**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**


(Mark
      One)


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




**For
      the quarterly period ended June 30, 2006**




or




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




For
      the
      transition period from  to




**Commission
      File Number 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)




Former
                name, former address and former fiscal year, if changed since last
                report)




Indicate
                by check mark whether the registrant (1) has filed all reports
                required to be filed by Section 13 or 15(d) of the Securities
                Exchange Act of 1934 during the preceding 12 months (or for such
                shorter
                period that the registrant was required to file such reports), and
                (2) has been subject to such filing requirements for the past 90
                days. YesxNo ̈Indicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer or a non-accelerated filer. (See definition of
                “accelerated filer and large accelerated filer”) in Rule 12b-2 of the
                Act).
              Large
                Accelerated Filer ̈Accelerated
                Filer ̈Non-accelerated
                FilerxIndicate
                by check markwhether
                the registrantis
                a shell company (as defined by Rule 12b-2 of the Act).
                Yes ̈Nox





As
                of August 1, 2006, the registrant had outstanding 14,319,996 Class
                A
                common shares, par value $0.01 per share, and 13,404,461 Class B
                common
                shares, par value $0.01 per share.







**TBS
                INTERNATIONAL LIMITED****2006
                FORM 10-Q****Table
                of Contents****Page****PART
                I:  FINANCIAL INFORMATION**Item
                1
            Financial
                StatementsConsolidated
                Balance Sheets as of December 31, 2005
                and June 30, 2006 (Unaudited)
            
            3Consolidated
                Statements of Income (Unaudited) for
                the three and six months ended June 30, 2005 and June 30,
                2006
            
            4Consolidated
                Statements of Cash Flows (Unaudited) for
                the six months ended June 30, 2005 and June 30, 2006
            
            5Consolidated
                Statement of Changes in
                Shareholders' Equity (Unaudited) for the six months ended June 30,
                2006
            
            6Notes
                to Consolidated Financial
                Statements
            
            7Item
                2
            Management’s
                Discussion and Analysis of
                Financial Condition and Results of Operations
            
            19Item
                3
            Quantitative
                and Qualitative Disclosure
                About Market Risk
            
            39Item
                4
            Controls
                and
                Procedures
            
            39**PART
                II:  OTHER INFORMATION**Item
                1
            Legal
                Proceedings
            
            39Item
                1A
            Risk
                Factors
            
            40Item
                2
            Changes
                in Securities, Use of Proceeds and
                Issuers Purchases of Equity Securities
            
            40Item
                3
            Defaults
                Upon Senior Securities
            
            40Item
                4
            Submission
                of Matters to a Vote of
                Security Holders
            
            40Item
                5
            Other
                Information
            
            41Item
                6
            Exhibits
            
            41Signatures
            
            42

































**Part
        I.    FINANCIAL INFORMATION**
  **Item
        1.    Financial
        Statements**
 **TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES**
 CONSOLIDATED
        BALANCE SHEETS
 **December
                  31,**
              
              **June
                  30,****2005**
              
              **2006****Assets**
              
              
              
              
              
              **(Unaudited)**Current
                assetsCash
                and cash equivalents
              
              $
              27,157,681
              
              $
              11,716,920Charter hire receivable,
                net
                of allowance of $694,214 in 2005and $468,546
                in 2006
              
              
              25,548,113
              
              
              16,802,217Claims
                receivable
              
              
              457,087
              
              
              1,809,356Due
                  from agents
              
              
              570,763
              
              
              1,586,639Other
                  receivables
              
              
              398,246
              
              
              559,948Fuel
                  and other inventories
              
              
              7,635,432
              
              
              6,747,417Prepaid
                  expenses
              
              
              2,186,500
              
              
              2,039,457Advances
                  to affiliates
              
              
              9,841
              
              
              304,395Total
                current assets
              
              
              63,963,663
              
              
              41,566,349Restricted
                  cash
              
              
              532,500
              
              
              532,500Vessels, net of accumulated
                depreciation of $42,420,572 in 2005and
                $55,630,644 in 2006
              
              
              266,930,678
              
              
              273,496,992Other fixed assets, net
                of
                accumulated amortization of $917,299 in 2005and
                $1,326,024 in 2006
              
              
              2,589,232
              
              
              4,296,721Goodwill
              
              
              8,425,935
              
              
              8,425,935Investment
                in joint venture
              
              
              -
              
              
              532,248Total
                assets
              
              $
              342,442,008
              
              $
              328,850,745**Liabilities
                  and Shareholders' Equity**Current
                  liabilitiesDebt,
                  current portion
              
              $
              31,458,053
              
              $
              30,192,970Obligations
                  under capital lease, current portion
              
              
              3,348,340
              
              
              3,854,741Accounts
                  payable
              
              
              4,726,588
              
              
              4,636,501Accrued
                  expenses
              
              
              25,958,807
              
              
              19,071,803Voyages
                  in progress
              
              
              2,118,901
              
              
              1,481,560Advances
                  from affiliates
              
              
              1,408,658
              
              
              115,013Total
                current liabilities
              
              
              69,019,347
              
              
              59,352,588Debt,
                  long-term portion
              
              
              74,279,409
              
              
              58,356,876Obligations
                  under capital lease, net of current portion
              
              
              21,354,681
              
              
              19,370,839Total
                liabilities
              
              
              164,653,437
              
              
              137,080,303COMMITMENTS
                  AND CONTINGENCIES (Note 12)
      Shareholders'
                  equityCommon
                shares, New Class A, $.01 par value, 75,000,000 authorized,14,319,996
                shares issued and outstanding
              
              
              142,905
              
              
              143,200Common
                shares, New Class B, $.01 par value, 30,000,0000 authorized,13,404,461shares
                issued and outstanding
              
              
              134,045
              
              
              134,045Warrants
              
              
              20,747
              
              
              20,747Additional
                  paid-in capital
              
              
              87,585,744
              
              
              87,880,449Retained
                  earnings
              
              
              89,905,130
              
              
              103,592,001Total
                shareholders' equity
              
              
              177,788,571
              
              
              191,770,442Total
                liabilities and shareholders' equity
              
              $
              342,442,008
              
              $
              328,850,745
 Table
              of Contents
 3
 **TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES**
 CONSOLIDATED
        STATEMENTS OF INCOME (UNAUDITED)
   **Three
                  Months Ended June 30,**
              
              **Six
                  Months Ended June 30,****2005**
              
              **2006**
              
              **2005**
              
              **2006****Revenue**Voyage
                revenue
              
              $
              43,984,528
              
              $
              43,808,380
              
              $
              90,119,864
              
              $
              93,127,669Time
                charter revenue
              
              
              16,450,918
              
              
              14,826,051
              
              
              31,224,645
              
              
              28,996,357Other
                revenue
              
              
              85,256
              
              
              360,122
              
              
              85,256
              
              
              625,599Total
                revenue
              
              
              60,520,702
              
              
              58,994,553
              
              
              121,429,765
              
              
              122,749,625**Operating
                expenses**Voyage
              
              
              18,017,171
              
              
              19,170,726
              
              
              36,321,893
              
              
              41,907,648Vessel
              
              
              16,484,292
              
              
              17,798,958
              
              
              36,183,231
              
              
              36,429,961Depreciation
                and amortization of vesselsand
                other fixed assets
              
              
              3,926,296
              
              
              6,874,060
              
              
              6,305,461
              
              
              13,348,320Management
                fees
              
              
              1,299,180
              
              
              -
              
              
              2,565,756
              
              
              -General
                and administrative
              
              
              5,007,805
              
              
              6,577,308
              
              
              6,470,483
              
              
              12,366,849Total operating expenses
              
              
              44,734,744
              
              
              50,421,052
              
              
              87,846,824
              
              
              104,052,778Income
                from operations
              
              
              15,785,958
              
              
              8,573,501
              
              
              33,582,941
              
              
              18,696,847**Other
                (expenses) and income**Interest
                expense
              
              
              (2,130,081
              )
              
              (2,695,802
              )
              
              (3,804,065
              )
              
              (5,612,143
              )Other
                income
              
              
              101,562
              
              
              497,456
              
              
              171,921
              
              
              602,167Total other expenses, net
              
              
              (2,028,519
              )
              
              (2,198,346
              )
              
              (3,632,144
              )
              
              (5,009,976
              )Net
                  income
              
              
              13,757,439
              
              
              6,375,155
              
              
              29,950,797
              
              
              13,686,871Amount
                allocated to participating preferred shareholders
              
              
              (3,090,377
              )
              
              -
              
              
              (7,291,456
              )
              
              -Net
                income available for common shareholders
              
              $
              10,667,062
              
              $
              6,375,155
              
              $
              22,659,341
              
              $
              13,686,871Earnings
                per shareNet
                  income per common shareBasic
              
              $
              0.62
              
              $
              0.23
              
              $
              1.45
              
              $
              0.49Diluted
              
              $
              0.52
              
              $
              0.23
              
              $
              1.11
              
              $
              0.49Weighted
                  average common shares outstandingBasic
              
              
              17,196,186
              
              
              27,984,458
              
              
              15,655,166
              
              
              27,984,136Diluted
              
              
              20,555,063
              
              
              28,088,310
              
              
              20,470,887
              
              
              28,088,310
     Table
            of Contents
 4
 **TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES**
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS (UNAUDITED)
 **Six
                  months ended June 30,****2005**
              
              **2006****Cash
                  flows from operating
                  activities**Net
                income
              
              $
              29,950,797
              
              $
              13,686,871Adjustments
                  to reconcile net income to net cashprovided by operating
                activitiesDepreciation and
                amortization
              
              
              6,305,461
              
              
              13,618,797Non cash stock based
                compensation
              
              
              1,069,000
              
              
              147,500Loss in joint venture
              
              
              -
              
              
              26,601Changes in operating assets
                and
                liabilities(Increase) decrease in charter hire
                receivable
              
              
              (1,623,780
              )
              
              8,745,896(Increase) in claims receivable
              
              
              (17,167
              )
              
              (1,352,269
              )(Increase) in due from agents
              
              
              (50,735
              )
              
              (1,015,876
              )(Increase) in other receivables
              
              
              (1,767
              )
              
              (161,702
              )(Increase) decrease in fuel and other
                inventories
              
              
              (1,010,793
              )
              
              888,015Decrease in prepaid expenses
              
              
              514,494
              
              
              147,043Increase (decrease) in accounts
                payable
              
              
              1,510,852
              
              
              (90,087
              )Increase (decrease) in accrued
                expenses
              
              
              5,856,100
              
              
              (6,739,504
              )(Decrease) in voyages in progress
              
              
              (221,204
              )
              
              (637,341
              )Increase (decrease) in advances from/to
                affiliates, net
              
              
              232,912
              
              
              (1,588,199
              )Net
                  cash provided by operating activities
              
              
              42,514,170
              
              
              25,675,745**Cash
                  flows from investing activities**Vessels
                acquisition/capital improvement costs
              
              
              (111,079,434
              )
              
              (21,892,600
              )Deposits
                  for vessel purchases
              
              
              (1,550,000
              )
              
              -Restricted
                  cash for litigation
              
              
              (750,000
              )
              
              -Payment
                  for purchase of TBS Shipping Services Inc and Roymar ShipManagement
                  Inc., net cash acquired of $801,594
              
              
              (6,698,406
              )
              
              -Investment
                  in joint venture
              
              
              -
              
              
              (558,849
              )Net
                  cash used in investing activities
              
              
              (120,077,840
              )
              
              (22,451,449
              )**Cash
                  flows from financing activities**Dividends
                  paid
              
              
              (150,000
              )
              
              -Proceeds
                  on sale of TBS International Limited shares owned by
                  subsidiaries
              
              
              795,336
              
              
              -Proceeds
                  from issuance of shares in initial public offering and exercise
                  ofseries
                  A warrants,
                net
                  of
                  offering costs
              
              
              61,074,419
              
              
              -Repayment
                  of debt principal
              
              
              (11,226,978
              )
              
              (17,187,616
              )Proceeds
                  from debt
              
              
              60,300,000
              
              
              -Proceeds
                  from revolving debt facility
              
              
              12,000,000
              
              
              -Repayment
                  of revolving debt facility
              
              
              (12,000,000
              )
              
              -Reduction
                  of obligations under capital leases
              
              
              (4,286,170
              )
              
              (1,477,441
              )Net
                  cash provided by (used in) financing activities
              
              
              106,506,607
              
              
              (18,665,057
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              28,942,937
              
              
              (15,440,761
              )Cash
                  and cash equivalents beginning of period
              
              
              21,674,204
              
              
              27,157,681Cash
                  and cash equivalents end of period
              
              $
              50,617,141
              
              $
              11,716,920**Supplemental
                  cash flow information**Interest
                  paid
              
              $
              3,548,476
              
              $
              4,569,299
  Table
            of Contents
 5
 **TBS
        INTERNATIONAL LIMITED. AND SUBSIDIARIES**
 CONSOLIDATED
        STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
 
 
 **Additional****Common
                  Shares**
              
              **Warrants**
              
              **Paid-in**
              
              **Retained****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Earnings**
              
              **Total**Balance
                  at December 31, 2005
              
              
              27,694,957
              
              $
              276,950
              
              
              288,853
              
              $
              20,747
              
              $
              87,585,744
              
              $
              89,905,130
              
              $
              177,788,571Shares
                  issued under 2005 Equity Incentive Plan
              
              
              29,500
              
              
              295
              
              
              
              
              
              
              
              
              294,705
              
              
              
              
              
              295,000Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              13,686,871
              
              
              13,686,871Balance
                    at June 30, 2006
              
              
              27,724,457
              
              $
              277,245
              
              
              288,853
              
              $
              20,747
              
              $
              87,880,449
              
              $
              103,592,001
              
              $
              191,770,442
 
                       
 
 Table
            of Contents
 6
  **TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATMEMENTS**
  **Note
        1 — Basis of Presentation**
  TBS
        International Limited (the "Company" or "our") is an ocean transportation
        services company that offers worldwide shipping solutions through liner,
        parcel and bulk
        services, and vessel chartering. Substantially all the related corporations
        of
        the Company are foreign corporations and conduct their business operations
        worldwide. The accompanying unaudited consolidated financial statements have
        been prepared in accordance with generally accepted accounting principles
        for
        interim financial information and with the instructions to Form 10-Q and
        Article
        10 of Regulation S-X. Accordingly, they do not include all of the information
        and footnotes required by generally accepted accounting principles for complete
        financial statements. In the opinion of management, all adjustments (consisting
        of normal recurring accruals) considered necessary for a fair presentation
        have
        been included. Operating results for the six month period ended June 30,
        2006
        are not necessarily indicative of the results that may be expected for the
        year
        ended December 31, 2006.
  The
        consolidated balance sheet at December 31, 2005 has been derived from the
        audited financial statements at that date, but does not include all of the
        information and footnotes required by generally accepted accounting principles
        for complete financial statements.
  For
        further information, refer to the consolidated financial statements and
        footnotes thereto for the year ended December 31, 2005 included in the Company's
        filing on Form 10-K filed on March 16, 2006.
  **Note
        2 — New Accounting Pronouncements**
  In
        July 2006, the Financial Accounting Standards Board ("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. The Company is in the
        process of determining the effect, if any, the adoption of FIN 48 will have
        on
        its consolidated financial statements.
  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
 7
  In
        December 2004, the FASB issued SFAS No. 123R, " *Share-Based
        Payment* "
        ("SFAS
        123R"). SFAS No. 123R revises previously issued SFAS 123 " *Accounting
        for Stock-Based Compensation* ,"
        supersedes APB No. 25 " *Accounting
        for Stock Issued to Employees,* ", and
        amends SFAS Statement No. 95 " *Statement
        of Cash Flows.* "
        SFAS
        123R requires the Company to expense the fair value of employee share options
        and other forms of share-based compensation for the annual periods beginning
        after June 15, 2005. The cost will be recognized over the period during which
        an
        employee is required to provide services in exchange for the award. The
        share-based award must be classified as equity or as a liability and the
        compensation cost is measured based on the fair value of the award at the
        date
        of the grant. In addition, liability awards will be re-measured at fair value
        each reporting period. The
        Company 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
        financial position, results of operations or cash flows 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 result in the same amount of compensation expense
        recognized. See Note 10 - Stock Plan.
  **Note
        3 — Acquisition of TBS Shipping Services Inc. and Roymar Ship Management,
        Inc.**
  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 vessel voyage operational management, 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**
   Table
            of Contents
 8
  **Note
        4 — Fuel and Other Inventories**
  Fuel
        and
        other inventories consist of the following:
 
 **Description**
              
              **December
                  31, 2005**
              
              **June
                  30, 2006**Fuel
              
              $
              5,970,795
              
              $
              4,821,978Lubricating
                  oil
              
              
              1,153,277
              
              
              1,460,359Other
              
              
              511,360
              
              
              465,080**Total**
              
              **$**
              **7,635,432**
              
              **$**
              **6,747,417**
  **Note****5 — Vessel Acquisitons**
  On
        May 2,
        2006, the Company acquired the multipurpose tweendecker *Kibishio
        Maru* that
        wa *s* renamed *Aztec Maiden* for
        $8 . 1 million.
  **Note****6 — Advances to / from Affiliates**
  Advances
        to / from affiliates, which are entities related by common shareholders,
        are
        non-interest-bearing, due on demand and expected to be collected or paid
        in the
        ordinary course of business, generally within the year. The Company typically
        advances funds to affiliates in connection with the payment of commissions
        and port agency fees. Advances from affiliates originated primarily from
        amounts due to affiliates for commissions and port agency fees
        earned.
  **Note****7 — Accrued Expenses**
  Accrued
        expenses consist of the following :
 
 **Description**
              
              **December
                  31, 2005**
              
              **June
                  30, 2006**Drydock
              
              $
              4,189,594
              
              $
              5,633,029Voyage
                  and vessel expenses
              
              
              17,695,881
              
              
              12,169,882Payroll
                  and related costs
              
              
              2,554,445
              
              
              705,777Commissions
              
              
              967,745
              
              
              71,169Cargo
                  claim
              
              
              369,999
              
              
              319,999Other
                  expenses
              
              
              181,143
              
              
              171,947**Total**
              
              **$**
              **25,958,807**
              ****
              **$**
              **19,071,803**
 
 The
        drydocking expense for the three and six months ended June 30, 2005 and 2006
        was
        $729,913, $1,118,528,
        $1,584,119 and $2,212,026, respectively.
  Table
            of Contents
 9
 **Note
        8 — Financing**
  The
        Company's
        outstanding debt balances were as follows:
  **Interest
                  Rate at**
                **June
                  30, 2006**
              
              **December
                  31, 2005**
              
              
              **June
                  30, 2006**GMAC
                  credit facility loan,expires
                  June 18, 2009 and February 1, 2010
              
              8.809%
              $
              15,156,250
              
              $
              12,812,501Merrill
                  Lynch credit facility loan,expires
                  September 1, 2009
              
              7.654%
              
              9,641,003
              
              
              7,851,394Merrill
                  Lynch credit facility loan,expires
                  December 16, 2010
              
              7.610%
              
              17,500,000
              
              
              13,236,992The
                  Royal Bank of Scotland creditfacility
                  loan, expires March 23, 2010
              
              6.44%
              
              6,385,000
              
              
              5,875,000AIG
                  credit facility loan,expires
                  March 10, 2010
              
              8.15%
              
              35,180,209
              
              
              30,023,959Bank
                  of America credit facility loan,expires
                  June 10, 2010
              
              7.73%-7.85%
              
              21,875,000
              
              
              18,750,000**Debt
                  balance**
              
              
              $
              **105,737,462**
              
              $
              **88,549,846**
  The
          repayment of debt over the next five years and thereafter is as
          follows:
 2006
                  (July 1, 2006 - December 31, 2006)
              $
              16,127,1942007
              
              25,812,6212008
              
              21,433,8852009
              
              18,688,3192010
              
              6,487,827Thereafter
              
              -$
              **88,549,846**
  **GMAC
        Credit Facility**
  The
        credit facility with GMAC was for the original amount of $22.5 million. The
        Company drew down $15.0 million in July 2004 to replenish the Company's working
        capital in connection with the acquisition of three vessels and $7.5 million
        in
        February 2005 in connection with the acquisition of an additional vessel.
        Interest on loans under the credit facility is at "Adjusted 30-Day LIBOR,"
        as
        defined in the loan agreement, plus 3.75% and is payable monthly in arrears.
        Payments of principal are due monthly over 60 months from the draw down date,
        with half of the amount borrowed due over the first 24 months and the balance
        payable over the remaining 36 months. Loans under the credit facility are
        collateralized by First Preferred Ship Mortgages on the vessels *Mohegan
        Princess* , *Tayrona
        Princess* , *Tuckahoe
        Maiden* and *Taino
        Maiden* and
        assignment of freight revenue and insurance on such vessels.
  Table
            of Contents
 10
 The
        credit facility agreement contains certain financial covenants that require
        the
        Company have fixed charge coverage and funded debt to earnings before interest,
        taxes, depreciation and amortization, (”EBITDA”) ratios within defined limits.
        At June 30, 2006, the Company was in compliance with all covenants except
        for
        the fixed charge coverage ratio; however, loans under the credit facility
        were
        repaid on July 31, 2006, from the proceeds of the new credit facility. See
        Note
        15 - Subsequent Events. Because the loans have been refinanced, the long
        term
        portion of the loans have not been reclassified.
  **Merrill
        Lynch Credit Facility**
  The
        original amount of the credit facility with Merrill Lynch that expires on
        September 1, 2009, was $15.0 million. The Company drew down the full facility
        in
        August 2004, to replenish the Company's working capital in connection with
        the
        acquisition of two vessels. Interest is at 7.654% and is payable monthly.
        Payments of principal are due monthly over 60 months from the draw down date,
        with 55% of the amount borrowed due over the first 24 months and the balance
        payable over the remaining 36 months. The credit facility is collateralized
        by
        First Preferred Ship Mortgages on the vessels *Iroquois
        Maiden* and *Manhattan
        Princess* and
        assignment of freight revenue and insurance on such vessels. On December
        15,
        2005, the credit facility was amended removing the requirement for the Company
        to maintain positive working capital. In addition, the credit facility agreement
        requires minimum collateral coverage and requires mandatory prepayment or
        delivery of additional security in the event that the fair market value of
        the
        mortgaged vessels falls below 160% of the outstanding loan balances. The
        Company
        prepaid approximately $2.3 million on March 24, 2006.
  In
        December 2005, the Company borrowed $17.5 million under a second credit facility
        with Merrill Lynch. The Company drew down the full facility to replenish
        the
        Company's working capital in connection with the acquisition of two vessels.
        Interest is at LIBOR plus 2.5% and is payable monthly. Payments of principal
        are
        due monthly over 60 months from the draw down date, with 55% of the amount
        borrowed due over the first 24 months and the balance payable over the remaining
        36 months. The credit facility is collateralized by First Preferred Ship
        Mortgages on the vessels *Biloxi
        Belle* and *Maori
        Maiden,* assignment of freight revenue and insurance on such vessels, and second
        Preferred Ship Mortgages on the vessels *Iroquois
        Maiden* and *Manhattan
        Princess* and
        second assignments of freight revenue and insurance on such
        vessels.
  The
        loans
        under the credit facility were repaid on July 31, 2006, from the proceeds
        of the
        new credit facility. See Note 15- Subsequent Events. Because the loans have
        been
        refinanced, the long term portion of the loans have not been
        reclassified.
  **The
        Royal Bank of Scotland Credit Facility**
  The
        credit facility with The Royal Bank of Scotland was for the original amount
        of
        $7.15 million. The Company drew down the full facility in December 2004,
        to
        replenish the Company's working capital in connection with the acquisition
        of
        the vessel *Wichita
        Belle* .
        Interest is at LIBOR plus 1.5%, compounded monthly and paid quarterly. Payment
        of principal is due in 20 quarterly installments of $255,000 commencing on
        June
        30, 2005 (six months after drawdown). A balloon installment of $2,050,000
        is
        payable with the last quarterly installment on March 23, 2010. The credit
        facility is collateralized by a First Preferred Ship Mortgage on the vessel *Wichita
        Belle* and
        assignment of freight revenue and insurance. The credit facility requires
        that
        the Company maintain a monthly average of $1,500,000 on deposit with the
        bank.
  **AIG
        Credit Facility**
  The
        original amount of the credit facility with AIG was $45.0 million. The Company
        drew down $23.5 million in March 2005 to replenish the Company's working
        capital
        in connection with the acquisition of four vessels and $21.5 million in April
        2005 in connection with the acquisition of three vessels. Interest on loans
        under the credit facility is at the 90-Day LIBOR plus 3.15% and is payable
        monthly in arrears. Payments of principal are due monthly over 60 months
        from
        the draw down date, with 55% of the amount borrowed due over the first 24
        months
        and the balance payable over the remaining 36 months. Loans under the credit
        facility are collateralized by First Preferred Ship Mortgages on the vessels *Siboney
        Belle* , *Ainu
        Princess* , *Tamoyo
        Maiden* , *Mohawk
        Princess* , *Rockaway
        Belle* , *Tuscarora
        Belle* and *Miami
        Maiden* and
        assignment of freight revenue and insurance on such vessels.
  Table
            of Contents
 11
  The
        credit facility agreement contains certain financial covenants that require
        the
        Company to have fixed charge coverage, debt to EBITDA, EBITDA to debt service,
        debt to net worth ratios and working capital ratios within defined limits.
        The
        agreement also requires that the Company maintain minimum cash and cash
        equivalent balances. At December 31, 2005, the Company was in compliance
        with
        all covenants except for the EBITDA to debt service ratio. The lender agreed
        to
        reduce the required EBITDA to debt service ratio from 2.0 to 1.0 to 1.6 to
        1.0
        at March 31, 2006, June 30, 2006, September 30, 2006 and December 31, 2006,
        after which it will revert to the original ratio requirement.
  At
        June
        30, 2006, the Company was in compliance with the covenants except that the
        Company did not maintain the required minimum cash and cash equivalent balances
        and the working capital ratio was not within the defined limit; however,
        the
        loans under the credit facility were repaid on July 31, 2006, from the proceeds
        of the new credit facility. See Note 15 - Subsequent Events. Because the
        loans
        have been refinanced, the long term portion of the loans have not been
        reclassified.
  **Bank
        of America Credit Facility**
  The
        credit facility with Bank of America was for $25.0 million. The Company drew
        down $7.8 million in June 2005 for working capital use and the balance of
        $17.2
        million on July 21, 2005, to replenish the Company's working capital in
        connection with the acquisition of the vessels *Shinnecock
        Belle,*  *Maya
        Princess* and *Chesapeake
        Belle* .
        Interest on loans under the credit facility is at adjusted LIBOR plus 2.75%
        or a
        base rate, as defined in the agreement, plus 1.25% as selected by the Company
        at
        the time of the drawdown and is payable monthly in arrears. Payments of
        principal are due quarterly over 20 quarters, with 50% of the amount borrowed
        due over the first eight quarters, 40% over the next eight quarters and the
        balance payable over the remaining four quarters. The loan under the credit
        facility is collateralized by First Preferred Ship Mortgages on the vessels *Shinnecock
        Belle,*  *Maya
        Princess* and *Chesapeake
        Belle* and
        assignment of freight revenue and insurance on such vessels.
  The
        credit facility agreement contains certain financial covenants that require
        the
        Company to have fixed charge coverage and debt to EBITDA ratios and net worth
        within defined limits. The agreement also requires that the Company to maintain
        minimum cash and cash equivalent balances. At December 31, 2005, the Company
        was
        in compliance with all covenants except for the EBITDA to debt service ratio.
        On
        March 3, 2006, the Bank of America agreed to amend the credit facility agreement
        to change the method used in calculating the EBITDA to debt service ratio.
        At
        June 30, 2006, the Company was in compliance with the covenants except that
        the
        Company did not maintain the required minimum cash and cash equivalent balances
        and the fixed charge coverage ratio was not within the defined limit; however
        the loans under the credit facility were repaid on July 31, 2006, from the
        proceeds of the new credit facility. See Note 15 - Subsequent Events. Because
        the loans have been refinanced, the long term portion of the loans have not
        been
        reclassified.
  In
        addition, certain of the above credit facility agreements contain restrictive
        covenants which among other things, require minimum collateral coverage,
        restrict the payment of dividends and restrict leverage, investment and capital
        expenditures without consent of the lender. Certain agreements require mandatory
        prepayment or delivery of additional security in the event that the fair
        market
        value of the acquired vessels falls below limits specified in the loan
        agreements. As noted above all loans, with the exception of the credit facility
        with the Royal Bank of Scotland, were repaid on July 31, 2006, from the proceeds
        of the new credit facility. See Note 15 - Subsequent Events.
  **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. A
        new
        revolving credit facility with a syndicate of commercial lenders for $65.0
        million was entered into on July 31, 2006. See Note 15 - Subsequent Events
  Table
            of Contents
 12
  **Note****9 — 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 paid a 7% per annum dividend, payable
        on a quarterly basis. The Company paid a total of 12 quarterly dividend payments
        "in-kind." In-kind dividend payments were added to the recorded value of
        the
        mandatorily redeemable preference shares with an offset to additional paid-in
        capital.
  On
        March
        30, 2004, the Company amended the mandatorily redeemable preference shares
        to
        eliminate the mandatory redemption provisions, remove the payment of dividends,
        establish a semi-annual 15 cents-per-share dividend and permit the conversion,
        at the option of the holder, of each preference share to two old Class C
        common
        shares.
  On
        June
        29, 2005, in connection with the Company's initial public offering, the holders
        of the Company's convertible preference shares exercised their right to convert
        their 1,000,000 issued and outstanding convertible preference shares into
        2,000,000 old Class C common shares. Conversion of the preference shares
        into
        Class C common shares constituted payment in full of the preference
        shares.
  **Other
        Equity Transactions**
  On
        June
        29, 2005, in connection with the Company's initial public offering ,
        the
        Company adopted new corporate bye-laws which resulted in the consolidation
        and
        redesignation of shares. The Company redesignated its 1,500,000 Class A,
        1,500,000 Class B and 3,000,000 Class C common shares (after giving effect
        to
        the conversion of the preference shares) on a 2.5-for-1 basis to 600,000
        old
        Class A, 600,000 old Class B and 1,200,000 old Class C common shares,
        respectively, for the purpose of changing the par value of the Company's
        common
        shares from $.004 per share to $.01 per share, and redesignated the Company's
        outstanding old Class A (600,000 shares), old Class B (600,000 shares) and
        old
        Class C common (1,200,000 shares) shares as 2,400,000 new Class B common
        shares.
        Concurrent to the consolidation and redesignation of common shares, the Company
        issued 2.167 new Class A common shares and 3.20 additional new Class B common
        shares for each new Class B share outstanding.
  **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 the Class B common shares have
        identical rights to dividends, surplus and assets on liquidation; however,
        the
        holders of Class A common shares are entitled to one vote for each Class
        A
        common share on all matters submitted to a vote of holders of common shares,
        while holders of Class B common shares are entitled to one-half of a vote
        for
        each Class B common share.
  The
        holders of Class A common shares can convert their Class A common shares
        into
        Class B common shares, 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 either 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
 13
 **Warrants**
  Warrants
          were issued by the Company in connection with its emergence from bankruptcy
          in
          2001. The warrant agreement includes an anti-dilution provision that adjusts
          the
          number of shares issuable upon exercise of the warrants whenever the Company
          issues additional common shares or engages in similar transactions. The
          Series A
          warrants were exercisable if the first Preferred Ship Mortgage Notes were
          not
          paid in full by February 8, 2005 and, when exercised, would represent
          approximately 27% of the total outstanding shares of the Company on a fully
          diluted basis. The Series B warrants were exercisable if the preference
          shares
          were not paid in full by February 8, 2006 and, when exercised, would represent
          approximately 6% of the total outstanding common shares of the Company
          on a
          fully diluted basis. The Series C warrants were exercisable only if the
          exercise
          conditions of the Series A and Series B warrants were satisfied and, when
          exercised, would represent approximately 7% of the total outstanding common
          shares of the Company.
  The
          first
          Preferred Ship Mortgage Notes were paid on June 29, 2005 and accordingly,
          the
          Series A warrants became exercisable. In connection with the Company’s initial
          public offering, the holders of the Company's convertible preference shares
          exercised their right to convert the convertible preference shares into
          Class C
          Common shares. As the conversion of the preference shares constituted payment
          in
          full of the preference shares, the exercise condition for the Series B
          and
          Series C warrants became incapable of being met as of June 29, 2005. As
          a result
          of the anti-dilution provisions of the warrant agreement, following the
          conversion of all the outstanding preference shares into Class C common
          shares,
          the number of common shares issuable upon exercise of all outstanding Series
          A
          warrants increased from 1,769,231 to 2,167,539 Class C common shares. The
          issuance of 7,000,000 new Class A common shares in connection with the
          initial
          public offering further increased the number of shares issuable upon exercise
          of
          all outstanding Series A warrants from 2,167,539 to 2,901,403 Class C common
          shares. The number of shares issuable under the Series A warrants were
          2,515,368
          new Class A common shares and 4,874,357 new Class B common shares, after
          giving
          effect to the common share conversion that took effect on June 29, 2005
          as
          described above in Other Equity Tranasctions. 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
        June
        30, 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.
  **Note
        1****0 — 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 share s
        that
        can be granted under the incentive plan is 2,000,000 shares. The incentive
        plan
        became effective on the date of the Company’s 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 (CFO), 106,900 restricted
        Class A common shares to employees of Roymar and TBS Shipping services, vesting
        immediately and 4,500 restricted Class A common shares, vesting one year
        after
        issuance, to its independent directors. The weighted average grant date fair
        value per share was $10. The total fair value of share awards that vested
        during
        the three and six months June 30, 2006 was $73,750 and $147,500, respectively.
        The Company’s consolidated financial statements for the three and six months
        ended June 30, 2006, include compensation costs of $62,500 and $125,000,
        respectively, for our Executive Vice President and CFO. The Company’s
        consolidated financial statements for the three and six months ended June
        30,
        2005, include compensation costs of $1.9 million for the restricted shares
        issued to employees of Roymar and TBS Shipping Services under the Equity
        Incentive Plan and associated federal, state and local employment taxes and
        withholding taxes paid by Roymar and TBS Shipping Services. At June 30, 2006,
        there is $750,000 of
        unamortized compensation costs related to non-vested restricted shares awarded
        to our CFO, and the remaining weighted average vesting period over which
        cost is
        expected to be recognized is 3.0 years. The Company’s consolidated financial
        statements for the three and six months ended June 30, 2006, include
        compensation costs of $11,250 and $22,500, respectively, for our independent
        directors. On June 29, 2006 in connection with the vesting of the above
        mentioned share grants, 25,000 Class A common shares were issued to the
        Company’s Executive Vice President and CFO, and 4,500 Class A common shares were
        issued to the independent directors.
  Table
            of Contents
 14
  **Note****11 — Earnings Per Share**
  In
        accordance with FASB Statement (“SFAS”) No. 128, “Earnings per Share,” the
        following table sets forth the computation of basic and diluted net income
        per
        share for the three and six months ended June 30, 2005 and 2006:
 **Three
                    Months Ended June 30,**
                
                **Six
                    Months Ended June 30,****2005**
                
                **2006**
                
                **2005**
                
                **2006****Numerators:**Net
                    income
                
                $
                13,757,439
                
                $
                6,375,155
                
                $
                29,950,797
                
                $
                13,686,871Net
                    income allocated to preference shares
                
                
                (3,090,377
                )
                
                -
                
                
                (7,291,456
                )
                
                -Net
                    income available for common shareholders (basic and
                    diluted)
                
                $
                10,667,062
                
                $
                6,375,155
                
                $
                22,659,341
                
                $
                13,686,871**Denominators:**Basic-weighted
                    average common shares outstanding
                
                
                17,196,186
                
                
                27,984,458
                
                
                15,655,166
                
                
                27,984,136Restricted
                    stock issued to employees
                
                
                2,297
                
                
                103,852
                
                
                1,155
                
                
                104,174Dilutive
                    effect of Series A, B & C warrants
                
                
                3,356,580
                
                
                -
                
                
                4,814,566
                
                
                -Diluted-weighted
                    average common shares and potential common shares
                    outstanding
                
                
                20,555,063
                
                
                28,088,310
                
                
                20,470,887
                
                
                28,088,310**Income
                    per common share:**Basic
                
                $
                0.62
                
                $
                0.23
                
                $
                1.45
                
                $
                0.49Diluted
                
                $
                0.52
                
                $
                0.23
                
                $
                1.11
                
                $
                0.49
  The
        calculation of earnings per share for the three and six months ended June
        30,
        2005, includes 104,500 restricted Class A common shares issued to an officer
        and
        to outside directors on June 29, 2005. The calculation of earnings per share
        for
        the three and six months ended June 30, 2006, includes the remaining 75,000
        restricted Class A common shares issued to the officer on June 29, 2005.
        The
        calculation of earnings per share for the three and six months ended June
        30,
        2005, includes an allocation to preference shares and warrants issued by
        the
        Company as described below.
  As
        described in Note 9 -- Equity Transactions: Preference Shares, each convertible
        preference share was convertible into two Class C common shares. The basic
        earnings per share calculation for the three and six months ended June 30,
        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 FAS 128, *"Earnings
        Per Share"* ,
        The
        Company has allocated the pro-rata share of net income to the convertible
        preference shares on a percentage of total weighted average common shares
        outstanding plus the common-equivalent number of weighted average preferred
        shares outstanding. For the three and six months ended June 30, 2005, the
        convertible preference shares would have added 4,981,944 and 5,037,611 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
 15
 As
        described in Note 9 -- Equity Transactions: Warrants, the Series A warrants
        were
        exercisable for a total of 7,389,725 common shares as adjusted for the
        redesignated and consolidated shares 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. The 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.
  At
        June
        30, 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 and as discussed above, these warrants have been
        treated as outstanding for purposes of basic earnings per share for the three
        and six months ended June 30, 2005 and 2006.
  **Note
        12 — Commitments and Contingencies**
  **Litigation**
  In
        connection with the acquisition of the vessel *Sea
        Pantheon* (renamed *Tamoyo
        Maiden),* the
        Company is seeking damages for the cost of repairs and loss of hire related
        to
        ballast tank contamination discovered after delivery of the vessel. As specified
        in the purchase agreement, the dispute was made in London. The Company, through
        its subsidiary, had an associated vessel that is owned by a company related
        to
        the seller arrested to secure its claim. That vessel was released upon the
        seller providing a bank guarantee in the amount of $2.1 million. The seller
        alleged damages due to the arrest of the associated vessel and the Company,
        as
        required under English law, placed $750,000 on June 6, 2005, as counter-security
        to provide for estimated arbitration/litigation costs. On August 17, 2005,
        legal
        counsel obtained a reduction of $217,500 in the amount of the counter-security
        to $532,500. Arbitration proceedings took place in April 2006 and the Company
        is
        awaiting the decision of the Arbitrator.
 
 The
        Company is periodically a defendant in cases involving personal injury and
        other
        matters that arise in the normal course of business. While any pending or
        threatened litigation has an element of uncertainty, the Company believes
        that
        the outcome of these lawsuits or claims, individually or combined, will not
        materially adversely affect the consolidated financial position, results
        of
        operations or cash flows of the Company.
  **Note
        13 —Joint Venture Agreement**
  In
        November 2005, the Company entered into a joint venture with GMT
        Shipping Line Ltd. to provide liner services to and from the East and North
        Coasts of South America and from and to the West Coast of Africa. The
        Company made a capital investment of $100,000 and loans of $400,000 for a
        50%
        interest in the joint venture. The investment in the joint venture is accounted
        for using the equity method. For the three and six months ended June 30,
        2006,
        the Company’s share of the estimated income or (loss) from the joint venture was
        $2,792 and ($26,601), respectively which is included in other income on the
        consolidated statement of operations.
  **Note
        14 — Business Segment**
  The
        Company is managed as a single business unit that provides worldwide ocean
        transportation of dry cargo to its customers through the use of owned and
        chartered vessels. The
        vessels are operated as one fleet and when making resource allocation decisions,
        our chief operating decision maker evaluates voyage profitability data, which
        considers vessel type and route economics, but gives no weight to the financial
        impact of the resource allocation decision on an individual vessel basis.
        The
        Company's objective in making resource allocation decisions is to maximize
        its
        consolidated financial results, not the individual results of the respective
        vessels or routes.
  The
        Company transports cargo throughout the world, including the U.S. The amount
        of
        voyage revenue generated in countries other than the U.S. is $39.9
        million and $38.4 million and $82.4 million and $81.3 million for the three
        and
        six months ended June 30, 2005 and 2006, respectively.
  Table
            of Contents
 16
  Revenue
        was generated in the following principal geographic areas:
  **Three
                  Months Ended June 30,**
              
              **Six
                  Months Ended June 30,****Country**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**Brazil
              
              $
              12,826,754
              
              $
              11,392,365
              
              $
              27,213,915
              
              $
              26,975,983Japan
              
              
              8,154,774
              
              
              7,065,880
              
              
              14,348,250
              
              
              14,739,520Chile
              
              
              5,202,679
              
              
              4,809,408
              
              
              11,205,549
              
              
              8,564,637Peru
              
              
              4,707,108
              
              
              3,079,125
              
              
              8,982,876
              
              
              7,584,202Venezuela
              
              
              1,578,616
              
              
              2,524,508
              
              
              4,188,674
              
              
              5,076,368Korea
              
              
              1,706,873
              
              
              1,229,023
              
              
              3,297,500
              
              
              3,480,472China
              
              
              2,385,333
              
              
              2,915,562
              
              
              6,235,516
              
              
              6,284,366United
                  Arab Emirates
              
              
              132,944
              
              
              1,802,332
              
              
              132,944
              
              
              2,106,480Others
              
              
              3,239,591
              
              
              3,564,118
              
              
              6,809,564
              
              
              6,526,699**$**
              **39,934,672**
              
              **$**
              **38,382,321**
              
              **$**
              **82,414,788**
              
              **$**
              **81,338,727**
  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 from the United States. Time charter revenue by country
        cannot be allocated because the Company does not control the itinerary of
        the
        vessel.
  Two
        customers accounted for 19.7% and 10.7%, respectively, of charter hire
        receivables at June 30, 2006 and one customer accounted 7.3% of charter hire
        receivables at December 31, 2005. One customer accounted for 13.6%, 10.2%,
        12.2%
        and 14.7 % of voyage and time charter revenue for the three and six months
        ended
        June 30, 2005 and 2006, respectively.
  **Note
        15 — Subsequent Events**
  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 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 made a drawdown on the Term Facility
        of
        $75.0 million and an initial drawdown of $10.0 million on the Revolving Credit
        Facility to repay $80.4 million outstanding
        under term loans with the Existing Lenders and cover costs associated with
        the
        refinancing.
  Upon
        completing the Credit Facility, unamortized deferred financing costs associated
        with existing credit Facilities aggregating $1.3 million were written off
        as a
        non-cash charge in July 2006. Additional costs aggregating $2.2 million were
        paid to the Existing Lenders upon the early payment of the loans and charged
        to
        interest expense in July 2006. In connection with the Credit Facility, the
        Company incurred deferred financing costs of $2.7 million in July 2006 that
        will
        be amortized over the term of the facility.
  Table
            of Contents
 17
  The
        Term
        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 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 of from 2.75% down to 1.25%. The initial margin rate is 2.25%
        and
        becomes adjustable after December 31, 2006 and on or before March 31,
        2007.
  The
        facility is collateralized by, among other things, 24 of the Company’s vessels
        with a carrying value of  $220.1 million, at June 30, 2006, as
        well
        as, the Company’s equity interests in its subsidiaries that own these assets,
        and insurance proceeds of the collateralized vessels. Each subsidiary of
        the
        Company with an ownership interest in these vessels has provided an
        unconditional guaranty.
  The
        Credit Facility 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 make changes in the nature of the business. The credit facility
        agreement contains certain financial covenants which require that the Company
        maintain certain fixed charge and leverage ratios and tangible net worth
        within
        defined limits. The Credit Facility also requires that the Company maintain
        minimum cash and cash equivalent balances and collateral coverage.
  On August 8, 2006, the Company agreed to sell the M.V. Dakota Belle for
          $ 3.225
          million. The company expects to utilize the proceeds to reduce its outstanding
          revolver. The vessel is expected to be delivered in September of 2006.
  Table
            of Contents
 18
 **Item
          2. Management's
          Discussion and Analysis of Financial Condition and Results of
          Operations**
 This
        Quarterly Report on Form 10-Q 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 the Company
        does not make forward-looking statements unless it believes it has a reasonable
        basis for doing so, it 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 disclosed in
        our
        Form 10-K filed March 16, 2006, and other unforeseen risks. You should not
        rely
        on any forward-looking statements.
  **Recent
        Developments**
  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 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. The Term Facility is due in equal
        quarterly installments of $4.7 million through July 2010 and the Revolving
        Credit Facility of $65.0 million is due July 2010.
  On
        August 8, 2006,
        the Company agreed to sell the M.V. Dakota Belle for $ 3.225 million. The
        company expects to utilize the proceeds to reduce its outstanding revolver.
        The
        vessel is expected to be delivered in September of 2006.
  **General**
  The
        following is a discussion of and
        our
        results of operations comparing the three and six months ended June 30, 2006
        with the three and six months ended June 30, 2005 and our financial condition
        atJune 30, 2006 and December 31, 2005. You should read this section in
        conjunction with our consolidated financial statements including the
        related notes to those financial statements included elsewhere in this Quarterly
        Report.
  **Overview**
  We
          are an
          ocean transportation services company that offers worldwide shipping solutions
          through liner, parcel and bulk
          services and vessel chartering. We offer our services globally in more
          than ten
          countries to over 300 customers through a network of affiliated service
          companies.
 Table
            of Contents
 19
   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, fuel, commission expense and stevedore and
                other
                cargo-related expenses.  Our
        historical consolidated financial statements for the period prior to June
        29,
        2005, when we completed our initial public offering, show our results of
        operations as a private company.
  **Components
        of revenue and expense**
  We
        report
        our revenue as voyage revenue, reflecting the operations of our vessels that
        are
        not chartered out, and charter revenue, reflecting the operations of our
        vessels
        that have been chartered out to third parties. Voyage
        revenue and expenses for each reporting period include estimates for voyages
        in
        progress at the end of the period. Estimated profits from voyages in progress
        are recognized on a percentage of completion basis by prorating the estimated
        final voyage revenue and expenses using the ratio of voyage days completed
        through period end to total voyage days. When a loss is forecast for a voyage,
        the full amount of the anticipated loss is recognized in the period in which
        that determination is made. Revenue from time charters in progress is calculated
        using the daily charter hire rate, net of daily expenses, multiplied by the
        number of voyage days on-hire through period end.
  ***Voyage
        revenue*** consists
        of freight charges paid to our subsidiaries for the transport of customers'
        cargo. The key factors driving voyage revenue are the number of vessels in
        the
        fleet, the days on hire, revenue tons and the freight rates.
  ***Time
        charter revenue*** consists
        of a negotiated daily hire rate for the duration of the time charter. The
        key
        factors driving time charter revenue are the number of days that 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 — crewing, stores, lube oil, repairs and maintenance
          including drydock reserves, registration taxes and fees, insurance and
          communication expenses — for vessels we control, charter hire fees we pay to
          owners for use of their vessels and space charters (relets). The costs
          are paid
          by our subsidiaries.
 ***Depreciation
        and
        amortization*** ** expense
        is computed on the basis of 30-year useful lives for our vessels.
  ***Management
        fees*** **** are
        paid
        to Roymar for the technical management of controlled vessels and to TBS Shipping
        Services for the operation of vessels. From June 2005, when we purchased
        all the
        stock of TBS Shipping Services and Roymar, management fees are eliminated
        in
        consolidation. We also paid commissions on freight and time charter hire
        to TBS
        Shipping Services that are also eliminated in consolidation from the date
        we
        acquired these companies. Commissions on freight and port agency fees are
        paid
        to TBS Commercial Group Ltd, a company that is owned by our principal
        shareholders.
  Table
            of Contents
 20
  These
        management fees and commissions were fixed under agreements that originally
        were
        negotiated during our Chapter 11 proceeding with representatives of the holders
        of our then outstanding First Preferred Ship Mortgage Notes and were approved
        by
        our Board of Directors. Renewal of the current management agreements with
        TBS
        Commercial Group Ltd. and approval of any new management agreements or
        amendments to the current management agreements with TBS Commercial Group
        Ltd.
        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, other than inspection of the physical
        condition of the vessels and examinations of classification society records,
        there is no historical financial due diligence process when we acquire vessels.
        Accordingly, we do not obtain the historical operating data for the vessels
        from
        the sellers because that information is not material to our decision to make
        acquisitions, nor do we believe it would be helpful to potential investors
        in
        our common shares in assessing our business or profitability.
 
 Most
        vessels are sold under a standardized agreement, which, among other things,
        provides the buyer with the right to inspect the vessel and the vessel's
        classification society records. The standard agreement does not give the
        buyer
        the right to inspect, or receive copies of, the historical operating data
        of the
        vessel and does not provide for financial information or historical results
        for
        the vessels to be made available to the buyer. Prior to the delivery of a
        purchased vessel, the seller typically removes from the vessel all records,
        including past financial records and accounts related to the vessel. In
        addition, the technical management agreement between the seller's technical
        manager and the seller is automatically terminated and the vessel's trading
        certificates are revoked by its flag state following a change in
        ownership.
  Consistent
        with shipping industry practice, we treat the acquisition of a vessel, whether
        acquired with or without charter, as the acquisition of an asset rather than
        a
        business. Due to the differences between 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.
  EITF
        98-3
        states that "for a transferred set of activities and assets to be a business,
        it
        must contain all of the inputs and processes necessary for it to continue
        to
        conduct normal operations after the transferred set is separated from the
        transferor, which includes the ability to sustain a revenue stream
        by
        providing its output to customers." The purchase of a vessel alone cannot
        operate or generate revenue or constitute a business operation without the
        significant inputs and processes that we provide, as described
        below:
  •
              We
                  provide our own captains, senior officers and crew to the
                  vessels.•
              The
                  vessels are managed by our subsidiary Roymar. All of the functions
                  of
                  vessel management, from technical ship management to crewing, vessel
                  maintenance and drydocking, are conducted by Roymar, in a manner
                  different
                  from the prior manager, according to our exacting
                  standards.•
              The
                  necessary commercial activities — maintaining customer relationships,
                  providing local teams of commercial agents and port captains, offering
                  transportation management skills and logistics solutions — are provided by
                  our subsidiary TBS Shipping Services and our affiliate TBS Commercial
                  Group in a manner different from the former owners.•
              The
                  vessels will operate under our trade name and carry our distinctive
                  Native
                  American Indian tribe naming
                  convention.
  Table
            of Contents
 21
  The
        revenue-producing activity of the vessels we purchase will be generated from
        carrying cargoes for our customers on the routes we serve. The vessels we
        purchased are operated by different parties than their former owners, serve
        different customers, carry different cargoes, charge different rates, cover
        different routes and, in all respects engage in a different business with
        different revenues, costs and operating margins.
  In
        short,
        all of the most important elements of operating the assets — in fact, all of the
        elements of the business of ocean transportation other than the vessels
        themselves — are not being purchased with the vessels but will depend on our
        skill and expertise.
  **Results
        of Operations**
  ***Comparison
        of the three months ended June 30, 2005 and June 30,
        2006***
  **Three
                    Months Ended**
                
                **Three
                    Months Ended****June
                    30, 2005**
                
                **June
                    30, 2006**
                
                **Increase
                    (Decrease)****In
                    Thousands**
                
                **As
                    a % of Total Revenue**
                
                **In
                    Thousands**
                
                **As
                    a % of Total Revenue**
                
                **In
                    Thousands**
                
                **Percentage**Voyage
                    revenue
                
                $
                43,985
                
                
                72.7
                
                $
                43,808
                
                
                74.3
                
                $
                (177
                )
                
                (0.4
                )Time
                    charter revenue
                
                
                16,451
                
                
                27.2
                
                
                14,827
                
                
                25.1
                
                
                (1,624
                )
                
                (9.9
                )Other
                    revenue
                
                
                85
                
                
                0.1
                
                
                360
                
                
                0.6
                
                
                275Total
                  revenue
                
                
                60,521
                
                
                100.0
                
                
                58,995
                
                
                100.0
                
                
                (1,526
                )
                
                (2.5
                )Voyage
                    expense
                
                
                18,017
                
                
                29.8
                
                
                19,171
                
                
                32.5
                
                
                1,154
                
                
                6.4Vessel
                    expense
                
                
                16,484
                
                
                27.2
                
                
                17,799
                
                
                30.2
                
                
                1,315
                
                
                8.0Depreciation
                    and amortization
                
                
                3,926
                
                
                6.5
                
                
                6,874
                
                
                11.6
                
                
                2,948
                
                
                75.1Management
                    fees
                
                
                1,299
                
                
                2.1
                
                
                -
                
                
                -
                
                
                (1,299
                )General
                    and administrative
                
                
                5,009
                
                
                8.3
                
                
                6,577
                
                
                11.1
                
                
                1,568
                
                
                31.3Total
                    operating expenses
                
                
                44,735
                
                
                73.9
                
                
                50,421
                
                
                85.4
                
                
                5,686Income
                    from operations
                
                
                15,786
                
                
                26.1
                
                
                8,574
                
                
                14.6
                
                
                (7,212
                )
                
                (45.7
                )Other
                    (expenses) and incomeInterest
                    expense
                
                
                (2,130
                )
                
                (3.5
                )
                
                (2,696
                )
                
                (4.6
                )
                
                (566
                )
                
                26.6Other
                    income
                
                
                101
                
                
                0.2
                
                
                497
                
                
                0.8
                
                
                396Net
                    income
                
                $
                13,757
                
                
                22.8
                
                $
                6,375
                
                
                10.8
                
                $
                (7,382
                )
                
                (53.7
                )
 **Voyage
          revenue**
 
 Voyage revenue
          for the three months ended June 30, 2006 as compared to the comparable
          period in
          2005 was relatively flat. As mentioned in c omponents
          of revenue and expense above,
          the key factors driving voyage revenue are the number of vessels in the
          fleet,
          the days on hire and the freight rates.
 Table
            of Contents
 22
 Revenue
          tons carried for the three months ended June 30, 2006 as
          compared to the
          comparable period in 2005, increased 329 ,633
          tons
          or 46.8% to 1,033,488 tons for the three months ended June 30, 2006 from
          703,855
          tons for the same period in 2005. A substantial part of the increase in
          r evenue
          tons is due to an increase in aggregates bulk cargo carried.
  Freight
        rates for the three months ended June 30, 2006 as
        compared to the
        comparable period in 2005, decreased $20.10
        per ton or 32.2% to $42.39 per ton in the second quarter of 2006 from $62.49
        per
        ton for the same period in 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. For the three months ended June 30, 2006, and 2005,
        we had
        contracts of affreightment, expiring through the end of 2006 and early 2007,
        under which we carried approximately 480,000 and 102,000 revenue tons and
        generated $15.5 million and $6.9 million of voyage revenue, respectively. During
        the three months ended June 30, 2005 demand for dry bulk ocean shipping remained
        high due largely to the expansion of economies in East Asia, especially China.
        Beginning in the second half of 2005, freight rates began to decline from
        the
        levels reached earlier in the year as demand, except for aggregates, declined.
  Included
        in voyage revenue is revenue from high-volume, low-freighted aggregates bulk
        cargo. Excluding this type of bulk cargo, of which we carried 269,887 tons
        and
        16,515 tons during the second quarter of 2006 and 2005, respectively, average
        freight rates would have been $53.44 and $63.80, 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 in freight rates for
        the
        three months ended June 30, 2005 and 2006 are
        as
        follows:
  **Three
                  Months Ended June 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Number
                  of vessels (1)
              
              
              17
              
              
              21
              
              
              4
              
              
              23.5
              %Freight
                  voyage days (2)
              
              
              1,536
              
              
              1,866
              
              
              330
              
              
              21.5
              %Days
                  on hire (3)
              
              
              1,602
              
              
              2,102
              
              
              500
              
              
              31.2
              %Freight
                  Rates (4)For
                  all cargoes
              
              $
              62.49
              
              $
              42.39
              
              $
              (20.10
              )
              
              -32.2
              %Excluding
                  aggregates
              
              $
              63.80
              
              $
              53.44
              
              $
              (10.36
              )
              
              -16.2
              %
 _____
  (1)
              Weighted
                  average number of vessels in the fleet, not including off-hire
                  days and
                  not including vessels time chartered out.(2)
              Number
                  of days that our vessels were earning revenue, not including vessels
                  time
                  chartered out.(3)
              Not
                  including vessels time chartered out.(4)
              Weighted
                  average freight rates measured in dollars per
                  ton.
 
 Table
            of Contents
 23
 The
        following table shows revenues attributed to our principal cargoes:
 **Three
                    Months Ended**
                  **June
                    30, 2005**
                
                **Three
                    Months Ended**
                  **June
                    30, 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
                
                $
                18,428
                
                
                41.9
                
                $
                15,403
                
                
                35.2
                
                $
                (3,025
                )
                
                (16.4
                )Metal
                    concentrates
                
                
                7,170
                
                
                16.3
                
                
                6,729
                
                
                15.4
                
                
                (441
                )
                
                (6.2
                )Fertilizers
                
                
                2,766
                
                
                6.3
                
                
                1,379
                
                
                3.1
                
                
                (1,387
                )
                
                (50.1
                )Other
                    bulk cargo
                
                
                10,562
                
                
                24.0
                
                
                10,813
                
                
                24.7
                
                
                251
                
                
                2.4Agricultural
                    products
                
                
                2,631
                
                
                6.0
                
                
                7,408
                
                
                16.9
                
                
                4,777
                
                
                181.6Automotive
                    products
                
                
                1,031
                
                
                2.3
                
                
                1,275
                
                
                2.9
                
                
                244
                
                
                23.7Other
                
                
                1,397
                
                
                3.2
                
                
                801
                
                
                1.8
                
                
                (596
                )
                
                (42.7
                )Total
                    voyage revenue
                
                $
                43,985
                
                
                100.0
                
                $
                43,808
                
                
                100.0
                
                $
                (177
                )
                
                (0.4
                )
 **Time
        charter revenue**
  Time
        charter revenue
        decreased to $14.8 million for the three months ended June 30, 2006 from
        $16.5
        million for the comparable period in 2005. As mentioned in
        c omponents
        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.
  The
        decrease in time charter revenue was due to a decline in the average charter
        hire rate, which decreased $5,079 per day or 27.8% to $13,179 for the three
        months ended June 30, 2006 from $18,258 for the comparable period in 2005.
        This
        decrease is primarily due to the current softness in the overall worldwide
        shipping markets. 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. For the three
        months
        ended June 30, 2006 and 2005, we had 4 and 7 vessels, respectively,
        chartered-out under long term charters at average daily rates of $17,304
        and
        $18,465, respectively, that made up $5.6 million and $11.1 million,
        respectively, of time charter revenue. At June 30, 2006, the time charters
        out
        expire through August 2007. The decrease in average charter rates was offset
        by
        an increase in the chartered vessel days, of 224 days or 24.9% to 1,125 for
        the
        three months ended June 30, 2006 days from 901 days for the same period in
        2005.
        The increase in time charter days is due to an increase in the number of
        vessels
        in our fleet and from our chartering out more vessels to better position
        our
        vessels to meet customer demands and to take advantage of time chartering
        opportunities on some voyages that did not have backhaul cargoes.
  The
        increase in number of vessels time chartered out, time charter days and the
        decrease in daily charter rates for the three months ended June 30, 2005
        and
        2006 are as follows:
  **Three
                  Months Ended June 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Number
                  of vessels (1)
              
              
              10
              
              
              12
              
              
              2
              
              
              20.0
              %Time
                  Charter days (2)
              
              
              901
              
              
              1,125
              
              
              224
              
              
              24.9
              %Daily
                  charter hire rates (3)
              
              $
              18,258
              
              $
              13,179
              
              $
              (5,079
              )
              
              -27.8
              %
 _____ _____
  (1)
              Weighted
                  average number of vessels time chartered out.(2)
              Number
                  of days vessels earned charter hire.(3)
              Weighted
                  average charter hire rates.
  Table
            of Contents
 24
 **Voyage
        expense**
 
 Voyage
        expense consists of costs attributable to specific voyages. The number of
        freight voyage days is a significant determinant of bunker fuel costs, voyage
        expense and commissions. The following table shows the change in the number
        and
        composition of total voyage days for three months ended June 30, 2005 and
        2006:
  **Three
                  Months Ended June 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Freight
                  voyage days
              
              
              1,536
              
              
              1,866
              
              
              330
              
              
              21.5
              %Time
                  charter days
              
              
              901
              
              
              1,125
              
              
              224
              
              
              24.9
              %Total
                  voyage days
              
              
              2,437
              
              
              2,991
              
              
              554
              
              
              22.7
              %
  The
        principal components of voyage expense were as follows:
  **Three
                  Months Ended**
              
              **Three
                  Months Ended****June
                  30, 2005**
              
              **June
                  30, 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
              
              $
              6,237
              
              
              34.6
              
              
              10.4
              
              $
              8,708
              
              
              45.4
              
              
              14.7
              
              $
              2,471
              
              
              39.6
              
              
              4.3Commission
                  expense
              
              
              3,761
              
              
              20.9
              
              
              6.2
              
              
              2,195
              
              
              11.5
              
              
              3.7
              
              
              (1,566
              )
              
              (41.6
              )
              
              (2.5
              )Port
                  call expense
              
              
              3,758
              
              
              20.9
              
              
              6.2
              
              
              3,849
              
              
              20.1
              
              
              6.5
              
              
              91
              
              
              2.4
              
              
              0.3Stevedore
                  and othercargo-related
                  expense
              
              
              2,740
              
              
              15.2
              
              
              4.5
              
              
              2,693
              
              
              14.0
              
              
              4.7
              
              
              (47
              )
              
              (1.7
              )
              
              0.2Miscellaneous
                  voyage expense
              
              
              1,521
              
              
              8.4
              
              
              2.5
              
              
              1,726
              
              
              9.0
              
              
              2.9
              
              
              205
              
              
              13.5
              
              
              0.4Voyage
                  expense
              
              $
              18,017
              
              
              100.0
              
              
              29.8
              
              $
              19,171
              
              
              100.0
              
              
              32.5
              
              $
              1,154
              
              
              6.4
              
              
              2.7
 
 Voyage
        expense increased 6.4% for the three months ended June 30, 2006 as compared
        to
        the same period in 2005. The increase was due to an increase in fuel expense,
        port call expense and miscellaneous voyage expense, offset by a decrease
        in
        commission expense and stevedore and other cargo-related expenses.
  The
        2.7%
        increase in voyage expense as a percentage of freight revenue, which increased
        to 32.5% of freight revenue for the three months ended June 30, 2006 from
        29.8%
        of freight revenue for the comparable period in 2005, was primarily due to
        an
        increase in fuel expense, which could not be fully recovered from our
        customers.
  The
        39.6%
        increase in fuel expense was due to an increase in the average price per
        metric
        ton ("MT") offset
        by
        a decrease in consumption. For the three months ended June 30, 2006, the
        average
        price per MT increased to $354 per MT from $241 per MT for the same period
        in
        2005. Consumption decreased for the three months ended June 30, 2006 to 24,624
        MT from 25,850 MT for the same period in 2005.
  The
        41.6%
        decrease in commission expense for the three months ended June 30, 2006 as
        compared to the same period in 2005 was due to the elimination of commssions
        paid to TBS Shipping Services Inc (“Services”) when Services became part of our
        consoldiation in June 2005, after we acquired it.
  Table
            of Contents
 25
 The
        2.4%
        increase in port call expense was primarily due to an increase in the number
        of
        port days to 913 port days for the three months ended June 30, 2006 from
        650
        port days for the same period in 2005. The increase in number of port days
        was
        offset by a decrease in the number of port calls to 198 port calls for the
        three
        months ended June 30, 2006 from 222 port calls for the same period in 2005.
  Stevedore
        and other cargo-related expense for the three months ended June 30, 2006
        was
        relatively flat as compared to the same period in 2005. Stevedore and other
        cargo-related expense fluctuate based on the shipping terms that cargo is
        booked
        under and cargo volumes. 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. For the three months ended June 30, 2006, revenues from
        cargo booked under "free-in free-out" terms increased $4.0 million to $23.5
        million for three months ended June 30, 2006 from $19.5 million for the same
        period in 2005. The increase in cargo booked under "free-in free-out" terms,
        resulted in a decrease to costs that was offset by an increase in cargo volumes.
        Cargo volumes increased to 1,033,488 revenue tons for the three months ended
        June 30, 2006, from 703,855 revenue tons for the same period in
        2005.
 
 The
        13.5%
        increase in miscellaneous voyage expense for the three months ended June
        30,
        2006 as compared to the same period in 2005 resulted from an increase in
        voyages, which increased to 43 freight voyages for the three months ended
        June
        30, 2006 from 37 freight voyages for the same period in 2005.
 
 **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, drydocking, maintenance, insurance and crewing expenses for vessels
        we control. The following table sets forth the basic components of vessel
        expense:
  **Three
                  Months Ended**
              
              **Three
                  Months Ended****June
                  30, 2005**
              
              **June
                  30, 2006**
              
              **Increase
                  (Decrease)****In
                  Thousands**
              
              **As
                  a % of Vessel Expense**
              
              **In
                  Thousands**
              
              **As
                  a % of Vessel Expense**
              
              **In
                  Thousands**
              
              **Percentage**Chartered-in
                  vessel expense
              
              $
              4,996
              
              
              30.3
              
              $
              3,830
              
              
              21.5
              
              $
              (1,166
              )
              
              (23.3
              )Owned
                  vessel expense
              
              
              8,988
              
              
              54.5
              
              
              12,666
              
              
              71.2
              
              
              3,678
              
              
              40.9Space
                  charter expense
              
              
              2,500
              
              
              15.2
              
              
              1,303
              
              
              7.3
              
              
              (1,197
              )
              
              (47.9
              )Vessel
                  expense
              
              $
              16,484
              
              
              100.0
              
              $
              17,799
              
              
              100.0
              
              $
              1,315
              
              
              8.0
 
 The
        8.0%
        increase in vessel expense for the three months ended June 30, 2006 as compared
        to the same period in 2005, was primarily due to a change in the composition
        of
        our fleet. For the three months ended June 30, 2006, our fleet averaged 31
        owned
        vessels compared to an averaged of 24 owned vessels during the same period
        in
        2005. The increase in the number of owned vessels decreased our demand for
        chartered-in vessels during for the second quarter of 2006.
 
 The
        23.3%
        decrease in chartered-in vessel expense for the three months ended June 30,
        2006
        as compared to the same period in 2005 resulted from our chartering-in vessels
        for 64 fewer vessel days for the three months ended June 30, 2006. We
        chartered-in vessels for 243 days for the second quarter of 2006 as compared
        to
        307 days for the same period in 2005. A decrease in the average charter-in
        rate
        per day also added to the decrease in chartered-in vessel expense. Average
        charter-in rates decreased $510 per day, or 3.1%, to $15,763 per day for
        the
        three months ended June 30, 2006 from $16,273 per day for the same period
        in
        2005.
 
 Table
            of Contents
 26
 The
        40.9%
        increase in owned vessel expense for the three months ended June 30, 2006
        as
        compared to the same period in 2005 was due, as mentioned above, to a change
        in
        the composition of our fleet. The increase in average owned vessels translated
        to a 31.4% or 689 day increase in vessel days to 2,881 days for the three
        months
        ended June 30, 2006 from 2,192 days for the same period in 2005. In addition,
        operating expense day rates increased $296 to $4,396 per day for the three
        months ended June 30, 2006, from $4,100 per day for the three months ended
        June
        30, 2005.
 
 Space
        charter expense is the cost paid to place cargo that we are committed to
        ship on
        vessels other than those that we control. The 47.9% decrease in space charter
        expense for the three months ended June 30, 2006 as compared to the same
        period
        in 2005 was due to the increased frequency of the TBS Pacific Liner Ltd.
        eastbound and westbound services that decreased the need to space charter
        vessels.
 
 The
        3.0%
        increase in vessel expense as a percentage of revenue to 30.2% of revenue
        for
        the three months ended June 30, 2006, from 27.2% of revenue for the comparable
        period in 2005 was primarily due to a decrease in revenue of $1.5 million
        and a
        $3.7 million increase in owned vessel expense, offset by $1.2 million decrease
        in chartered-in vessel cost and a $1.2 million decrease in space charter
        expense.
 
 **Depreciation
        and amortization**
 
 The
        $2.9
        million increase in depreciation and amortization expense was due to the
        growth
        of our controlled fleet, which increased to an average of 31 vessels for
        the
        three months ended June 30, 2006, from an average of 24 vessels for the same
        period in 2005 and additional depreciation and amortization expense on vessel
        capital improvements incurred to insure the operating efficiency of the vessels
        through their remaining useful life.
 
 **Management
        fees**
 
 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. During the second quarter 2006, while we continued to pay management
        fees,
        the fees were eliminated in our consolidated financial statements and the
        actual
        costs of operations of these service companies have been included in general
        and
        administrative expenses. Management fees paid during the second quarter of
        2005,
        prior to our acquisitions of these service companies, are included as management
        fees.
  Technical
        management fee expense was $1.1 million for the three months ended June 30,
        2006, prior to the elimination in consolidation, as compared to $850,000
        for the
        same period in 2005. The increase was due to an increase in the average number
        of vessels under management, which increased to an average of 31 vessels
        for the
        three months ended June 30, 2006, from an average of 23 vessels for the same
        period in 2005. At June 30, 2006 and 2005, there were 32 and 26 vessels,
        respectively, under management.
  Operational
        management fee expense was $803,000 for the three months ended June 30, 2006,
        prior to the elimination in consolidation, as compared to $685,000 for the
        same
        period in 2005. Management fees are based on voyage days, which increased
        554
        days or 22.7% to 2,991 days for the three months ended June 30, 2006 from
        2,437
        days for the same period in 2005.
  **General
        and administrative expense**
 
 The
        $1.6
        million increase in general and administrative expense for the three months
        ended June 30, 2006 as compared to the same period in 2005 was primarily
        due to
        $1.7 million of additional professional fees that we incurred as a public
        company including $1.1 million of 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 expense also includes salary
        and
        related costs, which decreased $1.2 million and other expenses which increased
        $1.1 million for three months ended June 30, 2006 compared to the same period
        in
        2005.
 
 Table
            of Contents
 27
 **Income
        from operations**
 
 The
        $7.2
        million decrease in income from operations for the three months ended June
        30,
        2006 as compared to the three months ended June 30, 2005, was attributable
        to a decrease in revenue and an increase in expenses. Depreciation and vessel
        expense increased due to an increase in the number of owned vessels, and
        voyage
        expense increased mainly due to higher fuel costs. For the same reasons,
        our
        operating margin decreased to 14.6% for the three months ended June 30, 2006
        from 26.1% for the same period in 2005.
 
 **Interest
        expense**
 
 The
        26.6%
        increase in interest expense for the three months ended June 30, 2006, as
        compared to the same period in 2005 was due to $34.7 million in additional
        long
        term mortgage borrowings drawn down subsequent to June 30, 2005 and an increase
        in interest rates.
  ***Comparison
        of the six months ended June 30, 2005 and June 30,
        2006***
  **Six
                    Months Ended**
                
                **Six
                    Months Ended****June
                    30, 2005**
                
                **June
                    30, 2006**
                
                **Increase
                    (Decrease)****In
                    Thousands**
                
                **As
                    a % of Total Revenue**
                
                **In
                    Thousands**
                
                **As
                    a % of Total Revenue**
                
                **In
                    Thousands**
                
                **Percentage**Voyage
                    revenue
                
                $
                90,120
                
                
                74.2
                
                $
                93,128
                
                
                75.9
                
                $
                3,008
                
                
                3.3Time
                    charter revenue
                
                
                31,225
                
                
                25.7
                
                
                28,996
                
                
                23.6
                
                
                (2,229
                )
                
                (7.1
                )Other
                    revenue
                
                
                85
                
                
                0.1
                
                
                626
                
                
                0.5
                
                
                541Total
                    revenue
                
                
                121,430
                
                
                100.0
                
                
                122,750
                
                
                100.0
                
                
                1,320
                
                
                1.1Voyage
                    expense
                
                
                36,322
                
                
                29.9
                
                
                41,908
                
                
                34.1
                
                
                5,586
                
                
                15.4Vessel
                    expense
                
                
                36,183
                
                
                29.8
                
                
                36,430
                
                
                29.7
                
                
                247
                
                
                0.7Depreciation
                    and amortization
                
                
                6,305
                
                
                5.2
                
                
                13,348
                
                
                10.8
                
                
                7,043
                
                
                111.7Management
                    fees
                
                
                2,566
                
                
                2.1
                
                
                -
                
                
                -
                
                
                (2,566
                )General
                    and administrative
                
                
                6,471
                
                
                5.3
                
                
                12,367
                
                
                10.1
                
                
                5,896
                
                
                91.1Total
                    operating expenses
                
                
                87,847
                
                
                72.3
                
                
                104,053
                
                
                84.7
                
                
                16,206
                
                
                18.4Income
                    from operations
                
                
                33,583
                
                
                27.7
                
                
                18,697
                
                
                15.3
                
                
                (14,886
                )
                
                (44.3
                )Other
                    (expenses) and incomeInterest
                    expense
                
                
                (3,804
                )
                
                (3.1
                )
                
                (5,612
                )
                
                (4.6
                )
                
                (1,808
                )
                
                47.5Other
                    income
                
                
                172
                
                
                0.1
                
                
                602
                
                
                0.5
                
                
                430Net
                    income
                
                $
                29,951
                
                
                24.7
                
                $
                13,687
                
                
                11.2
                
                $
                (16,264
                )
                
                (54.3
                )
  Voyage
        revenue
  The
        increase in our voyage revenue for the six months ended June 30, 2006 as
        compared to the comparable period in 2005 was primarily due to an increase
        in
        revenue tons carried offset by a decrease in freight rates. As mentioned in
        components of revenue and expense above, the key
        factors driving voyage revenue are the number of vessels in the fleet, the
        days
        on hire and the freight rates.
  Revenue
        tons carried for the six months ended June 30, 2006 as
        compared to the
        comparable period in 2005, increased 595 ,095
        tons
        or 40.5% to 2,063,708 tons for the six months ended June 30, 2006 from 1,468,613
        tons for the same period in 2005. Half of the increase in r evenue
        tons carried is due
        to an increase
        in the number of vessels in our fleet ,
        which
        resulted in a higher
        number of voyages and voyage days and the other half is due an increase in
        aggregates bulk cargo carried.
  Table
            of Contents
 28
 Freight
        rates for the six months ended June 30, 2006 as
        compared to the
        comparable period in 2005, decreased $16.23
        per ton or 26.5% to $45.13 per ton in the first half of 2006 from $61.36
        per ton
        for the same period of 2005. To
        a
        significant degree, freight rates, not under contract, are set by the market
        and
        depend on the relationship between the demand for ocean freight transportation
        and the availability of appropriate vessels. For the six months ended June
        30,
        2006, and 2005, we had contracts of affreightment, expiring through the end
        of
        2006 and early 2007, under which we carried approximately 826,000 and 197,000
        revenue tons and generated $29.6 million and $12.7 million of voyage revenue,
        respectively. During
        the first six months of 2005 demand for dry bulk ocean shipping increased
        significantly due largely to the expansion of economies in East Asia, especially
        China. Beginning in the second half of 2005, freight rates began to decline
        from
        the levels reached earlier in the year as demand declined.
  Included
        in voyage revenue is revenue from high-volume, low-freighted aggregates bulk
        cargo. Excluding this type of bulk cargo, of which we carried 316,619 tons
        and
        16,515 tons for the six months ended June
        30,
        2006 and 2005, respectively, average
        freight rates would have been $51.32 per ton and $61.97 per ton for the six
        months ended June 30, 2006 and 2005, respectively.
  The
        increase in weighted average number
        of
        vessels in the fleet, the days on hire, freight
        voyage days and days on hire, excluding
        vessels time chartered out, and
        the
        decrease in freight rates for
        the
        six months ended June 30, 2005 and 2006 are
        as
        follows:
  **Six
                  Months Ended June 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Number
                  of vessels (1)
              
              
              18
              
              
              22
              
              
              4
              
              
              22.2
              %Freight
                  voyage days (2)
              
              
              3,152
              
              
              3,897
              
              
              745
              
              
              23.6
              %Days
                  on hire (3)
              
              
              3,333
              
              
              4,325
              
              
              992
              
              
              29.8
              %Freight
                  Rates (4)For
                  all cargoes
              
              $
              61.36
              
              $
              45.13
              
              $
              (16.23
              )
              
              -26.5
              %Excluding
                  aggregates
              
              $
              61.97
              
              $
              51.32
              
              $
              (10.65
              )
              
              -17.2
              %
  (1)
              Weighted
                  average number of vessels in the fleet, not including off-hire
                  days and
                  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.
  The
        following table shows revenues attributed to our principal cargoes:
 
 **Six
                  Months Ended**
                **June
                  30, 2005**
              
              **Six
                  Months Ended**
                **June
                  30, 2006**
              
              **Increase
                  (Decrease)****Description**
              
              **In
                  Thousands**
              
              **As
                  a % of Total Voyage Revenue**
              
              **In
                  Thousands**
              
              **As a
                  % of Total Voyage Revenue**
              
              **In
                  Thousands**
              
              PercentageSteel
                  products
              
              $
              37,799
              
              
              41.9
              
              $
              34,922
              
              
              37.5
              
              $
              (2,877
              )
              
              (7.6
              )Metal
                  concentrates
              
              
              14,420
              
              
              16.0
              
              
              13,435
              
              
              14.4
              
              
              (985
              )
              
              (6.8
              )Fertilizers
              
              
              7,567
              
              
              8.4
              
              
              2,471
              
              
              2.7
              
              
              (5,096
              )
              
              (67.3
              )Other
                  bulk cargo
              
              
              22,996
              
              
              25.5
              
              
              25,085
              
              
              26.9
              
              
              2,089
              
              
              9.1Agricultural
                  products
              
              
              3,507
              
              
              3.9
              
              
              13,496
              
              
              14.5
              
              
              9,989
              
              
              284.8Automotive
                  products
              
              
              1,711
              
              
              1.9
              
              
              2,189
              
              
              2.4
              
              
              478
              
              
              27.9Other
              
              
              2,120
              
              
              2.4
              
              
              1,530
              
              
              1.6
              
              
              (590
              )
              
              (27.8
              )Total
                  voyage revenue
              
              $
              90,120
              
              
              100.0
              
              $
              93,128
              
              
              100.0
              
              $
              3,008
              
              
              3.3
  Table
            of Contents
 29
 **Time
        charter revenue**
 
 Time
        charter revenue decreased 7.1% to $29.0 million for the six months ended
        June
        30, 2006 from $31.2 million for the comparable period in 2005. As mentioned in
        c omponents
        of revenue and expense , the key
        factors driving time charter revenue are the number of days that vessels
        are
        chartered out and the daily charter hire rates.
  The
        decrease in time charter revenue was due to a decline in the average charter
        hire rate, which decreased $5,523 per day or 29.2% to $13,412 for the six
        months
        ended June 30, 2006 from $18,935 for the comparable period in 2005. This
        decrease is primarily due to the current softness in the overall worldwide
        shipping markets. 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. For
        the
        six months ended June 30, 2006 and 2005, we had 4 and 6 vessels,
        respectively, chartered-out under long term charters with average daily rates
        of
        $15,950 and $18,017, respectively, that made up $11.7 million and $18.9 million,
        respectively, of time charter revenue. At June 30, 2006, the time charters
        out
        expire through August 2007. The decrease in average charter rates was offset
        by
        an increase in the chartered vessel days, which increased 513 days or 31.1%
        to
        2,162 for the six months ended June 30, 2006 days from 1,649 days for the
        same
        period in 2005. The increase in time charter days was a result of an increase
        in
        the number of vessels in our fleet and from our chartering out more vessels
        to
        better position our vessels to meet customer demands and to take advantage
        of
        time chartering opportunities on some voyages that did not have backhaul
        cargoes.
  The
        increase in number of vessels time chartered out, time charter days and the
        decrease in daily charter rates for the six months ended June 30, 2005 and
        2006
        are as follows:
  **Six
                  Months Ended June 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Number
                  of vessels (1)
              
              
              9
              
              
              12
              
              
              3
              
              
              33.3
              %Time
                  Charter days (2)
              
              
              1,649
              
              
              2,162
              
              
              513
              
              
              31.1
              %Daily
                  charter hire rates (3)
              
              $
              18,935
              
              $
              13,412
              
              $
              (5,523
              )
              
              -29.2
              %
 _________
  (1)
              Weighted
                  average number of vessels chartered out.(2)
              Number
                  of days vessels earned charter hire.(3)
              Weighted
                  average charter hire rates.
 
 **Voyage
        expense**
 
 Voyage
        expense consists of costs attributable to specific voyages. The number of
        freight voyage days is a significant determinant of bunker fuel costs, voyage
        expense and commissions. The following table shows the change in the number
        and
        composition of voyage days for the six months ended June 30, 2006 as compared
        to
        the same period in 2005.
 
 **Six
                  Months Ended June 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Freight
                  voyage days
              
              
              3,152
              
              
              3,897
              
              
              745
              
              
              23.6
              %Time
                  charter days
              
              
              1,649
              
              
              2,162
              
              
              513
              
              
              31.1
              %Total
                  voyage days
              
              
              4,801
              
              
              6,059
              
              
              1,258
              
              
              26.2
              %
  Table
            of Contents
 30
  The
        principal components of voyage expense were as follows:
 **Six
                    Months Ended**
                
                **Six
                    Months Ended****June
                    30, 2005**
                
                **June
                    30, 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
                
                $
                11,915
                
                
                32.8
                
                
                9.8
                
                $
                18,193
                
                
                43.4
                
                
                14.8
                
                $
                6,278
                
                
                52.7
                
                
                5.0Commission
                    expense
                
                
                7,655
                
                
                21.1
                
                
                6.3
                
                
                4,881
                
                
                11.6
                
                
                4.0
                
                
                (2,774
                )
                
                (36.2
                )
                
                (2.3
                )Port
                    call expense
                
                
                7,944
                
                
                21.9
                
                
                6.5
                
                
                9,062
                
                
                21.6
                
                
                7.4
                
                
                1,118
                
                
                14.1
                
                
                0.9Stevedore
                    and othercargo-related
                    expense
                
                
                5,193
                
                
                14.3
                
                
                4.3
                
                
                5,970
                
                
                14.3
                
                
                4.8
                
                
                777
                
                
                15.0
                
                
                0.5Miscellaneous
                    voyageexpense
                
                
                3,615
                
                
                9.9
                
                
                3.0
                
                
                3,802
                
                
                9.1
                
                
                3.1
                
                
                187
                
                
                5.2
                
                
                0.1Voyage
                    expense
                
                $
                36,322
                
                
                100.0
                
                
                29.9
                
                $
                41,908
                
                
                100.0
                
                
                34.1
                
                $
                5,586
                
                
                15.4
                
                
                4.2
  Voyage
        expense increased 15.4% for the six months ended June 30, 2006 as compared
        to
        the same period in 2005. The increase was due to an increase in fuel expense,
        port call expense, stevedore and other cargo related expense, offset by a
        decrease in commission expense. The 4.2% increase in voyage expense as a
        percentage of revenue, to 34.1% of revenue for the six months ended June
        30,
        2006 from 29.9% of revenue for the comparable period in 2005, was primarily
        due
        to the increase in fuel expense, which could not be fully recovered from
        our
        customers.
  The
        52.7%
        increase in fuel expense was due to both an increase in the average price
        per
        metric ton ("MT") and consumption. For the six months ended June 30, 2006,
        the
        average price per MT and consumption increased to $352 per MT and 51,677
        MT,
        respectively, from $245 per MT and 48,509 MT for the same period in 2005.
        The
        increase in consumption was primarily due to an increase in the number of
        voyage
        days during the second quarter of 2006, which increased to 3,897 days for
        the
        six months ended June 30, 2006 from 3,152 days for the same period in 2005.
  The
        36.2%
        decrease in commission expense for the six months ended June 30, 2006 as
        compared to the same period in 2005 was due to the elimination of commssions
        paid to TBS Shipping Services Inc (“Services”) when Services became part of our
        consoldiation in June 2005, after we acquired it.
  The
        14.1%
        increase in port call expense was primarily due to the increased number of
        port
        days which increased to 1,971 days for the six months ended June 30, 2006,
        from
        1,454 days for the same period in 2005. The number of port calls made during
        the
        six months ended June 30, 2006 and 2005 was constant at 418 and 417 port
        calls,
        respectively.
  Stevedore
        and other cargo-related expense for the six months ended June 30, 2006 increased
        as compared to the same period in 2005. Stevedore and other cargo-related
        expense fluctuate based on the shipping terms that cargo is booked under
        and
        cargo volumes. An increase in cargo volumes accounted for much of the increase
        in expense. Cargo volumes increased to 2,063,708 revenue tons for the six
        months
        ended June 30, 2006, from 1,468,613 revenue tons for the same period in 2005.
        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..
        For the six months ended June 30, 2006, revenues from cargo booked under
        "free-in free-out" terms decreased $1.3 million to $57.5 million for six
        months
        ended June 30, 2006 from $58.8 million for the same period in 2005. The decrease
        in cargo booked under "free-in free-out" terms, added to the increase in
        stevedore and other cargo-related expense.
  Table
            of Contents
 31
  **Vessel
        expense**
 
 Vessel
        expense consists of costs we incur to own and maintain our fleet that are
        not
        allocated to a specific voyage, such as charter hire rates for vessels we
        charter-in and drydocking, maintenance, insurance and crewing expenses for
        vessels we control. The following table sets forth the basic components of
        vessel expense:
 
 **Six
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30, 2005**
              
              **June
                  30, 2006**
              
              **Increase
                  (Decrease)****In
                  Thousands**
              
              **As
                  a % of Vessel Expense**
              
              **In
                  Thousands**
              
              **As
                  a % of Vessel Expense**
              
              **In
                  Thousands**
              
              **Percentage**Chartered-in
                  vessel expense
              
              $
              17,372
              
              
              48.0
              
              $
              10,979
              
              
              30.1
              
              $
              (6,393
              )
              
              (36.8
              )Owned
                  vessel expense
              
              
              16,310
              
              
              45.1
              
              
              23,667
              
              
              65.0
              
              
              7,357
              
              
              45.1Space
                  charter expense
              
              
              2,501
              
              
              6.9
              
              
              1,784
              
              
              4.9
              
              
              (717
              )
              
              (28.7
              )Vessel
                  expense
              
              $
              36,183
              
              
              100.0
              
              $
              36,430
              
              
              100.0
              
              $
              247
              
              
              0.7
  Vessel
        expense for the six months ended June 30, 2006 as compared to the same period
        in
        2005, increased slightly. Specific expense categories varied due to a change
        in
        the composition of our fleet. For the six months ended June 30, 2006, our
        fleet
        averaged 31 owned vessels as compared to an average of 21 owned vessels for
        the
        same period in 2005. As we increase the number of owned vessels, our demand
        for
        chartered-in vessels decreases.
 
 The
        36.8%
        decrease in chartered-in vessel expenses for the six months ended June 30,
        2006
        as compared to the same period in 2005 resulted from our chartering-in vessels
        for 290 fewer vessel days for the six months ended June 30, 2006. We
        chartered-in vessels for 713 days for the six months ended June 30, 2006
        as
        compared to 1,003 days for the same period in 2005. A decrease in the average
        charter-in rate per day, which decreased $1,925 per day, or 11.1%, to $15,398
        per day for the six months ended June 30, 2006 from $17,323 per day for the
        same
        period in 2005 also added to the decrease in chartered-in vessel
        expense.
 
 The
        45.1%
        increase in owned vessel expense for the six months ended June 30, 2006 as
        compared to the same period in 2005 was due to a change in the composition
        of
        our fleet. The increase in average owned vessels translated to a 42.5% or
        1,692
        day increase in vessel days to 5,671 days for the six months ended June 30,
        2006
        from 3,979 days for the same period in 2005. Operating expense day rates
        were
        increased to $4,173 per day from $4,099 per day for the six months ended
        June
        30, 2006 and 2005, respectively.
 
 The
        0.1%
        decrease in vessel expense as a percentage of revenue from 29.8% as a percentage
        of revenue for the six months ended June 30, 2006, as compared to 29.7% as
        a
        percentage of revenue for the same period in 2005 was primarily due to an
        increase in revenue of $1.3 million.
 
 **Depreciation
        and amortization**
 
 The
        $7.0
        million increase in depreciation and amortization expense was mainly due
        to the
        growth of our controlled fleet, which increased to an average of 31 vessels
        for
        the six months ended June 30, 2006, from an average of 22 vessels for the
        same
        period in 2005 and additional depreciation and amortization expense on vessel
        capital improvements incurred to insure the operating efficiency of the vessels
        through their remaining useful life.
  Table
            of Contents
 32
 **Management
        fees**
 
 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. During 2006, while we continued to pay management fees, the fees were
        eliminated in our consolidated financial statements and the actual costs
        of
        operations of these service companies have been included in general and
        administrative expenses. Management fees paid during the six months ended
        June
        30, 2005, prior to our acquisitions of these service companies, are included
        as
        management fees.
  Technical
        management fee expense was $2.3 million for the six months ended June 30,
        2006,
        prior to the elimination in consolidation, as compared to $1.5 million for
        the
        same period in 2005. The increase was due to an increase in the average number
        of vessels under management, which increased to an average of 31 vessels
        for the
        six months ended June 30, 2006, from an average of 21 vessels for the same
        period in 2005. At June 30, 2006 and 2005, there were 32 and 27 vessels,
        respectively, under management.
  Operational
        management fee expense was $1.7 million for the six months ended June 30,
        2006,
        prior to the elimination in consolidation, as compared to $1.3 million for
        the
        same period in 2005. Management fees are based on voyage days, which increased
        1,258 days or 20.8% to 6,059 days for the six months ended June 30, 2006
        from
        4,801 days for the same period in 2005.
  **General
        and administrative expense**
 
 The
        $5.9
        million increase in general and administrative expense for the six months
        ended
        June 30, 2006 as compared to the same period in 2005 was primarily due to
        $2.5
        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. Other costs
        included in general and administrative expenses were salary and related costs
        that increased $1.9 million (see below for a further explanation), travel
        costs
        that increased $0.8 million and other and miscellaneous expenses which increased
        $0.7 million for six months ended June 30, 2006 compared to the same period
        in
        2005.
  Salary and related costs for the six months ended June 30, 2006 includes
        a full
        six months of payroll costs; however, salary and related costs for the six
        months ended June 30, 2005 includes payroll costs only from the date of our
        acquisition of Roymar and TBS Shipping Services in late June 2005. The increase
        in payroll and related costs is due to the acquisition of Roymar and TBS
        Shipping Services, which was partially offset by a one time bonus of $2.2
        million paid in June 2005 to our chief financial officer and one time share
        grants to our employees and related payroll taxes of $1.9 million made in
        connection with our initial public offering. Prior to our acquisition of
        Roymar
        and TBS Shipping Services, we were charged management fees and commissions.
        Accordingly, these costs were reflected as management fees and as commissions
        included in voyage expense and not as payroll costs.
  **Income
        from operations**
 
 The
        $14.9
        million decrease in income from operations for the six months ended June
        30,
        2006 as compared to the six months ended June 30, 2005, was mainly attributable
        to an increase in voyage expense, specifically fuel costs, depreciation and
        general and administration expense reduced by a decrease in management fees
        and
        commissions. As discussed above, due to our acquisition of Roymar and TBS
        Shipping Services in late June 2005, management and commissions charges are
        eliminated in the consolidation of our financial statements and the related
        costs are 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 15.3% for the six months ended June 30,
        2006
        from 27.7% for the same period in 2005.


Table
            of Contents
 33
  **Interest
        expense**
 
 The
        47.4%
        increase in interest expense for the six months ended June 30, 2006, as compared
        to the same period in 2005 was due to $34.7 million in additional long term
        mortgage borrowings drawn down subsequent to June 30, 2005 and an increase
        in
        interest rates.
  ***Liquidity
        and Capital Resources***
  Our
        principal sources of funds are operating cash flows, long-term bank borrowings
        and capital lease obligations. Our principal uses of funds were capital
        expenditures to establish and grow our fleet and maintain the quality of
        our
        ships and keep us in compliance with international shipping standards and
        regulations, fund working capital requirements and make interest and principal
        repayments on outstanding loan facilities and capital lease
        obligations.
 
 Our
        practice has been to acquire ships using a combination of funds from operating
        cash flows, debt secured by mortgages on our ships and long-term capital
        lease
        arrangements. We expect to use our operating cash flows, not otherwise committed
        to the payment of interest and principal on outstanding debt and borrowings
        to
        fund vessel acquisitions. Our business is capital intensive and its future
        success will depend on our ability to maintain a high-quality fleet through
        the
        ongoing maintenance of our currently owned ships and the acquisition of ships.
        These acquisitions will be principally subject to management's expectation
        of
        future market conditions as well as our ability to acquire appropriate ships
        on
        favorable terms.
 
 At
        June
        30, 2006, we had negative working capital of $17.7 million, due primarily
        to
        recent vessel acquisitions made during 2006 and the end of 2005. It is our
        practice to fund vessel acquisitions through working capital, which we
        subsequently replenish with long-term debt secured by a mortgage for typically
        60% of the vessel cost. The vessel *Aztec
        Maiden* was
        purchased in May 2006 for $8.1 million and the vessels *Nyack Princess* and *Sioux Maiden* were
        purchased in early November 2005 for $10.0 million and $17.5 million,
        respectively. The vessel acquisitions were funded solely with our working
        capital, which is being replenished with the new credit facility we entered
        into
        in July 2006.
 
 On
        July
        31, 2006, we entered into a $140.0 million credit facility with a syndicate
        of
        commercial lenders (“Credit Facility”) led by Bank of America. The Credit
        Facility is composed of a $65.0 million revolving credit facility and a $75.0
        million term loan 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. Pursuant to the Credit Facility, the Company
        made a drawdown on the term loan of $75.0 million and an initial drawdown
        of
        $10.0 million on the revolving credit facility to repay $80.4
        million outstanding
        under term loans with the Existing Lenders and cover costs associated with
        the
        refinancing. The Credit Facility provides a four-year self-amortizing term
        loan
        with quarterly principal payments due of approximately $4.7 million beginning
        September. The non-amortizing revolving loan is due July 2010. The new credit
        facility increases our borrowing capacity enabling us to execute our growth
        strategy, provides us with better terms and simplifies the administration
        of our
        debt, as we now consolidate into a single facility the majority of our existing
        indebtedness incurred under several facilities. We believe that our current
        cash
        balance, as well as, operating cash flows and available borrowings under
        our new
        credit facility will be sufficient to meet our liquidity needs for the next
        twelve months.
  **Changes
        in Cash and Cash Equivalents**
  Cash
        and
        cash equivalents at December 31, 2005 and June 30, 2006 were $27.2 million
        and
        $11.7 million, respectively. The decrease in cash and cash equivalents was
        the
        result of $25.6 million in net cash provided by operating activities offset
        by
        $22.4 million in net cash used in investing activities and $18.7 million
        in net
        cash used in financing activities.
  Table
            of Contents
 34
 **Cash
          Flows from Investing Activities**
  During
          the six months ended June 30, 2006, we acquired one vessel. We paid $21.9
          million during the six months for vessel acquisition and capital improvements.
          This included $8.1 million for the vessel *Kibishio
          Maru* (renamed
          the *Aztec Maiden* ),
          $3.6
          million for take over costs incurred in connection with recent vessel
          acquisitions, $8.9 million for vessel capital improvements and $2.1 million
          for
          the purchase of other assets, such as equipment which enables self-loading
          and
          discharging (“Grabs”) and computer equipment for the vessels. In addition, we
          made an investment and loans to a joint venture with GMT Shipping Line
          Ltd.
          totaling $0.5 million.
 During
        the six months ended June 30, 2005, we acquired nine vessels, excluding the *Rockaway
        Belle* on which
        we exercised our purchase option. We paid $111.1 million during the six months,
        of which $98.6 million was paid upon delivery of vessels, $9.9 million was
        paid
        for take over costs incurred in connection with the acquisition of the vessels
        and $2.6 million was paid for vessel capital improvements. In addition, we
        made
        a deposit of $1.6 million for the *Biloxi
        Belle* .
        In
        connection with our initial public offering we purchased all the stock of
        TBS
        Shipping Services and Roymar for $6.7 million, which represents the purchase
        price of $7.5 million less net cash acquired of $0.8 million. Lastly, we
        paid a
        $750,000 security deposit in connection with a claim relating to the acquisition
        of the vessel *Tamoyo
        Maide* n
        (formerly the *Sea
        Pantheon* ).
  **Cash
        Flows from Financing Activities**
  For
        the
        six months ended June 30, 2006 net cash used in financing activities was
        $17.2
        million of debt repayment and $1.5 million of repayments of obligations under
        capital leases.
  For
        the
        six months ended June 30, 2005 net cash provided by financing activities
        was
        $106.5 million consisting of: $61.9 million of net proceeds from the issuance
        of
        Class A common shares in our initial public offering and $60.3 million of
        long-term bank borrowings to finance the purchase of vessels, reduced by
        $11.2
        million of debt repayment and $4.3 million of repayments of obligations under
        capital leases. The $4.3 million includes the payment of the purchase option
        of
        $2.5 million under the capital lease for the *Rockaway
        Belle* .
        We
        borrowed $12.0 million, on a temporary basis, under our revolving credit
        facility on June 17, 2005 to fund our working capital. We used a portion
        of the
        net proceeds of our public offering to repay these borrowings.
  **Charter
        Hire Receivables**
  Our
        gross
        charter hire receivables balance at June 30, 2006 and December 31, 2005 was
        $17.3 million ($16.8 million net of allowance for doubtful accounts) and
        $26.2
        million ($25.5 million net of allowance for doubtful accounts), respectively.
        The decrease in receivables was due principally to the collection of several
        larger than usual outstanding receivables at December 31, 2005, including
        the
        receivable from Military Sealift Command of $2.2 million and a decrease in
        outstanding charter hire receivables related to the timing of the voyages
        in
        progress as of December 31, 2005 compared to June 30, 2006 .
  In
        accordance with our reserve policy, we take a percentage of outstanding
        receivables, based on prior years' experience, as a general reserve — usually
        between 2% and 3% of the receivables balance. Our management also identifies
        specific receivables that it believes we will have difficulty collecting
        and
        creates additional reserves for those balances. At June 30, 2006, our general
        reserve totaled $0.5 million with no additional reserves. At December 31,
        2005,
        our general reserve and additional reserves totaled $0.6 million and $0.1
        million, respectively.
  Table
            of Contents
 35
 **Fuel
          and Other Inventories**
  The
          fuel
          and other inventory at June 30, 2006 decreased $0.9 million from the December
          31, 2005 balance. Approximately $1.1 million of the decrease was due to
          lower
          quantities of fuel on board the vessels at June 30, 2006. The change in
          fuel
          quantities resulted principally from the timing of vessel refueling and
          from
          less vessels having on-board fuel included in inventory. Vessels included
          in
          inventory decreased to 21 vessels as of June 30, 2006, compared to 24 vessels
          as
          of December 31, 2005, as more vessels were time chartered out. The decrease
          in
          fuel because of the decrease in quantities was offset by an increase of
          approximately $0.5 million due to higher fuel prices, which increased to
          a
          combined average of $391 per metric ton for industrial fuel oil/marine
          diesel
          oil (“IFO/MDO”) at June 30, 2006 from a combined average price of $352 per
          metric ton for IFO/MDO at December 31, 2005. The decrease in fuel inventory
          at
          June 30, 2006 was offset by an increase of $0.3 million in lubricating
          oil on
          board the vessels at June 30, 2006, which results principally from the
          timing of
          deliveries to the vessel.
  ***Other
        Commitments***
  Our
        contractual obligations as of June 30, 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)
              
              
              88,550
              
              
              30,193
              
              
              43,965
              
              
              14,392
              
              
              -Capital
                  lease obligations
              
              
              23,226
              
              
              3,855
              
              
              19,371
              
              
              -
              
              
              -Operating
                  Lease obligations
              
              
              5,635
              
              
              5,189
              
              
              446
              
              
              -
              
              
              -Total
                  contractual cash obligations
              
              $
              117,411
              
              $
              39,237
              
              $
              63,782
              
              $
              14,392
              
              $
              -
  (1)
              As
                  of June 30, 2006, we had $88.6 million of indebtedness outstanding
                  under
                  loans to our subsidiaries that we guarantee, consisting of $12.8
                  million
                  under the $22.5 million credit facility with a group of lenders
                  led by
                  GMAC Commercial Finance LLC, $7.9 million under the $15.0 million
                  credit
                  facility with Merrill Lynch Business Financial Services, Inc.,
                  $5.9
                  million under the $7.2 million credit facility with the Royal Bank
                  of
                  Scotland plc, $30.0 million under the $45.0 million credit facility
                  with
                  AIG Commercial Equipment Finance, Inc, $18.8 million under the
                  $25.0
                  million credit facility with Bank of America and $13.2 million
                  under the
                  new $17.5 million credit facility with Merrill Lynch Business Financial
                  Services.
 
 On
        December 15, 2005, the Merrill Lynch credit facility was amended removing
        the
        requirement for us to maintain positive working capital. In addition, the
        credit
        facility agreement requires minimum collateral coverage and requires mandatory
        prepayment or delivery of additional security in the event that the fair
        market
        value of the acquired vessels falls below 160% of the outstanding loan balances.
        As required by the credit facility, we prepaid approximately $2.3 million
        during
        the first quarter of 2006. At December 31, 2005, we did not meet specified
        EBITDA to debt ratios required under the AIG and Bank of America credit
        facilities. We obtained a waiver from AIG, dated December 31, 2005, to waive
        the
        covenant violation as of December 31, 2005. AIG has also agreed to reduce
        the
        required EBITDA to debt service ratio from 2.0 to 1.0 to 1.6 to 1.0 at June
        30,
        2006, September 30, 2006 and December 31, 2006, after which it will revert
        to
        the original ratio requirement. On March 3, 2006, the Bank of America agreed
        to
        waive the EBITDA to debt service ratio requirement for the quarter ended
        December 31, 2005, and to amend the credit facility agreement to change the
        method used in calculating the EBITDA to debt service ratio.
  At
        June
        30, 2006, the Company was not in compliance with the covenants required by
        the
        GMAC Commercial Finance LLC, the AIG Commercial Equipment Finance, Inc, facility
        and the Bank of America facility, See Note 8 - Financing. On July 31, 2006,
        we
        entered into a $140.0 million credit facility with a syndicate of commercial
        lenders (“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, See Note 15- - Financing.
 
 Table
            of Contents
 36
 ***Dividend
        Policy***
  We
        have
        not declared or paid and do not anticipate declaring or paying any cash
        dividends on our common shares in the foreseeable future. The provisions
        of some
        of our debt instruments and related loan agreements prevent some of our
        subsidiaries from paying dividends to TBS
        International Limited, which may restrict our ability to pay dividends on
        our
        common shares. The timing and amount of future cash dividends, if any, would
        be
        determined by our board of directors and would depend upon our earnings,
        financial condition, cash requirements and obligations to lenders at the
        time.
  Pursuant
        to Bermuda law, we cannot declare or pay a dividend, or make a distribution
        out
        of contributed surplus, if there are reasonable grounds for believing that
        we
        are, or after the payment would be, unable to pay our liabilities as they
        become
        due, or that the realizable value of our assets would thereby be less than
        the
        aggregate of our liabilities, our issued share capital and our share premium
        accounts.
 Because
        we are a holding company with no material assets other than the stock of
        our
        subsidiaries, our ability to pay dividends will depend on the earnings and
        cash
        flow of our subsidiaries and their ability to pay dividends to us.
  ***Significant
        Related Party Transactions***
  Pursuant
        to agency agreements, our operations have been planned, executed and supervised
        by TBS Shipping Services, Roymar and TBS Commercial Group and its subsidiaries
        in exchange for fees and commissions paid by us to such entities. Messrs.
        James W. Bayley, Lawrence A. Blatte, Gregg L. McNelis, Captain Alkis N. Meimaris
        and Joseph E. Royce, collectively and beneficially own approximately 64.3%
        of
        our issued and outstanding common shares. Each of these individuals is also
        a
        principal of, and together control, TBS Commercial Group. Lawrence A. Blatte,
        Gregg L. McNelis, Captain Alkis N. Meimaris and Joseph E. Royce had been
        principals of and together controlled TBS Shipping Services and Roymar prior
        to
        our acquisition of these companies in June 2005. See Note - 3 Acquisition
        of TBS
        Shipping Services and Roymar in the consolidated financial statements. We
        believe that the transactions described below are on terms no less favorable
        than those that could be obtained pursuant to arm's-length negotiations with
        independent third parties.
  We
        have
        established long-term commercial and operational relationships with other
        commercial agency service companies that are located in various overseas
        ports
        in which we conduct our business. The majority of these companies are wholly
        or
        partly-owned direct or indirect subsidiaries of TBS Commercial Group. Under
        the
        arrangements with these commercial agents, we generally pay a commission
        on
        freight revenue booked by the agent, which commission is based upon market
        rates
        and on certain freights where they attend to the receivers of the cargo.
        Under
        the arrangements with the ship agents, we pay fees to the agents, which are
        based on market rates, for attending vessels while in port. For the three
        months
        ended June 30, 2006 and 2005 and the six months ended June 30, 2006 and 2005,
        we
        paid TBS Commercial Group $1.5 million, 1.7 million, $ 3.2 million and $
        3.1
        million, respectively.
  Globe
        Maritime Limited (“Globe”), owned by James W. Bayley, acted as our chartering
        broker and charged commissions for arranging charters through December 31,
        2005.
        Globe Maritime Limited will continue acting as our broker on the sale and
        purchase of vessels for which it will earn a commission. Commissions paid
        to
        Globe are based upon market rates. For the three months ended June 30, 2006
        and
        2005 and the six months ended June 30, 2006 and 2005, we paid Globe Maritime
        $16,374, $81,000, $32,922 and $81,000, respectively. The commission of $81,000
        paid during the second quarter of 2006 related to our acquisition of
        the *Kibishio Maru* (renamed *Aztec
        Maiden* )
        for
        which we entered into a memorandum of agreement at the end of 2005.
  TBS
        Shipping Services maintains an office in Yonkers, New York that is leased
        from
        our chairman and chief executive officer, Joseph E. Royce. For the three
        months
        ended June 30, 2006 and 2005 and the six months ended June 30, 2006 and 2005,
        we
        paid Mr. Royce $60,000, $60,000, $120,000, and $120,000, respectively. Lease
        payments of $240,000 per year are required under the lease.
  Mr.
          Blatte, who became an officer of the Company in March 2005, provided and
          was
          paid for legal and consulting services to the Company and its affiliates
          prior
          to him becoming an officer. For the three months and six months ended June
          30,
          2005, the Company paid Mr. Blatte $188,348 and $369,023 for legal services
          respectively. During the six months ended June 30, 2005, TBS Shipping Services
          Inc. made payments totaling $150,000 to Mr. Blatte for legal services.
          Effective
          January 1, 2006, Mr. Blatte retired as a lawyer and did not perform any
          legal
          services for the Company or its affiliates.
  Table
            of Contents
 37
  Our
        board
        has delegated authority to the compensation committee to review and approve
        on
        an annual basis all transactions with our executive officers, directors and
        affiliates.
  ***Summary
        of Critical Accounting Policies***
  The
        Company’s discussion
        and analysis of its results of operations, financial condition and liquidity
        are
        based upon the Company’s consolidated financial statements, which have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America. The preparation of these financial statements requires
        the Company to make estimates and judgments that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the financial statements and the reported amounts of revenues
        and
        expenses during the reporting period. The Company bases its estimates on
        historical experience and on various other assumptions that are believed
        to be
        reasonable under the circumstances. Actual results may materially 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. There has been no change in or additions to our critical accounting
        policies from those disclosed in our Form 10-K filed March 16, 2006.
  ***New
        Accounting Pronouncements***
  In
        July 2006, the Financial Accounting Standards Board ("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, the adoption of FIN 48 will have
        on
        our financial statements .
  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.
  In December 2004, the FASB issued SFAS No. 123R, " *Share-Based
        Payment* "
        ("SFAS
        123R"). SFAS No. 123R revises previously issued SFAS 123 " *Accounting
        for Stock-Based Compensation* ,"
        supersedes APB No. 25 " *Accounting
        for Stock Issued to Employees,* ", and
        amends SFAS Statement No. 95 " *Statement
        of Cash Flows.* "
        SFAS
        123R requires the Company to expense the fair value of employee share options
        and other forms of share-based compensation for the annual periods beginning
        after June 15, 2005. The cost will be recognized over the period during which
        an
        employee is required to provide services in exchange for the award. The
        share-based award must be classified as equity or as a liability and the
        compensation cost is measured based on the fair value of the award at the
        date
        of the grant. In addition, liability awards will be re-measured at fair value
        each reporting period. The Company 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 result in the same amount of compensation expense
        recognized. See Note 10 - Stock Plan.
  Table
            of Contents
 38
  **Item
        3.** **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 June
        30,
        2006, we had $80.7 million of floating rate debt with margins over the LIBOR
        rate ranging from 1.5% to 3.7% compared to $96.1 million of floating rate
        debt
        as of December 31, 2005. As an indication of the extent of our sensitivity
        to
        interest rate changes, an increase in the LIBOR rate of 100 basis points
        would
        have decreased our net income and cash flows for the six months ending June
        30,
        2006 by approximately $403,000 based upon our debt level at June 30,
        2006.
  ***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 9.7% of our operating
        expenses in currencies other than U.S. dollars. For accounting purposes,
        expenses incurred in currencies other than U.S. dollars are converted into
        U.S.
        dollars at the exchange rate prevailing on the date of each transaction.
        At June
        30, 2006, approximately 7.4% of our outstanding accounts payable were
        denominated in currencies other than U.S. dollars.
 
 **Item
        4.****Controls and Procedures**
  As
        of
        June 30, 2006, an evaluation was performed under the supervision and with
        the
        participation of the Company's management, including the Chief Executive
        Officer
        ("CEO"), Chief Financial Officer ("CFO"), and Chief Accounting Officer ("CAO")
        of the effectiveness of the design and operation of the Company's disclosure
        controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
        the
        Exchange Act). Based on that evaluation, the Company's management, including
        the
        CEO, CFO and CAO, concluded that the Company's current disclosure controls
        and
        procedures were effective as of June 30, 2006. There have been no changes
        in the
        Company's internal control over financial reporting that have materially
        affected, or are reasonably likely to materially affect, our internal control
        over financial reporting during the period covered by this quarterly
        report.
  **PART
        II**
 
 **Item
        1.****Legal
        Proceedings**
 
 In
        connection with the acquisition of the vessel *Tamoyo
        Maiden* (formerly the *Sea
        Pantheon)* in
        November 2004, from Rifino Shipping Company Limited, a Cyprus corporation,
        which
        delivered January 18, 2005, ** we
        initiated a claim January 25, 2005, seeking damages for the cost of repairs
        and
        loss of hire related to ballast tank contamination discovered after delivery
        of
        the vessel. As specified in the purchase agreement, the dispute was made
        in
        London in accordance with the British Arbitration Acts of 1950 and 1979.
        The
        Company, through its subsidiary, had an associated vessel owned by a company
        related to the seller arrested to secure its claim. The vessel was released
        upon
        the seller providing a bank guarantee in the amount of $2.1 million. The
        seller
        alleged damages due to the arrest of the associated vessel. We paid $750,000
        on
        June 6, 2005, as counter-security to provide for estimated
        arbitration/litigation costs, as required under English law. On August 17,
        2005,
        legal counsel obtained a reduction of $217,500 in the amount of the
        counter-security to $532,500. Arbitration proceedings took place in April
        2006
        and we are awaiting the decision of the Arbitrator.
 
 Table
            of Contents
 39
  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
        1A.Risk Factors**
 
 We
        believe that there have not been any material changes to the risk factors
        as
        previously disclosed in our Form 10-K filed March 16, 2006. The Risk Factors
        are
        hereby incorporated in Part II, Item 1A of this Form 10-Q. The risk factors
        and other information included in our Form 10-K should be carefully considered
        prior to making an investment decision with respect to the Company’s stock. The
        risks and uncertainties described in our Form 10-K 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
        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.
  **Item
        2. C**hanges in Securities, Use of
        Proceeds and Issuers Purchase of Equity
        Securities****
  None.
 
 **Item
        3.** **Defaults Upon Senior
        Securities**
 
 None.
 
 **Item
        4.** **Submission of
        Matters to a Vote of Security Holders**
  We
        held
        our Annual General Meeting of Shareholders on June 20, 2006. The shareholders
        (1) re-elected directors Joseph E. Royce, Gregg L. McNelis, Randy E. Day,
        Peter S. Shaerf, and William P. Harrington; (2) reappointed
        PricewaterhouseCoopers LLP as the Company’s independent registered public
        accounting firm until the 2007 Annual General Meeting.
  The
        following table sets forth the votes cast at the Annual General Meeting of
        Shareholders on June 20, 2006, with respect to each of the matters described
        above. Votes below reflect the votes cast by Class A Common Shareholders,
        which
        are entitled to one vote for each share, and Class B Common Shareholders
        which
        are entitle to one-half vote for each share.
  **MATTER**
              
              **FOR**
              
              **AGAINST**
              
              **WITHHELD**
              
              **ABSTAIN**Re-election
                  of Joseph E. Royce
              
              
              19,675,564
              
              
              14,700
              
              
              0
              
              
              0Re-election
                  of Gregg L. McNelis
              
              
              19,675,564
              
              
              14,700
              
              
              0
              
              
              0Re-election
                  of Randy E. Day
              
              
              19,675,564
              
              
              14,700
              
              
              0
              
              
              0Re-election
                  of Peter S. Shaerf
              
              
              19,673,164
              
              
              17,100
              
              
              0
              
              
              0Re-election
                  of William P. Harrington
              
              
              19,673,164
              
              
              17,100
              
              
              0
              
              
              0Reappointment
                  of PricewaterhouseCoopers LLP as the Company’s independent registered
                  public accounting firm until the 2007 Annual General Meeting.
              
              
              19,640,641
              
              
              19,102
              
              
              0
              
              
              30,519
  Table
            of Contents
 40
  **Item
        5.****Other
        Information**
  None.
 
 **Item
        6.** **Exhibits**
  31.1
              Form
                  of Memorandum of Association*
 31.2
              Bye-laws
                  *
  31.1**
              Certification
                  of the Chief Executive Officer pursuant to rules 13a-15(a) and
                  15d-15(a)
                  under the Securities Exchange Act of 1934, as adopted pursuant
                  to Section
                  302 of the Sarbanes-Oxley Act of
                  2002
  31.2**
              Certification
                  of the Chief Financial Officer pursuant to rules 13a-15(a) and
                  15d-15(a)
                  under the Securities Exchange Act of 1934, as adopted pursuant
                  to Section
                  302 of the Sarbanes-Oxley Act of
                  2002
  31.3**
              Certification
                  of the Chief Accounting Officer pursuant to rules 13a-15(a) and
                  15d-15(a)
                  under the Securities Exchange Act of 1934, as adopted pursuant
                  to Section
                  302 of the Sarbanes-Oxley Act of
                  2002
  32.1**
              Certification
                  of the Chief Executive Officer, Chief Financial Officer and Chief
                  Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002.
                  ***
 __________
  *
              Incorporatedby
                  reference. Filed March 7, 2005 in Registration Statement No.333-123157
  **
              Filed
                  herewith.
  ***
              Pursuant
                  to SEC Release No. 33-8212, this certification will be treated
                  as
                  "accompanying" this Quarterly Report on Form 10-Q and not "filed"
                  as part
                  of such report for purposes of Section 18 of the Securities Exchange
                  Act,
                  as amended, or otherwise subject the liability of Section 18 of
                  the
                  Securities Exchange Act, as amended, and this certification will
                  not be
                  deemed to be incorporated by reference into any filing under the
                  Securities Act of 1933, as amended, or the Securities Exchange
                  Act, as
                  amended, except to the extent that the registrant specifically
                  incorporates it by reference.
   Table
            of Contents
 41
  **TBS
        INTERNATIONAL LIMITED & SUBSIDIARIES**
  **Signatures**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this Quarterly Report on Form 10-Q to be signed on its behalf
        by the undersigned, thereunto duly authorized, on the 10 th day of
        August  2006.
 
 **TBS
                  INTERNATIONAL LIMITED**(Registrant)/s/
                  Joseph E.
                  RoyceJoseph
                  E. Royce
                President
                  and Chief Executive Officer/s/
                  Ferdinand V.
                  LepereFerdinand
                  V. Lepere
                Senior
                  Vice President, Chief Financial Officer/s/
                  Anthony
                  GentileAnthony
                  Gentile
                Controller,
                  Chief Accounting Officer
 
               
 
 42