**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, 2006**


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:




**Title
                of Each Class**
            **Name
                of Each Exchange on Which Registered**Class
                A Common Shares, par value $0.01
            NASDAQ
                Global MarketSecurities
                registered pursuant to Section 12(g) of the Act:
                NoneIndicate
                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.oIndicate
                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 $68,626,561 on June 30, 2006, based upon the last
                reported sales price of such stock on the NASDAQ National Market
                on that
                date.As
                of March 1, 2007, the registrant had outstanding 14,325,996 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 2007 Annual Meeting of Stockholders
                (the
                "Proxy Statement"), to be filed within 120 days of the end of the
                fiscal year ended December 31, 2006, are incorporated by reference in
                Part III to the extent described therein.







**TBS
      INTERNATIONAL LIMITED**




**2006
                  FORM 10-K****Table
                  of Contents****Page****Part
                  I**Item
                  1
              BusinessA
              Overview
              
              3B
              Fleet
                  Overview
              
              4C
              Business
                  Strategy
              
              6D
              Classification
                  and
                  Inspection
              
              9E
              Operations,
                  Ship Management and Commercial
                  Agents
              
              10F
              Employee
                  and Labor Relations
              
              11G
              Customers
              
              11H
              Competition
              
              12I
              Environmental
                  and Other
                  Regulations
              
              12J
              Security
              
              14K
              Insurance
              
              15L
              Taxation
              
              15M
              Website
                  Access to Reports
              
              17Item
                  1A
              Risk
                  Factors
              
              17Item1B
              Unresolved
                  Staff
                  Comments
              
              26Item
                  2
              Properties
              
              26Item
                  3
              Legal
                  Proceedings
              
              27Item
                  4
              Submission
                  of Matters to a Vote of
                  Security Holders
              
              27**Part
                  II**Item
                  5
              Market
                  for Registrant’s Common Equity, Related
                  Stockholder Matters and Issuer Purchases of Equity
                  Securities
              
              28Item
                  6
              Selected Financial Data
              
              30Item
                  7
              Management’s
                  Discussion and Analysis of
                  Financial Condition and Results of Operations
              
              34Item
                  7A
              Quantitative
                  and Qualitative Disclosures about
                  Market Risk
              
              56Item
                  8
              Financial
                  Statements and Supplementary
                  Data
              
              56Item
                  9
              Changes
                  in and Disagreements with Accountants on
                  Accounting and Financial Disclosure
              
              57Item
                  9A
              Controls
                  and Procedures
              
              57Item
                  9B
              Other
                  Information
              
              57**Part
                  III**Item
                  10
              Directors,
                  Executive Officers and Corporate
                  Governance
              
              58A
              Directors
                  of the RegistrantB
              Executive
                  Officers of the RegistrantC
              Code
                  of Ethics and Other Corporate Governance DisclosuresItem
                  11
              Executive
                  Compensation
              
              60Item
                  12
              Security
                  Ownership of Certain Beneficial
                  Owners and Management and Related Stockholder Matters
              
              60Item
                  13
              Certain
                  Relationships and Related
                  Transactions, and Director Independence
              
              60Item
                  14
              Principal
                  Accounting Fees and
                  Services
              
              60**Part
                  IV**Item
                  15
              Exhibits,
                  Financial Statement Schedules
                  Index
              
              61


2


*As
      used in this Annual Report on Form 10-K, the terms "we," "our," and "us" refer
      to TBS International Limited and its consolidated subsidiaries . We use the
      term
      "International" and "Company" when we wish to refer only to TBS International
      Limited, the holding company that is the issuer of our common shares and not
      to
      TBS International Limited and its consolidated subsidiaries.*





**Forward-Looking
      Statements**





This
      Annual Report on Form 10-K contains forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995. 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 Item 1A
      -
      Risk Factors and other unforeseen risks. You should not rely on any
      forward-looking statements.





**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 14
      years, we have developed our franchise around key trade routes between Latin
      America and China, Japan and South Korea, ports within South America, as well
      as
      select ports in North America, Africa, the Caribbean and the Middle East. We
      provide frequent regularly scheduled voyages in our network, as well as cargo
      scheduling, loading and discharge for our customers. As of December 31, 2006,
      our fleet totaled 35 vessels, including 27 ships that we own, seven that we
      operate under charters with options to purchase and one that we charter-in
      without an option to purchase. In addition, we have entered into a Memorandum
      of
      Agreement to purchase one multipurpose tweendecker that is scheduled to be
      delivered to us in the first quarter of 2007.  Total assets at December 31,
      2006 and 2005 was $403.1 million and $344.7 million, respectively.  For the
      year ended December 31, 2006, we carried 4.4 million revenue tons of cargo,
      operated 226 voyages and generated total revenue and net income of $253.6
      million and $39.1 million, respectively. For the year ended December 31, 2005,
      we carried 3.2 million revenue tons of cargo, operated 198 voyages and generated
      total revenue and net income of $248.0 million and $55.7 million,
      respectively.





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.





Our
      common stock has traded publicly since June 24, 2005, when we completed our
      initial public offering.




Table
          of Contents
 3


**B.****Fleet
      Overview**





Our
      current controlled fleet consists of 34 vessels and is comprised of multipurpose
      tweendeckers and handymax bulk carriers. All vessels are dual flagged in Panama
      and the Philippines. The following table provides information regarding the
      34
      vessels in our controlled fleet, which excludes the vessel chartered
      in under a short-term charter.




**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
              
              17,325Seneca
                  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
              
              26,320Maya
                  Princess (4)
              
              Multipurpose
                  Tweendecker
              
              1983
              
              37,425Aztec
                  Maiden
              
              Multipurpose
                  Tweendecker
              
              1984
              
              19,777Wichita
                  Belle
              
              Multipurpose
                  Tweendecker
              
              1991
              
              28,843Laguna
                  Belle (3)
              
              Handymax
                  Bulk Carrier
              
              1996
              
              29,458Seminole
                  Princess (3)
              
              Handymax
                  Bulk Carrier
              
              1997
              
              29,516Rockaway
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1982
              
              35,025Shinnecock
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1985
              
              37,268Maori
                  Maiden
              
              Handymax
                  Bulk Carrier
              
              1984
              
              37,734Nyack
                  Princess
              
              Handymax
                  Bulk Carrier
              
              1984
              
              38,885Biloxi
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1984
              
              39,225Miami
                  Maiden
              
              Handymax
                  Bulk Carrier
              
              1984
              
              39,333Iroquois
                  Maiden
              
              Handymax
                  Bulk Carrier
              
              1983
              
              40,876Alabama
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1986
              
              41,808Sioux
                  Maiden
              
              Handymax
                  Bulk Carrier
              
              1989
              
              42,248Mohawk
                  Princess
              
              Handymax
                  Bulk Carrier
              
              1982
              
              42,360Chesapeake
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1984
              
              44,146Tuscarora
                  Belle
              
              Handymax
                  Bulk Carrier
              
              1984
              
              44,146Manhattan
                  Princess
              
              Handymax
                  Bulk Carrier
              
              1982
              
              45,526




Table
          of Contents
 4


(1)
       Chartered-in vessel under a long term charter that has a purchase option
      and relates 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 period of expected useful life of the asset. Commitments to repay
      the
      principal amounts arising under capital lease obligations are included in
      liabilities.




(2)  These
      vessels are multipurpose tweendeckers with the ability to carry wheeled cargo
      such as automobiles, tractors or trailers. The vessel allows cargo to be
      "rolled on" and "rolled off" in addition to allowing cargo to be
      "lifted-on" and "lifted-off".




(3)  On
      January 30, 2007, International's wholly owned subsidiaries  Fairfax
      Shipping Corp. ("Fairfax") and Beekman Shipping Corp. ("Beekman") each sold
      and
      leased back a vessel pursuant to a sale-leaseback arrangement. Fairfax sold
      the
      vessel *Seminole Princess* to Adirondack Shipping LLC ("Adirondack") for
      $23.0 million, and Beekman sold the vessel *Laguna Belle* to Rushmore
      Shipping LLC ("Rushmore") for $22.0 million each pursuant to a Memorandum of
      Agreement. Fairfax had taken delivery of the vessel *Seminole
      Maiden* (formerly the *Clipper Flamingo*) for $23.1 million on
      November 10, 2006. Beekman  had taken delivery of the vessel
*Laguna Belle* (formerly the *Clipper Frontier*) for $22.0 million
      on November 15, 2006. Under the sale-leaseback arrangement, Fairfax entered
      into
      a seven-year bareboat charter with Adirondack and Beekman entered into a
      seven-year bareboat charter with Rushmore for their respective vessels. We
      used
      the proceeds from the sale to repay advances under the revolving credit
      facility.





(4)   On
      January 26, 2007, we entered into a Memorandum of Agreement to sell the *Maya
      Princess* for $13.0 million. The vessel is expected to be delivered in
      March  2007.  The proceeds will be used to fund the acquisition of the
*Blu Mistral II.*





(5)  On
      December 11, 2006, we entered into a Memorandum of Agreement to acquire the
      multipurpose tweendecker *Blu Mistral II***to be
      renamed***Nanticoke Belle* for $16.95 million. The vessel is
      expected to be delivered in late March or early April 2007 and will be funded
      from the proceeds from the sale of the *Maya Princess* and borrowing
      under our revolving credit facility. The vessel was built in 1989 and is 28,843
      deadweight tons.





***Multipurpose
      Tweendeckers***




Most
      of
      our multipurpose tweendecker vessels have retractable tweendecks that can
      convert a multipurpose tweendecker to a bulk carrier, and back again, depending
      on the cargo. Unlike container ships, which can carry only cargo that can be
      or
      has been pre-packaged into standard 20-foot or 40-foot containers, or bulk
      carriers that limit the ability to mix different cargoes in any one hold,
      multipurpose tweendeckers can be divided into multiple cargo compartments by
      a
      mezzanine deck, or tweendeck. The tweendeck permits the carriage of cargoes
      of
      differing sizes and shapes in the same or separate holds and permits greater
      flexibility in the stowage and carriage of cargo. Many of our vessels sailing
      eastbound from Asia will call at multiple Latin American ports to discharge
      cargo and load additional cargo for shipment to other ports. Cargoes are stowed
      in a manner that facilitates efficient loading and discharging.





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.




****





Table
          of Contents
 5


***Bulk
      Carriers***




Our
      bulk
      carriers range in size from 29,458 dwt to 45,526 dwt. Several of the vessels
      have equipment that enables self-loading and discharging in an effort to enhance
      our ability to serve a broad range of ports.





**C.****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 that are able to navigate and
      efficiently service many ports with restrictions on vessel size. 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, salt, sugar,
      grain, chemicals, industrial goods, aggregates and 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 cargo service between North America and
      the
      East and West Coasts of South America and further expanded our routes by
      offering service from Brazil to West Africa.





We
      have
      taken a conservative approach to building our liner and parcel cargo service
      network. The initial sailings on each route typically are based on the
      requirements of a major customer. After regular sailings are established, we
      notify other potential customers of the service so their cargoes may be
      transported as well. As demand increases, we evaluate committing additional
      resources to serve the route, either by purchasing or chartering-in additional
      vessels. We 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.





A
      summary
      of our services is as follows:





***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, project cargo 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 to Colombia,
      Venezuela and the Caribbean basin. In addition, we provide sailings to ports
      on
      the West Coast of South America. The service is flexible with respect to types
      of cargoes, and typically carries mixed steel products, project cargo and
      general cargo. On occasion, cargoes on this service are supplemented in the
      course of a sailing, as discharged cargo is replaced by additional cargo along
      the route. As a result, this service requires particular consideration and
      monitoring of cargo organization and vessel scheduling, and benefits from our
      port captains' experienced oversight of the loading and unloading of
      cargoes.




***TBS
      North America Service*** commenced operations in 1996, sailing between North America and South America.
      In 2002, we began monthly sailings from the
      East
      Coast of the United States to Brazil, Argentina and Peru carrying
      fertilizer cargoes for Honeywell International.




***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.




Table
          of Contents
 6


***TBS
      Middle East Carriers*** offers bulk
      service within the Middle East region with service from ports in United Arab
      Emirates to ports in Qatar. The service was suspended September 2004 and resumed
      in January 2006.





Our
      liner, parcel and bulk services primarily carry steel products, salt, sugar,
      grain, fertilizers, chemicals, metal concentrates, aggregates and general
      cargo.




·
            Steel
                products include specialty and carbon steel coils, steel pipe and
                structural steel used in the infrastructure development, construction,
                oil
                and gas transmission and automotive and appliance manufacturing
                industries.




·
            Fertilizers
                include ammonium sulfate shipped in bulk for use in commercial
                agriculture.




·
            Metal
                concentrates include copper, zinc, silver and other metals generally
                shipped in small break-bulk lots from 1,000 to 10,000 metric ton
                parcels
                that are processed at their destinations by smelters into purer
                forms.




·
            General
                cargo includes industrial machinery, spare parts, oil well supplies,
                trailers, industrial tanks, project cargo and other commercial goods
                used
                in industrial applications.





In
      addition to our liner, parcel and bulk services on the trade routes described
      above, we offer shipping solutions worldwide on a customer-by-customer basis
      on
      these routes, primarily by time chartering-out vessels. Generally, we time
      charter vessels out on a long-term basis to customers seeking vessel tonnage
      and
      on a short-term basis to reposition a vessel or to take advantage of favorable
      charter hire rates through TBS Ocean Carriers; however, any of our services
      may
      time charter a vessel to meet customer needs. A time charter is a contractual
      arrangement under which a shipowner is paid for the use of a vessel on a per
      day
      basis for a fixed period of time. The shipowner is responsible for providing
      the
      crew and paying vessel operating expenses while the charterer is responsible
      for
      paying the voyage expenses. 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. At December 31, 2006, eleven of our controlled vessels and one
      chartered-in vessel were under long-term and short-term time charters. Six
      of
      our controlled vessels, the *Wichita Belle, Seminole Princess, Alabama Belle, Manhattan Princess, Maya
      Princess, Tamoyo Maiden* ,
      and one
      chartered-in vessel, the *Giorgis
      Milas* ,
      were
      under short-term time charter. Five of our controlled vessels, the *Miami
      Maiden, Inca Maiden, Navajo Princess, Chesapeake Belle,* and *Sioux
      Maiden,* were
      under long-term time charter. In connection with our time charters, we offer
      complete voyage management services. We provide complete voyage management
      services in connection with three of these charters.




The
      following table shows the annual number of time charters out, related duration
      and gross charter revenue since 2002.


Year
              
              Number
                  of Charters
              
              
              Duration
                  (Days)
              
              
              Gross
                  Revenue
                (in
                  thousands)2002
              
              28
              
              
              1,001
              
              $
              7,4212003
              
              58
              
              
              2,439
              
              
              23,6252004
              
              46
              
              
              2,780
              
              
              50,7462005
              
              55
              
              
              4,257
              
              
              71,4562006
              
              57
              
              
              4,301
              
              
              63,114










Table
          of Contents
 7


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. ("TBS Commercial Group") , plans to
      increase the number of local commercial agents and port captains in order to
      expand our ability to serve additional customers.





**Develop
      New Trade Routes.**


We
      intend
      to continue developing new trade routes, such as our Brazil-Nigeria and liner
      parcel services. 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. 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 agents’ network in Africa 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.  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 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 the vessel's owners provide maintenance of the
      vessels we charter-in without an option to purchase. 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 maintenance and surveys. We use
      the
      drydocking of our vessels as an opportunity to upgrade each vessel to our high
      standards. This includes making steel renewal and reinforcements that might
      be required during the next 5 to 10 years.




**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
      part of our fleet management, we regularly evaluate the suitability of our
      vessels in meeting our anticipated needs and the anticipated needs of our
      customers. We will on occasion decide to sell a vessel that no longer fits
      our
      business strategy. As of December 31, 2006, our fleet totaled 35 vessels,
      including 27 ships that we own, seven that we operate under charters with
      options to purchase and one that we charter-in without an option to purchase.
      In
      connection with our expansion plans:





Table
          of Contents
 8


·
            We
                entered into a Memorandum of Agreement on December 11, 2006, to purchase
                the multipurpose tweendecker*Blu
                Mistral II ,*which is expected to be delivered in late March or early
                April 2007.





·
            We
                entered into purchase agreements with China
                Communications Construction Company Ltd. and Nantong Yahua Shipbuilding
                Co, Ltd.effective February 28, 2007 to build six
                newly-designed
                multipurpose tweendeck vessels. The agreements provide for a contract
                purchase price of $35.4 million per vessel, and for the delivery
                of two
                vessels in 2009 and four vessels in 2010. The agreements are subject
                to us
                obtaining satisfactory bank financing, which we are currently negotiating.
                These 34,000 dwt vessels are a new larger class of multipurpose
                tweendecker, and their addition to our fleet will be a significant
                milestone in the implementation of our business plan to modernize
                and
                expand our tweendecker fleet. The ships were designed by a TBS team
                drawn
                from all phases of our operations specifically to optimize our efficient
                cargo transportation in our trade lanes, support the requirements
                of our
                loyal customer base and enhance the growth of our business. We expect
                the
                benefits of having these larger sister ships added to our fleet to
                include
                increased operational flexibility and improved efficiency, which
                should
                enable us to better service our
                clients.





·
            We
                entered into a Memorandum of Agreement on January 26, 2007, to sell
                the
                multipurpose tweendecker*Maya
                Princess.*The
                vessel is expected to be delivered in March 2007.
                 The proceeds from the sale of this vessel will be used to purchase
                the*Blu
                Mistral II.*





We
      actively monitor the vessel acquisition market in an effort to take advantage
      of
      expansion and growth opportunities in the markets that we serve.





**D.****Classification
      and Inspection**





The
      hull
      and machinery of every commercial vessel must be "classed" by a classification
      society authorized by its country of registry. Our vessels currently are
      enrolled with the Nippon Kaiji Kyokai, or NKK, American Bureau of Shipping,
      or
      ABS, Lloyds Register of Shipping, or LR, Det Norske Veritas, or DNV, and
      Registro Italiano Navale, or RINA. The classification society certifies that
      a
      vessel is safe and seaworthy in accordance with the applicable rules and
      regulations of the country of registry of the vessel and international
      conventions promulgated by the International Maritime Organization or IMO.
      These
      include the Convention on Maritime Pollution Prevention, the International
      Safety Management Code, or ISM Code, and International Convention for the Safety
      of Life at Sea, or SOLAS. All of our vessels have been certified as being "in
      class" by their respective classification societies.





A
      vessel
      must undergo annual surveys, intermediate surveys and special surveys. In lieu
      of a special survey, a vessel's machinery may be on a continuous survey cycle,
      under which the machinery would be surveyed periodically over a five-year
      period. All of our controlled vessels are on special survey cycles for hull
      inspection and continuous survey cycles for machinery inspection. Every vessel
      also is required to be drydocked every two to three years for inspection of
      the
      underwater parts of the vessel. Our fleet of 34 vessels will result in
      approximately 68 dry-dockings over a five-year period. We anticipate drydocking
      approximately 14 vessels per year. During 2007, we will drydock 20 vessels.
      Due
      to our active vessel acquisition program in 2005 and 2006, we have a high
      percentage of our fleet scheduled for drydocking during 2007. Of the 20 vessels
      scheduled for 2007 drydocking, 14 were acquired in 2005 and 2006. We have also
      decided to use the drydockings as an opportunity to make steel renewal and
      reinforcements on many of the vessels to upgrade each vessel to our high
      standards. This includes making steel renewal and reinforcements that might
      be
      required during the next 5 to 10 years. If any defects are found in the course
      of a survey or drydocking, the classification surveyor will recommend
      appropriate repairs that must be made by the shipowner within the prescribed
      time limit.





Table
          of Contents
 9


Prior
      to
      January 1, 2006, we used the accrual method to account for planned major
      maintenance. Under this method, we estimated the cost of a future drydocking
      and
      accrued the monthly cost over the period through the date of the drydocking.
      Accordingly, we accrued 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. New accounting guidance issued in September 2006,
      prohibits the use of the accrual method. Accordingly, effective January 1,
      2006,
      our drydocking expense and surveys are being accounted for using the deferral
      method. Under the deferral method of accounting for drydocking, the actual
      costs
      incurred are deferred and amortized on a straight-line basis over the period
      through the date of the next drydocking. As required by the new accounting
      guidance we have retrospectively adjusted our consolidated financial statements
      presented in this report as of December 31, 2005 and for the years ended
      December 31, 2004 and 2005, and beginning shareholders' equity for periods
      prior
      to 2004 for the impact of the new guidance. In addition, we have adjusted
      selected financial data as of December 31, 2002, 2003, 2004 and 2005 and for
      the
      years then ended. See n ote
      "26 —
Selected Quarterly Financial Information (unaudited)" to our consolidated
      financial statements for the impact of the adjustment on previously reported
      quarters for 2006 and 2005.





**E.****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 are supervised by three
      service companies.




Two
      of
      the service companies, TBS Shipping Services Inc. ("TBS Shipping Services")
      and
      Roymar Ship Management, Inc. ("Roymar"), are our wholly-owned subsidiaries
      that
      we acquired from our principal shareholders at the time of our initial public
      offering in June 2005. These service companies manage the accounts of our other
      subsidiaries and, on their behalf, make payments and advances for costs
      associated with the operation of our business. The third service company, TBS
      Commercial Group Ltd. ("TBS Commercial Group"), is affiliated with us by common
      ownership. It is owned by our principal shareholders, Lawrence A. Blatte, Gregg
      L. McNelis, Captain Alkis N. Meimaris, James W. Bayley and Joseph E. Royce.
      Collectively, these individuals own 64.2% of our common shares and hold 54.9%
      of
      the voting power of our shares. Together these three companies employ
      experienced professionals in ten 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
      a
      high-level of ship performance. The services provided by Roymar
      include:




·
            supervising
                  the recruiting of crew;·
            obtaining
                  spares, stores and provisions necessary on board the
                  vessels;·
            implementing
                  our maintenance program;·
            arranging
                  for and supervising all drydocking procedures;·
            arranging
                  for surveys and inspections according to requirements of classification
                  society, flag state and port state rules and
                  regulations;·
            maintaining
                    high safety and environmental protection standards in compliance
                    with the
                    ISM Code and SOLAS;


·
              arrange
                      for insurance of the vessels; and·
              identifying
                      vessels to acquire and negotiating purchase options on vessels
                      that we
                      charter.  Table
              of Contents
 10


We
      are
      fully responsible for the maintenance of our controlled fleet. We make every
      effort to prevent delays at sea or in port caused by malfunctions or breakdowns.
      Roymar deploys superintendents, including master mariners and engineers, to
      supervise the maintenance of our controlled fleet. We minimize operation costs
      through continuous onboard supervision of our vessels and use of the vessels'
      crews for ship maintenance. We believe that our preventive maintenance practice
      has extended the lives of the vessels in our controlled fleet, minimized
      drydocking expenses and nearly eliminated downtimes and off-hire periods
      resulting from speed deficiencies, stoppages at sea and vessel breakdowns.
      As
      noted in Classification and Inspection above, every two to three years each
      of
      the vessels in our controlled fleet is drydocked and undergoes maintenance,
      and
      every five years each of the vessels in our controlled fleet is subject to
      special surveys.





**Commercial
      agents**




We
      have
      established a network of long-term commercial and operational relationships
      with
      affiliated commercial agency service companies. The majority of these service
      companies are wholly- or partly-owned by TBS Commercial Group. Our principal
      shareholders own TBS Commercial Group. These service companies employ sales
      and
      customer service professionals in nine 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. The agreements with TBS
      Commercial Group are subject to the approval of the compensation committee
      of
      our board of directors. We paid TBS Commercial Group approximately $6.2 million,
      $6.2 million and $5.1 million in 2006, 2005 and 2004, respectively. See note
      "17
— Related Party Transactions" to our consolidated financial
      statements.





**F.****Employee
      and Labor Relations**





As
      of
      December 31, 2006, we had approximately 100 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 800 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.





**G.****Customers**





We
      believe we distinguish ourselves from our competition by offering proven
      reliability, frequent and on-time service, flexible cargo management, expert
      loading and stowage and close client coordination in the ports and on the
      vessels. This customer focus has enabled us, through our affiliated agents,
      to
      develop long-term relationships with established and well-respected industrial
      shippers in diverse markets including mining companies, steel manufactures,
      trading companies, heavy industry, industrial equipment enterprises and
      construction companies. Our business model allows us to respond rapidly to
      our
      customers' changing demands and short delivery windows increasing the value
      of
      our services to them as we enable them to schedule production and
      distribution.





A
      substantial majority of our repeat business is based on our relationships and
      reputation with our customers, and is not governed by long-term contracts.
      The
      percentages of consolidated revenues from our major customers are as
      follows:


**Year
                  Ended December 31,****Customer**
              **2004**
              
              **2005**
              
              **2006**Dangote
                  Industry Limited
              6.3%
              
              12.1%
              
              15.1%Nippon
                  Yusen Kaisha
              5.1%
              
              5.7%
              
              4.6%Honeywell
                  International Inc.
              6.8%
              
              4.1%
              
              2.5%





Table
          of Contents
 11


No
      other
      customer accounted for more than 5% of our gross revenues. The decrease in
      the
      percentage of revenues from Honeywell in 2006 was due in part to an increase
      in
      our consolidated revenues and to a decrease in Honeywell's sale of fertilizer
      to
      South American companies, which resulted in their 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
                  Ended December 31,****Country**
              
              
              **2004**
              
              
              **2005**
              
              
              **2006**Brazil
              
              $
              45,651,573
              
              $
              50,922,219
              
              $
              52,254,353Japan
              
              
              22,416,220
              
              
              27,102,181
              
              
              33,424,214Chile
              
              
              16,516,395
              
              
              21,602,403
              
              
              15,249,919United
                  States
              
              
              17,031,375
              
              
              15,906,784
              
              
              21,729,772Peru
              
              
              12,819,836
              
              
              16,311,236
              
              
              16,825,238United
                  Arab Emirates
              
              
              7,643,242
              
              
              655,879
              
              
              9,415,493Venezuela
              
              
              8,468,493
              
              
              12,327,840
              
              
              8,516,162Korea
              
              
              8,638,296
              
              
              6,633,213
              
              
              6,022,940China
              
              
              7,503,819
              
              
              11,815,693
              
              
              16,171,405Others
              
              
              11,104,849
              
              
              12,318,362
              
              
              9,402,693**$**
              **157,794,098**
              
              **$**
              **175,595,810**
              
              **$**
              **189,012,189**




Revenue
      attributed to these countries is based on the location where the cargo is
      loaded. Time charter revenue by country cannot be allocated because we do not
      control the itinerary of the vessel.





**H.****Competition**





The
      cargo
      markets we serve are highly competitive. Our competition on the routes we serve
      consists primarily of regional shipping companies focused on the breakbulk
      market, international bulk shipping companies competing in the large lot segment
      of the bulk metal concentrates market, and larger shipping concerns that compete
      in diverse shipping segments in addition to the breakbulk market. We compete
      on
      the basis of targeting niche markets that include trade routes, ports and
      cargoes not efficiently served by many larger shipping companies. We focus
      on
      smaller lots of 1,000 to 10,000 metric tons in the bulk metal concentrates
      market in Chile and Peru, whereas other bulk shipping companies focus on
      shipments of 20,000 to 45,000 metric tons of bulk metal concentrates. We also
      compete with the regional shipping companies by delivering customer service
      and
      global solutions that are superior.





**I.****Environmental
      and Other Regulations**





**Vessel
      Environmental Regulations**




Ocean
      shipping is affected by extensive and changing environmental protection and
      other laws and regulations. These laws and regulations take the form of
      international conventions and agreements, including the IMO conventions and
      regulations and SOLAS, with which all internationally trading vessels must
      comply, and national, state and local laws and regulations, all of which are
      amended frequently. Compliance with these laws and regulations may entail
      significant expenses at any time, including expenses for ship modifications
      and
      changes in operating procedures, which could have an adverse effect on our
      results of operations. Subject to the discussion below and to the fact that
      the
      kinds of permits, licenses and certificates required for the operation of the
      owned vessels will depend upon a number of factors, we believe that we have
      and
      will be able to obtain all permits, licenses and certificates material to the
      conduct of our operations.





Table
          of Contents
 12


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
      any such 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 that have enacted such
      legislation have not yet issued implementing regulations under these laws.
      We
      intend to comply with all applicable state regulations in ports where we
      call.





Pursuant
      to regulations promulgated by the U.S. Coast Guard, responsible parties (as
      defined in such regulations) must establish and maintain evidence of financial
      responsibility in the amount of $1,500 per gross ton, which includes the OPA
      90
      limitation on liability of $1,200 per gross ton and the CERCLA liability limit
      of $300 per gross ton. The P&I Associations, which historically provided
      shipowners and operators financial assurance, have refused to furnish evidence
      of insurance to responsible parties, and therefore responsible parties have
      obtained financial assurance from other sources at additional cost, including
      evidence of surety bond, guaranty or by self-insurance. 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.





Table
          of Contents
 13


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.





**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
      - D.
      Classification and Inspection."





**J.****Security**





Since
      the
      terrorist attacks of September 11, 2001, a variety of initiatives intended
      to
      enhance vessel security have been enacted, including the Maritime Transportation
      Security Act of 2002. 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 onboard showing a vessel's history,
                  including the name of the vessel and of the state whose flag the
                  ship is
                  entitled to fly, the date on which the ship was registered with
                  that
                  state, the ship's identification number, the port at which the
                  ship is
                  registered and the name of the registered owners and their registered
                  address; and·
              compliance
                    with flag state security certification
                    requirements.
  Table
            of Contents
 14


Coast
      Guard regulations, intended to align with international maritime security
      standards, exempt non-U.S. vessels from MTSA vessel security measures, provided
      they have a valid ISSC on board. Our vessels comply with all MTSA, SOLAS and
      ISPS Code requirements and vessel certifications, which are kept current by
      Roymar.




**K.****Insurance**





Our
      business is subject to normal hazards associated with owning and operating
      vessels in international trade. The operation of ocean going vessels carries
      an
      inherent risk of catastrophic marine disaster, including oil spills and other
      environmental accidents, as well as property losses caused by adverse weather
      conditions, cargo loss or damage, mechanical failures, human error, war,
      terrorism and business interruption due to political circumstances in foreign
      countries, hostilities, piracy and labor action. Not all risk can be insured
      against and the policies have certain deductibles for which we are responsible.
      We 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 insuranc*** ***e*** includes
      coverage for damages to a vessels' hull and machinery in a collision, as well
      as
      basic perils of the sea and contributions for general average and salvage
      charges. This coverage includes the risk of actual or constructive total loss
      for our controlled fleet. Each vessel is insured for at least its fair market
      value, with a deductible of $75,000 per vessel per incident under the hull
      and
      machinery coverage and no deductible under the war risk coverage. The respective
      owners of the other vessels that we charter-in maintain insurance on those
      vessels, and we maintain time charter liability insurance to a limit of $20
      million per incident.





***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 $1.0 billion per vessel per incident for owned vessels, for
      the
      death, injury or illness of crew of $60,000 per occurrence. We have an overall
      coverage limit of $4.2 billion 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 defense
      claims. We also carry limited insurance covering the loss of revenue ("Loss
      hire
      coverage") resulting from extended vessel off-hire periods.





**L.****Taxation**





**U.S.
      Taxation of TBS International Limited - Shipping Income**




Unless
      exempt from U.S. federal income taxation under the rules discussed below, a
      foreign corporation generally is subject to U.S. federal income tax in respect
      of shipping income derived from sources within the United States. For these
      purposes, 50% of shipping income that is attributable to transportation that
      begins or ends, but that does not both begin and end, in the United States
      constitutes income from sources within the United States ("U.S. source shipping
      income"). Shipping income attributable to transportation exclusively between
      non-U.S. ports will be considered to be 100% derived from sources outside the
      United States. Accordingly, in the absence of an exemption from tax under
      Section 883 of the 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.





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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 Global Market (formerly 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 are 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.





**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.





**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.




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**Marshall
      Islands Taxation of TBS International Limited**




Pursuant
      to the Marshall Islands Revised Code (the Association Law), a Marshall Islands
      non-resident corporation is exempt from any corporate profit tax, income tax,
      withholding tax on revenues of the entity, asset tax, tax reporting requirement
      on revenues of the entity, stamp duty, exchange controls or other fees. There
      is
      an agreement between the Marshall Islands and the United States for the exchange
      of information with respect to taxes.





**M.****Website
      Access to Reports**





We
      make
      all of our filings with the Securities Exchange Commission ("SEC"), including
      this annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
      on Form 8-K, and all related amendments, available free of charge on our website
      at www.tbsship.com ,
      Investor Relations, SEC Filings. These reports are available as soon as
      reasonably practicable after they are filed electronically with the SEC. Our
      SEC
      filings are also available to the public at the SEC’s website at www.sec.gov .




Additionally,
      our corporate governance materials, including the charters of the Audit,
      Compensation, and Nominating and Corporate Governance Committees; and the
      code of business conduct and ethics may also be found under the “Governance”
section of our website at www.tbsship.com .
      A copy
      of the foregoing corporate governance materials is available free of charge
      upon
      written request.





**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.





***Risk
      Factors Relating to the Shipping Industry***





**Costs
      and revenues in the shipping industry are volatile.**




The
      shipping industry historically has experienced volatility in freight rates,
      the
      cost of fuel oil, the cost and availability of crew, port charges and currency
      exchange rates, as well as in vessel charter rates and values, due to changes
      in
      the level and pattern of global economic activity and the highly competitive
      nature of the world shipping industry. Changes to marine regulatory regimes
      in
      the ports at which our vessels call also may increase our costs. Our revenue
      is
      influenced by a number of factors that are difficult to predict with certainty,
      including global and regional economic conditions, developments in international
      trade, changes in seaborne and other transportation patterns, weather patterns,
      port congestion, canal closures, political developments, and armed conflicts,
      acts of terrorism, embargoes, and strikes. Demand for our transportation
      services is influenced by the demand for the goods we ship, including steel
      products, metal concentrates and agricultural commodities, which in turn is
      affected by general economic conditions, commodity prices and competition.
      Steel
      products, metal concentrates and  agricultural commodities accounted
      for approximately 36.5 %, 14.5 % and 12.2%, respectively, of our total
      voyage revenues in 2006. A decrease in demand for these products could adversely
      affect our results of operations.





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**Our
      business depends to a significant degree on the stability and continued growth
      of the Asian economies** .




During
      the past few years, 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 and copper. These raw materials generally are transported
      by
      ocean freight. The growth of the Chinese economy has stimulated growth in other
      Asian economies as well. The increased demands for trans-Pacific ocean freight
      have resulted in increased ocean freight shipping rates, charter rates and
      vessel values across the globe. Any pronounced slowdown or decline in the
      Chinese economy could be expected to have significant adverse effects on the
      economies of Latin American and Asian countries and on the demand for our
      services and could be expected to result in declines in freight rates and on
      the
      value of our vessels. We expect that a significant decline in the Asian
      economies 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. Global recession
      or
      depression would significantly reduce the demand for ocean freight while our
      fuel costs would be increasing. A significant reduction in the demand for ocean
      freight would have a material and adverse impact on our results of operations
      and financial condition. In addition, our results of operations would be
      adversely affected if we were unable to pass increased fuel costs on to our
      customers.





**In
      the highly competitive international shipping market, we may not be able to
      compete with new entrants or established companies with greater
      resources** .




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





**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.




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**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
      internationally traded 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, and
      subject to very limited statutory defenses. The costs of investigation,
      remediation or removal of such substances and damages resulting from such
      releases could be substantial and could adversely affect our results of
      operations.




**The
      shipping industry has inherent operational risks, which may not be adequately
      covered by insurance.**




The
      operation of any oceangoing vessel carries with it an inherent risk of marine
      disaster, environmental mishaps and collision or property losses. In the course
      of operating a vessel, marine disasters such as oil spills and other
      environmental mishaps, cargo loss or damage, business interruption due to
      political developments, labor disputes, strikes and adverse weather conditions
      could result in loss of revenues, liabilities or increased costs. We transport
      bulk cargoes such as fertilizer, salt and coal which, if not transported
      properly, could pose a risk to our vessels and to the environment. We cannot
      assure you that any insurance we maintain would be sufficient to cover the
      cost
      of damages or the loss of income resulting from a vessel being removed from
      operation or that any insurance claims would be paid or that insurance will
      be
      obtainable at reasonable rates in the future. Any significant loss or liability
      for which we are not insured, or for which our insurers fail to pay us, could
      have a material adverse effect on our financial condition. In addition, the
      loss
      of a vessel would adversely affect our cash flows and results of
      operations.





**Risk
      associated with the shipping industry could affect our business and reputation,
      which could adversely affect our results of operations and stock
      price.**




As
      mentioned above, the operation of ocean going vessels carries inherent risk
      of
      marine disaster and environmental mishaps. The involvement of our vessels in
      a
      marine disaster and environmental mishap will harm our reputation as a safe
      and
      reliable vessel owner and operator and could have a material adverse effect
      on
      our financial condition and results of operations and adversely affect our
      stock
      price.





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**Marine
      claimants could arrest our vessels, which could damage our on-time performance
      reputation and result in a loss of cash flow.**




Under
      general maritime law in many jurisdictions, crew members, tort claimants,
      claimants for breach of certain maritime contracts, vessel mortgagors, suppliers
      of fuel, materials, goods and services to a vessel and shippers and consignees
      of cargo may be entitled to a maritime lien against that vessel for unsatisfied
      debts, claims or damages. In many circumstances, a maritime lien holder may
      bring an action to enforce its lien by "arresting" a vessel. In some
      jurisdictions, under the "sister ship" theory of liability, a claimant may
      arrest not only the vessel subject to the claimant's maritime lien, but also
      any
      "associated" vessel owned or controlled by the legal or beneficial owner of
      that
      vessel. The arrest of one or more of our vessels could result in a loss of
      cash flow or require us to pay substantial amounts to have the arrest lifted.
      Any interruption in our sailing schedule and our on-time performance could
      adversely affect our customer relationships. 
 **Governments
        could requisition our vessels during a period of war or emergency, resulting
        in
        a loss of earnings.**
  A
        government could requisition one or more of our vessels for title or for
        hire.
        Requisition for title occurs when a government takes control of a vessel
        and
        becomes its owner, while requisition for hire occurs when a government
        takes control of a vessel and effectively becomes its charterer at dictated
        charter rates. Generally, requisitions occur during periods of war or emergency,
        although governments may elect to requisition vessels in other circumstances.
        Although we would be entitled to compensation in the event of a requisition
        of
        one or more of our vessels, the amount and timing of payment would be uncertain.
        Government requisition of one or more of our vessels could have a material
        adverse effect on our cash flows and results of operations.





***Risks
      Factors Relating to Our Business***





**Our
      competitive advantage in niche markets may be eliminated.**




Our
      fleet
      primarily consists of vessels suited to niche markets not efficiently served
      by
      container ships or large dry bulk vessels. If the markets in which we
      successfully compete upgrade their port infrastructure to accommodate larger
      vessels, or if the volume of cargo shipped from these markets increases
      sufficiently, container ships or large dry bulk vessels would be able to serve
      these markets more efficiently. Because operators of container ships and large
      dry bulk vessels have significantly lower costs per cargo ton than we do, their
      entry into our markets could result in increased price competition and affect
      our ability to 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.**




We
      have
      incurred net losses in two of our last five fiscal years. 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 history of losses 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, Dangote Industries Limited, Nippon Yusen Kaisha, or NYK and
      Honeywell International Inc. or Honeywell, account for, in aggregate, 22.2%
      of
      our 2006 consolidated revenue. We do not have long-term contracts with NYK
      or Honeywell. If  these customers were to choose not to ship additional
      cargoes using our vessels, our results of operations could be adversely
      affected.




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**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, 2006, the average age
      of
      the 34 vessels in our controlled fleet was 20 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.





**Vessel
      drydockings could adversely affect our cash flow and results of
      operations.**




We
      anticipate that we will have an average of approximately 14 vessels per year
      being drydocked, based on our current fleet of 34 vessels and the requirement
      to
      drydock each vessel twice during a five-year cycle. During 2007, we expect
      to
      drydock 20 vessels. The higher than normal number of vessels being drydocked
      in
      2007 is principally due to the concurrence of required interim or special
      surveys for many of the vessels that we acquired in 2005 and 2006. Vessels
      must
      be drydocked two times every five years, to coincide with special survey cycles.
      In addition, we will need to reposition our vessels and  charter-in outside
      vessels to accommodate our drydocking schedule and business needs. Approximately
      nine of our vessels regularly trade in the Atlantic and Middle East region;
      consequently, drydocking our vessels in Chinese shipyards require complex
      logistics planning. The loss of earnings while the vessels are being drydocked,
      as well as the repositioning of our vessels in response to the drydockings
      and
      the actual costs of the drydockings and possible charter-in expense in response
      to the drydockings, could have a material adverse effect on our cash flows
      and
      results of operations.





**Our
      vessels may suffer damage and we may need to un-expectantly drydock a vessel,
      which could adversely affect our operations.**




If
      a
      vessel suffers damage, it may need to be repaired at a drydocking facility.
      The
      costs of drydock repairs are unpredictable and can be substantial. The loss
      of
      earnings while the vessel is being repaired and the repositioning
      of our vessels in response to the unexpected drydocking, as well as the
      actual costs of the repairs, would have a material adverse effect on our cash
      flows and results of operations. We may not have insurance that is sufficient
      to
      cover all of these costs or losses.





**There
      are few multipurpose tweendeckers available for purchase or hire at favorable
      rates.**




Part
      of
      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.




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**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 of these costs or losses and may have to pay drydocking costs not
      covered by our insurance. Our future operating results could be adversely
      affected if some of the secondhand vessels do not perform as we
      expect.





**The
      market value of vessels can and 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 new ship buildings. The market price for secondhand vessels during
      the
      past few years have been at an all-time high, and we have had to pay more to
      acquire vessels than in prior years. If the market value of our fleet declines,
      we may not be able to obtain additional financing or incur debt on terms that
      are acceptable to us or at all in connection with future vessel acquisitions
      or
      obtain additional debt financing for other purposes. A sharp decline in vessel
      values could cause us to breach some of the covenants contained in the financing
      agreements relating to our current indebtedness. If we breach such covenants
      and
      we are unable to remedy the relevant breach, our lenders could accelerate our
      debt and foreclose on our controlled fleet. If the book value of a vessel is
      impaired due to unfavorable market conditions or a vessel is sold at a price
      below its book value, that decline would result in a loss that would adversely
      affect our operating results.





**We
      may not be able to grow or to effectively manage our
      growth.**




A
      principal focus of our strategy is to continue to grow by increasing the number
      of vessels in our fleet and by taking advantage of changing market conditions,
      which may include increasing the frequency of service on routes we already
      operate or adding new routes and expanding into other regions. Our future growth
      will depend upon a number of factors, some of which we or our affiliated service
      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.
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 22
 The
          failure to effectively identify, purchase, develop and integrate any newly
          acquired vessels could adversely affect our business, financial condition
          and
          results of operations. Our current operating and financial systems may
          not be
          adequate as we expand the size of our fleet and our attempts to improve
          those
          systems may be ineffective. In addition, as we expand our fleet, our service
          companies will need to hire suitable additional management and administrative
          personnel and our affiliated service companies will need to recruit and
          train
          port captains and other local staff necessary to meet the needs of our
          growing
          business. While we have not experienced any difficulty in recruiting to
          date, we
          cannot guarantee that we will be able to continue to hire suitable employees
          as
          we expand our business. If our operating and financial systems are not
          effective
          or we cannot recruit and retain suitable employees as we grow or our affiliated
          service companies cannot recruit and retain suitable employees, our future
          operations could be adversely affected.




**We
      may 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
      United States 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 December 31, 2006, non-qualified U.S. shareholders who
      own
      5% or more of our shares 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.





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,
      Asia, Africa and the Middle East. Our profitability will be affected by changing
      economic, political and social conditions in these regions. In particular,
      our
      operations may be affected by war, terrorism, expropriation of vessels, the
      imposition of taxes, increased regulation or other circumstances, any of which
      could reduce our profitability, impair our assets or cause us to curtail our
      operations. The economies of the 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.





Table
          of Contents
 23


***Risks
      Factors Relating to Our Corporate Structure***





**International,
      the issuer of our common shares, is a holding company and depends on the ability
      of its subsidiaries to distribute funds to it in order to meet its financial
      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 that conduct all
      of
      its operations and own all of its vessels. International derives all of its
      cash
      flow from dividends and other payments from its subsidiaries, which in turn
      derive all of their cash flows from payments from their direct and indirect
      operations.





**We
      have relied, and will continue to rely, to a significant degree upon an
      affiliated service company.**




We
      have
      relied upon and continue to rely upon TBS Commercial Group, an affiliated
      service company, for agency services that are critical to our business. TBS
      Commercial Group employs sales and customer service professionals in nine
      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 is a privately held company, and there is little or no publicly
      available information about it.**




The
      ability of TBS Commercial Group to continue providing critical services for
      our
      benefit will depend in part on its own financial strength. Circumstances beyond
      our control could impair its financial strength and, because TBS Commercial
      Group is privately held, it is unlikely that information about its financial
      strength would become public. As a result, an investor in our common shares
      might have little advance warning of problems affecting TBS Commercial Group,
      even though these problems could have a material adverse effect on
      us.





**The
      interests of our controlling shareholders could be adverse to your interests
      as
      a public shareholder.**




The
      individuals who control us and TBS Commercial Group could use their controlling
      interests in us and in TBS Commercial Group to shift revenues and operating
      income from us to TBS Commercial Group, for their individual benefit and
      contrary to the interests of our public shareholders. For example, these
      individuals could cause us to pay above-market fees to TBS Commercial Group
      or
      to permit TBS Commercial Group to take advantage of corporate opportunities.
      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 have the ability, subject
      to
      the approval of the compensation committee of our board of directors, to amend
      the existing agreements to their benefit as owners of TBS Commercial Group
      and
      against the interests of our public shareholders. If that happens, our public
      shareholders may have difficulty enforcing their rights under Bermuda law.
      In
      addition, either party may terminate the agreements under which TBS Commercial
      Group provides these services to us.





Table
          of Contents
 24


***Risk
      Factors Related to Our Financing***





**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:




·
            create
                certain liens;·
            create,
                incur or assume additional indebtedness;·
            make
                or hold certain investments;·
            merge,
                dissolve, liquidate consolidate or dispose of all or substantially
                all of
                our assets;·
            prohibit
                or limit the declaration or payment of dividends or other distribution;·
            purchase,
                redeem, or retire any capital stock or other equity interest or return
                any
                capital;·
            materially
                change our business;·
            engage
                in transactions with affiliates; and·
            enter
                into burdensome agreements.





These
      restrictions could limit our ability to finance our future operations or capital
      needs, make acquisitions or pursue available business opportunities.





**Our
      credit facilities require us to maintain specified financial ratios and satisfy
      financial covenants.**




We
      may be
      required to take action to reduce our debt or to act in a manner contrary to
      our
      business objectives to meet these ratios and satisfy these covenants. 
Events beyond our control, including changes in the economic and business
      conditions in the markets in which we operate, may affect our ability to comply
      with these covenants.  We cannot assure you that we will meet these ratios
      or satisfy these covenants or that our lenders will waive any failure to do
      so.  A breach of any of the covenants or our inability to maintain the
      required financial ratios under our credit facilities could result in a
      default.  If a default occurs under any of our credit facilities, the
      lender could elect to declare that debt, together with accrued interest and
      other fees, to be immediately due and payable and proceed against the collateral
      securing that debt, which constitutes all or substantially all of our
      assets.  Moreover, 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.




**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
 25


**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 that have not been approved by our
                    board of
                    directors.


These
      provisions could make it more difficult for a third party to acquire us, even
      if
      the third party's offer may be considered beneficial by many shareholders.
      As a
      result, shareholders may be limited in their ability to obtain a premium for
      their shares.





**Item
      1B.  Unresolved Staff
      Comments**





None.





**Item
      2. Properties**





Our
      fleet
      is described in Item 1. Business - Fleet Overview. Most of our vessels are
      mortgaged to secure our credit facilities.





We
      lease
      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.
      The lease contains five three-year renewal options. Through our subsidiary
      Roymar we lease office space located in Scarsdale, New York, under a lease
      expiring October 31, 2007. The lease contains two one-year renewal options
      and requires us to pay additional rent for real estate tax escalations.
 On November 3, 2006, the lease was modified to add an additional 1,320
      square feet, increasing the space rented to 10,520 square feet from 9,200 square
      feet. Consequently, monthly rents have increased $3,053 to $24,328 from $21,725.





We believe
      that our facilities are generally adequate for current and anticipated future
      use.





Table
          of Contents
 26


**Item
      3. Legal Proceedings**





In
      connection with the acquisition of the vessel *Sea
      Pantheon* (renamed *Tamoyo
      Maiden),* the
      Company, through a subsidiary, sought damages for the cost of repairs and loss
      of hire related to ballast tank contamination discovered after delivery of
      the
      vessel. As specified in the purchase agreement, the dispute was made in London
      before an arbitration tribunal selected by the Company and the seller. 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 we deposited, on June 6, 2005, $750,000 in escrow to provide
      counter-security for estimated arbitration/litigation costs as required under
      English law. On August 17, 2005, we obtained a reduction of $217,500 in the
      amount of the counter-security to $532,500. Arbitration proceedings took place
      in April 2006, as disclosed in our quarterly report for the quarter ended June
      30, 2006, filed with the SEC on August 10, 2006. On September 4, 2006, the
      Arbitrator issued a decision in our favor, finding that the seller was in breach
      of the contract and that the seller is responsible for the cost of repair and
      cleaning. We anticipate receiving an award of between $0.9 million and $1.0
      million as disclosed in our quarterly report for the quarter ended September
      30,
      2006, filed with the SEC on November 8, 2006. In October 2006, our counter
      security of $532,500 was returned with interest.




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 2006, no matters were submitted to a vote of security
        holders through the solicitation of proxies or otherwise.
  Table
            of Contents
 27
 **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 Global Market (formerly 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 Global Market/NASDAQ National Market:
  **Year
                    Ended December 31, 2006**
                
                **HIGH**
                
                
                **LOW**Fourth
                    Quarter
                
                $
                8.90
                
                $
                7.44Third
                    Quarter
                
                $
                7.81
                
                $
                5.75Second
                    Quarter
                
                $
                6.75
                
                $
                5.33First
                    Quarter
                
                $
                7.85
                
                $
                6.05**Year
                    Ended December 31, 2005**
                
                **HIGH**
                
                
                **LOW**Fourth
                    Quarter
                
                $
                10.98
                
                $
                5.82Third
                    Quarter
                
                $
                12.94
                
                $
                9.21Second
                    Quarter
                
                $
                10.15
                
                $
                10.00
  The
          graph
          below sets fourth a comparison of the change in the cumulative total shareholder
          return on the Company's Class A common shares against the cumulative total
          return of  the NASDAQ Composite Index, a broad-based market index, and the
          NASDAQ Transportation Index, a peer group of common stocks of companies
          in the
          transportation industry.  The graph covers the period from the closing
          price on the date of our Initial Public Offering (June 24, 2005) to the
          closing
          price on December 31, 2005 and 2006, assuming an initial investment of
          $100.
  June
                    24, 2005
                
                
                December
                    31, 2005
                
                
                December
                      31, 2006TBSI
                
                $
                100.00
                
                $
                65.42
                
                $
                86.11NASDAQ
                    Transportation Index
                
                
                100.00
                
                
                117.70
                
                
                124.67NASDAQ
                    Composite Index
                
                
                100.00
                
                
                107.21
                
                
                117.42
 
  Table
            of Contents
 28
 
 *Holders*
  As
        of
        February 22, 2007, there were 2,234 holders of record of our Class A Common
        Shares and 12 holders of record of our Class B Common Shares.
 
 ***Dividend
        and Dividend Policy***
  We
        have
        not declared or paid and do not anticipate declaring or paying any cash
        dividends on our common shares in the foreseeable future. Because International
        is a holding company with no material assets other than the stock of its
        subsidiaries, its ability to pay dividends will depend on the earnings and
        cash
        flow of its subsidiaries and their ability to pay dividends to International.
        Provisions of our debt instrument and related loan agreements with The Royal
        Bank of Scotland prevent one of our subsidiaries from paying dividends to
        us.
        Provisions of our debt instrument and related loan agreements for our syndicated
        credit facility allow the subsidiaries borrowing under the credit facility
        to
        pay dividends to us but restrict us from declaring or making dividends or
        other
        distributions that would result in a default of the credit facility or exceed
        50% of our prior year’s consolidated net income. These restrictions may restrict
        International’s ability to pay dividends on our common shares.
 
 The
        timing and amount of future cash dividends, if any, would be determined by
        our
        board of directors and would depend upon our earnings, financial condition,
        cash
        requirements and obligations to lenders at the time. Pursuant to Bermuda
        law, we
        cannot declare or pay a dividend, or make a distribution out of contributed
        surplus, if there are reasonable grounds for believing that we are, or after
        the
        payment would be, unable to pay our liabilities as they become due, or that
        the
        realizable value of our assets would thereby be less than the aggregate of
        our
        liabilities, our issued share capital and our share premium accounts .
 
 ***Equity
        Compensation Plans***
  Information
        regarding our equity compensation plans as of December 31, 2006 is disclosed
        in note "20
— Stock
        Plans " to our
        consolidated financial statements.
  Table
            of Contents
 29
 **Item
        6. Selected Financial
        Data**
 
 The
        selected historical consolidated financial data presented below should be
        read
        in conjunction with the consolidated financial statements and notes thereto
        and
        Item 7. Management’s Discussion and Analysis of Financial Condition and Results
        of Operations, included elsewhere in this Report.
  **Year
                    Ended December 31,****2002**
                
                **2003**
                
                **2004**
                
                **2005**
                
                **2006**(In
                    thousands, except for share and per share amounts)(As
                    adjusted)
                
                (As
                    adjusted)
                
                (As
                    adjusted)
                
                (As
                    adjusted)(See
                    note (1) below)**Revenue**Voyage
                    revenue
                
                $
                94,338
                
                $
                119,528
                
                $
                157,794
                
                $
                175,596
                
                $
                189,012Time
                    charter revenue
                
                
                7,421
                
                
                23,625
                
                
                50,746
                
                
                71,456
                
                
                63,114Other
                    revenue
                
                
                65
                
                
                193
                
                
                267
                
                
                979
                
                
                1,460**Revenue**
                
                
                101,824
                
                
                143,346
                
                
                208,807
                
                
                248,031
                
                
                253,586**Operating
                    expenses**Voyage
                
                
                48,713
                
                
                52,454
                
                
                60,692
                
                
                75,291
                
                
                83,254Vessel
                
                
                34,067
                
                
                61,192
                
                
                77,145
                
                
                68,711
                
                
                63,205Depreciation
                    and amortization of vesselsand
                    other fixed assets
                
                
                6,877
                
                
                7,776
                
                
                11,005
                
                
                19,537
                
                
                29,867Management
                    fees
                
                
                3,237
                
                
                3,864
                
                
                4,414
                
                
                2,624General
                    and administrative
                
                
                4,684
                
                
                6,464
                
                
                7,347
                
                
                17,618
                
                
                27,256(Gain)
                    Loss from sale of vessels (2)
                
                
                
                
                
                9,905
                
                
                
                
                
                
                
                
                (2,180
                )**Operating
                    expenses**
                
                
                97,578
                
                
                141,655
                
                
                160,603
                
                
                183,781
                
                
                201,402**Income
                    from operations**
                
                
                4,246
                
                
                1,691
                
                
                48,204
                
                
                64,250
                
                
                52,184**Other
                    (expenses) and income**Interest
                    expense
                
                
                (5,321
                )
                
                (5,145
                )
                
                (5,148
                )
                
                (9,346
                )
                
                (11,577
                )Interest
                    and other income
                
                
                23
                
                
                68
                
                
                111
                
                
                752
                
                
                1,810Gain
                    (loss) on early extinguishment of debt (2) (3)
                
                
                
                
                
                2,373
                
                
                
                
                
                
                
                
                (3,357
                )Deemed
                    preference dividends and accretion
                
                
                
                
                
                (829
                )Total
                    other (expenses) and income
                
                
                (5,298
                )
                
                (3,533
                )
                
                (5,037
                )
                
                (8,594
                )
                
                (13,124
                )**Net
                    (loss) income**
                
                
                (1,052
                )
                
                (1,842
                )
                
                43,167
                
                
                55,656
                
                
                39,060Deemed
                    preference dividends and accretion
                
                
                (1,491
                )
                
                (797
                )Amount
                  allocated to participating
                  preferred shareholders
                
                
                
                
                
                
                
                
                (11,843
                )
                
                (5,706
                )Net
                    (loss) income available for common shareholders
                
                $
                (2,543
                )
                $
                (2,639
                )
                $
                31,324
                
                $
                49,950
                
                $
                39,060Net
                    (loss) income per common shareBasic
                
                $
                (0.25
                )
                $
                (0.26
                )
                $
                3.07
                
                $
                2.28
                
                $
                1.40Diluted
                
                $
                (0.25
                )
                $
                (0.26
                )
                $
                1.54
                
                $
                2.05
                
                $
                1.39Weighted
                    average common shares outstandingBasic
                    (4) (5)
                
                
                10,187,795
                
                
                10,187,795
                
                
                10,187,795
                
                
                21,870,160
                
                
                27,998,843Diluted
                    (4) (5)
                
                
                10,187,795
                
                
                10,187,795
                
                
                20,385,775
                
                
                24,310,909
                
                
                28,088,310
  Table
            of Contents
 30
 **December
                    31,****2002**
                
                **2003**
                
                **2004**
                
                **2005**
                
                **2006****(In
                    thousands)**(As
                    adjusted)
                
                (As
                    adjusted)
                
                (As
                    adjusted)
                
                (As
                    adjusted)(See
                    note (1) below)**Balance
                    Sheet Data:**Cash
                    and cash equivalents
                
                $
                3,799
                
                $
                8,641
                
                $
                21,674
                
                $
                27,158
                
                $
                12,007Working
                    capital
                
                
                3,718
                
                
                8,663
                
                
                10,831
                
                
                (866
                )
                
                (3,816
                )Total
                    assets
                
                
                87,814
                
                
                83,610
                
                
                159,929
                
                
                344,671
                
                
                403,091Long-term
                    debt, including current portion
                
                
                43,275
                
                
                6,097
                
                
                38,511
                
                
                105,737
                
                
                125,804Obligations
                        under capital leases, including current
                        portion
                
                
                11,714
                
                
                42,637
                
                
                34,642
                
                
                24,703
                
                
                21,355Mandatorily
                    redeemable preference shares (6)
                
                
                12,755
                
                
                14,382
                
                
                -
                
                
                -
                
                
                -Total
                    shareholders' equity
                
                
                9,083
                
                
                8,597
                
                
                65,996
                
                
                184,207
                
                
                223,604**Year
                    Ended December 31,****2002**
                
                
                **2003**
                
                
                **2004**
                
                
                **2005**
                
                
                **2006****Other
                    Operating Data:**Controlled
                    vessels (at end of period) (7)
                
                
                13
                
                
                13
                
                
                18
                
                
                31
                
                
                34Chartered
                    vessels (at end of period) (8)
                
                
                9
                
                
                11
                
                
                10
                
                
                6
                
                
                1Voyage
                    Days (9)
                
                
                6,823
                
                
                9,033
                
                
                8,892
                
                
                10,885
                
                
                12,119Vessel
                    days (10)
                
                
                6,937
                
                
                9,116
                
                
                9,138
                
                
                11,264
                
                
                12,701Tons
                    of cargo shipped (11)
                
                
                2,936
                
                
                5,907
                
                
                3,658
                
                
                3,170
                
                
                4,368Revenue
                    per ton (12)
                
                $
                32.13
                
                $
                20.24
                
                $
                43.13
                
                $
                55.39
                
                $
                43.27Tons
                        of cargo shipped, excluding aggregates
                        (11)(13)
                
                
                2,482
                
                
                2,582
                
                
                2,837
                
                
                3,092
                
                
                3,227Revenue
                        per ton, excluding aggregates (11)(13)
                
                $
                37.36
                
                $
                39.27
                
                $
                52.79
                
                $
                56.58
                
                $
                55.25Chartered
                    -out days
                
                
                1,001
                
                
                2,439
                
                
                2,780
                
                
                4,257
                
                
                4,301Chartered
                    -out rate per day
                
                $
                7,413
                
                $
                9,686
                
                $
                18,254
                
                $
                16,785
                
                $
                14,674
  (1)
            Financial
                data for years 2002, 2003, 2004, and 2005 has been retrospectively
                adjusted for the change in the method of accounting for drydocking
                costs
                to the deferral method. The new method of accounting for drydocking
                costs
                was adopted because of changes made on September 8, 2006, by the
                Financial
                Accounting Standards Board to certain provisions in the American
                Institute
                of Certified Public Accountants, Industry Audit Guide, *Audits of
                Airlines*("Airline Guide"). The Airline Guide is the principal source
                of guidance on the accounting for planned major maintenance and is
                relevant to both the aviation and maritime industries. Under the
                deferral method of accounting for drydocking, the actual costs incurred
                are deferred and are amortized on a straight-line basis over the
                period
                through the date of the next drydocking. The impact of this accounting
                change on each of the financial statement line items presented above
                that
                were affected by the change, is as
                follows:  Table
            of Contents
 31
 **Year
                    Ended December 31,****2002**
                ****
                **2003**
                ****
                **2004**
                ****
                **2005**As
                    Originally
                
                As
                
                As
                    Originally
                
                As
                
                As
                    Originally
                
                As
                
                As
                    Originally
                
                AsReported
                
                Adjusted
                
                Reported
                
                Adjusted
                
                Reported
                
                Adjusted
                
                Reported
                
                Adjusted(In
                    Thousands, except for per share amounts)Vessel
                    expense
                
                $
                35,133
                
                $
                34,067
                
                $
                62,234
                
                $
                61,192
                
                $
                79,273
                
                $
                77,145
                
                $
                72,609
                
                $
                68,711Depreciation
                      and amortization of vessels and other fixed assets
                
                $
                6,282
                
                $
                6,877
                
                $
                6,887
                
                $
                7,776
                
                $
                10,137
                
                $
                11,005
                
                $
                18,021
                
                $
                19,537Operating
                    expenses
                
                $
                98,049
                
                $
                97,578
                
                $
                141,807
                
                $
                141,655
                
                $
                161,863
                
                $
                160,603
                
                $
                186,163
                
                $
                183,781Income
                    from operations
                
                $
                3,775
                
                $
                4,246
                
                $
                1,539
                
                $
                1,691
                
                $
                46,944
                
                $
                48,204
                
                $
                61,868
                
                $
                64,250Net
                  (loss) income
                
                $
                (1,523
                )
                $
                (1,052
                )
                $
                (1,994
                )
                $
                (1,842
                )
                $
                41,907
                
                $
                43,167
                
                $
                53,274
                
                $
                55,656Amount
                  allocated to participating preferred shareholders
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (11,497
                )
                $
                (11,843
                )
                $
                (5,461
                )
                $
                (5,706
                )Net(loss)
                    income available for common shareholders
                
                $
                (3,014
                )
                $
                (2,543
                )
                $
                (2,791
                )
                $
                (2,639
                )
                $
                30,410
                
                $
                31,324
                
                $
                47,813
                
                $
                49,950Net
                    (loss) income per common shareBasic
                
                $
                (0.30
                )
                $
                (0.25
                )
                $
                (0.27
                )
                $
                (0.26
                )
                $
                2.98
                
                $
                3.07
                
                $
                2.19
                
                $
                2.28Diluted
                
                $
                (0.30
                )
                $
                (0.25
                )
                $
                (0.27
                )
                $
                (0.26
                )
                $
                1.49
                
                $
                1.54
                
                $
                1.97
                
                $
                2.05Working
                    capital
                
                $
                3,146
                
                $
                3,718
                
                $
                6,487
                
                $
                8,663
                
                $
                9,566
                
                $
                10,831
                
                $
                (5,055
                )
                $
                (866
                )Total
                    assets
                
                $
                87,914
                
                $
                87,814
                
                $
                83,009
                
                $
                83,610
                
                $
                157,159
                
                $
                159,929
                
                $
                342,442
                
                $
                344,671
 
 See
                      notes "3 — Change in Accounting Method for Drydocking Costs" and "26 —
                      Selected Quarterly Financial Information (unaudited)" to our
                      consolidated
                      financial statements for the impact of the adjustment on previously
                      reported consolidated financial
                      statements.
 (2)
            In
                2003, the amount of loss on sale of vessels represents the excess
                of the
                price paid to us over 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. The 2006 gain on sale of vessel represents the gain
                on the
                sale of the *Dakota Belle*. 
 (3)
              In
                  2006 the amount represents the write-off of unamortized debt finance
                  costs
                  of $1.3 million and the payment of loan prepayment fees of $2.1
                  million
                  when we repaid most of our then existing credit facilities in July
                  2006
                  with our $140.0 million syndicated credit facility.
 
 (4)
              Basic
                  and diluted weighted average common shares for 2002 through 2004
                  reflect
                  the 2.5 to 1 adjustment for the consolidation and redesignation
                  of common
                  shares made June 29, 2005. See notes "18 - Equity Transactions"
                  and "19 -
                  Earnings Per Share" to our consolidated financial
                  statements.
 
 (5)
              Diluted
                  weighted average common shares outstanding for 2006 includes 89,467
                  weighted average common shares relating to the restricted Class A
                  common shares granted to our chief financial officer and to our
                  independent directors at the time of our initial public offering.
                  Diluted
                  weighted average common shares outstanding for 2005 includes 2,387,497
                  weighted average common shares issuable under the exercise of warrants
                  and
                  53,252 weighted average common shares relating to the restricted
                  Class A common shares granted to our chief financial officer and
                  to our
                  independent directors at the time of our initial public offering.
                  Diluted
                  weighted average common shares outstanding for 2004 includes 10,197,980
                  common shares issuable on the exercise of exercisable warrants.
                  Diluted
                  weighted average common shares outstanding for 2002 includes 9,108,333
                  common shares for the Series A, B and C warrants.
 
 (6)
              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.
 
 (7)
              Controlled
                  vessels are vessels that we own or charter-in with an option to
                  purchase.
                  As of December 31, 2006, seven vessels in our controlled fleet
                  were
                  chartered-in with an option to
                  purchase.
 
 Table
            of Contents
 32
 (8)
              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.
 
 (9)
              Represents
                  the number of days controlled and time-chartered vessels were operated
                  by
                  us, excluding off-hire days.
 
 (10)
              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.
  (11)
              In
                  thousands.
   (12)
              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.
 
 (13)
              Aggregates
                  represent high-volume, low-freighted cargo. Including aggregates,
                  therefore, can overstate the amount of tons that we carry on a
                  regular
                  basis and reduce our revenue per ton. We regularly carried aggregates
                  in
                  all years except 2005 when we temporarily suspended  the transport of
                  aggregates. We believe that the exclusion of aggregates better
                  reflects
                  our cargo shipped and revenue per ton data for our principal
                  services.
  Table
            of Contents
 33
 **ITEM
        7.****Management's
        Discussion and Analysis of Financial Condition and Results of
        Operations**
 
 **General**
  The
        following is a discussion of our financial condition at December 31,
        200 6
        and
        2005 and our results of operations comparing the years ended December 31,
        2006
        and 2005 and the years ended December 31, 2005 and 2004. You should read
        this
        section in conjunction with our consolidated financial statements including
        the
        related notes to those financial statements included elsewhere in this Annual
        Report.
  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.
  **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.
 The
        $12.1
        million decrease in income from operations for 2006 as compared to 2005 was
        mainly attributable to an increase in voyage expense, specifically fuel costs,
        depreciation and
        general and administrative expense reduced by the gain on sale of the *Dakota
        Belle* and a decrease in management fees and vessels costs. The net increase
        in expenses was partially offset by an increase in revenue, which increased
        due
        to higher revenue tons carried.
  In
        the
        last three years, our fleet has grown from 12 to 34 vessels. These vessels
        must
        be drydocked two times every five years, to coincide with special survey
        cycles.
        Thus, our fleet of 34 vessels at December 31, 2006, would result in 68
        drydockings over 5 years or an average of 14 vessels per year. The vessels
        that
        we acquired recently in 2005 and 2006 were of varying ages and had differing
        drydock and survey positions; consequently, we expect to drydock approximately
        20 vessels in 2007 requiring approximately 783 drydock days. In 2005 we
        drydocked three vessels for 66 days, one of which took 25 days in 2006 to
        complete, and in 2006 we drydocked nine vessels for 304 days
  Table
            of Contents
 34
 We
        have a
        program to maintain and upgrade our vessels to the highest standards. In
        view of
        the fact that our fleet will have an average age of about 21 years in 2007,
        we
        have decided to make steel renewals and reinforcements on many of the vessels
        scheduled for drydocking. This additional work is being done in anticipation
        of
        the steel renewals that might be required during the next 5 to 10 years.
        As part
        of our program, we anticipated that the next series of vessels scheduled
        for
        drydocking after 2007 will also have extensive steel renewal in anticipation
        of
        the steel renewals that might be required. We estimate that vessel drydockings
        that require less than 75 metric tons of steel renewal will take from 25
        to 30
        days and that vessel drydockings that require 100 to 500 metric tons of steel
        renewal will take from 40 to 65 days. Our estimates are based on current
        and
        anticipated congestion in the Chinese repair shipyards, which could be adversely
        affected by any unanticipated weather or congestion in the shipyard. We estimate
        the total drydock cost for the 20 vessels, including the *Nanticoke Belle,*which is expected to be delivered in late March or early April 2007,
        to be approximately $18.0 million.
  Our
        anticipated 2007 drydocking schedule is as follows:
 ·
                  First
                        quarter of 2007, eight vessels requiring about 1,100 metric
                        tons of steel
                        and about 216 drydock days.  We anticipate four vessels will require
                        an additional 62 drydock  days that will extend into the second
                        quarter of 2007;·
                  Second
                        quarter of 2007, seven vessels requiring about 1,050 metric
                        tons of steel
                        and about 261 drydock days. We anticipate two vessels will
                        require an
                        additional 49 drydock  days that will extend into the third quarter
                        of 2007;·
                  Third
                        quarter 2007, four vessels requiring about 950 metric tons
                        of steel and
                        about 143 drydock days.  We anticipate one vessel will require an
                        additional 27 drydock  days that will extend into the fourth quarter
                        of 2007;·
                  Fourth
                        quarter 2007, one vessel requiring about 75 metric tons of
                        steel and about
                        25 days in drydock.
 **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.
 
 ***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, freight voyage days, revenue tons and the freight rates.
 
 ***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.
 
 ***Voyage
        expenses*** consist
        primarily of fuel, port costs, stevedoring, commissions and lashing materials,
        which are paid by our subsidiaries.
 
 ***Vessel
        expenses*** ** are
        vessel operating expenses that consist of, crewing, stores, lube oil, repairs
        and maintenance including registration taxes and fees, insurance and
        communication expenses  for vessels we control, charter hire fees we pay to
        owners for use of their vessels and space charters (relets). The costs are
        paid
        by our subsidiaries.
 
 ***Depreciation
        and amortization*** ** expense
        through December 31, 2004 was computed on the basis of 25-year useful lives
        for
        our vessels and, beginning on January 1, 2005 was computed on the basis of
        30-year useful lives for our vessels. The change in estimated useful life
        reflects a change in the industry's expected commercial life of a vessel,
        as
        demonstrated by the strong market prices realized on older vessels. The impact
        of this change in estimate for 2006 and 2005 increased our net income by
        $37.2
        million and $19.1 million, respectively. Approximately 69% or $25.7 million
        of
        the $37.2 million impact of the change in estimate for 2006, relates to vessels
        that we acquired in 2005 and 2006.
 
 Table
            of Contents
 35
 ***Management
        fees*** **** are
        paid
        to Roymar for the technical management of controlled vessels and to TBS Shipping
        Services for the operational management of vessels. From June 2005, when
        we
        purchased all the stock of TBS Shipping Services and Roymar, management fees
        have been eliminated in consolidation. We also paid commissions on freight
        and
        time charter hire to TBS Shipping Services that are eliminated in consolidation
        from the date we acquired this company. Commissions on freight and port agency
        fees are paid to TBS Commercial Group Ltd, a company that is owned by our
        principal shareholders.
  These
        management fees and commissions were fixed under agreements that originally
        were
        negotiated during our Chapter 11 proceeding in 2002 with representatives
        of the
        holders of our then outstanding First Preferred Ship Mortgage Notes and were
        approved by our board of directors. Renewal of the current management agreements
        with TBS Commercial Group and approval of any new management agreements or
        amendments to the current management agreements with TBS Commercial Group
        Ltd.
        are subject to approval by the compensation committee of our board of
        directors.
 
 **Lack
        of historical operating data for vessels before their
        acquisition**
 
 Consistent
        with shipping industry practices, there is no historical financial due diligence
        process when we acquire vessels other than the inspection of the physical
        condition of the vessels and examinations of classification society records.
        Accordingly, we do not obtain the historical operating data for the vessels
        from
        the sellers because that information is not material to our decision to make
        acquisitions, nor do we believe it would be helpful to potential investors
        in
        our common shares in assessing our business or profitability.
 
 Most
        vessels are sold under a standardized agreement, which, among other things,
        provides the buyer with the right to inspect the vessel and the vessel's
        classification society records. The standard agreement does not give the
        buyer
        the right to inspect, or receive copies of, the historical operating data
        of the
        vessel and does not provide for financial information or historical results
        for
        the vessel to be made available to the buyer. Prior to the delivery of a
        purchased vessel, the seller typically removes from the vessel all records,
        including past financial records and accounts related to the vessel. In
        addition, the technical management agreement between the seller's technical
        manager and the seller is automatically terminated and the vessel's trading
        certificates are revoked by its flag state following a change in ownership.
 
 Consistent
        with shipping industry practice, we treat the acquisition of a vessel, whether
        acquired with or without charter, as the acquisition of an asset rather than
        a
        business. Due to the differences between the prior owners of these vessels
        and
        the Company with respect to the routes we operate, the shippers and consignees
        we serve, the cargoes we carry, the freight rates and charter hire rates
        we
        charge and the costs we incur in operating our vessels, we believe that our
        operating results will be significantly different from the operating results
        of
        the vessels while owned by the prior owners.
 
 The
        Financial Accounting Standards Board issued Emerging Issues Task Force (EITF)
        98-3, which states that "for a transferred set of activities and assets to
        be a
        business, it must contain all of the inputs and processes necessary for it
        to
        continue to conduct normal operations after the transferred set is separated
        from the transferor, which includes the ability to sustain a revenue stream
        by
        providing its output to customers." The purchase of a vessel alone cannot
        operate or generate revenue or constitute a business operation without the
        significant inputs and processes that we provide, as described below:
 ·
                    We
                            provide our own captains, senior officers and crew to
                            the
                            vessels.·
                    The
                            vessels are managed by our subsidiary Roymar. All of
                            the functions of
                            vessel management, from technical ship management to
                            crewing, vessel
                            maintenance and drydocking, are conducted by Roymar,
                            in a manner different
                            from the prior manager, according to our exacting
                            standards.·
                    The
                            necessary commercial activities — maintaining customer relationships,
                            providing local teams of commercial agents and port captains,
                            offering
                            transportation management skills and logistics solutions
— are provided by
                            our subsidiary TBS Shipping Services and our affiliate
                            TBS Commercial
                            Group in a manner different from the former
                            owners.·
                    The
                            vessels will operate under our trade name and carry our
                            distinctive Native
                            American Indian tribe naming
                            convention.
  Table
                  of Contents
 36
 The
        revenue-producing activity of the vessels we purchase will be generated from
        carrying cargoes for our customers on the routes we serve. The vessels we
        purchase are operated by different parties than their former owners, serve
        different customers, carry different cargoes, charge different rates, cover
        different routes and, in all respects engage in a different business with
        different revenues, costs and operating margins.
 
 In
        short,
        all of the most important elements of operating the assets — in fact, all of the
        elements of the business of ocean transportation other than the vessels
        themselves — are not being purchased with the vessels but will depend on our
        skill and expertise.
  **Results
        of Operations**
  ***Year
        ended December 31, 2006 compared to year ended December 31,
        2005*** ****
  Effective
        January 1, 2006, our drydocking expense and surveys are being accounted for
        using the deferral method. Accordingly, vessel expense and depreciation and
        amortization for 2005 has been retrospectively adjusted for the
        change in the method of accounting for d rydocking
        costs.  The
        new
        method was adopted because of changes made by the Financial
        Accounting Standards Board on
        September 8, 2006, to certain
        provisions in the American Institute of Certified Public Accountants ** ("AICPA"),
        Industry Audit Guide, *Audits
        of Airlines* ("Airline
        Guide"). The Airline Guide is the principal source of guidance on the accounting
        for planned major maintenance and is relevant to the  maritime
        industry.  Under
        the
        deferral method of accounting for drydocking, the actual costs incurred are
        deferred and are amortized on a straight-line basis over the period through
        the
        date of the next drydocking. The
        impact of this accounting change for 2005 increased our net income by
        $2,382,241. See 
        notes "3 — Change
        in
        Accounting Method for Drydocking costs " and " 26
—
        Selected Quarterly Financial Information (unaudited) " to our
        consolidated financial statements, for the impact of the adjustment on
        previously reported financial statements and selected quarterly financial
        information, respectively.
  **Year
                    Ended December 31,****2005**
                
                **2006**
                
                **Increase
                    (Decrease)****In
                    Thousands**
                
                **As
                    a % of Total Revenue**
                
                **In
                    Thousands**
                
                **As
                    a % of Total Revenue**
                
                **In
                    Thousands**
                
                **Percentage**(as
                    adjusted)Voyage
                    revenue
                
                $
                175,596
                
                
                70.8
                
                $
                189,012
                
                
                74.5
                
                $
                13,416
                
                
                7.6Time
                    charter revenue
                
                
                71,456
                
                
                28.8
                
                
                63,114
                
                
                24.9
                
                
                (8,342
                )
                
                (11.7
                )Other
                    revenue
                
                
                979
                
                
                0.4
                
                
                1,460
                
                
                0.6
                
                
                481
                
                
                49.1Total
                    revenue
                
                
                248,031
                
                
                100.0
                
                
                253,586
                
                
                100.0
                
                
                5,555
                
                
                2.2Voyage
                    expense
                
                
                75,291
                
                
                30.3
                
                
                83,254
                
                
                32.8
                
                
                7,963
                
                
                10.6Vessel
                    expense
                
                
                68,711
                
                
                27.7
                
                
                63,205
                
                
                24.9
                
                
                (5,506
                )
                
                (8.0
                )Depreciation
                    and amortization
                
                
                19,537
                
                
                7.9
                
                
                29,867
                
                
                11.8
                
                
                10,330
                
                
                52.9Management
                    fees
                
                
                2,624
                
                
                1.1
                
                
                
                
                
                
                
                
                (2,624
                )
                
                (100.0
                )General
                    and administrative
                
                
                17,618
                
                
                7.1
                
                
                27,256
                
                
                10.8
                
                
                9,638
                
                
                54.7Gain
                    from sale of vessel
                
                
                
                
                
                
                
                
                (2,180
                )
                
                (0.9
                )
                
                (2,180
                )Total
                    operating expenses
                
                
                183,781
                
                
                74.1
                
                
                201,402
                
                
                79.4
                
                
                17,621
                
                
                9.6Income
                    from operations
                
                
                64,250
                
                
                25.9
                
                
                52,184
                
                
                20.6
                
                
                (12,066
                )
                
                (18.8
                )Other
                    (expenses) and incomeInterest
                    expense
                
                
                (9,346
                )
                
                (3.7
                )
                
                (11,577
                )
                
                (4.6
                )
                
                (2,231
                )
                
                23.9Loss
                    on early extinguishment of debt
                
                
                
                
                
                
                
                
                (3,357
                )
                
                (1.3
                )
                
                (3,357
                )Other
                    income
                
                
                752
                
                
                0.3
                
                
                1,810
                
                
                0.7
                
                
                1,058
                
                
                140.7Net
                    income
                
                $
                55,656
                
                
                22.5
                
                $
                39,060
                
                
                15.4
                
                $
                (16,596
                )
                
                (29.8
                )
  Table
              of Contents
 37
 **Voyage
        revenue**
  Voyage
        revenue for 2006 as compared to 2005 increased 7.6% due to an increase in
        revenue tons offset by a decrease in freight rates. As mentioned in components
        of revenue and expense above, the key factors driving voyage revenue are
        the
        number of vessels in the fleet, freight voyage days, revenue tons and freight
        rates.
  Revenue
        tons carried for 2006 as compared to 2005 increased 1,197,748 tons or 37.8%
        to
        4,367,779 tons for 2006 from 3,170,031 tons for 2005. The increase in revenue
        tons carried is due to an increase in aggregate bulk cargo carried and an
        increase in the number of vessels in our fleet, which resulted in a higher
        number of voyages.
  Average
        freight rates for 2006 as compared to 2005 decreased $12.12 per ton or 21.9%
        to
        $43.27 per ton in 2006 from $55.39 per ton for 2005. Freight rates, not under
        contracts, are set by the market and depend on the relationship between the
        demand for ocean freight transportation and the availability of appropriate
        vessels. The decrease in freight rates was mainly due to the increase in
        revenue
        tons for the low-freighted aggregate cargo.
  For
        2006
        and 2005 we had contracts of affreightment under which we carried approximately
        1,947,261 and 43,478 revenue tons and generated $56.1 million and $5.9 million
        of voyage revenue, respectively. Contracts of affreightment outstanding at
        December 31, 2006 expire through May 2009.
  Included
        in voyage revenue is revenue from high-volume, low-freighted aggregate bulk
        cargo. Excluding this type of bulk cargo, of which we carried 1,140,830 tons
        and
        78,338 tons during 2006 and 2005 respectively, average freight rates would
        have
        been $55.25 per ton and $56.58 per ton for 2006 and 2005 respectively.
  The
        increase in weighted average number of vessels in the fleet, freight voyage
        days
        and days on hire, excluding vessels time chartered out, and the
        (decrease)/increase in freight rates for the years 2004, 2005 and 2006 are
        as
        follows:
  **Year
                    Ended December 31,****2004**
                
                **2005**
                
                **2006**Number
                    of vessels (1)
                
                
                17
                
                
                18
                
                
                21Freight
                    voyage days (2)
                
                
                6,112
                
                
                6,628
                
                
                7,818Days
                    on hire (3)
                
                
                6,358
                
                
                7,007
                
                
                8,102Freight
                    Rates (4)For
                    all cargoes
                
                $
                43.13
                
                $
                55.39
                
                $
                43.27Excluding
                    aggregates
                
                $
                52.79
                
                $
                56.58
                
                $
                55.25Daily
                    time charter equivalent rates (5)
                
                $
                15,538
                
                $
                14,456
                
                $
                12,650
  (1)
              Weighted
                  average number of vessels in the fleet, not including vessels chartered
                  out.(2)
              Number
                  of days that our vessels were earning revenue, not including vessels
                  chartered out.(3)
              Not
                  including vessels chartered out.(4)
              Weighted
                  average freight rates measured in dollars per ton.(5)
              Time
                  Charter Equivalent or "TCE" rates are defined as voyage revenue
                  less
                  voyage expenses during the year divided by the number of available
                  days
                  during the year.Voyage
                  expenses include the following expenses: fuel, port call, commissions,
                  stevedore and other cargo related and miscellaneous voyage expenses. 
                  No deduction is madefor
                  vessel or general and administrative expenses. TCE is an industry
                  standard
                  for measuring and analyzing fluctuations between financial periods
                  and as
                  a method ofequating
                  TCE revenue generated from a voyage charter to time charter
                  revenue.
 
 Table
            of Contents
 38
 The
        following table shows revenues attributed to our principal cargoes:
 **Year
                    Ended December 31,****2005**
                
                **2006**
                
                **Increase
                    (Decrease)****Description**
                
                **In
                    Thousands**
                
                **As
                    a % of Total Voyage Revenue**
                
                **In
                    Thousands**
                
                **As
                    a % of Total Voyage Revenue**
                
                **In
                    Thousands**
                
                **Percentage**Steel
                    products
                
                $
                71,952
                
                
                41.0
                
                $
                68,921
                
                
                36.5
                
                $
                (3,031
                )
                
                (4.2
                )Metal
                    concentrates
                
                
                26,070
                
                
                14.8
                
                
                27,473
                
                
                14.5
                
                
                1,403
                
                
                5.4Other
                    bulk cargo
                
                
                20,485
                
                
                11.7
                
                
                25,027
                
                
                13.3
                
                
                4,542
                
                
                22.2Agricultural
                    products
                
                
                8,426
                
                
                4.8
                
                
                23,152
                
                
                12.2
                
                
                14,726
                
                
                174.8Project
                    cargo
                
                
                1,164
                
                
                0.7
                
                
                11,884
                
                
                6.3
                
                
                10,720
                
                
                921.0Rolling
                    stock
                
                
                14,385
                
                
                8.2
                
                
                9,739
                
                
                5.2
                
                
                (4,646
                )
                
                (32.3
                )General
                    cargo
                
                
                9,884
                
                
                5.6
                
                
                6,878
                
                
                3.6
                
                
                (3,006
                )
                
                (30.4
                )Fertilizers
                
                
                14,596
                
                
                8.3
                
                
                6,499
                
                
                3.4
                
                
                (8,097
                )
                
                (55.5
                )Automotive
                    products
                
                
                3,880
                
                
                2.2
                
                
                4,568
                
                
                2.4
                
                
                688
                
                
                17.7Other
                
                
                4,754
                
                
                2.7
                
                
                4,871
                
                
                2.6
                
                
                117
                
                
                2.5Total
                    voyage revenue
                
                $
                175,596
                
                
                100.0
                
                $
                189,012
                
                
                100.0
                
                $
                13,416
                
                
                7.6
 **Time
        charter revenue**
 
 Time
        charter revenue decreased 11.7% for 2006 as compared to 2005. As mentioned
        in
        components of revenue and expense above, the key factors driving time charter
        revenue are the number of days that vessels are chartered out and the daily
        charter hire rates.
  Average
        charter hire rate decreased $2,111 per day, or 12.6%, to $14,674 per day
        for
        2006 from $16,785 per day for 2005. Charter hire rates are set, to a significant
        degree, by the market and depend on the relationship between the demand for
        ocean freight transportation and the availability of appropriate vessels.
        The
        decrease in average time charter rates for 2006 compared to 2005 is reflective
        of higher than usual rates that we received in 2005. Charter hire rates have
        improved during the second half of 2006 as the overall worldwide shipping
        markets have improved.
 
 During
        2006 and 2005, we had five vessels chartered-out under long-term charters
        with
        average daily rates of $17,332 and $17,830 respectively, which made up $18.9
        million and $27.0 million of time charter revenue, respectively. At December
        31,
        2006, these long-term time charters expire through August 2007.
 
 The
        number of vessels time chartered out, time charter days, and daily charter
        rates
        for each of the three years from 2004 through 2006 are as follows:
  **Year
                    Ended December 31,****2004**
                
                **2005**
                
                **2006**Number
                    of vessels (1)
                
                
                8
                
                
                12
                
                
                12Time
                    Charter days (2)
                
                
                2,780
                
                
                4,257
                
                
                4,301Daily
                    charter hire rates (3)
                
                $
                18,254
                
                $
                16,785
                
                $
                14,674Daily
                    time charter equivalent rates (4)
                
                $
                17,010
                
                $
                15,797
                
                $
                13,604
 (1)
              Weighted
                  average number of vessels chartered out.(2)
              Number
                  of days vessels earned charter hire.(3)
              Weighted
                  average charter hire rates.(4)
              Time
                  Charter Equivalent or "TCE" rates for vessels that are time chartered
                  out,
                  are defined as time charter revenue during the year reduced by
                  commissions
                  divided by the number of availabledays
                  during the year.  No deduction is made for vessel or general and
                  administrative expenses.  TCE is an industry standard for measuring
                  and analyzing fluctuations between financial periodsand
                  as a method of equating TCE revenue generated from a voyage charter
                  to
                  time charter revenue. No voyage expenses are deducted because they
                  are not
                  applicable.
 
 Table
            of Contents
 39
 The
        following table shows the change in the number of freight voyage days and
        time
        charter days in 2006 as compared to 2005.
  **Year
                    Ended December 31,****2005**
                
                **2006**
                
                **Increase
                    (Decrease)**Freight
                    voyage days
                
                
                6,628
                
                
                7,818
                
                
                1,190
                
                
                18.0
                %Time
                    charter days
                
                
                4,257
                
                
                4,301
                
                
                44
                
                
                1.0
                %Total
                    voyage days
                
                
                10,885
                
                
                12,119
                
                
                1,234
                
                
                11.3
                %
 
 **Voyage
        expense**
 
 Voyage
        expense consists of costs attributable to specific voyages. The number of
        voyage
        days is a significant determinant of voyage expense as well as commissions
        and
        bunker fuel costs.
 
 The
        principal components of voyage expense were as follows:
  **Year
                    Ended December 31,****2005**
                
                **2006**
                
                **Increase
                    (Decrease)****In
                    Thousands**
                
                **As
                    a % of Voyage Expense**
                
                **As
                    a % of Revenue**
                
                **In
                    Thousands**
                
                **As
                    a % of Voyage Expense**
                
                **As
                    a % of Revenue**
                
                **In
                    Thousands**
                
                **Percentage**
                
                **As
                    a % of Revenue**Fuel
                    expense
                
                $
                27,962
                
                
                37.1
                
                
                11.2
                
                $
                37,041
                
                
                44.5
                
                
                14.6
                
                $
                9,079
                
                
                32.5
                
                
                3.4Commission
                    expense
                
                
                12,570
                
                
                16.7
                
                
                5.1
                
                
                10,365
                
                
                12.4
                
                
                4.1
                
                
                (2,205
                )
                
                (17.5
                )
                
                (1.0
                )Port
                    call expense
                
                
                17,021
                
                
                22.6
                
                
                6.9
                
                
                17,023
                
                
                20.4
                
                
                6.7
                
                
                2
                
                
                -
                
                
                (0.2
                )Stevedore
                      and other cargo-related expense
                
                
                10,901
                
                
                14.5
                
                
                4.4
                
                
                11,968
                
                
                14.4
                
                
                4.7
                
                
                1,067
                
                
                9.8
                
                
                0.3Miscellaneous
                      voyage expense
                
                
                6,837
                
                
                9.1
                
                
                2.7
                
                
                6,857
                
                
                8.3
                
                
                2.7
                
                
                20
                
                
                0.3
                
                
                -Voyage
                    expense
                
                $
                75,291
                
                
                100.0
                
                
                30.3
                
                $
                83,254
                
                
                100.0
                
                
                32.8
                
                $
                7,963
                
                
                10.6
                
                
                2.5
  Voyage
        expense increased 10.6% for 2006 as compared to 2005, principally due to an
        increase in fuel expense.
  The
        2.5%
        increase in voyage expense as a percentage of total revenue to 32.8% for
        2006 as
        compared to 30.3% of total revenue for 2005, was primarily due to an increase
        in
        fuel expense which could not be fully recovered from our customers.
  The
        32.5%
        increase in fuel expense was due to an increase in the average price per
        metric
        ton ("MT") and an increase in consumption. For 2006, the average price per
        MT
        increased to $367 per MT as compared to $300 per MT for 2005. Consumption
        also
        increased for 2006 to 100,930 MT from 93,294 MT for 2005. Average fuel cost
        per freight voyage day was $4,738 during 2006 and $4,219 during 2005.
  The
        17.5%
        decrease in commission expense for 2006 as compared to 2005 was primarily
        due to
        the re-characterization of expenses due to our acquisition of TBS Shipping
        Services in June 2005 in connection with our initial public offering.
  Port
        call
        expense for 2006 as compared to 2005 was flat. The key factors driving port
        call
        expense are the number of port calls made by vessels, and to a lesser extent,
        port days. The number of port calls decreased to 853 port calls for 2006
        from
        873 port calls for 2005
  Table
            of Contents
 40
 The
        9.8%
        increased in stevedore and other cargo-related expense for 2006 as compared
        to
        2005 was primarily due to an increase in cargo volumes. Cargo volumes increased
        to 4,367,779 revenue tons for 2006 from 3,170,031 revenue tons for 2005.
 Stevedore and other cargo-related expense fluctuate based on cargo volumes
        and the shipping terms that the cargo is booked under.  The increase
        in stevedore and other cargo-related costs due to the increase in
        cargo volumes was partially offset by an increase in cargo booked under
        "free-in free-out" terms.  For analysis purposes we group cargoes into
        three categories: (1) cargo booked under “free-in free-out" terms which are
        shipments that the customer pays all or part of the costs of loading and
        unloading, (2) cargo booked under "full liner" terms, which are shipments
        where
        we bear the costs of loading and unloading and (3) a combination of free-in
        free-out and full liner terms.
  **Vessel
        expense**
 
 Vessel
        expense consists of costs we incur to own and maintain our fleet that are
        not
        allocated to a specific voyage such as charter hire rates for vessels we
        charter-in, maintenance, insurance, and crewing expenses for vessels we control.
 
 Vessel
        expense for 2005 has been retrospectively adjusted for the
        change in the method of accounting for d rydocking
        costs to the deferral
        method as previously discussed. The
        impact of this accounting change decreased owned vessel expense by $3,898,029
        in
        2005 from the amount previously reported.
 
 The
        following table sets forth the basic components of vessel
        expense:
 **Year
                    Ended December 31,****2005**
                
                **2006**
                
                **Increase
                    (Decrease)****In
                    Thousands**
                
                **As
                    a % of Vessel Expense**
                
                **In
                    Thousands**
                
                **As
                    a % of Vessel Expense**
                
                **In
                    Thousands**
                
                **Percentage**(as
                    adjusted)Chartered-in
                    vessel expense
                
                $
                31,119
                
                
                45.3
                
                $
                16,503
                
                
                26.1
                
                $
                (14,616
                )
                
                (47.0
                )Owned
                    vessel expense
                
                
                34,839
                
                
                50.7
                
                
                44,750
                
                
                70.8
                
                
                9,911
                
                
                28.4Space
                    charter expense
                
                
                2,753
                
                
                4.0
                
                
                1,952
                
                
                3.1
                
                
                (801
                )
                
                (29.1
                )Vessel
                    expense
                
                $
                68,711
                
                
                100.0
                
                $
                63,205
                
                
                100.0
                
                $
                (5,506
                )
                
                (8.0
                )
 
 The
        8%
        decrease in vessel expense in 2006 as compared to 2005 was primarily due
        to a
        reduction in the number of chartered-in vessels and hire rates that we paid
        for
        chartered-in vessels offset by an increase in our owned vessel
        fleet.
 
 The
        47%
        decrease in chartered-in vessels in 2006 as compared to 2005 resulted from
        our
        chartering-in vessels for 836 fewer vessel days in 2006. We chartered-in
        vessels
        for 1,103 days during 2006 compared to 1,939 days during 2005. Adding to
        the
        decrease, the average rate per day we paid to charter in vessels decreased
        $1,087 per day to $14,962 per day in 2006 compared to $16,049 per day in
        2005.
 
 The
        2.8%
        decrease in vessel expense as a percentage of total revenue to 24.9% of total
        revenue for 2006 as compared to 27.7% of total revenue for 2005, was primarily
        due to a growth of our controlled fleet which increased owned vessel expense
        and
        decreased chartered-in vessel expense.
 
 Table
            of Contents
 41
 **Depreciation
        and amortization**
 
 Depreciation
        and amortization for 2005 has been retrospectively adjusted for the
        change in the method of accounting for d rydocking
        costs as
        previously discussed. The
        impact of this accounting change increased d epreciation
        and amortization by
        $1,515,788 in 2005 over the amount previously reported. The
        $10.4
        million increase in depreciation and amortization expense to $29.9 million
        in
        2006 as compared to $19.5 million in 2005 was mainly due to the growth of
        our
        controlled fleet, which increased to an average of 32 vessels in 2006 from
        an
        average of 25 vessels in 2005.
 
 **Management
        fees**
 
 The
        following table sets forth the components of management fees:
 **Year
                    Ended December 31,****2005**
                
                **2006**
                
                **Increase
                    (Decrease)****In
                    Thousands**
                
                **As
                    a % of Management Fees**
                
                **In
                    Thousands**
                
                **As
                    a % of Management Fees**
                
                **In
                    Thousands**
                
                **Percentage**Technical
                    management fees
                
                $
                1,413
                
                
                53.8
                
                $
                -
                
                
                -
                
                $
                (1,413
                )
                
                (100.0
                )Operational
                    management fees
                
                
                1,211
                
                
                46.2
                
                
                -
                
                
                -
                
                
                (1,211
                )
                
                (100.0
                )Total
                    management fees
                
                $
                2,624
                
                
                100.0
                
                $
                -
                
                
                -
                
                $
                (2,624
                )
                
                (100.0
                )
 
 We paid
        management fees to our affiliated service companies, Roymar for technical
        management and TBS Shipping Services for operational management. In connection
        with our initial public offering, we purchased the stock of these two service
        companies and accordingly their results of operations have been included
        in our
        consolidated financial statements as of the date of their acquisition in
        June
        2005. Management fees shown above in 2005 include management fees through
        the
        date of acquisition. After the acquisition, when these affiliated companies
        became subsidiaries of the company, we continued to pay management fees;
        however, the fees have been eliminated in our consolidated financial statements
        and the actual costs of operations of these service companies have been included
        in general and administrative expenses.
  Technical
        management fees before elimination were $4.6 million in 2006 and $3.6 million
        in
        2005. For 2006, the entire amount of technical management fees was eliminated
        in
        consolidation, while in 2005 only the amount of technical management fess
        subsequent to our acquisition of the company in June 2005, as discussed above,
        of $2.2 million was eliminated. The increase in technical management fees
        before
        elimination was primarily due to an increase in the average number of vessels
        under management, which increased to an average of 32 vessels in 2006 from
        an
        average of 25 vessels in 2005.
  Operational
        management fees before elimination were $3.4 million in 2006 and $3.0 million
        in
        2005. For 2006 the entire amount of operational management fees was eliminated
        in consolidation, while in 2005 only the amount of operational management
        fess
        subsequent to our acquisition of the company in June 2005, as discussed above,
        of $1.8 million was eliminated. Operational management fees are based on
        voyage
        days, which increased 1,234 days or 11.3% to 12,119 days in 2006 as compared
        to
        10,885 days in 2005.
 
 **General
        and administrative expense**
  The
        $9.7
        million increase in general and administrative expense for 2006 as compared
        to
        2005 was primarily due to $3.5 million of additional professional fees that
        we
        incurred as a public company, including consulting fees dealing with the
        re-engineering of certain of our business processes to better meet our business
        needs as we grow. General and administrative expenses also increased due
        to a
        $4.2 million increase in salary and related costs (see below for a further
        explanation), a $0.4 million increase in travel costs and a $1.6 million
        increase in other and miscellaneous expenses (principally office overhead
        costs)
        for 2006 as compared to 2005.
  Table
            of Contents
 42
 The
        increase in salary and related costs is a result of the timing of our
        acquisition of Roymar and TBS Shipping in late June 2005. Roymar and TBS
        Shipping account for all of our employees and prior to our acquisition of
        these
        companies charged us a management fee and commissions. Salary and related
        costs
        for 2006 was approximately $16.3 million and represents 12 months of payroll
        costs. Salary and related costs for 2005 was approximately $12.1 million
        and
        represents 6 months of payroll costs from the date of our acquisition of
        Roymar
        and TBS plus one-time salary and related costs. Included in 2005 salary and
        related costs is a one-time bonus of $2.2 million paid in June 2005 to our
        chief
        financial officer and a one-time share grant to our employees and related
        payroll taxes of $1.9 million made in connection with our initial public
        offering. Deducting these one-time costs and annualizing our 2005 payroll
        and
        related costs, payroll and related costs for 2006 are slightly
        higher.
  Other
        and
        miscellaneous costs, such as travel and representation costs, rents, utilities
        and other overhead costs for 2006 include a full year of costs. However,
        as with
        salary and related costs, other and miscellaneous costs for 2005 include
        only
        one-half year of costs from the date of our acquisition of Roymar and TBS
        Shipping Services in late June 2005.
  Prior
        to
        our acquisition of Roymar and TBS Shipping Services, we were charged management
        fees and commissions and these costs were reflected as management fees and
        as
        commissions included in voyage expense and not as general and administrative
        costs.
  **Income
        from operations**
  The
        $12.1
        million decrease in income from operations for 2006 as compared to 2005,
        as
        adjusted was mainly attributable to an increase in voyage expense, specifically
        fuel costs, as well as depreciation, and general and administrative
        expenses reduced by the gain on sale of vessel and a decrease in management
        fees, commissions and vessel expense. As discussed above, due to our acquisition
        of Roymar and TBS Shipping Services in late June 2005, management and commission
        charges were eliminated in the consolidation of our financial statements
        and the
        related costs were reflected in general and administrative expense. The net
        increase in expenses was partially offset by an increase in revenue. For
        the
        same reasons, our operating margin decreased to 20.6% for 2006 from 25.9%
        for
        2005 .
  **Interest
        expense**
 
 The
        $2.3
        million increase in interest expense for 2006 as compared to 2005 was primarily
        due to higher average debt levels and  higher interest rates during 2006 as
        compared to 2005.
  ***Year
        ended December 31, 2005 compared to year ended December 31,
        2004*** ****
  Vessel
        expense and depreciation and amortization for 2004, and 2005 has been retrospectively adjusted for the
        change in the method of accounting for d rydocking
        costs to the deferral
        method. The
        new
        method of accounting for d rydocking
        costs was
        adopted because of changes made by the Financial
        Accounting Standards Board on
        September 8, 2006 as previously discussed. Under
        the
        deferral method of accounting for drydocking, the actual costs incurred are
        deferred and are amortized on a straight-line basis over the period through
        the
        date of the next drydocking. The
        impact of this accounting change for 2005 and 2004 increased our net income
        by
        $2,382,241, and $1,259,995, respectively. See notes "3 — Change
        in
        Accounting Method for Drydocking costs " and " 26
—
        Selected Quarterly Financial Information (unaudited) " to
        our consolidated financial statements, for the impact of the adjustment on
        previously reported financial statements and selected quarterly financial
        information for 2005, respectively.
  Table
            of Contents
 43
 **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**(as
                  adjusted)
              
              
              
              (as
                  adjusted)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
              
              
              29.1
              
              
              75,291
              
              
              30.4
              
              
              14,599
              
              
              24.1Vessel
                  expense
              
              
              77,145
              
              
              36.9
              
              
              68,711
              
              
              27.7
              
              
              (8,434
              )
              
              (10.9
              )Depreciation
                  and amortization
              
              
              11,005
              
              
              5.3
              
              
              19,537
              
              
              7.9
              
              
              8,532
              
              
              77.5Management
                  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
              
              
              160,603
              
              
              76.9
              
              
              183,781
              
              
              74.1
              
              
              23,178
              
              
              14.4Income
                from operations
              
              
              48,204
              
              
              23.1
              
              
              64,250
              
              
              25.9
              
              
              16,046
              
              
              33.3Other
                  (expenses) and incomeInterest
                  expense
              
              
              (5,148
              )
              
              (2.5
              )
              
              (9,346
              )
              
              (3.8
              )
              
              4,198
              
              
              (81.5
              )Other
                  income
              
              
              111
              
              
              0.2
              
              
              752
              
              
              0.3
              
              
              641Net
                  income
              
              $
              43,167
              
              
              20.8
              
              $
              55,656
              
              
              22.4
              
              $
              12,489
              
              
              28.9
 
 **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 did not regularly
        transport in 2005, 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.
 
 Table
            of Contents
 44
 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
 
 
 **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% to 4,257 days during  2005 as compared to 2,780 days
        during 2004 . 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% to $16,785 for
        2005
        as compared to $18,254 for 2004 due to a softening in the overall shipping
        market in 2005 compared to 2004.
 
 The
        following table shows the change in the number of freight voyage days and
        time
        charter 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%
 **Voyage
        expense**
 
 Voyage
        expense consists of costs attributable to specific voyages. The number of
        voyage
        days is a significant determinant of voyage expense, as well as commissions
        and
        bunker fuel costs.
 
 Table
            of Contents
 45
 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 as compared to 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.
 
 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.
 
 Table
            of Contents
 46
 **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 maintenance, insurance and crewing expenses for vessels we
        control.
 
 Vessel
        expense for 2004 and 2005 has been retrospectively adjusted for the
        change in the method of accounting for d rydocking
        costs to the deferral
        method as previously discussed. The
        impact of this accounting change decreased owned vessel expense for the year
        2004 and 2005 by $2,128,643, and $3,898,029, respectively, from the amounts
        previously reported.
 
 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**(as
                  adjusted)
              
              
              
              (as
                  adjusted)Chartered-in
                  vessel expense
              
              $
              55,681
              
              
              72.2
              
              $
              31,119
              
              
              45.3
              
              $
              (24,562
              )
              
              (44.1
              )Owned
                  vessel expense
              
              
              18,388
              
              
              23.9
              
              
              34,839
              
              
              50.7
              
              
              16,451
              
              
              89.5Space
                  charter expense
              
              
              3,076
              
              
              3.9
              
              
              2,753
              
              
              4.0
              
              
              (323
              )
              
              (10.5
              )Vessel
                  expense
              
              $
              77,145
              
              
              100.0
              
              $
              68,711
              
              
              100.0
              
              $
              (8,434
              )
              
              (11.0
              )
 
 The
        11.0%
        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
        89.5%
        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 $348 per day from $3,388 per day, as adjusted
         in 2004 to $3,736 per day, as adjusted 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
        9.2%
        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 $16.5 million
        increase in owned vessel expense.
 
 Table
            of Contents
 47
 **Depreciation
        and amortization**
 
 Depreciation
        and amortization for 2004 and 2005 has been retrospectively adjusted for the
        change in the method of accounting for d rydocking
        costs as
        previously discussed. The
        impact of this accounting change increased d epreciation
        and amortization for the
        years 2004 and 2005 by $868,648, and $1,515,788, respectively. The
        $8.5
        million increase in depreciation and amortization expense from $11.0 million
        in
        2004 as compared to $19.5 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.
 
 **Management
        fees**
 
 The
        following table sets forth the components of 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.
        Due
        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.
        Due to the consolidation of our subsidiary management companies in 2005,
        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.
 
 Table
            of Contents
 48
 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
        $16.0
        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 25.9%
        for
        2005 from 23.1% 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.
  **Balance
        Sheet**
  ***December
        31, 2006 as compared to December 31, 2005***
  **Charter
        Hire Receivables**
  Our
        gross
        charter hire receivables balance at December 31, 2005 and December 31, 2006
        was
        $26.2 million ($25.5 million net of allowance for doubtful accounts) and
        $25.8
        million ($25.4 million net of allowance for doubtful accounts), respectively.
 
 In
        accordance with our reserve policy, we reserve for a percentage of 
outstanding receivables, usually between 2% and 3%, based on prior years'
        experience. Our management also identifies specific receivables that it believes
        we will have difficulty collecting and creates additional reserves for those
        balances. The aggregate reserves totaled $0.7 million and $0.4 million at
        December 31, 2005 and December 31, 2006, respectively, including an additional
        reserve in 2006 of $0.1 million.
  **Claims
        Receivable**
  Claims
        receivable represent claims for reimbursement of expenses incurred that are
        made
        under our hull and machinery and P&I insurance coverages. Claims receivable
        are recorded
        at the probable amount that we expect to recover from insurance, net of the
        applicable deductible. Claims receivable at December 31, 2006 increased $2.4
        million from
        the
        December 31, 2005 balance of $0.5 million. The increase in
        claims
        receivable is due principally to a $0.7 million hull damage claim and a $0.5
        million loss of hire claim relating to the vessel *Miami
        Maiden* ,
        which
        was pushed into a pier by a tug boat. The
        remaining balance of the increase in cla ims
        receivable is related to claims on four separate vessels for damages to the
        main
        or auxiliary engines or to the vessel hull, ranging from $0.3 million to
        $0.6
        million per vessel.
  Table
            of Contents
 49
 **Due
        from Agents**
  Due
        from
        agents at December 31, 2006 increased $1.6 million from the December 31,
        2005
        balance of $0.6 million due principally to the timing of collections received
        from our Japanese agent.
  **Fuel
        and Other Inventories**
  Fuel
        and
        other inventories at December 31, 2006 decreased $0.3 million from the December
        31, 2005 balance of $7.6 million. Approximately $1.1 million of the decrease
        was
        due to lower quantities of fuel on board the vessels at December 31, 2006.
        The
        change in fuel quantities resulted principally from the timing of vessel
        refueling and from fewer vessels having on-board fuel included in inventory.
        Vessels having fuel included in inventory decreased to 23 vessels as of December
        31, 2006, compared to 24 vessels as of December 31, 2005, as more vessels
        were
        time chartered out. Adding to the decrease in fuel inventory at December
        31,
        2006 was a decrease in average fuel prices of approximately $0.2 million.
        At
        December 31, 2006, the combined average price for industrial fuel oil/marine
        diesel oil ("IFO/MDO") decreased to $346 per metric ton from a combined average
        price of $352 per metric ton for IFO/MDO at December 31, 2005. The decrease
        in
        fuel inventory at December 31, 2006 was offset by an increase of $1.0 million
        in
        lubricating oil on board the vessels at December 31, 2006, which results
        principally from the timing of deliveries to the vessels.
  **Prepaid
        Expenses**
  Prepaid
        expenses decreased $0.6 million at December 31, 2006 compared to December
        31,
        2005 because of a $0.3 million decrease in both prepaid insurance and prepaid
        charter hire.
  **Other
        Commitments**
  Our
        contractual obligations as of December 31, 2006 are shown in the following
        table:
  **Total**
                
                **Less
                    than 1 year**
                
                **1-3
                    years**
                
                **3-5
                    years**
                
                **More
                    than 5 years**Debt
                    Obligations (1)
                
                
                125,804
                
                
                19,770
                
                
                106,034
                
                
                -
                
                
                -Capital
                    lease obligations
                
                
                26,234
                
                
                6,388
                
                
                19,846
                
                
                -
                
                
                -Operating
                    Lease obligations
                
                
                1,448
                
                
                725
                
                
                723
                
                
                -
                
                
                -Other
                    Purchase obligations (2)
                
                
                15,255
                
                
                15,255Total
                    contractual cash obligations
                
                $
                168,741
                
                $
                42,138
                
                $
                126,603
                
                $
                -
                
                $
                -
   (1)
              As
                  of December 31, 2006, we had $125.8 million of indebtedness outstanding
                  under loans held by  our subsidiaries that we guarantee, $65.6
                  million under the $75.0 million term loan with Bank of America,
                  $5.4
                  million under the $7.2 million credit facility with The Royal Bank
                  of
                  Scotland plc, and $54.8 million under the $65.0 million revolving
                  credit
                  facility with Bank of America. In January 2007, $39.8 million of
                  advances
                  under the revolving credit facility were repaid. On January 23,
                  2007, we
                  added an additional $20.0 million under our existing credit
                  facility with Bank of America. The revolving credit facility
                  portion was increased by $15.0 million, from $65.0 million to $80.0
                  million, and the term credit facility portion was increased by
                  $5.0
                  million. In connection with the increase in the credit facility,
                  the
                  Credit Agreement dated July 31, 2006, was amended to include Exeter
                  Shipping Corp. as a borrower and include the vessel *Alabama Belle*
                  as additional collateral.
 
 (2)
              We
                  entered Memorandum of Agreement to purchase the *Blu Mistral II*
                  (to be renamed to *Nanticoke Belle*) for $17.0 million. We paid a
                  deposit of $1.7 million on December 11, 2006 and will pay the balance
                  of
                  $15.3 million when we take delivery in late March or early April
                  2007.
  ***Liquidity
        and Capital Resources***
  Our
        principal sources of funds are operating cash flows and long-term bank
        borrowings. Our principal uses of funds are capital expenditures to grow
        and
        maintain the quality of our fleet and keep us in compliance with international
        shipping standards and regulations, working capital requirements and principal
        repayments on outstanding loan facilities and capital lease
        obligations.
 
 Table
            of Contents
 50
 During
        2006 we acquired ships and made capital improvements using a combination
        of
        funds received from operating cash flows and borrowings under our revolving
        credit facility. We expect to use our operating cash flows, and borrowings
        to
        fund future 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.
 
 On
        January 23, 2007, we added an additional $20.0 million under our existing
        $140.0
        million syndicated credit facility led by Bank of America. The revolving
        credit
        facility was increased by $15.0 million, from $65.0 million to $80.0 million,
        and we borrowed an additional $5.0 million under the term credit facility.
        In
        connection with the increase to the credit facility, the credit agreement
        dated
        July 31, 2006, was amended to include Exeter Shipping Corp. as a borrower
        and
        include the vessel *Alabama
        Belle* as
        additional collateral. Also on January 30, 2007 we entered into a sale-lease
        back arraignment with respect to the vessels Seminole Princess and Laguna
        Belle,
        which were purchased in November 2006 with advances from the revolving credit
        facility and used the proceeds on the sale of $38.6 million to repay advances
        under the revolving credit facility. Lastly, in January
        2007 we signed a Memorandum of Agreement to sell the vessel *Maya
        Princess* for
        $13.0 million. The vessel is expected to be delivered in March or early April
        2007, and the sales p roceeds
        will be used to pay for part of the acquisition costs of the *Blu
        Mistral II* .
 
 Effective February
        28, 2007, we entered into agreements with a Chinese shipyard to build six
        newly-designed  multipurpose tweendeck vessels. The agreements provide a
        contract purchase price of $35.4 million per vessel, and for the delivery
        of two
        vessels in 2009 and four vessels in 2010. The agreements are subject to us
        obtaining satisfactory bank financing. We are in discussions with The Royal
        Bank
        of Scotland with respect to the financing of this project and have received
        favorable indications subject to negotiation of satisfactory commitment letters
        and customary agreements. We expect to rely on operating cash flows and
        borrowings under our revolving credit facility as well as The Royal Bank
        of
        Scotland financing to finance the acquisitions.
 
 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, 2006 and December 31, 2005 were $12.0 million
        and $27.1 million, respectively. The $15.1 million decrease in cash and cash
        equivalents during 2006 was mainly the result of our acquisition of vessels
        and
        capital improvements made to our controlled vessels. During 2006 we generated
        $67.9 million of cash from our operating activities and had net cash from
        finance activities of $13.7 million. We used $96.8 million in net cash for
        investing activities including $97.8 million in acquisition of vessels and
        capital improvements to our controlled vessels.
  **Cash
        Flows from Investing Activities**
  Net
        cash
        used in investing activities was $96.8 million and $184.8 million for 2006
        and
        2005, respectively. During 2006, investing activities consisted of $97.8
        million
        in vessel acquisitions and capital improvements, a $1.7 million deposit for
        the
        purchase of the vessel *Blu
        Mistral II* ,
        which
        is expected to be delivered in March 2007 or early April 2007 ,
        $0.5
        million for an investment in and loan to a joint venture with GMT Shipping
        Line
        Ltd and $0.5 million for an investment in the initial public offering of
        Dangote
        Sugar Refinery Plc. Dangote Sugar Refinery Plc and its related entity Dangote
        Industries Limited together are major customers. Investing activities for
        2006
        also included sales proceeds of $3.2 million for the sale of the *Dakota
        Belle* and
        approximately $533,000 for the return of a security deposit made in connection
        with the *Tamoyo
        Maiden* claim.
        During 2006 we paid $97.8 million
        for vessel acquisitions and capital improvements, which consisted of: $69.3
        million paid upon the delivery of four vessels, $4.6 million for take over
        costs
        incurred in connection with recent vessel acquisition, $18.1 million for
        vessel
        capital improvements and drydockings and $5.8 million for the purchase of
        other
        assets including equipment which enable self-loading and discharging (“Grabs”)
        and computer equipment for vessels.
 
 Table
            of Contents
 51
 During
        2005, investing activities consisted of $177.0 million in vessel acquisitions
        and capital improvements, $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* ).
        During
        2005 we acquired 14 vessels excluding the *Rockaway
        Belle* and *Comanche
        Belle* (renamed
*Huron Maiden*) on which we exercised our purchase options. In 2005 we
        paid $177.0 million in vessel acquisitions, capital improvements and drydockings
        consisting of: $163.9 million paid upon delivery of vessels, $8.9 million
        for
        take over costs incurred in connection with the acquisition of the vessels,
        $2.0
        million for vessel capital improvements, $1.0 million for drydockings and
        $1.2
        million for the purchase of other assets. Deferred financing costs of $2.2
        million were originally grouped with vessel costs in 2005.  In 2006 these
        costs were reclassified to financing activities to conform with the 2006
        presentation of deferred financing costs.
  **Cash
        Flows from Financing Activities**
  Net
        cash
        provided by financing activities was $13.7 million and $116.6 million for
        2006
        and 2005, respectively.  In 2006, we entered into a $140.0 million credit
        facility with a syndicate of banks led by Bank of America. The credit facility
        is comprised of a $75.0 million term credit facility and a $65.0 million
        revolving credit facility. We used this credit facility to pay off most of
        our
        then existing lenders and to fund vessel acquisitions. In July 2006, we borrowed
        $75.0 million under the term credit facility and $10.0 million under the
        revolving credit facility to repay existing lenders and pay transaction
        costs.   We borrowed an additional $48.0 million under the
        revolving credit facility to fund the acquisition of four vessels during
        2006. We made debt repayments totaling $112.9 million, consisting
        of  $80.4 million to repay existing lenders and pay transaction costs
        related to the early repayment of loans,  $29.3 million in
        scheduled debt principal payments and $3.2 million to pay down of
        the revolving credit facility when we sold the *Dakota Belle*. 
We also paid $3.3  million toward obligations under capital leases and $3.1
        million in deferred financing costs related to the new credit
        facility.
  Net
        cash
        used in financing activities was $116.6 million for 2005.  During 2005
        we received $61.7 million of net proceeds from the issuance of Class A common
        shares in our public offering and $95.0 million long-term bank borrowing
        to
        finance the purchase of vessels.  We made debt principal payments of $27.8
        million and paid a dividend on preferred stock of $150,000.  During
        2005 we paid $9.9 million toward obligations under capital leases,
        including payments of  purchase options of $2.5 million and $3.8 million
        under the capital leases for the *Rockaway
        Belle* and *Comanche
        Belle*(renamed *Huron Maiden*)*,* We
        reclassified deferred financing costs of $2.2 million that  was
        originally grouped with vessel costs in 2005,  to conform with the 2006
        presentation of deferred financing costs.
  ***Summary
        of Critical Accounting Policies***
 
 The
        discussion and analysis of our financial condition and results of operations
        is
        based upon our consolidated financial statements, which have been prepared
        in
        accordance with accounting principles generally accepted in the United States,
        or GAAP. The preparation of those financial statements requires us to make
        estimates and judgments that affect the reported amount of assets and
        liabilities, revenues and expenses and related disclosure of contingent assets
        and liabilities at the date of our financial statements. Actual results may
        differ from these estimates under different assumptions or
        conditions.
 
 Critical
        accounting policies are those that reflect significant judgments or
        uncertainties and could result in materially different results under different
        assumptions and conditions. We have described below what we believe are our
        most
        critical accounting policies that involve a high degree of judgment and the
        methods of their application. For a description of all of our significant
        accounting policies, see note "2 -Summary of Significant Accounting Policies"
        to
        our consolidated financial statements.
 
 **Allowance
        for doubtful accounts**
 We
        assess
        the recoverability of doubtful accounts and we create an allowance for the
        possibility of non-recoverability. Although we believe our allowances to
        be
        based on fair judgment at the time of their creation, it is possible that
        an
        amount under dispute is not recovered and the estimated allowance for doubtful
        recoverability is inadequate.
 
 **Claims
        Receivable**
 Claims
        receivable represent claims for reimbursement of expenses incurred that have
        been or will be made under our hull and machinery and P&I insurance
        coverage. We record
        the probable amount that we expect to recover from insurance, net of the
        applicable deductible.
 
 Table
            of Contents
 52
 **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.
  **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. Vessel expenditures
        that
        materially increase vessel values, change vessel capacities or extend useful
        lives are capitalized. Routine repair, replacement and maintenance costs
        are
        expensed as incurred.
 **Drydocking**
 We
          used
          the deferral method to account for planned major maintenance. Under the
          deferral
          method of accounting for drydocking, the actual costs incurred are deferred
          and
          are amortized on a straight-line basis over the period through the date
          of the
          next drydocking.
 **Impairment
            of long-lived assets**
 We
            are
            required to review for impairment whenever events or circumstances indicate
            that
            the carrying amount of an asset may not be recoverable. An impairment
            is
            recognized when the estimate of undiscounted future cash flows expected
            to be
            generated by the asset is less than its carrying amount. Measurement
            of the
            impairment loss is calculated based upon comparison of the fair value
            to the
            carrying value of the asset. Management performs impairment analyses
            when
            certain triggering events occur. The Company has determined that there
            is no
            impairment of long-lived assets at December 31, 2006 and
            2005.
 **Goodwill**
 Goodwill represents the excess of the purchase price over the estimated fair value
        of net
        assets acquired. Goodwill is
        reviewed annually or more frequently if events or circumstances indicate
        possible impairment in accordance with SFAS No. 142 " *Goodwill
        and Other Intangibles Assets.* "
        This
        statement requires that goodwill and other intangible assets with an indefinite
        life not be amortized but instead tested for impairment at least annually.
        The
        Company has determined that there is no impairment of goodwill as of and
        for the years ending December 31, 2006 and 2005.
 
 **Deferred
        Financing Costs**
 Deferred
        financing costs are amortized over the term of the related financing using
        the
        straight-line method, which is not materially different than the effective
        interest method .
        Fees
        incurred in a refinancing of existing loans where there is an extinguishment
        of
        the old loan are written off and included in debt extinguishment gain or
        loss.
  **Leases**
 Leases
        are classified as either capital or operating. Those leases that transfer
        substantially all the benefits and risks of ownership of property to the
        Company
        are accounted for as capital leases. All other leases are accounted for as
        operating leases. Capital leases are accounted for as assets and are fully
        amortized on a straight-line basis over the period of expected useful life
        of
        the assets. Commitments to repay the principal amounts arising under capital
        lease obligations are included in current liabilities to the extent that
        the
        amount is repayable within one year, otherwise the principal is included
        in
        amounts due after one year. The capitalized lease obligation reflects the
        present value of future lease payments. The financing element of the lease
        payments is charged to income over the term of the lease.
  **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.
 
 Table
            of Contents
 53
 **Stock
        Based Compensation**
 The
        Company adopted SFAS 123R effective January 1, 2006, using the modified
        prospective method which requires measurement of compensation cost for all
        stock-based awards at fair value on date of grant and recognition of
        compensation over the service period for awards expected to vest.
 
 **Earnings
        Per Share**
 Earnings
        per share are based on reported net income available for common shareholders
        and
        the weighted average number of common shares outstanding (basic) and the
        weighted average total of common shares outstanding and potential common
        shares
        (diluted).
 
 **Fair
        Value of Financial Instruments**
 Financial
        instruments, which potentially subject us to concentrations of credit risk,
        consist principally of cash equivalents, charter hire receivables and debt
        (including capital lease obligations). We place our cash equivalents with
        a
        number of financial institutions to help limit the amount of credit exposure
        to
        any one financial institution. Concentrations of credit risk with respect
        to
        trade receivables are limited due to the large number of customers comprising
        our customer base, and their dispersion across many geographic areas. As
        of
        December 31, 2006, one customer accounted for 10.4% of charter hire receivables
        and as of December 31, 2005, we 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 our long-term debt approximates fair value
                due to
                the variable interest rates on bank borrowings and based on the current
                rates offered to us for debt of the same remaining
                maturities. ·
            *Interest
                Rate Swap -* The Company utilizes certain derivative financial
                instruments to enhance its ability to manage interest rate risk.
                Derivative instruments are entered into for periods consistent with
                related underlying exposures and do out constitute positions independent
                of those exposures. The Company does not enter into contracts for
                speculative purposes, nor is it a party to any leveraged derivative
                instruments.  The
                Company is exposed to credit loss in the event of nonperformance
                by the
                counterparties on derivative contracts. The Company minimizes its
                credit
                risk on these transactions by dealing only with leading, credit-worthy
                financial institutions and, therefore, does not anticipate
                nonperformance.  
 **Foreign
        Currency Transactions**
 The
        financial statements are expressed in United States dollars. Gains and losses
        resulting from foreign currency transactions, which are not significant,
        are
        included in other income.
 
 **Financial
        Derivative Instruments and Hedging Activities**
 In
        accordance with SFAS No. 133, "*Accounting for Derivative Instruments and
        Hedging Activities*", as amended ("SFAS 133") the fair value of the hedge is
        recorded as an asset in the accompanying consolidated balance sheet at December
        31, 2006. The Company uses the "matched terms" accounting method as provided
        by
        Derivative Implementation Group Issue G9, *"Assuming No Ineffectiveness When
        Critical Terms of the Hedging Instruments and the Hedge Transaction Match
        in a
        Cash Flow Hedge"*for the interest rate swap. Accordingly, the Company has
        matched the critical terms of the hedge instrument to the hedged debt.
        Therefore, we have recorded all adjustments to the fair value of the hedge
        instrument in accumulated other comprehensive income . We recognize the earnings
        impact on interest rate swaps designated as cash flow hedges upon the
        recognition on the interest related to the hedged debt.
  Table
            of Contents
 54
 ***New
        Accounting Pronouncements***
  In
        September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) No.
        108, *“Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements”* (SAB
        108). SAB 108 was issued in order to eliminate the diversity of practice
        in how
        public companies quantify misstatements of financial statements, including
        misstatements that were not material to prior years’ financial statements. We
        have applied the provisions of SAB 108 in connection with the preparation
        of our
        annual financial statements for the year ending December 31, 2006. The adoption
        of SAB 108 did not have a significant impact on the Company’s consolidated
        results of operations, cash flows or financial position.
  In
        September 2006, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards ("SFAS") No. 157, " *Fair
        Value Measurements* "
        ("SFAS
        157"), which defines and establishes a framework for measuring fair value
        and
        expands disclosures about fair value measurements. The accounting provisions
        of
        SFAS 157 are effective for the Company beginning on January 1, 2008. We are
        in
        the process of evaluating the effect, if any, that the adoption of SFAS 157
        will
        have on our consolidated financial statements.
  On
        September 8, 2006, the FASB issued a FASB Staff Position ("FSP") which addressed
        the accounting for planned major maintenance activities. This FSP amends
        certain
        provisions in the American Institute of Certified Public Accountants ** ("AICPA"),
        Industry Audit Guide, *Audits
        of Airlines* ("Airline
        Guide"), which is the principal source of guidance on the accounting for
        planned
        major maintenance and is relevant to both the aviation and maritime industries.
        The Airline Guide, prior to the amendment, permitted four alternative methods
        of
        accounting for planned major maintenance activities: direct expense, built-in
        overhaul, deferral, and accrual (accrue-in-advance). Previously we used the
        accrual method to account for planned major maintenance. The new FSP prohibits
        the use of the accrual method. Under the deferral method of accounting for
        drydocking, the actual costs incurred are deferred and are amortized on a
        straight-line basis over the period through the date of the next drydocking.
        The
        amended guidance of the FSP apply to the Company beginning on January 1,
        2007,
        although earlier adoption is encouraged. We adopted the FSP effective January
        1,
        2006 to utilized the deferral method. Prior year financial statements have
        been
        retrospectively adjusted. Sees n otes "3 — Change
        in
        Accounting Method for Drydocking costs " and " 26
—
        Selected Quarterly Financial Information (unaudited) " to our
        consolidated financial statements for the impact of the adjustment on previously
        reported financial statements.
  In
        July
        2006, the FASB issued FASB Interpretation No. 48 ("FIN 48") " *Accounting
        for Uncertainty in Income Taxes* "
        which
        prescribes a recognition threshold and measurement process for recording
        in the
        financial statements uncertain tax positions taken or expected to be taken
        in a
        tax return. Additionally, FIN 48 provides guidance on the derecognition,
        classification, accounting in interim periods and disclosure requirements
        for
        uncertain tax positions. The accounting provisions of FIN 48 will be effective
        for the Company beginning January 1, 2007. We are in the process of determining
        the effect, if any, that the adoption of FIN 48 will have on our consolidated
        financial statements. We do not expect that the adoption of FIN 48 will have
        a
        significant impact on our consolidated results of operations, cash flows
        or
        financial position.
  In
        May
        2005, the 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 period’s
        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.
  Table
            of Contents
 55
 In
        December 2004, the FASB issued SFAS No. 123R, " *Share-Based
        Payment* "
        ("SFAS
        123R"). SFAS 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 adopted SFAS 123R effective January 1,
        2006,
        using the modified prospective method which requires measurement of compensation
        cost for all stock-based awards at fair value on date of grant and recognition
        of compensation over the service period for awards expected to vest. The
        adoption of SFAS 123R did not have a significant impact on the Company’s
        consolidated results of operations, cash flows or financial position because
        the
        use of the intrinsic value method under Accounting Principles Board Opinion
        No.
        25, " *Accounting
        for Stock Issued to Employees* "
        previously used by the Company and the fair value base method currently used
        under SFAS 123R results in the same amount of compensation expense recognized.
        See note "20 - Stock Plan" to the consolidated financial statements.
 
 **Item
        7A.****Quantitative
        and Qualitative Disclosure about Market Risk**
 
 **Interest
        Rate Risk:**
  We
        are
        exposed to various market risks, associated with changes in interest rates.
        The
        exposure to interest rate risk relates to our floating rate debt. At December
        31, 2006, we had $69.6 million of floating rate debt, excluding $56.2 million
        of
        debt hedged under an interest rate swap agreement that fixed our LIBOR interest
        rate on the debt hedged at 5.09%. Interest margins over LIBOR were 1.5% and
        2.25% on $5.4 and $120.4 million of debt, respectively. At December 31, 2005,
        we
        had $96.1 million floating rate debt. 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, 2006, by approximately $696,000 based upon our debt level at December
        31,
        2006.
 
 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)2007
              
              $
              5922008
              
              $
              5812009
              
              $
              5712010
              
              $
              -2011
              
              $
              -
 **Foreign
        Exchange
        Rate Risk:**
  We
        consider the U.S. dollar to be the functional currency for all of our entities.
        Our financial results are affected by changes in foreign exchange rates.
        Changes
        in foreign exchange rates could adversely affect our earnings. We generate
        all
        of our revenues in U.S. dollars, but incur approximately 9.8% of our operating
        expenses during 2006 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, 2006, approximately 4.1% of our outstanding
        accounts payable were denominated in currencies other than U.S.
        dollars.
 
 **Item
        8.****Financial
        Statements and Supplementary Data**
 
 Information
        with respect to this Item is contained in our consolidated financial statements
        included in Part IV, Item 15 beginning on Page 61 of this Annual
        Report.
  Table
            of Contents
 56
 **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 and Accounting Officer of the effectiveness of our
        disclosure controls and procedures as of December 31, 2006. Based upon that
        evaluation, our Chief Executive Officer, Chief Financial and 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 2006, there were no changes in our internal control
        over financial reporting that materially affected, or are reasonably likely
        to
        materially affect, our internal controls over financial reporting.
  **Item
        9B.  Other Information**
  None.
  Table
            of Contents
 57
 **PART
        III**
 
 **Item
        10. Directors, Executive Officers****and
        Corporate Governance**
 The
        following table provides information regarding our executive officers and
        directors.
  **Name**
                
                **Age**
                
                **Title**Joseph
                    E. Royce
                
                
                62
                
                
                President,
                    Chief Executive Officer, Chairman and DirectorGregg
                    L. McNelis
                
                
                51
                
                
                Senior
                    Executive Vice President, Chief Operating Officer and
                    DirectorLawrence
                    A. Blatte
                
                
                77
                
                
                Senior
                    Executive Vice PresidentFerdinand
                    V. Lepere
                
                
                55
                
                
                Executive
                    Vice President and Chief Financial OfficerJames
                    W. Bayley
                
                
                66
                
                
                Vice
                    PresidentWilliam
                    J. Carr
                
                
                48
                
                
                Vice
                    President and TreasurerRandee
                    E. Day
                
                
                58
                
                
                DirectorPeter
                    S. Shaerf
                
                
                52
                
                
                DirectorWilliam
                    P. Harrington
                
                
                49
                
                
                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.
  ***Lawrence
        A. Blatte:***   Mr.
        Blatte has served as senior executive vice president since March 2005 and
        as our corporate legal counsel from our inception until December 31, 2005.
        In
        January 2004, Mr. Blatte became vice chairman of TBS Shipping Services and
        in
        this role provides business development services. 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.
  Table
            of Contents
 58
 ***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.
  ***James
        W. Bayley*** **:**  Mr.
        Bayley has served as vice president since March 2005. Mr. Bayley has also
        served
        as a director since our inception until June 2006 when he did not stand for
        re-election. 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.
  Other
        information
        required by Item 10 will be in the company's 2007 Definitive Proxy Statement
        and
        is incorporated by reference.
  Table
            of Contents
 59
  **Item 11.****Executive
        Compensation**
 
 Information
        required by Item 11 will be in the Company's 2007 definitive proxy statement
        and
        is incorporated herein by reference.
 
 **Item 12. **Security
        Ownership of Certain Beneficial Owners and Management and Related Shareholder
        Matters****
  Information
          required by Item 12 will be in the Company's 2007 definitive proxy statement
          and
          is incorporated herein by reference.
  **Item
          13.  **Certain
          Relationships and Related Transactions, and Director
          Independence****
  Information
        required by Item 13 will be in the Company's 2007 definitive proxy statement
        and
        is incorporated herein by reference.
 
 **Item 14.****Principal
        Accounting Fees and Services**
  Information
        required by Item 14 will be in the Company's 2007 definitive proxy statement
        and
        is incorporated herein by reference.
  Table
            of Contents
 60
 **PART
        IV**
 
 **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,
                  2006 and December 31, 2005
              
              F-2Consolidated
                  Statements of Operations for
                  the
                Years
                  ended December 31, 2006, December 31,
                  2005 and December 31, 2004
              
              F-3Consolidated
                  Statements of Cash Flows for the
                Years
                  ended December 31, 2006, December 31,
                  2005 and December 31, 2004
              
              F-4Consolidated
                  Statements of Changes in
                  Shareholders’ Equity for the
                Years
                  ended December 31, 2006, December 31,
                  2005 and December 31, 2004
              
              F-5Notes
                  to Consolidated Financial Statements
              
              F-6
                  - F-35
  **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:
  Table
            of Contents
 61


**Incorporated
                    by Reference****Exhibit Description**
                **Filed
                    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
                3/7/20054.1
                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
                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
                3/7/200510.15
                Amended
                    and Restated Memorandum of Association of TBS International
                    Limited
                
                8-K
                000-51368
                3.1
                8/12/200510.16
                Amended
                    and Restated Bye-Laws of TBS International Limited
                
                8-K
                000-51368
                3.2
                8/12/200510.17
                2005
                    Equity Incentive Plan
                
                8-K
                000-51368
                10.1
                8/12/200510.18
                Employee
                    Share Purchase Plan
                
                8-K
                000-51368
                10.2
                8/12/200510.19
                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
                8/12/200510.20
                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
                8/12/200510.21
                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
                12/16/200510.22
                Lease
                    agreement, dated January 1, 2005 between Joseph E. Royce, Landlord
                    and TBS
                    Shipping Services Inc., Tenant for premises located at 612 East
                    Grassy
                    Sprain Road, Yonkers, New York
                
                10-K
                000-51368
                
                3/16/200610.23
                Credit
                    Agreement, dated July 31, 2006, by and among Albemarle Maritime
                    Corp.,
                    Arden Maritime Corp., Asia-America Ocean Carriers Ltd., Birnam
                    Maritime
                    Corp., Bristol Maritime Corp., Chester Shipping Corp., Darby
                    Navigation
                    Corp., Dover Maritime Corp., Frankfort Maritime Corp., Glenwood
                    Maritime
                    Corp., Hansen Shipping Corp., Henley Maritime Corp., Hudson Maritime
                    Corp., Kensington Shipping Corp., Newkirk Navigation Corp., Oldcastle
                    Shipping Corp., Rector Shipping Corp., Remsen Navigation Corp.,
                    Sheffield
                    Maritime Corp., Sherman Maritime Corp., Sterling Shipping Corp.,
                    Stratford
                    Shipping Corp., Vernon Maritime Corp., Windsor Maritime Corp.,
                    as
                    Borrowers, and TBS International Limited, as guarantor with Bank
                    of
                    America, N.A., as Administrative Agent and a Lender, Citibank,
                    N.A., as
                    Syndication Agent and a Lender, Westlb AG New York Branch, as
                    Documentation Agent and a Lender, Keybank, N.A. as a Lender,
                    LaSalle Bank,
                    National Association, as a Lender, North Fork Business Capital
                    Corporation, as a Lender, and Webster Bank National Association,
                    as a
                    Lender
                
                8-K
                000-51368
                10.1
                8/4/200610.24
                Amendment
                    No. 1 to Credit Agreement dated July 31, 2006
                
                8-K
                000-51368
                10.1
                1/7/200710.25
                Form
                    of Restricted Share Award Agreement under the TBS International
                    Limited
                    and Subsidiaries 2005 Equity Incentive Plan
                
                8-K
                000-51368
                10.2
                1/7/200710.26
                Form
                    of Bonus Share Award Agreement under the TBS International Limited
                    and
                    Subsidiaries 2005 Equity Incentive Plan.
                
                8-K
                000-51368
                10.3
                1/7/200710.27
                Memorandum
                    of Sale for the vessel*Seminole
                    Princess*(formerly the*Clipper
                    Flamingo*)
                X
                
                000-51368
                10.1
                3/
                    /200710.28
                Memorandum
                    of Sale for the vessel*Laguna
                    Belle*(formerly the*Clipper
                    Frontie*r)
                X
                
                000-51368
                10.2
                3/
                    /200710.29
                Bareboat
                    Charter Agreement dated January 30, 2007 between Fairfax Shipping
                    Corp and
                    Adirondack Shipping LLC
                X
                
                000-51368
                10.3
                3/
                    /200710.30
                Bareboat
                    Charter Agreement dated January 30, 2007 between Beekman Shipping
                    Corp and
                    Rushmore Shipping LLC
                X
                
                000-51368
                10.4
                3/
                    /200721.1
                Subsidiaries
                    of the Registrant
                X
                
                000-51368
                21.1
                3/
                    /200731.1
                Certification
                    of the Chief Executive Officer pursuant to Rule 13a-14(a) and
                    15d-14(a) of
                    the Securities and Exchange Act, as amended.
                X
                
                000-51368
                31.1
                3/
                    /200731.2
                Certification
                    of the Chief Financial and Accounting Officer pursuant to Rule
                    13a-14(a)
                    and 15d-14(a) of the Securities and Exchange Act, as
                    amended.
                X
                
                000-51368
                31.2
                3/
                    /200732
                Certification
                    of Chief Executive Officer, Chief Financial and Accounting Officer
                    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                    906 of
                    the Sarbanes-Oxley Act of 2002.
                X
                
                000-51368
                32
                3/
                    /2007
  Table
            of Contents
 62
 
 
 **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
        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, 2006 and 2005, and the results of their **** operations
        and their **** cash
        flows for each of the three years in the period ended December 31, 2006 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.
 
 As
        discussed in n ote "3 — Change
        in
        Accounting Method for Drydocking costs "
        to the
        consolidated financial statements, the Company changed the manner in which
        it
        accounts for planned major maintenance.
 
 
 /s/PricewaterhouseCoopers
        LLP
 New
        York,
        New York
 March
        7,
        2007
 
 
 
 Table
            of Contents
 F-1
 **TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **December
                    31,**
                
                **December
                    31,****2005**
                
                **2006**(as
                    adjusted)**Assets**Current
                    assetsCash
                    and cash equivalents
                
                $
                27,157,681
                
                $
                12,006,727Charter
                    hire receivable, net of allowance of $694,214 in 2005 and$442,529
                    in 2006
                
                
                25,548,113
                
                
                25,396,093Claims
                    receivable
                
                
                457,087
                
                
                2,905,013Due
                    from agents
                
                
                570,763
                
                
                2,153,993Other
                    receivables
                
                
                398,246
                
                
                1,058,474Fuel
                    and other inventories
                
                
                7,635,432
                
                
                7,256,483Prepaid
                    expenses
                
                
                2,186,500
                
                
                1,586,936Advances
                    to affiliates
                
                
                9,841
                
                
                5,604Total
                    current assets
                
                
                63,963,663
                
                
                52,369,323Restricted
                    cash
                
                
                532,500Deposit
                    for vessel purchases
                
                
                
                
                
                1,695,000Vessels,
                    net of accumulated depreciation of $46,090,314in
                    2005 and $72,053,423 in 2006
                
                
                267,409,567
                
                
                330,263,111Other
                    fixed assets, net of accumulated amortization of $917,299in
                    2005 and $1,526,827 in 2006
                
                
                2,589,232
                
                
                6,605,983Goodwill
                
                
                8,425,935
                
                
                8,425,935Other
                    assets and deferred charges
                
                
                1,749,713
                
                
                3,731,491Total
                    assets
                
                $
                344,670,610
                
                $
                403,090,843**Liabilities
                    and Shareholders' Equity**Current
                    liabilitiesDebt,
                    current portion
                
                $
                31,458,053
                
                $
                19,770,000Obligations
                    under capital lease, current portion
                
                
                3,348,340
                
                
                4,087,484Accounts
                    payable
                
                
                4,726,588
                
                
                6,049,174Accrued
                    expenses
                
                
                21,769,213
                
                
                21,529,351Voyages
                    in progress
                
                
                2,118,901
                
                
                4,268,514Advances
                    from affiliates
                
                
                1,408,658
                
                
                481,103Total
                    current liabilities
                
                
                64,829,753
                
                
                56,185,626Debt,
                    long-term portion
                
                
                74,279,409
                
                
                106,034,033Obligations
                    under capital lease, net of current portion
                
                
                21,354,681
                
                
                17,267,206Total
                    liabilities
                
                
                160,463,843
                
                
                179,486,865COMMITMENTS
                    AND CONTINGENCIES (Note 21)Shareholders'
                    equityCommon
                    shares, New Class A, $.01 par value, 75,000,000authorized,
                    14,319,996 shares issued and outstanding
                
                
                142,905
                
                
                143,200Common
                    shares, New Class B, $.01 par value, 30,000,0000authorized,
                    13,404,461 shares issued and outstanding
                
                
                134,045
                
                
                134,045Warrants
                
                
                20,747
                
                
                20,747Additional
                    paid-in capital
                
                
                87,585,744
                
                
                87,880,449Accumulated
                    other comprehensive income
                
                
                
                
                
                42,386Retained
                    earnings
                
                
                96,323,326
                
                
                135,383,151Total
                    shareholders' equity
                
                
                184,206,767
                
                
                223,603,978Total
                    liabilities and shareholders' equity
                
                $
                344,670,610
                
                $
                403,090,843
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
 Table
              of Contents
 F-2
 **TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
  **Year
                    Ended December 31,****2004**
                
                **2005**
                
                **2006**(as
                    adjusted)
                
                (as
                    adjusted)**Revenue**Voyage
                    revenue
                
                $
                157,794,098
                
                $
                175,595,810
                
                $
                189,012,189Time
                    charter revenue
                
                
                50,745,653
                
                
                71,455,764
                
                
                63,113,997Other
                    revenue
                
                
                266,802
                
                
                979,644
                
                
                1,459,527Total
                    revenue
                
                
                208,806,553
                
                
                248,031,218
                
                
                253,585,713**Operating
                    expenses**Voyage
                
                
                60,691,623
                
                
                75,291,117
                
                
                83,254,139Vessel
                
                
                77,144,771
                
                
                68,710,650
                
                
                63,205,330Depreciation
                    and amortization of vesselsand
                    other fixed assets
                
                
                11,005,342
                
                
                19,537,055
                
                
                29,866,684Management
                    fees
                
                
                4,413,909
                
                
                2,624,391General
                    and administrative
                
                
                7,347,046
                
                
                17,617,690
                
                
                27,256,199Gain
                    from sale of vessel
                
                
                
                
                
                
                
                
                (2,179,820
                )Total
                    operating expenses
                
                
                160,602,691
                
                
                183,780,903
                
                
                201,402,532Income
                    from operations
                
                
                48,203,862
                
                
                64,250,315
                
                
                52,183,181**Other
                    (expenses) and income**Interest
                    expense
                
                
                (5,147,686
                )
                
                (9,346,461
                )
                
                (11,576,202
                )Interest
                    and other income
                
                
                110,513
                
                
                752,208
                
                
                1,809,838Loss
                    on extinguishment of debt
                
                
                
                
                
                
                
                
                (3,356,992
                )Total
                    other expenses, net
                
                
                (5,037,173
                )
                
                (8,594,253
                )
                
                (13,123,356
                )Net
                    income
                
                
                43,166,689
                
                
                55,656,062
                
                
                39,059,825Amount
                    allocated to participating preferred shareholders
                
                
                (11,842,930
                )
                
                (5,705,560
                )Net
                    (loss) income available for common shareholders
                
                $
                31,323,759
                
                $
                49,950,502
                
                $
                39,059,825Earnings
                    per shareNet
                    income per common shareBasic
                
                $
                3.07
                
                $
                2.28
                
                $
                1.40Diluted
                
                $
                1.54
                
                $
                2.05
                
                $
                1.39Weighted
                    average common shares outstandingBasic
                
                
                10,187,795
                
                
                21,870,160
                
                
                27,998,843Diluted
                
                
                20,385,775
                
                
                24,310,909
                
                
                28,088,310
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
 Table
              of Contents
 F-3
 **TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**




**Year
                  Ended December 31,****2004**
              
              **2005**
              
              **2006**(as
                  adjusted)
              
              (as
                  adjusted)**Cash
                  flows from operating activities**Net
                  income
              
              $
              43,166,689
              
              $
              55,656,062
              
              $
              39,059,825Adjustments
                  to reconcile net income to net cashprovided
                  by operating activitiesGain
                  on sale of vessel
              
              
              
              
              
              
              
              
              (2,179,820
              )Depreciation
                  and amortization
              
              
              11,005,342
              
              
              19,537,055
              
              
              29,866,684Amortization
                  and write-off of deferred financing costs
              
              
              
              
              
              443,381
              
              
              2,088,894Write-off
                  of bad debt
              
              
              
              
              
              (1,073,035
              )Non
                  cash stock based compensation
              
              
              
              
              
              1,069,000
              
              
              272,500Loss
                  in joint venture
              
              
              
              
              
              
              
              
              81,041Changes
                  in operating assets and liabilitiesDecrease
                  (increase) in charter hire receivable
              
              
              (2,037,789
              )
              
              (7,278,628
              )
              
              152,020(Increase)
                  decrease in claims receivable
              
              
              (170,542
              )
              
              233,826
              
              
              (2,447,926
              )(Increase)
                  in due from agents
              
              
              (140,587
              )
              
              (121,275
              )
              
              (1,583,230
              )(Increase)
                  in other receivables
              
              
              (1,398,031
              )
              
              (91,376
              )
              
              (719,075
              )Decrease
                  (increase) in fuel and other inventories
              
              
              (1,056,573
              )
              
              (4,247,803
              )
              
              378,949Decrease
                  (increase) in prepaid expenses
              
              
              (1,741,766
              )
              
              1,686,255
              
              
              599,564Increase
                  in accounts payable
              
              
              1,733,153
              
              
              171,461
              
              
              1,322,586Increase
                  in accrued expenses
              
              
              3,743,858
              
              
              9,692,691
              
              
              (171,762
              )Increase
                  (decrease) in voyages in progress
              
              
              1,189,393
              
              
              (531,650
              )
              
              2,149,613(Decrease)
                  increase in advances from/to affiliates, net
              
              
              1,640,168
              
              
              (1,412,012
              )
              
              (923,318
              )Net
                  cash provided by operating activities
              
              
              55,933,315
              
              
              73,733,952
              
              
              67,946,545**Cash
                  flows from investing activities**Proceeds
                  on sale of vessel
              
              
              
              
              
              
              
              
              3,160,500Vessel
                  acquisition/capital improvement costs
              
              
              (59,668,828
              )
              
              (177,009,241
              )
              
              (97,763,257
              )Deposit
                  for vessel purchases
              
              
              (7,499,000
              )
              
              
              
              
              (1,695,000
              )Restricted
                  cash for litigation
              
              
              
              
              
              (532,500
              )
              
              532,500Payment
                  for purchase of TBS Shipping Services Inc and Roymar ShipManagement
                  Inc., net of cash acquired of $801,594
              
              
              
              
              
              (7,289,895
              )Investment
                  in securities
              
              
              
              
              
              
              
              
              (500,000
              )Investment
                  in joint venture
              
              
              
              
              
              
              
              
              (500,000
              )Net used
                  in investing activities
              
              
              (67,167,828
              )
              
              (184,831,636
              )
              
              (96,765,257
              )**Cash
                  flows from financing activities**Dividends
                  paid
              
              
              (150,000
              )
              
              (150,000
              )Proceeds
                  on sale of TBS International Limited shares owned by
                  subsidiaries
              
              
              
              
              
              795,336Proceeds
                  from issuance of shares in initial public offering and exercise
                  ofseries
                  A warrants, net of offering costs
              
              
              
              
              
              60,841,169Repayment
                  of debt principal
              
              
              (4,111,076
              )
              
              (27,773,746
              )
              
              (112,907,962
              )Proceeds
                  from debt
              
              
              36,525,000
              
              
              95,000,000
              
              
              132,974,533Payment
                  of deferred financing costs
              
              
              
              
              
              (2,193,092
              )
              
              (3,050,482
              )Proceeds
                  from revolving debt facility
              
              
              
              
              
              12,000,000Repayment
                  of revolving debt facility
              
              
              
              
              
              (12,000,000
              )Reduction
                  of obligations under capital leases
              
              
              (7,995,738
              )
              
              (9,938,506
              )
              
              (3,348,331
              )Net
                  cash provided by financing activities
              
              
              24,268,186
              
              
              116,581,161
              
              
              13,667,758Net
                  increase (decrease) in cash and cash equivalents
              
              
              13,033,673
              
              
              5,483,477
              
              
              (15,150,954
              )Cash
                  and cash equivalents beginning of period
              
              
              8,640,531
              
              
              21,674,204
              
              
              27,157,681Cash
                  and cash equivalents end of period
              
              $
              21,674,204
              
              $
              27,157,681
              
              $
              12,006,727**Supplemental
                  cash flow information**Interest
                  paid
              
              $
              4,976,274
              
              $
              9,001,396
              
              $
              10,451,046




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


Table
          of
          Contents
 F-4


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS'
      EQUITY**




**Common
                  Shares**
              
              **Warrants**
              
              **Additional
                  Paid-in**
              
              **(Accumulated
                  Deficit) Retained**
              
              **Accumulated
                  Other Comprehensive****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Earnings**
              
              **Income**
              
              **Total**Balance
                  at December 31, 2003, as reported
              
              4,000,000
              
              $
              16,000
              
              
              2,666,658
              
              $
              800,000
              
              $
              9,980,086
              
              $
              (4,975,385
              )
              
              
              
              $
              5,820,701Impact
                  of adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,775,960
              
              
              
              
              
              2,775,960Balance
                  at December 31, 2003, as adjusted
              
              
              
              
              16,000
              
              
              
              
              
              800,000
              
              
              9,980,086
              
              
              (2,199,425
              )
              
              
              
              
              8,596,661Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              43,166,689
              
              
              
              
              
              43,166,689Dividends
                  paid
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (150,000
              )
              
              
              
              
              (150,000
              )Purchase
                  of preference shares 1,000,000shares
                  and elimination of mandatoryredemption
                  and quarterly dividend
              
              
              
              
              
              
              
              
              
              
              
              
              
              14,377,850
              
              
              
              
              
              
              
              
              14,381,850Balance
                  at December 31, 2004
              
              4,000,000
              
              
              16,000
              
              
              2,666,658
              
              
              800,000
              
              
              24,357,936
              
              
              40,817,264
              
              
              
              
              
              65,995,200Conversion
                  of preference shares tocommon
                  shares
              
              2,000,000
              
              
              8,000
              
              
              
              
              
              
              
              
              (4,000
              )Additional
                  shares issuable under anti-dilution
                  provisions of warrantagreement
              
              
              
              
              
              
              
              1,132,172Redesignation
                  and change in par valueof
                  common shares from $.004 to $.01
              
              (3,600,000
              )Stock
                  split
              
              12,881,692
              
              
              128,817
              
              
              
              
              
              
              
              
              (128,817
              )Change
                  in number of shares issuable underwarrants
                  due to change in par value ofcommon
                  shares and stock split
              
              
              
              
              
              
              
              4,488,305Exercise
                  of Series A warrants
              
              5,413,265
              
              
              54,133
              
              
              (5,413,265
              )
              
              (388,812
              )
              
              388,812
              
              
              
              
              
              
              
              
              54,133Cancellation
                  of Series A warrants
              
              
              
              
              
              
              
              (1,687,590
              )
              
              (121,212
              )
              
              121,212Cancellation
                  of Series B & C warrants
              
              
              
              
              
              
              
              (897,427
              )
              
              (269,229
              )
              
              269,229Initial
                  public offering
              
              7,000,000
              
              
              70,000
              
              
              
              
              
              
              
              
              65,030,000
              
              
              
              
              
              
              
              
              65,100,000Stock
                  offering costs
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,312,964
              )
              
              
              
              
              
              
              
              (4,312,964
              )Stock
                  issued to employees as payroll
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,069,000
              
              
              
              
              
              
              
              
              1,069,000Proceeds
                  on sale of TBS InternationalLimited
                  stock owned by subsidiaries inconnection
                  with initial public offering
              
              
              
              
              
              
              
              
              
              
              
              
              
              795,336
              
              
              
              
              
              
              
              
              795,336Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              55,656,062
              
              
              
              
              
              55,656,062Dividends
                  paid on preference shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (150,000
              )
              
              
              
              
              (150,000
              )Balance
                  at December 31, 2005
              
              27,694,957
              
              $
              276,950
              
              
              288,853
              
              $
              20,747
              
              $
              87,585,744
              
              $
              96,323,326
              
              
              
              
              $
              184,206,767Shares
                  issued under IncentiveStock
                  Plan
              
              29,500
              
              
              295
              
              
              
              
              
              
              
              
              294,705
              
              
              
              
              
              
              
              
              295,000Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              39,059,825
              
              
              
              
              
              39,059,825Net
                  gain on cash flow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              42,386
              
              
              42,386Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              39,102,211Balance
                  at December 31, 2006
              
              27,724,457
              
              $
              277,245
              
              
              288,853
              
              $
              20,747
              
              $
              87,880,449
              
              $
              135,383,151
              
              $
              42,386
              
              $
              223,603,978
  The
          accompanying notes are an integral part of these consolidated financial
          statements.




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 Roymar and TBS
      Shipping Services and its subsidiaries, are foreign corporations and conduct
      their business operations worldwide. Roymar and TBS Shipping Services and
      Subsidiaries conduct their business operations in the United States. The terms
      "we," "our," and "us" refer to TBS International Limited and its consolidated
      subsidiaries. A listing of all the Company’s subsidiaries, with their country of
      registry and vessel owned, if applicable is as follows:




**·**TBS
                  International Limited (Bermuda)·Westbrook
                  Holdings, Ltd. and its subsidiaries (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*·Beekman
                  Shipping Corp. -*Laguna
                  Belle*·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*·Elrod
                  Shipping Corp. -*Nanticoke
                  Belle(vessel
                  to be delivered March 2007)*·Exeter
                  Shipping Corp. -*Alabama
                  Belle*·Fairfax
                  Shipping Corp. -*Seminole
                  Princess*·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 Company·Newkirk
                  Navigation Corp.-
                  *Dakota Belle (inactive, vessel sold 2006)*·Oldcastle
                  Shipping Corp. -*Taino
                  Maiden*·Pacific
                  Rim Shipping Corp. - Philippine Bareboat Charterer·Prospect
                  Navigation Corp.-
                  *Inca Maiden*
  Table
            of Contents
 F-6
 ·Rector
                  Shipping Corp. -*Siboney
                  Belle*·Remsen
                  Navigation Corp. -*Maori
                  Maiden*
 ·Sheffield
                  Maritime Corp.-
                  *Manhattan Princess*·Sherman
                  Maritime Corp. -*Rockaway
                  Belle*·Sterling
                  Shipping Corp. -*Biloxi
                  Belle*·Stratford
                  Shipping Corp. -*Iroquois
                  Maiden*·Vernon
                  Maritime Corp. -*Mohegan
                  Princess*·Whitehall
                  Marine Transport Corp.-
                  *Cherokee Princess*·Windsor
                  Maritime Corp. -*Shinnecock
                  Belle*·Argyle
                  Maritime Corp. (inactive, new vessel building)·Caton
                  Maritime Corp.(inactive, new vessel building)·Dorchester
                  Maritime Corp. (inactive, new vessel building)·McHenry
                  Maritime Corp. (inactive, new vessel building)****
              ****
              **·**Longwoods
                  Maritime Corp. (inactive, new vessel building)·Sunswyck
                  Maritime Corp. (inactive, new vessel building)·Transworld
                  Cargo Carriers, S.A. (Marshall Islands)·TBS
                  Worldwide Services Inc. (Marshall Islands)·TBS
                  African Ventures Limited·  GMTBS
                African Line, Ltd.
                (Hong Kong - 50% ownership)·TBS
                  Eurolines, Ltd.·TBS
                  Latin America Liner, Ltd.·TBS
                  Middle East Carriers, Ltd.·TBS
                  North America Liner, Ltd.·TBS
                  Ocean Carriers, Ltd.·TBS
                  Pacific Liner, Ltd.·TBS
                  Logistics Ltd. (Marshall Islands)·Roymar
                  Ship Management Inc. (New York)·TBS
                  Shipping Services Inc. (New York)·Compass
                  Chartering Corp. (New York)·Azalea
                Shipping & Chartering Inc. (New York)·TBS
                  US Enterprises LLC (Delaware)****
              ****
              **·**TBS
                  Energy Logistics L P
                  (Delaware)




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





Table
          of Contents
 F-7


**Note
      2 — Summary of Significant Accounting Policies**




**Basis
      of Accounting and Presentation**




The
      accompanying consolidated financial statements are prepared on the accrual
      basis
      of accounting in accordance with accounting standards generally accepted in
      the
      United States of America. A summary of the significant accounting policies
      followed in the preparation of the accompanying consolidated financial
      statements is presented below.





**Principles
      of Consolidation**




The
      consolidated financial statements include the accounts of 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 Financial Accounting Standards Board
      ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 131
      " *Disclosures
      about Segments of an Enterprise and Related Information* ,"
      that
      it operates in one reportable segment, the worldwide ocean transportation of
      dry
      cargo.





**Use
      of Estimates**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenues and expenses and disclosure of contingent assets and
      liabilities at the date of the financial statements. Actual results could differ
      from those estimates. The most significant estimates relate to allowances for
      charter hire and claims receivable, estimated lives of vessels and voyages
      in
      progress.





**Revenue
      Recognition**




Revenue
      is generally recorded when services are rendered, we have a signed charter
      agreement or other evidence of an arrangement, pricing is fixed or determinable
      and collection is reasonably assured. We generally employ our vessels under
      time
      or voyage charters. With time charters, we receive a fixed charter hire per
      on-hire day and are responsible for meeting all the vessel operating expenses
      such as crew costs, insurance, stores and lubricants and repairs and
      maintenance. Time charter revenues are recorded over the term of the charter
      as
      service is provided. Revenue from time charters in progress at year end is
      calculated using the daily charter hire rate, net of daily expenses, multiplied
      by the number of voyage days on-hire through year end.





In
      the
      case of voyage charters, the vessel is contracted for a voyage between two
      or
      more ports. We are paid for the cargo transported and we pay all voyage
      expenses, such as fuel, port call expenses and commissions, as well as all
      vessel operating expenses. Under a voyage charter the revenues and related
      voyage expenses are recognized on the percentage of service completed at the
      balance sheet date by prorating the estimated final voyage revenue and expenses
      using the ratio of voyage days completed through balance sheet date to total
      voyage days. 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.





**Cash
      and Cash Equivalents**




The
      Company considers all highly liquid investments with maturities when purchased
      of three months or less to be cash equivalents.





Table
          of Contents
 F-8


**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.





**Claims
      Receivable**




Claims
      receivable represent claims for reimbursement of expenses incurred that have
      been or will be made under our hull and machinery, and Protection and Indemnity
      coverages. We record
      the probable amount that we expect to recover from insurance net of the
      applicable deductible.




**Concentrations
      of Credit Risk**




Financial
      instruments which potentially subject the Company to significant concentrations
      of credit risk consist principally of cash and charter hire receivables. The
      Company places its cash with high-quality financial institutions. These
      financial institutions are located throughout the world, and the Company's
      policy is designed to limit exposure to any one institution. The Company
      maintains reserves for potential credit losses, and historically such losses
      have not been significant.





**Fuel
      and Other Inventories**




Fuel
      and
      other inventories, consisting primarily of fuel, lubricating oil and spare
      parts
      aboard the vessels, are valued at the lower of cost (determined using a
      first-in, first-out basis for fuel and a weighted average basis for lubricating
      oil and spare parts) 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 vessels are capitalized and
      depreciated over the remaining useful lives of the vessels. Depreciation is
      calculated, based on cost less estimated residual value, using the straight-line
      method over the remaining useful life. The remaining useful life of each vessel
      is estimated as the period from the date the vessel is put in service to the
      date 30 years from the time that the vessel was delivered by the shipyard.
      Maintenance and repair costs that do not improve or extend the useful lives
      of
      the vessels, other than dry dock costs discussed below, are expensed as
      incurred.





**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, 2006 and 2005 increased net income, basic earnings
      per
      share and diluted earnings per share in the amount of $37.2 million, $1.33
      per
      share and $1.32 per share and $19.1 million, $0.87 per share and $0.78 per
      share, respectively. Approximately 69% or $25.7 million of the $37.2 million
      impact of the change in estimate for 2006, relates to vessels that we acquired
      after we changed our estimate of the useful life of vessels. Excluding vessels
      acquired in 2005 and 2006 the impact of this change in estimate increased net
      income, basic earnings per share and diluted earnings per share for the year
      ended December 31, 2006 by $11.5 million, $0.41 per share and $0.41 per share,
      respectively.





Table
          of Contents
 F-9


**Drydocking**




We
      are
      required, for regulatory and insurance purposes, to perform periodic inspections
      and overhaul activities, generally every 30 months. We used the deferral
      method to account for planned major maintenance. Under the deferral method
      of
      accounting for drydocking, the actual costs incurred are deferred and are
      amortized on a straight-line basis over the period through the date of the
      next
      drydocking.





**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 values of our long-lived
      assets are determined by consideration of independent third-party appraisals.
      The Company has determined that there is no impairment of long-lived assets
      at
      December 31, 2006 and 2005.





**Goodwill**




Goodwillrepresents the excess of the purchase price over the estimated fair value of
      net
      assets acquired.Goodwillis
      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 and for the years
      ended
      December 31, 2006 and 2005.





**Deferred
      Financing Costs**




Deferred
      financing costs are amortized over the term of the related financing using
      the
      straight-line method, which is not materially different than the effective
      interest method. Unamortized deferred financing costs are written off when
      the
      related debt is repaid and included in debt extinguishment gain or loss in
      the
      accompanying consolidated statements of operations.





**Leases**




Leases
      are classified as either capital or operating. Those leases that transfer
      substantially all the benefits and risks of ownership of property to the Company
      are accounted for as capital leases. All other leases are accounted for as
      operating leases. Capital leases are accounted for as assets and are fully
      amortized on a straight-line basis over the expected useful life of the assets.
      Commitments to repay the principal amounts arising under capital lease
      obligations are included in current liabilities to the extent that the amount
      is
      repayable within one year, otherwise the principal is included in amounts due
      after one year. The capitalized lease obligation reflects the present value
      of
      future lease payments. The financing element of the lease payments is charged
      to
      income over the term of the lease.





Table
          of Contents
 F-10


**Taxation**




Currently
      there is no Bermuda income or profit tax. The Company is also not subject to
      corporate income taxes on its profits in the Marshall Islands because its income
      is derived from sources outside this jurisdiction. Minor registration and
      tonnage taxes must be paid annually and have been included in the vessels'
      operating expenses in the accompanying consolidated statements of operations.




Pursuant
      to the Internal Revenue Code of the United States, U.S. source income from
      the
      international operations of ships is generally exempt from U.S. tax if the
      company operating the ships meets certain requirements. Among other things,
      in
      order to qualify for this exemption, the company operating the ships must meet
      two requirements. First, a company must be incorporated in a country which
      grants an equivalent exemption from income taxes to U.S. citizens and U.S.
      corporations, 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.




The
      Company 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, the Company 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 adopted SFAS 123R effective January 1, 2006, using the modified
      prospective method which requires measurement of compensation cost for all
      stock-based awards at fair value on date of grant and recognition of
      compensation over the service period for awards expected to vest.





**Earnings
      Per Share**




Earnings
      per share are based on reported net income available for common shareholders
      and
      the weighted average number of common shares outstanding (basic) and the
      weighted average total of common shares outstanding and potential common shares
      (diluted).





**Fair
      Value of Financial Instruments**




Financial
      instruments, which potentially subject us to concentrations of credit risk,
      consist principally of cash equivalents, charter hire receivables and debt
      (including capital lease obligations). We place our cash equivalents with a
      number of financial institutions to help limit the amount of credit exposure
      to
      any one financial institution. Concentrations of credit risk with respect to
      trade receivables are limited due to the large number of customers comprising
      our customer base, and their dispersion across many geographic areas. As of
      December 31, 2006 one customer accounted for 10.4% of charter hire receivables
      and as of December 31, 2005, we had no significant concentration of credit
      risk.




Table
          of Contents
 F-11


The
      following method and assumptions were used to estimate the fair value of
      financial instruments included in the following categories:




·
            *Cash
                and cash equivalents, charter hire and claims receivable -*The
                carrying amount reported in the accompanying consolidated balance
                sheets
                for cash and cash equivalents, charter hire and claims receivables
                approximates their fair value due to the current
                maturities.




·
            *Short-term
                debt -*The
                carrying amount reported in the accompanying consolidated balance
                sheets
                for short-term debt approximates its fair value due to the current
                maturity of such instruments.




·
            *Long-term
                debt -*The
                carrying amount of our long-term debt approximates fair value due
                to the
                variable interest rates on bank borrowings and based on the current
                rates
                offered to us for debt of the same remaining
                maturities.




·
            *Interest
                Rate Swap -*The Company utilizes certain derivative financial instruments to
                enhance
                its ability to manage interest rate risk. Derivative instruments
                are
                entered into for periods consistent with related underlying exposures
                and
                do out constitute positions independent of those exposures. The Company
                does not enter into contracts for speculative purposes, nor is it
                a party
                to any leveraged derivative instruments.  The
                Company is exposed to credit loss in the event of nonperformance
                by the
                counterparties on derivative contracts. The Company minimizes its
                credit
                risk on these transactions by dealing only with leading, credit-worthy
                financial institutions and, therefore, does not anticipate
                nonperformance.






**Foreign
      Currency Transactions**




The
      financial statements are expressed in United States dollars. Gains and losses
      resulting from foreign currency transactions, which are not significant, are
      included in other income.




**Financial
      Derivative Instruments and Hedging Activities**




In
      accordance with SFAS No. 133, "*Accounting for Derivative Instruments and
      Hedging Activities*", as amended ("SFAS 133") the fair value of the hedge is
      recorded as an asset in the accompanying consolidated balance sheet at December
      31, 2006. The Company uses the "matched terms" accounting method as provided
      by
      Derivative Implementation Group Issue G9, *"Assuming No Ineffectiveness When
      Critical Terms of the Hedging Instruments and the Hedge Transaction Match in
      a
      Cash Flow Hedge"*for the interest rate swap. Accordingly, the Company has
      matched the critical terms of the hedge instrument to the hedged debt.
      Therefore, we have recorded all adjustments to the fair value of the hedge
      instrument in accumulated other comprehensive income . We recognize the earnings
      impact on interest rate swaps designated as cash flow hedges upon the
      recognition on the interest related to the hedged debt.




**Reclassification**




A
      reclassification was made to the consolidated balance sheet as of December
      31,
      2005 to conform to the current presentation of deferred financing costs.
      Previously, deferred financing costs were included with fixed assets - "vessel."
      The reclassification did not impact total assets, total liabilities or
      shareholders' equity as of December 31, 2005.




Table
          of Contents
 F-12


**Note
      3** — **Change in Accounting Method for Drydocking costs**




Effective
      January 1, 2006, the Company and its subsidiaries changed the method of
      accounting for d rydocking
      costs to the deferral
      method,  whereas
      in all prior years d rydocking
      costs were
      accounted for using the accrual
      method. Under the deferral method of accounting for drydocking, the actual
      costs
      incurred are deferred and are amortized on a straight-line basis over the period
      through the date of the next drydocking. The
      change in accounting method for d rydocking
      costs was made
      in connection with the Company's early adoption of FSP No. AUGAIR-1, Accounting
      for Planned Major Maintenance Activities issued by FASB on September 8, 2006,
      which amended certain
      provisions in the American Institute of Certified Public Accountants ** ("AICPA"),
      Industry Audit Guide, *Audits
      of Airlines* ("Airline
      Guide"). The Airline Guide is the principal source of guidance on the accounting
      for planned major maintenance and is relevant to the maritime
      industry. Comparative consolidated financial statements of prior years have been adjusted
      to apply the new method retrospectively. As a result of the accounting change,
      accumulated deficit as of January 1, 2004, decreased from $(5.0) million, as
      originally reported using the accrual method for accounting for drydocking
      costs
      to $(2.2) million using the deferral method for accounting for drydocking costs.
      The following financial statement line items for years 2004 and 2005 were
      affected by the change in accounting principle.




***Consolidated
                  Balance Sheet***
              
              As
                  Reported
              
              As
                  Computed***December
                  31, 2005***
              
              under
                  the
              
              under
                  the*(in
                  thousands)*
              
              Accrual
              
              Deferral
              
              Effect
                  ofMethod
              
              Method
              
              ChangeVessels
                  (a)
              
              $
              307,158
              
              $
              313,500
              
              $
              6,342Accumulated
                  depreciation (a)
              
              $
              (41,977
              )
              $
              (46,090
              )
              $
              (4,113
              )Total
                  assets
              
              $
              342,442
              
              $
              344,671
              
              $
              2,229Accrued
                  expenses
              
              $
              25,958
              
              $
              21,769
              
              $
              (4,189
              )Total
                  current liabilities
              
              $
              69,019
              
              $
              64,830
              
              $
              (4,189
              )Total
                  liabilities
              
              $
              164,653
              
              $
              160,464
              
              $
              (4,189
              )Retained
                  earnings
              
              $
              89,905
              
              $
              96,323
              
              $
              6,418Total
                  shareholders' equity
              
              $
              177,789
              
              $
              184,207
              
              $
              6,418Total
                  liabilities and shareholders' equity
              
              $
              342,442
              
              $
              344,671
              
              $
              2,229


***Consolidated
                  Statement of Operations***
              
              As
                  Reported
              
              As
                  Computed***For
                  the Year Ended December 31, 2005***
              
              under
                  the
              
              under
                  the*(in
                  thousands)*
              
              Accrual
              
              Deferral
              
              Effect
                  ofMethod
              
              Method
              
              ChangeOperating
                  expenses:Vessel
              
              $
              72,609
              
              $
              68,711
              
              $
              (3,898
              )Depreciation
                  and amortization
              
              $
              18,021
              
              $
              19,537
              
              $
              1,516Total
                  operating expenses
              
              $
              186,163
              
              $
              183,781
              
              $
              (2,382
              )Income
                  from operations
              
              $
              61,868
              
              $
              64,250
              
              $
              2,382Net
                  income
              
              $
              53,274
              
              $
              55,656
              
              $
              2,382Amount
                allocated to participating preferred shareholders
              
              $
              5,462
              
              $
              5,706
              
              $
              (244
              )Net
                income available for common shareholders
              
              $
              47,812
              
              $
              49,950
              
              $
              2,138Earnings
                  per shareBasic
              
              $
              2.19
              
              $
              2.28
              
              $
              0.09Diluted
              
              $
              1.97
              
              $
              2.05
              
              $
              0.08
  Table
            of Contents
 F-13
 ***Consolidated
                    Statement of Operations***
                
                As
                    Reported
                
                As
                    Computed***For
                    the Year Ended December 31, 2004***
                
                under
                    the
                
                under
                    the*(in
                    thousands)*
                
                Accrual
                
                Deferral
                
                Effect
                    ofMethod
                
                Method
                
                ChangeOperating
                    expenses:Vessel
                
                $
                79,273
                
                $
                77,145
                
                $
                (2,128
                )Depreciation
                    and amortization
                
                $
                10,137
                
                $
                11,005
                
                $
                868Total
                    operating expenses
                
                $
                161,863
                
                $
                160,603
                
                $
                (1,260
                )Income
                    from operations
                
                $
                46,944
                
                $
                48,204
                
                $
                1,260Net
                    income
                
                $
                41,907
                
                $
                43,167
                
                $
                1,260Amount
                  allocated to participating preferred shareholders
                
                $
                11,497
                
                $
                11,843
                
                $
                (346
                )Net
                  income available for common shareholders
                
                $
                30,410
                
                $
                31,324
                
                $
                914Earnings
                    per shareBasic
                
                $
                2.98
                
                $
                3.07
                
                $
                0.09Diluted
                
                $
                1.49
                
                $
                1.54
                
                $
                0.05
  ***Consolidated
                      Statement of Cash Flows***
                  
                  As
                      Reported
                  
                  As
                      Computed***For
                      the Year Ended December 31, 2005***
                  
                  under
                      the
                  
                  under
                      the*(in
                      thousands)*
                  
                  Accrual
                  
                  Deferral
                  
                  Effect
                      ofMethod
                  
                  Method
                  
                  ChangeNet
                      income
                  
                  $
                  53,274
                  
                  $
                  55,656
                  
                  $
                  2,382Adjustments
                      to reconcile net income to netcash
                      provided by operating activities:Depreciation
                      and amortization
                  
                  $
                  18,465
                  
                  $
                  19,981
                  
                  $
                  1,516Changes
                      in operating assets and liabilities:Increase
                      (decrease) in accrued expenses
                  
                  $
                  12,617
                  
                  $
                  9,693
                  
                  $
                  (2,924
                  )Net
                      cash provided by operating activities
                  
                  $
                  72,760
                  
                  $
                  73,734
                  
                  $
                  974Cash
                      flows from investing activitiesVessel
                      acquisition / capital improvements (a)
                  
                  $
                  (176,035
                  )
                  $
                  (177,009
                  )
                  $
                  (974
                  )Net
                      cash (used in ) provided by investing activities (a)
                  
                  $
                  (183,858
                  )
                  $
                  (184,832
                  )
                  $
                  (974
                  )
  ***Consolidated
                        Statement of Cash Flows***
                    
                    As
                        Reported
                    
                    As
                        Computed***For
                        the Year Ended December 31, 2004***
                    
                    under
                        the
                    
                    under
                        the*(in
                        thousands)*
                    
                    Accrual
                    
                    Deferral
                    
                    Effect
                        ofMethod
                    
                    Method
                    
                    ChangeNet
                        income
                    
                    $
                    41,907
                    
                    $
                    43,167
                    
                    $
                    1,260Adjustments
                        to reconcile net income to netcash
                        provided by operating activities:Depreciation
                        and amortization
                    
                    $
                    10,137
                    
                    $
                    11,005
                    
                    $
                    868Changes
                        in operating assets and liabilities:Increase
                        in accrued expenses
                    
                    $
                    2,833
                    
                    $
                    3,744
                    
                    $
                    910Net
                        cash provided by operating activities
                    
                    $
                    52,894
                    
                    $
                    55,933
                    
                    $
                    3,039Cash
                        flows from investing activitiesVessel
                        acquisition / capital improvements
                    
                    $
                    (56,630
                    )
                    $
                    (59,669
                    )
                    $
                    (3,039
                    )Net
                        cash (used in ) provided by investing activities
                    
                    $
                    (64,129
                    )
                    $
                    (67,168
                    )
                    $
                    (3,039
                    )
 (a)
              - Vessel
              and
              accumulated depreciation as reported under the accrual method at December
              31,
              2005 reflect the reclassification to Other assets and deferred charges
              of $2.2
              million of deferred financing costs and $0.4 million of related accumulated
              amortization to conform to the 2006 presentation of deferred financing
              costs.
 Table
                  of Contents
 F-14
 **Note
              4 — New Accounting Pronouncements**




In
      September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) No. 108,
      " *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* "
      ("SAB
      108"). SAB 108 was issued in order to eliminate the diversity of practice in
      how
      public companies quantify misstatements of financial statements, including
      misstatements that were not material to prior years’ financial statements. We
      have applied the provisions of SAB 108 in connection with the preparation of
      our
      annual financial statements for the year ending December 31, 2006. The adoption
      of SAB 108 did not have a significant impact on the Company’s consolidated
      results of operations, cash flows or financial position.




In
      September 2006, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standards ("SFAS") No. 157, " *Fair
      Value Measurements* "
      ("SFAS
      157"), which defines and establishes a framework for measuring fair value and
      expands disclosures about fair value measurements. The accounting provisions
      of
      SFAS 157 are effective for the Company beginning on January 1, 2008. We are
      in
      the process of evaluating the effect, if any, that the adoption of SFAS 157
      will
      have on our consolidated financial statements.




On
      September 8, 2006, the FASB issued a FASB Staff Position ("FSP") which addressed
      the accounting for planned major maintenance activities. This FSP amends certain
      provisions in the American Institute of Certified Public Accountants ** ("AICPA"),
      Industry Audit Guide, *Audits
      of Airlines* ("Airline
      Guide"), which is the principal source of guidance on the accounting for planned
      major maintenance and is relevant to both the aviation and maritime industries.
      The Airline Guide, prior to the amendment, permitted four alternative methods
      of
      accounting for planned major maintenance activities: direct expense, built-in
      overhaul, deferral, and accrual (accrue-in-advance). Previously we used the
      accrual method to account for planned major maintenance. The new FSP prohibits
      the use of the accrual method. Under the deferral method of accounting for
      drydocking, the actual costs incurred are deferred and are amortized on a
      straight-line basis over the period through the date of the next drydocking.
      The
      amended guidance of the FSP apply to the Company beginning on January 1, 2007,
      although earlier adoption is encouraged. We adopted the FSP effective January
      1,
      2006 to utilize the deferral method. Prior year financial statements have been
      retrospectively adjusted. Sees n otes "3 — Change
      in
      Accounting Method for Drydocking costs " and " 26
—
      Selected Quarterly Financial Information (unaudited) " for the
      impact of the adjustment on previously reported financial
      statements.




In
      July
      2006, the FASB issued FASB Interpretation No. 48 ("FIN 48") " *Accounting
      for Uncertainty in Income Taxes* "
      which
      prescribes a recognition threshold and measurement process for recording in
      the
      financial statements uncertain tax positions taken or expected to be taken
      in a
      tax return. Additionally, FIN 48 provides guidance on the derecognition,
      classification, accounting in interim periods and disclosure requirements for
      uncertain tax positions. The accounting provisions of FIN 48 will be effective
      for the Company beginning January 1, 2007. We are in the process of determining
      the effect, if any, that the adoption of FIN 48 will have on our consolidated
      financial statements. We do not expect that the adoption of FIN 48 will have
      a
      significant impact on our consolidated results of operations, cash flows or
      financial position.




In
      May
      2005, the 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 period’s
      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.




Table
          of Contents
 F-15


In
      December 2004, the FASB issued SFAS No. 123R, " *Share-Based
      Payment* "
      ("SFAS
      123R"). SFAS 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 adopted SFAS 123R effective January 1, 2006,
      using the modified prospective method which requires measurement of compensation
      cost for all stock-based awards at fair value on date of grant and recognition
      of compensation over the service period for awards expected to vest. The
      adoption of SFAS 123R did not have a significant impact on the Company’s
      consolidated results of operations, cash flows or financial position because
      the
      use of the intrinsic value method under Accounting Principles Board Opinion
      No.
      25, " *Accounting
      for Stock Issued to Employees* "
      previously used by the Company and the fair value base method currently used
      under SFAS 123R results in the same amount of compensation expense recognized.
      See note "20 - Stock Plan."





**Note
      5** — **** **Allowance
      for Charter Hire and Claims Receivabl** **e**




We
      review
      the allowances for doubtful accounts monthly. Account balances are charged
      off
      against the allowance when we feel that it is probable the receivable will
      not
      be recovered. We do not have any significant off-balance sheet credit exposure
      related to our customers.





Allowance
      for doubtful charter hire receivable is as follows:




**Balance
                  at**
              ****
              ****
              ****
              **Write-offs
                    Net of**
              ****
              **Balance
                  at**
              ********
              ****
              **Beginning
                  of Year**
              ****
              **Additions**
              ****
              **Recoveries**
              ****
              **End
                  of Year**December
                  31, 2004
              
              $
              473,964
              
              $
              982,630
              
              $
              -
              
              $
              1,456,594December
                  31, 2005
              
              $
              1,456,594
              
              $
              -
              
              $
              (762,380
              )
              $
              694,214December
                  31, 2006
              
              $
              694,214
              
              $
              -
              
              $
              (251,685
              )
              $
              442,529


Allowance
        for doubtful claims receivable is as follows:
  **Balance
                  at**
              ****
              ****
              ****
              **Write-offs
                    Net of**
              ****
              **Balance
                  at**
              ********
              ****
              **Beginning
                  of Year**
              ****
              **Additions**
              ****
              **Recoveries**
              ****
              **End
                  of Year**December
                  31, 2004
              
              $
              310,655
              
              $
              -
              
              $
              -
              
              $
              310,655December
                  31, 2005
              
              $
              310,655
              
              $
              -
              
              $
              (310,655
              )
              $
              -December
                  31, 2006
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -


**Note
      6 — Fuel and Other Inventories**




Fuel
      and
      other inventories consist of the following:


**December
                  31,****Description**
              
              **2005**
              
              **2006**Fuel
              
              $
              5,970,795
              
              $
              4,650,557Lubricating
                  oil
              
              
              1,153,277
              
              
              2,125,983Other
              
              
              511,360
              
              
              479,943**TOTAL**
              
              **$**
              **7,635,432**
              
              **$**
              **7,256,483**




Table
          of Contents
 F-16


**Note
      7 — Prepaid Expenses**




Prepaid
      expenses consist of the following:


**December
                  31,****Description**
              
              **2005**
              
              **2006**Prepaid
                  Charter hire
              
              $
              529,740
              
              $
              151,369Prepaid
                  Insurance
              
              
              1,337,227
              
              
              1,213,635Prepaid
                  Vessel
              
              
              204,171
              
              
              206,288Other
              
              
              115,362
              
              
              15,644**TOTAL**
              
              **$**
              **2,186,500**
              
              **$**
              **1,586,936**


**Note****8 — Deposits for Vessel Purchases**




The
      deposits for vessel purchases represent deposits on vessels that we have
      contracted to purchase but that have not yet been delivered. In December 2006,
      we signed a Memorandum of Agreement and made a deposit of $1,695,000 to purchase
      the multipurpose tweendecker*Blu Mistral II* for $16,950,000. The
      vessel, which will be renamed*Nanticoke Belle*, is scheduled to be
      delivered in late March or early April 2007.




**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.




**Note****10 — Vessels Acquired**




We
      acquired the following vessels during 2006:





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


Depreciation
      and amortization of vessels and other assets was $11,005,342, $19,980,436,
      and
      $29,866,684 respectively, for the years ended December 31, 2004, 2005 and 2006,
      respectively.




Table
          of Contents
 F-17


**Note
      11 — Goodwill**




The
      Company acquired all of the outstanding shares of common stock of two of its
      affiliates, TBS Shipping Services Inc. ("TBS Shipping Services") and Roymar
      Ship
      Management, Inc. ("Roymar"), in connection with its initial public offering,
      which was completed on June 29, 2005. 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 operational management of vessels, and commercial,
      chartering, agency and brokerage services. Roymar acts as technical ship manager
      for the Company and its subsidiaries. The Company purchased all 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 of
      $8,425,935 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
            
            $
            1,213,203Office
                equipment 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**





**Note
      12 — Other Assets and Deferred Charges**




Other
      assets consist of the following:




**December
                  31,****Description**
              
              **2005**
              
              **2006**Deferred
                  financing costs, net
              
              $
              1,749,713
              
              $
              2,711,299Investment
                  in equity securities
              
              
              
              
              
              500,000Investment
                  in joint venture
              
              
              
              
              
              477,806Fair
                  value of interest rate swap agreement
              
              
              
              
              
              42,386**Total**
              
              **$**
              **1,749,713**
              
              **$**
              **3,731,491**





Deferred
      financing costs represent fees we incurred in obtaining new financing. The
      costs
      are deferred and amortized on a straight line basis (which approximates the
      effective interest method) over the term of the related financing. Accumulated
      amortization of deferred financing costs was $443,381 and $339,183 at December
      31, 2005 and 2006, respectively.




In
      December 2006, we purchased shares in an initial public offering of Dangote
      Sugar Refinery Plc ( " Dangote " ).
      Dangote, a Nigerian company, together with Dangote Industry Limited accounted
      for 6.3%, 12.1% and 15.1%, of voyage and time charter revenue for the years
      ended December 31, 2004, 2005 and 2006, respectively. Our investment in Dangote
      represents a less than 0.01% ownership interest in the company. The investment
      is being carried at cost as the fair value of the security is not readily
      determinable.




Table
          of Contents
 F-18


In
      November 2005, the company entered into a joint venture with GMT
      Shipping Line Ltd. to provide liner services to and from the East and North
      Coasts of South America and from and to the West Coast of Africa. The Company
      made a capital investment of $100,000 and loans of $400,000 on February 7,
      2006
      and March 1, 2006, respectively, for a 50% interest in the joint venture. The
      investment is accounted for using the equity method and the Company’s share of
      the financial result of the joint venture for 2006 and 2005 was a loss of
      approximately $74,000 and a profit of approximately $52,000, respectively,
      which
      is included in other income on the consolidated statement of
      operations.




See
      notes
      "2 — Summary of Significant Accounting Policies" and "15 — Financing" for a
      description of our hedging activity.




**Note
      13 — Accrued Expenses**




Accrued
      expenses consist of the following :




**December
                  31,****Description**
              
              **2005**
              
              **2006**Voyage
                  and vessel expenses
              
              $
              17,695,881
              
              $
              16,910,180Payroll
                  and related costs
              
              
              2,554,445
              
              
              3,479,675Commissions
              
              
              967,745
              
              
              667,453Cargo
                  claims
              
              
              369,999
              
              
              245,999Other
                  expenses
              
              
              181,143
              
              
              226,044**Total**
              
              **$**
              **21,769,213**
              
              **$**
              **21,529,351**




**Note
      14 —**  **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:




**December
                  31,****Affiliate**
              
              **2005**
              
              **2006**Nautica
                  Groupe, Ltd.
              
              $
              16,120
              
              $
              14,870Aquarius
                  Shipping Colombia Ltda.
              
              
              146,056
              
              
              321,336TBS
                  China Ltd
              
              
              
              
              
              6,407TBS
                  Commercial Group Ltd.
              
              
              1,246,482
              
              
              138,490**TOTAL**
              
              **$**
              **1,408,658**
              
              **$**
              **481,103**




Table
          of Contents
 F-19


**Note
      1****5 — Financing**




Our
      outstanding debt balances were as follows:


**Interest
                  Rate at**
                **December
                  31, 2006**
              
              **December
                  31, 2005**
              
              
              **December
                  31, 2006**Bank
                  of America - term credit facility,expires
                  July 30, 2010
              
              7.62%
              $
              -
              
              $
              65,625,000Bank
                  of America - revolving credit facility,expires
                  July 30, 2010
              
              7.60%
                  & 7.62%
              
              -
              
              
              54,814,033The
                  Royal Bank of Scotland creditfacility
                  loan, expires March 23, 2010
              
              6.82%
              
              6,385,000
              
              
              5,365,000AIG
                  credit facility loan
              
              
              
              35,180,209
              
              
              -Bank
                  of America credit facility loan
              
              
              
              21,875,000
              
              
              -GMAC
                  credit facility loan
              
              
              
              15,156,250
              
              
              -Merrill
                  Lynch credit facility loan
              
              
              
              17,500,000
              
              
              -Merrill
                  Lynch credit facility loan
              
              
              
              9,641,003
              
              
              -**Debt
                  balance**
              
              
              $
              **105,737,462**
              
              $
              **125,804,033**


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




2007
              
              
              
              
              
              $
              19,770,0002008
              
              
              
              
              
              
              19,770,0002009
              
              
              
              
              
              
              19,770,0002010
              
              
              
              
              
              
              66,494,033Thereafter
              
              
              
              
              
              
              -$
              **125,804,033**


**Bank
      of America Credit Facility**




On
      July
      31, 2006, the Company, through its subsidiaries, entered into a $140.0 million
      credit facility (the "Credit Facility") with a syndicate of commercial lenders
      led by Bank of America. The Credit Facility is composed of a $75.0 million
      term
      loan facility ("Term Credit Facility") and a $65.0 million revolving credit
      facility ("Revolving Credit Facility"). Borrowings under the Credit Facility
      have been used to refinance existing term borrowings under credit facilities
      with GMAC, Merrill Lynch, AIG and Bank of America ("Existing Lenders").




Pursuant
      to the Credit Facility, the Company, through its subsidiaries, made a full
      drawdown on the term credit facility of $75.0 million and an initial drawdown
      of
      $10.0 million on the revolving credit facility to repay $80.9 million of
      outstanding principal and interest due on the loans with the Existing Lenders
      and $5.2 million to cover costs associated with the refinancing, including
      deferred financing costs of $3.1 million.




Table
          of Contents
 F-20


The
      Term
      Credit Facility provides a four-year self-amortizing term loan with quarterly
      principal payments of approximately $4.7 million beginning September 2006.
      The
      non-amortizing Revolving Credit Facility is due in July 2010. Interest on the
      Credit Facility is at the 30-day, 60-day or 90-day Eurodollar LIBOR rate, as
      selected by the Company, plus a margin rate based on the Company’s consolidated
      leverage ratio. The margin rate can vary, in .50% increments, between four
      pricing levels from 2.75% to 1.25%. The initial margin rate is 2.25% and becomes
      adjustable after December 31, 2006 and on or before March 31, 2007. In
      connection with the Credit Facility, the Company and its subsidiaries, incurred
      deferred financing costs of $2.8 million in July 2006 that is being amortized
      over the term of the facility.




In
      November 2006, the Company entered into a floating-to-fixed interest rate swap
      agreement to hedge the variable cash outflow exposure relating to interest
      payments on $56.25 million of its four-year term credit facility. The index
      rate
      on the LIBOR based loans is fixed at 5.09% through June 2009. At
      December 31, 2006, the Company had a fair value gain on the interest rate
      swap agreement of approximately $42,000, which is included in "other assets"
      and
      "accumulated other comprehensive income."




The
      Credit Facility is collateralized primarily by 24 of our vessels with a net
      book
      value at December 31, 2006 of $224.4 million, as well as by the Company’s equity
      interests in the subsidiaries that own the vessels. Each subsidiaries of the
      Company with an ownership interest in the collateralized vessels has provided
      an
      unconditional guaranty and pledged any insurance proceeds received related
      to
      the vessels.




The
      credit facility agreement contains certain financial and non-financial
      covenants. The non-financial covenants include customary restrictions on the
      Company’s ability to incur indebtedness or grant liens, pay dividends under
      certain circumstances, enter into transactions with affiliates, merge,
      consolidate, or dispose of assets, and change the nature of its business. The
      financial covenants require that we maintain certain fixed charge and leverage
      ratios, as well as maintain tangible net worth within defined limits. We are
      also required to maintain minimum cash and cash equivalent balances and
      collateral coverage. At December 31, 2006, the Company was in compliance with
      all covenants.




**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 through its subsidiaries 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
      we maintain a monthly average of $1,500,000 on deposit with the bank.




**AIG
      Credit Facility**




The
      original amount of the credit facility with AIG was $45.0 million. The
      outstanding credit facility balance of $29.0 million was repaid on July 31,
      2006, from the proceeds of the new credit facility with a syndicate of
      commercial lenders led by Bank of America. Interest on loans under the AIG
      credit facility was at the 90-Day LIBOR rate plus 3.15%. In connection with
      the
      early repayment of the AIG credit facility, we paid $0.9 million early repayment
      fees and wrote off as a loss on extinguishment of debt unamortized debt finance
      costs of $0.3 million.




**Bank
      of America Credit Facility**




The
      credit facility with Bank of America was initially for $25.0 million. The
      outstanding credit facility balance of $18.8 million was repaid on July 31,
      2006, from the proceeds of the new credit facility with a syndicate of
      commercial lenders led by Bank of America. Interest on loans under the original
      Bank of America credit facility was at adjusted LIBOR plus 2.75%. In connection
      with the early repayment of the original Bank of America credit
      facility, wrote off as a loss on extinguishment of debt unamortized debt
      finance costs of $0.4 million. ****




Table
          of Contents
 F-21


**GMAC
      Credit Facility**




The
      credit facility with GMAC was for the original amount of $22.5 million. The
      outstanding credit facility balance of $12.3 million was repaid on July 31,
      2006, from the proceeds of the new credit facility with a syndicate of
      commercial lenders led by Bank of America. Interest on loans under the GMAC
      credit facility was at "Adjusted 30-Day LIBOR," as defined in the loan
      agreement, plus 3.75%. In connection with the early repayment of the GMAC credit
      facility, we paid $0.3 million in early repayment fees and wrote off  as a
      loss on extinguishment of debt unamortized debt finance costs of $0.3 million.




**Merrill
      Lynch Credit Facilities**




The
      Company had two credit facilities with Merrill Lynch for the original amounts
      of
      $15.0 million and $17.5 million. On July 31, 2006, the outstanding balances
      on
      the credit facilities, aggregating $20.3 million, were repaid from the proceeds
      of the new credit facility with a syndicate of commercial lenders led by Bank
      of
      America. Interest on the $15.0 million Merrill Lynch credit facility was at
      7.654% and on the $17.5 million credit facility was at LIBOR plus 2.5%. In
      connection with the early repayment of the Merrill Lynch credit facilities,
      we
      paid $0.9 million early repayment fees and wrote off as a loss on extinguishment
      of debt unamortized debt finance costs of $0.3 million.




**Citibank
      Revolving Credit Facility**




The
      Company’s $12.0 million revolving credit facility with Citibank, N.A. commenced
      on June 17, 2005 (date of first borrowing), and expired on May 31, 2006.




**Note
      16 — Charter-in of Vessels:**




As
      of
      December 31, 2006 the Company through its subsidiaries, had seven (7)
      chartered-in vessels classified as capital leases and one (1) vessel chartered
      in under a short-term charter.  The future minimum commitments under
      charters-in are as follows:


**At
                  December 31,**
              
              **Capital**2007
              
              $
              6,387,5002008
              
              
              6,387,5002009
              
              
              13,458,9582010
              
              
              -Net
                  minimum lease payments
              
              
              26,233,958Less
                  amount representing interest
              
              
              4,879,268Present
                  value of net minimum lease payments,including
                  current maturities of $4,087,484
              
              $
              21,354,690


****


Table
          of Contents
 F-22


**Charters-in
      Classified as
      Operating Leases**




At
      December 31, 2006, we chartered-in no vessels under long-term noncancelable
      operating leases that had initial terms of more than one year at the inception
      of the charter.




We
      chartered-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, is as follows:




**Year
                  ended December 31,****2004**
              
              **2005**
              
              **2006**Charters-in
                  under short term operating leases
              
              $
              39,043,355
              
              $
              14,259,581
              
              $
              4,664,187Charters-in
                  under long term operating leases
              
              
              16,637,791
              
              
              16,859,650
              
              
              11,839,286Total
                  lease expense
              
              $
              55,681,146
              
              $
              31,119,231
              
              $
              16,503,473


**Charters-in
      Classified as Capital Leases**




On
      April
      22, 2005, the Company through a subsidiary exercised its option to purchase
      the *Comanche
      Belle* for
      $3,815,000. Delivery was taken on November 16, 2005, and the vessel was renamed
      *Huron Maiden*.





In
      December 2003, the Company through its subsidiaries, entered into sale-leaseback
      agreements for seven of its handysize tweendeck 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. We
      anticipate exercising our purchase options. 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 we can exercise the purchase options, through June
      2009
      the end of the lease term:




June
                  2007
              
              $
              3,300,000December
                  2007
              
              $
              2,900,000June
                  2008
              
              $
              2,400,000December
                  2008
              
              $
              2,000,000June
                  2009
              
              $
              1,500,000


On
      November 25, 2003, the Company through its subsidiaries entered into an
      agreement to purchase the *Rockaway
      Belle* .
      The
      agreement required us to pay $1,000,000 upon delivery of the vessel, bareboat
      charter hire of $2,550 per day beginning from the November 25, 2003 delivery
      date and two payments of $200,000 each in May and November of 2004. The
      agreement contained monthly purchase options that began at $2,705,950 as of
      January 2005 and decreased approximately $80,000 each month to $1,000,000 as
      of
      November 2006. In March 2005, we exercised our option to purchase the *Rockaway
      Belle*(renamed *Huron Maiden*)** for
      $2,512,150.





Table
          of Contents
 F-23


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
      Belle* on
      which
      we exercised the purchase option and closed on the vessel in November 2005.




****
              **Gross**
              ****
              **Accumulated**
              ****
              **Net**
              ******Period**
              ****
              **Asset**
              ****
              **Depreciation**
              ****
              **Book
                  Value**December
                  31, 2005
              
              $
              33,104,708
              
              $
              5,041,462
              
              $
              28,063,246December
                  31, 2006
              
              $
              35,497,924
              
              $
              7,111,883
              
              $
              28,386,041




Depreciation
      expense on the vessels under capital leases was $4,933,455, $2,209,395 and
      $2,070,421 for the years ended December 31, 2004, 2005 and 2006,
      respectively.




**Note
      1****7 —Related Party Transactions**




Prior
      to
      our initial public offering in June 2005, we 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
      we conduct our business. There are two unconsolidated overseas companies who
      provide the commercial and port agency service to us. These companies
      are:




(1)
            TBS
                Commercial Group Ltd. - This Bermuda-based holding company owns nine
                operating companies that operate 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 us.
      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.




**Port
      Agents**




At
      December 31, 2005 and 2006 included in accounts payable and accrued expenses
      and
      other liabilities are amounts due to related port agents per the schedule
      below:




****
              **Accounts**
              ****
              **Accrued**
              ****
              ****
              ******Period**
              ****
              **Payable**
              ****
              **and
                    Other Liabilities**
              ****
              **Total**December
                  31,2005
              
              $
              41,526
              
              $
              1,161,331
              
              $
              1,202,857December
                  31,2006
              
              $
              61,627
              
              $
              2,229,010
              
              $
              2,290,637




Port
      agency fees were paid to TBS Commercial Group Ltd. and Beacon Holdings Ltd.
      in
      the amount of $685,438, $890,369 and $964,515, for the years ended December
      31,
      2004, 2005, and 2006 respectively.




Table
          of Contents
 F-24


**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,****2004**
              
              **2005**
              
              **2006**Management
                  fee paidTBS
                  Shipping Services, Inc.
              
              $
              2,429,532
              
              $
              1,211,021
              
              $
              -Roymar
                  Ship Management, Inc.
              
              
              1,984,377
              
              
              1,413,370
              
              
              -$
              4,413,909
              
              $
              2,624,391
              
              $
              -Management
                  fee rates per month per vesselTBS
                  Shipping Services, Inc.
              
              $
              8,447
              (a)
              $
              8,447
              (a)
              $
              8,447
              (a)Roymar
                  Ship Management, Inc.
              
              $
              12,029
              (a)
              $
              12,029
              (a)
              $
              12,029
              (a)(a)
                  Rates, which include costs of living adjustments, effective February
                  8,
                  2004.


**Year
                    Ended December 31,****2004**
                
                **2005**
                
                **2006**Commissions
                    paid toTBS
                    Shipping Services, Inc.
                
                $
                5,586,865
                
                $
                2,617,298
                
                $
                -TBS
                    Commercial Group Ltd.
                
                
                4,401,321
                
                
                5,311,732
                
                
                5,223,3729,988,186
                
                
                7,929,030
                
                
                5,223,372Nautica
                    Groupe, Ltd.
                
                
                29,624
                
                
                24,606
                
                
                -Roymar
                    Ship Management, Inc.
                
                
                250,000
                
                
                -
                
                
                -$
                10,267,810
                
                $
                7,953,636
                
                $
                5,223,372




The
      Company maintains several commercial / vessel agents, which are related through
      partial common ownership, located in various countries where we conduct our
      business. These agents consist of:




(a)
            TBS
                Shipping Services Inc. (through June 2005, the date of acquisition)
                -
                commercial agent.




(b)
            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 Europe GmbH, and TBS Peru-Seganport S.A. - commercial
                agent.




(c)
            Nautica
                Groupe, Ltd. - Commissions were paid by a subsidiary of Westbrook
                Holdings, Ltd. to Nautica Groupe, Ltd. for commissions under a 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.




(d)
            Roymar
                Ship Management, Inc. (through June 2005, the date of acquisition)
                -
                vessel agent/manager.




Table
          of Contents
 F-25


**Chartering
      Broker**




Globe
      Maritime Limited, owned by James W. Bayley, acts as a chartering / vessel sale
      and purchase broker for the Company. James W. Bayley was a member of the
      board of directors through June 2006. During 2004, 2005 and 2006, we paid Globe
      Maritime Limited $219,000, $49,000 and $527,750, 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 owned
      60% of the outstanding voting shares and 100% of the outstanding non-voting
      shares of TNA. The Company 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 the Company. At that date TNA became a wholly-owned
      subsidiary of the Company.




**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 2004, 2005 and 2006, payments to
      Mr.
      Royce under this lease totalled $240,000 per year.




**Legal
      Services**




Lawrence
      A. Blatte, who became a senior executive vice president of the Company in March
      2005, did not provide legal services to the Company or any of its subsidiaries
      and affiliates in 2006; consequently, no payments were made during the year.
      During 2004 and 2005 the Company made payments of $438,000 and $503,000,
      respectively, to Mr. Blatte for legal services. In addition, during 2004 and
      2005 TBS Shipping Services Inc. and TBS Commercial Group Ltd. made payments
      of
      $205,000 and $150,000, respectively, to Mr. Blatte for legal services. Mr.
      Blatte was not an officer of the Company at the time the services were rendered
      and the payments were received.




**Consulting
      Fees**




TBS
      Commercial Group Ltd. made payments for consulting fees of $100,000 each to
      Mr.
      Royce and Mr. Blatte during 2006.




**Note
      1****8 — 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.




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 was
      $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.




Table
          of Contents
 F-26


On
      March
      30, 2004, the Company amended the mandatorily redeemable preference shares
      to
      eliminate the mandatory redemption provisions, remove the payment of dividends,
      establish a semi-annual 15 cents-per-share dividend, and permit the conversion,
      at the option of the holder, of each preference share to two old Class C common
      shares. 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.




**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.




**Other
      Equity Transactions**




In
      connection with the Company's initial public offering, the Company consolidated
      its 1,500,000 old Class A, 1,500,000 old Class B and 3,000,000 old Class C
      common shares (after giving effect to the conversion of the preference shares)
      on a 2.5-for-1 basis to 600,000 old Class A, 600,000 old Class B and 1,200,000
      old Class C common shares, for the purpose of changing the par value of the
      Company's common shares from $.004 per share to $.01 per share, and redesignated
      the Company's outstanding old Class A (600,000 shares), old Class B (600,000
      shares) and old Class C (1,200,000 shares) common shares as 2,400,000 new Class
      B common shares. Concurrent with the consolidation and redesignation of common
      shares, the Company issued 2.167 new Class A common shares and 3.20 additional
      new Class B common shares for each new Class B share outstanding.




**Warrants**




As
      of
      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.




Table
          of Contents
 F-27


The
      first
      Preferred Ship Mortgage Notes were paid on June 29, 2005 (after February 8,
      2005), and accordingly the Series A warrants became exercisable. In connection
      with the initial public offering, as noted above, 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. Due to 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 1,842,606
      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 and 2006, 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.




**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.




Table
          of Contents
 F-28


**Per
      Note 1****9 — Earnings Per Share**




**Year
                  Ended December 31,****2004**
              
              **2005**
              
              **2006****Numerators:**Net
                  income
              
              $
              43,166,689
              
              $
              55,656,062
              
              $
              39,059,825Dividends
                  on mandatorily redeemable preference sharesNet
                  income allocated to preference shares
              
              
              (11,842,930
              )
              
              (5,705,560
              )
              
              -Net
                  income available for common shareholders (basic and
                  diluted)
              
              $
              31,323,759
              
              $
              49,950,502
              
              $
              39,059,825**Denominators:**Basic-weighted
                  average common shares outstanding
              
              
              10,187,795
              
              
              21,870,160
              
              
              27,998,843Vested
                  shares issued to CFO and Directors
              
              
              
              
              
              53,252
              
              
              89,467Dilutive
                  effect of Series A, B & C warrants
              
              
              10,197,980
              
              
              2,387,497
              
              
              -Diluted-weighted
                  average common shares and potential common shares
                  outstanding
              
              
              20,385,775
              
              
              24,310,909
              
              
              28,088,310**Income
                  (loss) per common share:**Basic
              
              $
              3.07
              
              $
              2.28
              
              $
              1.40Diluted
              
              $
              1.54
              
              $
              2.05
              
              $
              1.39




As
      described above in note
      "18
— Equity Transactions — Preference Shares," the convertible preference shares
      were converted into old 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 old Class C common shares. If
      dividends were declared on the common shares, the preference shares would have
      been entitled to receive dividends based on the number of old Class C common
      shares that the preference shares were convertible to. The basic earnings per
      share calculation for 2004 and 2005 reflects the rights of the respective
      classes of shares to receive distributions of net income (net losses are not
      allocated to preference shares) using the "two-class method" described in SFAS
      128, " *Earnings
      Per Share* ".
      The
      Company has allocated the pro-rata share of net income to the convertible
      preference shares on a percentage of total weighted average common shares
      outstanding plus the common-equivalent number of weighted average preferred
      shares outstanding.




During
      the year ended December 31, 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.




Table
          of Contents
 F-29


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 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 consolidated the Company's
      outstanding old Class A, old Class B and old 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
      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.




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 and 2006,
      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
      individuals who own a majority of the Company’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****20 — 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 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 years 2006, 2007 and 2008 and $125,000 in years
      2005 and 2009. The Company’s consolidated financial statements include
      compensation costs of $125,000 from June 29, 2005 the date of the award, for
      the
      year ended December 31, 2005 and $250,000 for the year ended December 31, 2006.
      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 resulted in a charge to compensation expense and an increase in
      paid-in capital of $45,000. The Company’s consolidated financial statements
      include compensation costs of $22,500, from June 29, 2005 the date of the award
      for the year ended December 31, 2005 and $22,500 for the year ended December
      31,
      2006.




Table
          of Contents
 F-30


**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, 2006, no shares were subscribed under
      the
      plan.




**Note
      2****1 — 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
      22 — Commitments and Contingencies**




**Litigation**




In
      connection with the acquisition of the vessel *Sea
      Pantheon* (renamed *Tamoyo
      Maiden),* the
      Company, through a subsidiary, sought damages for the cost of repairs and loss
      of hire related to ballast tank contamination discovered after delivery of
      the
      vessel. As specified in the purchase agreement, the dispute was made in London
      before an arbitration tribunal selected by the Company and the seller. 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 we deposited, on June 6, 2005, $750,000 in escrow to provide
      counter-security for estimated arbitration/litigation costs as required under
      English law. On August 17, 2005, we obtained a reduction of $217,500 in the
      amount of the counter-security to $532,500. Arbitration proceedings took place
      in April 2006, as disclosed in our quarterly report for the quarter ended June
      30, 2006, filed with the SEC on August 10, 2006. On September 4, 2006, the
      Arbitrator issued a decision in our favor, finding that the seller was in breach
      of the contract and that the seller is responsible for the cost of repair and
      cleaning. We anticipate receiving an award of between $0.9 million and $1.0
      million. In October 2006, our counter security of $532,500 was returned with
      interest.




We
      are
      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, we believe 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. In addition, we are required to pay additional
      rent for real estate tax escalations. The lease contains two one-year renewal
      options. In November 2006, the lease was modified to add additional space.
      Consequently, monthly rents have increased $3,053 to $24,328 from $21,725.





Table
          of Contents
 F-31


Future
      minimum commitments under operating leases for offices are as
      follows:




**At
                  December 31,**
              
              **Amount**2007
              
              $
              483,2802008
              
              
              240,000Net
                  minimum lease payments
              
              $
              723,280
 **Note
        23 —Sale of Vessel**




During
      August 2006, we sold the *Dakota
      Belle* for
      $3,225,000, less a 2% sales commission. The gain on sale of vessel, which was
      delivered on September 27, 2006, was $2,179,820. The net proceeds of $3,160,500
      were used to pay down our Term Loan Credit Facility.




**Note
      2****4 — 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 $140.8
      million, $159.7 million and $167.3 million for the years ended December 31,
      2004, 2005 and 2006, respectively.




Revenue
      was generated in the following principal foreign geographic areas:




**Year
                  December 31,****Country**
              
              **2004**
              
              **2005**
              
              **2006**Brazil
              
              $
              45,651,573
              
              $
              50,922,219
              
              $
              52,254,353Japan
              
              
              22,416,220
              
              
              27,102,181
              
              
              33,424,214Chile
              
              
              16,516,395
              
              
              21,602,403
              
              
              15,249,919Peru
              
              
              12,819,836
              
              
              16,311,236
              
              
              16,825,238United
                  Arab Emirates
              
              
              7,643,242
              
              
              655,879
              
              
              9,415,493Venezuela
              
              
              8,468,493
              
              
              12,327,840
              
              
              8,516,162Korea
              
              
              8,638,296
              
              
              6,633,213
              
              
              6,022,940China
              
              
              7,503,819
              
              
              11,815,693
              
              
              16,171,405Others
              
              
              11,104,849
              
              
              12,318,362
              
              
              9,402,693**$**
              **140,762,723**
              
              **$**
              **159,689,026**
              
              **$**
              **167,282,417**




Table
          of Contents
 F-32


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 7.3% and 10.4% of charter hire receivables at December
      31, 2005 and December 31, 2006, respectively. One customer accounted for 6.3%,
      12.1% and 15.1% of voyage and time charter revenue for the year ended December
      31, 2004, 2005 and 2006, respectively.




**Note
      2****5 — Subsequent Events**




**Sale-leaseback**




On
      January 30, 2007, the Company, through its wholly owned
      subsidiaries Fairfax Shipping Corp. ("Fairfax") and Beekman Shipping Corp.
      ("Beekman") each sold and leased back a vessel pursuant to a sale-leaseback
      arrangement. Net proceeds from the transactions after expenses and deposits
      were
      $38.6 million. Fairfax sold the vessel *Seminole
      Princess* to
      Adirondack Shipping LLC ("Adirondack") for $23.0 million, and Beekman sold
      the
      vessel *Laguna
      Belle* to
      Rushmore Shipping LLC ("Rushmore") for $22.0 million each pursuant to a
      memorandum of agreement. Fairfax had taken delivery of the vessel *Seminole
      Maiden* (formerly the *Clipper
      Flamingo* )
      for
      $23.1 million on November 10, 2006. Beekman had taken delivery of the
      vessel *Laguna
      Belle* (formerly the *Clipper
      Frontier* )
      for
      $22.0 million on November 15, 2006. Under the sale-leaseback arrangement,
      Fairfax entered into a seven-year bareboat charter with Adirondack and Beekman
      entered into a seven-year bareboat charter with Rushmore for their respective
      vessels. The charters will be classified as operating leases. Proceeds from
      the
      sale were used to repay advances outstanding under the revolving credit
      facility.




**Vessel
      contracted for sale**




On
      January 26, 2007, the Company signed a Memorandum of Agreement to sell
      the multipurpose tweendecker *Maya
      Princess* for
      $13.0 million. On January 31, 2007, a 10% percent deposit of $1.3 million was
      received. The vessel is expected to be delivered in March 2007. The
      proceeds will be used to pay for part of the acquisition cost of the *Blu
      Mistral II*.





**Addition
      to credit facility**




On
      January 23, 2007, we added an additional $20.0 million under the existing $140.0
      million syndicated credit facility. The revolving credit facility was increased
      by $15.0 million to $80.0 million from $65.0 million, and we borrowed an
      additional $5.0 million under the term credit facility. In connection with
      the
      increase to the credit facility, the credit agreement dated July 31, 2006,
      was
      amended to include Exeter Shipping Corp. as a borrower and include the vessel *Alabama
      Belle* as
      additional collateral.





**Purchase
      Commitment**




We
      entered into purchase agreements with a Chinese shipyard effective February
      28, 2007 to build six newly- designed
      multipurpose tweendeck vessels. The agreements provide for a contract purchase
      price of $35.4 million per vessel, and for the delivery of two vessels in 2009
      and four vessels in 2010. The agreements are subject to us obtaining
      satisfactory bank financing, which we are currently negotiating.




Table
          of Contents
 F-33


**Note
      26 — Selected Quarterly Financial Information (unaudited)**




The
      following information is presented as supplementary financial information for
      2006 and 2005 (in thousands, except per share information):


**Year
                  Ended December 31, 2006****First
                  Quarter**
                **as
                  originally**
                **reported**
              
              **First
                  Quarter**
                **as
                  adjusted (b)**
              
              **Second
                  Quarter**
                **as
                  originally**
                **reported**
              
              **Second
                  Quarter**
                **as
                  adjusted (b)**
              
              **Third
                  Quarter**
                **as
                  originally**
                **reported**
              
              **Third
                  Quarter**
                **as
                  adjusted (b)**
              
              **Fourth
                  Quarter**Revenue
              
              $
              63,755
              
              $
              63,755
              
              $
              58,995
              
              $
              58,995
              
              $
              65,402
              
              $
              65,402
              
              $
              65,434Income
                  from operations
              
              $
              10,123
              
              $
              10,808
              
              $
              8,574
              
              $
              9,133
              
              $
              15,306
              
              $
              15,867
              
              $
              16,375Net
                  income available for common shareholders(a)
              
              $
              7,312
              
              $
              7,997
              
              $
              6,375
              
              $
              6,934
              
              $
              9,214
              
              $
              9,775
              
              $
              14,354Net
                  income per share:(a)Basic
              
              $
              0.26
              
              $
              0.29
              
              $
              0.23
              
              $
              0.25
              
              $
              0.33
              
              $
              0.35
              
              $
              0.51Diluted
              
              $
              0.26
              
              $
              0.28
              
              $
              0.23
              
              $
              0.25
              
              $
              0.33
              
              $
              0.35
              
              $
              0.51




**Year
                  Ended December 31, 2005****First
                  Quarter**
                **as
                  originally**
                **reported**
              
              **First
                  Quarter**
                **as
                  adjusted (b)**
              
              **Second
                  Quarter**
                **as
                  originally**
                **reported**
              
              **Second
                  Quarter**
                **as
                  adjusted (b)**
              
              **Third
                  Quarter**
                **as
                  originally**
                **reported**
              
              **Third
                  Quarter**
                **as
                  adjusted (b)**
              
              **Fourth
                  Quarter**
                **as
                  originally**
                **reported**
              
              **Fourth
                  Quarter**
                **as
                  adjusted (b)**Revenue
              
              $
              60,909
              
              $
              60,909
              
              $
              60,521
              
              $
              60,521
              
              $
              59,019
              
              $
              59,019
              
              $
              67,582
              
              $
              67,582Income
                  from operations
              
              $
              17,792
              
              $
              18,383
              
              $
              15,786
              
              $
              16,127
              
              $
              14,855
              
              $
              15,463
              
              $
              13,435
              
              $
              14,277Net
                  income available for common shareholders(a)
              
              $
              11,895
              
              $
              12,329
              
              $
              10,667
              
              $
              10,931
              
              $
              12,277
              
              $
              12,885
              
              $
              11,047
              
              $
              11,889Net
                  income per share:(a)Basic
              
              $
              0.84
              
              $
              0.87
              
              $
              0.62
              
              $
              0.64
              
              $
              0.44
              
              $
              0.46
              
              $
              0.39
              
              $
              0.42Diluted
              
              $
              0.58
              
              $
              0.60
              
              $
              0.52
              
              $
              0.53
              
              $
              0.44
              
              $
              0.46
              
              $
              0.39
              
              $
              0.42




(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’ net
                income available for common shareholders and net income per share
                will not
                equal the annual earnings per share. See note "19 — Earnings per share."





(b)
            In
                the fourth quarter of 2006, the method of accounting for drydocking
                costs
                was changed to the deferral method whereas in previously reported
                quarters in 2006 drydocking costs were accounted for using the accrual
                method. Under the deferral method of accounting for drydocking, the
                actual
                costs incurred are deferred and are amortized on a straight-line
                basis
                over the period through the date of the next drydocking. The new
                method of
                accounting for drydocking costs was adopted because of changes made
                on
                September 8, 2006, to certain provisions in the American Institute
                of
                Certified Public Accountants**("AICPA"), Industry Audit
                Guide, *Audits of Airlines*("Airline Guide") by FASB. The Airline
                Guide is the principal source of guidance on the accounting for planned
                major maintenance and is relevant to the maritime industry.
                Comparative consolidated financial statements of prior years have
                been
                adjusted to apply the new method retrospectively. The effect of the
                change
                on the first, second and third quarters of 2006 and all quarters
                in 2005
                is noted in the "as adjusted"
                columns.




Table
          of Contents
 F-34




**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
      12 th day of
      March  2007.




**TBS
                INTERNATIONAL LIMITED**(Registrant)/s/
                Joseph E.
                RoyceJoseph
                E. Royce
              President
                and Chief Executive Officer/s/
                Ferdinand V.
                LepereFerdinand
                V. Lepere
              Executive
                Vice President, Chief Financial and 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 12 th day of
      March 2007 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/
                  Peter S.
                  Shaerf
            
            /s/
                  William P.
                  HarringtonPeter
                S. Shaerf, Director
            
            William
                P. Harrington, Director



























F-35