seaborne and other
transportation patterns, weather patterns, port congestion, canal closures,
political developments, and armed conflicts, acts of terrorism, embargoes, and
strikes.  Demand for our transportation services is influenced by the
demand for the goods we ship, including fertilizers, metal concentrates, steel
products, aggregates and agricultural commodities, which in turn is affected by
general economic conditions, commodity prices and competition.  Steel
products, agricultural commodities, metal concentrates, and aggregates accounted
for approximately 34.8%, 17.4%, 14.9%,  and 9.3%, respectively, of our
total voyage revenues in 2007. A decrease in demand for these products could
adversely affect our results of operations.
  Our
business depends to a significant degree on the stability and continued growth
of the Asian economies.
  Freight
rates for ocean transport, whether computed on a spot or period basis, are
currently at above average levels as compared to prior years, as are prices
for both new and secondhand vessels.  The strength of the shipping
industry in the past several years has been attributable, to a significant
degree, to the rapid growth of the Chinese economy.  Economic growth
in China has caused unprecedented demand for raw materials from Latin America,
including iron ore, bauxite, soybeans, timber, zinc and manganese and
copper.  These raw materials generally are transported by ocean
freight. The growth of the Chinese economy has stimulated growth in other Asian
economies as well.  The increased demands for trans-Pacific ocean
freight have resulted in increased ocean freight shipping rates, charter rates
and vessel values across the globe.  Any pronounced slowdown or
decline in the Chinese economy could be expected to have significant adverse
effects on the economies of Latin American and Asian countries and on the demand
for our services and could be expected to result in further declines in freight
rates and on the value of our vessels.  We expect that a significant
decline in the Asian economies would have a materially adverse effect on our
results of operations.
  High
or volatile oil prices could adversely affect the global economy and our results
of operations.
  As oil
prices continue to rise over time, or experience periods of prolonged
volatility, the global economy could weaken significantly.  Global
recession or depression would significantly reduce the demand for ocean freight
while our fuel costs would be increasing.  A significant reduction in
the demand for ocean freight would have a material and adverse impact on our
results of operations and financial condition.
  In
the highly competitive international shipping market, we may not be able to
compete with new entrants or established companies with greater
resources.
  We employ
our vessels in highly competitive markets that are capital-intensive and highly
fragmented. Competition arises primarily from other vessel owners, many of whom
have substantially greater resources than we have.  Competition for
the transportation of cargo by sea is intense and depends on price, location,
size, age, condition and the acceptability of the vessel and its
operators.  Due in part to the highly fragmented market, competitors
with greater resources could enter our market and operate larger fleets through
consolidation or acquisitions and may be able to offer lower rates and higher
quality vessels than we are able to offer.
  Table of Contents
 17
 Worldwide
increases in shipping capacity may reduce shipping rates, which could adversely
affect our results of operations.
  The
worldwide supply of shipping capacity is influenced by the number of newbuilding
deliveries, the scrapping of older vessels, vessel casualties and the number of
vessels that are out of service.  The market supply of shipping
capacity has been increasing, and the number of newbuilding projects are near
historic highs.  These newbuildings were delivered in significant
numbers starting in 2006 and 2007, and we expect continued newbuilding
deliveries in 2008 and 2009.  An over-supply of shipping capacity may
result in a reduction of shipping rates, which may adversely affect the
profitability of our shipping services.
  Failure
to comply with international safety regulations could subject us to increased
liability, adversely affect our insurance coverage and result in a denial of
access to, or detention in, certain ports.
  The
operation of our vessels is affected by the requirements of the International
Maritime Organization's International Safety Management Code for the Safe
Operation of Ships and Pollution Prevention, or the ISM Code.  The ISM
Code requires shipowners 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.  Any failure to comply with the ISM Code could subject us
to increased liability, could invalidate existing insurance or decrease
available insurance coverage for the affected vessels and could result in a
denial of, access to, or detention in certain ports, all of which could
materially and adversely affect our results of operations and
liquidity.
  We
could be adversely affected by violations of the U.S. Foreign Corrupt Practices
Act and similar worldwide anti-bribery laws.
  The U.S.
Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally
prohibit companies and their intermediaries from making improper payments to
non-U.S. officials for the purpose of obtaining or retaining
business.  Our policies mandate compliance with these
laws.  We operate in many parts of the world that have experienced
governmental corruption to some degree and, in certain circumstances, strict
compliance with anti-bribery laws may conflict with local customs and
practices.  Despite our training and compliance program, we cannot
assure you that our internal control policies and procedures always will protect
us from reckless or negligent acts committed by our employees or
agents.  Violations of these laws, or allegations of such violations,
could disrupt our business and results in a material adverse effect on our
business and operations.
  Compliance
with environmental and other laws and regulations could adversely affect our
business.
  Extensive
and changing environmental protection and other laws and regulations directly
affect the operation of our vessels.  These laws and regulations take
the form of international conventions and agreements, including the
International Maritime Organization, or IMO, conventions and regulations and the
International Convention for the Safety of Life at Sea, or SOLAS, which are
applicable to all internationally trading vessels, and national, state and local
laws and regulations, all of which are amended frequently.  Under
these laws and regulations, various governmental and quasi-governmental agencies
and other regulatory authorities may require us to obtain permits, licenses and
certificates in connection with our operations.  Some countries in
which we operate have laws that restrict the carriage of cargoes depending on
the registry of a vessel, the nationality of its crew and prior and future ports
of call, as well as other considerations relating to particular national
interest.  Changes in governmental regulations and safety or other
equipment standards may require unbudgeted expenditures for alterations, special
surveys, drydocking or the addition of new equipment for our
vessels.  Port authorities in various jurisdictions may demand that
repairs be made before allowing a vessel to sail, even though that vessel may be
certified as "in class" and in compliance with all relevant maritime
conventions.  Compliance with these laws and regulations may require
significant expenditures, including expenses for ship modifications and changes
in operating procedures or penalties for failure to comply with these laws and
regulations, which could adversely affect our results of
operations.
  Pursuant
to regulations promulgated by the U.S. Coast Guard, responsible parties (as
defined in such regulations) must establish and maintain evidence of financial
responsibility. The P&I Associations, which historically provided shipowners
and operators financial assurance, have refused to furnish evidence of insurance
to responsible parties, and therefore responsible parties have obtained
financial assurance from other sources at additional cost, including evidence of
surety bond, guaranty or by self-insurance. Any inability on our part to
continue to comply with these Coast Guard regulations would have a material
adverse effect on our results of operations.
  Table of Contents
 18
 Port
State authorities in general and in certain jurisdictions in particular have
become more active in inspecting older vessels visiting their ports and, in
certain instances, demanding that repairs be made before allowing a vessel to
sail, even though that vessel may be fully insured, in class and in compliance
with all relevant maritime conventions including SOLAS.  Vessels under
certain flags are more likely to be subject to inspections by the Coast
Guard.  Additional expenses may be incurred for unscheduled repairs
mandated by port state authorities.
  The IMO
has adopted regulations that are designed to reduce oil pollution in
international waters.  In complying with OPA 90 and IMO regulations
and other regulations that may be adopted, shipowners and operators may be
forced to incur additional costs in meeting new maintenance and inspection
requirements, in developing contingency arrangements for potential spills and in
obtaining insurance coverage.  Additional laws and regulations may be
adopted that could have a material adverse effect on our results of operations.
In the United States and in other countries where we operate, we are subject to
various federal, state or local environmental laws, ordinances and regulations
and may be required to clean up environmental contamination resulting from a
discharge of oil or hazardous substances, such as a discharge of
fuel.  We also may be held liable to a governmental entity or to third
parties in connection with the contamination. These laws typically impose
cleanup responsibility.  Liability under these laws has been
interpreted to be strict, joint and several, and subject to very limited
statutory defenses.  The costs of investigation, remediation or
removal of such substances and damages resulting from such releases could be
substantial and could adversely affect our results of operations.
  The
shipping industry has inherent operational risks, which may not be adequately
covered by insurance.
  The
operation of any oceangoing vessel carries with it an inherent risk of marine
disaster, environmental mishaps and collision or property losses.  In
the course of operating a vessel, marine disasters such as oil spills and other
environmental mishaps, cargo loss or damage, business interruption due to
political developments, labor disputes, strikes and adverse weather conditions
could result in loss of revenues, liabilities or increased costs.  We
transport bulk cargoes such as fertilizer, salt and coal which, if not
transported properly, could pose a risk to our vessels and to the
environment.  We cannot assure you that any insurance we maintain
would be sufficient to cover the cost of damages or the loss of income resulting
from a vessel being removed from operation or that any insurance claims would be
paid or that insurance will be obtainable at reasonable rates in the
future.  Any significant loss or liability for which we are not
insured, or for which our insurers fail to pay us, could have a material adverse
effect on our financial condition.  In addition, the loss of a vessel
would adversely affect our cash flows and results of operations.
  Risk
associated with the shipping industry could affect our business and reputation,
which could adversely affect our results of operations and share
price.
  As
mentioned above, the operation of ocean going vessels carries inherent risk of
marine disaster and environmental mishaps.  The involvement of our
vessels in a marine disaster and environmental mishaps will harm our reputation
as a safe and reliable vessel owner and operator and could have a material
adverse effect on our financial condition and results of operations and
adversely affect our share price.
  Marine
claimants could arrest our vessels, which could damage our on-time performance
reputation and result in a loss of cash flow.
  Under
general maritime law in many jurisdictions, crew members, tort claimants,
claimants for breach of certain maritime contracts, vessel mortgagors, suppliers
of fuel, materials, goods and services to a vessel and shippers and consignees
of cargo may be entitled to a maritime lien against that vessel for unsatisfied
debts, claims or damages.  In many circumstances, a maritime lien
holder may bring an action to enforce its lien by "arresting" a
vessel.  In some jurisdictions, under the "sister ship" theory of
liability, a claimant may arrest not only the vessel subject to the claimant's
maritime lien, but also any "associated" vessel owned or controlled by the legal
or beneficial owner of that vessel.  The arrest of one or more of our
vessels could result in a loss of cash flow or require us to pay substantial
amounts to have the arrest lifted. Any interruption in our sailing schedule and
our on-time performance could adversely affect our customer
relationships.
  Table of Contents
 19
 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 its owner, while requisition for hire occurs when a
government takes control of a vessel and effectively becomes its 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 could have a material adverse effect on our cash flows and
results of operations.
  Risks
Factors Relating to Our Business
  Our
competitive advantage in niche markets may be eliminated.
  Our fleet
primarily consists of vessels suited to niche markets not efficiently served by
container ships or large dry bulk vessels.  If the markets in which we
successfully compete upgrade their port infrastructure to accommodate larger
vessels, or if the volume of cargo shipped from these markets increases
sufficiently, container ships or large dry bulk vessels would be able to serve
these markets more efficiently.  Because operators of container ships
and large dry bulk vessels have significantly lower costs per cargo ton than we
do, their entry into our markets could result in increased price competition and
affect our ability to maintain our rates.  Our future operating
results could be adversely affected if we are unable to identify and efficiently
serve new niche markets in the face of more effective competition in our current
markets.
  We
depend upon a limited number of customers for a large part of our
revenue.
  Our top
ten customers by revenue, where we do have long term contracts, accounted for,
in the aggregate, 37.6% of our total 2007 consolidated
revenue.  None of the customers accounted for more than 10% of revenue
except for Dangote Industries Limited. If any of these customers were to
significantly reduce the amount of cargoes shipped using our vessels, our
results of operations could be adversely affected.
  As
our fleet ages, the risks associated with older vessels could adversely affect
our operations.
  In
general, the costs to maintain an oceangoing vessel in good operating condition
increase with the age of the vessel.  As of December 31, 2007, the
average age of the 36 vessels in our controlled fleet was 21
years.  We estimate that the economic useful life of most multipurpose
tweendeckers and handymax bulk carriers is approximately 30 years, depending on
market conditions, the type of cargo being carried and the level of
maintenance.  Some of our dry bulk carriers are used to transport
products such as coal, salt or fertilizer that may damage our vessels and reduce
their useful lives, if we do not follow specified maintenance and cleaning
routines.  Older vessels may develop unexpected mechanical and
operational problems despite adherence to regular survey schedules and proper
maintenance.  Due to improvements in engine technology, older vessels
typically are less fuel-efficient than more recently constructed
vessels.  Cargo insurance rates increase with the age of a
vessel.  Governmental regulations and safety or other equipment
standards related to the age of vessels may require expenditures for alterations
or the addition of new equipment, to our vessels and may restrict the type of
activities in which our vessels may engage.  We cannot assure you that
we will be able to operate our vessels profitably during the remainder of their
projected useful lives or that we will be able to sell them profitably when we
no longer can utilize them in our fleet.
  We
are subject to regulation and liability under environmental laws that could
require significant expenditures and adversely affect our financial condition,
results of operations and cash flows.
  Our
business and the operation of our vessels are materially affected by government
regulation in the form of international conventions, national, state and local
laws and regulations in force in the jurisdictions in which the vessels operate,
as well as in the country or countries of their registration.  Because
such conventions, laws, and regulations are often revised, we may not be able to
predict the ultimate cost of complying with such conventions, laws and
regulations or the impact thereof on the resale prices or useful lives of our
vessels.  Additional conventions, laws and regulations may be adopted,
which could limit our ability to do business, cause us to incur the costs of
retrofitting our vessels or result in financial penalties, thereby adversely
affecting our financial condition, results of operations and cash
flows.
  Table of Contents
 20
 We also
are affected by the recently adopted requirements of the ISM Code. The ISM Code
mandates an extensive "Safety Management System" that includes, among other
things, the adoption of a safety and environmental protection policy setting
forth instructions and procedures for operating vessels safely and describing
procedures for dealing with emergencies.  Noncompliance with the ISM
Code may subject shipowners or bareboat charterers to increased liability, may
lead to decreases in available insurance coverage for affected vessels and may
result in the denial of access to, or detention in, certain
ports.  Our owned vessels and Roymar, the technical manager for our
vessels, are ISM Code certified. However, we cannot assure you that such
certification will be maintained indefinitely.
  We are
required by various governmental and quasi-governmental agencies and other
regulatory authorities to obtain permits, licenses and certificates in
connection with our operations. Some countries in which we operate, have laws
that restrict the carriage of cargoes depending on the registry of a vessel, the
nationality of its crew and prior and future ports of call, as well as other
considerations relating to particular national interest. We cannot assure you
that any failure to comply with these requirements would not have a material
adverse effect on our results of operations.
  Vessel
drydockings could adversely affect our operations.
  We
anticipate that we will have an average of approximately 14 vessels per year
being drydocked, based on our current controlled fleet of 36 vessels and the
requirement to drydock each vessel twice during a five-year
cycle.  During 2008, we expect to drydock 17 vessels.  In
addition, we will need to reposition our vessels or charter-in outside vessels
to accommodate our drydocking schedule and business
needs.  Approximately 16 of our vessels regularly trade in the
Atlantic and Middle East region; consequently, drydocking our vessels in Chinese
shipyards require complex logistics planning.  We are investigating
having the drydockings done at shipyards closer to where some of our vessels
trade.  The loss of earnings while the vessel is being drydocked, as
well as the repositioning of our vessels in response to the drydocking and the
actual costs of the drydocking and possible charter-in expense in response to
the drydocking, could have a material adverse effect on our cash flows and
results of operations.
  Our
vessels may suffer damage and we may need to unexpectedly drydock a vessel,
which could adversely affect our operations.
  If a
vessel suffers damage, it 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 the vessel is being repaired
and the repositioning of our vessels in response to the unexpected drydocking,
as well as the actual costs of the repairs, would have a material adverse effect
on our cash flows and results of operations.  We may not have
insurance that is sufficient to cover all of these costs or losses.
  Construction
delays or mechanical faults could affect our ability to replace aging vessels or
grow.
  We depend
on China Communications Construction Company and Nantong Yahua Shipbuilding Co.
to construct and deliver the new multipurpose tweendeckers that we contracted to
purchase on a timely basis and in good working order. The complicated nature of
building these kinds of vessels involves risks. Delays or mechanical faults in
vessel construction may affect our ability to increase cargo volumes on key
routes or to win new customers and could necessitate unscheduled drydocks and
repairs of vessels. Shipyard insolvency and other industrial actions could also
delay or indefinitely postpone the timely delivery of new
vessels.  Construction delays or mechanical faults in new vessels
could have a material adverse effect on our ability to replace aging vessels,
our ability to grow, our cash flows and our results of operations.
  There
are few multipurpose tweendeckers available for purchase or hire at favorable
rates.
  Our
current business strategy includes growing through the acquisition of additional
multipurpose tweendeckers.  We believe that only a limited number of
vessels of this type have been built in the last 20 years, and suitable vessels
are not regularly available for purchase.  We must devote significant
time and resources to identifying and inspecting suitable vessels.  We
cannot assure you that we will identify and acquire a sufficient quantity of
vessels to maintain our fleet at its current size or support our growth
strategy, or that we will be able to acquire or build suitable vessels at
favorable prices or in a timely manner.
  Table of Contents
 21
 There
are risks associated with the purchase and operation of secondhand
vessels.
  Part of
our current business strategy involves growing through the purchase of
secondhand vessels. Secondhand vessels generally carry no warranties from the
sellers or manufacturers.  Although we inspect secondhand vessels
prior to purchase, an inspection normally would not provide us with the same
knowledge about their condition that we would have if they had been built for
and operated exclusively by us.  Secondhand vessels may have
conditions or defects that we were not aware of when we bought the vessel and
that may require us to undertake costly repairs.  These repairs may
require us to put a vessel into drydock, which would reduce our fleet
utilization.  The costs of drydock repairs are unpredictable and can
be substantial.  The loss of earnings while our vessels were being
repaired and repositioned, as well as the actual cost of those repairs, would
decrease our income from operations.  We may not have insurance that
is sufficient to cover all of these costs or losses and may have to pay
drydocking costs not covered by our insurance.  Our future operating
results could be adversely affected if some of the secondhand vessels do not
perform as we expect.
  The
market value of vessels can and does fluctuate significantly.
  The
market values of vessels is highly volatile and will continue to fluctuate
depending on economic and market conditions affecting the shipping industry and
prevailing charter hire rates, vessel supply and rates of vessel scrapping,
competition from other shipping companies and other modes of transportation,
types, sizes and age of vessels, applicable governmental regulations and the
cost of newbuildings.  The market price for secondhand vessels during
the past few years have been at an all-time high, and we have had to pay more to
acquire vessels than in prior years.  If the market value of our fleet
declines, we may not be able to obtain additional financing or incur debt on
terms that are acceptable to us or at all in connection with future vessel
acquisitions or obtain additional debt financing for other
purposes.  A sharp decline in vessel values could cause us to breach
some of the covenants contained in the financing agreements relating to our
current indebtedness.  If we breach such covenants and we are unable
to remedy the relevant breach, our lenders could accelerate our debt and
foreclose on our controlled fleet.  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, that decline would result in a loss that would adversely
affect our operating results.
  We
may not be able to grow or to effectively manage our growth.
  A
principal focus of our strategy is to continue to grow by increasing the number
of vessels in our fleet and by taking advantage of changing market conditions,
which may include increasing the frequency of service on routes we already
operate or adding new routes and expanding into other regions.  Our
future growth will depend upon a number of factors, some of which we or our
affiliated service company, TBS Commercial Group, can control and some of which
we or TBS Commercial Group cannot control. These factors include our ability
to:
  •
              identify
      vessels for acquisitions;•
              integrate
      any acquired vessels successfully with our existing
                operations;•
              hire,
      train and retain qualified personnel to manage and operate
our
                growing
      business and fleet;•
              identify
      additional new markets and trade routes;•
              recruit,
      train and retain the port captains and other local staff
                required
      for our affiliated service companies to provide the
                necessary
      level of service in any new or expanded markets;•
              improve
      our operating and financial systems and controls; and•
              obtain
      required financing for our existing and new operations on
                acceptable
      terms.
  Table of Contents
 22
 The
failure to effectively identify, purchase, develop and integrate any newly
acquired vessels could adversely affect our business, financial condition and
results of operations.  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, our service companies will need to hire suitable additional
management and administrative personnel and our affiliated service companies
will need to recruit and train port captains and other local staff necessary to
meet the needs of our growing business.  We cannot assure you that we
will be able to hire suitable employees as we expand our business.  If
our operating and financial systems are not effective or we cannot recruit and
retain suitable employees as we grow or our affiliated service companies cannot
recruit and retain suitable employees, our future operations could be adversely
affected.
  We
may be unable to pass along increased fuel costs to our customers.
  A
majority of our revenue is derived from freight voyages for which we bear the
fuel expense, in contrast to charters, for which the charterer bears the fuel
expense. Fuel expense represented approximately 43% of our voyage expense for
the year ended December 31, 2007, compared to approximately 45% in the full year
2006 and 37% in the full year 2005. If we are unable to pass along increased
fuel costs to our customers, high oil prices could adversely affect our results
of operations.
  Shortages
of qualified crews, engineers and vessel captains could adversely affect our
business.
  Newbuilding
programs, including our own, have increased the demand for qualified crew,
engineers and vessel captains to work on our vessels, and stringent
certification standards required by national and international regulations, such
as "Standards of Training, Certification and Watchkeeping for Seafarers,"
promulgated by the IMO, make it difficult to recruit qualified
crewmembers.  We use three unaffiliated manning agents, Aboitiz Jebsen
Bulk Transport Corp., Intermodal Shipping, Inc., and Magsaysay Maritime Corp. to
provide Filipino officers and non-officers to crew our vessels.  If we
are unable to recruit and retain enough crew, engineers or vessel captains with
the appropriate skills, we may be unable to satisfy any increased demand for our
shipping services, which could have an adverse effect on our business, financial
condition and results of operations.
  Rising
crew costs may adversely affect our results of operations.
  Crew
costs are a significant operating expense for our operations.  Crewing
costs have increased as wage levels have increased in non-U.S. markets and may
continue to increase.  The cost of employing suitable crew is
unpredictable and fluctuates based on events outside our control, including the
supply and demand for crew and the wages paid by other shipping
companies.  Any increase in crew costs may adversely affect our
profitability.
  We
may have to pay tax on U.S. source income, which would reduce our
earnings.
  Under the
U.S. Internal Revenue Code, or the Code, 50% of the gross shipping income of a
corporation that owns or charters vessels, that is attributable to
transportation that begins or ends, but that does not both begin and end, in the
United States is characterized as U.S. source shipping income.  Our
U.S. source shipping income will be subject to either a 4% U.S. federal income
tax without allowance for any deductions or to a net basis tax, unless an
exemption is available.
  We
currently qualify for exemption under Section 883 of the Code, because
International and its subsidiaries currently are incorporated in jurisdictions
that satisfy the country of organization requirement and we satisfy the publicly
traded test by virtue of International’s Class A common shares being primarily
traded on the Nasdaq Global Select Market.  Further, the aggregate
ownership of all non-qualified 5% shareholders is less than 50% of the total
value of the Class A common shares.  If at any time we fail to satisfy the
publicly traded test and we were unable to qualify for another applicable
exemption, our U.S. source shipping income would be subject to U.S. federal
income tax, either under the gross tax or net tax regime, each of which is
described above.
  Table of Contents
 23
 Our
ability to continue to qualify for the exemption depends on circumstances
related to the ownership of our common shares that are beyond our control and on
interpretations of existing regulations of the U.S. Treasury
Department.  In particular, if 50% or more of our Class A common
shares are held by one or more non-qualified U.S. shareholders, each of whom
owns 5% or more of the shares, the exemption would not be
available.  At December 31, 2007, non-qualified U.S. shareholders who
own 5% or more of our shares owned an aggregate of 24.9% of our Class A common
shares.  We cannot assure you that we will qualify for exemption under
Section 883 in the future.
  Changes
in the Code, the Treasury regulations or the interpretation thereof by the
Internal Revenue Service or the courts could also adversely affect our ability
to take advantage of the exemption under Section 883.
  We
may be treated as a passive foreign investment company in the future, which
would result in adverse tax consequences to holders of our Class A common
shares.
  Based
upon the nature of our current and projected income, assets and activities, we
do not believe that we are, and we do not expect the Class A common shares to be
considered shares of, a passive foreign investment company, or PFIC, for U.S.
federal income tax purposes. However, the determination of whether the Class A
common shares constitute shares of a PFIC is a factual determination made
annually, and we cannot assure you that we will not be considered a PFIC in the
future. If we are treated as a PFIC, a holder would be subject to special rules
with respect to any gain realized on the sale or other disposition of the Class
A common shares and any “excess distribution” by us to the holder (generally,
any distribution during a taxable year in which distributions to the holder on
the Class A common shares exceed 125% of the average annual taxable distribution
the holder received on the Class A common shares during the preceding three
taxable years or, if shorter, the holder’s holding period for the Class A common
shares). Under those rules, the gain or excess distribution would be allocated
ratably over the holder’s holding period for the Class A common shares, the
amount allocated to the taxable year in which the gain or excess distribution is
realized and to taxable years before the first day we became a PFIC would be
taxable as ordinary income, the amount allocated to each other year (with
certain exceptions) would be subject to tax at the highest tax rate in effect
for that year, and the interest charge generally applicable to underpayments of
tax would be imposed in respect of the tax attributable to each such
year.
  The
majority of our revenue is derived from operations outside the United States and
may be adversely affected by actions taken by foreign governments or other
forces or events over which we have no control.
  We derive
a significant portion of our voyage revenue from operations in Latin America,
Asia, Africa and the Middle East.  Our profitability will be affected
by changing economic, political and social conditions in these regions. In
particular, our operations may be affected by war, terrorism, expropriation of
vessels, the imposition of taxes, increased regulation or other circumstances,
any of which could reduce our profitability, impair our assets or cause us to
curtail our operations.  The economies of the Latin American countries
where we conduct operations have been volatile and subject to prolonged,
repeated downturns, recessions and depressions.  Adverse economic or
political developments or conflicts in these countries could have a material
adverse effect on our operations.
  We
have experienced losses and filed for bankruptcy in 2000.
  We have
incurred net losses in 2002 and 2003 and filed for bankruptcy in
2000.  Our ability to generate net income is influenced by a number of
factors that are difficult to predict, including changes in global and regional
economic conditions and international trade.  For example, the losses
and bankruptcy in 2000 were attributable in part to the acute decline in the
Asian and South American economies in 1998 and 1999.  Future losses
may prevent us from implementing our growth strategies.
  Foreign
currency exchange rates may adversely affect our results.
  We are
exposed to a variety of market risks, including the effects of changes in
foreign currency exchange rates.  We incur approximately 9.1% of our
operating expenses in currencies other than U.S. dollars.  At December
31, 2007, approximately 6.7% of our outstanding accounts payable were
denominated in currencies other than U.S. dollars.  Therefore, when
the U.S. dollar weakens in relation to the currencies of the countries where we
incur expenses, our U.S. dollar reported expenses increase and our income will
decrease.  Changes in the relative values of currencies occur from
time to time and may, in some instances, have a significant effect on our
operating results.
  Table of Contents
 24
 Risks
Factors Relating to Our Corporate Structure
  International,
the issuer of our common shares, is a holding company and depends on the ability
of its subsidiaries to distribute funds to it in order to meet its financial
obligations.
  International,
the issuer of our common shares, is a holding company with no significant assets
other than the shares of capital stock of its subsidiaries that conduct all of
its operations and own all of its vessels.  International derives all
of its cash flow from dividends and other payments from its subsidiaries, which
in turn derive all of their cash flows from payments from their direct and
indirect operations.
  We
have relied, and will continue to rely, to a significant degree upon affiliated
service companies.
  We have
relied upon and continue to rely upon TBS Commercial Group, and Beacon Holding
Ltd. (“Beacon”) affiliated service companies, for agency services that are
critical to our business.  See section 7 and Management’s Discussions
and Analysis of Financial Condition and Results of Operations – Significant
Related Party Transactions for additional information.  TBS Commercial
Group and Beacon employ sales and customer service professionals in more than 15
countries who meet regularly with shippers and consignees to anticipate the
needs and address the concerns of our customers.  Our business,
results of operations and liquidity may be materially adversely affected if we
lose our relationship with TBS Commercial Group or Beacon, or they become
unable to perform these services or their key employees leave their respective
company.
  TBS
Commercial Group is a privately held company, and there is little or no publicly
available information about it.
  The
ability of TBS Commercial Group to continue providing critical services for our
benefit will depend in part on its own financial
strength.  Circumstances beyond our control could impair its financial
strength and, because TBS Commercial Group is privately held, it is unlikely
that information about its financial strength would become public.  As
a result, an investor in our Class A common shares might have little advance
warning of problems affecting TBS Commercial Group, even though these problems
could have a material adverse effect on us.
  The
interests of our controlling shareholders could be adverse to your interests as
a public shareholder.
  The
individuals who control us and TBS Commercial Group could use their controlling
interests in us and in TBS Commercial Group to shift revenues and operating
income from us to TBS Commercial Group, for their individual benefit and
contrary to the interests of our public shareholders.  For example,
these individuals could cause us to pay above-market fees to TBS Commercial
Group or to permit TBS Commercial Group to take advantage of corporate
opportunities.  We cannot assure you that these potential conflicts of
interest will be handled in the best interests of our public
shareholders.
  Agreements
between us and our affiliated service company may be less favorable to us than
agreements that we could obtain from unaffiliated third parties.
  The
individuals who control us and TBS Commercial Group have the ability, subject to
the approval of the compensation committee of our board of directors, to amend
the existing agreements to their benefit as owners of TBS Commercial Group and
against the interests of our public shareholders.  If that happens,
our public shareholders may have difficulty enforcing their rights under Bermuda
law.  In addition, either party may terminate the agreements under
which TBS Commercial Group provides these services to us.
  Table of Contents
 25
 Risk
Factors Related to Our Financings
  Our
credit facilities currently impose, and it is possible that any additional debt
incurred could impose, significant operating and financial restrictions on
us.
  Some of
the restrictions contained in our credit facilities will limit our ability
to:
  ·
              create
      certain liens;·
              create,
      incur or assume additional indebtedness;·
              make
      or hold certain investments;·
              merge,
      dissolve, liquidate consolidate or dispose of all or substantially all of
      our assets;·
              declare
      or pay dividends or make other distributions;·
              purchase,
      redeem, or retire any capital stock or other equity interest or return any
      capital;·
              materially
      change our business;·
              engage
      in transactions with affiliates; and·
              enter
      into burdensome agreements.
  These
restrictions could limit our ability to finance our future operations or capital
needs, make acquisitions or pursue available business
opportunities.
  Our
credit facilities require us to maintain specified financial ratios and satisfy
financial covenants.
  We may be
required to take action to reduce our debt or to act in a manner contrary to our
business objectives to meet these ratios and satisfy these
covenants.   Events beyond our control, including changes in the
economic and business conditions in the markets in which we operate, may affect
our ability to comply with these covenants.  We cannot assure you that we
will meet these ratios or satisfy these covenants or that our lenders will waive
any failure to do so.  A breach of any of the covenants or our inability to
maintain the required financial ratios under our credit facilities could result
in a default.  If a default occurs under any of our credit facilities, the
lender could elect to declare that debt, together with accrued interest and
other fees, to be immediately due and payable and proceed against the collateral
securing that debt, which constitutes all or substantially all of our
assets.  Moreover, any acceleration of the debt outstanding under the
credit facilities or other agreement upon a declaration of default could result
in a default under our other credit facilities.
  If
we default under any of our loan agreements, we could forfeit our rights in our
vessels.
  We have
pledged substantially all of our vessels and related collateral as security to
the lenders under our loan agreements.  Default under any of these loan
agreements, if not waived or modified, would permit the lenders to foreclose on
the mortgages over the vessels and the related collateral, and we could lose our
rights in the vessels and their charters.
  Risk
Factors Related to Our Common Shares
  We
are a Bermuda company, and it may be difficult for shareholders to enforce
judgments against us or our directors and executive officers.
  We are a
Bermuda exempted company.  As a result, the rights of holders of our
common shares will be governed by Bermuda law and our memorandum of association
and bye-laws.  The rights of shareholders under Bermuda law may differ
from the rights of shareholders of companies incorporated in other
jurisdictions.  A substantial portion of our assets are located
outside the United States. As a result, it may be difficult for investors
to enforce in the United States judgments obtained in U.S. courts against us
based on the civil liability provisions of the U.S. securities
laws.  It is doubtful whether courts in Bermuda will enforce judgments
obtained in other jurisdictions, including the U.S., against us or our directors
or officers under the securities laws of those jurisdictions or entertain
actions in Bermuda against us or our directors or officers under the securities
laws of other jurisdictions.
  Table of Contents
 26
 Our
bye-laws restrict shareholders from bringing legal action against our officers
and directors.
  Our
bye-laws contain a broad waiver by our shareholders of any claim or right of
action, both individually and on our behalf, against any of our officers or
directors.  The waiver applies to any action taken by an officer or
director, or the failure of an officer or director to take any action, in the
performance of his or her duties, except with respect to any matter involving
any fraud or dishonesty on the part of the officer or director.
  We
have anti-takeover provisions in our bye-laws that may discourage a change of
control.
  Our
bye-laws contain provisions that could make it more difficult for a third party
to acquire us without the consent of our board of directors.  These
provisions will provide for:
  •
              restrictions
      on the time period in which directors may be nominated,•
              our
      board of directors to determine the powers, preferences and rights of our
      preference shares and to issue the preference shares without shareholder
      approval, and•
              an
      affirmative vote of the holders of shares carrying at least 66% of the
      votes attaching to our issued and outstanding shares for certain "business
      combination" transactions that have not been approved by our board of
      directors.
 
  These
provisions could make it more difficult for a third party to acquire us, even if
the third party's offer may be considered beneficial by many
shareholders.  As a result, shareholders may be limited in their
ability to obtain a premium for their shares.
  
 Item
1B.  Unresolved Staff Comments
 
 None.
 
 Item
2. Properties
 
 Our fleet is
described in Item 1. Business - Fleet Overview. Most of our vessels are
mortgaged to secure our credit facilities.
  We lease
three properties, two of which are used by TBS’s service company subsidiaries
Roymar and TBS Shipping Services for the administration of their operations, and
the third is vacant land. Our principal office, which is leased through our
subsidiary TBS Shipping Services is located in Yonkers, New York and is
approximately 15,000 square feet.  The office space is leased from our
chairman and chief executive officer. In January 2008, we renegotiated the
lease to allow TBS Shipping Services to have five one-year renewal options
instead of five three-year renewal options as provided in the previous
lease.  This was done to give TBS Shipping Services more flexibility in
developing its long term facility plan. The present lease expires December
31, 2008, and contains five one-year renewal options.  The lease
provides for same monthly rent of $20,000, plus operating expenses including
real estate taxes. Through our subsidiary Roymar we lease approximately 10,520
square feet of office space located in Scarsdale, New York. Roymar renewed its
lease under the first of two one-year renewal options though October 31, 2008.
The lease requires Roymar to pay monthly rent of $25,058 and additional
rent for real estate tax escalations.  We also lease undeveloped land
in the Calhoun County Navigation District, Port Comfort, Texas.  The
lease, which has a term of ten years expiring December 31, 2015, provides for
monthly rent of $6,000.
  We
believe that our facilities are generally adequate for current and anticipated
future use.
 
 Table of Contents
 27
 Item 3. Legal
Proceedings
 
 In
connection with the acquisition of the vesselSea Pantheon (renamedTamoyo Maiden), the Company,
through a subsidiary, sought damages for the cost of repairs and loss of hire
related to ballast tank contamination discovered after delivery of the vessel.
Arbitration proceedings took place in April 2006, before an arbitration tribunal
selected by the Company and the seller, as disclosed in our quarterly report for
the quarter ended June 30, 2006, filed with the SEC on August 10, 2006. On
September 4, 2006, the Arbitrator issued a decision in our favor, finding that
the seller was in breach of the contract and that the seller is responsible for
the cost of repair and cleaning. We received an award of $1.0 million in
November 2007.
 
 We are
periodically a defendant in cases involving personal injury, property damage
claims and other matters that arise in the normal course of business. While any
pending or threatened litigation has an element of uncertainty, we believe that
the legal proceedings pending against us, individually or in the aggregate, will
not materially adversely affect our consolidated financial position, results of
operations or cash flows.
  Item
4. Submission of Matters to a Vote of Security Holders
 
 During
the fourth quarter of 2007, no matters were submitted to a vote of security
holders through the solicitation of proxies or otherwise.
  PART
II
  Item 5.  Market for Registrant's Common Equity
and Related Stockholder Matters and Issuer Purchases of Equity
Securities
 MARKET
INFORMATION
    From the
start of trading of our stock on June 24, 2005, the Class A Common Shares of TBS
International Limited traded on the NASDAQ Global Market (formerly the NASDAQ
National Market) under the symbol "TBSI".  We transferred the listing
of our Class A Common Shares from the NASDAQ Global Market to the NASDAQ Global
Select Market on October 11, 2007.
 
 The
following table sets forth for the periods indicated, since our initial public
offering, the high and low prices for the common shares as reported on the
NASDAQ Global Select Market:




Year
      Ended December 31, 2007
              
              HIGH
              
              LOWFourth
      Quarter
              
              $
              71.03
              
              $
              29.51Third
      Quarter
              
              $
              44.49
              
              $
              27.71Second
      Quarter
              
              $
              28.40
              
              $
              11.98First
      Quarter
              
              $
              11.99
              
              $
              8.16Year
      Ended December 31, 2006
              
              HIGH
              
              LOWFourth
      Quarter
              
              $
              8.90
              
              $
              7.44Third
      Quarter
              
              $
              7.81
              
              $
              5.75Second
      Quarter
              
              $
              6.75
              
              $
              5.33First
      Quarter
              
              $
              7.85
              
              $
              6.05Year
      Ended December 31, 2005
              
              HIGH
              
              LOWFourth
      Quarter
              
              $
              10.98
              
              $
              5.82Third
      Quarter
              
              $
              12.94
              
              $
              9.21Second
      Quarter
              
              $
              10.15
              
              $
              10.00




Table of Contents
 28


The graph
below sets forth a comparison of the change in the cumulative total shareholder
return on the Company's Class A common shares against the cumulative total
return of  the NASDAQ Composite Index, a broad-based market index, and the
NASDAQ Transportation Index, a peer group of common stocks of companies in the
transportation industry.  The graph covers the period from the closing
price on the date of our initial public offering (June 24, 2005) to the closing
price on December 31, 2005, 2006 and 2007,  assuming an initial investment
of $100.




June
      24,2005
              
              December
      31, 2005
              
              December
      31, 2006
              
              December
      31, 2007TBS
      International Limited ("TBSI")
              
              
              100.00
              
              
              65.42
              
              
              86.11
              
              
              325.71NASDQ
      Transporation Index
              
              
              100.00
              
              
              117.70
              
              
              124.67
              
              
              129.06NASDQ
      Composite Index
              
              
              100.00
              
              
              107.21
              
              
              117.42
              
              
              128.94











Holders


As ofMarch5, 2008,
there were 12,966 holders of record of our Class A Common Shares and 12 holders
of record of our Class B Common Shares.
 
 Dividend
and Dividend Policy
  We have
not declared or paid and do not anticipate declaring or paying any cash
dividends on our common shares in the foreseeable future. Because International
is a holding company with no material assets other than the stock of its
subsidiaries, its ability to pay dividends will depend on the earnings and cash
flow of its subsidiaries and their ability to pay dividends to International.
Provisions of our debt instrument and related loan agreements with The Royal
Bank of Scotland prevent one of our subsidiaries from paying dividends to us.
Provisions of our debt instrument and related loan agreements for our syndicated
credit facility allow the subsidiaries borrowing under the credit facility to
pay dividends to us but restrict us from declaring or making dividends or other
distributions that would result in a default of the credit facility or exceed
50% of our prior year's consolidated net income. These restrictions may restrict
International's ability to pay dividends on our common shares.
 
 Table of Contents
 29
 The timing and amount of future cash
dividends, if any, would be determined by our board of directors and would
depend upon our earnings, financial condition, cash requirements and obligations
to lenders at the time. Pursuant to Bermuda law, we cannot declare or pay a
dividend, or make a distribution out of contributed surplus, if there are
reasonable grounds for believing that we are, or after the payment would be,
unable to pay our liabilities as they become due, or that the realizable value
of our assets would thereby be less than the aggregate of our liabilities, our
issued share capital and our share premium accounts.
 
 Equity
Compensation Plans
  Information
regarding our equity compensation plans as of December 31, 2007 is disclosed in
note "16 -- Stock Plans” to our consolidated financial statements.
 
 Exchange
Control
 
 The
Bermuda Monetary Authority has classified us as a non-resident of Bermuda for
exchange control purposes. Accordingly, there are no Bermuda exchange control
restrictions on our ability to engage in transactions in currencies other
than Bermuda dollars, to transfer funds in and out of Bermuda or to pay
dividends to non-Bermuda residents who are shareholders, other than in Bermuda
dollars. The Bermuda Monetary Authority has
given its consent for the issue and free transferability of all of our common
shares to and between non-residents of Bermuda for exchange control purposes and
for the issue or transfer of up to 20% of our sharesTO
PERSONSresident in Bermuda, provided our
shares remain listed on an appointed stock exchange.The issue and
transfer of more than 20% of our shares involving any persons resident in
Bermuda for exchange control purposes may require prior authorization from the
Bermuda Monetary Authority. Approvals or permissions given by the Bermuda
Monetary Authority do not constitute a guarantee by the Bermuda Monetary
Authority as to our performance or our creditworthiness. Accordingly, in giving
such consent or permissions, the Bermuda Monetary Authority shall not be liable
for the financial soundness, performance or default of our business.
  Bermuda
Taxation
 
 Under
current law, no income, withholding or other taxes or stamp, registration or
other duties are imposed in Bermuda upon the issue, transfer or sale of our
shares, or payments made in respect of the shares.  As of the date
hereof, there is no Bermuda income or profits tax, withholding tax, capital
gains tax, capital transfer tax, estate duty or inheritance tax payable in
respect of capital gains realized on a disposition of securities issued by us or
in respect of distribution by us with respect to our
securities.  There currently is no reciprocal tax treaty between
Bermuda and the United States.
 Table of Contents
 30
 Item
6. Selected Financial Data
 
 The
selected historical consolidated financial data presented below should be read
in conjunction with the consolidated financial statements and notes thereto and
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, included elsewhere in this Report.




Year
      Ended December 31,2007
            
            2006
            
            2005
            
            2004
            
            2003(In
      thousands, except for share and per share amounts)RevenueVoyage
      revenue
            
            $
            264,193
            
            $
            189,012
            
            $
            175,596
            
            $
            157,794
            
            $
            119,528Time
      charter revenue
            
            
            88,365
            
            
            63,114
            
            
            71,456
            
            
            50,746
            
            
            23,625Other
      revenue
            
            
            3,047
            
            
            1,460
            
            
            979
            
            
            267
            
            
            193Revenue
            
            
            355,605
            
            
            253,586
            
            
            248,031
            
            
            208,807
            
            
            143,346Operating
      expensesVoyage
            
            
            92,482
            
            
            83,254
            
            
            75,291
            
            
            60,692
            
            
            52,454Vessel
            
            
            85,958
            
            
            63,205
            
            
            68,711
            
            
            77,145
            
            
            61,192Depreciation
      and amortization of vesselsand
      other fixed assets (1)
            
            
            36,022
            
            
            29,867
            
            
            19,537
            
            
            11,005
            
            
            7,776Management
      fees
            
            
            
            
            
            
            
            
            2,624
            
            
            4,414
            
            
            3,864General
      and administrative
            
            
            38,703
            
            
            27,256
            
            
            17,618
            
            
            7,347
            
            
            6,464Loss
      (gain) from sale of vessels (2)
            
            
            814
            
            
            (2,180
            )
            
            
            
            
            
            
            
            9,905Operating
      expenses
            
            
            253,979
            
            
            201,402
            
            
            183,781
            
            
            160,603
            
            
            141,655Income
      from operations
            
            
            101,626
            
            
            52,184
            
            
            64,250
            
            
            48,204
            
            
            1,691Other
      (expenses) and incomeInterest
      expense
            
            
            (10,394
            )
            
            (11,577
            )
            
            (9,346
            )
            
            (5,148
            )
            
            (5,145
            )Interest
      and other income
            
            
            983
            
            
            1,810
            
            
            752
            
            
            111
            
            
            68(Loss)
      gain on early extinguishment of debt (2) (3)
            
            
            
            
            
            (3,357
            )
            
            
            
            
            
            
            
            2,373Gain
      on sale and insurance recovery of vessel (4)
            
            
            6,034Deemed
      preference dividends and accretion
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (829
            )Total
      other (expenses) and income
            
            
            (3,377
            )
            
            (13,124
            )
            
            (8,594
            )
            
            (5,037
            )
            
            (3,533
            )Net
      (loss) income
            
            
            98,249
            
            
            39,060
            
            
            55,656
            
            
            43,167
            
            
            (1,842
            )Deemed
      preference dividends and accretion (7)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (797
            )Amount
      allocated to participating preferred shareholders
            
            
            
            
            
            
            
            
            (5,706
            )
            
            (11,843
            )Net
      income (loss) available for common shareholders
            
            $
            98,249
            
            $
            39,060
            
            $
            49,950
            
            $
            31,324
            
            $
            (2,639
            )Net
      (loss) income per common shareBasic
            
            $
            3.51
            
            $
            1.40
            
            $
            2.28
            
            $
            3.07
            
            $
            (0.26
            )Diluted
            
            $
            3.50
            
            $
            1.39
            
            $
            2.05
            
            $
            1.54
            
            $
            (0.26
            )Weighted
      average common shares outstandingBasic
      (5)
            
            
            28,029,340
            
            
            27,998,843
            
            
            21,870,160
            
            
            10,187,795
            
            
            10,187,795Diluted
      (5) (6)
            
            
            28,066,736
            
            
            28,088,310
            
            
            24,310,909
            
            
            20,385,775
            
            
            10,187,795




Table of Contents
 31


December
      31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(In
      thousands)Balance
      Sheet Data:Cash
      and cash equivalents
              
              $
              30,498
              
              
              $
              12,007
              
              
              $
              27,158
              
              
              $
              21,674
              
              
              $
              8,641Working
      capital
              
              
              1,744
              
              
              
              (3,816
              )
              
              
              (866
              )
              
              
              10,831
              
              
              
              8,663Total
      assets
              
              
              559,113
              
              
              
              403,091
              
              
              
              344,671
              
              
              
              159,929
              
              
              
              83,610Long-term
      debt, including current portion
              
              
              180,166
              
              
              
              125,804
              
              
              
              105,737
              
              
              
              38,511
              
              
              
              6,097Obligations
      under capital leases, includingcurrent
      portion
              
              
              
              
              
              
              21,355
              
              
              
              24,703
              
              
              
              34,642
              
              
              
              42,637Mandatorily
      redeemable preference shares (7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              14,382Total
      shareholders' equity
              
              
              319,563
              
              
              
              223,604
              
              
              
              184,207
              
              
              
              65,996
              
              
              
              8,597Year
      Ended December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Other
      Operating Data:Controlled
      vessels (at end of period) (8)
              
              
              36
              
              
              
              34
              
              
              
              31
              
              
              
              18
              
              
              
              13Chartered
      vessels (at end of period)  (9)
              
              
              1
              
              
              
              1
              
              
              
              6
              
              
              
              10
              
              
              
              11Voyage
      Days (10)
              
              
              11,868
              
              
              
              12,119
              
              
              
              10,885
              
              
              
              8,892
              
              
              
              9,033Vessel
      days (11)
              
              
              13,236
              
              
              
              12,701
              
              
              
              11,264
              
              
              
              9,138
              
              
              
              9,116Tons
      of cargo shipped (12)
              
              
              6,621
              
              
              
              4,368
              
              
              
              3,170
              
              
              
              3,658
              
              
              
              5,907Revenue
      per ton (13)
              
              $
              39.90
              
              
              $
              43.27
              
              
              $
              55.39
              
              
              $
              43.13
              
              
              $
              20.24Tons
      of cargo shipped, excludingaggregates
      (12)(14)
              
              
              3,447
              
              
              
              3,227
              
              
              
              3,092
              
              
              
              2,837
              
              
              
              2,582Revenue
      per ton, excludingaggregates
      (14)
              
              $
              69.52
              
              
              $
              55.25
              
              
              $
              56.58
              
              
              $
              52.79
              
              
              $
              39.27Chartered-out
      days
              
              
              3,659
              
              
              
              4,301
              
              
              
              4,257
              
              
              
              2,780
              
              
              
              2,439Chartered-out
      rate per day
              
              $
              24,150
              
              
              $
              14,674
              
              
              $
              16,785
              
              
              $
              18,254
              
              
              $
              9,686


(1)
            Depreciation
      and amortization expense through December 31, 2004 was computed on
      the basis of 25-year useful lives for our vessels and, beginning on
      January 1, 2005 was computed on the basis of 30-year useful lives for our
      vessels. The change in estimated useful life reflects a change in the
      industry's expected commercial life of a vessel, as demonstrated by the
      strong market prices realized on older vessels. The impact of this change
      in estimate for 2007, 2006 and 2005 increased our net income by $38.9
      million, $37.2 million and $19.1 million, respectively. Approximately 68%
      or $26.3 million of the $38.9 million impact of the change in estimate for
      2007, approximately 69% or $25.7 million of the $37.2 million impact of
      the change in estimate for 2006, and approximately 59% or $11.3 million of
      the $19.1 million impact of the change in estimate
      for 2005, relates to vessels that we acquired after we made the
      change.  As a result of this change in estimate, basic earnings
      per share and diluted earnings per share increased by $1.39
      per share and $1.39
      per share, respectively, for the year ended December 31, 2007, $1.33 per
      share and $1.32 per share, respectively, for the year ended December 31,
      2006 and $0.87 per share and $0.78 per share, respectively, for the year
      ended December 31, 2005.  Excluding vessels acquired after the
      change in estimate subsequent to 2004, the impact of this change in
      estimate increased net income, basic earnings per share and diluted
      earnings per share by $12.6 million, $0.45 per share and $0.45 per share,
      respectively, for the year ended December 31, 2007, $11.5 million, $0.41
      per share and $0.41 per share, respectively, for the year ended December
      31, 2006 and $7.8 million, $0.36
      per share and $0.32
      per share, respectively, for the year ended December 31,
      2005.





Table of Contents
 32
 
  (2)
                The
      2007 and 2006 loss (gain) on sale of vessels represents the loss on
      the sale of the Maya
      Princess of
      $0.8 million andgain on the sale of the Dakota
      Belle of
      $2.2 million. In
      2003, the amount of loss on sale of vessels represents the excess of the
      book value over the price paid to us for the seven vessels that
      we sold in December 2003 and one vessel that we sold in October 2003. We
      used the proceeds from the December 2003 sale to repurchase outstanding
      senior secured debt relating to the sold vessels, on which we recorded a
      gain of $2.4 million that was reported as gain on early extinguishment of
      debt.
  (3)
                In
      2006 the loss on early extinguishment of debt represents
      the write-off of unamortized debt finance costs of $1.3 million and the
      payment of loan prepayment fees of $2.1 million when we repaid most of our
      then existing credit facilities in July 2006 with our $140.0 million
      syndicated credit facility.
  (4)
                For
      the year ended December 31, 2007, we had a gain on the sale and insurance
      recovery of the Huron
      Maiden.The vessel was severely damaged in a grounding
      accident on an uncharted rock while on passage near Indonesia on March 9,
      2007.  On April 4, 2007, the vessel was declared a constructive
      total loss.  Accordingly, we received a net amount of $8.0 million
      from our Hull & Machinery/ Increased Value insurances after a scrap
      value credit of $2.0 million.  We retained the proceeds on the
      sale of the vessel for scrap, which was sold and delivered to the buyer on
      May 4, 2007 for $2.8 million.  After expenses in connection with the
      accident and the sale of the vessel of approximately $1.2 million we
      realized a gain on the casualty and sale of the vessel of approximately
      $6.0 million.
  (5)
                Basic
      and diluted weighted average common shares for 2002 through 2004 reflect
      the 2.5 to 1 adjustment for the consolidation and redesignation of common
      shares made June 29, 2005. See notes "14 - Equity Transactions" and "18 -
      Earnings Per Share" to our consolidated financial
      statements.
  (6)
                Diluted
      weighted average common shares outstanding for 2007 and 2006 includes
      37,396 and 89,467 weighted average common shares, respectively, relating
      to the restricted Class A common shares granted to our employees
      and independent directors. Diluted weighted average common shares
      outstanding for 2005 includes 2,387,497 weighted average common shares
      issuable under the exercise of warrants and 53,252 weighted average common
      shares relating to the restricted Class A common shares granted to
      our chief financial officer and to our independent directors at the time
      of our initial public offering. Diluted weighted average common shares
      outstanding for 2004 includes 10,197,980 common shares issuable on the
      exercise of exercisable warrants.
  (7)
                Mandatorily
      redeemable preference shares were classified as a liability as of December
      31, 2003 in accordance with FASB Statement No. 150, "Accounting for
      Certain Financial Instruments with Characteristics of Both Liabilities and
      Equity," which became effective for us during the third quarter ended
      September 30, 2003.
  (8)
                Controlled
      vessels are vessels that we own or charter-in with an option to purchase.
      As of December 31, 2007, two vessels in our controlled fleet were
      chartered-in with an option to
purchase.
  (9)
                Represents
      both vessels that we charter-in under short-term charters (less than one
      year at the start of the charter) and charter-in of vessels under
      long-term charters without an option to
  purchase.
  (10)
                Represents
      the number of days controlled and time-chartered vessels were operated by
      us, excluding off-hire days.
  (11)
                Represents
      the number of days that relate to vessel expense for controlled and
      time-chartered vessels. Vessel expense relating to controlled vessels is
      based on a 365-day year. Vessel expense relating to chartered-in vessels
      is based on the actual number of days we operated the vessel, excluding
      off-hire days.
  (12)
                In
      thousands.
  (13)
                Revenue
      per ton is a measurement unit for cargo carried that is dependent upon the
      weight of the cargo and has been calculated using number of tons on which
      revenue is calculated, excluding time charter
  revenue.
  (14)
                Aggregates
      represent high-volume, low-freighted cargo. Including aggregates,
      therefore, can overstate the amount of tons that we carry on a regular
      basis and reduce our revenue per ton. We regularly carried aggregates in
      all years except 2005 when we temporarily suspended the transport of
      aggregates. We believe that the exclusion of aggregates better reflects
      our cargo shipped and revenue per ton data for our principal
      services.
 
 Table of Contents
 33
  ITEM 7.Management's Discussion and Analysis
of Financial Condition and Results of Operations
  General
 
 The following
is a discussion of our financial condition at December 31, 2007 and 2006 and our
results of operations comparing the years ended December 31, 2007 and
2006  and years ended December 31, 2006 and 2005.  You
should read this section in conjunction with our consolidated financial
statements including the related notes to those financial statements included
elsewhere in this Annual Report.
  Overview
  We are an
ocean transportation services company that offers worldwide shipping solutions
through liner, parcel, bulk and vessel chartering services. We offer our
services globally in more than 15 countries to over 300 customers through a
network of affiliated service companies.
  Our
financial results are largely driven by the following factors:
  ·
                macroeconomic
      conditions in the geographic regions where we
  operate;
  ·
                general
      economic conditions in the industries in which our customers
      operate;
  ·
                changes
      in our freight and sub-time charter rates - rates we charge for vessels we
      charter out - and, in periods when our voyage and vessel expenses
      increase, our ability to raise our rates to pass such cost increases
      through to our customers;
  ·
                the
      extent to which we are able to efficiently utilize our controlled fleet
      and optimize its capacity; and
  ·
                the
      extent to which we can control our fixed and variable costs, including
      those for port charges, stevedore and other cargo-related expenses, fuel,
      and commission expenses.
  Drydocking
  Since
December 31, 2004, our fleet has grown from 18 to 36 vessels. These vessels must
be drydocked twice during a five -year cycle. Thus, our controlled fleet of 36
vessels at December 31, 2007, would result in 72 drydockings over five years or
an average of 14 vessels per year. The vessels that we acquired in expanding our
fleet were of varying ages and had differing drydock and survey positions;
consequently, we experienced increased drydocking days in 2007 relative to prior
years.
  We strive
to maintain and upgrade our vessels to the highest standards.  The
vessels in our fleet have an average age of 21 years; accordingly, we have
decided to accelerate the timing of steel renewals and reinforcements on many of
the vessels scheduled for drydocking in 2007 and 2008.  We expect that
these renewals and reinforcements would have been required in the next five to
ten years.
  In
addition, we invested approximately $4.2 million to retrofit the Seminole Princess and Laguna Belle by installing
tweendecks in three holds in each vessel.  The retrofittings of the
Seminole Princess and
Laguna Belle were
completed in July 2007 and October 2007, respectively, and gives us extra
flexibility in employing these vessels in our business.
  During
2007, 21 vessels, requiring approximately 5,250 metric tons of steel, were in
drydock for 1,044 days.  A summary by quarter is as follows:


Number
      of vessels entering drydock during quarter
              
              Number
      of drydock days during quarter
              
              Approximate
      metric tons of steel installedFirst
      Quarter 2007
              7
              
              212
              
              1,673Second
      Quarter 2007
              7
              
              350
              
              1,882Third
      Quarter 2007 (a)
              5
              
              261
              
              585Fourth
      Quarter 2007
              4
              
              221
              
              1,100Total
      for 2007
              
              
              1,044
              
              5,240
  Table of Contents
 34
 (a)
                Includes
      a second drydock of the Tayrona Princess and
      Apache Maiden,
      which had drydocked for a period during the first quarter.  A
      total of 21 vessels were drydocked during
2007.
  The number of
drydocking days in 2007 include 246 days for the Biloxi  Belle,
Tayrona Princess and
Apache
Maiden.  The Biloxi Belle required more
work than initially anticipated and we experienced problems at the initial
repair shipyard used to drydock the Tayrona Princess and Apache
Maiden. Consequently, we needed to drydock the Tayrona Princess and Apache Maidena second time at
a different repair shipyard. The 2007 drydocking days also included
extra days during the drydocking of the Seminole Princess and Laguna Belle for the
installation of retractable decks in three of the cargo holds in each
vessel,  converting these ships from bulk carriers to
tweendeckers.  Total drydock days for the Seminole Princess and Laguna Belle were 149 days.
Excluding the drydock days for these five vessels, which totaled 395 days, dry
dock for the remaining 16 vessels was 649 days.
  Our
preliminary quarterly drydock schedule of vessels anticipated to be drydocked
during 2008, including estimated number of drydock days and metric tons of steel
renewal, is as follows:


Anticipated
      Number of vessels entering drydock during quarter
              
              Anticipated
      Number of drydock days during quarter
              
              Estimated
      metric tons of steel to be installedFirst
      Quarter 2008
              
              
              5
              
              
              139
              
              
              880Second
      Quarter 2008
              
              
              5
              
              
              179
              
              
              880Third
      Quarter 2008
              
              
              3
              
              
              93
              
              
              205Fourth
      Quarter 2008
              
              
              4
              
              
              115
              
              
              760Total
      for 2008
              
              
              17
              
              
              526
              
              
              2,725


We
estimate that vessel drydockings that require less than 75 metric tons of steel
renewal will take from 25 to 30 days and that vessel drydockings that require
100 to 500 metric tons of steel renewal will take from 40 to 65 days. Our
estimates are based on current and anticipated congestion in the Chinese repair
shipyards, which could be adversely affected by any unanticipated weather or
congestion in the shipyard. Further, our 2008 drydock schedule is subject to
changes based on unanticipated commercial needs of our business.
 Components of revenue
and expense
   We report
our revenue as voyage revenue reflecting the operations of our vessels in our
principal services transporting customers' cargo, and charter revenue reflecting
the operations of our vessels that have been chartered out to third parties.
Voyage revenue and expenses for each reporting period include estimates for
voyages in progress at the end of the period. Estimated profits from voyages in
progress are recognized on a percentage of completion basis by prorating the
estimated total final voyage revenue and expenses using the ratio of voyage days
completed through period end to total voyage days. The impact of
recognizing voyage expenses ratably over the length of each voyage is not
materially different from the method of recognizing such costs as incurred in
accordance with EITF Issue 91-9, method 5, on both a quarterly and annual basis.
When a loss is forecast for a voyage, the full amount of the anticipated loss is
recognized in the period in which that determination is made. Revenue from time
charters in progress is calculated using the daily charter hire rate, net of
daily expenses, multiplied by the number of voyage days on-hire through period
end. Vessel operating expenses for both voyage and time charters are
expensed as incurred.
 
 Voyage
      revenueconsists of
      freight charges paid to our subsidiaries for the transport of customers'
      cargo. The key factors driving voyage revenue are the number of vessels in
      the fleet, freight voyage days, revenue tons and the freight
      rates.
 
 Time
      charter revenueconsists of a
      negotiated daily hire rate for the duration of a charter. The key factors
      driving time charter revenue are the number of days vessels are chartered
      out and the daily charter hire
rates.
 
 Voyage
      expenses consist primarily of fuel, port costs, stevedoring,
      commissions and lashing materials, which are paid by our
      subsidiaries.
 
 Vessel
      expensesare vessel
      operating expenses that consist of crewing, stores, lube oil, repairs and
      maintenance including registration taxes and fees, insurance and
      communication expenses  for vessels we control, charter hire fees we
      pay to owners for use of their vessels and space charters (relets). The
      costs are paid by our subsidiaries.
 
 Table of Contents
 35
 Depreciation
      and amortization expense is computed for vessels and vessel
      improvements on the remaining useful life of each vessel, which is
      estimated as the period from the date we put the vessel into service to
      the date 30 years from the time that the vessel was initially delivered by
      the shipyard. Drydock costs are amortized on a straight-line basis over
      the period through the date of the next drydocking which is typically 30
      months.  Other fixed assets, consisting principally of computer
      hardware, software and office equipment are depreciated on a straight-line
      basis using useful lives of from three to seven years. Grabs are
      depreciated on a straight-line basis using useful lives of ten
      years.  Vessel leasehold improvements, which are included with
      vessel improvements and other equipment, are amortized on a straight-line
      basis over the shorter of the useful life of the improvement or the term
      of the lease.
 
 Management
      feesThe Company uses
      two subsidiary management companies to perform all its operational
      functions.  Roymar provides technical ship management (obtaining
      crews, coordinating maintenance and repairs, drydocking, etc.) and
      receives a monthly, per vessel, management fee of
      $12,029.   TBS Shipping Services provides operational
      management (arranging insurance, claims processing, general administrative
      services and port agent services) and commercial agency services. A
      monthly, per vessel management fee of $8,447 is paid for operational
      management services and a commission of approximately 2.5% of revenue is
      paid for commercial agency services.  Management fees paid to
      Roymar and TBS Shipping Services and commissions paid to TBS Shipping
      Services are fixed under agreements that originally were negotiated during
      our Chapter 11 proceeding, which we emerged from in February
      2001.  After June 2005, when we purchased all the stock of TBS
      Shipping Services and Roymar, management fees and intercompany commissions
      have been eliminated in
consolidation.
  
 Commissions
on freight and port agency fees are paid to TBS Commercial Group, which is a
company that is owned by our principal shareholders.  Management fees
and commissions paid to TBS Commercial Group are fixed under agreements that
originally were negotiated during our Chapter 11 proceeding with representatives
of the holders of our then outstanding First Preferred Ship Mortgage Notes and
were approved by our board of directors. Renewal of the current management
agreements with TBS Commercial Group and approval of any new management
agreements or amendments to the current management agreements with TBS
Commercial Group are subject to approval by the compensation committee of our
board of directors.  The compensation committee of our board of
directors approved, effective October 1, 2007, additional commissions of 1.25%
of freight revenue for commercial agency services provided by subsidiaries of
TBS Commercial Group and an increase of approximately 33
1/3%   in port agency fees for agency services provided by most
subsidiaries of TBS Commercial Group and Beacon.  A higher increase
was approved for the Brazilian and Colombian agents to reflect the greater
currency appreciation that occurred in those countries.
 
 Lack
of Historical Operating Data for Vessels Before their Acquisition
  Consistent
with shipping industry practices, there is no historical financial due diligence
process when we acquire vessels other than the inspection of the physical
condition of the vessels and examinations of classification society records.
Accordingly, we do not obtain the historical operating data for the vessels from
the sellers because that information is not material to our decision to make
acquisitions, nor do we believe it would be helpful to potential investors in
our common shares in assessing our business or profitability.
 
 Most
vessels are sold under a standardized agreement, which, among other things,
provides the buyer with the right to inspect the vessel and the vessel's
classification society records. The standard agreement does not give the buyer
the right to inspect, or receive copies of, the historical operating data of the
vessel and does not provide for financial information or historical results for
the vessel to be made available to the buyer. Prior to the delivery of a
purchased vessel, the seller typically removes from the vessel all records,
including past financial records and accounts related to the vessel. In
addition, the technical management agreement between the seller's technical
manager and the seller is automatically terminated and the vessel's trading
certificates are revoked by its flag state following a change in
ownership.
 
 Table of Contents
 36
 Consistent
with shipping industry practice, we treat the acquisition of a vessel, whether
acquired with or without charter, as the acquisition of an asset rather than a
business. Due to the differences between the prior owners of these vessels and
the Company with respect to the routes we operate, the shippers and consignees
we serve, the cargoes we carry, the freight rates and charter hire rates we
charge and the costs we incur in operating our vessels, we believe that our
operating results will be significantly different from the operating results of
the vessels while owned by the prior owners.
 
 The
Financial Accounting Standards Board issued Emerging Issues Task Force (EITF)
98-3 states that "for a transferred set of activities and assets to be a
business, it must contain all of the inputs and processes necessary for it to
continue to conduct normal operations after the transferred set is separated
from the transferor, which includes the ability to sustain a revenue stream by
providing its output to customers." The purchase of a vessel alone cannot
operate or generate revenue or constitute a business operation without the
significant inputs and processes that we provide, as described
below:
  ·
              We
      provide our own captains, senior officers and crew to the
      vessels.·
              The
      vessels are managed by our subsidiary Roymar. All of the functions of
      vessel management, from technical ship management to crewing, vessel
      maintenance and drydocking, are conducted by Roymar, in a manner different
      from the prior manager, according to our exacting
    standards.·
              The
      necessary commercial activities - maintaining customer relationships,
      providing local teams of commercial agents and port captains, offering
      transportation management skills and logistics solutions -- are provided
      by our subsidiary TBS Shipping Services and our affiliate TBS Commercial
      Group in a manner different from the former owners.·
              The
      vessels will operate under our trade name and carry our distinctive Native
      Peoples’ naming convention.
 
 The
revenue-producing activity of the vessels we purchase will be generated from
carrying cargoes for our customers on the routes we serve. The vessels we
purchase are operated by different parties than their former owners, serve
different customers, carry different cargoes, charge different rates, cover
different routes and, in all respects engage in a different business with
different revenues, costs and operating margins.
 
 In short,
all of the most important elements of operating the assets -- in fact, all of
the elements of the business of ocean transportation other than the vessels
themselves -- are not being purchased with the vessels but will depend on our
skill and expertise.




Table of Contents
 37


Results
of Operations




Year
ended December 31, 2007 compared to year ended December 31, 2006


Year
      Ended December 31,2007
                
                2006
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Total Revenue
                
                In
      Thousands
                
                As
      a % of Total Revenue
                
                In
      Thousands
                
                PercentageVoyage
      revenue
                
                $
                264,193
                
                
                74.3
                
                $
                189,012
                
                
                74.5
                
                $
                75,181
                
                
                39.8Time
      charter revenue
                
                
                88,365
                
                
                24.8
                
                
                63,114
                
                
                24.9
                
                
                25,251
                
                
                40.0Other
      revenue
                
                
                3,047
                
                
                0.9
                
                
                1,460
                
                
                0.6
                
                
                1,587
                
                
                108.7Total
      revenue
                
                
                355,605
                
                
                100.0
                
                
                253,586
                
                
                100.0
                
                
                102,019
                
                
                40.2Voyage
      expense
                
                
                92,482
                
                
                26.0
                
                
                83,254
                
                
                32.8
                
                
                9,228
                
                
                11.1Vessel
      expense
                
                
                85,958
                
                
                24.2
                
                
                63,205
                
                
                24.9
                
                
                22,753
                
                
                36.0Depreciation
      and amortization
                
                
                36,022
                
                
                10.1
                
                
                29,867
                
                
                11.8
                
                
                6,155
                
                
                20.6General
      and administrative
                
                
                38,703
                
                
                10.9
                
                
                27,256
                
                
                10.8
                
                
                11,447
                
                
                42.0Loss
      (Gain) from sale of vessel
                
                
                814
                
                
                0.2
                
                
                (2,180
                )
                
                (0.9
                )
                
                2,994
                
                
                (137.3
                )Total
      operating expenses
                
                
                253,979
                
                
                71.4
                
                
                201,402
                
                
                79.4
                
                
                52,577
                
                
                26.1Income
      from operations
                
                
                101,626
                
                
                28.6
                
                
                52,184
                
                
                20.6
                
                
                49,442
                
                
                94.7Other
      (expenses) and incomeInterest
      expense
                
                
                (10,394
                )
                
                (2.9
                )
                
                (11,577
                )
                
                (4.6
                )
                
                1,183
                
                
                (10.2
                )Loss
      on early extinguishment of debt
                
                
                
                
                
                
                
                
                (3,357
                )
                
                (1.3
                )
                
                3,357
                
                
                (100.0
                )Gain  on
      sale and insurance recovery of vessel
                
                
                6,034
                
                
                1.7
                
                
                
                
                
                
                
                
                6,034Interest
      and other income
                
                
                983
                
                
                0.3
                
                
                1,810
                
                
                0.7
                
                
                (827
                )
                
                (45.7
                )Net  income
                
                $
                98,249
                
                
                27.7
                
                $
                39,060
                
                
                15.4
                
                $
                59,189
                
                
                151.5


Voyage
revenue
  Voyage
revenue for 2007 as compared to 2006 increased 39.8% primarily due to an
increase in revenue tons carried offset by a decrease in freight rates. As
mentioned in components of revenue and expense above, the key factors driving
voyage revenue are revenue tons, freight rates, freight voyage days, and the
number of vessels in the fleet.
  Revenue
tons carried for 2007 as compared to 2006 increased 2,253,694 tons or 51.6% to
6,621,473 tons for 2007 from 4,367,779 tons for 2006.  We expanded our
TBS Middle East service in 2007, which increased the aggregate bulk cargo we
carried and, consequently, was the principal reason for the increase in revenue
tons.  We also started the Mediterranean Service during the third
quarter of 2007, which increased the number of voyages and, consequently, the
revenue tons carried during 2007 as compared to 2006.
  Freight
rates, not under contracts, are set by the market and depend on the relationship
between the demand for ocean freight transportation and the availability of
appropriate vessels.   Average freight rates for 2007, as
compared to 2006, decreased $3.37 per ton or 7.8% to $39.90 per ton for 2007
from $43.27 per ton for 2006. The decrease in average freight rates in 2007 was
principally caused by an increase in the proportion of low freighted aggregates
carried to the total revenue tons carried.  Excluding this type
of bulk cargo, average freight rates would have been $69.52 per ton and $55.25
per ton for 2007 and 2006, respectively.  The table below shows the
revenue tons carried for all cargos, cargos excluding aggregates and only
aggregate bulk cargo carried.
 
 For 2007
and 2006 we had contracts of affreightment under which we carried approximately
4,213,506 and 1,947,261 revenue tons and generated $89.6 million and $56.1
million of voyage revenue, respectively. Contracts of affreightment outstanding
at December 31, 2007 expire through May 2009.
 
 Table of Contents
 38
 The
weighted average number of vessels in the fleet, freight voyage days and days on
hire, excluding vessels time chartered out, revenue tons carried, and
freight rates for the years 2007 and 2006 are as follows:


Year
      Ended December 31,2007
              
              
              2006Average
      number of vessels (1)
              
              
              22
              
              
              
              21Freight
      voyage days (2)
              
              
              8,209
              
              
              
              7,818Days
      on hire (3)
              
              
              8,292
              
              
              
              8,102Revenue
      tons carried (4)For
      all cargoes
              
              
              6,621,473
              
              
              
              4,367,779Excluding
      aggregates
              
              
              3,447,014
              
              
              
              3,226,949Aggregates
              
              
              3,174,459
              
              
              
              1,140,830Freight
      Rates (5)For
      all cargoes
              
              $
              39.90
              
              
              $
              43.27Excluding
      aggregates
              
              $
              69.52
              
              
              $
              55.25Daily
      time charter equivalent rates (6)
              
              $
              20,679
              
              
              $
              12,650
  (1)
                Weighted
      average number of vessels in the fleet, not including vessels chartered
      out.(2)
                Number
      of days that our vessels were earning revenue, not including vessels
      chartered out.(3)
                Number
      of days that our vessels were available for hire, not including vessels
      chartered out.(4)
                Revenue
      tons is a ton measurement on which shipments are
      freighted.  Cargoes are rated as weight (based on metric tons)
      or measure (based on cubic meters); whichever produces the higher revenue
      will be considered the revenue ton.(5)
                Weighted
      average freight rates measured in dollars per ton.(6)
                Time
      Charter Equivalent or "TCE" rates are defined as voyage revenue less
      voyage expenses during the year divided by the number of available days
      during the year.  Voyage expenses include the following expenses:
      fuel, port call, commissions, stevedore and other cargo related and
      miscellaneous voyage expenses.  No deduction is made for vessel or
      general and administrative expenses. TCE is an industry standard for
      measuring and analyzing fluctuations between financial periods and as a
      method of equating TCE revenue generated from a voyage charter to
      time charter revenue.


The
following table shows revenues attributed to our principal
cargoes:


Year
      Ended December 31,2007
                
                2006
                
                Increase
      (Decrease)Description
                
                In
      Thousands
                
                As
      a % of Total Voyage Revenue
                
                In
      Thousands
                
                As
      a % of Total Voyage Revenue
                
                In
      Thousands
                
                PercentageSteel
      products
                
                $
                91,812
                
                
                34.8
                
                $
                68,921
                
                
                36.5
                
                $
                22,891
                
                
                33.2Agricultural
      products
                
                
                46,011
                
                
                17.4
                
                
                23,152
                
                
                12.2
                
                
                22,859
                
                
                98.7Metal
      concentrates
                
                
                39,264
                
                
                14.9
                
                
                27,473
                
                
                14.5
                
                
                11,791
                
                
                42.9Aggregates
                
                
                24,573
                
                
                9.3
                
                
                10,719
                
                
                5.7
                
                
                13,854
                
                
                129.2Other
      bulk cargo
                
                
                20,159
                
                
                7.6
                
                
                14,308
                
                
                7.6
                
                
                5,851
                
                
                40.9Rolling
      stock
                
                
                13,119
                
                
                5.0
                
                
                9,739
                
                
                5.2
                
                
                3,380
                
                
                34.7Fertilizers
                
                
                10,001
                
                
                3.8
                
                
                6,499
                
                
                3.4
                
                
                3,502
                
                
                53.9General
      cargo
                
                
                5,776
                
                
                2.2
                
                
                6,878
                
                
                3.6
                
                
                (1,102
                )
                
                (16.0
                )Automotive
      products
                
                
                5,348
                
                
                2.0
                
                
                4,568
                
                
                2.4
                
                
                780
                
                
                17.1Project
      cargo
                
                
                2,763
                
                
                1.0
                
                
                11,884
                
                
                6.3
                
                
                (9,121
                )
                
                (76.8
                )Other
                
                
                5,367
                
                
                2.0
                
                
                4,871
                
                
                2.6
                
                
                496
                
                
                10.2Total
      voyage revenue
                
                $
                264,193
                
                
                100.0
                
                $
                189,012
                
                
                100.0
                
                $
                75,181
                
                
                39.8
  Table of Contents
 39


Time
charter revenue
 
 Time
charter revenue increased 40.0% for 2007 as compared to 2006. As mentioned in
components of revenue and expense above, the key factors driving time charter
revenue are the number of days that vessels are chartered out and the daily
charter hire rates.
  Average
charter hire rate increased $9,476 per day, or 64.6%, to $24,150 per day for
2007 from $14,674 per day for 2006. Charter hire rates are set, to a significant
degree, by the market and depend on the relationship between the demand for
ocean freight transportation and the availability of appropriate vessels. The
increase in average time charter rates for 2007 as compared to 2006 is
reflective of the strong worldwide shipping markets.
 
 During
2007 we chartered-out fewer vessels due to the increased use of our controlled
vessels in our established voyage business and the reduced number of vessels
available due to a heavy 2007 drydock schedule; accordingly, time charter days
decreased.
 
 During
2007 and 2006, we had two vessels (the Navajo Princess and Inca Maiden) chartered-out
with NYK, since January 2004 and November 2003, respectively. These charters are
renewable every six months. The average daily rate for both vessels for 2007 was
$16,869 and for 2006 $14,218, which made up $11.6 million and $10.1 million of
time charter revenue, respectively. At December 31, 2007, these time charters
expire through September and July 2008, respectively.
 
 The
number of vessels time chartered out, time charter days, and daily charter rates
for the years 2007 and 2006 are as follows:




Year
      Ended December 31,2007
              
              
              2006Number
      of vessels (1)
              
              
              10
              
              
              
              12Time
      Charter days (2)
              
              
              3,659
              
              
              
              4,301Daily
      charter hire rates (3)
              
              $
              24,150
              
              
              $
              14,674Daily
      time charter equilvent rates (4)
              
              $
              22,374
              
              
              $
              13,604




(1)
              Weighted
      average number of vessels chartered out.(2)
              Number
      of days vessels earned charter hire.(3)
              Weighted
      average charter hire rates.(4)
              Time
      Charter Equivalent or "TCE" rates for vessels that are time chartered out,
      are defined as time charter revenue during the year reduced by commissions
      divided by the number of available days during the year.  No
      deduction is made for vessel or general and administrative expenses. 
      TCE is an industry standard for measuring and analyzing fluctuations
      between financial periods and as a method of equating TCE revenue
      generated from a voyage charter to time charter revenue. No voyage
      expenses are deducted because they are not
  applicable.
 
 The
following table shows the change in the number of freight voyage days and time
charter out days for 2007 as compared to 2006.




Twelve
      Months Ended December 31,2007
            
            2006
            
            Increase
      (Decrease)Freight
      voyage days
            
            
            8,209
            
            
            7,818
            
            
            391
            
            
            5.0
            %Time
      charter out days
            
            
            3,659
            
            
            4,301
            
            
            (642
            )
            
            -14.9
            %Total
      voyage days
            
            
            11,868
            
            
            12,119
            
            
            (251
            )
            
            -2.1
            %




Table of Contents
 40


Voyage
expense


Voyage
expense consists of costs attributable to specific voyages. The number of voyage
days is a significant determinant of voyage expense as well as commissions and
bunker fuel costs.
 
 The
principal components of voyage expense are as follows:




Year
      Ended December 31,2007
              
              2006
              
              Increase
      (Decrease)In
      Thousands
              
              As
      a % of Voyage Expense
              
              As
      a % of Revenue
              
              In
      Thousands
              
              As
      a % of Voyage Expense
              
              As
      a % of Revenue
              
              In
      Thousands
              
              Percentage
              
              As
      a % of RevenueFuel
      expense
              
              $
              39,427
              
              
              42.6
              
              
              11.1
              
              $
              37,041
              
              
              44.5
              
              
              14.6
              
              $
              2,386
              
              
              6.4
              
              
              (3.5
              )Commission
      expense
              
              
              16,285
              
              
              17.6
              
              
              4.6
              
              
              10,365
              
              
              12.4
              
              
              4.1
              
              
              5,920
              
              
              57.1
              
              
              0.5Port
      call expense
              
              
              17,225
              
              
              18.6
              
              
              4.8
              
              
              17,023
              
              
              20.4
              
              
              6.7
              
              
              202
              
              
              1.2
              
              
              (1.9
              )Stevedore
      and othercargo-related
      expense
              
              
              11,072
              
              
              12.0
              
              
              3.1
              
              
              11,968
              
              
              14.4
              
              
              4.7
              
              
              (896
              )
              
              (7.5
              )
              
              (1.6
              )Miscellaneous
      voyageexpense
              
              
              8,473
              
              
              9.2
              
              
              2.4
              
              
              6,857
              
              
              8.3
              
              
              2.7
              
              
              1,616
              
              
              23.6
              
              
              (0.3
              )Voyage
      expense
              
              $
              92,482
              
              
              100.0
              
              
              26.0
              
              $
              83,254
              
              
              100.0
              
              
              32.8
              
              $
              9,228
              
              
              11.1
              
              
              (6.8
              )


Voyage
expense increased 11.1% for 2007 as compared to 2006, principally due to an
increase in commission and fuel expense.
  The 6.8%
decrease in voyage expense as a percentage of total revenue to 26.0% of total
revenue for 2007 as compared to 32.8% of total revenue for 2006, was primarily
due to the increase in revenue, which increased at a rate greater than voyage
expense.
  Commission
expense is based on the amount of revenue. The 57.1% increase in commission
expense for 2007 as compared to 2006 was primarily due to the increase in
revenue, and to a lesser extent, an increase in the rate of commissions
paid to our unconsolidated affiliate TBS Commercial Group that was effective
October 1, 2007.
 
 The 6.4%
increase in fuel expense was due to an increase in the average price per metric
ton ("MT") partially offset by a decrease in consumption. For 2007, the average
price per MT increased to $402 per MT as compared to $367 per MT for 2006.
Consumption decreased for 2007 to 97,985 MT from 100,930 MT for 2006. Average
fuel cost per freight voyage day was $4,803 during 2007 and $4,738 during
2006.
  Port call
expense for 2007 as compared to 2006 was flat. The key factors driving port call
expense are the number of port calls, port days and the cost structure of the
ports called on. The number of port calls increased  to 894 port
calls for 2007 from 853 port calls for 2006, primarily due to the commencement
of the TBS Mediterranean Service, which began during the third quarter
2007. However, the number of port days remained relatively unchanged at
3,970 port days for 2007 and 3,969 port days for 2006.
  The 7.5%
decrease in stevedore and other cargo-related expense for 2007 as compared to
2006 was primarily due to a change in the mix of revenue booked under different
shipping terms.   Stevedore and other cargo-related expenses
fluctuate based on cargo volumes and the shipping terms under which the cargo is
booked.  The increase in stevedore and other cargo-related costs
due to the increase in cargo volumes was offset by
an increase in cargo booked under "free-in free-out" terms.  For
analysis purposes we group cargoes into three categories: (1) cargo booked under
“free-in free-out" terms which are shipments that the customer pays all or part
of the costs of loading and unloading, (2) cargo booked under "full liner"
terms, which are shipments where we bear the costs of loading and unloading and
(3) a combination of free-in free-out and full liner terms.
  The 23.6%
increase in miscellaneous voyage expense for 2007 as compared to 2006 was
principally due to an increase in despatch and higher container overhead
costs.  Despatch is an incentive payment we pay to a charterer when
cargo is loaded and unloaded faster than agreed.
 
 Table of Contents
 41
 Vessel
expense
 
 Vessel
expense consists of costs we incur to own and maintain our fleet such as
maintenance, insurance, and crewing expenses and charter hire for vessels that
we charter in, that are not allocated to a specific voyage.
 
 The
following table sets forth the basic components of vessel
expense:




Year
      Ended December 31,2007
              
              2006
              
              Increase
      (Decrease)In
      Thousands
              
              As
      a % of Vessel Expense
              
              In
      Thousands
              
              As
      a % of Vessel Expense
              
              In
      Thousands
              
              PercentageChartered-in
      vessel expense
              
              $
              22,905
              
              
              26.6
              
              $
              16,503
              
              
              26.1
              
              $
              6,402
              
              
              38.8Owned
      vessel expense
              
              
              56,856
              
              
              66.1
              
              
              44,750
              
              
              70.8
              
              
              12,106
              
              
              27.1Controlled vessel
      expense
              
              
              6,073
              
              
              7.1
              
              
              
              
              
              
              
              
              6,073Space
      charter expense
              
              
              124
              
              
              0.2
              
              
              1,952
              
              
              3.1
              
              
              (1,828
              )
              
              (93.6
              )Vessel
      expense
              
              $
              85,958
              
              
              100.0
              
              $
              63,205
              
              
              100.0
              
              $
              22,753
              
              
              36.0


The 36.0%
increase in vessel expense in 2007 as compared to 2006 was primarily due to an
increase in our owned and controlled vessels expense and increased hire
rates that we paid for chartered-in vessels.
 
 The 38.8%
increase in chartered-in vessels in 2007 as compared to 2006 was due to the
average charter-in rate per day we paid to charter in vessels increasing $9,667
per day to $ 24,629 per day for 2007 as compared to $14,962 per day for
2006.  The higher cost due to the increase in charter-in rates was
partially offset by a decrease in days that vessels were chartered-in. We
chartered-in vessels for 930 days during 2007 as compared to 1,103 days during
2006 because of an increase in our controlled fleet, which decreased our demand
for charter-in vessels.
 
 The 27.1%
increase in owned vessel expense in 2007 as compared to 2006 was due to an
increase in the average operating expense day rate of $762 per day to $4,620 for
2007 as compared to $3,858 per day for 2006, which was principally due to
increases in the cost of lubes and maintenance and repairs. The increase was
also due to an increase in the average number of controlled vessels, which
increased the number of vessel days.  Vessel days are the total days
we operated our controlled vessels which increased 708 days to 12,306 days
during 2007 from 11,598 days during 2006.
  Controlled
vessel charter expense was $6.1 million for the year ended December 31,
2007 as compared to no expense for the same period in 2006. Controlled vessel
charter expense relates to a sale-leaseback transaction entered on January 31,
2007 for the Seminole
Princess and Laguna
Belle, which were chartered back under a bareboat charter party.
  Vessel
expense as a percentage of total revenue decreased 0.7% to 24.2% of total
revenue for 2007 as compared to 24.9% of total revenue for 2006, primarily due
to a greater increase in revenue relative to a lower increase in vessel
expense.
 
 Depreciation
and amortization
 
 The
increase in depreciation and amortization expense to $36.0 million in
2007 from $29.9 million in 2006 was due principally to additional
depreciation and amortization on vessel improvements and drydockings made during
2007.  The growth of our owned/controlled fleet, which increased to an
average of 34 vessels for the year ended December 31, 2007 as compared to an
average of 32 vessels for the year ended December 31, 2006, also added to the
increase in depreciation and amortization.
 
 Table of Contents
 42
 General
and administrative expense
  The $11.4 million
increase in general and administrative expense for 2007 as compared to 2006 was
primarily due to an increase in salary and related expenses of $10.2
million.  We have a discretionary cash bonus program under which
employees may receive an annual cash bonus payment based on our annual operating
performance.  For the years ended December 31, 2007 and 2006, we made
cash bonus payments to our officers and employees of $10.2 million and $4.6
million, respectively.  The remaining increase in salary and related
expenses was principally due to a build up of higher staff levels necessary to
manage an anticipated 50 vessel fleet and to a lesser extent, higher stock-based
compensation costs.  We anticipated that stock-based compensation
costs will increase substantially by approximately $1.9 million in 2008 because
of equity grants made during 2007.
 
 Loss
(gain) from sale of vessels
 
 The
loss in 2007 represents the sale, on March 13, 2007, of the vessel Maya Princessfor $13.0
million.  The loss on sale was $0.8 million after deducting the cost
of vessel and improvements less accumulated depreciation, and other closing
costs.  The gain in 2006 represents the sale on September 6,
2006, of the vessel Dakota
Belle, for $3.2 million.  The gain on sale was $2.2 million
after deducting the cost of the vessel and improvements less accumulated
depreciation, and other closing costs.
 
 Income
from operations
  The increase in income from operations
for 2007 as compared to 2006 was mainly attributable to an increase in revenueresulting from increased
freight rates.  This increase in revenue wasoffset by an increase in voyage
expense,particularlycommission expense, as
well as vessel expense,depreciation, and general and
administrative expenses.  For the same reasons, our operating marginincreasedto 28.6% for 2007 from 20.6% for 2006.
 
 Interest
expense
 
 Interest
expense decreased $1.2 million for 2007 as compared to 2006 principally due
to lower debt levels, which averaged $102.2 million during 2007 and $119.4
million 2006, and interest capitalized during 2007 in connection with vessels
under construction. The decrease was partially offset by higher bank fees,
higher deferred financing cost amortization and a decrease in the valuation of
an interest rate swap agreement that did not qualify for hedge accounting.
During 2007, we capitalized interest of $1.8 million directly related to The
Royal Bank of Scotland credit facility for the new vessel building program and
interest of $1.1 million imputed on construction in progress payments funded
with cash flows from operations and other debt, as required by generally
accepted accounting principals.
 
 Loss
on extinguishment of debt
 
 The loss
on extinguishment of debt in 2006 was due to costs incurred in connection with
the refinancing of our debt that was completed on July 31, 2006.  It
includes $2.1 million paid in early repayment fees and $1.3 million in
write-offs of unamortized debt finance costs.
 
 Gain
on sale and insurance recovery of vessel
 
 The Huron Maiden was severely
damaged in a grounding accident on an uncharted rock while on passage near
Indonesia on March 9, 2007.  On April 4, 2007, the vessel was declared
a constructive total loss.  Accordingly, we received a net amount of $8.0
million from our Hull & Machinery/Increased Value insurances after a scrap
value credit of $2.0 million.  We retained the proceeds on the sale of
the vessel for scrap, which was sold and delivered to the buyer on May 4, 2007
for $2.8 million.  After deducting thecost of vessel and improvements less
accumulated depreciation and expenses incurred in connection with
the accident and the sale of the vessel the Company realized a gain on the sale
of the vessel and insurance recovery of approximately $6.0 million.
  Table of Contents
 43
 Results
of Operations





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




Year
      Ended December 31,2006
              
              2005
              
              Increase
      (Decrease)In
      Thousands
              
              As
      a % of Total Revenue
              
              In
      Thousands
              
              As
      a % of Total Revenue
              
              In
      Thousands
              
              PercentageVoyage
      revenue
              
              $
              189,012
              
              
              74.5
              
              $
              175,596
              
              
              70.8
              
              $
              13,416
              
              
              7.6Time
      charter revenue
              
              
              63,114
              
              
              24.9
              
              
              71,456
              
              
              28.8
              
              
              (8,342
              )
              
              (11.7
              )Other
      revenue
              
              
              1,460
              
              
              0.6
              
              
              979
              
              
              0.4
              
              
              481
              
              
              49.1Total
      revenue
              
              
              253,586
              
              
              100.0
              
              
              248,031
              
              
              100.0
              
              
              5,555
              
              
              2.2Voyage
      expense
              
              
              83,254
              
              
              32.8
              
              
              75,291
              
              
              30.3
              
              
              7,963
              
              
              10.6Vessel
      expense
              
              
              63,205
              
              
              24.9
              
              
              68,711
              
              
              27.7
              
              
              (5,506
              )
              
              (8.0
              )Depreciation
      and amortization
              
              
              29,867
              
              
              11.8
              
              
              19,537
              
              
              7.9
              
              
              10,330
              
              
              52.9Management
      fees
              
              
              
              
              
              
              
              
              2,624
              
              
              1.1
              
              
              (2,624
              )
              
              (100.0
              )General
      and administrative
              
              
              27,256
              
              
              10.8
              
              
              17,618
              
              
              7.1
              
              
              9,638
              
              
              54.7Gain
      from sale of vessel
              
              
              (2,180
              )
              
              (0.9
              )
              
              
              
              
              
              
              
              (2,180
              )Total
      operating expenses
              
              
              201,402
              
              
              79.4
              
              
              183,781
              
              
              74.1
              
              
              17,621
              
              
              9.6Income
      from operations
              
              
              52,184
              
              
              20.6
              
              
              64,250
              
              
              25.9
              
              
              (12,066
              )
              
              (18.8
              )Other
      (expenses) and incomeInterest
      expense
              
              
              (11,577
              )
              
              (4.6
              )
              
              (9,346
              )
              
              (3.8
              )
              
              (2,231
              )
              
              23.9Gain
      (loss)  on early extinguishment of debt
              
              
              (3,357
              )
              
              (1.3
              )
              
              
              
              
              
              
              
              (3,357
              )Other
      income
              
              
              1,810
              
              
              0.7
              
              
              752
              
              
              0.3
              
              
              1,058
              
              
              140.7Net  income
              
              $
              39,060
              
              
              15.4
              
              $
              55,656
              
              
              22.4
              
              $
              (16,596
              )
              
              (29.8
              )


Voyage
revenue
  Voyage
revenue for 2006 as compared to 2005 increased 7.6% due to an increase in
revenue tons offset by a decrease in freight rates. As mentioned in components
of revenue and expense above, the key factors driving voyage revenue are the
number of vessels in the fleet, freight voyage days, revenue tons and freight
rates.
  Revenue
tons carried for 2006 as compared to 2005 increased 1,197,748 tons or 37.8% to
4,367,779 tons for 2006 from 3,170,031 tons for 2005. The increase in revenue
tons carried is due to an increase in aggregate bulk cargo carried and an
increase in the number of vessels in our fleet, which resulted in a higher
number of voyages.
  Average
freight rates for 2006 as compared to 2005 decreased $12.12 per ton or 21.9% to
$43.27 per ton in 2006 from $55.39 per ton for 2005. Freight rates, not under
contracts, are set by the market and depend on the relationship between the
demand for ocean freight transportation and the availability of appropriate
vessels. The decrease in freight rates was mainly due to the increase in revenue
tons for the low-freighted aggregate cargo.
  For 2006
and 2005 we had contracts of affreightment under which we carried approximately
1,947,261 and 43,478 revenue tons and generated $56.1 million and $5.9 million
of voyage revenue, respectively. Contracts of affreightment outstanding at
December 31, 2006 expire through May 2009.
  Table of Contents
 44
 Included
in voyage revenue is revenue from high-volume, low-freighted aggregate bulk
cargo. Excluding this type of bulk cargo, of which we carried 1,140,830 tons and
78,338 tons during 2006 and 2005 respectively, average freight rates would have
been $55.25 per ton and $56.58 per ton for 2006 and 2005
respectively.
  The
weighted average number of vessels in the fleet, freight voyage days and days on
hire, excluding vessels time chartered out, and freight rates for the years 2006
and 2005 are as follows:




Year
      Ended December 31,2006
              
              
              2005Number
      of vessels (1)
              
              
              21
              
              
              
              18Freight
      voyage days (2)
              
              
              7,818
              
              
              
              6,628Days
      on hire (3)
              
              
              8,102
              
              
              
              7,007Freight
      Rates (4)For
      all cargoes
              
              $
              43.27
              
              
              $
              55.39Excluding
      aggregates
              
              $
              55.25
              
              
              $
              56.58Daily
      time charter equivalent rates (5)
              
              $
              12,650
              
              
              $
              14,456
  (1)
                Weighted
      average number of vessels in the fleet, not including vessels chartered
      out.(2)
                Number
      of days that our vessels were earning revenue, not including vessels
      chartered out.(3)
                Number
      of days that our vessels were available for hire, not including vessels
      chartered out.(4)
                Revenue
      tons is a ton measurement on which shipments are
      freighted.  Cargoes are rated as weight (based on metric tons)
      or measure (based on cubic meters); whichever produces the higher revenue
      will be considered the revenue ton.(5)
                Time
      Charter Equivalent or "TCE" rates are defined as voyage revenue less
      voyage expenses during the year divided by the number of available days
      during the year.  Voyage expenses include the following expenses:
      fuel, port call, commissions, stevedore and other cargo related and
      miscellaneous voyage expenses.  No deduction is made for vessel or
      general and administrative expenses. TCE is an industry standard for
      measuring and analyzing fluctuations between financial periods and as a
      method of equating TCE revenue generated from a voyage charter to
      time charter revenue.
 
 The
following table shows revenues attributed to our principal
cargoes:




Year
      Ended December 31,2006
              
              2005
              
              Increase
      (Decrease)Description
              
              In
      Thousands
              
              As
      a % of Total Voyage Revenue
              
              In
      Thousands
              
              As
      a % of Total Voyage Revenue
              
              In
      Thousands
              
              %Steel
      products
              
              $
              68,921
              
              
              36.5
              
              $
              71,952
              
              
              41.0
              
              $
              (3,031
              )
              
              (4.2
              )Metal
      concentrates
              
              
              27,473
              
              
              14.5
              
              
              26,070
              
              
              14.8
              
              
              1,403
              
              
              5.4Other
      bulk cargo
              
              
              25,027
              
              
              13.3
              
              
              20,485
              
              
              11.7
              
              
              4,542
              
              
              22.2Agricultural
      products
              
              
              23,152
              
              
              12.2
              
              
              8,426
              
              
              4.8
              
              
              14,726
              
              
              174.8Project
      cargo
              
              
              11,884
              
              
              6.3
              
              
              1,164
              
              
              0.7
              
              
              10,720
              
              
              921.0Rolling
      stock
              
              
              9,739
              
              
              5.2
              
              
              14,385
              
              
              8.2
              
              
              (4,646
              )
              
              (32.3
              )General
      cargo
              
              
              6,878
              
              
              3.6
              
              
              9,884
              
              
              5.6
              
              
              (3,006
              )
              
              (30.4
              )Fertilizers
              
              
              6,499
              
              
              3.4
              
              
              14,596
              
              
              8.3
              
              
              (8,097
              )
              
              (55.5
              )Automotive
      products
              
              
              4,568
              
              
              2.4
              
              
              3,880
              
              
              2.2
              
              
              688
              
              
              17.7Other
              
              
              4,871
              
              
              2.6
              
              
              4,754
              
              
              2.7
              
              
              117
              
              
              2.5Total
      voyage revenue
              
              $
              189,012
              
              
              100.0
              
              $
              175,596
              
              
              100.0
              
              $
              13,416
              
              
              7.6
  Table of Contents
 45
 Time
charter revenue
 
 Time
charter revenue decreased 11.7% for 2006 as compared to 2005. As mentioned in
components of revenue and expense above, the key factors driving time charter
revenue are the number of days that vessels are chartered out and the daily
charter hire rates.
  Average
charter hire rate decreased $2,111 per day, or 12.6%, to $14,674 per day for
2006 from $16,785 per day for 2005. Charter hire rates are set, to a significant
degree, by the market and depend on the relationship between the demand for
ocean freight transportation and the availability of appropriate vessels. The
decrease in average time charter rates for 2006 compared to 2005 is reflective
of higher than usual rates that we received in 2005. Charter hire rates improved
during the second half of 2006 as the overall worldwide shipping markets have
improved.
 
 During
2006 and 2005, we had two vessels (the Navajo Princess and Inca Maiden) chartered-out
with NYK, since January 2004 and November 2003, respectively. These charters are
renewable every six months. The average daily rates for 2006 and 2005 are
$14,218 and $15,267, respectively, which made up $10.1 million and $11.1 million
of time charter revenue, respectively. At December 31, 2006, these time charters
were due to expire in September and July 2007, respectively.
 
 The
number of vessels time chartered out, time charter days, and daily charter rates
for the years 2006 and 2005 are as follows:


Year
      Ended December 31,2006
            
            
            2005Number
      of vessels (1)
            
            
            12
            
            
            
            12Time
      Charter days (2)
            
            
            4,301
            
            
            
            4,257Daily
      charter hire rates (3)
            
            $
            14,674
            
            
            $
            16,785Daily
      time charter equivalent rates (4)
            
            $
            13,604
            
            
            $
            15,797




(1)
              Weighted
      average number of vessels chartered out.(2)
              Number
      of days vessels earned charter hire.(3)
              Weighted
      average charter hire rates.(4)
              Time
      Charter Equivalent or "TCE" rates for vessels that are time chartered out,
      are defined as time charter revenue during the year reduced by commissions
      divided by the number of available days during the year.  No
      deduction is made for vessel or general and administrative expenses. 
      TCE is an industry standard for measuring and analyzing fluctuations
      between financial periods and as a method of equating TCE revenue
      generated from a voyage charter to time charter revenue. No voyage
      expenses are deducted because they are not
  applicable.
 
 The
following table shows the change in the number of freight voyage days and time
charter days in 2006 as compared to 2005.


Year
      Ended December 31,2006
            
            2005
            
            Increase
      (Decrease)Freight
      voyage days
            
            
            7,818
            
            
            6,628
            
            
            1,190
            
            
            18.0
            %Time
      charter days
            
            
            4,301
            
            
            4,257
            
            
            44
            
            
            1.0
            %Total
      voyage days
            
            
            12,119
            
            
            10,885
            
            
            1,234
            
            
            11.3
            %




Table of Contents
 46


Voyage
expense
 
 Voyage
expense consists of costs attributable to specific voyages. The number of voyage
days is a significant determinant of voyage expense as well as commissions and
bunker fuel costs.
 
 The
principal components of voyage expense were as follows:


Year
      Ended December 31,2006
                
                2005
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Voyage Expense
                
                As
      a % of Revenue
                
                In
      Thousands
                
                As
      a % of Voyage Expense
                
                As
      a % of Revenue
                
                In
      Thousands
                
                Percentage
                
                As
      a % of RevenueFuel
      expense
                
                $
                37,041
                
                
                44.5
                
                
                14.6
                
                $
                27,962
                
                
                37.1
                
                
                11.3
                
                $
                9,079
                
                
                32.5
                
                
                3.3Commission
      expense
                
                
                10,365
                
                
                12.4
                
                
                4.1
                
                
                12,570
                
                
                16.7
                
                
                5.1
                
                
                (2,205
                )
                
                (17.5
                )
                
                (1.0
                )Port
      call expense
                
                
                17,023
                
                
                20.4
                
                
                6.7
                
                
                17,021
                
                
                22.6
                
                
                6.9
                
                
                2
                
                
                
                
                
                (0.2
                )Stevedore
      and othercargo-related
      expense
                
                
                11,968
                
                
                14.4
                
                
                4.7
                
                
                10,901
                
                
                14.5
                
                
                4.4
                
                
                1,067
                
                
                9.8
                
                
                0.3Miscellaneous
      voyageexpense
                
                
                6,857
                
                
                8.3
                
                
                2.7
                
                
                6,837
                
                
                9.1
                
                
                2.8
                
                
                20
                
                
                0.3
                
                
                (0.1
                )Voyage
      expense
                
                $
                83,254
                
                
                100.0
                
                
                32.8
                
                $
                75,291
                
                
                100.0
                
                
                30.5
                
                $
                7,963
                
                
                10.6
                
                
                2.3


Voyage
expense increased 10.6% for 2006 as compared to 2005, principally due to an
increase in fuel expense.
  Voyage
expense as a percentage of total revenue increased 2.5% to 32.8% for 2006 as
compared to 30.3% of total revenue for 2005, and was primarily due to an
increase in fuel expense which could not be fully recovered from our
customers.
  The 32.5%
increase in fuel expense was due to an increase in the average price per metric
ton ("MT") and an increase in consumption. For 2006, the average price per MT
increased to $367 per MT as compared to $300 per MT for 2005. Consumption also
increased for 2006 to 100,930 MT from 93,294 MT for 2005. Average fuel cost
per freight voyage day was $4,738 during 2006 and $4,219 during
2005.
  The 17.5%
decrease in commission expense for 2006 as compared to 2005 was primarily due to
the re-characterization of expenses due to our acquisition of TBS Shipping
Services in June 2005 in connection with our initial public
offering.
  Port call
expense for 2006 as compared to 2005 was flat. The key factors driving port call
expense are the number of port calls made by vessels, and to a lesser extent,
port days. The number of port calls decreased to 853 port calls for 2006 from
873 port calls for 2005.
 
 The 9.8%
increase in stevedore and other cargo-related expense for 2006 as compared to
2005 was primarily due to an increase in cargo volumes. Cargo volumes increased
to 4,367,779 revenue tons for 2006 from 3,170,031 revenue tons for 2005.
 Stevedore and other cargo-related expense fluctuate based on cargo volumes
and the shipping terms that the cargo is booked under.  The increase
in stevedore and other cargo-related costs due to the increase in
cargo volumes was partially offset by an increase in cargo booked under
"free-in free-out" terms.  For analysis purposes we group cargoes into
three categories: (1) cargo booked under “free-in free-out" terms which are
shipments that the customer pays all or part of the costs of loading and
unloading, (2) cargo booked under "full liner" terms, which are shipments where
we bear the costs of loading and unloading and (3) a combination of free-in
free-out and full liner terms.
  Table of Contents
 47
 Vessel
expense
 
 Vessel
expense consists of costs we incur to own and maintain our fleet that are not
allocated to a specific voyage such as charter hire rates for vessels we
charter-in, maintenance, insurance, and crewing expenses for vessels we
control.
 
 Vessel
expense for 2005 has been retrospectively adjusted for the change in the method
of accounting for drydocking costs to the deferral method as previously
discussed. The impact of this accounting change decreased owned vessel expense
by $3,898,029 in 2005 from the amount previously reported.
 
 The
following table sets forth the basic components of vessel
expense:




Year
      Ended December 31,2006
              
              2005
              
              Increase
      (Decrease)In
      Thousands
              
              As
      a % of Vessel Expense
              
              In
      Thousands
              
              As
      a % of Vessel Expense
              
              In
      Thousands
              
              PercentageChartered-in
      vessel expense
              
              $
              16,503
              
              
              26.1
              
              $
              31,119
              
              
              45.3
              
              $
              (14,616
              )
              
              (47.0
              )Owned
      vessel expense
              
              
              44,750
              
              
              70.8
              
              
              34,839
              
              
              50.7
              
              
              9,911
              
              
              28.4Space
      charter expense
              
              
              1,952
              
              
              3.1
              
              
              2,753
              
              
              4.0
              
              
              (801
              )
              
              (29.1
              )Vessel
      expense
              
              $
              63,205
              
              
              100.0
              
              $
              68,711
              
              
              100.0
              
              $
              (5,506
              )
              
              (8.0
              )


The 8%
decrease in vessel expense in 2006 as compared to 2005 was primarily due to a
reduction in the number of chartered-in vessels and hire rates that we paid for
chartered-in vessels offset by an increase in our owned vessel
fleet.
 
 The 47.0%
decrease in chartered-in vessel expense in 2006 as compared to 2005 was due to
our chartering-in vessels for 836 fewer vessel days in 2006. We chartered-in
vessels for 1,103 days during 2006 compared to 1,939 days during 2005. Adding to
the decrease, the average rate per day we paid to charter in vessels decreased
$1,087 per day to $14,962 per day in 2006 compared to $16,049 per day in
2005.
   
 The 2.8%
decrease in vessel expense as a percentage of total revenue to 24.9% of total
revenue for 2006 as compared to 27.7% of total revenue for 2005, was primarily
due to a growth of our controlled fleet which increased owned vessel expense and
decreased chartered-in vessel expense.
 
 Depreciation
and amortization
 
 The $10.4
million increase in depreciation and amortization expense to $29.9 million in
2006 as compared to $19.5 million in 2005 was mainly due to the growth of our
controlled fleet, which increased to an average of 32 vessels in 2006 from an
average of 25 vessels in 2005.
 
 Table of Contents
 48
 Management
fees
 
 The
following table sets forth the components of management fees:




Year
      Ended December 31,2006
                
                2005
                
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Management Fees
                
                In
      Thousands
                
                As
      a % of Management Fees
                
                
                In
      Thousands
                
                PercentageTechnical
      management fees
                
                
                
                
                
                
                
                $
                1,413
                
                
                53.8
                %
                
                $
                (1,413
                )
                
                (100.0
                )Operational
      management fees
                
                
                
                
                
                
                
                
                1,211
                
                
                46.2
                %
                
                
                (1,211
                )
                
                (100.0
                )Total
      management fees
                
                $
                
                
                
                
                
                $
                2,624
                
                
                100.0
                %
                
                $
                2,624
                
                
                100.0




We paid
management fees to our affiliated service companies, Roymar for technical
management and TBS Shipping Services for operational management. In connection
with our initial public offering, we purchased the stock of these two service
companies, and accordingly, their results of operations have been included in
our consolidated financial statements as of the date of their acquisition in
June 2005. Management fees shown above in 2005 include management fees through
the date of acquisition. After the acquisition, when these affiliated companies
became subsidiaries of the company, we continued to pay management fees;
however, the fees have been eliminated in our consolidated financial statements
and the actual costs of operations of these service companies have been included
in general and administrative expenses.
  Technical
management fees before elimination were $4.6 million in 2006 and $3.6 million in
2005. For 2006, the entire amount of technical management fees was eliminated in
consolidation, while in 2005 only the amount of technical management fess
subsequent to our acquisition of the company in June 2005, as discussed above,
of $2.2 million was eliminated. The increase in technical management fees before
elimination was primarily due to an increase in the average number of vessels
under management, which increased to an average of 32 vessels in 2006 from an
average of 25 vessels in 2005.
  Operational
management fees before elimination were $3.4 million in 2006 and $3.0 million in
2005. For 2006 the entire amount of operational management fees was eliminated
in consolidation, while in 2005 only the amount of operational management fess
subsequent to our acquisition of the company in June 2005, as discussed above,
of $1.8 million was eliminated. Operational management fees are based on voyage
days, which increased 1,234 days or 11.3% to 12,119 days in 2006 as compared to
10,885 days in 2005.
 
 Table of Contents
 49
 General
and administrative expense
  The $9.7
million increase in general and administrative expense for 2006 as compared to
2005 was primarily due to $3.5 million of additional professional fees that we
incurred as a public company, including consulting fees dealing with the
re-engineering of certain of our business processes to better meet our business
needs as we grow. General and administrative expenses also increased due to a
$4.2 million increase in salary and related costs (see below for a further
explanation), a $0.4 million increase in travel costs and a $1.6 million
increase in other and miscellaneous expenses (principally office overhead costs)
for 2006 as compared to 2005.
 
 The
increase in salary and related costs is a result of the timing of our
acquisition of Roymar and TBS Shipping Services in late June 2005. Roymar and
TBS Shipping Services account for all of our employees and prior to our
acquisition of these companies charged us a management fee and commissions.
Salary and related costs for 2006 was approximately $16.4 million and represents
12 months of payroll costs. Salary and related costs for 2005 was approximately
$12.1 million and represents 6 months of payroll costs from the date of our
acquisition of Roymar and TBS Shipping Services plus one-time salary and related
costs. Included in 2005 salary and related costs is a one-time bonus of $2.2
million paid in June 2005 to our chief financial officer and a one-time share
grant to our employees and related payroll taxes of $1.9 million made in
connection with our initial public offering. Deducting these one-time costs and
annualizing our 2005 payroll and related costs, payroll and related costs for
2006 are slightly higher.
  Other and
miscellaneous costs, such as travel and representation costs, rents, utilities
and other overhead costs for 2006 include a full year of costs. However, as with
salary and related costs, other and miscellaneous costs for 2005 include only
one-half year of costs from the date of our acquisition of Roymar and TBS
Shipping Services in late June 2005.
  Prior to
our acquisition of Roymar and TBS Shipping Services, we were charged management
fees and commissions and these costs were reflected as management fees and as
commissions included in voyage expense and not as general and administrative
costs.
  Income
from operations
  The $12.1 million decrease in income
from operations for 2006 as compared to 2005, was mainly attributable to an
increase in voyage expense, specifically fuel costs, as well
as depreciation, and general and administrative expenses reduced by the
gain on sale of vessel and a decrease in management fees, commissions and vessel
expense. As discussed above, due to our acquisition of Roymar and TBS Shipping
Services in late June 2005, management and commission charges were eliminated in
the consolidation of our financial statements and the related costs were
reflected in general and administrative expense. The net increase in expenses
was partially offset by an increase in revenue. For the same reasons, our
operating margin decreased to 20.6% for 2006 from 25.9% for
2005.
  Interest
expense
 
 The $2.3
million increase in interest expense for 2006 as compared to 2005 was primarily
due to higher average debt levels and higher interest rates during 2006 as
compared to 2005.
 
 
 Balance
Sheet
  December
31, 2007 as compared to December 31, 2006
  Charter
Hire Receivables
  Our gross
charter hire receivables balance at December 31, 2007 and December 31, 2006 was
$30.6 million ($30.1 million plus the allowance for doubtful accounts of $0.5
million) and $25.8 million ($25.4 million plus the allowance for doubtful
accounts of $0.4 million), respectively.
 
 Table of Contents
 50
 In
accordance with our bad debt allowance policy, we provide for a percentage
of outstanding receivables based on prior years' experience. Our
management also identifies specific receivables that it believes we will have
difficulty collecting and creates additional allowances for those balances. The
aggregate allowance totaled $0.5 million and $0.4 million at December 31, 2007
and December 31, 2006, respectively, including an additional allowance at
December 31, 2006 of $0.1 million. In 2007 and 2006, collections of charter hire
receivables improved due to tighter collections efforts, and accordingly,
the allowance, as a percentage of charter hire receivable
decreased.
  Fuel
and Other Inventories
  Fuel and
other inventories at December 31, 2007 increased $3.8 million to $11.1 million
at December 31, 2007 from the December 31, 2006 balance of $7.3 million.
Approximately $2.7 million or 88.1% of the increase in fuel inventory at
December 31, 2007 as compared to December 31, 2006 was due to an increase in
average fuel prices. At December 31, 2007, the combined average price for
industrial fuel oil/marine diesel oil ("IFO/MDO") increased to $537 per metric
ton from a combined average price of $346 per metric ton at December 31,
2006.   There was also a $0.4 million increase due to higher
quantities of fuel on board the vessels at December 31, 2007 as compared to
December 31, 2006. Changes in fuel quantities result principally from the
timing of vessel refueling and the number of vessels having fuel
inventory.  The number of vessels having fuel inventory will fluctuate
from period to period based on the number of vessels on time
charter.  When a vessel is time chartered out, the fuel on board the
vessel is sold to the charterer and later repurchased at a price stipulated in
the charter party agreement. Vessels having fuel included in inventory
increased to 24 vessels as of December 31, 2007 as compared to 23 vessels as of
December 31, 2006. There was also an increase of $0.6 million in lubricating oil
on board the vessels at December 31, 2007, which results principally from the
timing of deliveries to the vessels.
  Off-Balance
Sheet Arrangements
 
 We have
outstanding at December 31, 2007, interest rate swap agreements having a total
notional amount of $81.6 million.  See section "7A Quantitative and
Qualitative Disclosures about Market Risk" for additional
information.
 
 Other
Commitments
  Our
contractual obligations as of December 31, 2007 are shown in the following
table (in thousands):




Total
              
              Less
      than 1 year
              
              1-3
      years
              
              3-5
      years
              
              More
      than 5 yearsDebt
      Obligations (1)
              
              $
              180,166
              
              $
              22,699
              
              $
              113,856
              
              $
              21,788
              
              $
              21,823Estimated
      variable interest payments (2 )
              
              
              37,921
              
              
              11,753
              
              
              16,344
              
              
              4,580
              
              
              5,244Operating
      Lease obligations (3)
              
              
              44,128
              
              
              13,183
              
              
              14,005
              
              
              10,860
              
              
              6,080Other
      Purchase obligations (4) (5) (6)
              
              
              291,424
              
              
              183,124
              
              
              108,300Total
      contractual cash obligations
              
              $
              553,639
              
              $
              230,759
              
              $
              252,505
              
              $
              37,228
              
              $
              33,147




1)
              As
      of December 31, 2007, we had $180.2 million of indebtedness outstanding
      under loans to our subsidiaries that is guaranteed by TBS International
      Limited.  Outstanding indebtness at December 31, 2007 is composed of:
      $50.5 million under the $80.0 million term loan with Bank of America, $4.3
      million under the $7.2 million credit facility with the Royal Bank of
      Scotland plc, $70.4 million under the $80.0 million revolving credit
      facility with Bank of America, $35.0 million under the $150.0 million with
      The Royal Bank of Scotland for the new vessel building credit
      facility, and $20.0 million under the $40.0 million credit facility with
      Credit Suisse.
  Table of Contents
 51
 2)
              Amounts
      for all periods represent our estimated future interest payments on debt
      facilities outstanding at December 31, 2007 based on an estimated annual
      interest rate of 7%, which approximates interest rates at December 31,
      2007, including debt hedged with interest rate swap
      agreements.
  3)
              Operating
      lease obligations include obligations under seven-year bareboat charters
      for the Seminole
      Princess and the Laguna
      Belle.
  4)
              We
      entered memoranda of agreement to purchase the following vessels as of
      December 31, 2007 (dollars in
thousands):




Former
      VesselName
              
              New  VesselName
              
              Purchase
      Price
              
              Deposits
      2007
              
              Purchase
      Obligations due less than 1 yearYpermachos
              
              Zuni
      Princess
              
              $
              26,000
              
              $
              2,600
              
              
              23,400Gebe
      Oldendorff
              
              Oneida
      Princess
              
              
              32,000
              
              
              3,200
              
              
              28,800African
      Sanderling
              
              Hopi
      Princess
              
              
              18,360
              
              
              1,836
              
              
              16,524Diasozousa
              
              Mohave
      Maiden
              
              
              26,000
              
              
              2,600
              
              
              23,400Wedellsborg
              
              Ottawa
      Princess
              
              
              23,000
              
              
              2,300
              
              
              20,700Frijsenborg
              
              Caribe
      Maiden
              
              
              23,000
              
              
              2,300
              
              
              20,700$
              148,360
              
              $
              14,836
              
              $
              133,524


5)
            We
      had outstanding purchase obligations at December 31, 2007 to build and
      purchase six new vessels as follows (dollars in
  thousands):




Owning
      Subsidiary
              
              Hull
      Number
              
              Total
              
              Less
      than 1 year
              
              1-3
      yearsArgyle
      Maritime Corp.
              
              NYHS200720
              
              $
              21,400
              
              $
              14,000
              
              $
              7,400Caton
      Maritime Corp.
              
              NYHS200721
              
              
              28,400
              
              
              14,000
              
              
              14,400Dorchester
      Maritime Corp.
              
              NYHS200722
              
              
              28,400
              
              
              7,000
              
              
              21,400Longwoods
      Maritime Corp.
              
              NYHS200723
              
              
              21,400
              
              
              
              
              
              21,400McHenry
      Maritime Corp.
              
              NYHS200724
              
              
              28,400
              
              
              7,000
              
              
              21,400Sunswyck
      Maritime Corp.
              
              NYHS200725
              
              
              28,400
              
              
              7,000
              
              
              21,400Total
              
              $
              156,400
              
              $
              49,000
              
              $
              107,400





Approximately
$115.0 million of the purchase obligation for the new vessels will be funded
under the $150.0 million credit facility with The Royal Bank of Scotland for the
newbuilding program.
 
 6)
                In
      connection with the newbuilding program, we entered into a contract for
      the supervision and inspection of vessels under
      construction.  As of December 31, 2007, commitments under the
      contract were $1.5 million, with $0.6 million due within one year and $0.9
      million due between one and three
years.
  Liquidity
and Capital Resources
  Our
principal sources of funds are operating cash flows and long-term bank
borrowings. Our principal uses of funds are: (a) capital expenditures to grow
and maintain the quality of our fleet to ensure compliance with international
shipping standards and regulations; (b) maintain working capital to meet
requirements, and (c) principal repayments on outstanding loan facilities and
capital lease obligations.  At December 31, 2007, cash and cash
equivalent balances were higher than cash and cash equivalent balances at
December 31, 2006, because we have drawn on our revolving credit facility in
anticipation of paying amounts due on vessels scheduled for delivery during
the first quarter of 2008.
  Table of Contents
 52
 Financing
Activities 2007
  During
2007, we increased our working capital with the following funding
arrangements:
 
 ·
                In
      January, we added an additional $20.0 million under our existing $140.0
      million Bank of America Credit Facility; term loan and revolver (“BA
      Credit Facility”).  We increased the BA Revolving Credit
      Facility by $15.0 million, from $65.0 million to $80.0 million, and we
      borrowed an additional $5.0 million under the BA Term Credit
      Facility.  Outstanding borrowings under the BA Revolving Credit
      Facility increased $15.6 million between December 31, 2006 and
      December 31, 2007 because we had additional draw downs to fund vessel
      acquisitions.
 
 ·
                In
      March, we entered into a credit agreement with a syndicate of lenders led
      by The Royal Bank of Scotland for a $150.0 million term loan credit
      facility (the "RBS NB Credit Facility") to finance the building and
      purchase of six new multipurpose vessels with retractable
      tweendecks.  At December 31, 2007, we had drawn down $35.0
      million under the RBS NB Credit
Facility.
 
 ·
                In
      December, we entered into a credit agreement with Credit Suisse for a
      $40.0 million term loan credit facility to replenish working capital used
      to purchase two vessels.  We drew down $20.0 million in December
      after the delivery of the Arapaho Belle.Theremaining $20.0
      million was drawn down in February 2008 after the delivery of the vessel
      Oneida
      Princess.
 
 ·
                Also
      in December, we entered into a commitment with a syndicate of lenders led
      by DVB Group Merchant Bank (Asia) Ltd. for a $75.0 million credit
      facility to replenish funds used to exercise a purchase option for seven
      tweendeck vessels chartered-in under a sale-leaseback arrangement, to
      fund additional vessel acquisitions and for general corporate purposes. We
      completed the loan transaction and received the funds in January
      2008.
  Investing
Activities 2007
  Using
capital from operations and borrowings, we made the following
acquisitions, capital improvements and vessel sales:
  For
      the Year Ended December 31,2007
              
              2006(in
      millions)Vessels
      purchased
              
              $
              85.6
              
              $
              69.30Take
      over costs
              
              
              2.8
              
              
              4.6Construction
      in progress, excluding deferredfinancing
      costs of $2.0 million in 2007
              
              
              60.6
              
              
              0.3Deferred
      drydocking costs
              
              
              23.3
              
              
              0Vessels
      improvements and vessel equipment
              
              
              27.3
              
              
              18.1Other
      fixed asset additions, principally computer equipment
              
              
              3.9
              
              
              5.5203.5
              
              
              97.8Less
      Vessel deposit paid in 2006 for a vessel delivered in 2007
              
              
              (1.7
              )Total
      Vessel acquisitions / capital improvement
              
              $
              201.8
              
              $
              97.8




·
              We
      contracted to purchase nine vessels, including six vessels that are
      scheduled for delivery during the first quarter of 2008, having an
      aggregate cost of $234.0 million.  In connection with the
      acquisitions of these vessels we paid $85.6 million for vessels delivered
      during 2007, including $1.7 million paid in 2006.  We incurred
      takeover costs of $2.8 million and we made deposits of $14.8 million for
      vessels scheduled to be delivered in 2008.  We used cash from
      operations and borrowings to fund the
  acquisitions.
 
 Table of Contents
 53
 ·
              Our
      construction program to build six newly designed multipurpose vessels with
      retractable tweendecks was started.  These ships were designed
      by a TBS team drawn from all phases of our operation specifically to
      optimize our efficient cargo transportation in our trade lanes, support
      the requirements of our loyal customer base and enhance the growth of our
      business.  During 2007, we made payments totaling $60.6 million,
      which is comprised of $55.9 paid to the Chinese ship yard  $2.9
      million in fees and capitalized interest (excluding $2.0 million in fees
      classified as deferred finance cost in the consolidated statements of cash
      flows) and $1.8 million for design and professional fees. Two of the
      vessels are schedule for delivery in 2009, and four vessels are scheduled
      for delivery in 2010. The project is being funded from our RBS NB Credit
      Facility and operating cash flow. To the extent that additional funds are
      required, we will provide these amounts with our BA Revolving Credit
      Facility.  Steel cutting has been completed for one vessel and
      keel laying is scheduled to be accomplish in March 2008. The ship yard
      began steel cutting for a second vessel at the end of December
      2007.
 
 ·
              During
      2007 we drydocked 21 vessels for a total cost of $23.3 million, including
      15 vessels that we acquired during the last three years that were
      drydocked for the first time for a cost of $16.8 million.  Total
      drydock costs of $23.3 million includes approximately $8.8 million of
      elective steel renewal and reinforcements that might be required during
      the next five to ten years. The elective steel renewal and reinforcements
      were made in conjunction with the scheduled vessel drydockings to upgrade
      each vessel to our high standards.
 
 ·
              Vessel
      improvements and vessel equipment additions during 2007 totaled $27.3
      million.  This included $4.2 million in leasehold improvements
      made to the Laguna
      Belle and Seminole Princess in
      connection with the installation of retractable decks in three of the
      cargo holds of each vessel. The conversion gave us extra flexibility in
      employing these vessels in our
business.
 
 ·
              Net
      proceeds of $39.5 million ($45.0 million gross proceeds less sellers
      credit of $5.5 million) from the sale-lease back of the Seminole PrincessandLaguna
      Belle;an
      additional $12.8 million from the sale of the of the Maya Princess; and $9.7 million from
      the casualty loss and sale of the Huron Maiden offset capital expenditures
      and debt repayment by $62.0
million.
 
 Our business
is capital intensive and its future success will depend on our ability to
maintain a high-quality fleet through the ongoing maintenance of our currently
owned ships and the acquisition of newer ships. These acquisitions will be
principally subject to management's expectation of future market conditions as
well as our ability to acquire appropriate ships on favorable
terms.
  In connection
with the implementation of our fleet growth and improvement plan we signed a
commitment with AIG Commercial Equipment Finance, Inc. for a $35.0 million
credit facility to replenish operating funds used to purchase the Mohave Maiden (formerly Diasozousa), the Zuni Princess(formerlyYpermachos)and the Hopi Princess (formerly African Sanderling) on
February 7, 2008.  Drawdown on this facility was completed on February
29, 2008.  We also entered into a commitment with Bank of America on
February 8, 2008, to amend and restate the existing BA Credit
Facility.  Under the commitment, Bank of America would lead a
syndication of commercial lenders that would increase the credit facility to
$200.0 million.  The amended credit facility would be composed of a
$100.0 million term loan facility and a $100.0 million revolving credit facility
and would be used to make payments toward the BA Revolving Credit Facility,
replenish operating funds used to payoff the RBS Credit Facility collateralized
by the Wichita
Belle(which is
to be included as collateral under the amended BOA Credit Facility) and for
general corporate purposes.
  We
believe that our current cash balance, as well as operating cash flows and
available borrowings under our existing credit facilities, will be sufficient to
meet our liquidity needs for the next year.
 
 Table of Contents
 54
 Financing
Activities 2006
 
 During
2006, our operating capital was supplemented with:
 
 ·
              In
      July, we added an additional $75.0 million under our BA Term Credit
      Facility and during the year we drew down $58.0 million under the BA
      Revolving Credit Facility. Deferred financing costs paid relating to these
      additional borrowings was $3.1
million.
 
 ·
              During
      the year, we made debt repayments of $80.4 million to existing lenders in
      addition to $29.3 million in scheduled debt principal payments and $3.3
      million in capital leases principal payments. In the third quarter 2006,
      we used the $3.2 million proceeds from the sale of the Dakota Belle to pay
      down the BA Revolving Credit
Facility.
 
 Investing
Activities 2006
 
 Funds
available from borrowings and operating capital were used for:
 
 ·
              We
      purchased four vessels, all delivered in 2006, having an aggregate cost of
      $69.3 million. We incurred $4.6 million for takeover costs and made
      deposits of $1.7 million for a vessel to be delivered in 2007. We used
      cash from borrowings and operations to fund the
    acquisitions.
 
 ·
              We
      made vessel improvements and vessel equipment additions totaling $18.1
      million. Additionally $5.8 million was used to purchase other assets
      primarily grabs and computer
equipment.
  Dividend Policy
 We have
not declared or paid and do not anticipate declaring or paying any cash
dividends on our common shares in the foreseeable future.  The
provisions of some of our debt instruments and related loan agreements prevent
some of our subsidiaries from paying dividends to TBS International Limited,
which may restrict our ability to pay dividends on our common
shares.  The timing and amount of future cash dividends, if any, would
be determined by our board of directors and would depend upon our earnings,
financial condition, cash requirements and obligations to lenders at the
time.
  Pursuant
to Bermuda law, we cannot declare or pay a dividend, or make a distribution out
of contributed surplus, if there are reasonable grounds for believing that we
are, or after the payment would be, unable to pay our liabilities as they become
due, or that the realizable value of our assets would thereby be less than the
aggregate of our liabilities, our issued share capital and our share premium
accounts.
  Because
we are a holding company with no material assets other than the stock of our
subsidiaries, our ability to pay dividends will depend on the earnings and cash
flow of our subsidiaries and their ability to pay dividends to us.
  Significant
Related Party Transactions
  Messrs.
James W. Bayley, Lawrence A. Blatte, Gregg L. McNelis and Joseph E. Royce, are
collectively the beneficial owners of approximately 59.6% of our issued and
outstanding common shares.  Each of these individuals is also a
principal of and, together with Alkis N. Meimaris who retired from the Company
effective January 1, 2006, control TBS Commercial Group Ltd. ("TBS Commercial
Group ") and Beacon Holding Ltd. ("Beacon").  Messrs. Royce,
McNelis, Blatte, Bayley, and Meimaris own 31%, 15%, 9%, 36%, and 9%,
respectively of each of TBS Commercial Group and Beacon.  We have
established long-term commercial and operational relationships with other
commercial agency service companies that are located in various overseas ports
in which we conduct our business.  The majority of these companies are
wholly- or partly-owned direct or indirect subsidiaries of either TBS Commercial
Group or Beacon.  We believe that the transactions described below are
on terms no less favorable than those that could be obtained pursuant to
arm's-length negotiations with independent third parties.  Under the
arrangements with these commercial agents, we generally pay a commission on
freight revenue booked by the agent, which is based upon market rates, and on
certain freights where they attend to the receivers of the
cargo.  Commissions paid to TBS Commercial Group and Beacon for
commercial agency services were  approximately $7.1
million,  $5.2 million and $5.3 million for the years ended December
31, 2007, 2006, and 2005, respectively.  Port agency fees paid to TBS
Commercial Group and Beacon are fees to the agents for attending vessels while
in port, which are also based on market rates for such services.  For
the years ended December 31, 2007, 2006, and 2005, we paid approximately $1.0
million, $1.0 million and $0.9 million, respectively.
  Table of Contents
 55
 TBS
Commercial Group Ltd. made payments for consulting fees of $60,000 to Mr. Blatte
during 2007 and $100,000 each to Mr. Royce and Mr. Blatte during
2006.
  Globe
Maritime Limited ("Globe") occasionally acts as a broker for chartering and
vessel sales and purchases. Globe is owned by James W. Bayley who is a Company
officer and member of the board of directors.  During 2007, 2006 and
2005, we paid Globe approximately $0.2 million, $0.5 million and $49 thousand,
respectively.
  Nautica
Groupe, Ltd. is owned by TBS Commercial Group which is owned by individuals
who own a majority of TBS’s common shares, some of whom are members of our board
of directors. For the year ended December 31, 2005 we paid commissions of $25
thousand to Nautica Groupe, Ltd. under a lease agreement with the previous owner
of the vessel Comanche
Belle. Commissions to Nautica Groupe Ltd. ended on November 16, 2005 when
we exercised the purchase option and acquired the vessel.
  During
2005 the Company paid $503 thousand to Lawrence A. Blatte for legal services.
Mr. Blatte became a senior executive vice president of the Company in March
2005, after which time, he did not provide legal services to the Company or any
of its subsidiaries and affiliates, and accordingly, received no
further  payments for legal services.  In addition, prior to
March 2005, TBS Shipping Services paid Mr. Blatte $150 thousand for legal
services. After March 2005, Mr. Blatte did not provide legal services to TBS
Shipping Services and no further payments for legal services were
made.
 
 The Company performs all of its
operational functions through two subsidiary management companies.
 Roymar
provides technical ship management (obtaining crews, coordinating maintenance
and repairs, drydocking, etc.) and receives a monthly, per vessel, management
fee of $12,029.   TBS Shipping Services provides commercial and
operational management including arranging insurance, claims processing, general
administrative services and port agent services.  A monthly, per
vessel management fee of $8,447 is paid for operational management services and
a commission of approximately 2.5% of revenue is paid for commercial agency
services.  Prior to our initial public offering in June 2005, Roymar
and TBS Shipping Services were owned by individuals who own a majority of
International’s common shares, some of whom are members of our board of
directors.  In June 2005, International purchased all the stock of the
companies and, accordingly, the results of operations of Roymar and TBS Shipping
Services have been included in our consolidated financial statements from the
date of acquisition.  Consequently, while we continued to pay
management fees and commissions, the fees and commissions are eliminated in
consolidation.  Included in the 2005 consolidated statement of income,
for the period prior to the Company’s  acquisition in June 2005, are
management fees paid to Roymar and TBS Shipping Services of $1.4 million and
$1.2 million, respectively, and commissions paid to TBS Shipping Services for
commercial agency services of $2.6 million.
 
 TBS
Shipping Services maintains an office in Yonkers, New York that is leased from
our chairman and chief executive officer, Joseph E. Royce.  During
2007, 2006 and 2005, payments to Mr. Royce, as required under the lease, totaled
$240,000 per year.
  Our board
has delegated authority to the compensation committee to review and approve or
ratify on an annual basis all transactions with our executive officers,
directors, and affiliates.
  Summary
of 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 accounting principles generally accepted in the United States,
or GAAP. The preparation of those financial statements requires us to make
estimates and judgments that affect the reported amount 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 or
conditions.
 
 Critical
accounting policies are those that reflect significant judgments or
uncertainties and could result in materially different results under different
assumptions and conditions. We have described below what we believe are our most
critical accounting policies that involve a high degree of judgment and the
methods of their application. For a description of all of our significant
accounting policies, see note "2 -Summary of Significant Accounting Policies" to
our consolidated financial statements.
 
 Table of Contents
 56
 Allowance
for doubtful accounts
 We assess
the recoverability of doubtful accounts and we create an allowance for the
possibility of non-recoverability. Although we believe our allowances to be
based on fair judgment at the time of their creation, it is possible that an
amount under dispute is not recovered and the estimated allowance for doubtful
recoverability is inadequate.
 
 Claims
Receivable
 Claims
receivable represent claims for reimbursement of expenses incurred that have
been or will be made under our hull and machinery and P&I insurance
coverage. We record the probable amount that we expect to recover from
insurance, net of the applicable deductible.
  Fuel
and Other Inventories
 Fuel and
other inventories, consisting primarily of fuel, lubricating oil and spare parts
aboard the vessels, are valued at the lower of cost (determined using a
first-in, first-out basis for fuel and a weighted average basis for lubricating
oil and spare parts) or fair value.
  Depreciation
 Vessels
are stated at cost, which includes contract price and other direct costs
relating to acquiring and placing the vessels in service, less accumulated
depreciation. Major vessel improvements are capitalized and depreciated over the
remaining useful lives of the vessels. Depreciation on vessels is calculated,
based on cost less estimated residual value, using the straight-line method over
the remaining useful life of the vessel.  Depreciation on vessel
improvements is calculated using the straight-line method over the remaining
useful life of the vessel. The remaining useful life of each vessel is estimated
as the period from the date the vessel is put in service to the date 30 years
from the time that the vessel was initially delivered by the shipyard.
Maintenance and repair costs that do not improve or extend the useful lives of
the vessels, other than dry dock costs discussed below, are expensed as
incurred.
  Vessel construction in
progress
 The
Company capitalizes direct and indirect costs clearly associated with the
development, design, and construction of six new vessels as these costs have a
future benefit. Costs include installments paid to the shipyard, payments made
to third parties in connection with the new vessel building program and interest
costs incurred during the construction period, which is defined as the period
from the start of construction until the date that each vessel is substantially
complete and ready for use.
 
 Drydocking
 We used
the deferral method to account for planned major maintenance. Under the deferral
method of accounting for drydocking, the actual costs incurred are deferred and
are amortized on a straight-line basis over the period through the date of the
next drydocking, which is typically 30 months.
 
 Impairment
of long-lived assets
 We are
required to review for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. An impairment is
recognized when the estimate of undiscounted future cash flows expected to be
generated by the asset is less than its carrying amount. Measurement of the
impairment loss is calculated based upon comparison of the fair value to the
carrying value of the asset. Management performs impairment analyses when
certain triggering events occur. The Company has determined that there is no
impairment of long-lived assets at December 31, 2007 and 2006.
 
 Goodwill
 Goodwill
represents the excess of the purchase price over the estimated fair value of net
assets acquired. Goodwill is reviewed annually or more frequently if events or
circumstances indicate possible impairment in accordance with SFAS No. 142
"Goodwill and Other
Intangibles Assets." This statement requires that goodwill and other
intangible assets with an indefinite life not be amortized but instead tested
for impairment at least annually. The Company has determined that there is no
impairment of goodwill as of and for the years ending December 31, 2007 and
2006.
 
 Table of Contents
 57
 Deferred
Financing Costs
 Deferred
financing costs are amortized over the term of the related financing using the
straight-line method, which is not materially different than the effective
interest method. Fees incurred in a refinancing of existing loans where there is
an extinguishment of the old loan are written off and included in debt
extinguishment gain or loss.
 
 Leases
 Leases
are classified as either capital or operating. Those leases that transfer
substantially all the benefits and risks of ownership of property to the Company
are accounted for as capital leases. All other leases are accounted for as
operating leases. Capital leases are accounted for as assets and are fully
amortized on a straight-line basis over the expected useful life of the assets.
Commitments to repay the principal amounts arising under capital lease
obligations are included in current liabilities to the extent that the amount is
repayable within one year; otherwise the principal is included in amounts due
after one year. The capitalized lease obligation reflects the present value of
future lease payments. The financing element of the lease payments is charged to
income over the term of the lease. Deferred leasing costs are
amortized over the term of the lease using the straight-line method, which is
not materially different than the effective interest method.  Rental
expense, for leases classified as operating and that contain predetermined fixed
decreases of minimum rentals during the term of the lease, is recognized on a
straight-line basis over the life of the lease, beginning with the point at
which the Company obtains control and possession of the leased
properties.  The difference between the amounts charged to operations
and amounts paid is recorded as deferred rent receivable.
 
 Revenue
recognition
 Revenue
is generally recorded when services are rendered, we have a signed charter
agreement or other evidence of an arrangement, pricing is fixed or determinable
and collection is reasonably assured. We generally employ our vessels under time
or voyage charters. With time charters, we receive a fixed charter hire per
on-hire day and are responsible for meeting all the vessel operating expenses
such as crew costs, insurance, stores and lubricants and repairs and
maintenance. Time charter revenues are recorded over the term of the charter as
service is provided. Revenue from time charters in progress at year end is
calculated using the daily charter hire rate, net of daily expenses, multiplied
by the number of voyage days on-hire through year end.
 
 In the
case of voyage charters, the vessel is contracted for a voyage between two or
more ports. We are paid for the cargo transported and we pay all voyage
expenses, such as fuel, port call expenses and commissions, as well as all
vessel operating expenses. Under a voyage charter the revenues and related
voyage expenses are recognized on the percentage of service completed at the
balance sheet date by prorating the estimated final voyage revenue and expenses
using the ratio of voyage days completed through balance sheet date to total
voyage days. The impact of recognizing voyage expenses ratably over the length
of each voyage is not materially different from the method of recognizing such
costs as incurred in accordance with EITF Issue 91-9, method 5, on both a
quarterly and annual basis. Probable losses on voyages are provided for in full
at the time such losses can be estimated. 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.Vessel operating expenses
for both voyage and time charters are expensed as incurred.
 
 Stock
Based Compensation
 The
Company adopted SFAS 123R effective January 1, 2006, using the modified
prospective method which requires measurement of compensation cost for all
stock-based awards at fair value on date of grant and recognition of
compensation over the service period for awards expected to vest.
 
 Earnings
Per Share
 Earnings
per share are based on reported net income available for common shareholders and
the weighted average number of common shares outstanding (basic) and the
weighted average total of common shares outstanding and potential common shares
(diluted).
 
 Fair
Value of Financial Instruments
 Financial
instruments, which potentially subject us to concentrations of credit risk,
consist principally of cash equivalents, charter hire receivables and debt. We
place our cash equivalents with a number of financial institutions to help limit
the amount of credit exposure to any one financial institution. Concentrations
of credit risk with respect to trade receivables are limited due to the large
number of customers comprising our customer base, and their dispersion across
many geographic areas. As of December 31, 2007, no customers accounted for more
than 10% of charter hire receivables, and as of December 31, 2006 one customer
accounted for 10.4% of charter hire receivables.
 
 Table of Contents
 58
 The
following method and assumptions were used to estimate the fair value of
financial instruments included in the following categories:
  ·
              Cash and cash equivalents and
      charter hire and claims receivable - The carrying amount
      reported
                in
      the accompanying consolidated balance sheets for cash and cash equivalents
      and charter hire and
                claims
      receivables approximates their fair value due to the current
      maturities.·
              Short-term debt - The
      carrying amount reported in the accompanying consolidated balance
      sheets
                for
      short-term debt approximates its fair value due to the current maturity of
      such instruments and their variable rates.·
              Long-term debt - The
      carrying amount of the our long-term debt approximates fair value due to
      the
                variable
      interest rates on bank borrowings and based on the current rates offered
      to us for debt of
                the
      same remaining maturities.·
              Interest Rate Swap
      - - The Company
      utilizes certain derivative financial instruments to manage interest rate
      risk. Derivative instruments are entered into for periods consistent with
      related underlying exposures and do not constitute positions independent
      of those exposures. The Company does not enter into contracts for
      speculative purposes, nor is it a party to any leveraged derivative
      instruments.  The Company is exposed to credit loss in the event
      of nonperformance by the counterparties on derivative contracts. The
      Company minimizes its credit risk on these transactions by dealing only
      with leading, credit-worthy financial institutions and, therefore, does
      not anticipate nonperformance.
  Foreign
Currency Transactions
 The
financial statements are expressed in United States dollars. Gains and losses
resulting from foreign currency transactions, which are not significant, are
included in other income.
 
 Financial
Derivative Instruments and Hedging Activities
 The
Company seeks to manage its interest rate risk associated with variable rate
borrowings with the use of derivative financial instruments. The Company
accounts for derivative financial instruments in accordance with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended
("SFAS 133"). The fair value of derivative financial instruments are recognized
as assets or liabilities at each balance sheet date, with changes in fair value
affecting net income (loss) or comprehensive income (loss) as
applicable.
  New
Accounting Pronouncements
  In
December 2007, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS")
Statement  No. 141 (revised 2007), "Business Combinations" ("SFAS
141(R)”) .  SFAS 141(R) establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and noncontrolling
interest in the acquiree and the goodwill acquired. The revision is intended to
simplify existing guidance and converge rulemaking under U.S. GAAP with
international accounting rules. This statement applies prospectively to business
combinations where the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
adoption of SFAS 141(R) will not have an impact on our consolidated results
of operations, cash flows, or financial position.
 
 In
December 2007, the FASB issued SFAS Statement No. 160, "Noncontrolling Interest
in Consolidated Financial Statements, an amendment of ARB No. 51 ("SFAS
160").  This statement establishes accounting and reporting standards
for ownership interest in subsidiaries held by parties other than the parent and
for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. SFAS
160 changes the way the consolidated income statement is presented by requiring
consolidated net income to be reported at amounts that include the amount
attributable to both the parent and the noncontrolling interests. The statement
also establishes reporting requirements that provide sufficient disclosure that
clearly identify and distinguish between the interest of the parent and those of
the noncontrolling owners. This statement is effective for fiscal years
beginning on or after December 15, 2008. The adoption of SFAS 160 is not
expected to have a material impact on our consolidated results of operations,
cash flows, or financial position.
 
 Table of Contents
 59
 On April
30, 2007, the FASB issued Staff Position No. FIN 39-1 ("FIN 39-1"), which amends
FASB Interpretation No. 39 "Offsetting of Amounts Related to Certain Contracts
("FIN 39")."  FIN 39-1 permits companies to offset fair value amounts
recognized for derivative instruments executed with the same counterparty under
a master netting arrangement and fair value amounts recognized for the right to
reclaim cash collateral (a receivable) or the obligation to return cash
collateral (a payable) arising from the same master netting arrangement as the
derivative instruments.  FIN 39-1 is effective for fiscal years
beginning after November 15, 2007 with early application permitted, and is
applied retrospectively as a change in accounting principle. The adoption of FIN
39-1did not have any impact on our consolidated results of operations, cash
flows, or financial position.
 
 In
February 2007, the FASB issued SFAS Statement No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of FASB Statement No.
115" ("SFAS 159").  SFAS 159 permits all entities the option to
measure many financial instruments and certain other items at fair
value.  If a company elects the fair value option for an eligible
item, then it will report unrealized gains and losses on those items at each
subsequent reporting date.  SFAS 159 is effective for fiscal years
beginning after November 15, 2007.  We have not yet determined the
impact, if any, that SFAS 159 will have on our consolidated financial
statements
 
 In
September 2006, the FASB issued SFAS Statement No. 157, "Fair Value Measurements"
("SFAS 157"), which defines and establishes a framework for measuring fair value
and expands disclosures about fair value measurements.  The accounting
provisions of SFAS 157 are effective for the Company beginning on November 15,
2008.  The Company has not yet determined the impact, if any, that
SFAS 157 will have on its consolidated financial statements
 
  Item
7A. Quantitative and Qualitative Disclosure about Market Risk
 
 Interest
Rate Risk
  We are
exposed to various market risks associated with changes in interest rates
relating to our floating rate debt. To manage borrowing costs the Company uses
derivative instruments, interest rate swaps, to effectively convert floating
rate debt to fixed rate debt.   All derivative contracts are for
non-trading purpose, and are entered into with major reputable financial
institutions thereby minimizing counterparty risk.
 
 At
December 31, 2007 and 2006 we had $180.2 million and $125.8 million of floating
debt outstanding, respectively.  In order to hedge the interest rate
risk we entered into interest rate swap agreements that hedged approximately
45.3% and 44.7% of our outstanding debt at December 31, 2007 and 2006,
respectively. At December 31, 2007, we had interest rate swap agreements to pay
an average fixed rate of 5.15% before loan margin and receive a floating rate of
interest on the notional amount of $81.6 million. At December 31, 2006, we had
an interest rate swap agreement to pay a fixed rate of 5.09%, before loan
margin, and receive a floating rate of interest on the notional amount of $56.2
million. The fair value of interest rate swap agreements at December 31, 2007
and 2006 was a liability of $3.5 million and an asset of $42 thousand,
respectively.  We also entered into swap agreements that will fix our
interest rate at 4.83%, before loan margin, on the notional amount of $20.0
million of future debt that is effective June 29, 2008.  Interest loan
margins over LIBOR were 1.5%, 1.75%, 1.05% and 1.75% on $4.3 million, $35.0
million, $20.0 million, and $120.8 million of debt, respectively.  The
bank’s loan margin on $120.8 million of debt with Bank of America is determined
quarterly based on the level of our consolidated leverage ratio.  The
Company's consolidated leverage ratio at September 30, 2007, was below 1.5 to
1.0 and accordingly, the loan margin was 1.50% effective during the fourth
quarter 2007.
 
 As an
indication of the extent of our sensitivity to interest rate changes, an
increase in the LIBOR rate of 100 basis points would have decreased our net
income and cash flows for the year ending December 31, 2007 by approximately
$1.0 million based upon our net debt level at December 31, 2007 of $98.6 million
after deducting $81.6 million of debt hedged with interest rate
swaps.
  The
following table sets forth the sensitivity of our outstanding debt in U.S.
dollars to a 100 basis point increase in LIBOR during the next five years on the
same basis.




Year
                
                Amount(In
      thousands)2008
                
                $
                9472009
                
                $
                8952010
                
                $
                1362011
                
                $
                272012
                
                $
                218
  Table of Contents
 60


Foreign
Exchange Rate Risk
  We
consider the U.S. dollar to be the functional currency for all of our
entities.  Our financial results are affected by changes in foreign
exchange rates.  Changes in foreign exchange rates could adversely
affect our earnings.  We generate all of our revenues in U.S. dollars,
but incur approximately 9.1% of our operating expenses in currencies other than
U.S. dollars for the year ended December 31, 2007.  For accounting
purposes, expenses incurred in currencies other than U.S. dollars are converted
into U.S. dollars at the exchange rate prevailing on the date of each
transaction.  At December 31, 2007, approximately 6.7% of our
outstanding accounts payable were denominated in currencies other than U.S.
dollars.
  Item
8. Financial Statements and Supplementary Data
 
 Information
with respect to this Item is contained in our consolidated financial statements
included in Part IV, Item 15 beginning on Page 68 of this Annual
Report.
 Item 9.
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 There were no changes in or
disagreements with accountants on accounting and financial
disclosure.
 
 Item
9A. Controls and Procedures
  Disclosure
Controls and Procedures
  Under the
supervision and with the participation of our management, including our Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer, we
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of December 31, 2007, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
or the Exchange Act, as of the end of the period covered by this report (the
"Evaluation Date"). Based on this evaluation, our Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer concluded as of the Evaluation
Date that our disclosure controls and procedures were effective such that the
information relating to the Company, including our consolidated subsidiaries,
required to be disclosed in our SEC reports (i) is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms, and (ii) is accumulated and communicated to the Company's management,
including our Chief Executive Officer, Chief Financial Officer and Chief
Accounting Officer, as appropriate to allow timely decisions regarding required
disclosure.
  Management's
Report on Internal Control over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. Our internal control over financial reporting was
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. Because of inherent
limitations, a system of 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 due to change in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
  Our
management, including our Chief Executive Officer, Chief Financial Officer and
Chief Accounting Officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control—Integrated Framework. Based on its evaluation, our management
concluded that our internal control over financial reporting was effective as of
the end of December 31, 2007.
  Attestation
Report of Independent Registered Public Accounting Firm
  The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2007, has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
appears herein.
  Changes in Internal
Control over Financial Reporting
  There were no
changes in our internal control over financial reporting, as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act, identified in connection with the
foregoing evaluation that occurred during the fourth quarter of fiscal 2007 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
 Item
9B.  Other Information
  None.
  Table of Contents
 61
 PART
III
 
 Item 10. Directors,
Executive Officers and Corporate Governance
 
 The
following table provides information regarding our executive officers and
directors.


Name
            Age
            TitleJoseph
      E. Royce
            63
            President,
      Chief Executive Officer, Chairman and DirectorGregg
      L. McNelis
            52
            Senior
      Executive Vice President, Chief Operating Officer and
    DirectorLawrence
      A. Blatte
            78
            Senior
      Executive Vice PresidentFerdinand
      V. Lepere
            56
            Executive
      Vice President and  Chief Financial OfficerWilliam
      J. Carr
            49
            Vice
      President and TreasurerJames
      W. Bayley
            67
            Vice
      President and DirectorMartin
      D. Levin
            58
            Director-New
      Shipbuilding ProjectsJohn
      P. Cahill
            49
            DirectorRandee
      E. Day
            59
            DirectorWilliam
      P. Harrington
            50
            DirectorPeter
      S. Shaerf
            53
            DirectorAlexander
      Smigelski
            50
            Director





Our
directors hold office until the earlier of their death, resignation, removal or
disqualification or until their successors have been elected and qualified.
Executive officers are appointed by and serve at the pleasure of our board of
directors. A brief biography of each director and executive officer
follows:
  Joseph E.
Royce:Mr. Royce has been President, Chairman and a
director since our inception, and Chief Executive Officer since March
2005.  Since 1993, Mr. Royce has served as President of TBS
Shipping Services and is responsible for supervising the vessels in our
breakbulk, bulk and liner operations.  In 2007, Mr. Royce became a
director of Covenant House New York, the not-for-profit adolescent care
agency.  Between 1984 and early 1993, Mr. Royce was president of
COTCO, a dry cargo pool of over 45 vessels.  From 1973 to 1983, he was
active as a shipbroker and independent ship operations manager involved in the
shipment of various products worldwide.
  Gregg L. McNelis:Mr. McNelis has served as a director since February 2004 and as
Senior Executive Vice President and Chief Operating Officer since March
2005.  Since 1993, Mr. McNelis has served as Executive Vice
President of the Commercial Department at TBS Shipping Services, where he
manages the chartering department, responsible for commercial employment of the
fleet.  He has worked with Mr. Royce for over 25 years, engaging
in contract negotiations, time charters, voyage charters, contracts of
affreightment, and developing and controlling trade
lanes.  Mr. McNelis previously served as vice president of
COTCO.  Mr. McNelis has over 30 years experience working in the
international shipping industry.
  Lawrence A.
Blatte:Mr. Blatte has served as Senior Executive Vice
President since March 2005 and served as our corporate legal counsel from our
inception until December 31, 2005. In January 2004, Mr. Blatte became Vice
Chairman of TBS Shipping Services and in this role provides business development
services. Previously, Mr. Blatte practiced law for over 30 years. As a public
servant, Mr. Blatte held the position of Mayor of the Village of Lawrence, New
York from July 1, 1996 to June 30, 2002, and served as a Trustee of the Village
from July 1, 1979 to June 30, 1996.
  Ferdinand V.
Lepere:Mr. Lepere has served as Executive Vice President and
Chief Financial Officer since March 2005 and as Executive Vice President of
Finance of TBS Shipping Services since January 1995, responsible for all
financial, accounting, information systems and administrative matters. Mr.
Lepere has over 29 years experience in shipping, most recently from February
1981 to December 1994 with Hapag-Lloyd A.G. as chief financial officer and board
member of its American subsidiary. Mr. Lepere is a Certified Public Accountant
and holds a Masters Degree in Finance and Accounting.
  James W.
Bayley:Mr. Bayley was elected as a TBS director in 2007,
having previously served as a director from our inception until 2006, and has
been Vice President since March 2005.  Since 1977, Mr. Bayley has
served as Managing Director of Globe Maritime Limited, a company that is well
established in the London shipping market.  Mr. Bayley is a
member of the Baltic Exchange and holds the title of Fellow of the Institute of
Chartered Shipbrokers.
  Table of Contents
 62
 William J.
Carr:Mr. Carr served as a director from 1998 until 2001 and
since then as Vice President, Treasurer and Resident Representative in Bermuda.
Mr. Carr serves as President and director of all of our ship-owning
subsidiaries. Since 1986, Mr. Carr has served as President and sole owner of
Windcrest Management Limited, a Bermuda company providing accounting,
consulting, corporate management and registered office services to local and
international businesses.
  John P.
Cahill:Mr. Cahill became a director in June
2007.  Mr. Cahill is counsel at Chadbourne & Parke LLC, a law
firm in New York City that he joined in 2006.  He is an attorney with
experience in both the private and public sectors.  From 2002 until
2006, Mr. Cahill served as the Secretary and Chief of Staff to the Governor
of the State of New York, which is the highest ranking appointed official in New
York State Government.  Prior to this appointment, Mr. Cahill was
Commissioner of the New York State Department of Environmental
Conservation.
  Randee E.
Day:Ms. Day has served as a director and Chairperson of
the Audit Committee since 2001.  Ms. Day is currently Managing
Director and head of Maritime Investment Banking at Seabury Transportation
Holdings LLC., a New York based advisory and investment bank specializing in the
transportation industry.  From 1985 until 2004, Ms. Day served as
Chief Executive Officer and President of Day and Partners, Inc., a financial
advisory and consulting firm to the maritime and cruise
industries.   Ms. Day became an independent director of Double
Hull Tankers, Inc. (NYSE) in July 2005 and is the Chairperson of the Audit
Committee and a member of the Compensation Committee.
  William P.
Harrington:Mr. Harrington has served as a director since
2005 and is Chairperson of the Nominating and Corporate Governance
Committee.  Mr. Harrington is a partner and the head of the litigation
practice group at Bleakley Platt & Schmidt, LLP, a law firm in White Plains,
New York.  He is an experienced trial attorney who has represented
Fortune 500 companies in criminal, commercial, environmental, real estate and
employment discrimination matters.
  Peter S.
Shaerf:Mr. Shaerf has served as a director since 2001
and is Chairperson of the Compensation Committee.  Mr. Shaerf is
currently managing director of AMA Capital Partners LLC (formerly American
Marine Advisors), a merchant banking firm exclusively focused on the maritime
industry.  From 2002 to April 2005, Mr. Shaerf was senior vice
president of American Marine Advisors, Inc.  From 1998 until April
2002, Mr. Shaerf was a Managing Director of Poseidon Capital Corp., an
independent maritime consulting and investment company.  From 1980 to
2002, he was a partner of The Commonwealth Group, a shipbrokerage company that
specializes in the dry cargo and liner shipping industry.  Mr. Shaerf
is a director of General Maritime Corporation (NYSE) and Seaspan Corporation
(NYSE).  Mr. Shaerf is also a Chairman of New York Maritime Inc.
(NYMAR), a not-for profit trade association formed to promote the New York
maritime cluster.
  Alexander Smigelski:Mr. Smigelski became a director in 2007.  He is a senior
partner with Kings Point Capital Partners, a New York based private equity firm
investing in multiple strategies since 2006 and is presently the CEO of their
Restaurant Division.  Mr. Smigelski previously had a 17 year
career on Wall Street, primarily with Merrill Lynch.  In addition, he
is a Master Mariner and was the youngest captain in the Exxon
fleet.
  Martin D.
Levin:Mr. Levin became our Director-New Shipbuilding
Projects in July 2007 in connection with our fleet upgrade and renewal and
newbuilding programs. He is a naval architect with specialized experience in dry
cargo vessels and vessel construction in Chinese, U.S. and European shipyards.
Between November 2003 and July 2007, Mr. Levin was President and
sole owner of Martin D. Levin Marine Design LLC, a consulting firm providing
technical and project management services to us and other companies in the
maritime industry. Prior to November 2003, Mr. Levin was Vice
President of Marine Design and Operations, Inc. for more than
20 years, responsible for ship design and development, as well as
management of new ship construction and conversions.
  Other
information required by Item 10 will be in the company's 2007 Definitive Proxy
Statement and is incorporated by reference.
  Item 11.Executive
Compensation
 
 Information
required by Item 11 will be in the Company's 2007 definitive proxy statement and
is incorporated herein by reference.
 
 Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
  Information
required by Item 12 will be in the Company's 2007 definitive proxy statement and
is incorporated herein by reference.
  Item
13.  Certain Relationships and Related Transactions, and Director
Independence
  Information
required by Item 13 will be in the Company's 2007 definitive proxy statement and
is incorporated herein by reference.
 
 Item 14.Principal Accounting Fees and
Services
  Information
required by Item 14 will be in the Company's 2007 definitive proxy statement and
is incorporated herein by reference.






Table of Contents
 63




PART
IV





Item 15.Exhibits, Financial
Statement SchedulesIndex





(a) Documents
filed as part of this Annual Report





1.
            Financial
      Statements


The
following consolidated financial statements of the Company are included in a
separate section of this report:





Report of
      Independent Registered Public Accounting Firm
            
            F-1Consolidated Balance
      Sheets as of December 31, 2007 andDecember 31, 2006
            
            F-2Consolidated Statements of
      Operations for theYears ended December 31, 2007,
      December 31, 2006 andDecember 31,
      2005
            
            F-3Consolidated Statements of Cash
      Flows for theYears ended December 31, 2007,
      December 31, 2006 andDecember 31,
      2005
            
            F-4Consolidated Statements of
      Changes in Shareholders' Equity for theYears ended December 31, 2007,
      December 31, 2006 andDecember 31,
      2005
            
            F-5Notes to Consolidated
      Financial Statements
            
            F-6
      - F-33






Table of Contents
 64




2.
            Financial Statement
      Schedules.




All
      schedules are omitted because they are not applicable or not required or
      because the required information is included in the Consolidated Financial
      Statements or the Notes thereto.





3.
            Exhibits.


The
      following exhibits are filed as part of, or incorporated by reference
      into, this Annual Report:


Incorporated
      by ReferenceExhibit  Description
                Filed
      Herewith
                Form
                File
      No.
                Exhibit
                Filing
      Date2.1
                Third
      Amended Joint Plan of Reorganization of Debtors Under Chapter 11 of the
      Bankruptcy Code
                
                S-1/A
                333-123157
                2.1
                4/19/20053.1
                Amended
      and Restated Memorandum of Association of TBS International
      Limited
                
                10-Q
                000-51368
                3.1
                8/12/20053.2
                Amended
      and Restated Bye-Laws of TBS International Limited
                
                10-Q
                000-51368
                3.2
                8/12/20054.1
                Form
      of Class A Common Share Certificate
                
                S-1/A
                333-123157
                4.1
                5/16/20054.2
                Form
      of Class B Common Share Certificate
                
                S-1/A
                333-123157
                4.2
                5/16/200510.1
                Loan
      Agreement, dated December 21, 2004, between Avon Maritime Corp. and The
      Royal Bank of Scotland plc
                
                S-1/A
                333-123157
                10.1
                5/16/200510.2
                Umbrella
      Agreement, dated December 5, 2003, between TBS International Limited and
      Arkadia Shipping Inc.
                
                S-1/A
                333-123157
                10.2
                4/19/200510.3
                Form
      of Memorandum of Agreement related to sale-leaseback financings with
      Arkadia Shipping Inc.
                
                S-1/A
                333-123157
                10.3
                4/19/200510.4
                Form
      of Bareboat Charter related to sale-leaseback financings with Arkadia
      Shipping Inc.
                
                S-1/A
                333-123157
                10.4
                4/19/200510.5
                Management
      Agreement, dated February 8, 2001, by and among TBS Shipping International
      Limited, TBS Worldwide Services Inc., its indirect and direct
      subsidiaries, TBS Commercial Group Ltd. and Beacon Holdings
      Ltd.
                
                S-1/A
                333-123157
                10.5
                4/19/200510.6
                Form
      of Commercial Agency Agreement with TBS Worldwide Services
      Inc.
                
                S-1/A
                333-123157
                10.6
                4/19/200510.7
                Form
      of Stock Purchase Agreement for acquisition of Roymar Ship Management,
      Inc. between TBS International Limited and Joseph E. Royce, Gregg L.
      McNelis, Lawrence A. Blatte and Captain Alkis N. Meimaris.
                
                S-1/A
                333-123157
                10.7
                4/19200510.8
                Form
      of Stock Purchase Agreement for acquisition of TBS Shipping Services Inc.
      between TBS International Limited and Joseph E. Royce, Gregg L. McNelis,
      Lawrence A. Blatte and Captain Alkis N. Meimaris
                
                S-1/A
                333-123157
                10.8
                5/16/200510.9*
                Employee
      Share Purchase Plan
                
                S-1/A
                333-123157
                10.15
                5/16/200510.10
                Lease
      agreement, dated January 1, 2005 between Joseph E. Royce, Landlord and TBS
      Shipping Services Inc., Tenant for premises located at 612 East Grassy
      Sprain Road, Yonkers, New York
                
                10-K
                000-51368
                10.1
                3/16/200610.11
                Credit
      Agreement, dated July 31, 2006, by and among Albemarle Maritime Corp.,
      Arden Maritime Corp., Asia-America Ocean Carriers Ltd., Birnam Maritime
      Corp., Bristol Maritime Corp., Chester Shipping Corp., Darby Navigation
      Corp., Dover Maritime Corp., Frankfort Maritime Corp., Glenwood Maritime
      Corp., Hansen Shipping Corp., Henley Maritime Corp., Hudson Maritime
      Corp., Kensington Shipping Corp., Newkirk Navigation Corp., Oldcastle
      Shipping Corp., Rector Shipping Corp., Remsen Navigation Corp., Sheffield
      Maritime Corp., Sherman Maritime Corp., Sterling Shipping Corp., Stratford
      Shipping Corp., Vernon Maritime Corp., Windsor Maritime Corp., as
      Borrowers, and TBS International Limited, as guarantor with Bank of
      America, N.A., as Administrative Agent and a Lender, Citibank, N.A., as
      Syndication Agent and a Lender, Westlb AG New York Branch, as
      Documentation Agent and a Lender, Keybank, N.A. as a Lender, LaSalle Bank,
      National Association, as a Lender, North Fork Business Capital
      Corporation, as a Lender, and Webster Bank National Association, as a
      Lender
                
                8-K
                000-51368
                10.1
                8/4/200610.12
                Amendment
      No. 1 to Credit Agreement dated July 31, 2006.
                
                8-K
                000-51368
                10.1
                1/26/200710.13*
                Form
      of Restricted Share Award Agreement under the TBS International Limited
      and Subsidiaries 2005 Equity Incentive Plan.
                
                8-K
                000-51368
                10.2
                1/26/200710.14*
                Form
      of Bonus Share Award Agreement under the TBS International Limited and
      Subsidiaries 2005 Equity Incentive Plan.
                
                8-K
                000-51368
                10.3
                1/26/200710.15
                Memorandum
      of Sale for the vesselSeminole Princess (formerly theClipper
      Flamingo )
                
                10-K
                000-51368
                10.1
                3/12/200710.16
                Memorandum
      of Sale for the vesselLaguna Belle (formerly theClipper
      Frontier).
                
                10-K
                000-51368
                10.2
                3/12/200710.17
                Bareboat
      Charter Agreement, dated January 30, 2007, between Fairfax Shipping Corp
      and Adirondack Shipping LLC.
                
                10-K
                000-51368
                10.3
                3/12/200710.18
                Bareboat
      Charter Agreement, dated January 30, 2007, between Beekman Shipping Corp
      and Rushmore Shipping LLC.
                
                10-K
                000-51368
                10.4
                3/12/200710.19
                Loan
      Agreement, dated March 29, 2007, among Argyle Maritime Corp., Caton
      Maritime Corp., Dorchester Maritime Corp., Longwoods Maritime Corp.,
      McHenry Maritime Corp., Sunswyck Maritime Corp. and certain
      lenders.
                
                8-K
                000-51368
                10.1
                4/2/200710.20
                Guarantee
      Facility Agreement, dated March 29, 2007, among Argyle Maritime Corp.,
      Caton Maritime Corp., Dorchester Maritime Corp., Longwoods Maritime
      Corp., McHenry Maritime Corp., Sunswyck Maritime Corp. and The Royal Bank
      of Scotland plc.
                
                8-K
                000-51368
                10.2
                4/2/200710.21
                Overall
      Agreement between TBS International Limited and China Communications
      Construction Company Ltd and Nantong Yahua Shipbuilding Co., Ltd.
      (Confidential treatment has been requested for portions of this
      agreement).
                
                10-Q
                000-51368
                10.1
                5/15/200710.22
                Shipbuilding
      Contract and Addendum between Argyle Maritime Corp. and China
      Communications Construction Company Ltd and Nantong Yahua Shipbuilding
      Co., Ltd. (Confidential treatment has been requested for portions of this
      agreement).
                
                10-Q
                000-51368
                10.2
                5/15/200710.23
                Shipbuilding
      Contract and Addendum between Caton Maritime Corp. and China
      Communications Construction Company Ltd and Nantong Yahua Shipbuilding
      Co., Ltd. (Confidential treatment has been requested for portions of this
      agreement).
                
                10-Q
                000-51368
                10.3
                5/15/200710.24
                Shipbuilding
      Contract and Addendum between Dorchester Maritime Corp. and China
      Communications Construction Company Ltd and Nantong Yahua Shipbuilding
      Co., Ltd. (Confidential treatment has been requested for portions of this
      agreement).
                
                10-Q
                000-51368
                10.4
                5/15/200710.25
                Shipbuilding
      Contract and Addendum between Longwoods Maritime Corp. and China
      Communications Construction Company Ltd and Nantong Yahua Shipbuilding
      Co., Ltd. (Confidential treatment has been requested for portions of this
      agreement).
                
                10-Q
                000-51368
                10.5
                5/15/200710.26
                Shipbuilding
      Contract and Addendum between McHenry Maritime Corp. and China
      Communications Construction Company Ltd and Nantong Yahua Shipbuilding
      Co., Ltd. (Confidential treatment has been requested for portions of this
      agreement).
                
                10-Q
                000-51368
                10.6
                5/15/200710.27
                Shipbuilding
      Contract between Sunswyck Maritime Corp. and China Communications
      Construction Company Ltd and Nantong Yahua Shipbuilding Co., Ltd.
      (Confidential treatment has been requested for portions of this
      agreement).
                
                10-Q
                000-51368
                10.7
                5/15/200710.28
                Amendment
      Number 1 dated June 27, 2007 to Shipbuilding Contract between Argyle
      Maritime Corp. and China Communications Construction Company Ltd and
      Nantong Yahua Shipbuilding Co., Ltd.
                
                10-Q
                000-51368
                10.1
                8/10/200710.29
                Amendment
      Number 2 dated June 27, 2007 to Shipbuilding Contract between Caton
      Maritime Corp. and China Communications Construction Company Ltd and
      Nantong Yahua Shipbuilding Co., Ltd.
                
                10-Q
                000-51368
                10.2
                8/10/200710.30
                Amendment
      Number 2 dated June 27, 2007 to Shipbuilding Contract between Dorchester
      Maritime Corp. and China Communications Construction Company Ltd and
      Nantong Yahua Shipbuilding Co., Ltd.
                
                10-Q
                000-51368
                10.3
                8/10/200710.31
                Amendment
      Number 2 dated June 27, 2007 to Shipbuilding Contract between Longwoods
      Maritime Corp. and China Communications Construction Company Ltd and
      Nantong Yahua Shipbuilding Co., Ltd.
                
                10-Q
                000-51368
                10.4
                8/10/200710.32
                Amendment
      Number 2 dated June 27, 2007 to Shipbuilding Contract between McHenry
      Maritime Corp. and China Communications Construction Company Ltd and
      Nantong Yahua Shipbuilding Co., Ltd.
                
                10-Q
                000-51368
                10.5
                8/10/200710.33
                Amendment
      Number 1 dated June 27, 2007 to Shipbuilding Contract between Sunswyck
      Maritime Corp. and China Communications Construction Company Ltd and
      Nantong Yahua Shipbuilding Co., Ltd.
                
                10-Q
                000-51368
                10.6
                8/10/200710.34*
                Restricted
      stock grant agreement for 100,000 shares granted to Ferdinand Lepere under
      the TBS International Limited 2005 Equity Incentive Plan.
                
                10-Q
                000-51368
                10.7
                8/10/200710.35*
                TBS
      International Limited 2005 Equity Incentive Plan, as
    amended.
                
                10-Q
                000-51368
                10.1
                11/9/200710.36*
                TBS
      International Limited 2005 Equity Incentive Plan - Form of Share Unit
      Award Agreement.
                
                10-Q
                000-51368
                10.2
                11/9/200710.37
                Credit
      Agreement, datedDecember
      7, 2007,by
      and amongClaremont
      Shipping Corp.
      andYorkshire
      ShippingCorp.,
      and TBS International Limited, as guarantor with Credit SuisseLender.
                X
                
                000-51368
                21.1
                3/14/200810. 38
                Credit
      Agreement, dated January 16, 2008, by and among Bedford Maritime Corp,
      Brighton Maritime Corp, Columbus Maritime Corp, Hari Maritime Corp,
      Hancock Navigation Corp, Prospect Navigation Corp, and Whitehall Marine
      Transport Corp Corp. as Borrowers, and TBS International Limited, as
      guarantor with DVB Group Merchant Bank (Asia) Ltd. asFacilityAgent,
      Security Trusteeand
      a Lender,The
      Governor and Company of theBank
      of Ireland, asPaymentAgent
      and a Lender, andNatixis,as
      a Lender.
                X
                
                000-51368
                21.2
                3/14/200810.39
                Credit
      agreement, dated February 29, 2008 by and among Amoros Maritime Corp.,
      Lancaster Maritime Corp. and Chatham Maritime Corp.
      as borrowers, and TBS International Limited as Parent guarantor and AIG
      Commercial Equipment Finance, Inc., as lender.
                X
                
                000-51368
                21.3
                3/14/200810.40
                Leaseagreement,
      dated January 1, 2008, between Joseph E. Royce, Landlord and TBS Shipping Services Inc.,
      tenant for premises located at612
      East Grassy Sprain Road,Yonkers,New
      York.
                X
                
                000-51368
                21.4
                3/14/200821.1
                Subsidiaries
      of the Registrant
                X
                
                000-51368
                21.1
                3/14/200831.1
                Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of
      the Securities and Exchange Act, as amended.
                X
                
                000-51368
                31.1
                3/14/200831.2
                Certification
      of the Chief Financial and Accounting Officer pursuant to Rule 13a-14(a)
      and 15d-14(a) of the Securities and Exchange Act, as
    amended.
                X
                
                000-51368
                31.2
                3/14/200831.3
                Certification
      of the Chief Accounting Officer pursuant to Rule 13a-14(a) and 15d-14(a)
      of the Securities and Exchange Act, as amended.
                X
                
                000-51368
                31.2
                3/14/200832
                Certification
      of Chief Executive Officer, Chief Financial Officer and Chief Accounting
      Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002.
                X
                
                000-51368
                32
                3/14/2008
  *
Management contracts or compensation plans or arrangements in which directors or
executive officers are eligible to participate.
 65


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Tothe Shareholders
and


Board of
Directors


of TBS
International Limited:





In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15 (a)(i) present fairly, in all material respects, the financial
position of TBS International Limited and its subsidiaries at December 31, 2007
and 2006, and the results of their operations and theircash flows for each of
the three years in the period ended December 31, 2007 in conformity with
accounting principles generally accepted in the United States of
America.  Also in our opinion, the Company maintained, in all material
respects, effective 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 (COSO).  The Company's management is responsible
for these financial statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included under Management's Report on Internal
Control over Financial Reporting under Item 9A.  Our responsibility is
to express opinions on these financial statements and on the Company's internal
control over financial reporting based on our audits (which was an integrated
audit in 2007).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 audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects.  Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation.  Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
 
 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
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) 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
(iii) 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.
 
  New York,
New York
 March 14,
2008




F-1


Part
I.    FINANCIAL INFORMATION




Item
1.    Financial Statements




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED
BALANCE SHEETS


December
      31,
              
              
              December
      31,2007
              
              
              2006AssetsCurrent
      assetsCash
      and cash equivalents
              
              $
              30,498,324
              
              
              $
              12,006,727Charter
      hire receivable, net of allowance of $490,196 in 2007and
      $442,529 in 2006
              
              
              30,081,035
              
              
              
              25,396,093Fuel
      and other inventories
              
              
              11,122,913
              
              
              
              7,256,483Prepaid
      expenses and other current assets
              
              
              7,742,099
              
              
              
              7,704,416Advances
      to affiliates
              
              
              917,760
              
              
              
              5,604Total
      current assets
              
              
              80,362,131
              
              
              
              52,369,323Deposits
      for vessel purchases
              
              
              14,836,000
              
              
              
              1,695,000Fixed
      assets, net
              
              
              444,082,045
              
              
              
              336,869,094Goodwill
              
              
              8,425,935
              
              
              
              8,425,935Other
      assets and deferred charges
              
              
              11,407,199
              
              
              
              3,731,491Total
      assets
              
              $
              559,113,310
              
              
              $
              403,090,843Liabilities
      and Shareholders' EquityCurrent
      liabilitiesDebt,
      current portion
              
              $
              22,698,571
              
              
              $
              19,770,000Obligations
      under capital lease, current portion
              
              
              
              
              
              
              4,087,484Accounts
      payable
              
              
              11,723,077
              
              
              
              6,049,174Accrued
      expenses
              
              
              36,713,539
              
              
              
              21,529,351Voyages
      in progress
              
              
              7,015,709
              
              
              
              4,268,514Advances
      from affiliates
              
              
              467,550
              
              
              
              481,103Total
      current liabilities
              
              
              78,618,446
              
              
              
              56,185,626Debt,
      long-term portion
              
              
              157,467,391
              
              
              
              106,034,033Obligations
      under capital lease, net of current portion
              
              
              
              
              
              
              17,267,206Other
      liabilities
              
              
              3,464,973Total
      liabilities
              
              
              239,550,810
              
              
              
              179,486,865COMMITMENTS
      AND CONTINGENCIESShareholders'
      equityCommon
      shares, Class A, $.01 par value, 75,000,000authorized,
      14,350,996 shares issued and outstanding in 2007 and 14,319,996 shares
      issued and outstanding in 2006
              
              
              143,510
              
              
              
              143,200Common
      shares, Class B, $.01 par value, 30,000,000authorized,
      13,404,461 shares issued and outstanding
              
              
              134,045
              
              
              
              134,045Warrants
              
              
              20,747
              
              
              
              20,747Additional
      paid-in capital
              
              
              88,529,712
              
              
              
              87,880,449Accumulated
      other comprehensive (loss) income
              
              
              (2,897,257
              )
              
              
              42,386Retained
      earnings
              
              
              233,631,743
              
              
              
              135,383,151Total
      shareholders' equity
              
              
              319,562,500
              
              
              
              223,603,978Total
      liabilities and shareholders' equity
              
              $
              559,113,310
              
              
              $
              403,090,843




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




F-2




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF INCOME




Year Ended
      December 31,2007
              
              2006
              
              2005RevenueVoyage
      revenue
              
              $
              264,193,377
              
              $
              189,012,189
              
              $
              175,595,810Time
      charter revenue
              
              
              88,365,332
              
              
              63,113,997
              
              
              71,455,764Other
      revenue
              
              
              3,046,347
              
              
              1,459,527
              
              
              979,644Total
      revenue
              
              
              355,605,056
              
              
              253,585,713
              
              
              248,031,218Operating
      expensesVoyage
              
              
              92,481,577
              
              
              83,254,139
              
              
              75,291,117Vessel
              
              
              85,957,548
              
              
              63,205,330
              
              
              68,710,650Depreciation
      and amortization
              
              
              36,022,475
              
              
              29,866,684
              
              
              19,537,055Management
      fees
              
              
              
              
              
              
              
              
              2,624,391General
      and administrative
              
              
              38,703,544
              
              
              27,256,199
              
              
              17,617,690Loss
      (gain) from sale of vessel
              
              
              813,891
              
              
              (2,179,820
              )Total
      operating expenses
              
              
              253,979,035
              
              
              201,402,532
              
              
              183,780,903Income
      from operations
              
              
              101,626,021
              
              
              52,183,181
              
              
              64,250,315Other
      (expenses) and incomeInterest
      expense
              
              
              (10,394,176
              )
              
              (11,576,202
              )
              
              (9,346,461
              )Interest
      and other income
              
              
              983,002
              
              
              1,809,838
              
              
              752,208Loss
      on extinguishment of debt
              
              
              
              
              
              (3,356,992
              )Gain
      on sale and recovery of vessel
              
              
              6,033,745Total
      other expenses, net
              
              
              (3,377,429
              )
              
              (13,123,356
              )
              
              (8,594,253
              )Net  income
              
              $
              98,248,592
              
              $
              39,059,825
              
              $
              55,656,062Amount
      allocated to participating preferred shareholders
              
              $
              
              
              $
              
              
              $
              (5,705,560
              )Net
      income available for common shareholders
              
              $
              98,248,592
              
              $
              39,059,825
              
              $
              49,950,502Earnings
      per shareNet
      income per common shareBasic
              
              $
              3.51
              
              $
              1.40
              
              $
              2.28Diluted
              
              $
              3.50
              
              $
              1.39
              
              $
              2.05Weighted
      average common shares outstandingBasic
              
              
              28,029,340
              
              
              27,998,843
              
              
              21,870,160Diluted
              
              
              28,066,736
              
              
              28,088,310
              
              
              24,310,909





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





F-3




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF CASH FLOWS




Year
      Ended December 31,2007
              
              
              2006
              
              
              2005Cash
      flows from operating activitiesNet  income
              
              $
              98,248,592
              
              
              $
              39,059,825
              
              
              $
              55,656,062Adjustments
      to reconcile net income to net cashprovided
      by operating activitiesGain
      on sale and insurance recovery of vessel
              
              
              (6,033,745
              )Loss
      (gain) on sale of vessel
              
              
              813,891
              
              
              
              (2,179,820
              )Depreciation
      and amortization
              
              
              36,022,475
              
              
              
              29,866,684
              
              
              
              19,537,055Loss
      on change in value of interest swap
              
              
              567,716Amortization
      and write-off of deferred financing costs
              
              
              1,073,506
              
              
              
              2,088,894
              
              
              
              443,381Addition
      on allowance for bad debt
              
              
              80,724Non
      cash stock based compensation
              
              
              524,573
              
              
              
              272,500
              
              
              
              1,069,000Loss
      in joint venture
              
              
              27,145
              
              
              
              74,027Changes
      in operating assets and liabilities(Increase)
      decrease in charter hire receivable
              
              
              (4,765,666
              )
              
              
              152,020
              
              
              
              (8,351,663
              )(Increase)
      decrease in fuel and other inventories
              
              
              (3,866,430
              )
              
              
              378,949
              
              
              
              (4,247,803
              )Decrease
      (increase) in prepaid expenses and other assets
              
              
              302,317
              
              
              
              (4,143,653
              )
              
              
              1,707,430(Increase)
      in other assets and deferred charges
              
              
              (1,127,355
              )Increase
      in accounts payable
              
              
              5,673,903
              
              
              
              1,322,586
              
              
              
              171,461Increase
      (decrease) in accrued expenses
              
              
              15,309,188
              
              
              
              (171,762
              )
              
              
              9,692,691Increase
      (decrease) in voyages in progress
              
              
              2,747,195
              
              
              
              2,149,613
              
              
              
              (531,650
              )(Decrease)
      in advances from/to affiliates, net
              
              
              (925,709
              )
              
              
              (923,318
              )
              
              
              (1,412,012
              )Net
      cash provided by operating activities
              
              
              144,672,320
              
              
              
              67,946,545
              
              
              
              73,733,952Cash
      flows from investing activitiesProceeds
      on sale of vessel
              
              
              62,014,150
              
              
              
              3,160,500Vessel
      acquisition/capital improvement costs
              
              
              (201,844,273
              )
              
              
              (97,763,257
              )
              
              
              (177,009,241
              )Deposit
      for vessel purchases
              
              
              (14,836,000
              )
              
              
              (1,695,000
              )Restricted
      cash for litigation
              
              
              
              
              
              
              532,500
              
              
              
              (532,500
              )Return
      of investment in security
              
              
              160,000Payment
      for purchase of TBS Shipping Services Inc and Roymar ShipManagement
      Inc., net of cash acquired of $801,594
              
              
              
              
              
              
              
              
              
              
              (7,289,895
              )Investment
      in securities
              
              
              (228,940
              )
              
              
              (500,000
              )Investment
      in joint venture
              
              
              (360,000
              )
              
              
              (500,000
              )Net
      cash (used in) investing activities
              
              
              (155,095,063
              )
              
              
              (96,765,257
              )
              
              
              (184,831,636
              )Cash
      flows from financing activitiesDividends
      paid
              
              
              
              
              
              
              
              
              
              
              (150,000
              )Proceeds
      on sale of TBS International Limited shares owned by
      subsidiaries
              
              
              
              
              
              
              
              
              
              
              795,336Proceeds
      from issuance of shares in initial public offering and exercise
      ofseries
      A warrants, net of offering costs
              
              
              
              
              
              
              
              
              
              
              60,841,169Repayment
      of debt principal
              
              
              (21,198,571
              )
              
              
              (109,747,462
              )
              
              
              (27,773,746
              )Proceeds
      from debt
              
              
              60,000,000
              
              
              
              75,000,000
              
              
              
              95,000,000Payment
      of deferred financing costs
              
              
              (4,092,898
              )
              
              
              (3,050,482
              )
              
              
              (2,193,092
              )Proceeds
      from revolving debt facility
              
              
              101,000,000
              
              
              
              57,974,533
              
              
              
              12,000,000Repayment
      of revolving debt facility
              
              
              (85,439,500
              )
              
              
              (3,160,500
              )
              
              
              (12,000,000
              )Repayment of
      obligations under capital leases
              
              
              (21,354,690
              )
              
              
              (3,348,331
              )
              
              
              (9,938,506
              )Net
      cash provided by financing activities
              
              
              28,914,341
              
              
              
              13,667,758
              
              
              
              116,581,161Net
      increase (decrease) in cash and cash equivalents
              
              
              18,491,597
              
              
              
              (15,150,954
              )
              
              
              5,483,477Cash
      and cash equivalents beginning of period
              
              
              12,006,727
              
              
              
              27,157,681
              
              
              
              21,674,204Cash
      and cash equivalents end of period
              
              
              30,498,324
              
              
              $
              12,006,727
              
              
              $
              27,157,681
  Supplemental
      cash flow informationInterest
      paid
              
              $
              9,868,517
              
              
              $
              10,451,046
              
              
              $
              9,001,396












Noncash Investing
activities:For the
year ended December 31, 2007, the proceeds on the sale-leaseback of the vessels
Laguna Belle and Seminole Princess excludes
the noncash portion of $5,500,000, which was retained by the buyer/lessor as a
deposit on the bareboat charters




Noncash Financing activities:
For the year ended December 31, 2007, 31,000 shares were issued to independent
directors and our Chief Financial Officer under the 2005 Employee Incentive
Plan.





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







F-4






TBS
INTERNATIONAL LIMITED. AND SUBSIDIARIES




CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY




AccumulatedOtherPreference
              
              
              
              
              
              Additional
              
              
              
              Compre-Common
      Shares
              
              Warrants
              
              Paid-in
              
              Retained
              
              hensiveShares
              
              Amount
              
              Shares
              
              Shares
              
              Amount
              
              Capital
              
              Earnings
              
              Income(Loss)
              
              TotalBalance
      at December 31, 2004
              
              4,000,000
              
              $
              16,000
              
              $
              4,000
              
              
              2,666,658
              
              $
              800,000
              
              $
              24,357,936
              
              $
              40,817,264
              
              
              
              $
              65,995,200Conversion
      of preference shares tocommon
      shares
              
              2,000,000
              
              
              8,000
              
              
              (4,000
              )
              
              
              
              
              
              
              
              (4,000
              )Additional
      shares issuable under anti-dilution
      provisions of warrantagreement
              
              
              
              
              
              
              
              
              
              
              1,132,172Redesignation
      and change in par valueof
      common shares from $.004 to $.01
              
              (3,600,000
              )Stock
      split
              
              12,881,692
              
              
              128,817
              
              
              
              
              
              
              
              
              
              
              
              (128,817
              )Change
      in number of shares issuableunder
      warrants due to change in parvalue
      of common shares and stock split
              
              
              
              
              
              
              
              
              
              
              4,488,305Exercise
      of  Series A warrants
              
              5,413,265
              
              
              54,133
              
              
              
              
              
              (5,413,265
              )
              
              (388,812
              )
              
              388,812
              
              
              
              
              
              
              
              54,133Cancellation
      of Series A warrants
              
              
              
              
              
              
              
              
              
              
              (1,687,590
              )
              
              (121,212
              )
              
              121,212Cancellation
      of Series B & C warrants
              
              
              
              
              
              
              
              
              
              
              (897,427
              )
              
              (269,229
              )
              
              269,229Initial
      public offering
              
              7,000,000
              
              
              70,000
              
              
              
              
              
              
              
              
              
              
              
              65,030,000
              
              
              
              
              
              
              
              65,100,000Stock
      offering costs
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,312,964
              )
              
              
              
              
              
              
              (4,312,964
              )Stock
      issued to employees as payroll
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,069,000
              
              
              
              
              
              
              
              1,069,000Proceeds
      on sale of TBS InternationalLimited
      stock owned by subsidiaries inconnection
      with initial public offering
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              795,336
              
              
              
              
              
              
              
              795,336Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              55,656,062
              
              
              
              
              55,656,062Dividends
      paid on preference shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (150,000
              )
              
              
              
              (150,000
              )Balance
      at December 31, 2005
              
              27,694,957
              
              
              276,950
              
              
              
              
              
              288,853
              
              
              20,747
              
              
              87,585,744
              
              
              96,323,326
              
              
              
              
              184,206,767Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              39,059,825
              
              
              
              
              39,059,825Unrealized
      gain on cash flow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              42,386
              
              
              42,386Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              39,102,211Stock-based
      award activity
              
              29,500
              
              
              295
              
              
              
              
              
              
              
              
              
              
              
              294,705
              
              
              
              
              
              
              
              
              295,000Balance
      at December 31, 2006
              
              27,724,457
              
              
              277,245
              
              
              
              
              
              288,853
              
              
              20,747
              
              
              87,880,449
              
              
              135,383,151
              
              
              42,386
              
              
              223,603,978Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              98,248,592
              
              
              
              
              
              98,248,592Unrealized
      loss on cash flow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,939,643
              )
              
              (2,939,643
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              95,308,649Stock-based
      award activity
              
              31,000
              
              
              310
              
              
              
              
              
              
              
              
              
              
              
              649,263
              
              
              
              
              
              
              
              
              649,573Balance
      at December 31, 2007
              
              27,755,457
              
              $
              277,555
              
              $
              
              
              
              288,853
              
              $
              20,747
              
              $
              88,529,712
              
              $
              233,631,743
              
              $
              (2,897,257
              )
              $
              319,562,500








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





F-5


Note
1 — Basis of Presentation


1. Organization and Nature of
Business
  TBS
International Limited ("TBS"), which is organized in Bermuda, is engaged in the
ocean transportation of dry cargo through the use of owned and chartered
vessels. All the related corporations of the Company, except Roymar and TBS
Shipping Services and its subsidiaries, are foreign corporations and conduct
their business operations worldwide. Roymar and TBS Shipping Services and
Subsidiaries conduct their business operations in the United States. The terms
"Company," "we," "our," and "us" refer to TBS International Limited and its
consolidated subsidiaries. A listing of all of TBS’s subsidiaries, with their
country of registry and vessel owned, if applicable is as
follows:


●
              TBS
      International Limited (Bermuda)●
              Westbrook
      Holdings Ltd. And its subsidiaries (All Marshall
  Islands)●
              Albemarle
      Maritime Corp. – Mohawk Princess●
              Amoros
      Maritime Corp. – Hopi Princess●
              Arden
      Maritime Corp. – Tayrona Princess●
              Asia-America
      Ocean Carriers Ltd. – (Huron Maiden sold May, 2007)●
              Avon
      Maritime Corp. – Wichita Belle●
              Bedford
      Maritime Corp. – Apache Maiden●
              Beekman
      Shipping Corp. – Laguna Belle●
              Birnam
      Maritime Corp. – Sioux Maiden●
              Brighton
      Maritime Corp. – Kickapoo Belle●
              Bristol
      Maritime Corp. – Tuscarora Belle●
              Chatham
      Maritime Corp. – Zuni Princess●
              Chester
      Shipping Corp. – Tamoyo Maiden●
              Claremont
      Shipping Corp. – Arapaho Belle●
              Columbus
      Maritime Corp. – Seneca Maiden●
              Cortland
      Navigation Corp. – (Chippewa Belle sold October, 2003)●
              Darby
      Navigation Corp. – Nyack Princess●
              Dover
      Maritime Corp. – Aztec Maiden●
              Dyker
      Maritime Corp. – Caribe Maiden●
              Elrod
      Shipping Corp. – Nanticoke Belle●
              Exeter
      Shipping Corp. – Alabama Belle●
              Fairfax
      Shipping Corp. – Seminole Princess●
              Frankfort
      Maritime Corp. – Shawnee Princess●
              Glenwood
      Maritime Corp. – Miami Maiden●
              Grainger
      Maritime Corp. – Ottawa Princess●
              Hancock
      Navigation Corp. – Kiowa Princess●
              Hansen
      Shipping Corp. – Ainu Princess●
              Hari
      Maritime Corp. – Navajo Princess●
              Henley
      Maritime Corp. – Tuckahoe Maiden●
              Hudson
      Maritime Corp. – Chesapeake Belle●
              Jessup
      Maritime Corp. – Savannah Belle●
              Kensington
      Shipping Corp. – (Maya Princess sold March, 2007)●
              Lancaster
      Maritime Corp. – Mohave Maiden●
              Leaf
      Shipping Corp. – Management Company
   F-6
  ●
              Montrose
      Maritime Corp. – Yakima Princess●
              Newkirk
      Navigation – (Dakota Belle sold September, 2006)●
              Oldcastle
      Shipping Corp. – Taino Maiden●
              Pacific
      Rim Shipping Corp. – Philippine Bareboat Charterer●
              Prospect
      Navigation Corp. – Inca Maiden●
              Rector
      Shipping Corp. – Siboney Belle●
              Remsen
      Navigation Corp. – Maori Maiden●
              Sheffield
      Maritime Corp. – Manhattan Princess●
              Sherman
      Maritime Corp. – Rockaway Belle●
              Sterling
      Shipping Corp. – Biloxi Belle●
              Stratford
      Shipping Corp. – Iroquois Maiden●
              Vernon
      Maritime Corp. – Mohegan Princess●
              Whitehall
      Marine Transport Corp. – Cherokee Princess●
              Windsor
      Maritime Corp. – Shinnecock Belle●
              Yorkshire
      Shipping Corp. – Oneida Princess●
              Argyle
      Maritime Corp. (New vessel building-Hull Number
  NYHS200720)●
              Caton
      Maritime Corp. (New vessel building-Hull Number
  NYHS200721)●
              Dorchester
      Maritime Corp. (New vessel building-Hull Number
  NYHS200722)●
              Longwoods
      Maritime Corp. (New vessel building-Hull Number
  NYHS200723)●
              McHenry
      Maritime Corp. (New vessel building-Hull Number
  NYHS200724)●
              Sunswyck
      Maritime Corp. (New vessel building-Hull Number
  NYHS200725)●
              Transworld
      Cargo Carriers, S.A. (Marshall Islands)●
              TBS
      Worldwide Services Inc. (Marshall Islands)●
              TBS
      African Ventures Limited●
              GMTBS
      Africa Line Limited (Hong Kong) (50% ownership)●
              TBS
      Eurolines, Ltd.●
              TBS
      Latin America Liner, Ltd.●
              TBS
      Middle East Carriers, Ltd.●
              TBS
      North America Liner, Ltd.●
              TBS
      Ocean Carriers, Ltd.●
              TBS
      Pacific Liner, Ltd.●
              Mercury
      Marine Ltd. (formerly TBS
      Logistics Ltd.) (Marshall Islands)●
              Roymar
      Ship Management, Inc. (New York)●
              TBS
      Shipping Services Inc. (New York)●
              Compass
      Chartering Corp. (New York)●
              Azalea
      Shipping & Chartering Inc. (New York)●
              TBS
      US Enterprises LLC (Delaware)●
              TBS
      Energy Logistics L P (Delaware)●
              TBS
      Logistics Incorporated (Texas)






F-7


Westbrook
Holdings, Ltd. and its subsidiaries ("Westbrook") operate their vessels under
pool agreements with an affiliate, TBS Worldwide Services Inc. ("TBS Worldwide")
and its subsidiaries, (TBS Pacific Liner, Ltd., TBS Latin America Liner, Ltd.,
TBS North America Liner, Ltd., TBS Ocean Carriers, Ltd., TBS Middle East
Carriers Ltd., TBS African Ventures Limited and TBS Eurolines, Ltd.)
(collectively, the "Pools"). Transworld Cargo Carriers, S.A. ("TWCC") operates
substantially all its vessels under pool agreements with TBS Worldwide. Roymar
and TBS Shipping Services provide technical and operational management services
to the TBS and its other subsidiaries.


Note
2 -- Summary of Significant Accounting Policies
  Basis
of Accounting and Presentation
  The
accompanying consolidated financial statements are prepared on the accrual basis
of accounting in accordance with accounting standards generally accepted in the
United States of America. A summary of the significant accounting policies
followed in the preparation of the accompanying consolidated financial
statements is presented below.
 
 Principles
of Consolidation
  The
consolidated financial statements include the accounts of TBS and all
subsidiaries that are more than 50 percent owned. All significant intercompany
transactions and balances have been eliminated in consolidation. Companies that
are not consolidated, but over which the Company exercises significant
influence, are accounted for under the equity method of accounting.
 
 Segment
Reporting
  The
Company has determined, in accordance with Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures about Segments of an
Enterprise and Related Information," that it operates in one reportable
segment, the worldwide ocean transportation of dry cargo.
 
 Use
of Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates. The most significant estimates relate to allowances for
charter hire and claims receivable, estimated lives of vessels and voyages in
progress.
 
 Revenue
Recognition – Related Expenses
  Revenue
is generally recorded when services are rendered, evidence of an arrangement is
obtained, pricing is fixed or determinable and collection is reasonably assured.
We generally employ our vessels under time or voyage charters. With time
charters, we receive a fixed charter hire per on-hire day and are responsible
for meeting all the vessel operating expenses such as crew costs, insurance,
stores and lubricants and repairs and maintenance. Time charter revenue
is recorded over the term of the charter as service is provided. Revenue
from time charters in progress at year end is calculated using the daily charter
hire rate, net of daily expenses, multiplied by the number of voyage days
on-hire through year end.
 
 In the
case of voyage charters, the vessel is contracted for a voyage between two or
more ports. We are paid for the cargo transported and we pay all voyage
expenses, such as fuel, port call expenses and commissions, as well as all
vessel operating expenses. Under a voyage charter, the revenues and related
voyage expenses are recognized on the percentage of service completed at the
balance sheet date by prorating the estimated total voyage revenue and expenses
using the ratio of voyage days completed through balance sheet date to total
voyage days. The impact of recognizing voyage expenses ratably over the length
of each voyage is not materially different from the method of recognizing such
costs as incurred in accordance with EITF Issue 91-9, method 5, on both a
quarterly and annual basis. Probable losses on voyages are provided for in full
at the time such losses can be estimated. 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.Vessel operating expenses
for both voyage and time charters are expensed as incurred.
  F-8
 Cash
and Cash Equivalents
  The
Company considers all highly liquid investments with maturities when purchased
of three months or less to be cash equivalents.
 
 Charter
Hire Receivable and Allowance for Doubtful Accounts
  Charter
hire receivables are recorded at the invoiced amount and do not bear interest.
The allowance for doubtful accounts is the Company's best estimate of the amount
of probable credit losses in the Company's existing accounts receivable. The
Company determines the allowance based on specific identification of certain
receivable balances for which management believes collectability is questionable
and by maintaining a percentage of outstanding receivable balances as an
allowance to assure coverage for risks not specifically identified.
 
 Claims
Receivable
  Claims
receivable, which are included in prepaid expenses and other current assets,
represent claims for reimbursement of expenses incurred that have been or will
be made under our hull and machinery, and protection and indemnity coverages. We
record the probable amount that we expect to recover from insurance net of the
applicable deductible.
  Concentrations
of Credit Risk
  Financial
instruments which potentially subject the Company to significant concentrations
of credit risk consist principally of cash and charter hire receivables. The
Company places its cash with high-quality financial institutions. These
financial institutions are located throughout the world, and the Company's
policy is designed to limit exposure to any one institution. The Company
maintains reserves for potential credit losses, and historically such losses
have not been significant.
 
 Fuel
and Other Inventories
  Fuel and
other inventories, consisting primarily of fuel, lubricating oil and spare parts
aboard the vessels, are valued at the lower of cost (determined using a
first-in, first-out basis for fuel and a weighted average basis for lubricating
oil and spare parts).
 
 Fixed
Assets
  Vessels are stated at cost,
which includes contract price and other direct costs relating to acquiring and
placing the vessels in service, less accumulated depreciation. Major vessel
improvements are capitalized and depreciated over the remaining useful lives of
the vessels. Depreciation on vessels is calculated, based on cost less estimated
residual value, using the straight-line method over the remaining useful life of
the vessel.  Depreciation on vessel improvements is calculated using the
straight-line method over the remaining useful life of the vessel. The remaining
useful life of each vessel is estimated as the period from the date we put the
vessel in service to the date 30 years from the time that the vessel was
initially delivered by the shipyard. Maintenance and repair costs that do not
improve or extend the useful lives of the vessels, other than dry dock costs
discussed below, are expensed as incurred.
 
 Vessel construction in progress
represents the accumulated costs to build six vessels.  The Company
capitalizes direct and indirect costs clearly associated with the development,
design, and construction of new vessels as these costs have a future benefit.
Costs include installments paid to the shipyard, payments made to third parties
in connection with the new vessel building program, and interest costs incurred
during the construction period, which is defined as the period from the start of
construction until the date that each vessel is substantially complete and ready
for use.
 
 F-9
 Vessel leasehold improvements are the
cost of improvements made to two vessels chartered in under long term
charters.  Vessel leasehold improvements, which are included with
vessel improvements and other equipment, are amortized on a straight-line basis
over the term of the lease.
 
 Deferred drydockingcostsrepresent amounts
incurred for periodic inspections and overhaul activities required for
regulatory and insurance purposes.  Dry dock costs are amortized on a
straight-line basis over the period through the date of the next drydocking
which is typically 30 months.
 
 Other Fixed Assets, consisting principally
of grabs, computer hardware, software and office equipment are depreciated
on a straight-line basis.
 
 We use
the following useful lives to calculate depreciation and
amortization:




Description
            
            UsefulLifeVessel
            
            Remaining
      vessel life, 5 -22 yearsVessel
      improvements
            
            Remaining
      vessel life, 5 -22 yearsVessel
      equipment
            
            2-5
      yearsVessel
      leasehold improvements
            
            7
      yearsDeferred
      dry docking costs
            
            30
      monthsOther
      fixed assets including grabs
            
            3-10
      years




Impairment
of Long-Lived Assets
  The
Company is required by SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" to review its long-lived assets for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. Long-lived assets are measured for impairment
when the estimate of undiscounted future cash flows expected to be generated by
the asset is less than its carrying amount. Measurement of the impairment loss
is calculated based upon comparison of the fair value to the carrying value of
the asset. Management performs impairment analyses when certain triggering
events occur.  If a triggering event was to occur the fair values of
our long-lived assets would be determined by consideration of independent
third-party appraisals. The Company has determined that there was no impairment
of long-lived assets at December 31, 2007 and 2006.
 
 Goodwill
  Goodwill
represents the excess of the purchase price over the estimated fair value of net
assets acquired. Goodwill is reviewed annually or more frequently if events or
circumstances indicate possible impairment in accordance with SFAS No. 142
"Goodwill and Other
Intangibles Assets". This statement requires that
goodwill and other intangibles assets with an indefinite life are not to be
amortized but instead tested for impairment at least annually. The Company has
determined that there was no impairment of goodwill as of and for the years
ended December 31, 2007 and 2006.
 
 F-10
 Deferred
Financing Costs
  Deferred financing costs are amortized
over the term of therelated financing using the
straight-line method, which is not materially different than the effective
interest method.Unamortized deferred financing costsarewritten offwhen therelated debt is repaid and included in
debt extinguishment gain or loss in the accompanying consolidated statements of
operations.
 
 Leases
  Leases
are classified as either capital or operating. Those leases that transfer
substantially all the benefits and risks of ownership of property to the Company
are accounted for as capital leases. All other leases are accounted for as
operating leases. Capital leases are accounted for as assets and are fully
amortized on a straight-line basis over the lesser of the estimated useful lives
or the remaining available lease terms. Commitments to repay the principal
amounts arising under capital lease obligations are included in current
liabilities to the extent that the amount is repayable within one year;
otherwise the principal is included in amounts due after one year. The
capitalized lease obligation reflects the present value of future lease
payments. The financing element of the lease payments is charged to income over
the term of the lease. Deferred leasing costs are amortized over the
term of the lease using the straight-line method, which is not materially
different than the effective interest method.  Rental expense for
leases classified as operating and that contain predetermined fixed decreases
of  minimum rentals during the term of the lease is recognized on a
straight-line basis over the life of the lease, beginning with the point at
which the Company obtains control and possession of the leased
properties.  The difference between the amounts charged to operations
and amounts paid is recorded as deferred rent receivable.
  Taxation
  Currently
there is no Bermuda income or profit tax. The Company is also not subject to
corporate income taxes on its profits in the Marshall Islands because its income
is derived from sources outside this jurisdiction. Minor registration and
tonnage taxes must be paid annually and have been included in the vessels'
operating expenses in the accompanying consolidated statements of
operations.
  Pursuant
to the Internal Revenue Code of the United States, U.S. source income from the
international operations of ships is generally exempt from U.S. tax if the
company operating the ships meets certain requirements. Among other things, in
order to qualify for this exemption, the company operating the ships must meet
two requirements. First, a company must be incorporated in a country which
grants an equivalent exemption from income taxes to U.S. citizens and U.S.
corporations. Second more than 50% of the outstanding shares of stock of either
the company or its parent, by both total combined voting and total value, must
be listed on an exchange in the country of incorporation or another country that
grants an equivalent exemption from income taxes to U.S. citizens and U.S.
corporations or on a U.S. exchange and be regularly traded, as
defined.
  TBS and
its foreign subsidiaries are incorporated in countries that grant equivalent
exemption from income taxes to U.S. citizens and U.S. corporations. In June
2005, TBS met the second requirement for exemption from U.S. income tax when it
completed its initial public offering and its stock began being regularly traded
on the NASDAQ market.
  United
States federal and state income taxes that TBS's U.S. subsidiaries are subject
to are not significant to the accompanying consolidated statements of operations
and is included as a component of general and administrative in the consolidated
income statement.
  F-11
 Stock
Based Compensation
  The
Company adopted SFAS 123R effective January 1, 2006, using the modified
prospective method which requires measurement of compensation cost for all
stock-based awards at fair value on the date of grant and recognition of
compensation over the service period for awards expected to vest.
 
 Earnings
Per Share
  Earnings
per share are based on reported net income available for common shareholders and
the weighted average number of common shares outstanding (basic) and the
weighted average total of common shares outstanding and potential common shares
(diluted).
 
 Fair
Value of Financial Instruments
  Financial
instruments, which potentially subject us to concentrations of credit risk,
consist principally of cash equivalents, charter hire receivables and debt. We
place our cash equivalents with a number of financial institutions to help limit
the amount of credit exposure to any one financial institution. Concentrations
of credit risk with respect to trade receivables are limited due to the large
number of customers comprising our customer base, and their dispersion across
many geographic areas. As of December 31, 2007, one customer accounted for 13.1%
of charter hire receivables, and as of December 31, 2006 one customer accounted
for 10.4% of charter hire receivables.
 
 The
following method and assumptions were used to estimate the fair value of
financial instruments included in the following categories:
  ·
              Cash and cash equivalents,
      charter hire and claims receivable - The carrying amount reported
      in the accompanying consolidated balance sheets for cash and cash
      equivalents, charter hire and claims receivables approximates their fair
      value due to the current
maturities.
  ·
              Short-term debt - The
      carrying amount reported in the accompanying consolidated balance sheets
      for short-term debt approximates its fair value due to the current
      maturity of such instruments and their variable
  rates.
  ·
              Long-term debt - The
      carrying amount of our long-term debt approximates fair value due to the
      variable interest rates on bank borrowings and based on the current rates
      offered to us for debt of the same remaining
  maturities.
  ·
              Interest Rate Swap
      - The Company utilizes certain derivative financial
      instruments to manage interest rate risk. Derivative instruments are
      entered into for periods consistent with related underlying exposures and
      do not constitute positions independent of those exposures. The Company
      does not enter into contracts for speculative purposes, nor is it a party
      to any leveraged derivative instruments.  The Company is exposed
      to credit loss in the event of nonperformance by the counterparties on
      derivative contracts. The Company minimizes its credit risk on these
      transactions by dealing only with leading, credit-worthy financial
      institutions and, therefore, does not anticipate
      nonperformance.
 
 Foreign
Currency Transactions
  The
financial statements are expressed in United States dollars. Gains and losses
resulting from foreign currency transactions, which are not significant, are
included in other income.
  F-12
 Financial
Derivative Instruments and Hedging Activities
 
 The
Company seeks to manage its interest rate risk associated with variable rate
borrowings with the use of derivative financial instruments. The Company
accounts for derivative financial instruments in accordance with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended
("SFAS 133"). The fair value of derivative financial instruments are recognized
as assets or liabilities at each balance sheet date, with changes in fair value
affecting net income (loss) or comprehensive income (loss) as
applicable.
 
 Reclassification
  Reclassifications
were made to the consolidated cash flows for the years ended December 31, 2006
and 2005 to conform to the current presentation of cash flows provided by
operating and financing activities. The reclassification did not impact total
net cash provided by operating and financing activities previously reported for
the years ended December 31, 2006 and 2005.
  Note
3— New Accounting Pronouncements
  In
December 2007, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS")
Statement  No. 141 (revised 2007), "Business Combinations" ("SFAS
141(R)").  SFAS 141(R) establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and noncontrolling interest in the
acquiree and the goodwill acquired. The revision is intended to simplify
existing guidance and converge rulemaking under U.S. GAAP with international
accounting rules. This statement applies prospectively to business combinations
where the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The adoption of SFAS
141 (R) is not expected to have a material impact on our consolidated results of
operations, cash flows, or financial position.
 
 In
December 2007, the FASB issued SFAS Statement No. 160, "Noncontrolling Interest
in Consolidated Financial Statements, an amendment of ARB No. 51 " ("SFAS
160").  This statement establishes accounting and reporting standards
for ownership interest in subsidiaries held by parties other than the parent and
for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. SFAS
160 changes the way the consolidated income statement is presented by requiring
consolidated net income to be reported at amounts that include the amount
attributable to both the parent and the noncontrolling interests. The statement
also establishes reporting requirements that provide sufficient disclosure that
clearly identify and distinguish between the interest of the parent and those of
the noncontrolling owners. This statement is effective for fiscal years
beginning on or after December 15, 2008. The adoption of SFAS 160 is not
expected to have a material impact on our consolidated results of operations,
cash flows, or financial position.
 
 On April
30, 2007, the  FASB issued Staff Position No. FIN 39-1 ("FIN 39-1"),
which amends FASB Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts ("FIN 39")."  FIN 39-1 permits companies to offset
fair value amounts recognized for derivative instruments executed with the same
counterparty under a master netting arrangement and fair value amounts
recognized for the right to reclaim cash collateral (a receivable) or the
obligation to return cash collateral (a payable) arising from the same master
netting arrangement as the derivative instruments.  FIN 39-1 is
effective for fiscal years beginning after November 15, 2007 with early
application permitted, and is applied retrospectively as a change in accounting
principle. The adoption of FIN 39-1did not have any impact on our consolidated
results of operations, cash flows, or financial position.
 
 F-13
 In
February 2007, the FASB  issued SFAS Statement No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of FASB Statement No.
115" ("SFAS 159").  SFAS 159 permits all entities the option to
measure many financial instruments and certain other items at fair
value.  If a company elects the fair value option for an eligible
item, then it will report unrealized gains and losses on those items at each
subsequent reporting date.  SFAS 159 is effective for fiscal years
beginning after November 15, 2007.  The Company has not yet determined
the impact, if any, that SFAS 159 will have on its consolidated financial
statements.
 
 In
September 2006, the FASB issued SFAS Statement No. 157, "Fair Value Measurements"
("SFAS 157"), which defines and establishes a framework for measuring fair value
and expands disclosures about fair value measurements.  The accounting
provisions of SFAS 157 are effective for the Company beginning on November 15,
2008.  The Company has not yet determined the impact, if any, that
SFAS 157 will have on its consolidated financial statements.
  Note4 — Allowance for Charter Hire and Claims
Receivable
  We review
the allowances for doubtful accounts monthly. Account balances are charged off
against the allowance when we feel that it is probable the receivable will not
be recovered. We do not have any significant off-balance sheet credit exposure
related to our customers.
  Allowance
for doubtful charter hire receivable is as follows:


Balance
      at
              
              
              
              
              
              Write-offs
      Net of
              
              
              Balance
      atBeginning
      of Year
              
              Additions
              
              
              Recoveries
              
              
              End
      of YearDecember
      31, 2005
              
              $
              1,456,594
              
              
              
              
              
              $
              (762,380
              )
              
              $
              694,214December
      31, 2006
              
              $
              694,214
              
              
              
              
              
              $
              (251,685
              )
              
              $
              442,529December
      31, 2007
              
              $
              442,529
              
              
              $
              80,724
              
              
              $
              (33,057
              )
              
              $
              490,196




Note 5
— Prepaid Expenses and Other Current Assets




Prepaid
expenses and other current assets consist of the following:




December
      31,Description
              
              2007
              
              2006Claims
      receivable
              
              $
              1,502,546
              
              $
              2,905,013Due
      from agents
              
              
              1,617,827
              
              
              2,153,993Other
      receivables
              
              
              2,763,021
              
              
              1,058,474Prepaid
      expenses
              
              
              1,858,705
              
              
              1,586,936$
              7,742,099
              
              $
              7,704,416




F-14


Note 6
— Fuel and Other Inventories




Fuel and
other inventories consist of the following:




Description
              
              December
      31,2007
              
              December
      31,2006Fuel
              
              $
              7,702,783
              
              $
              4,650,557Lubricating
      oil
              
              
              2,770,034
              
              
              2,125,983Other
              
              
              650,096
              
              
              479,943$
              11,122,913
              
              $
              7,256,483




Note 7
— Fixed Assets




Fixed
assets consist of the following:




Description
              
              December
      31, 2007
              
              December
      31, 2006Vessels
              
              $
              402,098,469
              
              $
              367,515,843Vessel
      improvements and other equipment
              
              
              53,323,171
              
              
              27,020,499Deferred
      dry docking costs
              
              
              13,990,033
              
              
              7,780,192Vessel
      construction in process
              
              
              62,834,982
              
              
              280,163Other
      fixed assets
              
              
              13,512,456
              
              
              9,626,975545,759,111
              
              
              412,223,672Less
      accumulated depreciation and amortization
              
              
              (101,677,066
              )
              
              (75,354,578
              )$
              444,082,045
              
              $
              336,869,094




We
acquired the following vessels during 2007, 2006, and 2005:




Company
              
              Vessel
              
              Date
      Vessel Delivered
              
              Purchase
      Price
              
              Estimated
      Useful Life at Time of AcquisitionClaremont
      Shipping Corp.
              
              Arapaho
      Belle
              
              November
      23, 2007
              
              $
              29,000,000
              
              
              21.1Elrod
      Shipping Corp.
              
              Nanticoke
      Belle
              
              April
      10, 2007
              
              
              16,950,000
              
              
              12.3Jessup
      Maritime Corp.
              
              Savannah
      Belle
              
              November
      14, 2007
              
              
              10,700,000
              
              
              5.1Montrose
      Shipping Corp.
              
              Yakima
      Princess
              
              October
      12, 2007
              
              
              29,000,000
              
              
              13.2Vessel
      Acquisitions for the year ended December  31,
    2007
              
              
              
              $
              85,650,000




F-15


Company
              
              Vessel
              
              Date
      Vessel Delivered
              
              Purchase
      Price
              
              Estimated
      Useful Life at Time of AcquisitionDover
      Maritime Corp.
              
              Aztec
      Maiden
              
              May
      2, 2006
              
              $
              8,100,000
              
              
              7.1Fairfax
      Shipping Corp.
              
              Seminole
      Princess
              
              November
      10, 2006
              
              
              23,100,000
              
              
              20.1Beekman
      Shipping Corp.
              
              Laguna
      Belle
              
              November
      15, 2006
              
              
              22,000,000
              
              
              19.1Exeter
      Shipping Corp.
              
              Alabama
      Belle
              
              November
      24, 2006
              
              
              16,075,000
              
              
              9.1Vessel
      Acquisitions for the year ended December  31,
    2006
              
              $
              69,275,000




Company
                
                Vessel
                
                Date
      Vessel Delivered
                
                Purchase
      Price
                
                Estimated
      Useful Life at Time of AcquisitionChester
      Shipping Corp
                
                Tamoyo
      Maiden
                
                January
      18, 2005
                
                $
                8,000,000
                
                
                12.0Rector
      Shipping Corp
                
                Siboney
      Belle
                
                February
      9, 2005
                
                
                8,625,000
                
                
                13.0Albemarle
      Maritime Corp
                
                Mohawk
      Princess
                
                February
      16, 2005
                
                
                12,000,000
                
                
                7.0Hansen
      Shipping Corp
                
                Ainu
      Princess
                
                February
      23, 2005
                
                
                8,625,000
                
                
                13.0Bristol
      Maritime Corp
                
                Tuscarora
      Belle
                
                April
      20, 2005
                
                
                12,750,000
                
                
                9.3Hudson
      Maritime Corp
                
                Chesapeake
      Belle
                
                April
      25, 2005
                
                
                12,750,000
                
                
                9.4Glenwood
      Maritime Corp
                
                Miami
      Maiden
                
                April
      26, 2005
                
                
                12,240,000
                
                
                9.4Windsor
      Maritime Corp
                
                Shinnecock
      Belle
                
                June
      7, 2005
                
                
                15,300,000
                
                
                10.0Kensington
      Shipping Corp
                
                Maya
      Princess
                
                June
      28, 2005
                
                
                15,810,000
                
                
                6.5Sterling
      Shipping Corp
                
                Biloxi
      Belle
                
                July
      12, 2005
                
                
                15,500,000
                
                
                9.5Remsen
      Navigation Corp
                
                Maori
      Maiden
                
                September
      6, 2005
                
                
                13,750,000
                
                
                9.3Darby
      Navigation Corp.
                
                Nyack
      Princess
                
                November
      6, 2005
                
                
                10,000,000
                
                
                7.8Birnam
      Maritime Corp.
                
                Sioux
      Maiden
                
                November
      7, 2005
                
                
                18,500,000
                
                
                13.2Vessel
      Acquisitions for the twelve months ended December  31,
      2005
                
                $
                163,850,000




During
2007 the following vessels were sold:
 
 a.
              On
      March 13, 2007, the Company sold the Maya Princess for $13.0
      million and realized a loss of approximately $0.8
  million.
 
 b.
              On
      March 9, 2007, the Huron
      Maiden was severely damaged in a grounding accident on an uncharted
      rock while on passage near Indonesia. The grounding resulted in damage to
      the vessel that was too extensive to repair, rendering the vessel a total
      loss. On April 4, 2007, the vessel was declared a constructive total loss.
      The Company received a net amount of $8.0 million from its Hull &
      Machinery/ Increased Value insurances after a scrap value credit of $2.0
      million. The Company retained the proceeds on the sale of the vessel for
      scrap, which was sold and delivered to the buyer on May 4, 2007 for $2.8
      million. After deducting the net book value of the vessel and expenses
      incurred in connection with the accident and the sale of the vessel of
      approximately $3.8 million and $1.0 million, respectively, the Company
      realized a gain on the casualty and sale of the vessel of approximately
      $6.0 million. The vessel was collateral for the credit facility with Bank
      of America and, accordingly, the insurance and scrapping sale proceeds
      were used to pay down the revolver portion of the credit
      facility.
 
 F-16
 c.
              On
      January 30, 2007, the Company through two subsidiaries, each sold and
      leased back a vessel pursuant to a sale-leaseback
      arrangement.  Net proceeds from the transactions after expenses
      and deposits were $38.6 million.  The vessel Seminole
      Princess was sold to Adirondack Shipping LLC ("Adirondack")
      for $23.0 million, and the vessel Laguna Belle was
      sold to Rushmore Shipping LLC ("Rushmore") for $22.0 million, each
      pursuant to a memorandum of agreement.  The Company through the
      two subsidiaries had taken delivery of the vessel Seminole Maiden
      (formerly the Clipper
      Flamingo) for $23.1 million on November 10, 2006 and the vessel
      Laguna Belle
      (formerly the Clipper
      Frontier) for $22.0 million on November 15, 2006.  Under
      the sale-leaseback arrangement, the respective selling subsidiary each
      entered into a seven-year bareboat charter with Adirondack and
      Rushmore.  The charters are classified as operating leases – see
      note 19 "Commitments and Contingencies."  Proceeds from the sale
      were used to repay advances outstanding under the revolving credit
      facility.  The bareboat charters allow the charterers to
      purchase the respective vessel at the end of the fifth, sixth or seventh
      year of the charter period at a vessel price of $11.1 million, $9.15
      million or $6.75 million, respectively.  The bareboat charters allow
      the purchase options to be exercised at any other date during the option
      period at a pro-rata price. In connection with the sale-leaseback, $5.5
      million was retained by buyer/lessor as a deposit on the bareboat
      charters.
 
 In
February 2007, the Company entered into individual contracts, through six wholly
owned subsidiaries, with China Communications Construction Company Ltd. and
Nantong Yahua Shipbuilding Co., Ltd. ("Ship yard") to build six newly designed
multipurpose vessels with retractable tweendecks at a contract purchase price of
$35.4 million per vessel.  The vessels are designated as Hull
numbers  NYHS200720 through NYHS200725.  The agreements
provide for the delivery of two vessels in 2009 and four vessels in
2010.  As of December 31, 2007, we made payments of $55.9 million to
the Ship yard toward the purchase price of the six vessels, including
payments of $0.1 million made on behalf of the Ship yard.  We also
made payments for design and professional fees of $2.0 million.  The
Company capitalized deferred financing costs of $2.0 million associated with The
Royal Bank of Scotland new vessel building credit facility and $2.9 million of
interest expense incurred during the year. Capitalized interest and deferred
finance costs are added to the cost of each vessel and will be amortized over
the estimated useful life of the respective vessel when the vessels are placed
into service.  At December 31, 2007, steel cutting was complete for
Hull number NYHS200720 and the Ship yard just began steel cutting for Hull
number NYHS200721.
 
 Depreciation
and amortization of vessels and other assets was $36.0 million, $29.9 million
and $19.5 million respectively, for the years ended December 31, 2007, 2006 and
2005, respectively.
  Note
8 — Deposits for vessel purchases
 
 Deposits
on vessels that we have contracted to purchase but that have not yet been
delivered at December 31, 2007 and 2006 consist of the following (See note"21— Subsequent Events" for vessels
delivering after December 31, 2007):


New
      VesselName
            
            Former
      Vessel Name
            
            Date
      ofDeposit
            
            December
      31,2007
            
            December
      31, 2006Nanticoke
      Belle
            
            Blu
      Mistral
            
            December
      12, 2006
            
            
            
            $
            1,695,000Oneida
      Princess
            
            Gebe
      Oldendorff
            
            September
      17, 2007
            
            $
            3,200,000Mohave
      Maiden
            
            Diasozousa
            
            November
      2, 2007
            
            
            2,600,000Zuni
      Princess
            
            Ypermachos
            
            November
      2, 2007
            
            
            2,600,000Hopi
      Princess
            
            African
      Sanderling
            
            November
      21, 2007
            
            
            1,836,000Ottawa
      Princess
            
            Wedellsborg
            
            December
      18, 2007
            
            
            2,300,000Caribe
      Maiden
            
            Frijsenborg
            
            December
      18, 2007
            
            
            2,300,000$
            14,836,000
            
            $
            1,695,000





F-17


Note
9 — Advances to / from Affiliates
  Advances
to/from affiliates, which are entities related by common shareholders, are
non-interest-bearing, due on demand and expected to be collected or paid in the
ordinary course of business, generally within the year.  The Company
typically advances funds to affiliates in connection with the payment of
management fees, commissions and consulting fees.  Advances from
affiliates originated primarily from amounts due to affiliates for management
fees, commissions and consulting fees earned.
 
 Note
10 – Other assets and deferred charges
 
 Other
assets and deferred charges consist of the following:


December
      31,Description
              
              2007
              
              2006Deferred
      financing and leasing costs, net
              
              $
              3,740,243
              
              $
              2,711,299Investment
      in securities
              
              
              228,940
              
              
              500,000Deposit
      bareboat charter
              
              
              5,500,000Deferred
      rent receivable
              
              
              1,127,355Investment
      in joint venture
              
              
              810,661
              
              
              477,806Fair
      value of interest rate swap agreement
              
              
              
              
              
              42,386$
              11,407,199
              
              $
              3,731,491




Deferred
financing and leasing costs represent fees we incurred in obtaining new
financing, refinancing existing debt or arranging long term leases on
vessels.   Accumulated amortization of deferred financing and
leasing costs was $1,412,687 and $339,183 at December 31, 2007 and 2006,
respectively.
  In
November 2005, the company entered into a joint venture with GMT Shipping Line
Ltd. to provide liner services to and from the East and North Coasts of South
America and from and to the West Coast of Africa.  The Company made a
capital investment of $100,000 and loans of $400,000 on February 7, 2006 and
March 1, 2006, respectively, for a 50% interest in the joint venture and
additional $360,000 in loans were made to the joint venture during 2007.
The investment is accounted for using the equity method and the Company’s share
of the financial result of the joint venture was a loss of approximately $27,000
and $74,000 for  2007 and 2006, respectively, and a profit of
approximately $52,000 for 2005, which is included in other income in the
consolidated statement of operations. In November 2007, the joint venture
partners agreed to suspend activities of the joint venture in 2008.
  In
connection with the sale-leaseback of the Seminole Princess and
Laguna Bellein January 2007, $5.5
million was retained by buyer/lessor as a deposit on the bareboat
charters.  The leases for the vessels contain predetermined fixed
decreases of charter hire payments due under the charters during the term of the
leases.  The Company recognizes the related rental expense on a
straight-line basis over the life of the leases and records the difference
between the amounts charged to operations and amounts paid as deferred rent
receivable.
 
 Note
11 — Accrued Expenses
  Accrued
expenses consist of the following:




Description
              
              December
      31,2007
              
              December
      31,2006Voyage
      and vessel expenses
              
              $
              26,826,910
              
              $
              16,910,180Payroll
      and related costs
              
              
              9,352,827
              
              
              3,479,675Commissions
              
              
              378,803
              
              
              667,453Cargo
      claims
              
              
              154,999
              
              
              245,999Other
      expenses
              
              
              -
              
              
              226,044$
              36,713,539
              
              $
              21,529,351




F-18


Note
12 — Financing




The
Company's outstanding debt balances were as follows:




Interest
      Rate at
                December
      31, 2007
              
              
              December
      31, 2007
              
              December
      31, 2006Bank
      of America - term credit facility,expires
      July 30, 2010
              
              
              6.59
              %
              
              $
              50,446,429
              
              $
              65,625,000Bank
      of America - revolving credit facility,expires
      July 30, 2010
              
              
              6.41%
      - 6.99
              %
              
              
              70,374,533
              
              
              54,814,033The
      Royal Bank of Scotland creditfacility,
      expires March 23, 2010
              
              
              6.21
              %
              
              
              4,345,000
              
              
              5,365,000The
      Royal Bank of Scotland credit facility,new
      vessel buildings,  expires through March 31,
2021
              
              
              6.95
              %
              
              
              35,000,000
              
              
              -Credit
      Suisse credit facility,expires
      March 31, 2018
              
              
              6.18
              %
              
              
              20,000,000
              
              
              -Debt
      balance
              
              
              
              
              
              $
              180,165,962
              
              $
              125,804,033




The
repayment of debt over the next five years and thereafter is as
follows:




2008
              $
              22,698,5712009
              
              24,786,0712010
              
              91,575,3202011
              
              10,894,0002012
              
              10,894,000Thereafter
              
              19,318,000$
              180,165,962




Bank of America Credit
Facility
  On July
31, 2006, TBS, through its subsidiaries, entered into a $140.0 million credit
facility (the "BA Credit Facility") with a syndicate of commercial lenders led
by Bank of America.  The Credit Facility is composed of a $75.0
million term loan facility ("BA Term Credit Facility") and a $65.0 million
revolving credit facility ("BA Revolving Credit Facility").  On July 31,
2006, the Company made a full drawdown on the BA Term Credit Facility of $75.0
million and an initial drawdown of $10.0 million on the BA Revolving Credit
Facility to repay $80.9 million of outstanding principal and interest due on
loans with the existing lenders.  We used the balance of the drawdown
together with cash from operations to pay $5.2 million of costs associated with
the refinancing, including deferred financing costs of $3.1
million.
  F-19
 On
January 23, 2007, the Company added an additional $20.0 million under the
existing $140 million syndicated credit facility.  The BA Revolving
Credit Facility was increased by $15.0 million to $80.0 million, and we borrowed
an additional $5.0 million under the BA Term Credit Facility.  In
connection with the increase to the credit facility, the credit agreement dated
July 31, 2006 was amended to include Exeter Shipping Corp. as a borrower and
include the vessel Alabama
Belle as additional collateral.
  Payment
of principal on the BA Term Credit Facility was originally due in 16 quarterly
installments of $4.7 million beginning September 2006.  Quarterly
payments under the BA Term Credit Facility were subsequently increased to $5.0
million beginning June 2007 due to the additional $5.0 million borrowed in
January 2007.
  The
non-amortizing BA Revolving Credit Facility is due in July
2010.  Interest on the BA Credit Facility is at the 30-day, 60-day, or
90-day Eurodollar LIBOR rate, as selected by the Company, plus a loan margin
rate based on the Company’s consolidated leverage ratio.  The loan
margin rate can vary, in .50% increments, between four pricing levels from 2.75%
to 1.25%.  The initial loan margin rate was 2.25% and became
adjustable during the first quarter 2007.  The Company's average loan
margin was 1.75% during 2007, based on the Company’s consolidated leverage
ratio.  At December 31, 2007, the Company’s consolidated leverage
ratio was below 1.5 to 1.0 and; accordingly, the loan margin was
1.75%.  In connection with the Credit Facility, the Company incurred
deferred financing costs of $3.5 million that are being amortized over the term
of the Credit Facility.
  The
Credit Facility is collateralized primarily by 22 of our vessels with a net book
value at December 31, 2007 of $ 228.9 million, as well as by the Company’s
equity interests in the subsidiaries that own the vessels.  Each
subsidiary of the Company with an ownership interest in the collateralized
vessels has provided an unconditional guaranty and pledged any insurance
proceeds received related to the vessels.
  The BA
Credit Facility agreement contains certain financial and non-financial
covenants.  The non-financial covenants include customary restrictions
on the Company’s ability to incur indebtedness or grant liens, pay dividends
under certain circumstances, enter into transactions with affiliates, merge,
consolidate, or dispose of assets, and change the nature of its
business.  The financial covenants require that we maintain certain
fixed charge and leverage ratios, as well as maintain tangible net worth within
defined limits.  We are also required to maintain minimum cash and
cash equivalent balances and collateral coverage.  In addition, the
Credit Facility requires minimum collateral coverage, restricts the payment of
dividends and restricts leverage, investment and capital expenditures without
consent of the lender and requires mandatory prepayment or delivery of
additional security in the event that the fair market value of the vessels falls
below limits specified in the loan agreement.  At December 31, 2007,
and during the year then ended, the Company was in compliance with all
covenants.
  In
February 2008, the Company entered into a commitment with Bank of America,
serving as Administrative Agent, to amend and restate the existing BA Credit
Facility.  Under the commitment, Bank of America would lead a
syndication of commercial lenders that would increase the credit facility to
$200.0 million.  The amended credit facility would be composed of a
$100.0 million term loan facility and a $100.0 million revolving credit facility
and will be used to payoff the existing BA Credit Facility and for general
corporate purposes.
  The
Royal Bank of Scotland Credit Facility
  The
Company entered into a credit facility with The Royal Bank of Scotland (RBS
Credit Facility) for $7.15 million in December 2004.  The Company drew
down the full facility in December 2004, to replenish the Company's working
capital in connection with the acquisition of the vessel Wichita
Belle.  Interest is at LIBOR plus 1.5%, compounded monthly and
paid quarterly.  Payment of principal is due in 20 quarterly
installments of $255,000 commencing on June 30, 2005 (six months after
drawdown).  A balloon installment of $2,050,000 is payable with the
last quarterly installment on March 23, 2010.  The RBS Credit Facility
is collateralized by a First Preferred Ship Mortgage on the vessel Wichita Belle,which had a net book value
at December 31, 2007 of $ 12.6 million, and assignment of freight revenue and
insurance.  The RBS Credit Facility requires that the Company maintain
a monthly average of $1,500,000 on deposit with the bank.  On February
22, 2008 the loan was repaid and the vessel will be included with the vessels
collateralizing the amended BA Credit Facility.
  The
Royal Bank of Scotland Credit Facility - New Vessel Buildings
  On March
29, 2007, the Company entered into a credit agreement with a syndicate of
lenders led by The Royal Bank of Scotland for a $150.0 million term loan credit
facility (the "RBS NB Credit Facility") to finance the building and purchase of
six new Multi-Purpose vessels with retractable tweendecks.
  F-20
 The RBS
NB Credit Facility consists of six $25.0
million term loans designated Loans A through F, which are available through May
31, 2009, November 30, 2009, April 30, 2010, August 31, 2010, June 30, 2010 and
October 31, 2010, respectively, or such later date as the lenders may agree
to.  Advances under the RBS NB Credit Facility will be drawn down in
the following amounts, by the following subsidiaries upon the completion of the
milestones noted below:


Loan
      A
            
            Loan
      B
            
            Loan
      C
            
            Loan
      D
            
            Loan
      E
            
            Loan
      FArgyle
      Maritime Corp.
            
            Caton
      Maritime Corp.
            
            Dorchester
      Maritime Corp.
            
            Longwoods
      Maritime Corp.
            
            McHenry
      Maritime Corp.
            
            Sunswyck
      Maritime Corp.Milestone
            
            Hull
      No NYHS200720
            
            Hull
      No NYHS200721
            
            Hull
      No NYHS200722
            
            Hull
      No NYHS200723
            
            Hull
      No NYHS200724
            
            Hull
      No NYHS200725Contract
      Signing
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      millionSteel
      Cutting
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      millionKeel
      Laying
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      millionLaunching
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      millionDelivery
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million
            
            $5.0
      million




The
advances due at the time of delivery, as shown in the above table, are subject
to adjustment if the total advanced by the lenders, including the scheduled
delivery advance, exceeds 75% of the value of the vessel at the time of
delivery.  The RBS NB Credit Facility is collateralized by the
respective shipbuilding contracts while the vessels are under construction and
by Preferred Ship Mortgages on the new vessels, and assignment of freight
revenue and insurance after delivery of the respective vessel.  TBS
guarantees the obligations of the borrowing subsidiaries under the RBS NB Credit
Facility.
  In March
2007, we drew down $30.0 million upon the contract signing and an additional
$5.0 million in August 2007 upon the start of steel cutting of hull number
NYHS200720.  Interest on the RBS NB Credit Facility is at LIBOR plus a
loan margin of 1.75% prior to the drawdown of the advance at the time of
delivery and at LIBOR plus a loan margin of 1.50% after the delivery advance is
drawn down.  Interest is payable either monthly, quarterly or
semi-annually depending on interest period selected by the Company.  Each
of the loans made under the RBS NB Credit Facility is payable in 40 quarterly
installments of $417,500 beginning three months after the drawdown of the
delivery advance with a final payment of $8,300,000 due when the last quarterly
payment is made.  If the scheduled delivery advance is not advanced in
full, the repayment installments will be reduced pro-rata.
  The RBS
NB Credit Facility agreement contains certain financial and non-financial
covenants.  The non-financial covenants include customary restrictions
on the borrowing subsidiaries' ability to incur indebtedness or grant liens,
enter into transactions with affiliates, merge, consolidate, or dispose of
assets, and change the nature of their business and materially amend or fail to
enforce the shipbuilding contracts with China Communications Construction
Company Ltd and Nantong Yahua Shipbuilding Co., Ltd.  The borrowing
subsidiaries are also required, among other things, to maintain the vessels when
delivered, to comply with all applicable laws, to keep proper books and records,
to preserve their corporate existence, to maintain insurance, and to pay taxes
in a timely manner.  Further, the fair market value of the vessels
subject to the mortgage must be at least 125% of the outstanding loan
amount.  The financial covenants require that the Company maintain
certain fixed charge and leverage ratios, as well as maintain tangible net worth
within defined limits.  We are also required to maintain minimum cash
and cash equivalent balances and collateral coverage.  TBS as
Guarantor is restricted from paying dividends or making other distributions that
would (1) result in a default of the RBS NB Credit Facility (2) exceed 50%
of consolidated net income for the fiscal year the dividend or distributions are
made, or (3) cause the Company to be out of compliance with the minimum
Consolidated Fixed Charge Coverage Ratio set forth in the loan
agreement.  At December 31, 2007, and during the year ended, the
Company was in compliance with all covenants. In connection with the Credit
Facility, the Company incurred deferred financing costs of $2.0 million that are
being capitalized as part of the costs of the construction of the
vessels.
  Concurrent with entering into the RBS
NB Credit Facility, the borrowing subsidiaries entered into an agreement (the
"Guarantee Facility") to have The Royal Bank of Scotland guarantee payments due
under the Shipbuilding Contracts.  Under the Guarantee Facility, The
Royal Bank of Scotland has agreed to guarantee the second, third, and fourth
installments due by the borrowing subsidiaries under their respective
shipbuilding contract.  The Guarantee Facility provides for a
guarantee of up to $14.0 million for each borrower subsidiary for an aggregate
guarantee of $84.0 million.  The Guarantee Facility for each borrower
subsidiary expires twelve months after the anticipated delivery date of the
respective vessel.  TBS guarantees the obligations of the borrower
subsidiaries under the Guarantee Facility.
  F-21
 Credit
Suisse Term Loan Facility
  On December 7, 2007, the Company
through two wholly owned subsidiaries, entered into a credit agreement with
Credit Suisse for a $40.0 million term loan credit facility (the "CS Credit
Facility") to replenish working capital used to purchase two
vessels.  The CS Credit Facility provides for two term loans of up to
$20.0 million each, one collateralized by the vessel Arapaho Belle and the other
collateralized by the vessel Oneida
Princess.  The Arapaho Belle was delivered
on November 23, 2007 and on December 12, 2007, $20.0 million was drawn
down. The Oneida Princesswas delivered on February 11, 2008 and the remaining $20.0 million was
drawn down on February 19, 2008.  The Arapaho Belle had a net book
value at December 31, 2007 of $29.6 million.
  The CS Credit Facility is repayable
over ten years in quarterly installments of $750,000 for the first eight
quarters and $437,000 for the remaining thirty two quarters. Interest is payable
quarterly in arrears at LIBOR plus 1.05% if the outstanding balance of the loan
is at or below 65% of the vessels' market value or 1.20% if the outstanding
balance of the loan is above 65% of the vessels' market value.
  The CS
Credit Facility agreement contains certain financial and non-financial
covenants.  The non-financial covenants include customary restrictions
on the Company’s ability to incur indebtedness or grant liens, pay dividends
under certain circumstances, enter into transactions with affiliates, merge,
consolidate, or dispose of assets, and change the nature of its
business.  The financial covenants require that we maintain certain
fixed charge and leverage ratios, as well as maintain tangible net worth within
defined limits.  We are also required to maintain minimum cash and
cash equivalent balances and collateral coverage.  In addition, the
Credit Facility requires minimum collateral coverage, restricts the payment of
dividends and restricts leverage, investment and capital expenditures without
consent of the lender and requires mandatory prepayment or delivery of
additional security in the event that the fair market value of the vessels falls
below limits specified in the loan agreement.  At December 31, 2007,
and from the initiation of the credit facility, the Company was in compliance
with all covenants.
  The CS Credit Facility requires
that at least half of the outstanding borrowing must have a fixed interest
rate.  Consequently, in February 2008, the Company entered into a
floating-to-fixed interest rate swap agreement for the notional amount of $10.0
million, representing half of the outstanding borrowings under the CS Credit
Facility at December 31, 2007.
 
 Note
13 — Derivative Financial Instruments
  In April
2007, the Company entered into three interest rate swap transactions,
effectively converting the notional amount of $50.0 million of current and
future borrowings under the RBS NB Credit Facility from a floating to a fixed
interest rate.
  Exclusive
of the applicable loan margin, the Company will pay interest based on a fixed
LIBOR rate of 5.24%, on the notional amount of $30.0 million of debt commencing
June 29, 2007 through December 29, 2019. The Company uses the "matched terms"
accounting method as provided by Derivative implementation Group Issue G9,
"Assuming No Ineffectiveness
When Critical Terms of the Hedging Instruments and the Hedge Transaction Match
in a Cash Flow Hedge” for the interest rate swap. Accordingly, the
Company has matched the critical terms of the hedge instrument to the hedged
debt, and therefore, recorded all adjustments to the fair value of the hedge
instrument in accumulated other comprehensive income.
  Under
the second interest rate swap transaction, the interest rate, exclusive of the
applicable loan margin, is 4.83% on the notional amount of $20.0 million of
debt. The second swap transaction commences on June 29, 2008, upon the draw down
of additional advances under the credit facility and ends on December 29,
2014.  The Company uses the methodology  prescribed by
Derivative Implementation Group Issue G7, "Cash Flow Hedges Measuring the
Ineffectiveness of a Cash Flow Hedge under Paragraph 30(b) When the Shortcut
Method Is Not Applied" for the interest rate swap. Accordingly, the
Company has concluded, that retrospectively and prospectively there was a
reasonably high expectation that the hedge under this contract will continue to
have a high degree of effectiveness and therefore, recorded all adjustments to
the fair value of the hedge instrument in accumulated other comprehensive
income.
  F-22
 After the
expiration of the second swap transaction, on December 29, 2014, the third swap
transaction commences and continues through December 29, 2019. The third swap
transaction also fixes the interest rate at 4.83% on the notional amount of
$20.0 million of debt; however, this swap transaction is callable at the bank’s
option at anytime during the term of the agreement. Accordingly, changes to the
value of the third swap contract do not qualify for hedge accounting treatment
and are included as a component of interest expense in the consolidated
statement of income.
  In
November 2006, the Company entered into a floating-to-fixed interest rate swap
agreement to hedge the variable cash outflow exposure relating to interest
payments on $56.3 million of its four-year BA Term Credit
Facility.  The notional amount of the variable cash outflow exposure
that is hedged decreases quarterly by $4.7 million during the term of the swap
agreement. The index rate on the LIBOR based loans is fixed at 5.09% through
June 2009.  The Company uses the "matched terms" accounting method as
provided by Derivative Implementation Group Issue G9,"Assuming No Ineffectiveness When
Critical Terms of the Hedging Instruments and the Hedge Transaction Match in a
Cash Flow Hedge"  for the interest rate swap. Accordingly, the
Company has matched the critical terms of the hedge instrument to the hedged
debt. Therefore, we have recorded all adjustments to the fair value of the hedge
instrument in accumulated other comprehensive income.
  At
December 31, 2007, the Company had a liability on interest rate swap
contracts on borrowings under the RBS NB Credit Facility and BA Term Credit
Facility of approximately $3.5 million, which is included in "Other
liabilities."  Accumulated losses on the first and second RBS interest rate
swap agreements and BA swap agreement at December 31, 2007 were
approximately $2.1 million, and $0.8 million, respectively, which are
included in "Accumulated other comprehensive income."  A loss of
approximately $0.6 million was recognized on the third RBS interest rate swap
agreement, which is included as a
component of interest expense in the consolidated statement of
income for the year ended December 31, 2007.
  Previous
to 2006, there were no interest rate swap transactions.  We recognize
the earnings impact on interest rate swaps designated as cash flow hedges upon
the recognition of the interest related to the hedged debt. The activity in
“accumulated other comprehensive income (loss)” related to interest rate swaps
for the years ended December 31, 2007 and 2006 was as
follows:




For
      the Year Ended December2007
            
            
            2006Unrealized
      gains at beginning of year
            
            $
            42,386
            
            
            $Decrease
      in fair value
            
            
            (2,939,643
            )
            
            
            42,386Unrealized
      losses at end of year
            
            $
            (2,897,257
            )
            
            $
            42,386


Note
14 — Equity Transactions
  Preference Shares
  On February 7, 2001, the Company issued
1.0 million mandatorily redeemable preference shares at a fair value of $10 per
share, for an aggregate fair value at date of issuance of $10,000,000, which pay
a 7% per annum dividend payable on a quarterly basis.  On March 30,
2004, the Company amended the mandatorily redeemable preference shares to
eliminate the mandatory redemption provisions, remove the payment of dividends,
establish a semi-annual 15 cents-per-share dividend, and permit the conversion,
at the option of the holder, of each preference share to two old Class C common
shares.  On June 29, 2005, in connection with the Company's initial
public offering, the holders of the Company's convertible preference shares
exercised their right to convert their 1,000,000 issued and outstanding
convertible preference shares into 2,000,000 old Class C common shares.
Conversion of the preference shares into old Class C common shares constituted
payment in full of the preference shares.
 
 Other Equity
Transactions
  In
connection with the Company's initial public offering, the Company consolidated
its 1,500,000 old Class A, 1,500,000 old Class B and 3,000,000 old Class C
common shares (after giving effect to the conversion of the preference shares)
on a 2.5-for-1 basis to 600,000 old Class A, 600,000 old Class B and 1,200,000
old Class C common shares, for the purpose of changing the par value of the
Company's common shares from $.004 per share to $.01 per share, and redesignated
the Company's outstanding old Class A (600,000 shares), old Class B (600,000
shares) and old Class C (1,200,000 shares) common shares as 2,400,000 new Class
B common shares. Concurrent with the consolidation and redesignation of common
shares, the Company issued 2.167 new Class A common shares and 3.20 additional
new Class B common shares for each new Class B share outstanding.
  F-23
 Initial Public
Offering
  On June
29, 2005, the Company completed its initial public offering. In this offering
the Company issued and sold 7.0 million Class A common shares, par value $0.01
per share, for $10.00 per share. The proceeds to the Company, after underwriting
fees but prior to deducting offering expenses, totaled $65.1 million. The
amounts shown in the accompanying consolidated statement of shareholders’
equity, as contributions to additional paid-in capital, represent payments
received for the issuance of the shares in June 2005 in excess of their par
value less offering expenses.
  Class
A and Class B Common Shares
  The
Company has two classes of common shares that are issued and outstanding - Class
A and Class B.  The Class A common shares and Class B common shares
have identical rights to dividends, surplus and assets on
liquidation.  However, the holders of Class A common shares are
entitled to one vote for each Class A common share on all matters submitted to a
vote of holders of common shares, while holders of Class B common shares are
entitled to one-half of a vote for each Class B common share.
  The
holders of Class A common shares can convert their Class A common shares into
Class B common shares. The holders of Class B common shares can convert their
Class B common shares into Class A common shares at any
time.  Further, the Class B common shares will automatically convert
into Class A common shares upon transfer to any person other than another holder
of Class B common shares, in each case as long as the conversion will not cause
the Company to become a controlled foreign corporation, as defined in the
Internal Revenue Code or the Class A common shares cease to be regularly traded
on an established securities market for purposes of Section 883 of the Internal
Revenue Code.
  Warrants
  Warrants
were issued by the Company in connection with its emergence from bankruptcy in
2001 and became exercisable when the first Preferred Ship Mortgage Notes were
not paid on June 29, 2005.  The warrant agreement includes an
anti-dilution provision that adjusts the number of shares issuable upon exercise
of the warrants whenever the Company issues additional common shares or engages
in similar transactions.
  At
December 31, 2007 and 2006, there were outstanding exercisable warrants to
purchase 98,311 Class A and 190,542 Class B common shares, held by parties not
affiliated with existing shareholders.  The warrants are exercisable
for a period of ten years following the date on which their exercise condition
was met (February 8, 2005), at a price of $.01 per share.
  Note15—Related Party
Transactions
  Commercial and Port Agency Services
  The
Company maintains several commercial and port agents located in various
countries where we conduct our business. There are two unconsolidated overseas
companies who provide the commercial and port agency service to us. These
companies are:
 
 (1)
              TBS
      Commercial Group Ltd. - This Bermuda-based holding company owns 13
      operating companies that operate commercial and port agencies in South
      America, Europe, and Asia. Its subsidiaries are (1) Solar Shipping
      Logistica e Tranportes Ltda. (TBS Do Brasil); (2) TBS-Tecnisea C. Ltda.;
      (3)  Aquarius Shipping Colombia Ltda.; (4) TBS De Venezuela
      C.A.; (5) TBS Bolivia S.R.L.; (6) TBS Asia Ltd.; (7) TBS Shipping Services
      Europe GmbH and (8)Seganport S.A. (TBS Peru); (9) Brasinav Agenciamentos
      Ltda.; (10) Seganport Selva S.A.; (11) GMTBS Africa Line GmbH; (12)
      Nautica Groupe Ltd. and (13) Hermes Logistics Ltd.(2)
              Beacon
      Holdings Ltd. ("Beacon"- This holding company owns three operating
      companies: Bademar and Grupo Sedei in Ecuador and TBS Japan Ltd. Beacon is
      in the same business as TBS Commercial Group
  Ltd.
 
 The underlying fees and rates are based
upon contractual agreements with us. Individuals who own a majority of the
Company’s common shares, some of whom are members of our board of directors, own
these companies. As a result of their share ownership and board positions, and for so long as they collectively own a
significant percentage of our issued and outstanding common shares, they will be
able to influence the Company and determine the outcome of any shareholder
vote.
 
 F-24
 Port agency fees paid to TBS Commercial
Group and Beacon. for the years ended December 31, 2007, 2006, and 2005, were
approximately $1.0 million, $1.0 million and $0.9 million,
respectively.   Effective October 1, 2008, the board of
directors’ compensation committee approved an increase of approximately 33
1/3%   in port agency fees for agency services provided by most
subsidiaries of TBS Commercial Group and Beacon.  A higher increase
was approved for the Brazilian and Colombian agents to reflect the greater
currency depreciation that occurred in those countries.
 
 Commissions paid to TBS Commercial
Group for commercial agency services were approximately $7.1 million, $5.2
million and $5.3 million for the years ended December 31, 2007, 2006, and 2005,
respectively. Effective October 1, 2007, the board of directors’ compensation
committee approved additional commissions of 1.25% of freight revenue for
commercial agency services provided by subsidiaries of TBS Commercial
Group.
 
 At December 31, 2007 and 2006, the
below amounts due to related commercial and port agents are included in accounts
payable and accrued expenses and other liabilities:




Accounts
              
              Accrued
      andPeriod
              
              Payable
              
              Other
      Liabilities
              
              TotalDecember
      31,2007
              
              $
              708,747
              
              $
              1,678,950
              
              $
              2,387,697December
      31,2006
              
              $
              252,626
              
              $
              2,229,010
              
              $
              2,481,636


Consulting Fees
  TBS
Commercial Group Ltd. made payments for consulting fees of $60,000 to Mr. Blatte
during 2007 and $100,000 each to Mr. Royce and Mr. Blatte during
2006.
 
 Commercial,
Operational and Vessel Agency Services
  The Company outsources all of its
operational functions to two subsidiary management companies.
 Roymar
Ship Management, Inc. ("Roymar") provides technical ship management (obtaining
crews, coordinating maintenance and repairs, drydocking, etc.) and receives a
monthly, per vessel, management fee of $12,029.   TBS Shipping
Services Inc. ("TBS Shipping") provides operational management (arranging
insurance, claims processing, general administrative services and port agent
services) and commercial agency services.  A monthly, per vessel
management fee of $8,447 is paid for operational management services and a
commission of approximately 2.5% of revenue is paid for commercial agency
services.  Prior to our initial public offering in June 2005, Roymar
and TBS Shipping Services were owned by individuals who own a majority of TBS’s
common shares, some of whom are members of our board of directors.  In
June 2005, TBS purchased all the stock of the companies and, accordingly, the
results of operations of Roymar and TBS Shipping Services have been included in
our consolidated financial statements from the date of
acquisition.  Consequently, while we continued to pay management fees
and commissions, the fees and commissions are eliminated in
consolidation.  Included in the 2005 consolidated statement of income,
for the period prior to the Company’s  acquisition in June 2005, are
management fees paid to Roymar and TBS Shipping Services of $1.4 million and
$1.2 million, respectively, and commissions paid to TBS Shipping Services for
commercial agency services of $2.6 million.
 
 Commissions
  Nautica Groupe, Ltd. is owned by
individuals who own a majority of TBS’s common shares, some of whom are members
of our board of directors. For the year ended December 31, 2005 we paid
commissions of $24,606 to Nautica Groupe, Ltd. under a lease agreement with the
previous owner of the vessel Comanche Belle. Commissions
to Nautica Groupe Ltd. ended on November 16, 2005 when we exercised the purchase
option and acquired the vessel.
 
 Chartering Broker
  Globe
Maritime Limited ("Globe") occasionally acts as a broker for chartering and
broker for vessel sales and purchases. Globe is owned by James W. Bayley who is
a Company officer and member of the board of directors.  During 2007,
2006 and 2005, we paid Globe approximately $0.2 million, $0.5 million and
$49,000, respectively.
 
 F-25
 Lease
  TBS
Shipping Services maintains an office in Yonkers, New York that is leased from
our chairman and chief executive officer, Joseph E. Royce. During 2007, 2006 and
2005, payments to Mr. Royce under this lease totaled $240,000 per
year.
 
 Legal Services
  During
2005 the Company paid $503,000 to Lawrence A. Blatte for legal services. Mr.
Blatte, became a senior executive vice president of the Company in March 2005,
after which time, he did not provide legal services to the Company or any of its
subsidiaries and affiliates, and accordingly, received no
further  payments for legal services.  In addition, prior to
March 2005, TBS Shipping Services paid Mr. Blatte $150,000 for legal services.
After March 2005, Mr. Blatte did not provide legal services to TBS Shipping
Services and no further payments for legal services were made.
 
 Note 16— Stock Plans
 
 2005 Equity Incentive
Plan
  The Company adopted an Equity Incentive
Plan in 2005, which authorizes the grant of "non-qualified" shares to employees,
independent directors and affiliates. The maximum number of shares that can be
granted under the incentive plan is 2,000,000 shares.  The incentive
plan became effective on the date of our initial public offering in June
2005.  In August 2007 the Compensation Committee adopted an amendment
to the plan to replace the three-year minimum vesting requirement with respect
to share units with language permitting the Compensation Committee, in its sole
discretion, the ability to determine the period(s), including any conditions for
determining such period(s), during which any restrictions on vesting will apply.
The Compensation Committee also amended the plan expressly to permit it to
accelerate the vesting of share units at any time in its sole
discretion
  During 2005, the Company issued 100,000
restricted Class A common shares, vesting in equal installments over four years
commencing one year after issuance, to its executive vice president and chief
financial officer, 106,900 restricted Class A common shares to employees of
Roymar and TBS Shipping Services, and 4,500 restricted Class A common shares to
its independent directors vesting one year after issuance. Employees of Roymar
and TBS Shipping Services have agreed that, without the Company's prior consent,
they will not sell any of the shares issued to them for a two-year period, which
expired June 29, 2007.In connection with shares issued to Roymar and TBS
Shipping Services employees, the Company used the net proceeds from the sale of
85,520 Class A common shares held by Roymar and TBS Shipping Services prior to
the offering or approximately $0.8 million, to pay the federal, state and local
employment taxes and income withholding taxes associated with the issuance of
the 106,900 Class A common shares to employees of Roymar and TBS Shipping
Services.
  In
January 2007, the Company awarded 6,000 restricted Class A common shares to its
independent directors that vested at the time of our Annual General Meeting on
June 19, 2007.  In August 2007, the Company awarded 15,000 share units
to an officer (the Director – New Shipbuilding Projects).  One-third
of these units will vest upon the launch of the first vessel built for the
Company by Ship yard.  The remaining units will vest in two equal
installments upon the first and second anniversaries of the Launch
Date.  In November 2007, the Company awarded 73,500 restricted Class A
common shares to employees of which approximately one-third of the shares will
vest on January 20, 2009, 2010 and 2011, respectively.
  The Company recognized total
stock-based compensation costs of $0.5 million, $0.3 million, and $2.0 million
in 2007, 2006, and 2005, respectively. These amounts are reflected in the
Consolidated Statement of Earnings in general and administrative expenses. There
is no material income tax benefit for stock-based compensation due to Company’s
tax structure.
  At December 31, 2007, unrecognized
stock-based compensation expense related to non-vested restricted stock and
share units awards totaled $3.3 million. The cost of these non-vested awards is
expected to be recognized over a weighted-average period of 2.8
years.
  F-26
 Transactions
under the Equity Incentive Plan are summarized as follows:




Number
      of Share Units
            
            Number
      of Restricted Shares
            
            Weighted-Average
      Fair Value at Grant Date
            
            Aggregate
      Value at Grant DateNon-vested
      at December 31, 2004Granted
            
            
            
            
            211,400
            
            $
            10.00
            
            $
            2,114,000ForfeitedVested
            
            
            
            
            106,900Non-vested
      at December 31, 2005
            
            
            
            
            104,500GrantedForfeitedVested
            
            
            
            
            (29,500
            )Non-vested
      at December 31, 2006
            
            
            
            
            75,000Granted,
      restricted shares
            
            
            
            
            79,500
            
            $
            34.01
            
            $
            2,703,795Granted,
      share units
            
            
            15,000
            
            
            
            
            $
            31.19
            
            $
            467,850ForfeitedVested
            
            
            
            
            
            (31,000
            )Non-vested
      at December 31, 2007
            
            
            15,000
            
            
            123,500





Employee Share Purchase
Plan
  The Company adopted an Employee Share
Purchase Plan in 2005, effective on the date of our initial public offering.
Under the share purchase plan a maximum of 1,300,000 shares can be granted. All
eligible employees, as defined in the plan, can subscribe to purchase shares of
the Company’s stock at a purchase price of 95% of the fair market value of the
common shares on the last day of the subscription period. At December 31, 2007,
no shares were subscribed or issued under the plan.
 
 Note
17 — Employee Benefit
 
 The Company maintains, through its
subsidiaries TBS Shipping Services and Roymar, an employee savings plan under
Section 401(k) of the Internal Revenue Code. The plan covers all office
employees and allows participants to contribute to the plan a percentage of
pre-tax compensation, but not in excess of the maximum allowed under the
Internal Revenue Code. The Company does not make matching
contributions.
  We also
have a discretionary cash bonus program under which employees may receive an
annual cash bonus payment based on our annual operating
performance.  For the years ended December 31, 2007, 2006 and 2005,
the Company made cash bonus payments of $10.2 million, $4.6 million and $4.7
million, respectively. The bonus amount for the year ended December 31, 2005
included a one time bonus to the Company's CFO in connection with our initial
public offering completed June 2005.
  F-27
 Note
18 — Earnings Per Share
  In
accordance with FASB Statement (“SFAS”) No. 128, “Earnings per Share,” the
following table sets forth the computation of basic and diluted net income per
share for 2007, 2006 and 2005:


Year
      Ended December 31,2007
              
              2006
              
              2005Numerators:Net
      income
              
              $
              98,248,592
              
              $
              39,059,825
              
              $
              55,656,062Net
      income allocated to preference shares
              
              
              
              
              
              
              
              
              (5,705,560
              )Net
      income available for common shareholders  (basic and
      diluted)
              
              $
              98,248,592
              
              $
              39,059,825
              
              $
              49,950,502Denominators:Basic-weighted
      average common shares outstanding
              
              
              28,029,340
              
              
              27,998,843
              
              
              21,870,160Restricted
      stock issued to employeesRestricted
      stock granted to employees
              
              
              37,396
              
              
              89,467
              
              
              53,252Dilutive
      effect of Series A, B & C  warrants
              
              
              
              
              
              
              
              
              2,387,497Diluted-weighted
      average common shares and potential common shares
    outstanding
              
              
              28,066,736
              
              
              28,088,310
              
              
              24,310,909Income
      (loss) per common share:Basic
              
              $
              3.51
              
              $
              1.40
              
              $
              2.28Diluted
              
              $
              3.50
              
              $
              1.39
              
              $
              2.05




As
described above in note "14 — Equity Transactions — Preference Shares," each
convertible preference share was convertible into two old Class C common shares.
On June 29, 2005, in connection with the initial public offering, all the
convertible preference shares were converted into old Class C common
shares.  If dividends were declared on the common shares, the
preference shares would have been entitled to receive dividends based on the
number of old Class C common shares that the preference shares were convertible
to. The basic earnings per share calculation for 2005 reflects the rights of the
respective classes of shares to receive distributions of net income (net losses
are not allocated to preference shares) using the "two-class method" described
in SFAS 128, "Earnings Per
Share". The Company has allocated the pro-rata share of net income to the
convertible preference shares on a percentage of total weighted average common
shares outstanding plus the common-equivalent number of weighted average
preferred shares outstanding.  During the year ended December 31,
2005, the convertible preference shares would have added 2,498,103 common shares
on a weighted average basis, respectively, to diluted shares outstanding. These
shares were not included in the diluted earnings per share calculation because
the effect would have been anti-dilutive.
 
 The
Series A warrants were exercisable for a total of 7,389,725 common shares as
adjusted for the redesignated and consolidated shares described in note "14 —
Equity Transactions — Other Equity Transactions," and additional shares that are
exercisable pursuant to the warrant agreement. The Series A warrant exercise
condition was satisfied on February 8, 2005, and the shares subject to these
warrants have been treated as outstanding for purposes of basic earnings per
share for the period beginning February 8, 2005, because they are issuable for
nominal consideration upon exercise of the warrants. Dilutive effect of Series
A, B and C warrants is reduced to the extent that common shares issuable on the
exercise of Series A warrants are already included in basic weighted average
common shares outstanding.   On June 29, 2005, certain
shareholders who also held Series A warrants exercised their warrants to
purchase 1,842,606 Class A common shares and 3,570,659 Class B common shares;
concurrently Series A warrants to purchase 574,434 Class A common shares and
1,113,155 Class B common shares were cancelled. At December 31, 2007, 2006 and
2005, there were outstanding exercisable warrants to purchase 98,311 Class A
common shares and 190,542 Class B common shares, held by parties not affiliated
with existing shareholders. The warrants have been treated as outstanding for
purposes of basic earnings per share for the years ended December 31, 2007, 2006
and 2005, because they are issuable for nominal consideration upon exercise of
the warrants.
  F-28
 Note
19 — Commitments and Contingencies
  Charters-in
of Vessels
  Charters-in Classified as Operating
Leases
 
 At December 31, 2007, we chartered-in
two vessels under long-term operating leases and one vessel under a short-term
operating lease.  Charters or leases that have initial terms of more
than one year at the inception of the charter and are noncancelable are
treated as long-term leases. Total lease expense, consisting of both short and
long term charters-in, classified as operating leases, is as
follows:




Year
      ended December 31,2007
              
              2006
              
              2005Charters-in
      under short term operating leases
              
              $
              22,905,229
              
              $
              4,664,187
              
              $
              14,259,581Charters-in
      under long term operating leases
              
              
              6,072,517
              
              
              11,839,286
              
              
              16,859,650Total
      lease expense
              
              $
              28,977,746
              
              $
              16,503,473
              
              $
              31,119,231




The
Company charters-in two vessels (Laguna BelleandSeminole Princess) under
long-term noncancelable operating leases (bareboat charters) that were part of a
sale-leaseback transaction. Both bareboat charters expire on January 30,
2014.  Each bareboat charter requires charter hire payments of $10,500
per day for the first two years of the charter, $10,000 per day during the third
year of the charter and $7,350 per day during the fourth through seventh years
of the charter. The charter agreements allow for the purchase of the respective
vessel at the end of the fifth, sixth or seventh year of the charter period at a
vessel price of $11.1 million, $9.15 million, or $6.75 million, respectively and
for the purchase options to be exercised at any other date during the option
period at a pro-rata price.  The leases under the sale-leaseback
transactions were classified as operating leases. Deposits of $2.75 million, to
be held by the lessor for each charter during the charter period, were required
at the inception of the lease. The deposits are to be returned, without
interest, at the expiration of the charter period, unless applied earlier toward
the amounts due upon exercise of the purchase option. Deferred leasing costs of
$1.2 million, incurred in connection with the origination of the charters,
is being amortized over the terms of the leases. As mentioned above, the
bareboat charters contain predetermined fixed decreases of the charter hire
payments due under the charters.  The Company recognizes the related
rental expense on a straight-line basis over the term of the charters and
records the difference between the amounts charged to operations and amounts
paid as deferred rent receivable. At December 31, 2007, deferred rent receivable
was $1.1 million.
 
 Charters-in Classified as Capital
Leases
 
 In December 2007, we exercised our
purchase options under sale-leaseback agreements for seven vessels and paid
$2.85 million per vessel for a total of $19.95 million. The amount paid in
excess of capital lease obligations at December 31, 2007, of approximately
$0.38 million per vessel was added to the cost of each vessel.  The
leases under the sale-leaseback agreements, which were entered in December 2003,
were classified as capital leases. At the time, the vessels were sold for $31.5
million en bloc and leased back for a period of 66 months at $2,500 per vessel,
per day with a $10.5 million balloon purchase option payment due at the end of
the lease term on July 1, 2009.  Interest rates on the capitalized
leases have been imputed based on the Company's incremental borrowing rate at
the inception of the leases.  The agreements contained six semi-annual
purchase options beginning December 2006 at $3.75 million per vessel and
decreasing $0.45 million each semi-annual period until June 2009, when the
purchase price for each vessel under the sale-leaseback agreements was $1.5
million.  When we exercised the purchase option in December 2007, the
option price for each vessel was $2.85 million.  At December 31, 2006,
gross assets and accumulated depreciation recorded on vessels under capital
leases were approximately $35.5 million and $7.1 million,
respectively.
  F-29
 Other
Leases
  The Company leases three properties,
two of which are used by TBS’s service company subsidiaries Roymar and TBS
Shipping Services for the administration of their operations, and the third is
vacant land. The main office space is rented from our chairman and chief
executive officer by TBS Shipping Services. The lease, which was to expire
December 31, 2007, was renewed under the first of five one-year renewal options
until December 31, 2008.  The lease provides for monthly rent of
$20,000 per month, plus operating expenses including real estate
taxes.
  Roymar renewed its lease under the
first of two one-year renewal options though October 31, 2008 at a monthly rent
of $25,058.  The lease requires Roymar to pay additional rent for real
estate tax escalations.
  The
Company also leases undeveloped land in the Calhoun County Navigation District,
Port Comfort, Texas.  The lease, which has a term of ten years
expiring December 31, 2016, provides for monthly rent of $6,000
  As of
December 31, 2007, future minimum commitments under operating leases with
initial or remaining lease terms exceeding one-year are as follows:


Vessel
      Hire under
              
              OtherAt
      December 31,
              
              Operating
      Leases
              
              Operating
      Leases
              
              Total2008
              
              $
              12,619,950
              
              
              562,580
              
              
              13,182,5302009
              
              
              7,910,000
              
              
              72,000
              
              
              7,982,0002010
              
              
              5,950,800
              
              
              72,000
              
              
              6,022,8002011
              
              
              5,350,800
              
              
              72,000
              
              
              5,422,8002012
              
              
              5,365,500
              
              
              72,000
              
              
              5,437,500Thereafter
              
              
              5,791,800
              
              
              288,000
              
              
              6,079,800$
              42,988,850
              
              $
              1,138,580
              
              $
              44,127,430




Purchase
Obligations –Vessels
  At
December 31, 2007, the Company had outstanding obligations to purchase six
vessels for a remaining balance, after deposits made of $14.8 million, of $133.5
million.  The amount is to be paid as each of the six vessels are
delivered, which is anticipated to occur during the first quarter of
2008.
  Purchase
Obligations –New Vessel Buildings
  At
December 31, 2007, the Company had purchase obligations totaling $156.4 million
in connection with its new vessel building program, including obligations under
the contract for the supervision and inspection of vessels under
construction.  The obligations will become payable as the shipyard
meets several milestones through June 2010.  As of December 31, 2007,
$156.4 million the purchase obligation is scheduled to be paid as
follows:  $49.0 million in 2008, $63.8 million in 2009, and $43.6
million in 2010.  The timing of actual payments will vary based upon
when the milestones are met.
  Litigation
  The
Company is periodically a defendant in cases involving personal injury and other
matters that arise in the normal course of business.  While any
pending or threatened litigation has an element of uncertainty, the Company
believes that the outcome of these lawsuits or claims, individually or combined,
will not materially adversely affect the consolidated financial position,
results of operations or cash flows of the Company.
  F-30
 Note
20 — Business Segment
  The
Company is managed as a single business unit that provides worldwide ocean
transportation of dry cargo to its customers through the use of owned and
chartered vessels.  The vessels are operated as one fleet and when
making resource allocation decisions, our chief operating decision maker
evaluates voyage profitability data, which considers vessel type and route
economics, but gives no weight to the financial impact of the resource
allocation decision on an individual vessel basis.  The Company's
objective in making resource allocation decisions is to maximize its
consolidated financial results, not the individual results of the respective
vessels or routes.
  The
Company transports cargo throughout the world, including the U.S.  The
amount of voyage revenue generated in countries other than the U.S. was $243.8
million, $167.3 million and $159.7 million for the years ended December 31,
2007, 2006 and 2005, respectively.
  Revenue
was generated in the following principal foreign geographic
areas:




Year
      December 31,Country
              
              2007
              
              2006
              
              2005Brazil
              
              $
              72,965,220
              
              $
              52,254,353
              
              $
              50,922,219Japan
              
              
              40,615,093
              
              
              33,424,214
              
              
              27,102,181Chile
              
              
              11,348,157
              
              
              15,249,919
              
              
              21,602,403Peru
              
              
              32,149,714
              
              
              16,825,238
              
              
              16,311,236United
      Arab Emirates
              
              
              24,572,954
              
              
              9,415,493
              
              
              655,879Venezuela
              
              
              4,611,675
              
              
              8,516,162
              
              
              12,327,840Korea
              
              
              5,778,944
              
              
              6,022,940
              
              
              6,633,213Argentina
              
              
              15,189,231
              
              
              1,574,104
              
              
              3,280,876China
              
              
              21,692,570
              
              
              16,171,405
              
              
              11,815,693Others
              
              
              14,844,527
              
              
              7,828,589
              
              
              9,037,486$
              243,768,085
              
              $
              167,282,417
              
              $
              159,689,026




Revenue is
attributed to these countries based on the location where the cargo is loaded.
The difference between total voyage revenue and total voyage revenue by country
is revenue from the United States, which is $20.4 million, $21.7 million, and
$15.9 million for 2007, 2006, 2005, respectively.  Time charter
revenue by country cannot be allocated because the Company does not control the
itinerary of the vessel.
  One
customer accounted for 13.1% of charter hire receivables at December 31, 2007
and one customer accounted for 10.4% of charter hire receivables at December 31,
2006.   One customer accounted for 13.4% and 15.1% of voyage and
time charter revenue for the year ended December 31,2007 and December 31,
2006 respectively.
  Note
21 — Subsequent Events
 
 During
the period January 1, 2008 through March 13,
2008, we accepted delivery of the following five vessels:
the Ypermachos,
renamedZuni Princess,on January 29, 2008; the Gebe
Oldendorff, renamedOneida
Princess, on February 11, 2008; African
Sanderling, renamedHopi Princess,on February 15, 2008; the Diasozousa,
renamed Mohave
Maiden, on February 19, 2008; and the Frijsenborg,
renamed Caribe
Maiden, on March 11, 2008.  In connection with the delivery of
these vessels, we paid a total of $112.8
million, less deposits previously made.  The acquisition cost
is being funded with bank borrowings and cash from operations.
 
 F-31
 On
January 16, 2008, the Company, through seven wholly owned subsidiaries, entered
into a credit agreement with a syndicate of lenders led by DVB Group Merchant
Bank (Asia) Ltd. and other lenders for a $75.0 million credit facility (the “DVB
Credit Facility”) to replenish funds used to exercise a purchase option for
seven tweendeck vessels chartered-in under a sale-leaseback arrangement, to
fund additional vessel acquisitions and for general corporate
purposes.  The purchase option for the vessels was exercised on
December 17, 2007 for a total of $19.95 million ($2.85 million for each
vessel).  The seven vessels, which collateralize the DVB Credit
Facility, are part of TBS’ operational fleet and since December 2003 have been
under a 66-month sale-leaseback arrangement, which provided TBS with the
purchase options.   The DVB Credit Facility is guaranteed by
TBS.  Under the DVB Credit Facility, the loan is repayable over five
years in quarterly installments of approximately $4.9 million for the first ten
quarters and $2.6 million for the remaining ten quarters. Interest is at LIBOR
plus 2.50% payable quarterly in arrears.  Borrowings under the Credit
Facility must have a fixed interest rate achieved by use of hedging
instruments.
 
 On January 23, 2008, the Company
entered into a floating-to-fixed interest rate swap agreement for the initial
notional amount of $75.0 million, which fixes the index rate on the LIBOR
based loans at 2.92%. The notional amount decreases as payments are made on the
DVB Credit Facility.  The swap agreement, is effective January 23,
2008 and expires on January 23, 2013.
 
 On February 1, 2008, the Company
entered into a floating-to-fixed interest rate swap agreement for the notional
amount of $10.0 million, representing half of the outstanding borrowings under
the Credit Suisse  Credit Facility (see note "13 —
Financing  — Credit Suisse Term Loan Facility," at December 31,
2007.  The swap agreement, which fixes the index rate on the LIBOR
based loans at 3.46%, is effective March 12, 2008 and expires on March 12,
2013.
  On
February 8, 2008, the Company entered into a commitment with Bank of America,
serving as Administrative Agent, to amend and restate the existing BA Credit
Facility.  Under the commitment, Bank of America would lead a
syndication of commercial lenders that would increase the credit facility to
$200.0 million.  The amended credit facility would be composed of a
$100.0 million term loan facility and a $100.0 million revolving credit facility
and would be used to make payments toward the BA Revolving Credit Facility,
replenish operating funds used to payoff the RBS Credit Facility collateralized
by the Wichita Belle
and for general corporate purposes.
  On
February 14, 2008, we entered into Memorandum of Agreement (“MOA”) to purchase
the vessel Athinoula
(to be renamed Canarsie
Princess) for $30.3 million.  In connection with entering into
the MOA a deposit of $3.0 million was made.  The vessel is expected to
be delivered during the second quarter of 2008.
 
 On
February 19, 2008, the Company drew down the remaining $20.0 million on the
Credit Suisse Credit Facility upon the delivery of the Oneida Princess (formerly the
Gebe
Oldendorff).
 
 
  On
February 29, 2008, the Company entered into a credit agreement
with AIG Commercial Equipment Finance, Inc. (“AIG”) for a $35.0 million
credit facility to replenish operating funds used to purchase of the Mohave Maiden (formerly the
Diasozousa), the Hopi Princess (formerly the
African Sanderling),
and the Zuni Princess
(formerly the Ypermachos).
 F-32
 In February 2008, a wholly
owned subsidiary of TBS entered into a joint venture with Cargonaves S.A. to
purchase a warehouse in Peru for $3.4 million.  The Company made an
investment of $0.1 million representing a 50% interest in the joint venture that
is in negotiation to purchase the property.  The contract to purchase
the property
is expected to be signed toward the end of March 2008,
when an additional $1.8 million will be invested in the joint
venture.
  Note
22 -- Selected Quarterly Financial Information (unaudited)
   The
following information is presented as supplementary financial information for
2007 and 2006 (in thousands, except per share information):





Year
      Ended December 31, 2007First Quarter
              
              Second
      Quarter
              
              Third Quarter
              
              Fourth
      QuarterRevenue
              
              $
              70,838
              
              $
              77,214
              
              $
              92,396
              
              $
              115,156Income
      from operations
              
              $
              17,214
              
              $
              18,065
              
              $
              29,445
              
              $
              36,902Net
      income (a)
              
              $
              14,404
              
              $
              21,687
              
              $
              27,004
              
              $
              35,154Net
      income per share:(a)Basic
              
              $
              0.51
              
              $
              0.77
              
              $
              0.96
              
              $
              1.27Diluted
              
              $
              0.51
              
              $
              0.77
              
              $
              0.96
              
              $
              1.26






Year
      Ended December 31, 2006First Quarter
              
              Second Quarter
              
              Third Quarter
              
              Fourth
      QuarterRevenue
              
              $
              63,755
              
              $
              58,995
              
              $
              65,402
              
              $
              65,434Income
      from operations
              
              $
              10,808
              
              $
              9,133
              
              $
              15,867
              
              $
              16,375Net
      income (a)
              
              $
              7,997
              
              $
              6,934
              
              $
              9,775
              
              $
              14,354Net
      income per share:(a)Basic
              
              $
              0.29
              
              $
              0.25
              
              $
              0.35
              
              $
              0.51Diluted
              
              $
              0.28
              
              $
              0.25
              
              $
              0.35
              
              $
              0.51


(a)
            The
      quarterly computations are independent of the annual computation. The
      computation of quarterly and annual earnings per share includes a
      weighting of the then average number of shares outstanding that will vary
      for each period. Accordingly, the sum of the four quarters' net income per
      share will not equal the annual earnings per share. See note "18 --
      Earnings per share."







F-33





TBS
International Limited and Subsidiaries


Signatures





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
14th day of March 2008.




TBS
      INTERNATIONAL LIMITED(Registrant)/s/
      Joseph E.
      RoyceJoseph
      E. Royce
              President,
      Chief Executive Officer, Chairman and Director/s/
      Ferdinand V.
      LepereFerdinand
      V. Lepere
              Executive
      Vice President, Chief Financial Officer/s/ Frank
      J.
      PittellaFrank
      J. Pittella
              Chief
      Accounting Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, this Annual Report
on Form 10-K has been signed on the 14th day of March 2008 by the following persons in the capacities
indicated:




/s/ James W.
      Bayley
              
              /s/ John P.
      CahillJames
      W. Bayley, Vice President and Director
              
              John
      P. Cahill, Director/s/
      Randee E.
      Day
              
              /s/
      William P.
      HarringtonRandee
      E. Day, Director
              
              William
      P. Harrington, Director/s/ Gregg
      L.
      McNelis
              
              /s/ Peter S.
      ShaerfGregg
      L. McNelis, Senior Executive Vice President,
              
              Peter
      S. Shaerf, DirectorChief
      Operating Officer and Director/s/ Alexander
      SmigelskiAlexander
      Smigelski, Director