**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 year ended December 31, 2005**


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)**(441)
                295-9230**(Registrant's
                telephone number, including area
                code)




Securities
                registered pursuant to Section 12(b) of the Act: NoneSecurities
                registered pursuant to Section 12(g) of the Act:**Class
                A Common Shares, par value
                $0.01**




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. YesxNo ̈Indicate
                by check mark if disclosure of delinquent filers pursuant to Item 405
                of Regulation S-K (Section 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.xIndicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer or a non-accelerated filer. (See definition of
                “accelerated filer and large accelerated filer”) in Rule 12b-2 of the
                Act).
              
              Large
                Accelerated Filer ̈Accelerated
                Filer ̈Non-accelerated FilerxIndicate
                by check mark whether the registrant is a shell company (as defined
                by
                Rule 12b-2 of the Act). Yes ̈Nox





The
                aggregate market value of voting and non-voting common equity held
                by
                non-affiliates was approximately $83.9 million on June 30, 2005,
                based
                upon the last reported sales price of such stock on the NASDAQ National
                Market on that date.As
                of March 1, 2006, the registrant had outstanding 14,290,496 Class
                A common
                shares, par value $0.01 per share, and 13,404,461 Class B common
                shares,
                par value $0.01 per share.**DOCUMENTS
                INCORPORATED BY REFERENCE**Portions
                of the Proxy Statement for the 2006 Annual Meeting of Stockholders
                (the
                "Proxy Statement"), to be filed within 120 days of the end
                of the
                fiscal year ended December 31, 2005, is incorporated by reference
                in
                Part III to the extent described herein.





**TBS
                  INTERNATIONAL LIMITED****2005
                  FORM 10-K****Table
                  of Contents****Page****Part
                  I**Item
                  1
              BusinessA
              Overview
              
              3B
              Forward-Looking
                  Statements
              
              3C
              Recent
                  Developments
              
              3D
              Fleet
                  Overview
              
              4E
              Business
                  Strategy
              
              5F
              Classification
                  and
                  Inspection
              
              8G
              Operations
                  and Ship
                  Management
              
              8H
              Employees
                  and Labor
                  Relations
              
              9I
              Customers
              
              9J
              Competition
              
              10K
              Environmental
                  and Other
                  Regulations
              
              10L
              Security
              
              11M
              Insurance
              
              11N
              Taxation
              
              12O
              Website
                  Access to
                  Reports
              
              13Item
                  1A
              Risk
                  Factors
              
              13Item1B
              Unresolved
                  Staff
                  Comments
              
              19Item
                  2
              Properties
              
              19Item
                  3
              Legal
                  Proceedings
              
              19Item
                  4
              Submission
                  of Matters to a Vote of
                  Security Holders
              
              19**Part
                  II**Item
                  5
              Market
                  for Registrant’s Common Equity,
                  Related Stockholder Matters and Issuer Purchases of Equity
                  Securities
              
              20Item
                  6
              Selected
                  Consolidated Financial
                  and Other Data
              
              21Item
                  7
              Management’s
                  Discussion and Analysis of
                  Financial Condition and Results of Operations
              
              23Item
                  7A
              Quantitative
                  and Qualitative Disclosures
                  about Market Risk
              
              37Item
                  8
              Financial
                  Statements and Supplementary
                  Data
              
              38Item
                  9
              Changes
                  in and Disagreements with Accountants
                  on Accounting and Financial Disclosure
              
              38Item
                  9A
              Controls
                  and
                  Procedures
              
              38Item
                  9B
              Other
              
              38**Part
                  III**Item
                  10
              Directors
                  and Executive Officers of the
                  Registrant
              
              38Item
                  11
              Executive
                  Compensation
              
              40Item
                  12
              Security
                  Ownership of Certain Beneficial
                  Owners and Management
              
              40Item
                  13
              Certain
                  Relationships and Related
                  Transactions
              
              42Item
                  14
              Principal
                  Accounting Fees and
                  Services
              
              42**Part
                  IV**Item
                  15
              Exhibits,
                  Financial Statement Schedules
                  Index
              
              43


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 the holding company that is the issuer of our common
        shares an not to TBS International Limited and its consolidated subsidiaries
   **PART
        I**
 
 **Item
        1 BUSINESS**
 
 **A.****Overview**
  We
        are an
        ocean transportation services company that offers worldwide shipping solutions
        through liner, parcel, bulk and vessel chartering services. Over the past
        13
        years, we have developed our franchise around key trade routes between Latin
        America and China, Japan and South Korea, as well as select ports in North
        America, Africa and the Caribbean. We provide frequent regularly scheduled
        voyages in our network, as well as cargo scheduling, loading and discharge
        for
        our customers. As of December 31, 2005, our fleet totaled 37 vessels, including
        24 ships that we own, seven that we operate under charters with options to
        purchase and six that we charter-in under long-term and short-term charters
        without options to purchase. Short-term charters have initial terms of less
        than
        one year.  In addition, we have a memorandum of agreement to purchase
        one
        multipurpose tweendecker that is scheduled to be delivered to us in the second
        quarter of 2006. For the year ended December 31, 2005, we carried 3.2 million
        tons of cargo, operated 198 voyages and generated total revenue and net income
        of $248.0 million and $53.3 million, respectively. For the year ended December
        31, 2004, we carried 3.7 million tons of cargo, operated 182 voyages and
        generated total revenue and net income of $208.8 million and $41.9 million,
        respectively.
  International
        was incorporated in Bermuda in 1997 as the successor to a business established
        in 1993. International's registered office is located at Commerce Building,
        Chancery Lane, Hamilton HM 12, Bermuda. The telephone number at that address
        is
        (441) 295-9230. TBS Shipping Services Inc. and Roymar Ship Management, Inc,
        who
        serve as our disclosed agents  maintain offices at 612 East Grassy
        Sprain
        Road, Yonkers, New York and 455 Central Park Avenue, Scarsdale, New York,
        respectively. The telephone numbers at the Yonkers address and Scarsdale
        address
        are (914) 961-1000 and (914) 337-0714, respectively.
  On
        June 29,
        2005, we completed our initial public offering of 7,000,000 Class A common
        shares, for $10.00 per share. We raised capital of $65,100,000 after
        underwriting fees but before offering expenses.
 
 **B.****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. These statements are
        only
        our management's current expectations. They are based on our management's
        beliefs and assumptions and on information currently available to our
        management. Forward-looking statements include, among other things, the
        information concerning our possible or assumed future results of operations,
        business strategies, financing plans, competitive position, potential growth
        opportunities and the effects of future regulation and competition.
        Forward-looking statements include all statements that are not historical
        facts
        and can be identified by the use of forward-looking terminology such as the
        words "anticipates," "believes," "estimates," "expects," "future," "intends,"
        "plans" and similar terms.
  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 guarantee their accuracy. Actual results may differ
        materially from those expressed in these forward-looking statements due to
        a
        number of uncertainties and risks, including the risks described in our
        prospectus and other unforeseen risks. You should not rely on any
        forward-looking statements.
 
 **C.****Recent
        Developments**
  On
        December
        29, 2005, we announced that we expanded our fleet of vessels by agreeing
        to
        acquire the multipurpose tweendecker *Kibishio
        Maru* to
        be
        renamed *Aztec Maiden* for
        $8 . 1 million.
        We expect to fund the acquisition using proceeds from the $17.5 Million Credit
        Facility with Merrill Lynch and working capital. We expect delivery of the *Kibishio
        Maru* in April
        of 2006.
 On
        December
        15, 2005, the Company through its subsidiaries Sterling Shipping Corp. and
        Remsen Navigation Corp., entered into a credit agreement for $17.5 million
        with
        Merrill Lynch Business Financial Services Inc., acting through its division,
        Merrill Lynch Capital. The Credit Agreement is collateralized by Ship Mortgages
        on the *Biloxi
        Belle* and *Maori
        Maiden* as well
        as an assignment of all charter hires and earnings related to the collateral.
        In
        addition, the credit agreement is cross-collateralized by Second Mortgages
        on
        the *Iroquois
        Maiden* and
        the *Manhattan
        Princess* as well
        as second assignments of all charter hires and earnings on these vessels
        and
        guarantees by the Company and certain of its other subsidiaries.
 
 Table
            of Contents
 3
 **D.****Fleet
        Overview**
  Our
        current
        controlled fleet consists of 31 vessels and is comprised of multipurpose
        tweendeckers and handymax bulk carriers. All vessels are flagged in Philippines.
        The following table provides information regarding the 31 vessels in our
        controlled fleet.
  **Year**
              
              **Deadweight****Vessel
                  Name**
              
              **Vessel
                  Type**
              
              **Built**
              
              **Weight
                  Tons**Tamoyo
                  Maiden
              
              Multipurpose
                  Tweendecker
              
              1986
              
              17,325Ainu
                  Princess
              
              Multipurpose
                  Tweendecker
              
              1987
              
              17,325Siboney
                  Belle
              
              Multipurpose
                  Tweendecker
              
              1987
              
              17,325Dakota
                  Belle
              
              Multipurpose
                  Tweendecker
              
              1977
              
              18,576Seneca
                  Maiden (1)
              
              Multipurpose
                  Tweendecker
              
              1986
              
              19,762Kiowa
                  Princess (1)
              
              Multipurpose
                  Tweendecker
              
              1986
              
              19,762Navajo
                  Princess (1)
              
              Multipurpose
                  Tweendecker (2)
              
              1987
              
              21,902Shawnee
                  Princess
              
              Multipurpose
                  Tweendecker
              
              1984
              
              22,323Inca
                  Maiden (1)
              
              Multipurpose
                  Tweendecker (2)
              
              1986
              
              23,133Taino
                  Maiden
              
              Multipurpose
                  Tweendecker
              
              1985
              
              23,278Tuckahoe
                  Maiden
              
              Multipurpose
                  Tweendecker
              
              1985
              
              23,278Cherokee
                  Princess (1)
              
              Multipurpose
                  Tweendecker
              
              1990
              
              23,286Huron
                  Maiden
              
              Multipurpose
                  Tweendecker
              
              1983
              
              23,300Apache
                  Maiden (1)
              
              Multipurpose
                  Tweendecker
              
              1987
              
              23,319Kickapoo
                  Belle (1)
              
              Multipurpose
                  Tweendecker
              
              1987
              
              23,319Mohegan
                  Princess
              
              Multipurpose
                  Tweendecker
              
              1983
              
              26,320Tayrona
                  Princess
              
              Multipurpose
                  Tweendecker
              
              1983
              
              26,320Wichita
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1991
              
              28,843Rockaway
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1982
              
              35,025Shinnecock
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1985
              
              37,268Maya
                  Princess
              
              Multipurpose
                  Tweendecker
              
              1983
              
              37,425Maori
                  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
              
              40,876Sioux
                  Maiden
              
              Handymax
                  Bulk Carrier
              
              1984
              
              42,248Mohawk
                  Princess
              
              Handymax
                  Bulk Carrier
              
              1982
              
              42,360Chesapeake
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1984
              
              44,146Tuscarora
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1984
              
              44,146Manhattan
                  Princess
              
              Handymax
                  Bulk Carrier
              
              1982
              
              45,526
  (1)
                  Chartered-in
                      vessels under long term charter that have a purchase option
                      and relate to
                      a sale-lease back transaction entered into December 2003. The
                      charter
                      meets the criteria for treatment as a capital lease.
                      Capital leases
                      are accounted for as assets and are fully amortized on a straight-line
                      basis over the lesser of the period of expected use of the
                      assets or the
                      lease term. Commitments to repay the principal amounts arising
                      under
                      capital lease obligations are included in liabilities.(2)
                  These
                      vessels are multipurpose tweendecker 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”.
  Table
              of Contents
 4
 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 stop 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. The tweendeck also
            facilitates the safe transport of larger volumes of heavy cargo that
            must be
            secured to a steel deck and could otherwise only be stowed on the floor
            of the
            hold, offering the opportunity to transport as much as twice the volume
            of goods
            that a comparably-sized single interior deck vessel would
            transport.
  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.
 
 
 ***Bulk
          Carriers***
 Our
            bulk
            carriers range in size from 28,800 dwt to 45,500 dwt. Several of the
            vessels
            have equipment which enable self-loading and discharging, in an effort
            to
            enhance our ability to serve a broad range of ports.
 
 **E.****Business
            Strategy**
  We
            target
            niche markets, including trade routes, ports and cargo not efficiently
            served by
            container and large dry bulk vessel operators. We focus on multipurpose
            tweendeckers and smaller dry bulk carriers varying from 17,300 dwt to
            45,500 dwt
            that are able to navigate and efficiently service many ports with restrictions
            on the size of vessels. Many types of cargo cannot be containerized,
            and many
            dry bulk cargoes are shipped through ports that cannot accommodate large
            dry
            bulk carriers. By offering regularly-scheduled sailings into these markets
            along
            with local teams of commercial agents and port captains who meet regularly
            with
            customers to tailor solutions to their logistics needs, we are able to
            offer a
            superior level of service which has resulted in the development of long-term
            relationships with our customers. The flexibility of our fleet allows
            us to
            carry a wide range of cargo, including steel products, metal concentrates,
            fertilizer, coal, salt, sugar, grain, chemicals, industrial goods and
            other
            general cargo.
  We
            currently
            operate our vessels on five 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 bulk cargo service between North
            America and
            the East and West Coasts of South America and further expanded our routes
            by
            offering bulk service from Brazil to West Africa.
  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 and generally are served by vessels chartered-in on a
            short-term
            basis. 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 carefully
            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
 ***TBS
            Pacific Service***
 ******
 ***Eastbound
            Liner Service*** operates
            routes from East Asia to the West or North 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 China, South Korea, Japan and Central America. 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 and project and general cargoes.
  ***TBS
            Pacific Westbound*** parcel
            service originates in Peru, Ecuador or Chile and generally carries metal
            concentrates, beet pulp pellets and fertilizers to East Asia. The service
            currently operates at least two sailings per month.
  ***TBS
            Latin America Service*** commenced operations in 1995 and sails monthly from ports in Brazil and
            Argentina 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
            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
            North America Service*** commenced operations in 1996, sailing between South America and North
            America.
            In 2002, we began monthly sailings from Virginia to Brazil,
            Argentina and Peru carrying fertilizer cargoes for Honeywell International.
            Northbound service consists of steel products and general bulk cargoes,
            including steam
            coal.
  ***TBS
            Ocean Carriers*** offers
            shipping solutions worldwide on a customer-by-customer basis. Services
            include
            transporting wheat from Houston and sugar and salt from Brazil
            to
            the West Coast of Africa.
  ***TBS
            Middle East Carriers*** offers bulk
            service within the Middle East region with service from ports in UAE
            to ports in
            Kuwait and Qatar. The service was suspended September
            2004 and will resume in January 2006.
  Our
          liner,
          parcel and bulk services primarily carry steel products, coal, salt, sugar,
          grain, fertilizers, chemicals, metal concentrates 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 breakbulk 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
              industrialapplications.  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 on
          these routes, primarily by time chartering 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's 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 and the shipowner is responsible
          for providing the crew and paying vessel operating expenses while the charterer
          is responsible for paying the voyage expenses. Eleven of our controlled
          vessels,
          the *Manhattan
          Princess, Inca Maiden, Navajo Princess, Wichita Belle, Chesapeake Belle,
          Miami
          Maiden, Shinnecock Belle, Rockaway Belle, Tuckahoe Maiden, Sioux Maiden* and *Iroquois Maiden* ,
          and two
          chartered-in vessels, the *Tian
          Tan Hai* and *St.
          Matthew* ,
          currently are under time charter.
  Table
              of Contents
 6
 The
            following
            table shows the annual number of charter parties, related duration and
            gross
            charter revenue since 2001.
 **Year**
                  ****
                  **Number
                      of Charters**
                  ****
                  **Duration
                      (Days)**
                  ****
                  **Gross
                      Revenue**(in
                      thousands)2001
                  
                  20
                  
                  942
                  
                  $
                  5,5832002
                  
                  28
                  
                  1,001
                  
                  
                  7,4212003
                  
                  58
                  
                  2,439
                  
                  
                  23,6252004
                  
                  46
                  
                  2,780
                  
                  
                  50,7462005
                  
                  55
                  
                  4,257
                  
                  
                  71,456
  Our
            time
            charter services include both short- and long-term time charters. Time
            charters
            offer our customers an alternative means to contract for ocean transportation
            of
            their cargoes and make the carrying capacity of entire vessels available
            to our
            customers, contracted out at a flat per day rate. In connection with
            our time
            charters, we offer complete voyage management services. As of December
            31, 2005,
            we had 13 vessels hired out under time charters. We provide complete
            voyage
            management services in connection with two of these charters.
 
 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 Market Share on Our Key Routes.**
 We
            intend
            to increase market share on our key trans-Pacific trade routes between
            China,
            Japan and South Korea in East Asia and the West and North Coasts of South
            America. By adding additional vessels and sailings to the markets we
            already
            serve, we will be able to provide more regular service to our clients,
            which we
            believe will allow us to capture a larger share of their shipping needs.
            Our
            affiliate, TBS Commercial Group Ltd., 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 and
            U.S.-Brazil routes that we successfully developed over the past 18 months.
            When
            developing new trade routes, we initially utilize chartered-in vessels
            and only
            commit resources to acquire vessels for operation on those routes once
            we have
            determined that the economics of the route would benefit us. We target
            potential
            routes that share the characteristics of our established Latin America-East
            Asia
            routes and thus are suited to our fleet and our business methods. As
            we identify
            profitable routes, we intend to establish local commercial agents and
            port
            captains, as we have done in our existing markets, to improve our customer
            relationships in these new markets. In November 2005, we 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 to and from the West Coast of
            Africa. GMT
            Shipping Line Ltd. has an established African agents’ network and with our
            established South American agents’ network, we believe that it will be a
            mutually beneficial joint venture.
 
 **Focus
            on Customer Relationships.**
 We
            strive
            to develop long-term relationships as a key business partner with our
            customers
            by providing reliable customer service and consistently meeting or exceeding
            expectations. Many of our customers do not have their own shipping departments,
            do not ship cargoes that are easily containerized and require the special
            attention and transportation management skills that we are able to provide
            through our wholly-owned service company, TBS Shipping Services Inc.,
            or our
            affiliated service company, TBS Commercial Group Ltd. By developing strong
            customer relationships, we intend to capture an increasing share of our
            customers' seaborne cargo transportation and to add new customers to
            our
            customer base.
 
 **Provide
            Reliable Transportation Services.**
 We
            continue to enable leading industrial, trading and mining companies to
            transport
            efficient amounts of cargo and schedule production volumes to enhance
            supply
            chain and inventory management on a global scale by providing frequent
            service
            with strict adherence to advised times of departure and arrival, efficient
            port
            turn-around times, diverse cargo capability and point-to-point shipments
            to
            ports not served by larger container ships.
 
 **Maintain
            Our Fleet to the Highest Standards.**
 We
            recognize that regular maintenance of our controlled fleet is necessary
            to
            extend the useful lives of our vessels. We are responsible for the maintenance
            of our controlled fleet, while maintenance of the vessels we charter-in
            without
            options to purchase is provided by those vessels' owners. Routine maintenance
            of
            our vessels is performed by the ships' crews during voyages and supervised
            by
            our wholly-owned subsidiary - Roymar Ship Management, Inc. The vessels
            in our
            controlled fleet are regularly drydocked for extensive maintenance and
            surveys.
 
 **Focus
            on Expanding Our Fleet of Particular Vessel Types.**
 We
            look
            to acquire additional multipurpose tweendeckers and small dry bulk carriers.
            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
            of
            December 31, 2005, our fleet totaled 34 vessels, including 24 ships that
            we own,
            seven that we operate under charters with options to purchase and three
            that we
            charter-in without options to purchase. In addition, we have a memorandum
            of
            agreement to purchase one multipurpose tweendecker scheduled to be delivered
            to
            us in the second quarter of 2006. Additionally, we will configure our
            fleet
            between owned and chartered vessels to increase our ability to grow in
            strong
            markets while also providing us with the flexibility to reduce our fleet
            in
            weaker economic periods. We actively monitor the vessel acquisition market
            in an
            effort to take advantage of expansion and growth opportunities in the
            markets
            that we serve.
  Table
                of Contents
 7
 **F.****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 the Nippon Kaiji Kyokai, or NKK, American Bureau of Shipping,
            or
            ABS, Lloyds Register of Shipping, or LR, 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. We reserve as part of our daily operating expenses approximately
            $400 to $500 per day for each applicable vessel against expenses related
            to such
            drydock expense and surveys.
 
 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.
  **G.****Operations
            Management, Ship Management and Commercial Agent**s
 
 Substantially
            all of the operations, ship maintenance, crewing, technical support,
            purchasing,
            insurance, financial management services and network of commercial agents
            necessary to support our fleet and operate our business have been supervised
            by
            three service companies. Agreements with these service companies are
            subject to
            the approval of the compensation committee of our board of directors.
  Two
            of the service
            companies, TBS Shipping Services Inc. (“TBS Shipping Services”) and Roymar Ship
            Management, Inc. (“Roymar”), are our wholly-owned subsidiaries which 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 Ltd.,
            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 64.3%
            of our common shares and hold 55.0% of the voting power of our shares.
            These
            three companies employ experienced professionals in eleven countries
            who meet
            regularly with shippers and consignees to market our services 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 the Company and its subsidiaries.
 
 ***Ship
            management***
  Roymar
            manages our controlled fleet providing experienced technical management
            staff
            and a full range of vessel maintenance capabilities to ensure that we
            maintain
            high-level of ship performance.
 We
            currently pay Roymar approximately $12,000 per ship per month under management
            contracts. 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;
            insuring
                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 vessel 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. As noted
            in
            Classification and Inspection above, every two to three years each of
            the
            vessels in our controlled fleet is drydocked and undergoes extensive
            maintenance, and every five years each of the vessels in our controlled
            fleet is
            subject to special surveys.
  Table
                of Contents
 8
 ***Commercial
            agents***
  Our
            affiliate, TBS Commercial Group Ltd., which is owned by our principal
            shareholders, has established a network of long-term commercial and operational
            relationships with affiliated commercial agency service companies, the
            majority
            of which are wholly- or partly-owned direct or indirect subsidiaries
            of TBS
            Commercial Group Ltd. These companies employ sales and customer service
            professionals in ten countries 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. We paid TBS Commercial Group approximately
            $6.2
            million, $5.1 million and $4.2 million in 2005, 2004 and 2003, respectively.
            See
            " Item 13 Certain Relationships and Transactions."
  **H.****Employee
          and Labor Relations**
 As
            of
            December 31, 2005, we had approximately 86 office employees located in
            Yonkers
            and Scarsdale New York. Additionally, we have contracted with two unaffiliated
            manning agents, Intermodal Shipping, Inc. and Aboitiz Jebsen Bulk Transport
            Corp., to provide approximately 700 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 and we expect this to continue.
  **I.****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 manufactures, Japanese
            trading companies, heavy industry and industrial equipment enterprises.
            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 percentage
            of consolidated revenues from our major customers are as
            follows:
 **Year
                      Ended December 31,****2003**
                  
                  **2004**
                  
                  **2005**Dangote
                      Industry Limited
                  
                  6.5%
                  
                  6.3%
                  
                  12.1%Honeywell
                      International Inc
                  
                  3.6%
                  
                  6.8%
                  
                  4.1%Nippon
                      Yusen Kaisha
                  
                  1.1%
                  
                  5.1%
                  
                  5.7%
  No
            other
            customer accounted for more than 5% of our gross revenues. The decrease
            in the
            percentage of revenues from Honeywell in 2005 resulted in part to an
            18.8%
            increase in our consolidated revenues and a decrease in Honeywell sales
            of
            fertilizer to South American companies that resulted in a decreased demand
            for
            our vessels.
  We
            transport
            cargo throughout the world, including the U.S. The amount of voyage revenue
            generated by country is as follows:
 **Year
                      December 31,****Country**
                  
                  **2003**
                  
                  **2004**
                  
                  **2005**Brazil
                  
                  $
                  27,005,925
                  
                  $
                  45,651,573
                  
                  $
                  50,922,219Japan
                  
                  
                  17,924,172
                  
                  
                  22,416,220
                  
                  
                  27,102,181Chile
                  
                  
                  11,261,113
                  
                  
                  16,516,395
                  
                  
                  21,602,403United
                      States
                  
                  
                  14,342,091
                  
                  
                  17,031,375
                  
                  
                  15,906,784Peru
                  
                  
                  5,770,142
                  
                  
                  12,819,836
                  
                  
                  16,311,236United
                      Arab Emirates
                  
                  
                  17,924,172
                  
                  
                  7,643,242
                  
                  
                  655,879Venezuela
                  
                  
                  13,769,229
                  
                  
                  8,468,493
                  
                  
                  12,327,840Korea
                  
                  
                  1,927,285
                  
                  
                  8,638,296
                  
                  
                  6,633,213China
                  
                  
                  2,094,994
                  
                  
                  7,503,819
                  
                  
                  11,815,693Others
                  
                  
                  7,701,957
                  
                  
                  11,104,849
                  
                  
                  12,318,362**$**
                  **119,721,080**
                  
                  **$**
                  **157,794,098**
                  
                  **$**
                  **175,595,810**
  Revenue
          is
          attributed to these countries 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
 9
 J.
          Competition
  The
          cargo
          markets we serve are highly competitive. Our competition on the routes
          we serve
          consists primarily of regional shippers focused on the breakbulk market,
          international bulk shippers competing in the large lot (20,000 to 45,000
          metric
          tons) segment of the bulk metal concentrates market in Chile and Peru,
          and
          larger shipping concerns which 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 and by focusing on smaller lots of 1,000 to 10,000 metric
          tons in the bulk metal concentrates market. We also compete with the regional
          shippers by delivering customer service and global solutions that are
          superior.
 **K.****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 U.S.,
            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
            the contamination. These laws typically impose cleanup responsibility,
            and
            liability under these laws has been interpreted to be strict, joint and
            several,
            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, 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
            U.S. 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 which 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. 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.
 
 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.
   Table
                of Contents
 10
 ***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.
            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, there can be no assurance 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. There can be
            no
            assurance that any failure to comply with these requirements would not
            have a
            material adverse effect on our results of operations. See "Item 1. Business
            - F.
            Classification and Inspection."
 L.
            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. Coast Guard regulations require that vessels operating
            in
            waters subject to the jurisdiction of the U.S. 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 on board 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, port at which the ships is registered and the
              name of
              the registered owners and their registered address; and
          compliance
              with 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.
 **M.****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 also cannot assure that any specific claim will be paid. 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:
 
 ***Hull
            and machinery and war risks insurance,*** ** which
            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 deductibles
            ranging from none to $75,000 per vessel per incident based on the type
            of
            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 $20 million per incident.
 
 Table
                of Contents
 11
 ***Protection
            and Indemnity*** ** ***(“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 are also subject to future premium increases
            based on prior year underwriting loss experience. Currently we have coverage
            for
            oil pollution of $1 billion per vessel per incident for owned vessels,
            for the
            death, injury or illness of crew of $60,000 per occurrence and $10 million
            for
            damage to cargo and third-party liabilities. 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
            defenses
            claims. We also carry limited insurance covering the loss of revenue
            (“Loss hire
            coverage”) resulting from extended vessel off-hire periods.
  **N.****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 Internal Revenue 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.
  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 National 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 International fails 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 and Roymar are subject to U.S. federal and
            state
            income taxes on the income earned by the respective subsidiary.
  Table
                of Contents
 12
 ***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.
 
 **O.****Website
            Access to Reports**
 
 It
            is our
            policy to make all of our filings with the Securities Exchange Commission
            (“SEC), which include 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 available
            to the
            public at the SEC’s web site at www.sec.gov .
            You may
            also read and copy any document we file with the SEC at the SEC’s Public
            Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please
            call the
            SEC at 1-800-SEC-0330 for further information on the Public Reference
            Room.
  **Item
            1A. Risk Factors**
  The
            following
            risk factors and other information included in 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
            common stock could decline.
 
 ***Industry-Specific
            Risk Factors***
 
 **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, 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 and agricultural commodities, which in turn
            is
            affected by general economic conditions, commodity prices and competition.
            Steel
            products, metal concentrates, agricultural commodities and fertilizers
            accounted
            for approximately 41.0 %, 14.9 %, 4.8% and 8.3 %, respectively, of our
            total
            voyage revenues in 2005. 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
            Chinese economy** .
  During
            the
            past year, freight rates for ocean transport, whether computed on a spot
            or
            period basis, were at all-time highs, as were prices for both new and
            secondhand
            vessels. The strength of the shipping industry in the past several years
            was
            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 from Brazil, tin from Bolivia and copper from Chile.
            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.
            Freight rates and vessel prices recently have declined. 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, 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 Chinese economy would have a material adverse effect on our results
            of
            operations.
  **High
            or
            volatile oil prices could adversely affect the global economy and our
            results of
            operations** .
  If
            oil prices
            remain high for an extended period of time, or experience prolonged volatility,
            the global economy could weaken significantly and our fuel costs would
            increase.
            Global recession or depression would significantly reduce the demand
            for ocean
            freight. Our results of operations would be adversely affected if we
            were unable
            to pass increased fuel costs on to our customers. A significant reduction
            in the
            demand for ocean freight would have a material and adverse impact on
            our results
            of operations and financial condition.
  Table
                of Contents
 13
  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.
  **Failure
            to comply with international safety regulations may subject us to increased
            liability, may adversely affect our insurance coverage and may result
            in a
            denial of access** **to, or
            detention in, certain ports.**
 The
            operation
            of our vessels is affected by the requirements 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. Our failure to
            comply
            with the ISM Code may subject us to increased liability, may invalidate
            existing
            insurance or decrease available insurance coverage for the affected vessels
            and
            may result in a denial of access to, or detention in, certain ports,
            all of
            which could materially and adversely affect our results of operations
            and
            liquidity.
  **Compliance
          with environmental and other laws and regulations may 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
            international 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.
  In
          the U.S.
          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,
          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,
            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.
  **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 mortgagees, 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 lienholder 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
 14
 **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
            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 charge premium 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
            have a
            history of losses and filed for bankruptcy in 2000.**
  We
            have
            incurred net losses in two of our last five fiscal years. In July 2000,
            we filed
            a voluntary petition in bankruptcy court. 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, our recent history of losses and bankruptcy filing are 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.
  **We
            depend
            upon a limited number of customers for a large part of our
            revenue.**
  Three
            of our
            customers, Honeywell International Inc., Dangote Industries Limited and
            Nippon
            Yusen Kaisha, or NYK, account for, in aggregate, 21.9% of our 2005 consolidated
            revenue. We do not have a long-term contract with any of these customers.
            If any
            these customers were to choose not to ship additional cargoes 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, 2005, the average age
            of the 31
            vessels in our controlled fleet was 19 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 life, 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.
  **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 suitable vessels at favorable prices.
  **There
            are risks
            associated with the purchase and operation of secondhand
            vessels.**
  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 or any of these costs or losses and may have to pay drydocking
            costs
            not covered by our insurance.
  Table
                of Contents
 15
 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 do 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 was 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
            companies can control and some of which we or our affiliated service
            companies
            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. The
            failure
            to effectively identify, purchase, develop and integrate any newly acquired
            vessels could adversely affect our business, financial condition and
            results of
            operations. We have entered into a memorandum of agreement to purchase
            a
            multipurpose tweendecker at December 31, 2005. If the seller fails to
            deliver
            the vessel or otherwise breaches the terms of the acquisition memorandum
            of
            agreement, we would not be entitled to compel the seller to provide the
            vessel
            or a similar vessel. In addition, any such delay or failure could cause
            us to
            breach our obligations under a related time charter and could adversely
            affect
            our results of operation and financial condition. The delivery of the
            vessel
            with substantial defects could have similar consequences. We cannot assure
            you
            that we will be able to purchase other vessels at similar prices or with
            similar
            characteristics, valuations and revenue-earning potential.
  **We
            may have
            difficulty in recruiting qualified crew members for our
            vessels**
  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 two unaffiliated manning agents, Intermodal Shipping, Inc. and Aboitiz
            Jebsen Bulk Transport Corp., to provide Filipino officers and non-officers
            to
            crew our vessels. We believe we are able to attract high-quality crews
            based on
            our reputation for providing steady crew employment and a safe work environment
            onboard our vessels. We cannot assure you that we will continue to attract
            and
            employ high-quality officers and non-officers, which could adversely
            affect our
            future operations.
  **We
            may have
            to pay tax on United States source income, which would reduce our
            earnings.**
  Under
            the
            Internal Revenue Code, 50% of the gross shipping income of a corporation
            that
            owns or charters vessels, such as ourselves and our subsidiaries, that
            is
            attributable to transportation that begins or ends, but that does not
            both begin
            and end, in the United States is characterized as United States source
            shipping
            income. Our U.S. source shipping income will be subject to either a 4%
            United
            States federal income tax without allowance for any deductions or to
            a net basis
            tax, unless an exemption is available.
 
 Our
            ability 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 Treasury regulations. 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 the date hereof, non-qualified U.S. shareholders
            who own 5%
            or more of our shares will own an aggregate of 25.0% of our Class A common
            shares. We cannot assure you that we will qualify for exemption under
            Section
            883 in the future.
 Table
              of Contents
 16
 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.
  **The
            majority of our revenue is derived from operations outside the U.S. 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 and
            East Asia. 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 South 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.
 
 ***Risks
            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
            and
            other 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 which 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
            an
            affiliated service company.**
  We
            have relied upon and
            continue to rely upon TBS Commercial Group, an affiliated service company,
            for
            agency services, which are critical to our business. TBS Commercial Group
            employs sales and customer service professionals in ten countries who
            meet
            regularly with shippers and consignees to anticipate the needs and address
            the
            concerns of our customers. The loss of this relationship, or the loss
            or
            unavailability of our affiliated service company's key employees, would
            have a
            material adverse effect on our business, our results of operations and
            our
            liquidity.
  **TBS
            Commercial Group Ltd. is a privately held company and there is little
            or no
            publicly available information about it.**
  The
            ability
            of TBS Commercial Group Ltd. 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 Ltd. is privately held, it is unlikely that information about its
            financial strength would become public. As a result, an investor in our
            common
            shares might have little advance warning of problems affecting TBS Commercial
            Group Ltd., 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 Ltd. could use their
            controlling interests in us and in TBS Commercial Group Ltd. to shift
            revenues
            and operating income from us to TBS Commercial Group Ltd., 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 Ltd. or to permit TBS Commercial Group Ltd. to take advantage of
            corporate
            opportunities. Because we are subject to Bermuda law, which may differ
            from the
            statutes and judicial precedents in existence in United States jurisdictions,
            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 Ltd. 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 Ltd. 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 Ltd. provides these services to us.
  Table
                  of Contents
 17
 ***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 will limit our ability to:
  incur
                    additional debt;
                create
                    or permit certain liens;
                sell
                    vessels or other assets;
                have
                    our subsidiaries pay dividends or make other distributions to
                    us;
                engage
                    in transactions with affiliates; and
                consolidate
                    or merge with or into other companies or sell all or substantially
                    all of our
                    assets These
                restrictions could limit our ability to finance our future operations
                or capital
                needs, make acquisitions or pursue available business
                opportunities.
  **Some
                of our credit facilities requires 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, if the lenders under the credit facilities
                or other
                agreement in default were to accelerate the debt outstanding under
                that
                facility, it could result in a default under our other credit facilities.
  At
                December 31, 2005, we did not meet specified EBITDA to debt ratios
                required
                under the AIG and Bank of America credit facilities. We obtained
                a wavier from
                AIG, dated December 31, 2005, to waive the covenant violation as
                of December 31,
                2005. AIG has also agreed to reduce the required EBITDA to debt service
                ratio
                from 2.0 to 1.0 to 1.6 to 1 at March 31, 2006, June 30, 2006, September
                30, 2006
                and December 31, 2006, after which it will revert to the original
                ratio
                requirement. We believe that based upon current projections of our
                2006
                quarterly EBITDA, we will be in compliance with this covenant.
  On
                March
                3, 2006, the Bank of America agreed to waive the EBITDA to debt service
                ratio
                requirement for the quarter ended December 31, 2005, and to amend
                the credit
                facility agreement to change the method used in calculating the EBITDA
                to debt
                service ratio. Under the revised method, we were in compliance with
                the EBITDA
                to debt service ratio covenants at December 31, 2005.
  On
                December 15, 2005, the Merrill Lynch credit facility was amended
                removing the
                requirement for us to maintain positive working capital. Lastly,
                the Merrill
                Lynch credit facility requires minimum collateral coverage and requires
                mandatory prepayment or delivery of additional security in the event
                that the
                fair market value of the acquired vessels falls below 160% of the
                outstanding
                loan balances. As
                required by the credit facility we have agreed to prepay approximately
                $2.3
                million by March 31, 2006.
  **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 vessel and the related collateral, and we
                could lose our
                rights in the vessels and their charters.
 
 ***Risk
                Factors Related To Our Common Stock***
 
 **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 U.S. As
                a result, it
                may be difficult for investors to enforce in the U.S. judgments obtained
                in U.S.
                courts against us based on the civil liability provisions of the
                U.S. securities
                laws. Uncertainty exists as to 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
 18
 **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. This waiver limits the right
                of
                shareholders to assert claims against our officers and directors
                unless the act
                or failure to act involves fraud or dishonesty.
  **We
                have anti-takeover provisions in our bye-laws that may discourage
                a change of
                control.**
  Our
                bye-laws, as amended, 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 which 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**
 
 Not
                  applicable as we are not an accelerated filer or a well-known seasoned
                  issuer.
 
 **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 two
                  properties used by our service company subsidiaries for the administration
                  of
                  our operations. Our principal office, which is located in Yonkers,
                  New York and
                  is approximately 15,000 square feet, is leased from our chairman
                  and chief
                  executive officer. The lease, which expires on December 31, 2008,
                  provides for
                  rent of $20,000 per month, plus operating expenses including real
                  estate taxes.
                  Negotiation of the lease was finalized in December 2005; however,
                  the lease is
                  effective January 1, 2005, the date that the previous lease expired.
                  The lease
                  contains five three-year renewal options. Through our subsidiary
                  Roymar, we
                  lease approximately 9,200 square feet of office space located in
                  Scarsdale, New
                  York, under a lease expiring October 31, 2007. The lease provides
                  for monthly
                  rent of $21,275 plus additional rent for real estate tax escalations.
                  The lease
                  contains two one-year renewal options.
  We believe
                  that our facilities are generally adequate for current and anticipated
                  future
                  use.
 
 **Item
                  3. Legal Proceedings**
 
 In
                  connection with the acquisition of the vessel *Tamoyo
                  Maiden* (formerly the *Sea
                  Pantheon)* in
                  November 2004, from Rifino Shipping Company Limited, a Cyprus
                  corporation, ** we
                  are
                  seeking damages for the cost of repairs and loss of hire related
                  to ballast tank
                  contamination discovered after delivery of the vessel. As specified
                  in the
                  purchase agreement, the dispute was made in London in accordance
                  with the
                  British Arbitration Acts of 1950 and 1979. The Company, through
                  its subsidiary,
                  had an associated vessel owned by a company related to the seller
                  arrested to
                  secure its claim. The vessel was released upon the seller providing
                  a bank
                  guarantee in the amount of $2.1 million. The seller alleged damages
                  due to the
                  arrest of the associated vessel. We paid $750,000 on June 6, 2005,
                  as
                  counter-security to provide for estimated arbitration/litigation
                  costs, as
                  required under English law. Legal counsel, on August 17, 2005,
                  obtained a
                  reduction of $217,500 in the amount of the counter-security to
                  $532,500. The
                  matter is currently in discovery and arbitration proceedings are
                  expected to
                  begin in April 2006.
  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 2005, no matters were submitted to a vote
                  of security
                  holders through the solicitation of proxies or otherwise.
  Table
                      of Contents
 19
 **PART
                    II**
  **Item
                    5. Market for Registrant’s Common Equity and
                    Related Stockholder Matters**
  ***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 National Market under
                    the symbol
“TBSI”.
 
 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 National Market:
 Year
                              Ended December 31, 2005
                          
                          HIGH
                          
                          LOWSecond
                              Quarter
                          
                          $
                          10.15
                          
                          $
                          10.00Third
                              Quarter
                          
                          $
                          2.94
                          
                          $
                          9.21Fourth
                              Quarter
                          
                          $
                          10.98
                          
                          $
                          5.82
 ***Holders***
 As
          of
          March 1, 2006, there were 2,187 holders of record of our 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.
          The provisions of some of our debt instruments and related loan agreements
          prevent some of our subsidiaries from paying dividends to International,
          which
          may restrict International’s 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 .
 
 ***Equity
          Compensation Plans***
  The
          below
          table sets forth equity compensation information under our 2005 Equity
          Incentive
          Plan:
  Plan
                    category
                
                Number
                    of securities to be issued upon exercise of outstanding options,
                    warrants
                    and rights
                
                Weighted
                    average exercise price of outstanding options, warrants and
                    rights
                
                Number
                    of securities remaining available for future issuance(a)
                
                (b)
                
                (c)Equity
                    compensation plans approved by security holders
                
                104,500
                
                $
                -
                
                1,895,500Equity
                    compensation plans not approved by security holders
                
                -
                
                
                -
                
                -Total
                
                104,500
                
                $
                -
                
                1,895,500
  Information
          regarding our equity compensation plans as of December 31, 2005 is disclosed
          in
          Item 8. Financial Statements and Supplementary Data.


Table
            of Contents
 20
 ITEM
        6. Selected Consolidated Financial
        and Other 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,****2001**
                
                **2002**
                
                **2003**
                
                **2004**
                
                **2005**(In
                    thousands, except for share and per share amounts)**Revenue**Voyage
                    revenue
                
                $
                112,172
                
                $
                94,338
                
                $
                119,528
                
                $
                157,794
                
                $
                175,596Time
                    charter revenue
                
                
                5,583
                
                
                7,421
                
                
                23,625
                
                
                50,746
                
                
                71,456Other
                    revenue
                
                
                -
                
                
                65
                
                
                193
                
                
                267
                
                
                979**Revenue**
                
                
                117,755
                
                
                101,824
                
                
                143,346
                
                
                208,807
                
                
                248,031**Operating
                    expenses**Voyage
                
                
                57,645
                
                
                48,713
                
                
                52,454
                
                
                60,692
                
                
                75,291Vessel
                
                
                40,214
                
                
                35,133
                
                
                62,234
                
                
                79,273
                
                
                72,609Depreciation
                    and amortization of vesselsand
                    other fixed assets
                
                
                6,171
                
                
                6,282
                
                
                6,887
                
                
                10,137
                
                
                18,021Management
                    fees
                
                
                3,474
                
                
                3,237
                
                
                3,864
                
                
                4,414
                
                
                2,624General
                    and administrative
                
                
                4,657
                
                
                4,684
                
                
                6,463
                
                
                7,347
                
                
                17,618Loss
                    from sale of vessels (1)
                
                
                1,303
                
                
                -
                
                
                9,905
                
                
                -
                
                
                -**Operating
                    expenses**
                
                
                113,464
                
                
                98,049
                
                
                141,807
                
                
                161,863
                
                
                186,163**Income
                    from operations**
                
                
                4,291
                
                
                3,775
                
                
                1,539
                
                
                46,944
                
                
                61,868**Other
                    (expenses) and income**Interest
                    expense
                
                
                (5,960
                )
                
                (5,321
                )
                
                (5,145
                )
                
                (5,148
                )
                
                (9,346
                )Interest
                    and other income
                
                
                23
                
                
                23
                
                
                68
                
                
                111
                
                
                752Gain
                    on early extinguishment of debt
                
                
                
                
                
                -
                
                
                2,373
                
                
                -
                
                
                -Gain
                    on early extinguishment of debt, Reorganization (2)
                
                
                62,783Professional
                    fees, Reorganization
                
                
                (866
                )Deemed
                    preference dividends and accretion
                
                
                -
                
                
                -
                
                
                (829
                )
                
                -
                
                
                -Total
                    other (expenses) and income
                
                
                55,980
                
                
                (5,298
                )
                
                (3,533
                )
                
                (5,037
                )
                
                (8,594
                )**Net
                    (loss) income**
                
                
                60,271
                
                
                (1,523
                )
                
                (1,994
                )
                
                41,907
                
                
                53,274Deemed
                    preference dividends and accretion
                
                
                -
                
                
                (1,491
                )
                
                (797
                )
                
                -
                
                
                -Amount
                    allocated to
                    participating preferred shareholders
                
                
                -
                
                
                -
                
                
                -
                
                
                (11,497
                )
                
                (5,461
                )Net
                    (loss) income available for common shareholders
                
                $
                60,271
                
                $
                (3,014
                )
                $
                (2,791
                )
                $
                30,410
                
                $
                47,813Net
                    (loss) income per common shareBasic
                
                $
                5.92
                
                $
                (0.30
                )
                $
                (0.27
                )
                $
                2.98
                
                $
                2.19Diluted
                
                $
                3.12
                
                $
                (0.30
                )
                $
                (0.27
                )
                $
                1.49
                
                $
                1.97Weighted
                    average common shares outstandingBasic
                    (3) (4)
                
                
                10,187,795
                
                
                10,187,795
                
                
                10,187,795
                
                
                10,187,795
                
                
                21,870,160Diluted
                    (3) (4)
                
                
                19,296,128
                
                
                10,187,795
                
                
                10,187,795
                
                
                20,385,775
                
                
                24,310,909
  Table
            of Contents
 21
  **Year
                    Ended December 31,****2001**
                
                **2002**
                
                **2003**
                
                **2004**
                
                **2005****(In
                    thousands)****Balance
                    Sheet Data:**Cash
                    and cash equivalents
                
                $
                2,822
                
                $
                3,799
                
                $
                8,641
                
                $
                21,674
                
                $
                27,158Working
                    capital
                
                
                7,516
                
                
                3,146
                
                
                6,487
                
                
                9,566
                
                
                (5,055
                )Total
                    assets
                
                
                85,347
                
                
                87,914
                
                
                83,009
                
                
                157,159
                
                
                342,442Long-term
                    debt, including current portion
                
                
                43,275
                
                
                43,275
                
                
                6,097
                
                
                38,511
                
                
                105,737Obligations
                    under capital leases, includingcurrent
                    portion
                
                
                6,269
                
                
                11,714
                
                
                42,637
                
                
                34,642
                
                
                24,703Mandatorily
                    redeemable preference shares (5)
                
                
                11,264
                
                
                12,755
                
                
                14,382
                
                
                -
                
                
                -Total
                    shareholders' equity
                
                
                11,626
                
                
                8,612
                
                
                5,821
                
                
                61,959
                
                
                177,789**Year
                    Ended December 31,****2001**
                
                **2002**
                
                **2003**
                
                **2004**
                
                **2005****Other
                    Operating Data:**Controlled
                    vessels (at end of year) (6)
                
                
                13
                
                
                13
                
                
                13
                
                
                18
                
                
                31Chartered
                    vessels (at end of year) (7)
                
                
                7
                
                
                9
                
                
                11
                
                
                10
                
                
                6Voyage
                    Days (8)
                
                
                7,737
                
                
                6,823
                
                
                9,033
                
                
                8,892
                
                
                10,885Vessel
                    days (9)
                
                
                7,871
                
                
                6,937
                
                
                9,116
                
                
                9,138
                
                
                11,264Tons
                    of cargo shipped (10)
                
                
                2,919
                
                
                2,936
                
                
                5,907
                
                
                3,658
                
                
                3,170Revenue
                    per ton (11)
                
                $
                38.43
                
                $
                32.13
                
                $
                20.24
                
                $
                43.13
                
                $
                55.39Tons
                    of cargo shipped, excludingaggregates
                    (10)(12)
                
                
                2,919
                
                
                2,482
                
                
                2,582
                
                
                2,837
                
                
                3,092Revenue
                    per ton, excludingaggregates
                    (11)(12)
                
                $
                38.43
                
                $
                37.36
                
                $
                39.27
                
                $
                52.79
                
                $
                56.58Chartered
                    -out days
                
                
                942
                
                
                1,001
                
                
                2,439
                
                
                2,780
                
                
                4,257Chartered
                    -out rate per day
                
                $
                5,927
                
                $
                7,413
                
                $
                9,686
                
                $
                18,254
                
                $
                16,785
   (1)
                Represents
                    the difference between the price paid to us and the book value
                    of 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.
 
 (2)
                In
                    1998, we issued $110.0 million of First Preferred Ship Mortgage
                    Notes as
                    original issue discount notes. In connection with our emergence
                    from
                    bankruptcy in February 2001 we recognized gains on the cancellation
                    of our
                    $110.0 million of First Preferred Ship Mortgage Notes and interest
                    payable
                    on the Notes. During our proceeding under Chapter 11 of the Bankruptcy
                    Code, we recorded a loss to reflect the difference between the
                    recorded
                    debt amount, less discount, and the full face value of the First
                    Preferred
                    Ship Mortgage Notes allowed as a bankruptcy
                    claim.
 
 (3)
                Basic
                    and diluted weighted average common shares for 2001 through 2004
                    reflect
                    the 2.547 to 1 adjustment for the consolidation and redesignation
                    of
                    common shares made June 29, 2005. See Item 15. Exhibits and Financial
                    Statements Schedules, Footnotes 17 - Equity Transactions and
                    Footnote 18 -
                    Earnings Per Share.
 
 (4)
                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 100,000
                    restricted
                    Class A common shares issued to our chief financial officer and
                    4,500
                    restricted Class A common shares issued to our independent directors.
                    Diluted weighted average common shares outstanding for 2004 includes
                    10,197,980 common shares issuable on the exercise of exercisable
                    warrants.
                    Diluted weighted average common shares outstanding for 2001 includes
                    9,108,333 common shares for the Series A, B and C warrants
 
 (5)
                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.
 
 (6)
                Controlled
                    vessels are vessels that we own or charter-in with an option
                    to purchase.
                    As of December 31, 2005, seven vessels in our controlled fleet
                    were
                    chartered-in with an option to
                    purchase.
  Table
              of Contents
 22
  (7)
                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
 
 (8)
                Represents
                    the number of days controlled and time-chartered vessels were
                    operated by
                    us, excluding off-hire days.
 
 (9)
                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.
 
 (10)
                In
                    thousands.
 
 (11)
                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.
 
 (12)
                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 no longer regularly
                    carry
                    aggregates and believe that the exclusion of aggregates better
                    reflects
                    our cargo shipped and revenue per ton data for our principal
                    services.
  **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, 200 4
          and
          2005 and our results of operations comparing the years ended December 31,
          2004
          and 2005 and the years ended December 31, 2003 and 2004. You should read
          this
          section in conjunction with the 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 ten 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. We
          completed
          our initial public offering on June 29, 2005. Our historical consolidated
          financial statements for the period prior to June 29, 2005 show our results
          of
          operations as a private company.
  **Components
          of revenue and expense**
  We
          report our
          revenue as voyage revenue, reflecting the operations of our vessels that
          are not
          chartered out, 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 final voyage
          revenue
          and expenses using the ratio of voyage days completed through period end
          to
          total voyage days. 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.
  Table
              of Contents
 23
 ***Voyage
          revenue*** **** consists
          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, the days on hire and the freight rates. The following table sets
          forth
          these factors for each of the three years in the period from 2003 through
          2005.
 **Year
                    Ended December 31,****2003**
                
                **2004**
                
                **2005**Average
                    number of vessels (1)
                
                18
                
                17
                
                18Freight
                    voyage days (2)
                
                6,594
                
                6,112
                
                6,628Days
                    on hire (3)
                
                6,652
                
                6,358
                
                7,007Freight
                    Rates (4)For
                    all cargoes
                
                $
                20.24
                
                $
                43.13
                
                $
                55.39Excluding
                    aggregates
                
                $
                39.27
                
                $
                52.79
                
                $
                56.58
 
 (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)  Not
          including vessels chartered out.
 (4)  Weighted
          average freight rates measured in dollars per ton.
  To
          a
          significant degree, freight rates are set by the market and depend on the
          relationship between the demand for ocean freight transportation and the
          availability of appropriate vessels. During 2003, 2004 and the first half
          of
          2005, demand for dry bulk ocean shipping increased significantly, due largely
          to
          the expansion of economies in East Asia, especially China. Freight rates
          are
          subject to volatility depending on the relationship between supply and
          demand.
          In the second half of 2005, freight rates began to decline from the levels
          reached earlier in the year.
 
 ***Time
          charter
          revenue*** ** consists
          of a negotiated daily hire rate for the duration of a voyage. The key factors
          driving time charter revenue are the number of days vessels are chartered
          out
          and the daily charter hire rates. The following table sets forth these
          factors
          for each of the three years in the period from 2003 through
          2005.
 **Year
                    Ended December 31,****2003**
                
                **2004**
                
                **2005**Number
                    of vessels (1)
                
                7
                
                8
                
                12Time
                    Charter days (2)
                
                2,439
                
                2,780
                
                4,257Daily
                    charter hire rates (3)
                
                $
                9,686
                
                $
                18,254
                
                $
                16,785
  (1)  Weighted
          average number of vessels chartered out.
 (2)  Number
          of
          days vessels earned charter hire.
 (3)  Weighted
          average charter hire rates.
 
 Charter
          hire revenues 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.
 Table
            of Contents
 24
 ***Voyage
          expenses*** consist
          primarily of stevedoring, port costs, commissions, fuel and lashing materials.
 
 ***Vessel
          expenses*** ** are
          vessel operating expenses — crewing, stores, lube oil, repairs and maintenance
          including drydock reserves, 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).
 
 ***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 impact of this change in estimate
          for
          2005 increased our net income by $19.1 million.
 
 ***Management
          fees*** **** paid
          to
          Roymar for the technical management of controlled vessels and to TBS Shipping
          Services for the operation of vessels through the date of our purchase
          of all
          the stock of TBS Shipping Services and Roymar. We also paid commissions
          on
          freight and time charter hire to TBS Shipping Services and commissions
          on
          freight and port agency fees to TBS Commercial Group Ltd.. These management
          fees
          and commissions were 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 have been approved
          by our
          board of directors. TBS Commercial Group Ltd. will continue as an affiliated
          service company. Renewal of the current management agreements with TBS
          Commercial Group Ltd. and approval of any new management agreements or
          amendments to the current management agreements with TBS Commercial Group
          Ltd.
          will be subject to approval by the compensation committee of our board
          of
          directors.
 
 **Sale
          of vessels and purchase of notes**
  In
          December
          2003, we entered into a sale and leaseback transaction covering seven vessels
          in
          order to generate cash to fund the repurchase of our outstanding First
          Preferred
          Ship Mortgage Notes. The repurchase of these First Preferred Ship Mortgage
          Notes
          resulted in a gain on early extinguishment of debt of $2.4 million in 2003.
          The
          sale and leaseback of the vessels, combined with an unrelated sale of a
          vessel
          for a gain on sale of $0.2 million, resulted in a loss of $9.9 million
          in 2003,
          reflecting the difference between the price paid to us and the book value
          of the
          vessels.
 
 **Lack
          of historical operating data for vessels before their
          acquisition**
  Consistent
          with shipping industry practices, other than inspection of the physical
          condition of the vessels and examinations of classification society records,
          there is no historical financial due diligence process when we acquire
          vessels.
          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
          vessels
          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.
  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 us and the prior owners of these
          vessels 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.
  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 a new manager, 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
              Indian
              tribe naming convention. 
 Table
              of Contents
 25
 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
          purchased 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.
 ***Year
          ended December 31, 2005 compared to year ended December 31,
          2004*** ****
 **Year
                      Ended December 31,****2004**
                  
                  **2005**
                  
                  **Increase
                      (Decrease)****In
                      Thousands**
                  
                  **As
                      a % of Total Revenue**
                  
                  **In
                      Thousands**
                  
                  **As
                      a % of Total Revenue**
                  
                  **In
                      Thousands**
                  
                  **Percentage**Voyage
                      revenue
                  
                  $
                  157,794
                  
                  
                  75.6
                  
                  $
                  175,596
                  
                  
                  70.8
                  
                  $
                  17,802
                  
                  11.3Time
                      charter revenue
                  
                  
                  50,746
                  
                  
                  24.3
                  
                  
                  71,456
                  
                  
                  28.8
                  
                  
                  20,710
                  
                  40.8Other
                      revenue
                  
                  
                  267
                  
                  
                  0.1
                  
                  
                  979
                  
                  
                  0.4
                  
                  
                  712
                  
                  266.7Total
                      revenue
                  
                  
                  208,807
                  
                  
                  100.0
                  
                  
                  248,031
                  
                  
                  100.0
                  
                  
                  39,224
                  
                  18.8Voyage
                      expense
                  
                  
                  60,692
                  
                  
                  29.0
                  
                  
                  75,291
                  
                  
                  30.3
                  
                  
                  14,599
                  
                  24.1Vessel
                      expense
                  
                  
                  79,273
                  
                  
                  38.0
                  
                  
                  72,609
                  
                  
                  29.3
                  
                  
                  (6,664
                  )
                  (8.4)Depreciation
                      and amortization
                  
                  
                  10,137
                  
                  
                  4.9
                  
                  
                  18,021
                  
                  
                  7.3
                  
                  
                  7,884
                  
                  77.8Management
                      and agency fees
                  
                  
                  4,414
                  
                  
                  2.1
                  
                  
                  2,624
                  
                  
                  1.1
                  
                  
                  (1,790
                  )
                  (40.6)General
                      and administrative
                  
                  
                  7,347
                  
                  
                  3.5
                  
                  
                  17,618
                  
                  
                  7.1
                  
                  
                  10,271
                  
                  139.8Total
                      operating expenses
                  
                  
                  161,863
                  
                  
                  77.5
                  
                  
                  186,163
                  
                  
                  75.1
                  
                  
                  24,300Income
                      from operations
                  
                  
                  46,944
                  
                  
                  22.5
                  
                  
                  61,868
                  
                  
                  24.9
                  
                  
                  14,924
                  
                  31.8Other
                      (expenses) and incomeInterest
                      expense
                  
                  
                  (5,148
                  )
                  
                  (2.5
                  )
                  
                  (9,346
                  )
                  
                  (3.7
                  )
                  
                  4,198
                  
                  (81.5)Interest
                      and other income
                  
                  
                  111
                  
                  
                  0.1
                  
                  
                  752
                  
                  
                  0.3
                  
                  
                  641
                  
                  -Net
                      income
                  
                  $
                  41,907
                  
                  
                  20.1
                  
                  $
                  53,274
                  
                  
                  21.5
                  
                  $
                  11,367
                  
                  27.1
  **Voyage
          revenue**
  The
          $17.8
          million or 11.3% increase in our voyage revenue for 2005 as compared to
          2004 was
          due to an average freight rate increase of $12.26 per ton, or 28.4%, from
          $43.13
          per ton for 2004 to $55.39 per ton for 2005. The effect of the increase
          in
          freight rate was reduced by a decrease in cargo volume of 488,336 tons,
          or
          13.3%, from 3,658,367 tons for 2004 to 3,170,031 tons for 2005. The decrease
          in
          cargo volume was due to a decrease of 743,435 tons of aggregates
          bulk cargo in 2005
          as compared to 2004 offset by an increase of 255,099 tons in 2005 in cargo
          other
          than aggregates . Excluding
          high-volume, low-freighted aggregates bulk cargo, which we no longer regularly
          transport, average freight rates increased 7.2% from $52.79 per ton in
          2004 to
          $56.58 per ton in 2005.
  The
          increase
          in average freight rates resulted mainly from the demand for raw materials
          from
          East Asian economies, most notably China. Countries in Latin America have
          been a
          primary source of those raw materials, especially agricultural products
          and
          metal concentrates.
  The
          following
          table shows revenues attributed to our principal cargoes:
 **Year
                      Ended December 31,****2004**
                  
                  **2005**
                  
                  **Increase
                      (Decrease)****Description**
                  
                  **In
                      Thousands**
                  
                  **As
                      a % of Total Voyage Revenue**
                  
                  **In
                      Thousands**
                  
                  **As
                      a % of Total Voyage Revenue**
                  
                  **In
                      Thousands**
                  
                  **Percentage**Steel
                      products
                  
                  $
                  62,286
                  
                  
                  39.5
                  
                  $
                  71,952
                  
                  
                  41.0
                  
                  $
                  9,666
                  
                  15.5Metal
                      concentrates
                  
                  
                  18,790
                  
                  
                  11.9
                  
                  
                  26,070
                  
                  
                  14.9
                  
                  
                  7,280
                  
                  38.7Fertilizers
                  
                  
                  16,342
                  
                  
                  10.4
                  
                  
                  14,596
                  
                  
                  8.3
                  
                  
                  (1,746
                  )
                  (10.7)Other
                      bulk cargo and aggregates
                  
                  
                  40,385
                  
                  
                  25.6
                  
                  
                  45,918
                  
                  
                  26.1
                  
                  
                  5,533
                  
                  13.7Agricultural
                      products
                  
                  
                  11,696
                  
                  
                  7.4
                  
                  
                  8,426
                  
                  
                  4.8
                  
                  
                  (3,270
                  )
                  (28.0)Automotive
                      products
                  
                  
                  4,480
                  
                  
                  2.8
                  
                  
                  3,880
                  
                  
                  2.2
                  
                  
                  (600
                  )
                  (13.4)Other
                  
                  
                  3,815
                  
                  
                  2.4
                  
                  
                  4,754
                  
                  
                  2.7
                  
                  
                  939
                  
                  24.6Voyage
                      revenue
                  
                  $
                  157,794
                  
                  
                  100.0
                  
                  $
                  175,596
                  
                  
                  100.0
                  
                  $
                  17,802
                  
                  11.3
 Table
              of Contents
 26
 **Time
          charter revenue**
 The
          $20.7
          million, or 40.8%, increase in time charter revenue for 2005 over 2004
          was
          attributed to an increase in the chartered out vessel days offset by a
          decrease
          in the average daily charter hire rate. The chartered vessel days increased
          1,477 days, or 53.1%, from 2,780 days for 2004 to 4,257 days for 2005.
          The
          increase in days was due to an increase in our fleet. The average charter
          hire
          rate decreased $1,469 per day or 8.0% from $18,254 for 2004 to $16,785
          for 2005,
          due to a softening in the overall shipping market in 2005 compared to
          2004.
 
 **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 increases
          in
          commissions and bunker fuel costs. The following table shows the change
          in the
          number of voyage days in 2005 compared to 2004.
 **Year
                    Ended December 31,****2004**
                
                **2005**
                
                **Increase
                    (Decrease)**Freight
                    voyage days
                
                
                6,112
                
                
                6,628
                
                516
                
                8.4%Time
                    charter days
                
                
                2,780
                
                
                4,257
                
                1,477
                
                53.1%Total
                    voyage days
                
                
                8,892
                
                
                10,885
                
                1,993
                
                22.4%
  The
          principal components of voyage expense were as follows:
 **Year
                      Ended December 31,****2004**
                  
                  **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 Revenue**Fuel
                      expense
                  
                  $
                  18,369
                  
                  30.3
                  
                  8.7
                  
                  $
                  27,962
                  
                  37.1
                  
                  11.2
                  
                  $
                  9,593
                  
                  52.2
                  
                  2.5Commission
                      expense
                  
                  
                  13,496
                  
                  22.2
                  
                  6.5
                  
                  
                  12,570
                  
                  16.7
                  
                  5.1
                  
                  
                  (926
                  )
                  (6.9)
                  
                  (1.4)Port
                      call expense
                  
                  
                  13,932
                  
                  23.0
                  
                  6.7
                  
                  
                  17,021
                  
                  22.6
                  
                  6.9
                  
                  
                  3,089
                  
                  22.2
                  
                  0.2Stevedore
                      and othercargo-related
                      expense
                  
                  
                  9,948
                  
                  16.4
                  
                  4.8
                  
                  
                  10,901
                  
                  14.5
                  
                  4.4
                  
                  
                  953
                  
                  9.6
                  
                  (0.4)Miscellaneousvoyage
                      expense
                  
                  
                  4,947
                  
                  8.1
                  
                  2.3
                  
                  
                  6,837
                  
                  9.1
                  
                  2.7
                  
                  
                  1,890
                  
                  38.2
                  
                  0.4Voyage
                      expense
                  
                  $
                  60,692
                  
                  100.0
                  
                  29.0
                  
                  $
                  75,291
                  
                  100.0
                  
                  30.3
                  
                  $
                  14,599
                  
                  24.1
                  
                  1.3
  The
        24.1%
        increase in voyage expense in 2005 as compared to 2004 was mainly due to
        the
        increases in fuel expenses and port call expense. The 52.2% increase in fuel
        expense in 2005 over 2004 was attributed to an increase in both the average
        price per metric ton (“MT”) from $220 per MT in 2004 to $300 per MT in 2005 and
        an increase in consumption from 83,393 MT in 2004 to 93,294 MT in 2005. The
        22.2% increase in port call expense in 2005 over 2004 was primarily due to
        the
        increased number of port calls we made in 2005 which increased from 775 port
        calls in 2004 to 873 port calls in 2005 due to the growth of our business
        and
        fleet in 2005.
  The
        9.6%
        increase in stevedore and other cargo-related expenses resulted from an increase
        in voyage activity during 2005 as compared to 2004 and an increase in 2005
        as
        compared to 2004 in cargo that was booked on terms where we pay the costs
        of
        loading and unloading. As a percentage of voyage revenue, cargo booked under
        full liner terms — shipments in which we bear the costs of loading and unloading
— increased from 14.5% to 21.1% of voyage revenue in 2004 and 2005,
        respectively. Cargo booked under full or partial free-in free-out terms —
        shipments in which the shipper pays the costs of loading and unloading —
        decreased from 85.5% to 78.9% of voyage revenue for 2004 and 2005,
        respectively.
  The
        6.9% decrease in
        commission expense in 2005 as compared to 2004 was principally 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. After the
        acquisition, $2.7 million of commissions paid to TBS Shipping Services were
        eliminated in consolidation and the operating expenses of TBS Shipping Services
        were included in our consolidation as general and administrative expenses.
        Offsetting the decrease in commission paid to TBS Shipping Services Inc.,
        was an
        increase in commission expense of $1.8 million, or 13.3%, due to higher revenue
        in 2005 as compared to 2004.
  Table
            of Contents
 27
 The
          38.2%
          or $1.9 million increase in miscellaneous expense in 2005 as compared to
          2004
          was principally due to three factors: a $0.5 million increase in container
          overhead charge; a $0.4 million increase in despatch expense; and a $0.2
          million
          increase in canal charges. Despatch is compensation paid by the shipowner
          to a
          charterer as a reward when the charterer is able to complete the cargo
          operations in less time than the time allowed in the contract to load or
          unload
          the cargo.
 
 As
          a
          percentage of revenue the 1.3% increase in voyage expense in 2005 as compared
          to
          2004 was primarily due to an increase in fuel expense expressed as a percentage
          of revenue of 2.5% offset by a decrease of 1.2% as a percentage of revenue
          in
          all other voyage expense categories.
  **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 and drydocking, maintenance, insurance and crewing expenses
          for
          vessels we control. The following table sets forth the basic components
          of
          vessel expense:
 **Year
                    Ended December 31,****2004**
                
                **2005**
                
                **Increase
                    (Decrease)****In
                  Thousands**
                
                **As
                    a % of Vessel Expense**
                
                **In
                    Thousands**
                
                **As
                    a % of Vessel Expense**
                
                **In
                    Thousands**
                
                **Percentage**Chartered-in
                    vessel expense
                
                $
                55,681
                
                70.2
                
                $
                31,119
                
                42.9
                
                $
                (24,562
                )
                (44.1)Owned
                    vessel expense
                
                
                20,516
                
                25.9
                
                
                38,737
                
                53.3
                
                
                18,221
                
                88.8Space
                    charter expense
                
                
                3,076
                
                3.9
                
                
                2,753
                
                3.8
                
                
                (323
                )
                (10.5)Vessel
                    expense
                
                $
                79,273
                
                100.0
                
                $
                72,609
                
                100.0
                
                $
                (6,664
                )
                (8.4)
  The
          8.4%
          decrease in vessel expense in 2005 as compared to 2004 was primarily
          attributable to a change in the composition of our fleet from an average
          of 15
          owned vessels and ten chartered-in vessels for 2004 to an average of 25
          owned
          vessels and five chartered-in vessels for 2005. The increase in owned vessels
          decreased our demand for chartered-in vessels during 2005.
 
 The
            44.1%
            decrease in chartered-in vessels in 2005 as compared to 2004 resulted
            from our
            chartering-in vessels for 1,771 fewer vessel days in 2005 (1,939 days)
            compared
            to 2004 (3,710 days). This decrease was partially offset by an increase
            in the
            average charter-in rate per day of $1,041 per day, or 6.9%, from $15,008
            per day
            in 2004 to $16,049 per day in 2005.
  The
            88.8%
            increase in owned vessel expense in 2005 over 2004 was principally due
            to a
            change in the composition of our fleet which increased from an average
            of 15
            owned vessels in 2004 to an average of 25 owned vessels in 2005 and an
            increase
            in operating expense day rate of $374 per day from $3,780 per day in
            2004 to
            $4,154 per day in 2005. The increase in average owned vessels translated
            to a
            71.8%, or 3,898 day, increase in vessel days (the total days we operated
            all our
            owned and controlled vessels) from 5,427 days in 2004 to 9,325 days in
            2005.
  The
          8.4%
          decrease in vessel expense as a percentage of revenue for 2005 from 2004
          was
          primarily a function of an increase in revenue of $39.2 million together
          with a
          $24.6 million decrease in chartered-in vessel cost offset by an $18.2 million
          increase in owned vessel expense.
 
 **Depreciation
          and amortization**
 
 The
          $7.9
          million increase in depreciation and amortization expense from $10.1 million
          in
          2004 as compared to $18.0 million in 2005 was mainly due to the growth
          of our
          controlled fleet, which increased from an average of 15 vessels in 2004
          to an
          average of 25 vessels in 2005. Part of the increase in depreciation was
          offset
          by a reduction in depreciation, due to the increase in the estimated useful
          life
          of our vessels, which increased from 25 years in 2004 to 30 years effective
          January 1, 2005. The change in estimate increased our net income by $ 19.1
          million for the year ended December 31, 2005.
  Table
              of Contents
 28
 **Management
          fees**
 **Year
                    Ended December 31,****2004**
                
                **2005**
                
                **Increase
                    (Decrease)****In
                    Thousands**
                
                **As
                    a % of Management Fees**
                
                **In
                    Thousands**
                
                **As
                    a % of Management Fees**
                
                **In
                    Thousands**
                
                **Percentage**Technical
                    management fees
                
                $
                1,984
                
                44.9
                
                $
                1,413
                
                53.9
                
                $
                (571
                )
                (28.8)Operational
                    management fees
                
                
                2,430
                
                55.1
                
                
                1,211
                
                46.1
                
                
                (1,219
                )
                (50.2)Total
                    management fees
                
                $
                4,414
                
                100.0
                
                $
                2,624
                
                100.0
                
                $
                (1,790
                )
                (40.6)
  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 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 fee expense for 2004 was $2.0 million compared to $3.6 million
          prior
          to the elimination in consolidation of $2.2 million in technical management
          fees
          as described above. The increase was primarily due to an increase in the
          average
          number of vessels under management, which increased from an average of
          15
          vessels in 2004 to an average of 25 vessels in 2005. At year ended December
          31,
          2004 and 2005, there were 18 and 31 vessels, respectively, under management.
          Giving effect to the consolidation of our subsidiary management companies,
          technical management fees decreased to $1.4 million in 2005 from $2.0 million
          in
          2004.
  Operational
          management fee expense for 2004 was $2.4 million compared to $3.0 million
          prior
          to the elimination in consolidation of $1.8 million in operational management
          fees as described above. Management fees are based on voyage days, which
          increased 1,993 days or 22.4% from 8,892 days for 2004 to 10,885 days for
          2005.
          Giving effect to the consolidation of our subsidiary management companies,
          operational management fees decreased to $1.2 million in 2005 from $2.4
          million
          in 2004.
 
 **General
          and administrative expense**
  The
          $10.2
          million increase in general and administrative expense for 2005 as compared
          to
          2004 was primarily due to the inclusion of the costs of operations of Roymar
          and
          TBS Shipping Services (mainly salary and related costs) after we acquired
          these
          companies. Prior to our acquisition of Roymar and TBS Shipping Services
          in June
          2005, we were charged management fees and commissions by these service
          companies; accordingly, these costs were reflected as management fees and
          as
          part of voyage costs.
  The
          increase was also
          due to one-time charges to compensation for a $2.2 million bonus paid to
          our
          chief financial officer and $1.9 million of share grants made to our employees
          in connection with our initial public offering and related payroll
          taxes.
 
 **Income
          from operations**
  The
          $14.9
          million increase in income from operations in 2005 compared to 2004 was
          attributed mainly to increased freight rates and an increase in time charter
          activity. The increase in revenues was offset by an increase in voyage
          expense
          (specifically fuel costs) and general and administration expense (specifically
          the inclusion of the costs of operations of Roymar and TBS Shipping Services
          and
          the one time charges for the bonus paid to our chief financial officer
          and the
          share grants to our employees made in connection with our initial public
          offering). For the same reasons, our operating margin increased to 24.9%
          for
          2005 from 22.5% for 2004.
 
 **Interest
          expense**
  The
          81.5%
          increase in interest expense for 2005 compared to 2004 was principally
          due to
          the $95 million in additional long term mortgage borrowings drawn down
          in 2005
          on the following dates and in the following amounts: February 18, 2005
          - $7.5
          million, March 1, 2005 - $23.5 million, April 21, 2005 - $13.8 million,
          April
          27, 2005 - $7.7 million, June 30, 2005 - $7.8 million, July 21, 2005 -
          $17.2
          million and December 15, 2005 - $17.5 million. In addition, we drew down
          $12.0
          million on June 17, 2005 against our revolving credit facility which was
          repaid
          on June 30, 2005.
  Table
              of Contents
 29
 ***Year
          ended December 31, 2004 compared to year ended December 31,
          2003*** ****
 **Year
                      Ended December 31,****2003**
                  
                  **2004**
                  
                  **Increase
                      (Decrease)****In
                      Thousands**
                  
                  **As
                      a % of Total Revenue**
                  
                  **In
                      Thousands**
                  
                  **As
                      a % of Total Revenue**
                  
                  **In
                      Thousands**
                  
                  **Percentage**Voyage
                      revenue
                  
                  $
                  119,528
                  
                  
                  83.4
                  
                  $
                  157,794
                  
                  
                  75.6
                  
                  $
                  38,266
                  
                  32.0Time
                      charter revenue
                  
                  
                  23,625
                  
                  
                  16.5
                  
                  
                  50,746
                  
                  
                  24.3
                  
                  
                  27,121
                  
                  114.8Other
                      revenue
                  
                  
                  193
                  
                  
                  0.1
                  
                  
                  267
                  
                  
                  0.1
                  
                  
                  74
                  
                  38.3Total
                      revenue
                  
                  
                  143,346
                  
                  
                  100.0
                  
                  
                  208,807
                  
                  
                  100.0
                  
                  
                  65,461
                  
                  45.7Voyage
                      expense
                  
                  
                  52,454
                  
                  
                  36.6
                  
                  
                  60,692
                  
                  
                  29.0
                  
                  
                  8,238
                  
                  15.7Vessel
                      expense
                  
                  
                  62,234
                  
                  
                  43.4
                  
                  
                  79,273
                  
                  
                  38.0
                  
                  
                  17,039
                  
                  27.4Depreciation
                      and amortization
                  
                  
                  6,887
                  
                  
                  4.8
                  
                  
                  10,137
                  
                  
                  4.9
                  
                  
                  3,250
                  
                  47.2Management
                      and agency fees
                  
                  
                  3,864
                  
                  
                  2.7
                  
                  
                  4,414
                  
                  
                  2.1
                  
                  
                  550
                  
                  14.2General
                      and administrative
                  
                  
                  6,463
                  
                  
                  4.5
                  
                  
                  7,347
                  
                  
                  3.5
                  
                  
                  884
                  
                  13.7Loss
                      from sale of vessels, net
                  
                  
                  9,905
                  
                  
                  6.9
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (9,905
                  )
                  n/mIncome
                      from operations
                  
                  
                  1,539
                  
                  
                  1.1
                  
                  
                  46,944
                  
                  
                  22.5
                  
                  
                  45,405
                  
                  2,950.3Other
                      (expenses) and incomeInterest
                      expense
                  
                  
                  (5,145
                  )
                  
                  (3.6)
                  
                  
                  (5,148
                  )
                  
                  (2.5)
                  
                  
                  (3
                  )
                  (0.1)Interest
                      and other income
                  
                  
                  68
                  
                  
                  -
                  
                  
                  111
                  
                  
                  0.1
                  
                  
                  43
                  
                  63.2Gain
                      on early extinguishment of debt
                  
                  
                  2,373
                  
                  
                  1.7
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,373
                  )
                  n/mDeemed
                      preference dividends and accretion
                  
                  
                  (829
                  )
                  
                  (0.6)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  829
                  
                  n/mNet
                      (loss) income
                  
                  $
                  (1,994
                  )
                  
                  (1.4)
                  
                  $
                  41,907
                  
                  
                  20.1
                  
                  $
                  43,901
                  
                  n/m
  **Voyage
          revenue**
  The
          increase
          in our voyage revenue in 2004 over 2003 was primarily attributed to the
          113.1%
          increase in average freight rates from $20.24 per ton in 2003 to $43.13
          per ton
          in 2004 offset by a 7.3% decrease in the number of voyage days, from 6,594
          in
          2003 to 6,112 in 2004.
  Excluding
          high-volume, low-freighted aggregates bulk cargo, which we no longer regularly
          transport, average freight rates increased 34.4% from $39.27 per ton in
          2003 to
          $52.79 per ton in 2004. The increase in average freight rates resulted
          to a
          significant degree from the demand for raw materials from East Asian economies,
          most notably China. Countries in Latin America have been a primary source
          of
          those raw materials, especially agricultural products and metal concentrates.
          Our established shipping routes from Latin America, and our long-standing
          presence in Latin America through our affiliated service companies, positioned
          us well to take advantage of this increased demand. Our results for 2004
          also
          benefited from an increase to two monthly sailings from one monthly sailing
          of
          fertilizers for Honeywell from Virginia to Latin America.
  The
          following
          table shows revenues attributed to our principal cargoes:
 **Year
                      Ended December 31,****2003**
                  
                  **2004**
                  
                  **Increase
                      (Decrease)****Description**
                  
                  **In
                      Thousands**
                  
                  **As
                      of % of Total Voyage Revenue**
                  
                  **In
                      Thousands**
                  
                  **As
                      of % of Total Voyage Revenue**
                  
                  **In
                      Thousands**
                  
                  **Percentage**Steel
                      products
                  
                  $
                  41,992
                  
                  
                  35.1
                  
                  $
                  62,286
                  
                  
                  39.5
                  
                  $
                  20,294
                  
                  48.3Metal
                      concentrates
                  
                  
                  12,959
                  
                  
                  10.8
                  
                  
                  18,029
                  
                  
                  11.4
                  
                  
                  5,070
                  
                  39.1Fertilizers
                  
                  
                  6,799
                  
                  
                  5.7
                  
                  
                  16,342
                  
                  
                  10.4
                  
                  
                  9,543
                  
                  140.4Other
                      bulk cargo
                  
                  
                  20,684
                  
                  
                  17.3
                  
                  
                  14,684
                  
                  
                  9.3
                  
                  
                  (6,000
                  )
                  (29.0)Agricultural
                      products
                  
                  
                  14,845
                  
                  
                  12.4
                  
                  
                  11,696
                  
                  
                  7.4
                  
                  
                  (3,149
                  )
                  (21.2)Automotive
                      products
                  
                  
                  7,600
                  
                  
                  6.4
                  
                  
                  4,480
                  
                  
                  2.8
                  
                  
                  (3,120
                  )
                  (41.1)Other
                  
                  
                  14,649
                  
                  
                  12.3
                  
                  
                  30,277
                  
                  
                  19.2
                  
                  
                  15,628
                  
                  106.7Voyage
                      revenue
                  
                  $
                  119,528
                  
                  
                  100.0
                  
                  $
                  157,794
                  
                  
                  100.0
                  
                  $
                  38,266
                  
                  32.0
 Table
            of Contents
 30
 **Time
          charter revenue**
  The
          increase
          in time charter revenue was attributed to an increase in the average daily
          charter hire rate and a slight increase in chartered vessel days. The 88.5%
          increase in our average per day charter hire rate from $9,686 in 2003 to
          $18,254
          in 2004 was attributed to both the increase in demand for ocean transportation
          of freight to accommodate growing economies in East Asia and Africa and
          the
          relative scarcity of dry bulk carriers to meet that demand. Shipments of
          salt
          and sugar from Brazil to Nigeria accounted for approximately 21.3% of the
          increase from 2003 to 2004.
 
 **Voyage
          expense**
  Voyage
          expense consists of costs attributable to specific voyages. The number
          of voyage
          days is a significant determinant of voyage expense. Increases in commissions
          and bunker fuel costs also affected voyage expense. The following table
          shows
          the change in the number of voyage days in the year ended
 December
          31,
          2004 compared to the same period in 2003.
 **Year
                    Ended December 31,****2003**
                
                **2004**
                
                **Increase
                    (Decrease)**Freight
                    voyage days
                
                6,594
                
                6,112
                
                (482
                )
                -7.3%Time
                    charter days
                
                2,439
                
                2,780
                
                341
                
                14.0%Total
                    voyage days
                
                9,033
                
                8,892
                
                (141
                )
                -1.6%
 
 The
          principal
          components of voyage expense were as follows:
 **Year
                    Ended December 31,****2003**
                
                **2004**
                
                **Increase
                    (Decrease)****In
                    Thousands**
                
                **As
                    a % of Voyage Expense**
                
                **In
                    Thousands**
                
                **As
                    a % of Voyage Expense**
                
                **In
                    Thousands**
                
                **Percentage**Fuel
                    expense
                
                $
                16,600
                
                31.6
                
                $
                18,369
                
                30.3
                
                $
                1,769
                
                10.7Commission
                    expense
                
                
                9,500
                
                18.1
                
                
                13,496
                
                22.2
                
                
                3,996
                
                42.1Port
                    call expense
                
                
                12,400
                
                23.6
                
                
                13,932
                
                23.0
                
                
                1,532
                
                12.4Stevedore
                    and othercargo-related
                    expense
                
                
                10,100
                
                19.3
                
                
                9,948
                
                16.4
                
                
                (152
                )
                (1.5)Miscellaneousvoyage
                    expense
                
                
                3,854
                
                7.4
                
                
                4,947
                
                8.1
                
                
                1,093
                
                28.4Voyage
                    expense
                
                $
                52,454
                
                100.0
                
                $
                60,692
                
                100.0
                
                $
                8,238
                
                15.7
  The
        15.7%
        increase in voyage expense in 2004 over 2003 was primarily attributable to
        the
        increase in commission expense, which was calculated at a rate of approximately
        6.5% of freight booked based on revenue of $208.8 million in 2004 compared
        to
        $143.3 million in 2003. Average freight rates more than doubled in 2004 over
        the
        average rates that prevailed in 2003. As indicated in the preceding table,
        commission expense followed the rise in freight and charter rates during
        2004.
  The
        7.5% decrease in
        voyage expense as a percentage of revenue in 2004 resulted from a greater
        increase in voyage revenue than in voyage expenses, as well as a decrease
        in the
        number of voyage days in 2004. The decrease in stevedore and other cargo-related
        expenses in 2004 resulted from an increase in the percentage of cargo booked
        under full or partial free-in free-out terms — shipments in which the shipper
        pays the costs of loading and unloading — from 82.7% in 2003 to 85.5% in 2004 of
        voyage revenue and the decrease in the percentage of cargo booked under full
        liner terms — shipments in which we bear the costs of loading and unloading —
        from 17.3% in 2003 to 14.5% in 2004 of voyage revenue.
  Table
              of Contents
 31
 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 and drydocking, maintenance, insurance and crewing expenses
          for
          vessels we control. The following table sets forth the basic components
          of
          vessel expense:
 **Year
                      Ended December 31,****2003**
                  
                  **2004**
                  
                  **Increase
                      (Decrease)****In
                    Thousands**
                  
                  **As
                      of % of Vessel Expense**
                  
                  **In
                      Thousands**
                  
                  **As
                      of % of Vessel Expense**
                  
                  **In
                      Thousands**
                  
                  **Percentage**Chartered-in
                      vessel expense
                  
                  $
                  39,834
                  
                  64.0
                  
                  $
                  55,681
                  
                  70.2
                  
                  $
                  15,847
                  
                  39.8Owned
                      vessel expense
                  
                  
                  17,218
                  
                  27.7
                  
                  
                  20,516
                  
                  25.9
                  
                  
                  3,298
                  
                  19.2Space
                      charter expense
                  
                  
                  5,182
                  
                  8.3
                  
                  
                  3,076
                  
                  3.9
                  
                  
                  (2,106
                  )
                  (40.6)Vessel
                      expense
                  
                  $
                  62,234
                  
                  100.0
                  
                  $
                  79,273
                  
                  100.0
                  
                  $
                  17,039
                  
                  27.4
  The
            increase
            in vessel expense in 2004 was primarily attributable to increased charter
            hire
            rates that we paid for chartered-in vessels, partially offset by a decrease
            in
            the number of days that we chartered-in vessels.  The 5.4% decrease
            in
            vessel expense as a percentage of revenue in 2004 resulted from a greater
            increase in revenue (freight rates) than in vessel expenses.
  **Depreciation
          and amortization**
  The
          47.2%
          increase in depreciation and amortization expense from $6.9 million in
          2003 to
          $10.1 million in 2004 reflects the growth of our controlled fleet. In 2004,
          our
          controlled fleet averaged 15 vessels, compared to 13 vessels in
          2003.
  **Management
          fees**
  We
          paid
          management fees to our affiliated service companies as shown in the following
          table.
 **Year
                      Ended December 31,****2003**
                  
                  **2004**
                  
                  **Increase
                      (Decrease)****In
                      Thousands**
                  
                  **As
                      of % of Management Fees**
                  
                  **In
                      Thousands**
                  
                  **As
                      of % of Management Fees**
                  
                  **In
                      Thousands**
                  
                  **Percentage**Technical
                      management fees
                  
                  $
                  1,566
                  
                  40.5
                  
                  $
                  1,984
                  
                  44.9
                  
                  $
                  418
                  
                  26.7Operational
                      management fees
                  
                  
                  2,298
                  
                  59.5
                  
                  
                  2,430
                  
                  55.1
                  
                  
                  132
                  
                  5.7Total
                      management fees
                  
                  $
                  3,864
                  
                  100.0
                  
                  $
                  4,414
                  
                  100.0
                  
                  $
                  550
                  
                  14.2
  The
            26.7%
            increase from 2004 to 2003 in technical management fees which we paid
            to Roymar
            for managing our controlled fleet, was attributed to a 10.4% cost of
            living
            increase in the monthly maintenance fee per vessel to $12,029 that took
            effect
            on February 8, 2004 and the addition of five vessels to our fleet between
            May
            and November 2004.
  We
          pay
          management fees to TBS Shipping Services for overseeing the operations
          of our
          voyages. The fees payable for 2004 reflected an increase attributable to
          a 10.3%
          cost of living increase in the monthly operational management fee per vessel
          to
          $8,447 that took effect on February 9, 2004. This increase was offset by
          a
          141-day, or 1.6%, decrease in voyage days to 8,892 days for 2004 from the
          9,033
          voyage days recorded for 2003.
  The
          decrease in management fees as a percentage of voyage revenue in 2004 compared
          to 2003 reflects the fact that management fees are based on the number
          of voyage
          days. Although we will continue to pay management fees to Roymar and TBS
          Shipping Services after they have become subsidiaries of International,
          those
          management fees will be eliminated in our consolidated financials
          statements.
 See
          "Certain Relationships and Transactions" for a discussion of the relationships
          between us and our affiliated service companies.
   Table
              of Contents
 32
 **General
          and administrative expense**
  The
          increase
          in general and administrative expense was primarily due to an increase
          in the
          accounts receivable reserve of $0.8 million in order to reserve for specific
          customers where collection is questionable.
  **Income
          from operations**
  The
          $45.4
          million increase in income from operations in 2004 over 2003 was attributed
          in
          significant part to increased freight rates and time charter rates, and
          also to
          the $9.9 million charge taken in 2003 to reflect the difference between
          the
          price paid to us and the book value of 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 extinguish outstanding senior secured debt relating
          to the
          sold vessels, on which we recorded a gain of $2.4 million. We did not have
          a
          similar transaction in 2004. Other factors that contributed to the increase
          in
          income in 2004 were the increase in freight rates and time charter rates.
          For
          the same reasons, operating margin for 2004 increased to 22.5% from 1.1%
          for
          2003.
  **Interest
          expense**
  The
          increase
          in interest expense in 2004 over 2003 was due to borrowings to fund the
          purchase
          of one vessel in November 2003 and the sale and leaseback of seven vessels
          in
          December 2003. Both transactions were recorded as capital leases with the
          imputed interest amortized over the life of the related agreements.
   **Liquidity
          and Capital Resources**
 Our
          principal sources of funds, prior to our initial public offering, were
          operating
          cash flows, issuance of long-term debt securities and long-term bank
          borrowings.  Our principal uses of funds were capital expenditures
          to
          establish and grow our fleet and maintain the quality of our ships and
          keep us
          in compliance with international shipping standards and regulations, fund
          working capital requirements and make principal repayments on outstanding
          loan
          facilities and capital lease obligations.
  Our
          practice has been to acquire ships using a combination of funds received
          from
          operating cash flows, debt secured by mortgages on our ships and long-term
          capital lease arrangements.  We expect to use our operating cash
          flows, and
          borrowings to fund vessel acquisitions.  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.
  At
          December 31, 2005, we had negative working capital of $5.1 million, due
          primarily to the timing of our last two vessel acquisitions.  It
          is our
          practice to fund vessel acquisitions through working capital, which we
          subsequently replenish with long-term debt secured by a mortgage for typically
          60% of the vessel cost.  The vessels Nyack Princess andSioux
          Maiden that were purchased in early November of 2005, for $10.0 million and
          $17.5 million, respectively, were funded solely with our working capital. 
          We anticipate having positive working capital by the first quarter of
          2006.
  We
          expect to
          rely on operating cash flows as well as long-term borrowings to implement
          our
          growth plan. 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.
  **Changes
          in Cash and Cash Equivalents**
 Cash
          and cash
          equivalents at December 31, 2004 and December 31, 2005 were $21.7 million
          and
          $27.1 million, respectively.  The increase in cash and cash equivalents
          from December 31, 2004 to December 31, 2005 was the result of $72.7 million
          in
          net cash provided by operating activities and $118.8 million in net cash
          provided by financing activities, offset by $186.1 million in net cash
          used in
          investing activities.
  **Cash
          Flows from Investing Activities**
 Net
          cash used
          in investing activities was $64.1 million and $186.1 million for 2004 and
          2005,
          respectively.  For 2004, investing activities were comprised of
          vessel
          acquisitions and capital improvements of $56.6 million and deposits on
          vessels
          to be delivered after December 31, 2004 of $7.5 million. For 2005 investing
          activities consisted of vessel acquisitions and capital improvements of
          $178.2
          million, $7.3 million cash paid, after deducting cash acquired, for all
          the
          stock of TBS Shipping Services and Roymar and approximately $533,000 security
          paid in connection with a claim relating to the acquisition of the vessel
          Tamoyo Maiden (formerly the Sea Pantheon).
 Table
              of Contents
 33
 Beginning
          in the last half of 2004, we began acquiring vessels to increase our controlled
          fleet.  During 2005, we acquired 14 vessels excluding the Rockaway
          Belle and Comanche Belle on which we exercised our purchase
          options.  We paid $178.2 million during 2005 consisting of: $163.9
          million
          paid upon delivery of vessels, take over costs of $11.1 million incurred
          in
          connection with the acquisition of the vessels, vessel capital improvements
          of
          $2.0 million and the purchase of other assets of $1.2 million. In 2004,
          we had
          previously paid deposits of $7.5 million on the vessels delivered in 2005. 
          A deposit of $0.8 million for our pending acquisition of the Kibishio
          Maru was made on January 4, 2006.
  In
          connection
          with our initial public offering we purchased the stock of TBS Shipping
          Services
          and Roymar for $7.3 million, which represents the purchase price of $7.5
          million
          plus the undistributed earning of each company for the period January 1,
          2005
          through the date of acquisition of $0.6 million which was paid in September
          2005, less net cash acquired of $0.8 million.
  At
          December 31, 2005, we had an executed memorandum of agreement for the
          acquisition of the Kibishio Maru (to be renamed theAztec Maiden)
          for a purchase price of $8.1 million.  The vessel is expected to
          be
          delivered in April 2006.
  **Cash
          Flows from Financing Activities**
 Net
          cash used
          in financing activities was $24.3 million during 2004 made up of: $36.5
          million
          long-term bank borrowings to finance the purchase of vessels, reduced by
          $12.1
          million repayments of obligations under capital leases and debt principal
          and
          payment of a dividend on preferred stock of $150,000. During 2005
          net cash
          provided by financing activities was $118.8 million consisting of: $61.7
          million
          of net proceeds from the issuance of Class A common shares in our initial
          public
          offering and $95.0 million long-term bank borrowings to finance the purchase
          of
          vessels, reduced by $37.7 million of repayments of obligations under capital
          leases and debt principal, which include the payments of the purchase options
          of
          $2.5 million and $3.8 million under the capital leases for the M.V. Rockaway
          Belle and M.V. Comanche Belle, respectively, and payment of a dividend on
          preferred stock of $150,000.  We borrowed $12.0 million under our
          revolving
          credit facility on June 17, 2005 to fund our working capital. We used a
          portion
          of the net proceeds of our initial public offering to repay these borrowings
          under the revolving credit facility on June 30, 2005.
  **Charter
          Hire Receivables**
 Our
          gross
          charter hire receivables balance at December 31, 2004 and December 31,
          2005 was
          $18.8 million ($17.3 million net of allowance for doubtful accounts) and
          $26.2
          million ($25.5 million net of allowance for doubtful accounts),
          respectively.  The increase in receivables was mainly due to a large
          single
          receivable from Military Sealift Command of $ 2.2 million and the timing
          of
          seven Brazilian steel shipments which began in November and December of
          2005 and
          lead to larger than usual outstanding receivables at December 31,
          2005.
 In
          accordance with our reserve policy, we take a percentage of outstanding
          receivables, based on prior years' experience, as a general reserve — usually
          between 2% and 3% of the receivables balance.  Our management also
          identifies specific receivables that it believes we will have difficulty
          collecting and creates additional reserves for those balances. 
          The
          additional reserves totaled $1.1 million and $0.1 million and our aggregate
          reserves totaled $1.5 million and $0.7 million at December 31, 2004 and
          December
          31, 2005, respectively.  At December 31, 2005, we wrote off $1.0
          million of
          receivables against the additional reserve, principally from TBS Middle
          East
          Carriers Ltd.
  **Fuel
          and Other Inventories**
 The
          fuel and
          other inventory account balance at December 31, 2005 increased $4.2 million
          from
          the December 31, 2004 balance.  Approximately $2.4 million of the
          increase
          was due to higher fuel prices.  The remaining increase of $1.8 million
          was
          due to higher quantities of fuel and lubricating oil as of December 31,
          2005,
          resulting from an expansion in our controlled fleet.  Our fleet
          increased
          13 vessels from 18 vessels as of December 31, 2004 to 31 vessels as of
          December
          31, 2005.
  **Prepaid
          Expenses**
 Prepaid
          expense at December 31, 2005 decreased $1.7 million from the December 31,
          2004
          balance.  Approximately $1.5 million of the decrease was due to
          a decrease
          in prepaid vessel expense, which decreased from $1.7 million at December
          31,
          2004 to $0.2 million at December 31, 2005.  The remaining decrease
          in
          prepaid expense was due to a $0.9 million decrease in prepaid charter hire
          (which decreased from $1.4 million at December 31, 2004 to $0.5 million
          at
          December 31, 2005) due to a decrease in the number of vessels time chartered-in
          offset by a $0.7 million increase in prepaid insurance from $0.6 million
          at
          December 31, 2004 to $1.3 million at December 31, 2005.
 Table
              of Contents
 34
 Other
          Commitments
 Our
          contractual obligations as of December 31, 2005 are shown in the following
          table:
 **Total**
                
                **Less
                    than 1 year**
                
                **1-3
                    years**
                
                **3-5
                    years**
                
                **More
                    than 5 years**Debt
                    Obligations (1)
                
                $
                105,737
                
                $
                31,458
                
                $
                47,247
                
                $
                27,032
                
                
                -Capital
                    lease obligations
                
                
                24,703
                
                
                3,348
                
                
                8,683
                
                
                12,672
                
                
                -Operating
                    Lease obligations
                
                
                15,664
                
                
                14,971
                
                
                693
                
                
                -
                
                
                -Other
                    Purchase obligations (2)
                
                
                8,100
                
                
                8,100
                
                
                -
                
                
                -
                
                
                -Total
                    contractual cash obligations
                
                $
                154,204
                
                $
                57,877
                
                $
                56,623
                
                $
                39,704
                
                $
                -
     (1)  
          As of December 31, 2005, we had $105.7 million of indebtedness outstanding
          under
          loans to our subsidiaries that we guarantee, consisting of $15.1 million
          under
          the $22.5 million credit facility with a group of lenders led by GMAC Commercial
          Finance LLC, $9.6 million under the $15.0 million credit facility with
          Merrill
          Lynch Business Financial Services, Inc., $6.4 million under the $7.2 million
          credit facility with the Royal Bank of Scotland plc, $35.2 million under
          the
          $45.0 million credit facility with  AIG Commercial Equipment Finance,
          Inc.,
          $21.9 million under the $25.0 million credit facility with Bank of America
          and
          $17.5 million under the new $17.5 million credit facility with Merrill
          Lynch
          Business Financial Services Inc.  Based on LIBOR at December 31,
          2005 of
          4.5 %, we would pay interest of approximately $6.6 million in 2006 (less
          than 1
          year), $6.9 million in 2007 and 2008 (1–3 years) and $1.4 million in 2009 and
          2010 (3–5 years).
 At
          December 31, 2005, we did not meet specified EBITDA to debt ratios required
          under the AIG and Bank of America credit facilities.  We obtained
          a wavier
          from AIG, dated December 31, 2005, to waive the covenant violation as of
          December 31, 2005.  AIG has also agreed to reduce the required EBITDA
          to
          debt service ratio from 2.0 to 1.0 to 1.6 to 1 at March 31, 2006, June
          30, 2006,
          September 30, 2006 and December 31, 2006, after which it will revert to
          the
          original ratio requirement.  We believe that based upon current
          projections
          of our 2006 quarterly EBITDA, we will be in compliance with this covenant.
 On
          March
          3, 2006, the Bank of America agreed to waive the EBITDA to debt service
          ratio
          requirement for the quarter ended December 31, 2005, and to amend the credit
          facility agreement to change the method used in calculating the EBITDA
          to debt
          service ratio.  Under the revised method, we believe that based
          upon
          current projections of our 2006 quarterly EBITDA, we will be in compliance
          with
          this covenant.
 On
          December 15, 2005, the Merrill Lynch credit facility was amended removing
          the
          requirement for us to maintain positive working capital.  In addition,
          the
          credit facility agreement requires minimum collateral coverage and requires
          mandatory prepayment or delivery of additional security in the event that
          the
          fair market value of the acquired vessels falls below 160% of the outstanding
          loan balances.  As required by the credit facility, we have agreed
          to
          prepay approximately $2.3 million by March 31, 2006.
 (2)   
          We entered into a memorandum of agreement to purchase, the Kibishio Maru
          (to be renamed the Aztec Maiden) for delivery in the first quarter of
          2006 at a purchase price of $8.1 million.
  **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 3 to our consolidated financial
          statements.
  Table
              of Contents
 35
 **Fuel
            and Other Inventories**
 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.
  **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.
  **Depreciation**
 Vessels
          are
          stated at cost. Depreciation of vessels is calculated using the straight-line
          method over the useful lives of the vessels, which are estimated as 30
          years
          from the date delivered by the shipyard. Expenditures that materially increase
          values, change capacities or extend useful lives are capitalized in vessels.
          Routine repair, replacement and maintenance costs are expensed as
          incurred.  The estimated useful life of vessels was extended from
          25 years
          to 30 years effective January 1, 2005, based on our review of the condition
          and
          performance of the owned fleet.  The impact of this change in estimate
          on
          the year ended December  31, 2005 increased net income, basic earnings
          per
          share and diluted earnings per share in the amount of $19.1 million, $0.87
          per
          share and $0.78 per share, respectively.
  **Provision
          for drydock costs**
 A
          provision
          for drydocking costs, including major vessel overhaul costs incurred during
          periodic inspections for regulatory and insurance purposes, is accrued
          and
          charged to expense ratably over the period to the next drydocking, which
          averages approximately 30 months. This provision is included in accrued
          expenses.
  **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.
  **Revenue
          recognition**
 Voyage
          revenue and expenses include estimates for voyages in progress. Estimated
          profits from voyages in progress are recognized on a percentage-of-completion
          basis by prorating the estimated final voyage revenue and expenses using
          the
          ratio of voyage days completed through year-end to total voyage days. When
          a
          loss is forecasted 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
          year-end.
  **New
          Accounting Pronouncements**
 In
          May
          2005, the Financial Accounting Standards Board (‘‘FASB’’) issued SFAS No. 154,
‘‘Accounting Changes and Error Corrections’’ (‘‘SFAS 154’’), which
          replaces Accounting Principles Board Opinion (‘‘APB’’) No. 20 ‘‘Accounting
          Changes’’, and SFAS No. 3 ‘‘Reporting Accounting Changes in Interim
          Financial Statements’’.  SFAS 154 changes the requirements for the
          accounting for and reporting of a change in accounting principle, and applies
          to
          all voluntary changes in accounting principles, as well as changes required
          by
          an accounting pronouncement in the unusual instance that it does not include
          specific transition provisions.  Specifically, SFAS 154 requires
          retrospective application to prior periods financial statements, unless
          it is
          impracticable to determine the period-specific effects or the cumulative
          effect
          of the change.  SFAS 154 does not change the transition provisions
          of any
          existing pronouncement.  SFAS 154 is effective for the Company for
          all
          accounting changes and corrections of errors made beginning January 1,
          2006.
 In
          April
          2005, FASB issued Interpretation No. 47, "Accounting for Conditional Asset
          Retirement Obligations, an Interpretation of FASB Statement No. 143”. 
          This interpretation clarifies that an entity is required to recognize a
          liability for the fair value of a conditional asset retirement obligation
          when
          incurred if the liability's fair value can be reasonably estimated. 
          It
          also clarifies when an entity would have sufficient information to reasonably
          estimate the fair value of an asset retirement obligation.  Effective
          June
          30, 2005, the Company has adopted the provisions of FIN 47, the adoption
          of
          which did not have a material impact on the Company's consolidated financial
          position, results of operations or cash flows.
 Table
              of Contents
 36
  In
          March
          2005, the FASB issued Interpretation No. 46(R)-5 ("FIN 46(R)-5"), Implicit
          Variable Interests under FASB Interpretation No. 46 (revised December 2003),
          "Consolidation of Variable Interest Entities".  FIN 46(R)-5 is
          effective for the first reporting period beginning after March 3, 2005;
          however,
          earlier application is permitted for periods for which financial statements
          have
          not yet been issued.  Effective April 1, 2005, the Company has adopted
          the
          provisions of FIN 46(R)-5, the adoption of which did not have a material
          impact
          on the Company's consolidated financial position, results of operations
          or cash
          flows.
  In
          December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (‘‘SFAS
          123R’’). SFAS No. 123R revises previously issued SFAS 123 Accounting for
          Stock-Based Compensation, supersedes APB No. 25 Accounting for Stock Issued
          to
          Employees, and amends SFAS Statement No. 95 Statement of Cash Flows. SFAS
          123R
          requires the Company to expense the fair value of employee share options
          and
          other forms of share-based compensation for the annual periods beginning
          after
          June 15, 2005. The cost will be recognized over the period during which
          an
          employee is required to provide services in exchange for the award. The
          share-based award must be classified as equity or as a liability and the
          compensation cost is measured based on the fair value of the award at the
          date
          of the grant. In addition, liability awards will be re-measured at fair
          value
          each reporting period. The Company currently follows APB Opinion No. 25,
          Accounting for Stock Issued to Employees, in recognizing the expense associated
          with the restricted share awards and utilizes the intrinsic value method.
          Pro
          forma information is not presented as the application of APB Opinion No.
          25,
          utilizing the intrinsic value method, and Financial Accounting Standard
          No. 123,
          utilizing fair value base method, would result in the same amount. The
          company
          will adopt 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. SFAS 123R will not have a
          significant impact on the Company’s consolidated results of operations, cash
          flows or financial position.
  In
          December 2004, the FASB issued SFAS No. 153, ‘‘Exchanges of Nonmonetary
          assets’’, an amendment of APB No. 29, ‘‘Accounting for Nonmonetary
          Transactions’’ (‘‘SFAS 153’’).  The amendments made by SFAS 153 are
          based on the principle that exchanges of nonmonetary assets should be measured
          based on the fair value of the assets exchanged.  Further, the amendments
          eliminate the narrow exception for nonmonetary exchanges of similar productive
          assets and replace it with a broader exception for exchanges of nonmonetary
          assets that do not have commercial substance.  The statement was
          effective
          for the Company beginning July 1, 2005 and was applied prospectively. 
          The
          effect of the adoption of SFAS 153 is immaterial to the Company's consolidated
          results of operations, cash flows or financial position.
  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.  The exposure to interest rate risk relates to our floating
          rate
          debt.  At December 31, 2005, we had $96.1 million of floating rate
          debt
          with margins over LIBOR ranging from 1.5% to 3.7% compared to $24.5 million
          as
          of December 31, 2004.  As an indication of the extent of our sensitivity
          to
          interest rate changes, an increase in LIBOR of 100 basis points would have
          decreased our net income and cash flows for the year ending December 31,
          2005,
          by approximately $961,000 based upon our debt level at December 31,
          2005.
  The
          following table sets forth the sensitivity of our outstanding debt in U.S.
          dollars to a 100 basis points increase in LIBOR during the next five years
          on
          the same basis.
 Year
                
                Amount(In
                    thousands)2006
                
                $
                6802007
                
                $
                4432008
                
                $
                2522009
                
                $
                832010
                
                $
                -
 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 8.3% of our operating expenses in currencies other than U.S.
        dollars.  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, 2005,
        approximately 6.4% of our outstanding accounts payable were denominated in
        currencies other than U.S. dollars.
  Table
            of Contents
 37
 **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 52 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.
  **I****tem 9A.  
        Controls and Procedures**
  As
        of the
        end of the period covered by this Annual Report, an evaluation was carried
        out
        by International’s management, with the participation of our Chief Executive
        Officer, Chief Financial Officer,  and Chief Accounting Officer of
        the
        effectiveness of our disclosure controls and procedures as of December 31,
        2005.
        Based upon that evaluation, our Chief Executive Officer, Chief Financial
        Officer, and Chief Accounting Officer have concluded that these disclosure
        controls and procedures were effective as of the end of the period covered
        by
        this Annual Report.  In addition, during the fourth quarter of fiscal
        2005,
        there were no changes in our internal control over financial reporting or
        in
        other factors that materially affected, or are reasonably likely to materially
        affect, our internal controls over financial reporting.
  **Item
        9B.  Other Information**
  None.
  **Item
        10.  Directors and Executive Officers of the
        Registran**t
  The
        following table provides information regarding our executive officers and
        directors.
 **Name**
              
              **Age**
              
              **Title**Joseph
                  E. Royce
              
              61
              
              President,
                  Chief Executive Officer, Chairman and DirectorGregg
                  L. McNelis
              
              50
              
              Senior
                  Executive Vice President, Chief Operating Officer and
                  DirectorLawrence
                  A. Blatte
              
              76
              
              Senior
                  Executive Vice PresidentFerdinand
                  V. Lepere
              
              54
              
              Executive
                  Vice President and Chief Financial OfficerCaptain
                  Alkis N. Meimaris
              
              74
              
              Executive
                  Vice President (retired effective January 1,2006)James
                  W. Bayley
              
              65
              
              Vice
                  President and DirectorWilliam
                  J. Carr
              
              47
              
              Vice
                  President and TreasurerRandee
                  E. Day
              
              57
              
              DirectorPeter
                  S. Shaerf
              
              51
              
              DirectorWilliam
                  P. Harrington
              
              48
              
              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 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. Since 1978, Mr. Royce
        has
        organized and managed ventures engaged in ownership and operation of vessels.
        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 liner and tramp vessels. He has worked with
        Mr.
        Royce for over 20 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 27 years experience working both in South America with
        shipowners and shipbrokering in New York.
  Table
            of Contents
 38
 Lawrence
        A.
        Blatte:  Mr.
        Blatte has served as our corporate legal counsel from our inception and as
        senior executive vice president since March 2005. In January 2004, Mr. Blatte
        became vice chairman of TBS Shipping Services and in this role provides business
        development services. Mr. Blatte has practiced law for over 30 years. He
        retired
        in 1999 in order to devote more time to serving as our legal counsel. 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 25 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.
 
 Captain
        Alkis
        N. Meimaris:  Captain
        Meimaris, with over 50 years maritime experience, has served in the capacity
        of
        executive vice president since March 2005 and in the capacity of executive
        vice
        president of operations of TBS Shipping Services since 1993. Captain Meimaris
        previously served as a director of B+H Ocean Carriers Ltd. and a board member
        of
        COTCO. His 29 years experience with National Bulk Carriers ranges from service
        as Master on oceangoing freighters and VLCCs to superintendent in the Jari,
        Amazonas project. Effective January 1, 2006, Captain Meimaris retired as
        executive vice president of operations.
  James
        W.
        Bayley:  Mr.
        Bayley has served as a director since our inception, and as 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.
  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.
  Randee
        E.
        Day:  Ms.
        Day
        has served as a director and chairman of the audit committee since 2001.
        Ms. Day
        is currently a managing director and head of Maritime Investment Banking
        at the
        Seabury Group LLC., a New York based investment bank serving clients in the
        transportation industry. From 1985 until 2004, Ms. Day served as chief executive
        officer and president of Day and Partners, Inc., a financial consulting firm.
        Ms. Day became an independent director of Double Hull Tankers, Inc (NYSE)
        in
        July of 2005 and is the chairperson of the audit committee and a member of
        the
        compensation committee.
  Peter
        S.
        Shaerf:  Mr.
        Shaerf has served as a director since 2001. From 2002 to April 2005, Mr.
        Shaerf
        was senior vice president of American Marine Advisors, Inc., a merchant banking
        firm exclusively focused on the maritime industry. In May 2005, American
        Marine
        Advisors changed its name to AMA Capital Partners LLC and Mr. Shaerf was
        named
        managing director. Mr. Shaerf, having almost 30 years experience in the maritime
        industry, was a co-founder of Poseidon Capital and he also ran The Commonwealth
        Group, a leading broker and consultant in the container and liner sector.
        He is
        a director of General Maritime Corporation (NYSE) and Trailer Bridge, Inc.
        (NASDAQ) and former director of MC Shipping Inc. (AMEX). Mr. Shaerf is also
        a
        director of The Containerization and Intermodal Institute and vice chairman
        of
        the Government sponsored Short Sea Shipping Co-operative.
  William
        P.
        Harrington:  Mr.
        Harrington became a director in 2005. Mr. Harrington is a partner and the
        head
        of the litigation practice group at Bleakley Platt & Schmidt, LLP, White
        Plains, NY.
 
  **Audit
        Committee Financial Experts**
  The
        board of
        directors has determined that the Company has at least one “audit committee
        financial expert” as that term is defined in Item 401(h)(2) of Regulation
        S-K.  Ms. Randee E. Day, who is “independent” as that term is defined in
        Rule 10A-3(b)(i) under the Securities Exchange Act of 1934, as amended, is
        our
        audit committee financial expert.
  Table
            of Contents
 39
 Nominating
        and Corporate Governance Committee
  The
        Board of
        Directors has a Nominating and Corporate Governance Committee (the “Committee”)
        consisting of William P. Harrington and James W. Bayley.  Mr. Harrington
        is
        independent as such term is defined in Rule 4200 of the NASD Manual. 
        Mr.
        Bayley, who is also a vice president of the Company, is scheduled to be replaced
        on the committee with an independent member by June 29, 2006, so that all
        committee members will be independent. The Committee, which has met once
        during
        2005, is required to meet at least once a year and  is responsible
        for
        identifying and  recommending potential candidates qualified to become
        Board members, recommending directors for appointment to board committees,
        developing and recommending to the Board a set of corporate governance
        principles and overseeing evaluation of our board of directors and
        management.  The Committee is also responsible to establish procedures
        for
        the consideration of board candidates recommended by our shareholders. 
        The
        Company has made the Nominating and Corporate Governance Committee charter
        available on its website at www.tbsship.com.
  **Code
        of Business Conduct and Ethics**
 The
        Company
        has adopted a Code of Business Conduct and Ethics that applies to all of
        its
        directors, officers (including the Company’s Chief Executive Officer, Chief
        Financial Office and Chief Accounting Officer) and employees. The Company
        has
        made the Code of Ethics available on its website at
        www.tbsship.com.
 **Item 11. 
        Executive
        Compensation**
  Information
        relating to the Registrant’s executive officer and director compensation will be
        in the 2006 Proxy Statement and is incorporated herein by
        reference
  **Item 12. 
        Security Ownership of Certain
        Beneficial Owners and Management**
  The
        following table sets forth, as of December 31, 2005, information with respect
        to
        the beneficial ownership of our common shares by:
 each
            person known to us to beneficially own more than 5% of our issued and
            outstanding common shares,
        each
            director of International and each executive officer, and
        all
            directors and executive officers as a group, and Beneficial
        ownership is determined in accordance with the rules of the SEC and includes
        voting or investment power with respect to the securities.  Based
        solely on
        the review of the forms required by Section 16(a) of the Securities
        Exchange Act of 1934 that have been filed, and written representation that
        no
        other forms are required, International believes that all filing requirements
        applicable to its officers and directors have been complied with.
 Unless
        otherwise indicated, each shareholder has sole voting and investment power
        with
        respect to the common shares beneficially owned by the shareholder and has
        the
        same address: c/o TBS Shipping Services Inc., 612 East Grassy Sprain Road,
        Yonkers, New York, 10710.
 **Common
                    Shares Beneficially****Name**
                
                **Class
                    A**
                
                **%******
                
                **Class
                    B**
                
                **%**Executive
                    Officers and directors:Joseph
                    E. Royce (1)
                
                3,577,306
                
                25.0
                %
                8,152,289
                
                60.8
                %Gregg
                    L. McNelis (2)
                
                637,615
                
                4.5
                %
                2,412,153
                
                18.0
                %Lawrence
                    A. Blatte (3)
                
                220,481
                
                1.5
                %
                524,983
                
                3.9
                %Ferdinand
                    V. Lepere (4)
                
                -
                
                -
                
                -
                
                -Captain
                    Alkis N. Meimaris
                
                399,600
                
                2.8
                %
                609,888
                
                4.5
                %James
                    W. Bayley (5)
                
                467,939
                
                3.3
                %
                796,268
                
                5.9
                %William
                    J. Carr (6)
                
                -
                
                -
                
                -
                
                -Randee
                    E. Day (7)
                
                -
                
                -
                
                -
                
                -Peter
                    S. Shaerf (8)
                
                -
                
                -
                
                -
                
                -William
                    P. Harrington (9)
                
                -
                
                -
                
                -
                
                -Other
                    beneficial owners:Tara
                    C. DeMakes (11)
                
                684,890
                
                4.8
                %
                1,327,200
                
                9.9
                %David
                    C. Blatte (12)
                
                205,751
                
                1.4
                %
                496,440
                
                3.7
                %Amy
                    Blatte Braunstein (13)
                
                205,751
                
                1.4
                %
                496,440
                
                3.7
                %All
                    executive Officers and directors as a group (10 persons): (4)
                    (10)
                5,302,941
                
                37.1
                %
                12,495,581
                
                93.2
                %
  Table
              of Contents
 40
 (1)
                Common
                    shares beneficially owned include 610,038 Class B common shares
                    held by
                    Mr. Royce, 610,037 Class B common shares held by Mr. Royce's
                    spouse,
                    Elaine M. Royce, 1,446,208 Class A and 2,802,507 Class B common
                    shares
                    held by the Joseph E. Royce 2005 Qualified Grantor Retained Annuity
                    Trust
                    (GRAT), 1,446,208 Class A and 2,802,507 Class B common shares
                    held by the
                    Elaine M. Royce 2005 Qualified GRAT and 684,890 Class A and 1,327,200
                    Class B common shares held by Treetops Holdings, LLC. Treetops
                    is jointly
                    owned by The Jeanine Royce 1997 Trust and The Laura Royce 1997
                    Trust. Mr.
                    Royce is trustee of the Joseph Royce 2005 GRAT and Mrs. Royce
                    is trustee
                    of the Elaine Royce 2005 GRAT. Each has sole voting and investment
                    power
                    over the shares each indirectly owns. Mrs. Royce is a co-trustee
                    of each
                    of the Royce 1997 Trusts and has sole investment power over the
                    shares she
                    indirectly owns. Mr. and Mrs. Royce disclaim beneficial ownership
                    of the
                    shares indirectly owned by the Royce 1997 Trusts.
 (2)
                Includes
                    150,710 Class A and 734,153 Class B common shares held by Mr.
                    McNelis,
                    43,347 Class A and 84,000 Class B common shares held by the Gregg
                    L.
                    McNelis Jr. 2004 Irrevocable Trust, 43,347 Class A and 84,000
                    Class B
                    common shares held by the Diana McNelis 2004 Irrevocable Trust,
                    43,347
                    Class A and 84,000 Class B common shares held by the Brandon
                    McNelis 2004
                    Irrevocable Trust, 178,432 Class A and 713,000 Class B common
                    shares held
                    by the Gregg L. McNelis 2005 Qualified GRAT and 178,432 Class
                    A and
                    713,000 Class B common shares held by the Susanne E. McNelis
                    2005
                    Qualified GRAT. Mr. McNelis's spouse, Susanne McNelis, is the
                    trustee of
                    each of the McNelis Trusts, except for the Gregg McNelis GRAT,
                    and has
                    voting and investment power over the shares owned by the trusts
                    for which
                    she is trustee. Mr. McNelis is trustee of the Gregg McNelis GRAT
                    and has
                    voting and investment power over the shares it owns. Mr. and
                    Mrs. McNelis
                    disclaim beneficial ownership of the shares held by the McNelis
                    Trusts,
                    except the Gregg McNelis GRAT and the Susanne McNelis GRAT.
 (3)
                Includes
                    12,413 Class A and 121,783 Class B common shares held by Blatte
                    Group LLC,
                    104,034 Class A and 201,600 Class B common shares held by the
                    Lawrence A.
                    Blatte 2005 Qualified GRAT and 104,034 Class A and 201,600 Class
                    B common
                    shares held by the Barbara H. Blatte 2005 Qualified GRAT. The
                    Blatte Group
                    is jointly owned by Mr. Blatte and his spouse, Barbara Blatte.
                    Mr. and
                    Mrs. Blatte have shared voting and investment power over the
                    shares owned
                    by the Blatte Group. Mr. Blatte is trustee of the Lawrence Blatte
                    GRAT and
                    Mrs. Blatte is trustee of the Barbara Blatte GRAT. Each has sole
                    voting
                    and investment power over the shares each indirectly owns. The
                    address for
                    Mr. Blatte and the Blatte Group is 198 Harbor View North, Lawrence,
                    New
                    York 11559.
 (4)
                Excludes
                    100,000 restricted Class A common shares issued pursuant to the
                    2005 EIP
                    and vesting in equal installments over the next four
                    years.
 (5)
                Includes
                    467,939 Class A and 796,268 Class B common shares held by Standcrown
                    (Gibraltar) Limited. Mr. Bayley is the beneficial owner of Standcrown
                    and
                    has voting and investment power over the shares it owns. The
                    address for
                    Mr. Bayley and Standcrown is c/o Globe Maritime Limited, 4th
                    Floor, Osborn
                    House, 74-80 Middlesex Street, London E1
                    7EZ.
 (6)
                The
                    address for Mr. Carr is P.O. Box HM 2522, Hamilton, HM GX, Bermuda.
 (7)
                The
                    address for Ms. Day is One Stamford Landing, Suite 201, Stamford,
                    CT
                    06902.
 (8)
                The
                    address for Mr. Shaerf is 405 Lexignton Avenue, New York, NY
                    10174
 (9)
                The
                    address for Mr. Harrington is One North Lexington Avenue, P.O.
                    Box 5056,
                    White Plains, NY 10602.
 (10)
                Excludes
                    4,500 restricted Class A common shares issued, in the aggregate
                    to
                    directors, pursuant to the 2005 EIP and vesting at June
                    29,2006.
 (11)
                Includes
                    684,890 Class A and 1,327,200 Class B common shares held by Treetops.
                    Mrs.
                    DeMakes is a co-trustee of each of the Royce Trusts and has voting
                    power,
                    but not investment power, over the shares they indirectly own
                    through
                    Treetops. Mrs. DeMakes is also manager of Treetops. Mrs. DeMakes
                    disclaims
                    beneficial ownership of the shares indirectly owned by the Royce
                    1997
                    Trusts and the shares held by Treetops. Excludes 5,000 restricted
                    Class A
                    common shares held by Mrs. DeMakes.
 (12)
                Includes
                    162,404 Class A and 412,440 Class B common shares held by David
                    C. Blatte,
                    who is the son of Lawrence A. Blatte, and 43,347 Class A and
                    84,000 Class
                    B common shares held by The Blatte Grandchildren 1999 Trust.
                    David C.
                    Blatte is the co-trustee of the Blatte Grandchildren Trust and
                    has shared
                    voting and investment power over the shares it owns. David C.
                    Blatte
                    disclaims beneficial ownership of the shares held by the Blatte
                    Grandchildren Trust. The address for David C. Blatte is 10 Belmont
                    Drive
                    South, Roslyn Heights, New York 11577 and the address for the
                    Blatte
                    Grandchildren Trust is 198 Harbor View North, Lawrence, New York
                    11559.
 (13)
                Includes
                    162,404 Class A and 412,440 Class B common shares held by Amy
                    Blatte
                    Braunstein, who is the daughter of Lawrence A. Blatte, and 43,347
                    Class A
                    and 84,000 Class B common shares held by the Blatte Grandchildren
                    Trust.
                    Mrs. Braunstein is the co-trustee of the Blatte Grandchildren
                    Trust and
                    has shared voting and investment power over the shares it owns.
                    Mrs.
                    Braunstein disclaims beneficial ownership of the shares held
                    by the Blatte
                    Grandchildren Trust. The address for Mrs. Braunstein is 34 Belmont
                    Drive
                    West, Roslyn Heights, New York
                    11577
 Table
            of Contents
 41
 **Item
        13.  Certain Relationships and
        Related Transactions**
  Messrs.
        James
        W. Bayley, Lawrence A. Blatte, Gregg L. McNelis, Captain Alkis N. Meimaris
        and
        Joseph E. Royce, collectively beneficially own approximately 64.3% of our
        issued
        and outstanding common shares.  Each of these individuals is also
        a
        principal of, and together control, TBS Commercial Group Ltd. Lawrence A.
        Blatte, Gregg L. McNelis, Captain Alkis N. Meimaris and Joseph E. Royce have
        been principals of, and together controlled, TBS Shipping Services and Roymar
        prior to our purchase of these companies in June 2005, for $7.5 million plus
        the
        undistributed S-corporation earnings for the period January 1, 2005 through
        the
        date of acquisition of $0.6 million.  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. 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 TBS Commercial
        Group
        Ltd. Under the arrangements with these commercial agents, we generally pay
        a
        commission on freight revenue booked by the agent, which commission is based
        upon market rates, and on certain freights where they attend to the receivers
        of
        the cargo.  Under the arrangements with the ship agents, we pay fees
        to the
        agents for attending vessels while in port, which fees are also based on
        market
        rates for such services.  For the year ended December 31, 2003, 2004
        and
        2005 we paid TBS Commercial Group Ltd. $4.5 million, $5.5 million, $6.7 million,
        respectively.
 Globe
        Maritime Limited, owned by James W. Bayley, acts as our chartering broker
        and
        charges commissions for arranging charters and the sale and purchase of vessels,
        which commissions are based upon market rates.  For the year ended
        December
        31, 2003, 2004 and 2005 we paid Globe Maritime Limited $157,789, $219,336,
        $49,319, respectively.
 James
        W.
        Bayley owned 1% of the outstanding interest of the parent entity of TBS North
        America Liner Ltd. (“TNA”) and 40% of the outstanding voting shares of
        TNA.  The parent entity of TNA owns 60% of the outstanding voting
        shares
        and 100% of the outstanding non-voting shares of TNA.  International
        indirectly owned the other 99% of the outstanding interest of the parent
        entity
        of TNA.  In December 2005, the parent entity of TNA was dissolved
        and on
        December 29, 2005, Mr. Bayley transferred his entire interest in TNA to
        International.  On that date TNA became a wholly-owned subsidiary
        of
        International.
 TBS
        Shipping
        Services and Roymar maintain an office in Yonkers, New York that is leased
        from
        our founder, chairman and chief executive officer, Joseph E. Royce. 
        For
        each of the years ended December 31, 2003, 2004 and 2005, payments to Mr.
        Royce
        under this lease totaled $240,000.
 TBS
        International Limited, TBS Shipping Services and TBS Commercial Group Ltd.
        paid
        legal fees to Lawrence A. Blatte, who is one of our principal shareholders
        and
        became a senior executive vice president of International in March 2005. 
        For the year ended December 31, 2003, 2004 and 2005, payments from International
        to Mr. Blatte for legal services totaled $ 445,000, $438,000, and $503,133
        respectively.  For the year ended December 31, 2003, 2004 and 2005,
        payments from TBS Shipping Services and TBS Commercial Group Ltd. to Mr.
        Blatte
        for legal services totaled $50,000, $205,000 and $150,000,
        respectively.
 Our
        board has
        delegated authority to the compensation committee to review and approve on
        an
        annual basis all transactions with our executive officers, directors and
        affiliates.
 **Item 14.**   
        **Principal Accountant Fees and Services**
 **Audit
        Fees**
 
 PricewaterhouseCoopers
        LLP billed the Company an aggregate of approximately $350,000 in fees for
        professional services rendered in connection with the audit of the Company’s
        annual consolidated financial statements and reviews of the consolidated
        financial statements included in its quarterly reports for the quarters ended
        June 30and September 30 2005 and approximately $1,031,000 in fees for
        professional services rendered in connection with the audit of the Company’s
        annual consolidated financial statements for the year December 31, 2004 
        and review the Company’s registration statement on Form S-1 for its initial
        public offering completed June 29, 2005.
 **Audit-Related
        Fees**
 Audit-related
        fees billed by PricewaterhouseCoopers LLP for assurance and related service
        provided to management in connection with the audit of TBS Shipping Services
        Inc. and Roymar Ship Management, Inc. for the years ended December 31, 2002,
        2003 and 2004, for inclusion in Form S-1 filed with the SEC and assistance
        and
        consultation provided in relation to the purchase of these entities by the
        Company were approximately $119,000.
 **Audit
        Committee Pre-Approval Policy**
 The
        Audit Committee
        is responsible for (i) the appointment and oversight of the Company’s
        independent auditors, including reviewing the auditors’ independence and
        performance, (ii) the pre-approval of all audit and allowable non-audit services
        provided by the Company’s independent auditors and (iii) represent and assist
        the Board of Directors in discharging their oversight responsibility regarding
        the quality and integrity of the Company’s financial statements, system of
        internal controls, and accounting and financial reporting
        processes.
  Table
            of Contents
 42
 **Item 15.**  
        Exhibits and Financial Statement Schedules.
  (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, 2005 and December 31,
                  2004
              F-2Consolidated
                  Statements of Net Income (Loss) for the Years endedDecember
                  31, 2005, December 31, 2004 and December 31, 2003
              F-3Consolidated
                  Statements of Cash Flows for the Years endedDecember
                  31, 2005, December 31, 2004 and December 31, 2003
              F-4Consolidated
                    Statements of Shareholders’ Equity for the Years endedDecember
                  31, 2005, December 31, 2004 and December 31, 2003
              F-5Notes
                  to Consolidated Financial Statements
              F-6
                  - F-27
   **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:
 
 The
        exhibits to this Annual Report on Form 10-K listed below have been
        included
        only with the copy of the specific form filed with the Securities and Exchange
        Commission. Copies of individual exhibits will be furnished to shareholders
        upon
        written request to TBS International Limited and payment of a reasonable
        fee.
  Table
            of Contents
 43
 **Incorporated
                  by Reference****Exhibit**
              
              
              **Filed****Number**
              
              **Exhibit Description**
              **Herewith**
              **Form**
              **File
                  No.**
              **Exhibit**
              **Filing
                  Date**2.1
              
              Third
                  Amended Joint Plan of Reorganization of Debtors Under Chapter 11
                  of the
                  Bankruptcy Code
              
              S-1
              333-123157
              2.1
              3/7/20053.1
              
              Form
                  of Memorandum of Association
              
              S-1
              333-123157
              3.1
              3/7/20053.2
              
              Form
                  of Bye-laws
              
              S-1
              333-123157
              3.2
              3/7/20054.1
              
              Form
                  of Class A Common Share Certificate
              
              S-1
              333-123157
              4.1
              3/7/20054.2
              
              Form
                  of Class B Common Share Certificate
              
              S-1
              333-123157
              4.2
              3/7/200510.1
              
              Loan
                  and Security Agreement, dated August 26, 2004, by and between Stratford
                  Shipping Corp. and Sheffield Maritime Corp. and Merrill Lynch Business
                  Financial Services, Inc.
              
              S-1
              333-123157
              10.1
              3/7/200510.2
              
              Credit
                  Agreement, dated June 1, 2004, among Henley Maritime Corp., Vernon
                  Maritime Corp., Arden Maritime Corp., TBS International Limited
                  and GMAC
                  Commercial Finance LLC
              
              S-1
              333-123157
              10.2
              3/7/200510.3
              
              Amended
                  and Restated Credit Agreement, dated February 1, 2005, by
                  and among
                  Henley Maritime Corp., Vernon Maritime Corp., Arden Maritime
                  Corp., Oldcastle Shipping Corp., TBS International Limited
                  and GMAC
                  Commercial Finance LLC, to the Credit Agreement, dated June
                  1,
                  2004, by and among Henley Maritime Corp., Vernon Maritime
                  Corp.,
                  Arden Maritime Corp., TBS International Limited and
                  GMAC Commercial Finance LLC
              
              S-1
              333-123157
              10.3
              3/7/200510.4
              
              First
                  Supplement to the Amended and Restated Credit Agreement,
                  dated
                  February 1, 2005, by and among Henley Maritime Corp.,
                  Vernon Maritime Corp., Arden Maritime Corp., Oldcastle
                  Shipping
                  Corp., TBS International Limited and GMAC Commercial Finance
                  LLC, to the Credit Agreement, dated June 1, 2004, by and
                  among
                  Henley Maritime Corp., Vernon Maritime Corp., Arden Maritime
                  Corp.,
                  TBS International Limited and GMAC Commercial Finance
                  LLC
              
              S-1
              333-123157
              10.4
              3/7/200510.5
              
              Loan
                  Agreement, dated December 21, 2004, between Avon Maritime Corp.
                  and The
                  Royal Bank of Scotland plc
              
              S-1
              333-123157
              10.5
              3/7/200510.6
              
              Loan
                  Agreement, dated March 1, 2005, by and among Rector Shipping
                  Corp.,
                  Hansen Shipping Corp., Chester Shipping Corp.,
                  Albemarle Shipping Corp., Sherman Maritime Corp., Glenwood
                  Maritime Corp., Bristol Maritime Corp., Westbrook Holdings
                  Ltd. and
                  AIG Commercial Equipment Finance, Inc.
              
              S-1
              333-123157
              10.6
              3/7/200510.7
              
              Umbrella
                  Agreement, dated December 5, 2003, between TBS International Limited
                  and
                  Arkadia Shipping Inc.
              
              S-1
              333-123157
              10.7
              3/7/200510.8
              
              Form
                  of Memorandum of Agreement related to sale-leaseback financings
                  with
                  Arkadia Shipping Inc.
              
              S-1
              333-123157
              10.8
              3/7/200510.9
              
              Form
                  of Bareboat Charter related to sale-leaseback financings with Arkadia
                  Shipping Inc.
              
              S-1
              333-123157
              10.9
              3/7/200510.10
              
              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
              333-123157
              10.1
              3/7/200510.11
              
              Form
                  of Commercial Agency Agreement with TBS Worldwide Services
                  Inc.
              
              S-1
              333-123157
              10.11
              3/7/200510.12
              
              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
              333-123157
              10.12
              3/7/200510.13
              
              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
              333-123157
              10.13
              3/7/200510.14
              
              2005
                  Equity Incentive Plan
              
              S-1
              333-123157
              10.14
              3/7/200510.15
              
              Employee
                  Share Purchase Plan
              
              S-1
              333-123157
              10.15
              3/7/200510.16
              
              Revolving
                  Credit Agreement, dated June 14, 2005, by and among Newkirk Navigation
                  Corp., Frankfort Maritime Corp., TBS International Limited, TBS
                  Worldwide
                  Services Inc., Westbrook Holdings Limited and Citibank,
                  N.A.
              
              S-1
              333-123157
              10.16
              3/7/200521.1
              
              Subsidiaries
                  of the Registrant
              
              S-1
              333-123157
              21.1
              3/7/20053.1
              
              Amended
                  and Restated Memorandum of Association of TBS International
                  Limited
              
              8-K
              000-51368
              3.1
              8/12/20053.2
              
              Amended
                  and Restated Bye-Laws of TBS International Limited
              
              8-K
              000-51368
              3.2
              8/12/200510.1
              
              2005
                  Equity Incentive Plan
              
              8-K
              000-51368
              10.1
              8/12/200510.2
              
              Employee
                  Share Purchase Plan
              
              8-K
              000-51368
              10.2
              8/12/200510.3
              
              Revolving
                  Credit Agreement, dated June 14, 2005, by and among Newkirk Navigation
                  Corp., Frankfort Maritime Corp., TBS International Limited, TBS
                  Worldwide
                  Services Inc., Westbrook Holdings Limited and Citibank, N.A.
              
              8-K
              000-51368
              10.3
              8/12/200510.4
              
              Credit
                  Agreement, dated June 30, 2005, by and among Hudson Maritime Corp.,
                  Kensington Shipping Corp., Windsor Maritime Corp., TBS International
                  Limited, Transworld Cargo Carriers, S.A., TBS Worldwide Services
                  Inc., TBS
                  Pacific Liner, Ltd., TBS North America Liner, Ltd., TBS Ocean Carriers
                  Ltd., TBS Middle East Carriers, Ltd., TBS Eurolines, Ltd., TBS
                  Logistics
                  Ltd., Westbrook Holdings Ltd., Leaf Shipping Corp., Pacific Rim
                  Shipping
                  Corp. and Bank of America, N.A
              
              8-K
              000-51368
              10.4
              8/12/20051.01
              
              Credit
                  Agreement, dated December 15, 2005, by and among Sterling Shipping
                  Corp.
                  and Remsen Navigation Corp., TBS International Limited, as guarantor,
                  TBS
                  Worldwide Services Inc., as guarantor, Westbrook Holdings Limited
                  as
                  guarantors and Merrill Lynch Business Financial Services Inc.,
                  acting
                  through its division, Merrill Lynch Capital
              
              8-K
              000-51368
              1.01
              12/16/200510.1
              
              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
              X21.1
              
              Subsidiaries
                  of the Registrant
              X31.1
              
              Certification
                  of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a)
                  of
                  the Securities and Exchange Act, as amended.
              X31.2
              
              Certification
                  of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a)
                  of
                  the Securities and Exchange Act, as amended.
              X31.3
              
              Certification
                  of the Chief Accounting Officer pursuant to Rule 13a-14(a) and
                  15d-14(a)
                  of the Securities and Exchange Act, as amended.
              X32
              
              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
   Table
                of Contents
 44
   REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To****the
        Shareholders and
 Board
        of
        Directors
 of
        TBS
        International Limited:
  In
        our
        opinion, the consolidated financial statements listed in the accompanying
        index appearing under Item 15(a)(1) present fairly, in all material
        respects, the financial position of TBS International Limited and its
        subsidiaries at December 31,  2005 and 2004, and the results of
        their****operations, changes in shareholders’ equity
         and their****cash flows for each of the three years in
        the period ended December 31, 2005 in conformity with accounting principles
        generally accepted in the United States of America. These financial statements
        are the responsibility of the Company's management. Our responsibility is
        to
        express an opinion on these financial statements based on our audits. We
        conducted our audits of these statements in accordance with the standards
        of the
        Public Company Accounting Oversight Board (United States). Those standards
        require that we plan and perform the audit to obtain reasonable assurance
        about
        whether the financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, assessing the accounting principles
        used and significant estimates made by management, and evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
  /s/PricewaterhouseCoopers
        LLP
 New
        York,
        New York
 February
        28, 2006
   Table
            of Contents
 F-1
 **TBS
          INTERNATIONAL LIMITED AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **December
                    31,**
                
                **December
                    31,****2004**
                
                **2005****Assets**Current
                    assetsCash
                    and cash equivalents
                
                $
                21,674,204
                
                $
                27,157,681Charter
                    hire receivable, net of allowance of $1,456,594 in 2004
                    and$694,214
                    in 2005
                
                
                17,310,426
                
                
                25,548,113Claims
                    receivable, net of allowance of $310,655 in 2004 and $0 in
                    2005
                
                
                380,258
                
                
                457,087Due
                    from agents
                
                
                449,488
                
                
                570,763Other
                    receivables
                
                
                227,411
                
                
                398,246Fuel
                    and other inventories
                
                
                3,387,629
                
                
                7,635,432Prepaid
                    expenses
                
                
                3,866,215
                
                
                2,186,500Advances
                    to affiliates
                
                
                1,495,474
                
                
                9,841Total
                    current assets
                
                
                48,791,105
                
                
                63,963,663Deposits
                    for vessel purchases
                
                
                7,499,000
                
                
                -Restricted
                    cash
                
                
                
                
                
                532,500Vessels,
                    net of accumulated depreciation of $24,463,462in
                    2004 and $42,420,572 in 2005
                
                
                100,366,040
                
                
                266,930,678Other
                    fixed assets, net of accumulated amortization of $409,761in
                    2004 and $917,299 in 2005
                
                
                503,032
                
                
                2,589,232Goodwill
                
                
                -
                
                
                8,425,935Total
                    assets
                
                $
                157,159,177
                
                $
                342,442,008**Liabilities
                    and Shareholders' Equity**Current
                    liabilitiesDebt,
                    current portion
                
                $
                12,446,561
                
                $
                31,458,053Obligations
                    under capital lease, current portion
                
                
                4,731,574
                
                
                3,348,340Accounts
                    payable
                
                
                4,403,578
                
                
                4,726,588Accrued
                    expenses
                
                
                12,351,583
                
                
                25,958,807Voyages
                    in progress
                
                
                2,650,551
                
                
                2,118,901Advances
                    from affiliates
                
                
                2,641,485
                
                
                1,408,658Total
                    current liabilities
                
                
                39,225,332
                
                
                69,019,347Debt,
                    long-term portion
                
                
                26,064,647
                
                
                74,279,409Obligations
                    under capital lease, net of current portion
                
                
                29,909,953
                
                
                21,354,681Total
                    liabilities
                
                
                95,199,932
                
                
                164,653,437COMMITMENTS
                    AND CONTINGENCIES (Note 21)Shareholders'
                    equityCommon
                    shares, Class A, $.004 par value, 1,500,000 sharesauthorized,
                    issued and outstanding
                
                
                6,000Common
                    shares, Class B, $.004 par value, 1,500,000 sharesauthorized,
                    issued and outstanding
                
                
                6,000Common
                    shares, Class C, $.004 par value, 6,000,000 shares
                    authorized,1,000,000
                    shares issued and outstanding
                
                
                4,000Convertible
                    preference shares, $.004 per share, 1,500,000 shares
                    authorized,1,000,000
                    shares issued and outstanding
                
                
                4,000Common
                    shares, New Class A, $.01 par value75,000,000
                    authorized, 14,290,496 shares issued and outstanding
                
                
                
                
                
                142,905Common
                    shares, New Class B, $.01 par value30,000,0000
                    authorized, 13,404,461 shares issued and outstanding
                
                
                
                
                
                134,045Warrants
                
                
                800,000
                
                
                20,747Additional
                    paid-in capital
                
                
                24,357,936
                
                
                87,585,744Retained
                    earnings
                
                
                36,781,309
                
                
                89,905,130Total
                    shareholders' equity
                
                
                61,959,245
                
                
                177,788,571Total
                    liabilities and shareholders' equity
                
                $
                157,159,177
                
                $
                342,442,008
   Table
              of Contents
 F-2
 TBS
        INTERNATIONAL LIMITED AND SUBSIDIAIRES
 CONSOLIDATED
        STATEMENTS OF OPERATIONS
 **Year
                    Ended December 31,****2003**
                
                **2004**
                
                **2005****Revenue**Voyage
                    revenue
                
                $
                119,528,501
                
                $
                157,794,098
                
                $
                175,595,810Time
                    charter revenue
                
                
                23,625,003
                
                
                50,745,653
                
                
                71,455,764Other
                    revenue
                
                
                192,579
                
                
                266,802
                
                
                979,644Total
                    revenue
                
                
                143,346,083
                
                
                208,806,553
                
                
                248,031,218**Operating
                    expenses**Voyage
                
                
                52,453,794
                
                
                60,691,623
                
                
                75,291,117Vessel
                
                
                62,233,677
                
                
                79,273,414
                
                
                72,608,679Depreciation
                    and amortization of vesselsand
                    other fixed assets
                
                
                6,886,720
                
                
                10,136,694
                
                
                18,021,267Management
                    fees
                
                
                3,864,828
                
                
                4,413,909
                
                
                2,624,391General
                    and administrative
                
                
                6,463,242
                
                
                7,347,046
                
                
                17,617,690Loss
                    from sale of vessels, net
                
                
                9,904,907
                
                
                -
                
                
                -Total
                    operating expenses
                
                
                141,807,168
                
                
                161,862,686
                
                
                186,163,144Income
                    from operations
                
                
                1,538,915
                
                
                46,943,867
                
                
                61,868,074**Other
                    (expenses) and income**Interest
                    expense
                
                
                (5,145,103
                )
                
                (5,147,686
                )
                
                (9,346,461
                )Interest
                    and other income
                
                
                68,226
                
                
                110,513
                
                
                752,208Gain
                    on early extinguishment of debt
                
                
                2,373,490
                
                
                -
                
                
                -Deemed
                    preference dividends and accretion
                
                
                (829,703
                )
                
                -
                
                
                -Total
                    other expenses, net
                
                
                (3,533,090
                )
                
                (5,037,173
                )
                
                (8,594,253
                )Net
                    (loss) income
                
                
                (1,994,175
                )
                
                41,906,694
                
                
                53,273,821Deemed
                    preference dividends and accretion
                
                
                (796,827
                )
                
                -
                
                
                -Amount
                    allocated to participating preferred shareholders
                
                
                -
                
                
                (11,497,264
                )
                
                (5,461,345
                )Net
                    (loss) income available for common shareholders
                
                $
                (2,791,002
                )
                $
                30,409,430
                
                $
                47,812,476Earnings
                    per shareNet
                    income per common shareBasic
                
                $
                (0.27
                )
                $
                2.98
                
                $
                2.19Diluted
                
                $
                (0.27
                )
                $
                1.49
                
                $
                1.97Weighted
                    average common shares outstandingBasic
                
                
                10,187,795
                
                
                10,187,795
                
                
                21,870,160Diluted
                
                
                10,187,795
                
                
                20,385,775
                
                
                24,310,909
   Table
            of Contents
 F-3
 TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 **Year
                    Ended December 31,****2003**
                
                **2004**
                
                **2005****Cash
                    flows from operating activities**Net
                    (loss) income
                $
                (1,994,175
                )
                $
                41,906,694
                
                $
                53,273,821Adjustments
                    to reconcile net income to net cashprovided
                    by operating activitiesGain
                    on early extinguishment of debt
                
                (2,373,490
                )
                
                -
                
                
                -Deemed
                    preference dividend and accretion
                
                829,703
                
                
                -
                
                
                -Net
                    loss on sale of vessels
                
                9,904,907
                
                
                -
                
                
                -Depreciation
                    and amortization
                
                6,886,720
                
                
                10,136,694
                
                
                18,464,648Write-off
                    of bad debt
                
                
                
                
                
                
                
                (1,073,035
                )Stock
                    issued to employees
                
                -
                
                
                -
                
                
                1,069,000Changes
                    in operating assets and liabilities(Increase)
                    in charter hire receivable
                
                (2,061,508
                )
                
                (2,037,789
                )
                
                (7,278,628
                )Decrease
                    (increase) in claims receivable
                
                122,323
                
                
                (170,542
                )
                
                233,826(Increase)
                    in due from agents
                
                (81,192
                )
                
                (140,587
                )
                
                (121,275
                )(Increase)
                    in other receivables
                
                (642,923
                )
                
                (1,398,031
                )
                
                (91,376
                )(Increase)
                    decrease in fuel and other inventories
                
                112,468
                
                
                (1,056,573
                )
                
                (4,247,803
                )Decrease
                    (increase) decrease in prepaid expenses
                
                (1,068,430
                )
                
                (1,741,766
                )
                
                1,686,255Increase
                    in accounts payable
                
                299,975
                
                
                1,733,153
                
                
                171,461Increase
                    in accrued expenses
                
                1,395,484
                
                
                2,833,708
                
                
                12,617,007(Decrease)
                    increase in voyages in progress
                
                1,122,101
                
                
                1,189,393
                
                
                (531,650
                )(Decrease)
                    increase in advances from/to affiliates, net
                
                (1,120,869
                )
                
                1,640,168
                
                
                (1,412,012
                )Net
                    cash provided by operating activities
                
                11,331,094
                
                
                52,894,522
                
                
                72,760,239**Cash
                    flows from investing activities**Vessels
                    acquisition/capital improvement costs
                
                (1,327,860
                )
                
                (56,630,035
                )
                
                (178,228,620
                )Net
                    proceeds on sale of vessels
                
                34,196,860
                
                
                -
                
                
                -Deposits
                    for vessel purchases
                
                -
                
                
                (7,499,000
                )
                
                -Restricted
                    cash for litigation
                
                -
                
                
                -
                
                
                (532,500
                )Use
                    of restricted cash
                
                465,170
                
                
                -
                
                
                -Payment
                    for purchase of TBS Shipping Services Inc and Roymar Ship Management
                    Inc.,
                    net of cash acquired of $801,594.
                
                -
                
                
                -
                
                
                (7,289,895
                )Net
                    cash (used in) provided by investing activities
                
                33,334,170
                
                
                (64,129,035
                )
                
                (186,051,015
                )**Cash
                    flows from financing activities**Dividends
                    paid
                
                -
                
                
                (150,000
                )
                
                (150,000
                )Proceeds
                    on sale of TBS International Limited stock owned by
                    subsidiaries
                
                -
                
                
                -
                
                
                795,336Proceeds
                    from issuance of stock in initial public offering and exercise
                    of series A
                    warrants, net of offering costs
                
                -
                
                
                -
                
                
                60,841,169Repayment
                    of debt principal
                
                (34,804,225
                )
                
                (4,111,076
                )
                
                (27,773,746
                )Proceeds
                    from debt
                
                -
                
                
                36,525,000
                
                
                95,000,000Proceeds
                    from revolving debt facility
                
                -
                
                
                -
                
                
                12,000,000Repayment
                    of revolving debt facility
                
                -
                
                
                -
                
                
                (12,000,000
                )Reduction
                    of obligations under capital leases
                
                (5,019,374
                )
                
                (7,995,738
                )
                
                (9,938,506
                )Net
                    cash provided by financing activities
                
                (39,823,599
                )
                
                24,268,186
                
                
                118,774,253Net
                    increase in cash and cash equivalents
                
                4,841,665
                
                
                13,033,673
                
                
                5,483,477Cash
                    and cash equivalents beginning of period
                
                3,798,866
                
                
                8,640,531
                
                
                21,674,204Cash
                    and cash equivalents end of period
                $
                8,640,531
                
                $
                21,674,204
                
                $
                27,157,681**Supplemental
                    cash flow information**Cash
                    paid for interest
                $
                5,086,024
                
                $
                4,976,274
                
                $
                9,001,396Vessels
                    acquired under capital lease
                $
                35,942,247
                
                $
                -
                
                $
                -
    Table
            of Contents
 F-4
 TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENT OF CHANGES IN SHAREHOLDERS'
        EQUITY
  **(Accumulated****Additional**
              
              **Deficit)****Common
                  Shares**
              
              **Preference**
              
              **Warrants**
              
              
              
              **Paid-in**
              
              **Retained****Shares**
              
              **Amount**
              
              **Shares**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Earnings**
              
              **Total**Balance
                  at December 31, 2002
              
              4,000,000
              
              $
              16,000
              
              
              -
              
              2,666,658
              
              $
              800,000
              
              
              10,776,913
              
              
              (2,981,210
              )
              
              8,611,703Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              (1,994,175
              )
              
              (1,994,175
              )Accretion
                  of preference shares
              
              -
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              (191,492
              )
              
              **-**
              
              
              (191,492
              )Preference
                  shares dividends paid-in-kind
              
              -
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              (605,335
              )
              
              **-**
              
              
              (605,335
              )Balance
                  at December 31, 2003
              
              4,000,000
              
              
              16,000
              
              
              -
              
              2,666,658
              
              
              800,000
              
              
              9,980,086
              
              
              (4,975,385
              )
              
              5,820,701Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              41,906,694
              
              
              41,906,694Dividends
                  paid
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (150,000
              )
              
              (150,000
              )Purchase
                                  of preference shares 1,000,000 shares and elimination
                                  of mandatory
                                  redemption and quarterly
                                  dividend
              
              -
              
              
              -
              
              
              4,000
              
              -
              
              
              -
              
              
              14,377,850
              
              
              -
              
              
              14,381,850Balance
                  at December 31, 2004
              
              4,000,000
              
              $
              16,000
              
              $
              4,000
              
              2,666,658
              
              $
              800,000
              
              $
              24,357,936
              
              $
              36,781,309
              
              $
              61,959,245Conversion
                  of preference shares to common shares
              
              2,000,000
              
              
              8,000
              
              
              (4,000
              )
              
              
              
              
              
              
              (4,000
              )
              
              
              
              
              -Additional
                  shares issuable under anti-dilution provisions of warrant agreement
              
              
              
              
              
              
              
              
              
              1,132,172
              
              
              
              
              
              
              
              
              
              
              
              -Redesignation
                  and change in par value of common shares from $.004 to $.01
              
              (3,600,000)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Stock
                  split
              
              12,881,692
              
              
              128,817
              
              
              
              
              
              
              
              
              
              
              (128,817
              )
              
              
              
              
              -Change
                  in number of shares issuable under warrants due to change in par
                  value of
                  common shares and stock split
              
              
              
              
              
              
              
              
              
              4,488,305
              
              
              
              
              
              
              
              
              
              
              
              -Exercise
                  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
              )
              
              121,212
              
              
              
              
              
              -Cancellation
                  of Series B & C warrants
              
              
              
              
              
              
              
              
              
              (897,427
              )
              
              (269,229
              )
              
              269,229
              
              
              
              
              
              -Initial
                  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 International Limited stock owned by subsidiaries
                  in
                  connection with initial public offering
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              795,336
              
              
              
              
              
              795,336Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              53,273,821
              
              
              53,273,821Dividends
                  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
              
              $
              89,905,130
              
              $
              177,788,571
  Table
            of Contents
 F-5
 **Note
        1 — Basis of Presentation:**
  **1.  
        Organization and Nature of Business**
 TBS
        International Limited (the "Company"), 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 TBS Shipping
        Services and Roymar, are foreign corporations and conduct their business
        operations worldwide.  TBS Shipping Services and Roymar conduct their
        business operations in New York State.  A listing of all the Company’s
        subsidiaries, with their country of registry and vessel owned, if applicable
        is
        as follows:
 Technotrade
                      Limited (Gibraltar)Westbrook
                      Holdings, Ltd. and its subsidiaries (Marshall
                      Islands)Albemarle
                      Maritime Corp. -*Mohawk
                      Princess*Arden
                      Maritime Corp. -*Tayrona
                      Princess*Asia-America
                      Ocean Carriers Ltd. -*Huron
                      Maiden*Avon
                      Maritime Corp. -*Wichita
                      Belle*Bedford
                      Maritime Corp. -*Apache
                      Maiden*Birnam
                      Maritime Corp. -*Sioux
                      Maiden*Brighton
                      Maritime Corp. -*Kickapoo
                      Belle*Bristol
                      Maritime Corp. -*Tuscarora
                      Belle*Chester
                      Shipping Corp. -*Tamoyo
                      Maiden*Columbus
                      Maritime Corp. -*Seneca
                      Maiden*Cortland
                      Navigation Corp. -*Chippewa
                      Belle*(inactive, vessel sold 2003)Darby
                      Navigation Corp.
                      -*Nyack
                      Princess*Dover
                      Maritime Corp.
                      -*Aztec Maiden*Frankfort
                      Maritime Corp. -*Shawnee
                      Princess*Glenwood
                      Maritime Corp. -*Miami
                      Maiden*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*Kensington
                      Shipping Corp. -*Maya
                      Princess*Leaf
                      Shipping Corp. - Management CompanyNewkirk
                      Navigation Corp. -*Dakota
                      Belle*Oldcastle
                      Shipping Corp. -*Taino
                      Maiden*Pacific
                      Rim Shipping Corp. - Philippine Bareboat
                      ChartererProspect
                      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*Summit
                      Maritime Corp. - (dissolved Sept 12, 2005)Tremont
                      Maritime Corp. - (dissolved Sept 12, 2005)Vernon
                      Maritime Corp. -*Mohegan
                      Princess*Whitehall
                      Marine Transport Corp. -*Cherokee
                      Princess*Windsor
                      Maritime Corp. -*Shinnecock
                      Belle*RAS
                      Shipping Company Limited (Gibraltar)Transworld
                      Cargo Carriers, S.A. (Marshall Islands)TBS
                      Worldwide Services Inc. (Marshall Islands)TBS
                      African Ventures LimitedTBS
                      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.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)
  Table
            of Contents
 F-6
 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. TBS
        Shipping Services and Roymar provide operational and technical management
        services to International and its other subsidiaries.
  **Note
        2 — Initial Public Offering**
  On
        June
        29, 2005, the Company completed its initial public offering.  In this
        offering, the Company issued and sold 7,000,000 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
        $65,100,000.  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.
  Note
        3 —
        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 the Company 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 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 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 accruals
        for
        drydocking and voyages in progress.
  **Revenue
        Recognition**
 
 Revenue
        is
        generally recorded when services are rendered, the Company has a signed charter
        agreement or other evidence of an arrangement, pricing is fixed or determinable
        and collection is reasonably assured. The Company generally employs its vessels
        under time or voyage charters.  With time charters, the Company receives
        a
        fixed charter hire per on-hire day and is 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.  The Company is paid for the cargo transported and pays all
        voyage
        expenses, such as fuel, port call expenses and commissions, as well as, all
        vessel 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.  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.
  Table
            of Contents
 F-7
 **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 collectibility is questionable
        and by maintaining a percentage of outstanding receivable balances (usually
        between 2% and 3%) as an allowance to assure coverage for risks not specifically
        identified.
  **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) or fair value.
  **Vessels
        and 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 renewals and betterments of assets are capitalized
        and
        depreciated over the remaining useful lives of the asset.  Depreciation
        is
        calculated, based on cost, less estimated residual value, using the
        straight-line method, over the remaining useful life of each vessel, which
        is
        estimated as 30 years from the date that the vessel was delivered by the
        shipyard. Maintenance and repair costs that do not improve or extend the
        useful
        lives of the assets, other than dry dock costs discussed below, are expensed
        as
        incurred.
  **Change
        in Estimate**
  The
        estimated useful life of vessels was extended from 25 years to 30 years
        effective January 1, 2005, based on management's review of the condition
        and
        performance of the owned fleet.  The impact of this change in estimate
        on
        the year ended December  31, 2005 increased net income, basic earnings
        per
        share and diluted earnings per share in the amount of $19.1 million, $0.87
        per
        share and $0.78 per share, respectively.
  **Provision
        for Drydocking**
 The
        Company is required, for regulatory and insurance purposes, to perform periodic
        inspections and overhaul activities, generally every 30 months. The
        Company
        accrues and charges to expense the estimated costs of such drydocking ratably
        over the period to the next drydocking. This provision is included in accrued
        expenses.
  **Other
        Fixed Assets**
  Other
        fixed assets consist of computer software and hardware. Other fixed assets
        are
        being amortized over their estimated useful lives of five 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.
        The fair value of our long-lived assets are determined by independent,
        third-party appraisals.  The Company has determined that there is
        no
        impairment of long-lived assets at December 31, 2005.
  Table
            of Contents
 F-8
 **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 not be
        amortized but instead tested for impairment at least annually. The Company
        has
        determined that there is no impairment of goodwill as of the transaction
        date
        (June 2005) and for the year ending December 31, 2005.
  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 period of expected
        use
        of the assets or the lease term.  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.
  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 or Gibraltar
        because its income is derived from sources outside these jurisdictions.
         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 and 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.
 International
        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, International 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 the Company’s U.S. subsidiaries are
        subject to are not significant to the accompanying consolidated statements
        of
        operations.
  **Stock
        Based Compensation**
  The
        Company has elected to use the intrinsic value method under Accounting
        Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
        (APB 25), as permitted by Statement of Financial Accounting Standard
        No. 123, “Accounting for Stock-Based Compensation” (SFAS 123) to account
        for restricted share awards and amortize the deferred compensation ratably
        over
        the vesting period.   Pro forma information is not presented
        as the
        application of APB 25, utilizing the intrinsic value method, and SFAS 123,
        utilizing fair value base method, would result in the same amount.
  **Earnings
        Per Share**
  The
        basic
        earnings per share calculation 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 No. 128,
        ‘‘Earnings Per Share’’.  The Company allocates 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.  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).
  Table
            of Contents
 F-9
 **Fair
        Value of Financial Instruments**
  Financial
        instruments, which potentially subject the Company to concentrations of credit
        risk, consist principally of cash equivalents, charter hire receivables and
        debt
        (including capital lease obligations). The Company places its 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 the Company's customer base, and their dispersion across geographic
        areas. As of December 31, 2004 and 2005, the Company had no significant
        concentration of credit risk.
 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.
        Long-term
          debt –The carrying amount of the Company's long-term debt approximates
          fair value based on the current rates offered to the Company for debt of
          the
          same remaining maturities **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.
  **Derivative
          Instruments and Hedging Activities**
 
 The
          Company
          records all derivative instruments at fair value in accordance with accounting
          principles generally accepted in the United States of America. Offsetting
          adjustments to the asset or liability are recorded in the consolidated
          statement
          of operations or directly into equity as other comprehensive income depending
          on
          the underlying transaction. To date, the Company has not engaged in derivative
          instrument transactions, but may do so in the future.
  **Note
          4 — New Accounting Pronouncements**
  In
          May
          2005, the Financial Accounting Standards Board (‘‘FASB’’) issued SFAS No. 154,
‘‘Accounting Changes and Error Corrections’’ (‘‘SFAS 154’’), which
          replaces Accounting Principles Board Opinion (‘‘APB’’) No. 20 ‘‘Accounting
          Changes’’, and SFAS No. 3 ‘‘Reporting Accounting Changes in Interim
          Financial Statements’’.  SFAS 154 changes the requirements for the
          accounting for and reporting of a change in accounting principle, and applies
          to
          all voluntary changes in accounting principles, as well as changes required
          by
          an accounting pronouncement in the unusual instance that it does not include
          specific transition provisions.  Specifically, SFAS 154 requires
          retrospective application to prior periods financial statements, unless
          it is
          impracticable to determine the period-specific effects or the cumulative
          effect
          of the change.  SFAS 154 does not change the transition provisions
          of any
          existing pronouncement.  SFAS 154 is effective for the Company for
          all
          accounting changes and corrections of errors made beginning January 1,
          2006.
 In
          April
          2005, the FASB issued Interpretation No. 47, "Accounting for Conditional
          Asset Retirement Obligations, an interpretation of FASB Statement No.
          143”.  This interpretation clarifies that an entity is required
          to
          recognize a liability for the fair value of a conditional asset retirement
          obligation when incurred if the liability's fair value can be reasonably
          estimated.  It also clarifies when an entity would have sufficient
          information to reasonably estimate the fair value of an asset retirement
          obligation.  Effective June 30, 2005, the Company has adopted the
          provisions of FIN 47, the adoption of which did not have a material impact
          on
          the Company's consolidated financial position, results of operations or
          cash
          flows.
 In
          March
          2005, the FASB issued Interpretation No. 46(R)-5 ("FIN 46(R)-5"), Implicit
          Variable Interests under FASB Interpretation No. 46 (revised December 2003),
          "Consolidation of Variable Interest Entities".  FIN 46(R)-5 is
          effective for the first reporting period beginning after March 3, 2005;
          however,
          earlier application is permitted for periods for which financial statements
          have
          not yet been issued.  Effective April 1, 2005, the Company has adopted
          the
          provisions of FIN 46(R)-5, the adoption of which did not have a material
          impact
          on the Company's consolidated financial position, results of operations
          or cash
          flows.
 Table
              of Contents
 F-10
 In
            December
            2004, the FASB issued SFAS No. 123R, Share-Based Payment (‘‘SFAS 123R’’). SFAS
            No. 123R revises previously issued SFAS 123 Accounting for Stock-Based
            Compensation, supersedes APB No. 25 Accounting for Stock Issued to Employees,
            and amends SFAS Statement No. 95 Statement of Cash Flows. SFAS 123R requires
            the
            Company to expense the fair value of employee share options and other
            forms of
            share-based compensation for the annual periods beginning after June
            15, 2005.
            The cost will be recognized over the period during which an employee
            is required
            to provide services in exchange for the award. The share-based award
            must be
            classified as equity or as a liability and the compensation cost is measured
            based on the fair value of the award at the date of the grant. In addition,
            liability awards will be re-measured at fair value each reporting period.
            The
            Company currently follows APB Opinion No. 25, Accounting for Stock Issued
            to
            Employees, in recognizing the expense associated with the restricted
            share
            awards and utilizes the intrinsic value method. Pro forma information
            is not
            presented as the application of APB Opinion No. 25, utilizing the intrinsic
            value method, and Financial Accounting Standard No. 123, utilizing fair
            value
            base method, would result in the same amount. The company will adopt
            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. SFAS 123R will not have a significant impact on the
            Company’s
            consolidated results of operations, cash flows or financial
            position.
  In
          December
          2004, the FASB issued SFAS No. 153, ‘‘Exchanges of Nonmonetary assets’’,
          an amendment of APB No. 29, ‘‘Accounting for Nonmonetary Transactions’’
          (‘‘SFAS 153’’).  The amendments made by SFAS 153 are based on the principle
          that exchanges of nonmonetary assets should be measured based on the fair
          value
          of the assets exchanged.  Further, the amendments eliminate the
          narrow
          exception for nonmonetary exchanges of similar productive assets and replace
          it
          with a broader exception for exchanges of nonmonetary assets that do not
          have
          commercial substance.  The statement was effective for the Company
          beginning July 1, 2005 and was applied prospectively.  The effect
          of the
          adoption of SFAS 153 is immaterial to the Company's consolidated results
          of
          operations, cash flows or financial position.
  **Note
          5 — Allowance for Charter Hire and Claims Receivable**
 
 The
          Company
          reviews the allowances for doubtful accounts monthly. Account balances
          are
          charged off against the allowance when the Company feels that it is probable
          the
          receivable will not be recovered. The Company does not have any significant
          off-balance sheet credit exposure related to its customers.
 Allowance
          for doubtful charter hire receivable is as follows:
 **Balance
                    at**
                
                
                
                **Write-offs****Beginning
                    of**
                
                
                
                **Net
                    of**
                
                **Balance
                    at****Year**
                
                **Additions**
                
                **Recoveries**
                
                **End
                    of Year**December
                    31, 2003
                
                $
                344,755
                
                $
                230,639
                
                $
                (101,430
                )
                $
                473,964December
                    31, 2004
                
                $
                473,964
                
                $
                982,630
                
                $
                -
                
                $
                1,456,594December
                    31, 2005
                
                $
                1,456,594
                
                $
                -
                
                $
                (762,380
                )
                $
                694,214
  Allowance
          for
          doubtful claims receivable is as
          follows:
 **Balance
                    at**
                
                
                
                **Write-offs****Beginning
                    of**
                
                
                
                **Net
                    of**
                
                **Balance
                    at****Year**
                
                **Additions**
                
                **Recoveries**
                
                **End
                    of Year**December
                    31, 2002
                
                $
                200,000
                
                $
                110,655
                
                $
                -
                
                $
                310,655December
                    31, 2004
                
                $
                310,655
                
                $
                -
                
                $
                -
                
                $
                310,655December
                    31, 2005
                
                $
                310,655
                
                $
                -
                
                $
                (310,655
                )
                $
                -
  **Note
          6 — Fuel and Other Inventories**
  Fuel
          and
          other inventories consist of the following
 **Description**
                
                **December
                    31, 2004**
                
                **December
                    31, 2005**Fuel
                
                $
                2,378,790
                
                $
                5,970,795Lubricating
                    Oil
                
                
                514,360
                
                
                1,153,277Other
                
                
                494,479
                
                
                511,360**TOTALS**
                
                **$**
                **3,387,629**
                
                **$**
                **7,635,432**
  Table
              of Contents
 F-11
 **Note
          7 — Deposits for Vessel Purchases**
 
 The
          deposits
          for vessel purchases represent deposits on vessels to be purchased. 
          At
          December 31, 2004 deposits on seven vessels totaling $7,499,000 were
          outstanding.  In 2005, the deposits were applied toward the purchase
          price
          of the vessels.
  **Note
          8 — Prepaid Expenses**
 Prepaid
          expenses consist of the following:
 **Description**
                
                **December
                    31, 2004**
                
                **December
                    31, 2005**Prepaid
                    Charter hire
                
                $
                1,393,722
                
                $
                529,740Prepaid
                    Insurance
                
                
                648,033
                
                
                1,337,227Prepaid
                    Vessel
                
                
                1,709,710
                
                
                204,171Other
                
                
                114,750
                
                
                115,361**TOTALS**
                
                **$**
                **3,866,215**
                
                **$**
                **2,186,500**
  **Note
          9 — Advances to Affiliates**
  Advances
          to affiliates, which are entities related by common shareholders, are
          non-interest-bearing, due on demand and expected to be collected 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.  In 2005, due to the acquisition
          of TBS
          Shipping Services, Inc. and Roymar Ship Management Inc, as described in
          Note 11,
          the balances of advances to these two affiliates have been eliminated in
          consolidation.  Advances to affiliates consist of the
          following:
 **Affiliate**
                
                **December
                    31, 2004**
                
                **December
                    31, 2005**TBS
                    Shipping Services Inc.
                
                $
                1,291,373
                
                $
                -Solar
                    Shipping Ltda. (TBS Do Brazil)
                
                
                74,175
                
                
                -Aquarius
                    Shipping Colombia Ltda.
                
                
                47,077
                
                
                -TBS
                    Peru-Seganport S.A.
                
                
                28,655
                
                
                -TBS
                    De Venezuela, C.A.
                
                
                22,150
                
                
                5,604Nautica
                    Groupe, Ltd.
                
                
                21,986
                
                
                -TBS
                    Bolivia S.R.L.
                
                
                6,769
                
                
                949TBS
                    Chile S.A.
                
                
                3,269
                
                
                3,268TBS
                    China
                
                
                20
                
                
                20$
                1,495,474
                
                $
                9,841
  Note
          10 —
          Vessels Acquired
  The
          Company acquired 13 vessels during the year ended December 31, 2005, excluding
          the vessels Rockaway Belleand Comanche Belle, renamedHuron
          Maiden,which were acquired upon exercise of purchase options under capital
          leases.
 In
          March
          2005, the Company exercised its option to purchase the Rockaway Bellefor
          $2,512,150.  The purchase closed on April 11, 2005.  
          In April
          2005, the Company exercised its option to purchase the Huron Maidenfor
          $3,815,000.  The purchase closed on November 16, 2005.
  Table
              of Contents
 F-12
 The
          vessels acquired, excluding the two vessels acquired upon exercise of purchase
          options under capital leases, comprised the following:
 **Company**
                
                **Vessel**
                
                **Date
                    Vessel Delivered**
                
                
                **Purchase
                    Price**
                
                **Estimated
                    Useful Life at Time of Acquisition**Chester
                    Shipping Corp
                
                Tamoyo
                    Maiden
                
                18-Jan-05
                
                $
                8,000,000
                
                12.0Rector
                    Shipping Corp
                
                Siboney
                    Belle
                
                9-Feb-05
                
                
                8,625,000
                
                13.0Albemarle
                    Maritime Corp
                
                Mohawk
                    Princess
                
                16-Feb-05
                
                
                12,000,000
                
                7.0Hansen
                    Shipping Corp
                
                Ainu
                    Princess
                
                23-Feb-05
                
                
                8,625,000
                
                13.0Bristol
                    Maritime Corp
                
                Tuscarora
                    Belle
                
                20-Apr-05
                
                
                12,750,000
                
                9.3Hudson
                    Maritime Corp
                
                Chesapeake
                    Belle
                
                25-Apr-05
                
                
                12,750,000
                
                9.4Glenwood
                    Maritime Corp
                
                Miami
                    Maiden
                
                26-Apr-05
                
                
                12,240,000
                
                9.4Windsor
                    Maritime Corp
                
                Shinnecock
                    Belle
                
                7-Jun-05
                
                
                15,300,000
                
                10.0Kensington
                    Shipping Corp
                
                Maya
                    Princess
                
                28-Jun-05
                
                
                15,810,000
                
                6.5Sterling
                    Shipping Corp
                
                Biloxi
                    Belle
                
                12-Jul-05
                
                
                15,500,000
                
                9.5Remsen
                    Navigation Corp
                
                Maori
                    Maiden
                
                6-Sep-05
                
                
                13,750,000
                
                9.3Darby
                    Navigation Corp.
                
                Nyack
                    Princess
                
                6-Nov-05
                
                
                10,000,000
                
                7.8Birnam
                    Maritime Corp.
                
                Sioux
                    Maiden
                
                7-Nov-05
                
                
                18,500,000
                
                13.2**Vessel
                    Acquisitions for the twelve months ended December 31,
                    2005**
                
                $
                163,850,000
  Depreciation
          and amortization of vessels and other assets was $6,886,720, $10,136,694
          and
          $18,021,267, respectively, for the years ended December 31, 2003, 2004
          and 2005,
          respectively.
  **Note
          11 — Acquisition of TBS Shipping Services Inc. and Roymar Ship Management,
          Inc.**
 In
          connection with its initial public offering, the Company acquired all of
          the
          outstanding shares of common stock of two of its affiliates: TBS Shipping
          Services and Roymar.  The transaction was accounted for as a purchase
          combination; accordingly, the results of operations of TBS Shipping Services
          and
          Roymar have been included in the consolidated financial statements since
          the
          date of acquisition.  TBS Shipping Services provides the Company
          and its
          subsidiaries with vessel voyage operational management, commercial, chartering,
          agency and brokerage services.  Roymar acts as technical ship manager
          for
          the Company and its subsidiaries.  The Company purchased the stock
          of TBS
          Shipping Services and Roymar for $7.3 million, which represents the purchase
          price of $7.5 million plus the undistributed earnings of each company for
          the
          period January 1, 2005 through the date of acquisition of $0.6 million
          that was
          paid in September 2005, less net cash acquired of $0.8 million. 
          The excess
          of the purchase price paid over the net book value of the acquired companies
          was
          $8,425,935, which was recorded as goodwill.  Current assets and
          liabilities
          were recorded at fair market value.  The fair market value of office
          equipment and furnishings approximates their carrying value.  Pro
          forma
          information is not presented, as the effects of these acquisitions are
          not
          material to the Company's consolidated financial position, results of operations
          or operating cash flows in any of the periods presented.
 The
          following table summarizes the estimated fair values of assets acquired
          and
          liabilities assumed at the date of acquisition
 **TBS
                      Shipping**
                  
                  **Roymar
                      Ship****Description**
                  
                  **Services
                      Inc.**
                  
                  **Management
                      Inc.**
                  
                  **Total**Current
                      Assets
                  
                  $
                  1,012,981
                  
                  $
                  200,222
                  
                  $
                  1,213,203Equipment
                      and Furnishings
                  
                  
                  1,025,816
                  
                  
                  381,562
                  
                  
                  1,407,378Goodwill
                  
                  
                  6,429,727
                  
                  
                  1,996,208
                  
                  
                  8,425,935Total
                      assets acquired
                  
                  
                  8,468,524
                  
                  
                  2,577,992
                  
                  
                  11,046,516Liabilities
                      assumed
                  
                  
                  (2,686,177
                  )
                  
                  (268,850
                  )
                  
                  (2,955,027
                  )**Net
                      assets acquired**
                  
                  $
                  5,782,347
                  
                  $
                  2,309,142
                  
                  $
                  8,091,489
 Table
              of Contents
 F-13
 **Note
          12 — Accrued Expenses**
 Accrued
          expenses consist of the following:
 **Description**
                
                **December
                    31, 2004**
                
                **December
                    31, 2005**Drydock
                
                $
                1,265,278
                
                $
                4,189,594Voyage
                    and vessel expenses
                
                
                10,498,175
                
                
                17,695,882Payroll
                    and related costs
                
                
                -
                
                
                2,554,445Commissions
                
                
                396,852
                
                
                967,745Cargo
                    Claim
                
                
                191,278
                
                
                369,999Other
                    Expenses
                
                
                -
                
                
                181,142Total
                
                $
                12,351,583
                
                $
                25,958,807
   The
          drydocking expense for 2003, 2004 and 2005 was $1,252,362, $1,950,778 and
          $3,732,782, respectively.
  Note
          13 — Advances from Affiliates
 Advances
          from
          affiliates, which are entities related by common shareholders, are
          non-interest-bearing, due on demand and expected to be paid in the ordinary
          course of business, generally within the year.  The balance originated
          primarily from management fees, commissions and consulting fees earned
          by the
          affiliates and consist of the following:
 **Affiliate**
                
                **December
                    31, 2004**
                
                **December
                    31, 2005**TBS
                    Commercial Group Ltd.
                
                $
                2,641,485
                
                $
                1,246,482Aquarius
                    Shipping Colombia
                
                
                -
                
                
                146,056Nautica
                    Groupe, Ltd.
                
                
                -
                
                
                16,120$
                2,641,485
                
                $
                1,408,658
  Table
              of Contents
 F-14
 **Note
          14 —  Financing**
 The
          Company's outstanding debt balances were as follows:
 **Interest
                    Rate at December 31, 2005**
                
                **December
                    31, 2004**
                
                **December
                    31, 2005**Series
                    A, First Preferred Ship MortgageNotes,
                    10% due 2005 to 2007
                
                -
                
                $
                3,887,439GMAC
                    credit facility loan,expires
                    June 18, 2009
                
                7.994%
                
                
                13,437,500
                
                $
                15,156,250Merrill
                    Lynch credit facility loan,expires
                    September 1, 2009
                
                7.654%
                
                
                14,036,269
                
                
                9,641,003Merrill
                    Lynch credit facility loan,expires
                    December 16, 2010
                
                6.869%
                
                
                -
                
                
                17,500,000The
                    Royal Bank of Scotland creditfacility
                    loan, expires March 23, 2010
                
                5.46%
                
                
                7,150,000
                
                
                6,385,000AIG
                    credit facility loan,expires
                    March 10, 2010
                
                7.22%
                
                
                -
                
                
                35,180,209Bank
                    of America credit facility loan,expires
                    June 10, 2010
                
                6.77%
                
                
                -
                
                
                21,875,000Debt
                    balance
                
                
                
                $
                38,511,208
                
                $
                105,737,462
  The
          repayment of debt over the next five years and thereafter is as
          follows:
 2006
              $
              31,458,0532007
              
              25,812,6222008
              
              21,433,8852009
              
              18,688,3192010
              
              8,344,583Thereafter
              
              -$
              105,737,462
   Table
            of Contents
 F-15
 **Series
        A, First Preferred Ship Mortgage Notes**
 
 On
        December
        19, 2003, the Company reached an agreement with 94.77% of the existing
        bondholders to purchase the face value of that portion of outstanding debt
        at a
        discounted value. The face value of debt at $40,065,147 was purchased for
        $37,691,657. This transaction resulted in a gain of $2,373,490, which is
        included in the statement of operations.  The purchase was made up
        of a
        discounted amount of $33,804,226 and a contingent amount of $3,887,439 in
        additional consideration payable if certain earnings targets were exceeded.
        The
        agreement provided for payment of 25% of adjusted earnings before interest,
        taxes, depreciation and amortization ("EBITDA") (defined below) in excess
        of
        $19,000,000 in 2004 and $21,000,000 in 2005 to these existing bondholders
        pro
        rata.  The total payment was capped at the bondholders pro rata (94.77%)
        share of $4,102,500 or $3,887,439.  Adjusted EBITDA was defined as
        EBITDA
        for the year, less EBITDA attributable to vessels purchased outright or treated
        as capitalized leases acquired after October 31, 2003.  At December
        31,
        2004, there was an accrual of $3,887,439 recorded on the consolidated balance
        sheet.  The amount was paid on June 30, 2005.
  **GMAC
        Credit Facility**
 The
        credit facility with GMAC was for the original amount of $22.5 million. 
        The Company drew down $15.0 million in July 2004 to replenish the Company's
        working capital in connection with the acquisition of three vessels and $7.5
        million in February 2005 in connection with the acquisition of an additional
        vessel.  Interest on loans under the credit facility is at the "Adjusted
        30-Day LIBOR," as defined in the loan agreement, plus 3.7% and is payable
        monthly in arrears.  Payments of principal are due monthly over 60
        months
        from the draw down date, with half of the amount borrowed due over the first
        24
        months and the balance payable over the remaining 36 months.  Loans
        under
        the credit facility are collateralized by First Preferred Ship Mortgages
        on the
        vessels Mohegan Princess, Tayrona Princess, Tuckahoe Maiden
        and Taino Maiden and assignment of freight revenue and insurance on such
        vessels.
 The
        credit facility agreement contains certain financial covenants which require
        that the Company have fixed charge coverage and funded debt to EBITDA ratios
        within defined limits.  At December 31, 2005, the Company was in compliance
        with these covenants.
 **Merrill
        Lynch Credit Facility**
 The
        original amount of the credit facility with Merrill Lynch was $15.0
        million.  The Company drew down the full facility in August 2004,
        to
        replenish the Company's working capital in connection with the acquisition
        of
        two vessels.  Interest is at 7.654% and is payable monthly. 
        Payments
        of principal are due monthly over 60 months from the draw down date, with
        55% of
        the amount borrowed due over the first 24 months and the balance payable
        over
        the remaining 36 months.  The credit facility is collateralized by
        First
        Preferred Ship Mortgages on the vessels Iroquois Maiden and Manhattan
        Princess and assignment of freight revenue and insurance on such
        vessels.  On December 15, 2005, the credit facility was amended removing
        the requirement for the Company to maintain positive working capital. 
        In
        addition, the credit facility agreement requires minimum collateral coverage
        and
        requires mandatory prepayment or delivery of additional security in the event
        that the fair market value of the acquired vessels falls below 160% of the
        outstanding loan balances. The Company has agreed to prepay approximately
        $2.3
        million by March 31, 2006.
 In
        December 2005, the Company borrowed $17.5 million under a second credit facility
        with Merrill Lynch. The Company drew down the full facility to replenish
        the
        Company's working capital in connection with the acquisition of two
        vessels.  Interest is at LIBOR plus 2.5% and is payable monthly. 
        Payments of principal are due monthly over 60 months from the draw down date,
        with 55% of the amount borrowed due over the first 24 months and the balance
        payable over the remaining 36 months.  The credit facility is
        collateralized by First Preferred Ship Mortgages on the vessels Biloxi
        Belle and Maori Maiden, assignment of freight revenue and insurance
        on such vessels, and second Preferred Ship Mortgages on the vessels Iroquois
        Maiden and Manhattan Princess and second assignments of freight
        revenue and insurance on such vessels.
 **The
        Royal Bank of Scotland Credit Facility**
 The
        credit facility with The Royal Bank of Scotland was for the original amount
        of
        $7.15 million.  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 credit facility is
        collateralized by a First Preferred Ship Mortgage on the vessel Wichita
        Belle and assignment of freight revenue and insurance.  The credit
        facility requires that the Company maintain a monthly average of $1,500,000
        on
        deposit with the bank.
 Table
            of Contents
 F-16
 **AIG
        Credit Facility**
 The
        original amount of the credit facility with AIG was $45.0 million. 
        The
        Company drew down $23.5 million in March 2005 to replenish the Company's
        working
        capital in connection with the acquisition of four vessels and $ 21.5 million
        in
        April 2005 in connection with the acquisition of three vessels.  Interest
        on loans under the credit facility is at the 90-Day LIBOR plus 3.15% and
        is
        payable monthly in arrears.  Payments of principal are due monthly
        over 60
        months from the draw down date, with 55% of the amount borrowed due over
        the
        first 24 months and the balance payable over the remaining 36 months. 
        Loans under the credit facility are collateralized by First Preferred Ship
        Mortgages on the vessels: Siboney Belle, Ainu Princess, Tamoyo
        Maiden, Mohawk Princess, Rockaway Belle, Tuscarora
        Belle and Miami Maiden and assignment of freight revenue and
        insurance on such vessels.
 The
        credit facility agreement contains certain financial covenants which require
        that the Company have fixed charge coverage, debt to EBITDA, EBITDA to debt
        service, debt to net worth ratios and working capital ratios within defined
        limits.  The agreement also requires that the Company maintain minimum
        cash
        and cash equivalent balances.  At December 31, 2005, the Company was
        in
        compliance with all covenants except for the EBITDA to debt service ratio. 
        The Company obtained a waiver from the lender, dated December 31, 2005, to
        waive
        the covenant violation as of December 31, 2005.  The lender has also
        agreed
        to reduce  the required EBITDA to debt service ratio from 2.0 to 1.0
        to 1.6
        to 1.0 at March 31, 2006, June 30, 2006, September 30, 2006 and December
        31,
        2006, after which it will revert to the original ratio requirement. 
        Management believes that based upon current projections of 2006 quarterly
        EBITDA
        the Company will be in compliance with this covenant.
 **Bank
        of America Credit Facility**
 The
        credit facility with Bank of America is for $25.0 million.  The Company
        drew down $7.8 million in June 2005 for working capital use and the balance
        of
        $17.2 million on July 21, 2005, to replenish the Company's working capital
        in
        connection with the acquisition of the vessels Shinnecock Belle,Maya
        Princess and Chesapeake Belle.  Interest on loans under the
        credit facility is at adjusted LIBOR plus 2.75% or a base rate, as defined
        in
        the agreement, plus 1.25% as selected by the Company at the time of the drawdown
        and is payable monthly in arrears.  Payments of principal are due
        quarterly
        over 20 quarters, with 50% of the amount borrowed due over the first eight
        quarters, 40% over the next eight quarters and the balance payable over the
        remaining four quarters.  The loan under the credit facility is
        collateralized by First Preferred Ship Mortgages on the vessels Shinnecock
        Belle,Maya Princess and Chesapeake Belle and assignment of
        freight revenue and insurance on such vessels.
 The
        credit facility agreement contains certain financial covenants which require
        that the Company have fixed charge coverage and debt to EBITDA ratios and
        net
        worth within defined limits.  The agreement also requires that the
        Company
        maintain minimum cash and cash equivalent balances. At December 31, 2005,
        the
        Company was in compliance with all covenants except for the EBITDA to debt
        service ratio.  On March 3, 2006, the Bank of America agreed to waive
        the
        EBITDA to debt service ratio requirement for the quarter ended December 31,
        2005, and to amend the credit facility agreement to change the method used
        in
        calculating the EBITDA to debt service ratio.  Under the revised method,
        we
        believe that based upon current projections of our 2006 quarterly EBITDA,
        we
        will be in compliance with this covenant.
 In
        addition, certain of the above credit facility agreements contain restrictive
        covenants which among other things, require minimum collateral coverage,
        restrict the payment of dividends and restrict leverage, investment and capital
        expenditures without consent of the lender.  Certain agreements require
        mandatory prepayment or delivery of additional security in the event that
        the
        fair market value of the acquired vessels falls below limits specified in
        the
        loan agreements.
 **Citibank
        Revolving Credit Facility**
 On
        June
        14, 2005, the Company, through two of it's subsidiaries Newkirk Navigation
        Corp.
        and Frankfort Maritime Corp., entered into a $12.0 million revolving credit
        facility with Citibank, N.A.. On June 17, 2005, the Company borrowed an
        aggregate of $12.0 million on the facility.  The term of the revolving
        credit facility commenced on June 17, 2005 (date of first borrowing), and
        will
        end on May 31, 2006.  Outstanding borrowings under the revolving credit
        facility bear interest, at the borrower's option at the time of borrowing 
        either at (i) the higher of a floating base rate determined by Citibank and
        an
        average three-month certificate of deposit rate plus 0.5%, or (ii) at a rate
        equal to LIBOR plus 2.0%.  The Company is required to pay a commitment
        fee
        of 0.25% on any amounts not drawn down under this facility.  Interest
        on
        amounts outstanding under the revolving credit facility is payable every
        three
        months.  Advances may be prepaid at any time without penalty and must
        be
        repaid in full no later than May 31, 2006.  The Company and two of
        its
        subsidiaries are guarantors under this facility.  The facility is
        collateralized by First Preferred Ship Mortgages on the vessels Dakota Belleand the Shawnee Princess.  On June 30, 2005 the borrowing under
        the facility was repaid.
  Table
            of Contents
 F-17
 **Note
        15 — Charters-in of Vessels:**
 As
        of  December 31, 2005 the Company had 10 chartered-in vessels, seven
        (7)
        vessels under capital leases and three (3) vessels under operating leases. 
        The future minimum commitments under charters-in are as follows:
 **At
                  December 31,**
              
              **Operating**
              
              **Capital**2006
              
              $
              11,511,433
              
              $
              5,855,2082007
              
              
              -
              
              
              6,387,5002008
              
              
              -
              
              
              6,387,5002009
              
              
              -
              
              
              13,458,958Net
                  minimum lease payments
              
              $
              11,511,433
              
              
              32,089,166Less
                  amount representing interest
              
              
              
              
              
              7,386,145Present
                  value of net minimumlease
                  payments, includingcurrent
                  maturities of $3,348,340
              
              
              
              
              $
              24,703,021
 Charters-in
        Classified as Operating Leases
 The
        Company charters-in three vessels (National Pride, National Honor
        and Tian Tan Hai) under long-term noncancelable operating leases that
        expire on November 25, 2006, September 15, 2006 and May 31, 2006,
        respectively.  These charters-in had initial terms of more than one
        year at
        the inception of the charter.  Minimum future lease payments under
        long
        tong term charters are shown above.
 The
        Company also charters-in vessels under short-term charters, which have initial
        terms of less than one year.  Total lease expense, consisting of both
        short
        and long term charters-in, classified as operating leases, are as
        follows:
 **Year
                    ended December 31,****2003**
                
                **2004**
                
                **2005**Charters-in
                    under short term operating leases
                
                $
                33,017,118
                
                $
                39,043,355
                
                $
                14,259,581Charters-in
                    under long term operating leases
                
                
                6,816,618
                
                
                16,637,791
                
                
                16,859,650Total
                    lease expense
                
                $
                39,833,736
                
                $
                55,681,146
                
                $
                31,119,231
  Charters-in
        Classified as Capital Leases
 On
        April
        22, 2005, the Company exercised its option to purchase the Comanche Bellefor $3,815,000.  Delivery was taken on November 16, 2005.
  In
        December 2003, the Company entered into sale-leaseback agreements for seven
        of
        its Handysize Tweendecker vessels, which leases are classified as capital
        leases.   The vessels were sold for $31.5 million 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 Company anticipates exercising its purchase option.  The purchase
        options for each of the seven (7) vessels covered under this transaction
        is
        shown in the following table.  The amount of the purchase options
        decrease
        from December 2006, the initial period in which the Company can exercise
        the
        purchase options, through June 2009, the end of the lease term:
 December
                  2006
              
              $
              3,800,000June
                  2007
              
              $
              3,300,000December
                  2007
              
              $
              2,900,000June
                  2008
              
              $
              2,400,000December
                  2008
              
              $
              2,000,000June
                  2009
              
              $
              1,500,000
  Table
            of Contents
 F-18
 On
        November 25, 2003, the Company entered into an agreement to purchase the
        Rockaway Belle. The agreement required the Company to pay $1,000,000 upon
        delivery. Thereafter, a bareboat hire fee of $2,550 per day beginning from
        the
        November 25, 2003 delivery date and two capital payments of $200,000 in May
        and
        November of 2004 were made.  The agreement contained purchase options
        that
        are monthly beginning at $2,705,950 as of January 2005 decreasing approximately
        $80,000 each month to $1,000,000 as of November 2006.  In March 2005,
        the
        Company exercised its option to purchase the Rockaway Bellefor
        $2,512,150.
  On
        March
        15, 2002, the Company entered into an agreement to purchase two vessels.
        The
        agreement required the Company to pay $750,000 per vessel upon delivery.
        The
        deliveries took place April 1, 2002 for the Tayrona Princess and April 3,
        2002 for the Mohegan Princess. Thereafter, a bareboat hire fee of $2,695
        per vessel, per day beginning at the inception of the lease and six capital
        payments of $480,000, for both vessels, beginning in January 2003 and ending
        in
        September 2004 will be made. On June 18, 2004, the Company purchased these
        vessels.
  The
        assets
        and liabilities under the capital leases were recorded at the fair values
        of the
        acquired assets, which approximated the present values. There are no executory
        costs for capital lease vessels except for the Comanche Belleon which
        the Company exercised the purchase option and closed on the vessel in November
        2005.
 ****
              **Gross**
              ****
              **Accumulated**
              ****
              **Net**
              ******Period**
              ****
              **Asset**
              ****
              **Depreciation**
              ****
              **Book
                  Value**December
                  31, 2004
              
              $
              46,044,330
              
              $
              8,928,109
              
              $
              37,116,221December
                  31, 2005
              
              $
              33,104,708
              
              $
              5,041,462
              
              $
              28,063,246
  Depreciation
        expense on the vessels under capital leases was $1,986,574, $4,933,455 and
        $2,209,395 for the years ended December 31, 2003, 2004 and 2005
        respectively.
  **Note
        16 —Related Party Transactions**
 Prior
        to
        our initial public offering in June 2005, the Company had many related party
        transactions with brother-sister companies Roymar and TBS Shipping Services
        (the
        "Management Companies"), that are under common ownership.  The management
        companies provide technical ship management (obtaining crews, coordinating
        maintenance and repairs, drydocking, etc.) and operational management (arranging
        insurance and claims processing, and providing general administrative services
        i.e. accounting, legal, etc. and port agent services , i.e. port calls,
        stevedoring, etc.).  Some of the individuals, who own a majority of
        the
        Company’s common shares, and some of whom are members of the Board of Directors,
        owned these Management Companies.  Just prior to the Company’s initial
        public offering, the Company purchased the two Management Companies from
        these
        individuals.  The Company outsourced all of its operational functions
        to
        these Management Companies.
  **Overseas
        – Related Party Companies**
 The
        Company maintains several commercial agents located in various countries
        where
        the Company conducts its business.  There are two unconsolidated overseas
        companies who provide the same type of service to the Company on an annual
        basis. These companies are:
 (1) 
        **TBS Commercial Group Ltd. –**This Bermuda-based holding company
        owns nine operating companies for ownership in commercial and port agencies
        in
        South America, Europe, Japan and China. Its subsidiaries are (1) Solar Shipping
        Ltda. (TBS Do Brasil); (2) TBS-Tecnisea C. Ltda.; (3) TBS-Chile S.A.; (4)
        Aquarius Shipping Colombia Ltda.; (5) TBS De Venezuela C.A.; (6) TBS Bolivia
        S.R.L.; (7) TBS Asia Ltd.; (8) TBS Shipping Services Europe GmbH and  (9)
        TBS Peru Seganport S.A..
 (2) 
        **Beacon Holdings Ltd. –**This holding company owns one operating
        company: Bademar in Ecuador. Beacon is in the same business as TBS Commercial
        Group Ltd..
 The
        underlying fees and rates are based upon contractual agreements with the
        Company.  Individuals who own a majority of the Company’s common shares,
        and some of whom are members of the Board of Directors own these overseas
        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.
  Table
            of Contents
 F-19
 **Port
        Agents**
 At
        December 31, 2004 and 2005, included in accounts payable and accrued expenses
        and other liabilities are amounts due to related port agents per the schedule
        below:
 **Accrued****Accounts**
              
              **and
                  Other****Period**
              
              **Payable**
              
              **Liabilities**
              
              **Total**December
                  31,2004
              
              $
              60,529
              
              $
              388,236
              
              $
              448,765December
                  31,2005
              
              $
              41,526
              
              $
              1,161,331
              
              $
              1,202,857
  Additionally,
        amounts advanced to related port agents to fund operations have been included
        in
        the financial statements as advances to affiliates.
 **Management
        Fees**
 Management
        fees are paid by TBS Worldwide Services Inc. and its subsidiaries (the Pool
        Companies) and subsidiaries of Westbrook Holdings Ltd. to TBS Shipping Services
        Inc. and Roymar Ship Management, Inc.  In connection with our initial
        public offering, we purchased all the stock of these two companies and,
        accordingly, their results of operations have been included in our consolidated
        financial statements as of the date of acquisition.  After the acquisition,
        when these companies became subsidiaries of the Company, we continued to
        pay
        management fees; however, the fees have been eliminated in consolidation. 
        The amounts paid to TBS Shipping Services Inc. and Roymar Ship Management,
        Inc.,
        through June 2005, the date of acquisition, along with their respective monthly
        charges per vessel, are listed in the schedule below:
 **Year
                    Ended December 31,****2003**
                
                **2004**
                
                **2005**Management
                    fee paidTBS
                    Shipping Servies, Inc.
                
                $
                2,298,785
                
                $
                2,429,532
                
                $
                1,211,021Roymar
                    Ship Management, Inc.
                
                
                1,566,043
                
                
                1,984,377
                
                
                1,413,370$
                3,864,828
                
                $
                4,413,909
                
                $
                2,624,391Management
                    fee rates per month per vesselTBS
                    Shipping Servies, Inc.
                
                $
                7,653
                    (a
                )
                $
                8,447
                    ( b
                )
                $
                8,447
                    (b
                )Roymar
                    Ship Management, Inc.
                
                $
                10,898
                    (a
                )
                $
                12,029
                    (b
                )
                $
                12,029
                    (b
                )(a)
                    Rates effective February 8, 2001(b)
                    Rates effectie February 8, 2004, which includes cost of living
                    adjustments.
  The
          Company
          maintains several commercial agents, which are related through partial
          common
          ownership, located in various countries where the Company conducts its
          business.
          These commercial agents consist of TBS Shipping Services Inc.(through June
          2005,
          the date of acquisition), along with TBS Commercial Group Ltd. and its
          subsidiaries: Solar Shipping Ltda. (TBS Do Brasil), TBS-Tecnisea C. Ltda.
          TBS-Chile S.A., Aquarius Shipping Colombia Ltda., TBS De Venezuela C.A.,
          TBS
          Bolivia S.R.L., TBS Asia Ltd., TBS Shipping Services Euro pe
          GmbH,
          and TBS Peru-Seganport S.A.
  Table
            of Contents
 F-20
 Commissions
          paid by a subsidiary of Westbrook Holdings, Ltd. to Nautica Groupe, Ltd.
          relate
          to commissions per the lease agreement with the owner of the vessel Comanche
          Belle.  Commissions to Nautica Groupe Ltd. ended in November 16,
          2005
          when the vessel was acquired in connection with the exercise of the purchase
          option.
 **Year
                  Ended December 31,****2003**
              ****
              **2004**
              ****
              **2005****Commissions
                  paid to**TBS
                  Shipping Services, Inc.
              
              $
              3,512,510
              
              $
              5,586,865
              
              $
              2,617,298TBS
                  Commercial Group Ltd.
              
              
              3,567,893
              
              
              4,401,321
              
              
              5,311,7327,080,403
              
              
              9,988,186
              
              
              7,929,030Nautica
                  Groupe, Ltd.
              
              
              32,215
              
              
              29,624
              
              
              24,606Roymar
                  Ship Management, Inc.
              
              
              39,500
              
              
              250,000
              
              
              -$
              7,152,118
              
              $
              10,267,810
              
              $
              7,953,636
  Port
        agency
        fees were paid to TBS Commercial Group Ltd. and Beacon Holdings Ltd. in the
        amount of $603,879, $685,438 and $890,369, for the years ended December 31,
        2003, 2004, 2005 respectively.
  **Chartering
        Broker**
 Globe
        Maritime Limited, owned by James W. Bayley, acts as a chartering broker for
        the
        Company. James W. Bayley is a member of the board of directors. During 2003,
        2004 and 2005, the Company paid Globe Maritime Limited $158,000, $219,000
        and
        $49,000 respectively.
 James
        W.
        Bayley owned 1% of the outstanding interest of the parent entity of TBS North
        America Liner Ltd. (“TNA”) and 40% of the outstanding voting shares of
        TNA.  The parent entity of TNA owns 60% of the outstanding voting
        shares
        and 100% of the outstanding non-voting shares of TNA.  International
        indirectly owned the other 99% of the outstanding interest of the parent
        entity
        of TNA.  In December 2005, the parent entity of TNA was dissolved
        and on
        December 29, 2005, Mr. Bayley transferred his entire interest in TNA to
        International. At that date TNA became a wholly-owned subsidiary of
        International.
 **Lease**
 One
        of
        our subsidiary service companies, TBS Shipping Services Inc. maintains an
        office
        in Yonkers, New York that is leased from our founder, chairman and chief
        executive officer, Joseph E. Royce. During 2003, 2004 and 2005, payments
        to Mr.
        Royce under this lease totaled $240,000 per year.
 **Legal
        Services**
 During
        2003, 2004 and 2005, payments from the Company to Mr. Blatte for legal services
        totaled $445,000, $438,000 and $ 503,000, respectively. During 2003, 2004
        and
        2005, payments from TBS Shipping Services Inc. and TBS Commercial Group Ltd.
        to
        Mr. Blatte for legal services totaled $50,000, $205,000 and $150,000,
        respectively. Mr. Blatte was not an officer of International at the time
        the
        services were rendered and the payments were received.
  **Note
        17 —  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.  The Company has paid 12 quarterly dividend
        payments
        "in-kind."  In-kind dividend payments are added to the recorded value
        of
        the mandatorily redeemable preference shares with an offset to additional
        paid-in capital. The first 12 quarterly payments, due on April 15, 2001,
        July
        15, 2001, October 15, 2001, January 15, 2002, April 15, 2002, July 15, 2002,
        October 15, 2002, January 15, 2003, April 15, 2003 and July 15, 2003, October
        15, 2003 and, January 15, 2004, were deemed in-kind payments.
 Table
            of Contents
 F-21
 The
        effect of these declarations for the year ended December 31, 2003 was
        $1,230,357. Cumulative dividends paid-in-kind as of December 31, 2003 were
        $3,367,137.  The Company must redeem these mandatorily redeemable
        preference shares in whole for $15 per share plus accrued but unpaid dividends
        on the tenth anniversary date. The $5,000,000 excess redemption value over
        the
        fair value is being accreted ratably over the ten-year period against additional
        paid-in capital through June 30, 2003. Effective July 1, 2003, the Company
        adopted FAS 150 which resulted in the preference share dividends deemed in-kind
        and accretion subsequent to that date to be reported on the statement of
        operations in the amount of $829,703. The accretion for the year ended December
        31, 2003 was $396,173 and added to the recorded value. Cumulative accretion
        through the year ended December 31, 2003 was $1,014,714.
 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 to permit the
        conversion, at the option of the holder, of each preference share to two
        old
        Class C common shares. The Company also authorized an additional 250,000
        preference shares, bringing the total authorized to 1,500,000. Thereafter,
        the
        Company repurchased 224,476 preference shares from TBS Commercial Group Ltd.
        for
        an aggregate consideration of $1.00.
 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 Class C common shares constituted payment in full of the preference
        shares.
 **Other
        Equity Transactions**
 On
        June 29,
        2005, 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 common (1,200,000 shares) shares as 2,400,000
        new Class B common shares. Concurrent to 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.
 **Warrants**
 At
        December
        31, 2004, 1,769,231 Series A, 411,756 Series B and 485,671 Series C warrants
        were outstanding.  The warrants were issued by the Company in connection
        with its emergence from bankruptcy, and were valued at $800,000 at the time
        of
        issuance.  The fair value was established based upon a cash flow model
        as
        determined by a third-party appraiser, and accepted by the bondholders, the
        U.S.
        Bankruptcy Court and the Company.  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.  The Series A warrants were exercisable if
        the
        first Preferred Ship Mortgage Notes were not paid in full by February 8,
        2005,
        and, when exercised, would represent approximately 27% of the total outstanding
        shares of the Company on a fully diluted basis.  The Series B warrants
        were
        exercisable if the preference shares were not paid in full by February 8,
        2006,
        and, when exercised, would represent approximately 6% of the total outstanding
        common shares of the Company on a fully diluted basis.  The Series
        C
        warrants were exercisable only if the exercise conditions of the Series A
        and
        Series B warrants were satisfied and, when exercised, would represent
        approximately 7% of the total outstanding common shares of the
        Company.
 The
        first
        Preferred Ship Mortgage Notes were paid on June 29, 2005 (after February
        8,
        2005) and accordingly, the Series A warrants became exercisable. 
        As noted
        above, in connection with the initial public offering, the holders of the
        Company's convertible preference shares exercised their right to convert
        the
        convertible preference shares into Class C Common shares.  As the
        conversion of the preference shares constituted payment in full of the
        preference shares, the exercise condition for the Series B and Series C warrants
        became incapable of being met as of June 29, 2005.  As a result of
        the
        anti-dilution provisions of the warrant agreement, following the conversion
        of
        all the outstanding preference shares into Class C common shares, the number
        of
        common shares issuable upon exercise of all outstanding Series A warrants
        increased from 1,769,231 to 2,167,539 Class C common shares.  The
        issuance
        of 7,000,000 new Class A common shares in connection with the initial public
        offering further increased the number of shares issuable upon exercise of
        all
        outstanding Series A warrants from 2,167,539 to 2,901,403 Class C common
        shares.  The number of shares issuable under the Series A warrants
        were
        2,515,368 new Class A common shares and 4,874,357 new Class B common shares,
        after giving effect to the common share conversion described above in Other
        Equity Transactions.  On June 29, 2005, Series A warrants to purchase
        2,125,392 Class C common shares, or 1,842606 new Class A and 3,576,590 new
        Class
        B common shares, held by certain existing shareholders, were exercised. 
        In
        addition, in connection with the initial public offering, the 662,952 Series
        A
        warrants to purchase 574,434 new Class A and 1,113,155 new Class B common
        shares
        held by these shareholders were cancelled.
 At
        December
        31, 2005, there were outstanding exercisable warrants to purchase 98,311
        new
        Class A and 190,542 new 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.
 Table
            of Contents
 F-22
 **New
        Class A and New 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 and 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, and 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.
  Note
        18 —
        Earnings Per Share
 **Year
                  Ended December 31,****2003**
              
              **2004**
              
              **2005****Numerators:**Net
                  (loss) income
              
              $
              (1,994,175
              )
              $
              41,906,694
              
              $
              53,273,821Dividends
                  on mandatorily redeemable preference shares
              
              
              (796,827
              )Net
                  income allocated to preference shares
              
              
              
              
              
              (11,497,264
              )
              
              (5,461,345
              )Net
                  (loss) income available for common shareholders (basic and
                  diluted)
              
              $
              (2,791,002
              )
              $
              30,409,430
              
              $
              47,812,476**Denominators:**Basic-weighted
                  average common shares outstanding
              
              
              10,187,795
              
              
              10,187,795
              
              
              21,870,160Restricted
                  stock issued to employees
              
              
              
              
              
              
              
              
              53,252Dilutive
                  effect of Series A, B & C warrants
              
              
              -
              
              
              10,197,980
              
              
              2,387,497Diluted-weighted
                  average common shares and potential common shares
                outstanding
              
              
              10,187,795
              
              
              20,385,775
              
              
              24,310,909**Income
                  (loss) per common share:**Basic
              
              $
              (0.27
              )
              $
              2.98
              
              $
              2.19Diluted
              
              $
              (0.27
              )
              $
              1.49
              
              $
              1.97
   Table
            of Contents
 F-23
 As
        described
        above in Note 17 — Equity Transactions — Preference Shares, the convertible
        preference shares were converted into Class C common shares on June 29, 2005
        in
        connection with the initial public offering.  Prior to conversion,
        each
        convertible preference share was convertible into two 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
        Class C common shares that the preference shares were convertible to. 
        The
        basic earnings per share calculation 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
        FAS
        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, 2004 and 2005 the convertible preference shares,
        which
        were amended on March 30, 2004 to permit conversion to common shares, would
        have
        added 3,851,824 and 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.
 Effective
        June 29, 2005, the closing date of the Company's initial public offering,
        the
        Company adopted new corporate Bye-laws which resulted in the consolidation
        and
        redesignation of shares.  The Company redesignated its 1,500,000 Class
        A,
        1,500,000 Class B and 3,000,000 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 consolidated the Company's outstanding old Class
        A,
        Class B and Class C common shares as 2,400,000 new Class B common shares.
 Concurrently
        with the initial public offering, the Company issued approximately 2.167
        new
        Class A common shares and 3.20 additional new Class B common shares for each
        new
        Class B share outstanding following the consolidation.  The change
        in
        common shares have been retroactively adjusted for all financial statements
        presented for the purpose of calculating basic and diluted earnings per
        share.
 The
        Series A
        warrants were exercisable for a total of 7,389,725 common shares as adjusted
        for
        the redesignated and consolidated shares described above 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.  During 2003, exercise
        of the
        Series A, B and C warrants would have added 10,197,980 common shares. 
        These shares were not included in 2003 earnings per share dilution calculation
        because the effect would have been antidilutive.
 On
        June 29,
        2005, certain shareholders who also held Series A warrants exercised their
        warrants to purchase 5,413,265 common shares; concurrently they cancelled
        Series
        A warrants to purchase 1,687,589 shares.  At December 31, 2005 exercisable
        warrants were outstanding to purchase 98,311 new Class A and 190,542 new
        Class B
        common shares, which were held by parties not affiliated with individual
        who own
        a majority of the Comapny’s common shares.  On June 29, 2005, 100,000 and
        4,500 restricted Class A common shares were issued to an officer and to outside
        directors, respectively.
 Note
        19
— 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, at which time, 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, all vesting one year after issuance. The aggregate value of
        restricted Class A common shares issued to the chief financial officer,
        employees and independent directors was approximately $2.1 million. 
        The
        restricted share award to the chief financial officer will result in a charge
        to
        compensation expense and an increase in paid-in capital of $250,000 in each
        of
        the next four years.  The Company’s consolidated financial statements for
        the year ended December 31, 2005, include compensation costs of $125,000
        from
        June 29, 2005, the date of the award.  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 issue of the 106,900 Class A common shares to employees
        of
        Roymar and TBS Shipping Services.  The share award to Roymar and TBS
        Shipping Services employees resulted in a one-time charge to compensation
        expense of $1.9 million and an increase to paid-in capital, which have been
        included in the consolidated financial statements for the year ended December
        31, 2005.  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.  The restricted share award to the
        independent directors will result in a charge to compensation expense and
        an
        increase in paid-in capital of $45,000.  The Company’s consolidated
        financial statements for the year ended December 31, 2005, include compensation
        costs of $22,500 from June 29, 2005, the date of the award.
 Table
            of Contents
 F-24
 **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, 2005, no shares were subscribed
        under
        the plan.
  **Note
        20 — Employee Benefit Plan**
 The
        Company
        maintains, through it 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.
  **Note
        21 — Commitments and Contingencies**
 **Litigation**
 In
        connection
        with the acquisition of the vessel Sea Pantheon renamed Tamoyo
        Maiden the Company is seeking damages for the cost of repairs and loss of
        hire related to ballast tank contamination discovered after delivery of the
        vessel.  As specified in the purchase agreement, the dispute was made
        in
        London.  The Company, through its subsidiary, had an associated vessel
        that
        is owned by a company related to the seller arrested to secure its claim. 
        That vessel was released upon the seller providing a bank guarantee in the
        amount of $2.1 million.  The seller alleged damages due to the arrest
        of
        the associated vessel and the Company, as required under English law, placed
        $750,000 on June 6, 2005, as counter-security to provide for estimated
        arbitration/litigation costs.  Legal counsel, on August 17, 2005,
        obtained
        a reduction of $217,500 in the amount of the counter-security to $532,500. 
        The matter is currently in discovery and arbitration proceedings are expected
        to
        begin in April 2006.
 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.
 **Office
        Leases**
 We
        lease two
        properties, which are used by our service company subsidiaries for the
        administration of our operations.  Our main office space is rented
        from our
        chairman and chief executive officer.  The lease, which expires December
        31, 2008, provides for monthly rent of $20,000 per month, plus operating
        expenses including real estate taxes.  The lease contains five three-year
        renewal options.
 The
        Company,
        through its subsidiary Roymar, leases office space under an operating lease
        expiring October 31, 2007.  The lease provides for monthly rent of
        $21,275
        plus additional rent for real estate tax escalations.  The lease contains
        two one-year renewal options.  Future
        minimum commitments under operating leases for offices is as
        follows:
 At
                  December 31
              
              Amount2006
              
              $
              495,3002007
              
              
              452,7502008
              
              
              240,000Net
                  minimum lease payments
              
              $
              1,188,050
  **Note
        22 —Sale of Vessel**
 During
        July
        2003, the Company entered into a memorandum of agreement with another company
        to
        sell the Chippewa Belle. The Chippewa Belle was sold on October
        15, 2003 for $3,950,000, less a 3.75% sales commission, for net proceeds
        of
        $3,801,875. The proceeds from the sale of the Chippewa Belle were
        utilized to pay down debt in the December 19, 2003 refinancing transaction.
        The
        gain on the sale of the Chippewa Belle was $193,076.
  Table
            of Contents
 F-25
 **Note
        23 —Joint Venture Agreement:**
 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 has a 50% interest
        in the joint venture and is required to make a capital investment of $100,000
        and loans of $400,000.  The investment in the joint venture will be
        accounted for using the equity method. At December 31, 2005, one voyage was
        made
        under the joint venture.  The Company’s share of the estimated income from
        the voyage is approximately $52,000 and is include in other income on the
        consolidated statement of operations.
  **Note
        24 — Business Segment**
 The
        Company
        is managed as a single business unit that provides worldwide ocean
        transportation of dry cargo service 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 foreign countries (other than the U.S.) is $105.4
        million, $140.8 million and $159.7 million for the years ended December 31,
        2003, 2004 and 2005, respectively.
 Revenue
        was
        generated in the following principal foreign geographic areas:
 **Year
                  December 31,****Country**
              
              **2003**
              
              **2004**
              
              **2005**Brazil
              
              $
              27,005,925
              
              $
              45,651,573
              
              $
              50,922,219Japan
              
              
              17,924,172
              
              
              22,416,220
              
              
              27,102,181Chile
              
              
              11,261,113
              
              
              16,516,395
              
              
              21,602,403Peru
              
              
              5,770,142
              
              
              12,819,836
              
              
              16,311,236United
                  Arab Emirates
              
              
              17,924,172
              
              
              7,643,242
              
              
              655,879Venezuela
              
              
              13,769,229
              
              
              8,468,493
              
              
              12,327,840Korea
              
              
              1,927,285
              
              
              8,638,296
              
              
              6,633,213China
              
              
              2,094,994
              
              
              7,503,819
              
              
              11,815,693Others
              
              
              7,701,957
              
              
              11,104,849
              
              
              12,318,362**$**
              **105,378,989**
              
              **$**
              **140,762,723**
              
              **$**
              **159,689,026**
  Revenue
        is
        attributed to these countries based on the location where the cargo is
        loaded.  The difference between total voyage revenues and total revenue
        by
        country is revenue generated from U.S. voyages.  Time charter revenue
        by
        country cannot be allocated because the Company does not control the itinerary
        of the vessel.
 One
        customer
        accounted for 10.8% and 7.3% of charter hire receivables at December 31,
        2004
        and December 31, 2005, respectively.  One customer accounted for 12.1%,
        6.3% and 6.5% of voyage and time charter revenue for the year ended December
        31,
        2003, 2004 and 2005, respectively.
  **Note
        25 — Subsequent Events**
 **Vessels
        under contract for purchase:**
 On
        December
        29, 2005, the Company signed a Memorandum of Agreement to purchase the
        multipurpose tweendeckerKibishio Maruto be renamedAztec Maiden
        for $8,100,000. A 10% deposit of $810,000 was made on January 4, 2006.
        The
        vessel is expected to be delivered in April 2006.
  Table
            of Contents
 F-26
 Note
        26 —
        Selected Quarterly Financial Information (unaudited)
  The
        following information is presented as supplementary financial information
        for
        2005 and 2004 (in thousands, except per share information):
 **Year
                  Ended December 31, 2005****First
                  Quarter**
              
              **Second
                  Quarter**
              
              **Third
                  Quarter**
              
              **Fourth
                  Quarter**Revenue
              
              $
              60,909
              
              $
              60,521
              
              $
              59,019
              
              $
              67,582Income
                  from operations
              
              
              17,792
              
              
              15,786
              
              
              14,855
              
              
              13,435Net
                  (loss) income available for common shareholders :(a)
              
              
              10,796
              
              
              10,667
              
              
              12,277
              
              
              11,047Net
                  income per share:(a)Basic
              
              
              1.06
              
              
              0.62
              
              
              0.44
              
              
              0.39Diluted
              
              
              0.53
              
              
              0.52
              
              
              0.44
              
              
              0.39**Year
                  Ended December 31, 2004****First
                  Quarter**
              
              **Second
                  Quarter**
              
              **Third
                  Quarter**
              
              **Fourth
                  Quarter**Revenue
              
              $
              44,467
              
              $
              49,802
              
              $
              56,071
              
              $
              58,467Income
                  from operations
              
              
              13,195
              
              
              13,095
              
              
              10,539
              
              
              10,115Net
                  (loss) income available for common shareholders :(a)
              
              
              12,067
              
              
              8,065
              
              
              9,201
              
              
              8,475Net
                  income per share:(a)Basic
              
              
              1.18
              
              
              0.79
              
              
              0.60
              
              
              0.53Diluted
              
              
              0.59
              
              
              0.40
              
              
              0.30
              
              
              0.27
  (a)   
          The quarterly computations are independent of the annual computation. 
          The
          computation of quarter and annual earnings per share includes a weighting
          of the
          average number of shares outstanding and an allocation of the pro-rata
          share of
          net income to convertible preference shares that will vary for each period.
           Accordingly, the sum of the four quarters’ income per share will not equal
          the annual earnings per share.  See Note 18 Earnings per share.
  Table
            of Contents
 F-27
 **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  2006.
   **TBS
                  INTERNATIONAL LIMITED**(Registrant)/s/
                  Joseph E.
                  RoyceJoseph
                  E. RoycePresident and Chief Executive Officer/s/
                  Ferdinand V.
                  LepereFerdinand
                  V. LepereSenior Vice President, Chief Financial
                  Officer/s/
                  Anthony
                  GentileAnthony
                  GentileController, 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 2006
          by the
          following persons in the capacities indicated:
  /s/
                    Gregg L. McNelis
                
                /s/
                    Randee E. DayGregg
                    L. McNelis, Senior Executive Vice President, Chief Operating
                    Officer and
                    Director
                
                Randee
                    E. Day, Director/s/
                    James W. Bayley
                
                /s/
                    William P. HarringtonJames
                    W. Bayley, Vice President and Director
                
                William
                    P. Harrington, Director/s/
                    Peter S. ShaerfPeter
                    S. Shaerf, Director
   Table
              of Contents