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 March 31, 2009
 or
 o   
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
  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)
  N/A(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.                                    Yes x
  No  ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every   Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files): Yes     ̈    No      ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer," "accelerated filer” and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
 Large
Accelerated Filer ̈  Accelerated Filer x  Non-accelerated
Filer ̈  Smaller Reporting Company o
 Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes  ̈
   No x
 As
      of May 4, 2009, the registrant had outstanding 17,500,871 Class A
      common shares, par value $0.01 per share, and 12,390,461 Class B common
      shares, par value $0.01 per
share.


TBS INTERNATIONAL
LIMITED







Form
      10-Q For the Quarterly Period Ended March 31, 2009Table of
      Contents


PagePART
      I:  FINANCIAL INFORMATIONItem
      1
                                                          Financial
      StatementsConsolidated Balance Sheets as of March 31, 2009
      (Unaudited) and December 31, 2008
                                                          3Consolidated Statements of Income (Unaudited) for
      the three months ended March 31, 2009 and March 31,
      2008
                                                          4Consolidated
      Statements of Cash Flows (Unaudited) for the three months ended March 31,
      2009and
      March 31, 2008
                                                          5Consolidated Statement of Changes in
      Shareholders' Equity (Unaudited) for the three months ended March 31,
      2009
                                                          6Notes to Consolidated Financial
      Statements
                                                          7Item
      2
                                                          Management’s Discussion and Analysis of
      Financial Condition and Results of
      Operations
                                                          22Item
      3
                                                          Quantitative and Qualitative Disclosure About
      Market Risk
                                                          39Item
      4
                                                          Controls and
      Procedures
                                                          40PART
      II:  OTHER INFORMATIONItem
      1
                                                          Legal
    Proceedings
                                                          41Item
      1A
                                                          Risk Factors
                                                          41Item
      2
                                                          Unregistered Sales of Equity Securities and Use
      of Proceeds
                                                          41Item
      3
                                                          Defaults Upon Senior
      Securities
                                                          41Item
      4
                                                          Submission of Matters to a Vote of Security
      Holders
                                                          41Item
      5
                                                          Other Information
                                                          41Item
      6
                                                          Exhibits
                                                          42Signatures






























2


PART
I.    FINANCIAL INFORMATION


Item 1.    Financial
Statements




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS


(in
thousands, except par value per share)


March
      31,
                                                                                                    
                                                                                                    
                                                                                                    December
      31,2009
                                                                                                    
                                                                                                    
                                                                                                    2008(unaudited)AssetsCurrent
      assetsCash
      and cash equivalents
                                                                                                    
                                                                                                    $
                                                                                                    51,854
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    131,150Restricted
      cash
                                                                                                    
                                                                                                    
                                                                                                    20,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -Charter
      hire receivable, net of allowance of $500 in 2009and
      $500 in 2008
                                                                                                    
                                                                                                    
                                                                                                    31,674
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    45,786Fuel
      and other inventories
                                                                                                    
                                                                                                    
                                                                                                    11,930
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    12,079Prepaid
      expenses and other current assets
                                                                                                    
                                                                                                    
                                                                                                    10,072
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    10,722Advances
      to affiliates
                                                                                                    
                                                                                                    
                                                                                                    2,398
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    6,402Total
      current assets
                                                                                                    
                                                                                                    
                                                                                                    127,928
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    206,139Fixed
      assets, net
                                                                                                    
                                                                                                    
                                                                                                    805,075
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    808,706Goodwill
                                                                                                    
                                                                                                    
                                                                                                    8,426
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    8,426Other
      assets and deferred charges
                                                                                                    
                                                                                                    
                                                                                                    20,781
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    18,414Total
      assets
                                                                                                    
                                                                                                    $
                                                                                                    962,210
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    1,041,685Liabilities
      and Shareholders' EquityCurrent
      liabilitiesDebt,
      current portion
                                                                                                    
                                                                                                    $
                                                                                                    18,795
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    56,945Accounts
      payable and accrued expenses
                                                                                                    
                                                                                                    
                                                                                                    38,228
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    41,602Voyages
      in progress
                                                                                                    
                                                                                                    
                                                                                                    1,436
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,268Advances
      from affiliates
                                                                                                    
                                                                                                    
                                                                                                    326
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    13Total
      current liabilities
                                                                                                    
                                                                                                    
                                                                                                    58,785
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    101,828Debt,
      long-term portion
                                                                                                    
                                                                                                    
                                                                                                    310,695
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    326,129Other
      liabilities
                                                                                                    
                                                                                                    
                                                                                                    14,737
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    15,432Total
      liabilities
                                                                                                    
                                                                                                    
                                                                                                    384,217
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    443,389COMMITMENTS
      AND CONTINGENCIES (Note 12)Shareholders'
      equityCommon
      shares, Class A, $.01 par value, 75,000,000 authorized, 17,519,496
      sharesissued
      and 17,500,871 shares outstanding in 2009 and 17,519,496 shares
                                                                                                      issuedand
      17,509,496 outstanding in 2008
                                                                                                    
                                                                                                    
                                                                                                    175
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    175Common
      shares, Class B, $.01 par value, 30,000,000 authorized,12,390,461
      shares issued and outstanding in 2009 and 2008
                                                                                                    
                                                                                                    
                                                                                                    124
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    124Warrants
                                                                                                    
                                                                                                    
                                                                                                    21
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    21Additional
      paid-in capital
                                                                                                    
                                                                                                    
                                                                                                    187,039
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    186,683Accumulated
      other comprehensive (loss)
                                                                                                    
                                                                                                    
                                                                                                    (13,020
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (13,727
                                                                                                    )Retained
      earnings
                                                                                                    
                                                                                                    
                                                                                                    404,121
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    425,409Less:
      Tresury stock (18,625 shares, at cost)
                                                                                                    
                                                                                                    
                                                                                                    (467
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (389
                                                                                                    )Total
      shareholders' equity
                                                                                                    
                                                                                                    
                                                                                                    577,993
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    598,296Total
      liabilities and shareholders' equity
                                                                                                    
                                                                                                    $
                                                                                                    962,210
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    1,041,685





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


Table of Contents
 3


TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF INCOME


(in
thousands, except per share amounts and outstanding shares)




Three
      Months Ended March 31,2009
                                                                                      
                                                                                      
                                                                                      2008(unaudited)
                                                                                      
                                                                                      
                                                                                      (unaudited)RevenueVoyage
      revenue
                                                                                      
                                                                                      $
                                                                                      64,513
                                                                                      
                                                                                      
                                                                                      $
                                                                                      98,160Time
      charter revenue
                                                                                      
                                                                                      
                                                                                      6,171
                                                                                      
                                                                                      
                                                                                      
                                                                                      32,726Logistics
      revenue
                                                                                      
                                                                                      
                                                                                      266
                                                                                      
                                                                                      
                                                                                      
                                                                                      532Other
      revenue
                                                                                      
                                                                                      
                                                                                      208
                                                                                      
                                                                                      
                                                                                      
                                                                                      158Total
      revenue
                                                                                      
                                                                                      
                                                                                      71,158
                                                                                      
                                                                                      
                                                                                      
                                                                                      131,576Operating
      expensesVoyage
                                                                                      
                                                                                      
                                                                                      28,999
                                                                                      
                                                                                      
                                                                                      
                                                                                      31,918Logistics
                                                                                      
                                                                                      
                                                                                      249
                                                                                      
                                                                                      
                                                                                      
                                                                                      500Vessel
                                                                                      
                                                                                      
                                                                                      27,979
                                                                                      
                                                                                      
                                                                                      
                                                                                      23,434Depreciation
      and amortization of vesselsand
      other fixed assets
                                                                                      
                                                                                      
                                                                                      22,719
                                                                                      
                                                                                      
                                                                                      
                                                                                      13,493General
      and administrative
                                                                                      
                                                                                      
                                                                                      8,686
                                                                                      
                                                                                      
                                                                                      
                                                                                      11,767Total
      operating expenses
                                                                                      
                                                                                      
                                                                                      88,632
                                                                                      
                                                                                      
                                                                                      
                                                                                      81,112(Loss)
      income from operations
                                                                                      
                                                                                      
                                                                                      (17,474
                                                                                      )
                                                                                      
                                                                                      
                                                                                      50,464Other
      (expenses) and incomeInterest
      expense
                                                                                      
                                                                                      
                                                                                      (3,511
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (3,437
                                                                                      )Loss
      on extinguishment of debt
                                                                                      
                                                                                      
                                                                                      0
                                                                                      
                                                                                      
                                                                                      
                                                                                      (2,318
                                                                                      )Interest
      and other income (expense)
                                                                                      
                                                                                      
                                                                                      (303
                                                                                      )
                                                                                      
                                                                                      
                                                                                      669Total
      other (expenses) and income, net
                                                                                      
                                                                                      
                                                                                      (3,814
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (5,086
                                                                                      )Net
      (loss) income
                                                                                      
                                                                                      $
                                                                                      (21,288
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      45,378Earnings
      per shareNet
      (loss) income per common shareBasic
      and Diluted
                                                                                      
                                                                                      $
                                                                                      (0.71
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      1.61Weighted
      average common shares outstandingBasic
      and Diluted
                                                                                      
                                                                                      
                                                                                      29,817,405
                                                                                      
                                                                                      
                                                                                      
                                                                                      28,044,310












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


Table of Contents
 4




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)




Three
      Months Ended March 31,2009
                            
                            
                            2008(unaudited)
                            
                            
                            (unaudited)Cash
      flows from operating activitiesNet
      (loss) income
                            
                            $
                            (21,288
                            )
                            
                            $
                            45,378Adjustments
      to reconcile net income to net cashprovided
      by operating activitiesDepreciation
      and amortization
                            
                            
                            22,719
                            
                            
                            
                            13,493Loss
      on change in value of interest swap contract
                            
                            
                            12
                            
                            
                            
                            92Amortization
      and write-off of deferred financing costs
                            
                            
                            737
                            
                            
                            
                            2,529Non
      cash stock based compensation
                            
                            
                            356
                            
                            
                            
                            491Drydocking
      expenditures
                            
                            
                            (5,390
                            )
                            
                            
                            (2,374
                            )(Income)
      loss in joint venture
                            
                            
                            -
                            
                            
                            
                            (322
                            )Changes
      in operating assets and liabilitiesDecrease
      (increase) in charter hire receivable
                            
                            
                            14,112
                            
                            
                            
                            (13,222
                            )Decrease
      (increase) in fuel and other inventories
                            
                            
                            149
                            
                            
                            
                            (2,655
                            )Decrease
      in prepaid expenses and other current assets
                            
                            
                            650
                            
                            
                            
                            1,655(Increase)
      in other assets and deferred charges
                            
                            
                            (274
                            )
                            
                            
                            (639
                            )(Decrease)
      in accounts payable and accrued expenses
                            
                            
                            (3,374
                            )
                            
                            
                            (6,877
                            )(Decrease)
      increase in voyages in progress
                            
                            
                            (1,832
                            )
                            
                            
                            2,693Increase
      (decrease)  in advances from/to affiliates, net
                            
                            
                            4,317
                            
                            
                            
                            (2,814
                            )Net
      cash provided by operating activities
                            
                            
                            10,894
                            
                            
                            
                            37,428Cash
      flows from investing activitiesVessel
      acquisitions / capital improvement costs
                            
                            
                            (13,698
                            )
                            
                            
                            (163,035
                            )Restricted
      cash to fund 2009 new vessel payments
                            
                            
                            (20,000
                            )
                            
                            
                            -Deposit
      for vessel purchases
                            
                            
                            -
                            
                            
                            
                            (3,030
                            )Investment
      in joint venture
                            
                            
                            (119
                            )
                            
                            
                            -Repayment
      of loan made from joint venture
                            
                            
                            -
                            
                            
                            
                            500Net
      cash (used) by investing activities
                            
                            
                            (33,817
                            )
                            
                            
                            (165,565
                            )Cash
      flows from financing activitiesRepayment
      of debt principal
                            
                            
                            (58,584
                            )
                            
                            
                            (125,915
                            )Proceeds
      from debt
                            
                            
                            5,000
                            
                            
                            
                            282,500Payment
      of deferred financing costs
                            
                            
                            (2,711
                            )
                            
                            
                            (4,079
                            )Acquisition
      of treasury stock
                            
                            
                            (78
                            )
                            
                            
                            -Net
      cash (used in) provided by  financing activities
                            
                            
                            (56,373
                            )
                            
                            
                            152,506Net
      (decrease) increase  in cash and cash equivalents
                            
                            
                            (79,296
                            )
                            
                            
                            24,369Cash
      and cash equivalents beginning of period
                            
                            
                            131,150
                            
                            
                            
                            30,498Cash
      and cash equivalents end of period
                            
                            
                            51,854
                            
                            
                            $
                            54,867Supplemental
      cash flow information:Interest
      paid, net of amounts capitalized
                            
                            $
                            5,258
                            
                            
                            $
                            2,537













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


Table of Contents
 5





TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY


(in
thousands, except shares)


(unaudited)




AccumulatedOther
      Com-Additional
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            prehensiveCommon
      Shares
                                                                                                                                            
                                                                                                                                            Treasury
      Stocks
                                                                                                                                            
                                                                                                                                            Warrants
                                                                                                                                            
                                                                                                                                            Paid-in
                                                                                                                                            
                                                                                                                                            Retained
                                                                                                                                            
                                                                                                                                            IncomeShares
                                                                                                                                            
                                                                                                                                            Amount
                                                                                                                                            
                                                                                                                                            Shares
                                                                                                                                            
                                                                                                                                            Amount
                                                                                                                                            
                                                                                                                                            Shares
                                                                                                                                            
                                                                                                                                            Amount
                                                                                                                                            
                                                                                                                                            Capital
                                                                                                                                            
                                                                                                                                            Earnings
                                                                                                                                            
                                                                                                                                            (Loss)
                                                                                                                                            
                                                                                                                                            TotalBalance
      at December 31, 2008
                                                                                                                                            29,909,957
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            299
                                                                                                                                            
                                                                                                                                            10,000
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            (389
                                                                                                                                            )
                                                                                                                                            311,903
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            21
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            186,683
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            425,409
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            (13,727
                                                                                                                                            )
                                                                                                                                            $
                                                                                                                                            598,296Net
      loss
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            (21,288
                                                                                                                                            )
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            (21,288
                                                                                                                                            )Unrealized
      gain on cash flow hedges
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            707
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            707Comprehensive
      income
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            (20,581
                                                                                                                                            )Stock
      based compensation
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            356
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            356Treasury
      stock
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            8,625
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            (78
                                                                                                                                            )
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            (78
                                                                                                                                            )Balance
      at March 31, 2009
                                                                                                                                            29,909,957
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            299
                                                                                                                                            
                                                                                                                                            18,625
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            (467
                                                                                                                                            )
                                                                                                                                            311,903
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            21
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            187,039
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            404,121
                                                                                                                                            
                                                                                                                                            $
                                                                                                                                            (13,020
                                                                                                                                            )
                                                                                                                                            $
                                                                                                                                            577,993































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


Table of Contents
 6




Note 1 — Basis of Presentation
  TBS International Limited ("TBSI") and
its subsidiaries (the "Company", "we" or "our") are engaged in the ocean
transportation of dry cargo offering shipping solutions through liner, parcel,
bulk and vessel chartering services.  Substantially all related
corporations of TBSI are foreign corporations and conduct their business
operations worldwide.  The accompanying unaudited consolidated
financial statements and notes thereto have been prepared in accordance with
U.S. generally accepted accounting principles for interim financial statements
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.  These consolidated interim financial
statements should be read in conjunction with the financial statements and notes
included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008.  Operating results for the three month period
ended March 31, 2009 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2009.
 
 The
consolidated balance sheet at December 31, 2008 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, 2008 included in TBSI's Annual
Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on
March 30, 2009.
 
 To
conform to the 2009 presentation, we revised the 2008 Consolidated
Statements of Income for logistics revenue and expense.  Logistics
revenue of $532,000 which was previously classified as other revenue is now
reported as logistics revenue.  Logistics expense of $500,000 which
was previously classified as voyage expense is now reported as logistics
expense.  This revision did not impact net income.  The
Company's consolidated statements of cash flows for the three months ended March
31, 2008 have been revised to change the classification of drydocking
expenditures from net cash used by investing activities to net cash flows
provided by operating activities.  The revision decreased net cash
provided by operating activities by $2.4 million.
 
 Note
2 — New Accounting Pronouncements
 
 In April
2009, the Financial Accounting Standards Board (FASB) issued Staff Position
("FSP") InterimDisclosures about Fair Value of
Financial Instruments ("No. SFAS 107-1 and APB 28-1"). The FSP amends
FASB Statement ("SFAS") No.107, Disclosures about the Fair Value of
Financial Instruments, and APB
No.28, Interim Financial
Reporting to include disclosures about the fair value of its financial
instruments whenever summarized financial information for interim reporting
periods is issued. The FSP is effective for interim periods ending after June
15, 2009.  The Company is currently evaluating the impact that FSP
SFAS 107-1 and APB28-1 will have on its consolidated financial
statements.
  In June
2008, the FASB issued FSP Emerging Issues Task Force (EITF), Determining Whether Instruments
Granted in Share-Based Payment Transactions areParticipating Securities("EITF 03-6-01"),which
provides that unvested share-based payment awards that contain non-forfeitable
rights to dividends are participating securities and shall be included in the
computation of earnings per share pursuant to the two-class method described in
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share.  The
adoption of FSP EITF 03-6-1 did not have a material impact on our consolidated
financial statements as discussed in financial statement Note 11Earnings Per
Share.
  In March
2008, the FASB issued SFAS No. 161,Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No.
133 Accounting for Derivative
Instruments and Hedging Activities ("SFAS 161").  SFAS 161
changes the disclosure requirements for derivative instruments and hedging
activities requiring enhanced disclosures about: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for under FASB Statement No. 133 and its related interpretations; and
how derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows.  SFAS 161 intends to
enhance the current disclosure framework in FASB Statement No. 133 by requiring:
objectives for using derivative instruments and related hedged items be
disclosed in terms of underlying risk that an entity is trying to manage;
tabular presentation of the fair values, gains and losses of derivative
instruments; disclosure of credit-risk-related contingent features; and cross
referencing within financial statement footnotes.  SFAS 161 is
effective for fiscal years and interim periods beginning after November 15, 2008
with early application encouraged.  We have adopted SFAS 161and
included the required disclosures.
  Table of Contents
 7
 In
December 2007, the FASB issued SFAS No. 160,Noncontrolling
Interests in Consolidated Financial Statements - an amendment of ARB (Accounting
Research Bulletin) No. 51  ("SFAS 160").  SFAS 160
establishes accounting and reporting standards for entities (excluding
not-for-profit organizations) with outstanding noncontrolling interest in one or
more subsidiaries or that deconsolidate a subsidiary.  The objective
of SFAS 160 is to improve the relevance, comparability and transparency of
financial information that a reporting entity provides in its consolidated
financial statements.  The standards require:  ownership
interests in subsidiaries held by parties other than the parent be clearly
identified and presented within equity but separate from the parent's equity in
the consolidated statement of financial position; net income attributable to the
parent and the noncontrolling interest be identified and presented on the face
of the consolidated statement of income; changes in a parent's ownership
interest while the parent retains its controlling financial interest in its
subsidiary be consistently accounted for as equity transactions; any retained
noncontrolling equity investment in a former deconsolidated subsidiary be
initially measured at fair value and that any gain or loss on the
deconsolidation of a subsidiary be measured using fair value of the
noncontrolling equity investment rather than the carrying amount of that
retained investment; and entities provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and noncontrolling
owners.  SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008.  The
adoption of SFAS 160 did not have a material impact on our consolidated
financial statements.
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007),Business
Combinations ("SFAS 141(R)").  SFAS 141(R) establishes
principles and requirements for how an acquiring entity measures and recognizes
in its financial statements: the identifiable assets acquired; the liabilities
assumed; any noncontrolling interest in the acquiree; and the goodwill acquired
or a gain from a bargain purchase.  SFAS 141(R) sets forth disclosure
criteria to enable a better understanding of the nature and effects of a
business combination. SFAS 141(R) applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  The
adoption of SFAS 141(R) did not have a material impact on our consolidated
financial statements.
 
 In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements
("SFAS 157"), which is effective for fiscal years beginning after November 15,
2007 and for interim periods within those years.  SFAS 157 defines
fair value, establishes a framework for measuring fair value and expands the
related disclosure requirements.  SFAS 157 applies under other
accounting pronouncements that require or permit fair value
measurements.  SFAS 157 indicates, among other things, that a fair
value measurement assumes that the transaction to sell an asset or transfer a
liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or
liability. SFAS 157 defines fair value based upon an exit price
model.
 
 Relative
to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1 and 157-2. FSP
157-1 amends SFAS 157 to exclude SFAS No. 13,Accounting for Leases ("SFAS
13") and its related interpretive accounting pronouncements that address leasing
transactions, while FSP 157-2 delays the effective date of the application of
SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis.  The
adoption of FSP 157-1 and 157-2 did not have a material impact on our
consolidated financial statements.
  The
Company adopted SFAS 157 as of January 1, 2008, with the exception of the
application of the statement to non-recurring nonfinancial assets and
nonfinancial liabilities.  Non-recurring nonfinancial assets and
nonfinancial liabilities for which the Company  has not applied the
provisions of SFAS 157 include those measured at fair value in goodwill
impairment testing, and indefinite lived intangible assets measured at fair
value for impairment testing.
 
 Note
3 — Fuel and Other Inventories
  Fuel and
other inventories consist of the following (in thousands):


March
      31,
                                
                                
                                December
      31,Description
                                
                                2009
                                
                                
                                2008Fuel
                                
                                $
                                6,521
                                
                                
                                $
                                7,081Lubricating
      oil
                                
                                
                                4,786
                                
                                
                                $
                                4,356Other
                                
                                
                                623
                                
                                
                                $
                                642TOTAL
                                
                                $
                                11,930
                                
                                
                                $
                                12,079


Table of Contents
 8
 Note
4— 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 one year.  The Company typically advances funds to affiliates in
connection with the payment of management fees, commissions and consulting fees.
 Advances from affiliates originated primarily from amounts due to
affiliates for management fees, commissions and consulting fees
earned.
  Fixed
assets consist of the following (in thousands):


Description
                                  
                                  March
      31,2009
                                  
                                  
                                  December
      31, 2008Vessels
                                  
                                  $
                                  677,901
                                  
                                  
                                  $
                                  677,901Vessel
      improvements and other equipment
                                  
                                  
                                  151,934
                                  
                                  
                                  
                                  140,738Deferred
      drydocking costs
                                  
                                  
                                  21,114
                                  
                                  
                                  
                                  15,724Vessel
      construction in process
                                  
                                  
                                  127,932
                                  
                                  
                                  
                                  126,024Other
      fixed assets
                                  
                                  
                                  17,573
                                  
                                  
                                  
                                  16,979996,454
                                  
                                  
                                  
                                  977,366Less
      accumulated depreciation and amortization
                                  
                                  
                                  (191,379
                                  )
                                  
                                  
                                  (168,660
                                  )$
                                  805,075
                                  
                                  
                                  $
                                  808,706




Note
6 — Valuation of Long-Lived Assets and Goodwill
  As of
December 31, 2008, due to the current economic climate and its effects on the
shipping industry, specifically the recent significant decline in charter rates
and the significant decline in our market capitalization during the end of
2008, we concluded there was an indication of possible impairment of long-lived
assets and goodwill.
 
 In
accordance with SFAS No 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, we perform tests for impairment of
long-lived assets whenever events or circumstances, such as the significant
change in charter rates and vessel valuations, suggest that long-lived
assets may not be recoverable.  This analysis differs from our
goodwill analysis in that impairment is only deemed to have occurred if the sum
of the forecasted undiscounted future cash flows related to the assets is less
than the carrying value of the assets we are testing for
impairment.  If the forecasted cash flows from long lived assets are
less than the carrying value of such assets, then we must write down the
carrying value to its estimated fair value. Forecasting future cash flows
involves the use of significant estimates and assumptions.  The cash
flow period was based on the remaining lives of the vessels which range from 4
to 30 years. Revenue and expense assumptions used in the cash flow projections
are consistent with internal projections and reflect our current economic
outlook.   Based on our December 31, 2008 analysis, there
was no impairment of fixed assets at year-end.  At March 31, 2009, no
indication of impairment of fixed assets was present.  Future events
or circumstances, which could require us to perform updated tests for
impairment, may cause us to conclude that impairment of our fleet
exists.
 
 The provisions of SFAS No 142, Goodwill and Other Intangible
Assets, require that an annual impairment test be performed on
goodwill.  We perform our annual impairment analysis of goodwill on
May 31st of each year, or more often if there are indicators of impairment
present.  The first of two steps require us to compare the reporting unit’s
carrying value of net assets to their fair value.  If the fair value
exceeds the carrying value, goodwill is considered not impaired and we are not
required to perform further testing.  If the carrying value of the net
assets exceeds the fair value, then we must perform the second step of the
impairment test in order to determine the implied fair value of
goodwill.  If the carrying value of goodwill exceeds its implied fair
value, then we are required to record an impairment loss equal to the
difference.
 
 Determining the reporting unit’s fair value involves the use of
significant estimates and assumptions.  The reporting unit consists of
the companies acquired in connection with the initial public offering that
created the goodwill of $8.4 million.  We estimate the fair value using
income and market approaches through the application of discounted cash
flow.  We updated our analysis at December 31, 2008 revising certain key
assumptions to reflect:  (a) reductions in future expected cash flows for
the period from 2009 to 2013 due to revised forecasts for 2009 and later years;
and (b) a discount rate of 13%, which was based on our best estimates of
the weighted-average cost of capital.  Based on our December 31,
2008 analysis, there was no impairment of goodwill at year-end.  At March
31, 2009, no indication of impairment of goodwill was present.
 
 Table of Contents
 9
 Note
7 — Accounts Payable and Accrued Expenses
 
 Accrued
expenses consist of the following (in thousands):


March
      31,
                    
                    
                    December
      31,Description
                    
                    2009
                    
                    
                    2008Accounts
      payable and accrued expenses - vessel
                    
                    $
                    28,055
                    
                    
                    $
                    29,082Accounts
      payable and accrued expenses - voyage
                    
                    
                    8,872
                    
                    
                    
                    11,126Accrued
      payroll and related costs
                    
                    
                    1,298
                    
                    
                    
                    1,394Total
                    
                    $
                    38,225
                    
                    
                    $
                    41,602
  Note
8 — Financing




The
Company's outstanding credit facilities consist of the following (in
thousands):


Interest
      Rate at
                              March
      31, 2009
                            
                            
                            March
      31, 2009
                            
                            
                            December
      31, 2008Bank
      of America - term credit facility,expires
      December 31, 2011
                            
                            
                            4.91
                            %
                            
                            $
                            76,000
                            
                            
                            $
                            95,000Bank
      of America - revolving credit facility,expires
      March 26, 2012
                            
                            4.51%
      & 4.53
                            %
                            
                            
                            75,000
                            
                            
                            
                            75,000The
      Royal Bank of Scotland credit facility,new
      vessel buildings, expires December 2015
                            
                            
                            4.96
                            %
                            
                            
                            80,000
                            
                            
                            
                            75,000Credit
      Suisse credit facility,expires
      December 12, 2017 and  February 19, 2018
                            
                            4.10%
      & 4.00
                            %
                            
                            
                            28,750
                            
                            
                            
                            31,750DVB
      Group Merchant Bank (Asia) Ltd credit facility,expires
      January 23, 2013
                            
                            
                            5.13
                            %
                            
                            
                            35,864
                            
                            
                            
                            60,324AIG
      Commercial Equipment Finance, Inc. credit facility,expires
      April 1, 2012
                            
                            
                            7.00
                            %
                            
                            
                            19,250
                            
                            
                            
                            29,750Commerzbank
      AG credit facility,
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            -expires
      June 2, 2011
                            
                            
                            3.14
                            %
                            
                            
                            6,500
                            
                            
                            
                            6,500Berenberg
      Bank credit facility,expires
      June 19, 2012
                            
                            
                            3.01
                            %
                            
                            
                            8,126
                            
                            
                            
                            9,750Debt
      balance
                            
                            
                            
                            
                            
                            $
                            329,490
                            
                            
                            $
                            383,074


2009
      (April 1, 2009 through December 31, 2009)
                        
                        $
                        2,8352010
                        
                        
                        76,4642011
                        
                        
                        72,6982012
                        
                        
                        104,0732013
                        
                        
                        16,124Thereafter
                        
                        
                        57,296$
                        329,490
  Table of Contents
 10


Loan
Modifications
  As a
result of recent economic conditions and its impact on the shipping industry,
specifically the market value of vessels, the Company concluded discussions with
all lenders of our credit facilities in March 2009 to obtain a waiver of the
collateral coverage requirements and other financial covenants such as leverage,
fixed interest coverage ratios and minimum net worth and cash balance
requirements.  During March 2009, the credit facilities were modified
to waive the collateral coverage and all financial covenants through the fourth
quarter of 2009, provided that the Company meets two additional
covenants.  These covenants include an earnings before
interest, depreciation and amortization to interest expense ratio of
not less than 1.10 to 1.00, 1.35 to 1.00 and 1.75 to 1.00 at the end of
the second, third and fourth quarters of 2009, respectively, and minimum
end of month cash balance of not less than $40.0 million.  In
connection with the modification of the Bank of America Credit Facility, the
amount available under the Bank of America Revolving Credit Facility was reduced
from $125.0 million to $85.0 million.  The interest rate margins on
the Bank of America, The Royal Bank of Scotland, and AIG Commercial Equipment
Finance, Inc credit facilities increased 1.75%.  The
interest rate margins on the Credit Suisse, DVB Group Merchant Bank and the
Commerzbank AG credit facilities increased 1.70%, 1.50% and 1.50%,
respectively.  The interest rate margin on the Joh. Berenberg, Gossler
& Co. KG Credit Facility increased 1.30%.  The repayment term
of each of the loans made under The Royal Bank of Scotland Credit Facility
were modified from 40 quarterly installments after the drawdown of the
respective delivery advance to 20 quarterly installments.  The
quarterly installments of $0.4 million due on each of the loans remained the
same; however, the final payment due when the last quarterly payment is made
increased from $8.3 million to $16.6 million.  The Company was required
under the amended Bank of America and The Royal Bank of Scotland Credit
Facilities to maintain an average monthly cash balance of $15 million and $10
million, respectively that would be counted toward the $40.0 million end of
month cash balance requirement.  The Company is also required under
the amended The Royal Bank of Scotland Credit Facility to keep on deposit $20.0
million, which represents the portion of payments due to the shipyard during
2009 that are not funded by The Royal Bank of Scotland new building credit
facility.  The $20.0 million is not counted toward the $40.0 million
end of month cash balance requirement. The $20 million of restricted cash will
decrease as payments are made to the yard.   In connection with
the loan modifications, the Company incurred total financing costs of $2.7
million.
 
 The
lenders have agreed to waive existing financial covenants through January 1,
2010.  The original financial covenants will be reinstated effective
January 2, 2010. The company was in compliance with the modified covenants
as of March 31, 2009. Based on current internal projections we anticipate
that the Company will not meet the covenant requirements in 2010.  At
that time the Company will need to obtain additional waivers to modify the terms
of the existing credit facilities or refinance its debt.  The Company
has discussed this situation with our lenders, and they have agreed to commence
discussions in September or October 2009 to either extend the existing waivers
or modify the covenants based on our 2009 actual and projected results and
updated 2010 forecast. Assuming the Company is able to obtain additional waivers
or modify the terms of the existing credit facilities, the Company believes it
has sufficient liquidity to meet its needs over the next twelve
months.  In the event the company cannot secure modifications of the
existing credit facilities, this could raise substantial doubt about our ability
to continue as a going concern at that time.
 
 Bank of America Credit
Facility
  On March
26, 2008, the Company, through its subsidiaries, entered into a credit agreement
to amend and restate the existing Bank of America Credit Facility ("BA Credit
Facility").  The amendment increased the total syndicated BA Credit
Facility to $267.5 million from $160 million, increasing both the loan facility
("BA Term Credit Facility") and the revolving credit facility ("BA Revolving
Credit Facility"). The BA Term Credit Facility was increased to $142.5 million
from $80 million and the BA Revolving Credit Facility was increased to $125
million from $80 million.  In connection with the March 27, 2009
modification of the Bank of America Credit Facility, the amount available under
the Bank of America Revolving Credit Facility was reduced from $125.0 million to
$85.0 million.  At March 31, 2009, $75 million is outstanding
under the BA Revolving Credit Facility.  The March 27, 2009 loan
modification requires that the Company maintain a minimum average monthly cash
balance of $15.0 million with Bank of America, which is part of the $40.0
million minimum average cash balance required to be maintained under the
additional covenants.
 
 The BA
Term Credit Facility is repayable over four years in 15 quarterly installments
of $9.5 million with the last installment due December 31, 2011.  On March
31, 2009 the Company prepaid $28.5 million covering the June, September and
December 2009 installments.  The BA Revolving Credit Facility is due March
26, 2012. The Company has the option of selecting interest on the BA Credit
Facility at the 30-day, 60-day, or 90-day Eurodollar LIBOR rate or the Base
rate, as defined in the credit agreement.  Interest is at the index
rate selected by the Company plus a loan margin rate based on the Company’s
consolidated leverage ratio.  After March 13, 2009, the
loan  margin increases under the terms of the March 27, 2009 loan
modification to 4.0% if the Company’s quarter-end consolidated leverage ratio is
less than 6.00 to 1.00 and 5.25% if the consolidated leverage ratio is 6.00 to
1.00 or higher.
  Table of Contents
 11
 In
connection with the March 26, 2008 amendment and restatement of the Bank of
America Credit Facility, the Company incurred deferred financing costs of $2.4
million.  Applying the guidance of both the FASB Emerging Issues Task Force
("EITF") issue 96-19, which is applicable to the BA Term Credit Facility, and
EITF issue 98-14, which is applicable to the BA Revolving Credit
Facility, $2.3 million of unamortized financing costs, previously incurred
on the credit facility prior to the amendment, was charged to consolidated
income during the first quarter of 2008 under the caption "Loss on
extinguishment of debt".  The $2.4 million incurred as a result of the
March 2008 amendment and restatement of the Bank of America Credit Facility is
being amortized over the term of the BA Credit Facility.  Under the
March 2009 loan modification the Company incurred additional finance cost of
$2.1 million that is being amortized over the remaining term of the BA Credit
Facility.  In connection with the March 2009 amendment and restatement
of the Bank of America Credit Facility, approximately $0.4 million in deferred
financing costs associated with the decrease in the BA Revolving Credit Facility
were charged to income from operations as interest expense.
 
 The BA
Credit Facility is collateralized primarily by 30 of our vessels having a net
book value at March 31, 2009 of $421.4 million, as well as by TBSI’s equity
interests in the subsidiaries that own the vessels.  In connection
with the March 27, 2009 loan modification, five vessels were added as additional
collateral to the BA Credit Facility, which increased the number of vessels
collateralizing the credit facility from 25 to 30 vessels.  Each
subsidiary of TBSI with an ownership interest in the collateralized vessels has
provided an unconditional guaranty and pledged any insurance proceeds received
related to the vessels.  The BA Credit Facility is guaranteed by TBSI
and other non-borrowing subsidiaries.  Each subsidiary of TBSI with an
ownership interest in the collateralized vessels has provided an unconditional
guaranty and pledged any insurance proceeds received related to the
vessels.  The BA Credit Facility is guaranteed by TBSI and other
non-borrowing subsidiaries.
  The BA
Credit Facility agreement contains certain financial and non-financial
covenants. The non-financial covenants include customary restrictions on the
Company’s ability to incur indebtedness or grant liens; pay dividends under
certain circumstances; enter into transactions with affiliates, merge,
consolidate, or dispose of assets; and change the nature of its business. The
financial covenants require that we maintain certain fixed charge and leverage
ratios, as well as maintain tangible net worth within defined limits. We are
also required to maintain minimum cash and cash equivalent balances and
collateral coverage.  Further, mandatory prepayment or delivery of
additional security is required in the event that the fair market value of the
vessels falls below limits specified in the loan agreement.  As
described in the above "Loan Modifications" section the Company obtained a
waiver of the collateral coverage requirement and other financial
covenants.  At March 31, 2009, the Company was in compliance with the
additional financial covenants under the modified credit facility.
 
 The
Royal Bank of Scotland Credit Facility - New Vessel Buildings
 
 On March
29, 2007, the Company, through six wholly owned subsidiaries, entered into
a credit agreement with a syndicate of lenders led by The Royal Bank of Scotland
plc for a $150.0 million term loan credit facility (the "RBS Credit Facility")
to finance the building and purchase of six new Multi-Purpose vessels with
retractable tweendecks.  On March 27, 2009, the Company agreed to a
modification of the RBS Credit Facility that reduced the collateral coverage
requirements and waived the financial covenants through January 1,
2010.  In connection with the loan modification the loan interest
margin and commitment fee increased and the Company is required to keep minimum
cash balances with The Royal Bank of Scotland.  RBS Credit Facility is
made up of six $25.0 million individual term loans designated individually as
Loan A through Loan F.  The loans for the Rockaway Belleand Dakota Princess are available
through August 31, 2009, and February 20, 2010 as modified.  The loans
for the remaining four vessels are available through April 30, 2010, August 31,
2010, June 30, 2010 and October 31, 2010, respectively, or such later date as
agreed upon by the lenders.  The first two vessels to be delivered
are Rockaway Belle
and Dakota Princess
formerly Hull No NYHS200720, and NYHS200721.  Advances under the RBS
Credit Facility will be drawn by the borrowing subsidiaries in specified amounts
upon the completion of the milestones as shown in the table
below:


Loan
      A
                                            
                                            Loan
      B
                                            
                                            Loan
      C
                                            
                                            Loan
      D
                                            
                                            Loan
      E
                                            
                                            Loan
      FArgyle
                                              Maritime
      Corp.
                                            
                                            Caton
                                              Maritime
      Corp.
                                            
                                            Dorchester
                                              Maritime
      Corp.
                                            
                                            Longwoods
                                              Maritime
      Corp.
                                            
                                            McHenry
                                              Maritime
      Corp.
                                            
                                            Sunswyck
                                              Maritime
      Corp.Rockaway
      Belle
                                            
                                            Dakota
      Princess
                                            
                                            To
      be Named
                                            
                                            To
      be Named
                                            
                                            To
      be Named
                                            
                                            To
      be NamedMilestone
                                            
                                            Hull
      No NYHS200720
                                            
                                            Hull
      No NYHS200721
                                            
                                            Hull
      No NYHS200722
                                            
                                            Hull
      No NYHS200723
                                            
                                            Hull
      No NYHS200724
                                            
                                            Hull
      No NYHS200725Contract
      Signing
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      millionSteel
      Cutting
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      millionKeel
      Laying
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      millionLaunching
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      millionDelivery
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million
                                            
                                            $5.0
      million




Table of Contents
 12


As of
March 31, 2009 the Company had borrowed $80.0 million under the RBS Credit
Facility, consisting of $30.0 million drawn down for all vessel buildings
shortly after the signing of the contracts and the following draw downs made
with respect to each vessel building milestone;




·
            $
      15.0 million drawn down on the steel cutting, keel laying and launch of
      Hull No NYHS20720;


·
            $
      10.0 million drawn down on the steel cutting and keel laying of Hull No
      NYHS20721;


·
            $
      10.0 million drawn down on the steel cutting, keel laying of Hull No
      NYHS20722;


·
            $   5.0
      million drawn down on the steel cutting of Hull No
    NYHS00723;


·
            $   5.0
      million drawn down on the steel cutting of Hull No NYHS200724,
      and


·
            $   5.0
      million drawn down on the steel cutting of Hull No
    NYHS200725.




The
advances due at the time of delivery as shown in the above table are subject to
adjustment if the total advanced by the lenders, including the scheduled
delivery advance, exceeds 75% of the value of the vessel at the time of
delivery.  The RBS Credit Facility is collateralized by the respective
shipbuilding contracts while the vessels are under construction and after
delivery of the respective vessel by Preferred Ship Mortgages (as defined in the
loan agreement) on the new vessels and assignment of freight revenue and
insurance.  TBSI guarantees the obligations of the borrowing
subsidiaries under the RBS Credit Facility.
 
 Under the
loan modification the loan margin increased to LIBOR plus a margin of 3.50% from
a margin of 1.75% prior to the drawdown of the advance at the time of
delivery.  The loan margin after the delivery advance is drawn down
was not changed from LIBOR plus a margin of 1.50%.  Interest is
payable either monthly, quarterly or semi-annually depending on the interest
period selected by the Company.  Each of the loans made under the RBS
Credit Facility were originally payable in 40 quarterly installments of $0.4
million beginning three months after the drawdown of the delivery advance with a
final payment of $8.3 million due when the last quarterly payment is made. The
repayment term of each of the loans was reduced under the March 27, 2009 loan
modification from 40 quarterly installments to 20 quarterly installments. 
The quarterly installments of $0.4 million on each of the loans remained
unchanged; however the final payment due was increased from $8.3 million to
$16.6 million.  If the delivery advance is not advanced in full,
the repayment installments will be reduced pro-rata.  The loan modification
requires the Company to maintain a minimum average monthly cash balance of $10.0
million, which is part of the $40.0 million minimum cash balance that is
required under the modified covenants.  The Company is also required
to deposit $20.0 million with The Royal Bank of Scotland to be used to pay the
Company’s portion of 2009 installments due under the Shipbuilding Contracts,
which is not part of the $40.0 million end of month minimum cash balance
required to be maintained. The $20.0
million is recorded as restricted cash on the consolidated balance
sheet.  The restricted cash balance will decrease as payments
are made to the shipyard in 2009.
 
 The RBS
Credit Facility agreement contains certain financial and non-financial
covenants.  The non-financial covenants include customary restrictions
on the borrowing subsidiaries' ability to incur indebtedness or grant liens,
enter into transactions with affiliates, merge, consolidate, or dispose of
assets, change the nature of their business and materially amend or fail to
enforce the shipbuilding contracts with China Communications Construction
Company Ltd. and Nantong Yahua Shipbuilding Co., Ltd. The borrowing subsidiaries
are also required to, among other things, maintain the vessels when delivered,
comply with all applicable laws, keep proper books and records, preserve their
corporate existence, maintain insurance and pay taxes in a timely manner.
 Further, the fair market value of the vessels subject to the mortgage must
be at least 125% of the outstanding loan amount.  The financial
covenants require that the Company maintain certain fixed charge and leverage
ratios, as well as maintain tangible net worth within defined
limits.  We are also required to maintain minimum cash and cash
equivalent balances and collateral coverage.  In connection with the
loan modification the Company obtained a waiver of the financial covenants
through January 1, 2010 and a reduction of the collateral coverage requirement,
which was reduced from 125% to 100% during the waiver
period.  TBSI as Guarantor, as defined in the loan agreement, is
restricted from paying dividends or making other distributions that
would:  (1) result in a default of the RBS Credit
Facility,  (2) exceed 50% of consolidated net income for the
fiscal year the dividend or distributions are made or  (3) cause the
Company to be out of compliance with the minimum Consolidated Fixed Charge
Coverage Ratio as defined in the loan agreement.  At March 31, 2009,
the Company was in compliance with the additional financial covenants under the
loan modification.  See above section, "Loan Modifications".
  Concurrent
with the TBSI's subsidiaries entering into the RBS Credit Facility, the
borrowing subsidiaries entered into an agreement ("Guarantee Facility") to have
The Royal Bank of Scotland plc guarantee payments due under the shipbuilding
contracts. Under the Guarantee Facility, The Royal Bank of Scotland plc has
agreed to guarantee the second, third, and fourth installments due by the
borrowing subsidiaries under their respective shipbuilding contracts. The
Guarantee Facility provides for a guarantee of up to $14.0 million for each
borrower subsidiary for an aggregate guarantee of $84.0 million. The
Guarantee Facility for each borrower subsidiary expires twelve months after the
anticipated delivery date of the respective vessel. The Company guarantees
the obligations of the borrower subsidiary under the Guarantee
Facility.
  Table of Contents
 13
 During
2008, the Company capitalized financing costs, including loan origination fees
and bank guarantee fees totaling $2.3 million.  Under the March 27,
2009 loan modification, the Company incurred additional finance cost of $1.0
million that is being capitalized.
  Credit
Suisse Term Loan Facility
  On
December 7, 2007, the Company, through two of its subsidiaries, entered
into a credit agreement with Credit Suisse for a $40.0 million term loan credit
facility (the "CS Credit Facility") to replenish working capital used to
purchase the Arapaho Belleand Oneida
Princess.  The loan was fully drawn down shortly after the
delivery of the Oneida
Princesson February 19, 2008.  On March 24, 2009, Company
agreed to a modification of the CS Credit Facility that waived the financial
covenants through January 1, 2010.
  The CS
Credit Facility is repayable over ten years in quarterly installments of $1.5
million for the first eight quarters and $0.9 million for the remaining 32
quarters.  At March 31, 2009, in connection with the loan
modification, the Company prepaid $4.5 million covering the June September and
December 2009 installments.  The loan modification increased the loan
margin to LIBOR plus 2.75%.
  During
2008, the Company incurred deferred financing costs of $0.5 million that are
being amortized over the term of the CS Credit Facility.  The CS Credit
Facility is collateralized primarily by the two vessels, which had a net book
value at March 31, 2009 of $61.3 million, and a pledge of any insurance proceeds
received related to the vessels.  The CS Credit Facility is guaranteed by
TBSI.  Under the loan modification the Company incurred additional
deferred finance cost in the first quarter of 2009 of $0.2 million, which is
being amortized over the remaining term of the CS Credit Facility.
 
 The CS
Credit Facility agreement contains certain financial and non-financial
covenants. The non-financial covenants include customary restrictions on
the Company’s ability to incur indebtedness or grant liens, pay dividends under
certain circumstances, enter into transactions with affiliates, merge,
consolidate, or dispose of assets, and change the nature of its
business. The financial covenants require that we maintain certain fixed
charge and leverage ratios, as well as maintain tangible net worth within
defined limits. We are also required to maintain minimum cash and cash
equivalent balances and collateral coverage. The CS Credit Facility requires
minimum collateral coverage, restricts the payment of dividends and the amount
of leverage, investment and capital expenditures without consent of the lender.
In addition, mandatory prepayment or delivery of additional security is required
in the event that the fair market value of the vessels falls below limits
specified in the loan agreement. As described in the above "Loan
Modifications" section the Company obtained a waiver of the financial covenants
provided that the additional financial covenants are met.  At March
31, 2009, the Company was in compliance with the additional financial covenants
under the modified credit facility.
 
 The
DVB Credit Facility
  On
January 16, 2008, the Company, through seven of its subsidiaries, entered into a
$75.0 million credit facility with a syndication of lenders led by DVB
Group Merchant Bank (Asia) Ltd. ("DVB Credit Facility"). The proceeds were
used to replenish working capital used to exercise a purchase option for seven
multipurpose tweendeck vessels chartered in under a sale-leaseback arrangement,
and for general corporate purposes. These vessels have been part of our
operational fleet since 2003 under a 66 month sale-leaseback contract which
provided purchase options.  On March 24, 2009, the Company agreed to a
modification of the DVB Credit Facility that waived the financial covenants and
collateral coverage requirements in return for a higher loan margin and
amendment fee through January 1, 2010.
 
 The loan
is repayable over five years in quarterly installments of $4.9 million for the
first ten quarters and $2.6 million for the remaining ten quarters. During
the first quarter of 2009 the Company prepaid $19.6 million covering the April,
July and October 2009 and January 2010 quarterly installments.  Interest
which was at LIBOR plus 2.50% was increased to LIBOR plus
4.00%.  Interest is payable quarterly in arrears.
  During
2008, the Company incurred deferred financing costs of $1.3 million that are
being amortized over the term of the DVB Credit Facility.  Under the loan
modifications the Company incurred additional deferred finance cost of $0.2
million in the first quarter of 2009 that is being amortized over the remaining
term of the DVB Credit Facility.
 
 Table of Contents
 14
 The DVB
Credit Facility is collateralized primarily by the seven vessels, which had a
net book value at March 31, 2009 of $36.1 million, and a pledge of any insurance
proceeds received related to the vessels. The DVB Credit Facility is
guaranteed by TBSI.
  The DVB
Credit Facility agreement contains certain financial and non-financial
covenants. The financial covenants require that we maintain certain fixed charge
and leverage ratios, minimum cash and cash equivalent balances and collateral
coverage, and tangible net worth within defined limits. As described in the
above "Loan Modifications" section the Company obtained a waiver of the
financial covenants and collateral coverage requirements provided that the
additional financial covenants are met.  Non-financial covenants
include, among others covenants, compliance with maritime laws and regulations,
maintenance of the vessels consistent with first-class ship ownership and
management practice, keep appropriate accounting records and maintain adequate
insurance. At March 31, 2009, the Company was in compliance with the additional
financial covenants under the modified credit facility.
  AIG
Commercial Equipment Finance Borrowing
  On
February 29, 2008, the Company, through three of its subsidiaries, borrowed
$35.0 million from AIG Commercial Equipment Finance, Inc. ("AIG Credit
Facility").  The loan proceeds were used to replenish working capital used
to acquire the Hopi
Princess, Mohave Maidenand Zuni
Princess.  On March 27, 2009, the Company agreed to a
modification of the AIG Credit Facility that waived the financial covenants and
collateral coverage requirements through January 1, 2010.
 
 The AIG
Credit Facility is repayable over four years in quarterly installments of $2.63
million for the first eight quarters and $1.75 million for the remaining eight
quarters.  In March 2009, the Company prepaid $7.9 million covering the
April, July and October 2009 quarterly installments.  In connection
with the loan modification interest, which was at LIBOR plus an interest margin
of 1.75% with an interest rate floor of 5.0%, was changed to LIBOR plus an
interest margin of 3.50% with an interest rate floor of 7.0%.
  Upon
borrowing under the AIG Credit Facility the Company incurred deferred financing
costs of $0.5 million that are being amortized over the term of the AIG Credit
Facility. Under the March 27, 2009 loan modifications the Company incurred
additional finance cost of $0.2 million that is being amortized over the
remaining term of the AIG Credit Facility.
 
 The
AIG Credit Facility was collateralized primarily by four vessels, including the
Zia Bellewhich was
added as collateral in connection with the loan
modification.  Collateralized vessels had a net book value at March
31, 2009 of $89.8 million.  The AIG Credit Facility is also
collateralized with a pledge of any insurance proceeds received related to the
vessels and a guarantee from TBSI.
 
 The AIG
Credit Facility agreement contains certain financial and non-financial
covenants.  The financial covenants require that we maintain certain
fixed charge and leverage ratios, minimum cash and cash equivalent balances and
collateral coverage, and tangible net worth within defined limits. As
described in the above "Loan Modifications" section the Company obtained a
waiver of the financial covenants and collateral coverage requirements provided
that the additional financial covenants are met.  The non-financial
covenants require the Company, among other covenants, to maintain the vessels,
comply with applicable laws, maintain proper books and records, preserve its
corporate existence and maintain adequate insurance.  At March 31, 2009,
the Company was in compliance with the additional financial covenants under the
modified credit facility.
 
 Commerzbank
AG
  On June
2, 2008, the Company, through a subsidiary, borrowed $12.5 million from
Commerzbank AG to finance part of the acquisition costs of the vessel Caribe Maiden, whose purchase
price was $23 million (the "Commerzbank AG Loan"). The Commerzbank AG Loan is
guaranteed by TBS International Limited.  On March 2, 2009, Company
agreed to a modification of the Commerzbank AG Loan that waived the financial
covenants and collateral coverage requirement through December 31,
2009.
  The
Commerzbank AG Loan is repayable over three years in 12 quarterly installments.
Payments are $1.5 million for the first four installments, followed by six
installment payments of $1.0 million and $0.25 million for the remaining two
installments.  At March 31, 2009, the Company prepaid $1.5 million for
the June 2009 quarterly installment.  On April 1, 2009, the Company prepaid
$2.0 million for the September and December 2009 quarterly
installments.  The loan modification increased the loan's interest
rate, which was at LIBOR plus an interest margin of 1.50%, to LIBOR plus an
interest margin of 3.00% during the waiver period.
  Table of Contents
 15
 The
Company incurred deferred financing costs of $0.1 million that are being
amortized over the term of the Commerzbank AG Loan.  The Commerzbank
AG Loan is collateralized by the vessel Caribe Maiden, which had a
net book value of $24.5 million at March 31, 2009, and assignment of freight and
insurance proceeds.
  The
Commerzbank AG Loan contains certain financial and non-financial covenants. The
financial covenants require that we maintain certain fixed charge and leverage
ratios, minimum cash and cash equivalent balances and collateral coverage, and
tangible net worth within defined limits.  As described in the above
"Loan Modifications" section the Company obtained a waiver of the financial
covenants and collateral coverage requirements provided that the additional
financial covenants are met.  The non-financial covenants require the
Company, among other things to: maintain vessels when delivered, comply with
applicable laws, preserve its corporate existence and maintain adequate
insurance.  At March 31, 2009, the Company was in compliance with the
additional financial covenants under the modified credit facility.
  Berenberg Bank
  On June
19, 2008, the Company, through a subsidiary, borrowed $13.0 million from Joh.
Berenberg, Gossler & Co. KG (the "Berenberg Bank Loan") to finance part of
the acquisition cost of the vessel Ottawa Princess, whose
purchase price was $23 million. The Berenberg Bank Loan is guaranteed by TBS
International Limited. On March 10, 2009, Company agreed to a modification of
the Berenberg Bank Loan that waived the collateral coverage requirement through
December 31, 2009.
  The
Berenberg Bank Loan is repayable over four years in 16 consecutive quarterly
installments of approximately $0.8 million each.  At March 31, 2009,
the Company prepaid $2.4 million covering the June, September and December 2009
quarterly installments.  The loan modification increased interest, which
was at LIBOR plus an interest margin of 1.70%, to LIBOR plus an interest margin
of 3.00% effective May 1, 2009.
 
 The
Company incurred deferred financing costs of $0.1 million that are being
amortized over the term of the Berenberg Bank Loan.  The Berenberg
Bank Loan is collateralized by the vessel, which had a net book value of $25.1
million at March 31, 2009 and assignment of freight and insurance
proceeds.
  The
Berenberg Bank Loan agreement contains a collateral coverage requirement and
non-financial covenants. The collateral coverage was waived by the
bank.  The non-financial covenants require the Company, among other
covenants, to maintain the vessel, comply with applicable laws, preserve its
corporate existence and maintain adequate insurance. At March 31, 2009 the
Company was in compliance with all covenants.
  Note
9 — Derivative Financial Instruments
  The
Company is exposed to certain risks relating to its ongoing business operations.
 Currently, the only risk managed by using derivative instruments is
interest rate risk.  Interest rate swaps are entered into to manage
interest rate risk associated with the Company’s floating-rate borrowings. SFAS
No. 133 requires companies to recognize all derivative instruments as either
assets or liabilities at fair value in the statement of financial position.
 In accordance with SFAS No. 133, the Company designates interest rate
swaps as cash flow hedges of floating-rate borrowings.  The Company
accounts for interest rate contracts by using the "matched terms" accounting
method as provided by Derivative implementation Group Issue G9, "Assuming No
Ineffectiveness When Critical Terms of the Hedging Instruments and the Hedge
Transaction Match in a Cash Flow Hedge” and the methodology prescribed by
Derivative Implementation Group Issue G7, "Cash Flow Hedges Measuring the
Ineffectiveness of a Cash Flow Hedge under Paragraph 30(b) When the Shortcut
Method Is Not Applied".
 
 For
derivative instruments that are designated and qualify as a cash flow hedge, the
effective portion of the gain or loss on the derivative is reported as a
component of other comprehensive income and reclassified into earnings in the
same period or periods during which the hedged transaction affects earnings.
Gains and losses on the derivative representing either hedge ineffectiveness or
hedge components excluded from the assessment of effectiveness are recognized in
current earnings.
 
 Table of Contents
 16
 As of
March 31, 2009, the total notional amount of the Company’s
receive-variable/pay-fixed interest rate swaps was $229.9 million.
 Interest rate contracts have fixed interest rates ranging from 2.92% to
5.24%, with a weighted average rate of 3.78%.  Interest rate contracts
having a notional amount of $159.9 million at March 31, 2009, decrease as
principal payments on the respective debt is made.  Information on the
location and amounts of derivative fair values in the consolidated balance
sheets and derivative gains and losses in the consolidated income statements is
shown below (in thousands):


Liability
      DerivativesMarch
      31, 2009
                                  
                                  December
      31, 2008Balance
      Sheet Location
                                  
                                  Fair
      Value
                                  
                                  Balance
      Sheet Location
                                  
                                  Fair
      ValueDerivatives
      designated as hedging
                                    instruments
      under Statement 133Interest
      rate contracts
                                  Other
      liabilities
                                  
                                  $
                                  13,020
                                  
                                  Other
      liabilities
                                  
                                  $
                                  13,727Derivatives
      not designated as hedging
                                    instruments
      under Statement 133Interest
      rate contracts
                                  Other
      liabilities
                                  
                                  
                                  1,717
                                  
                                  Other
      liabilities
                                  
                                  
                                  1,705Total
      derivatives
                                  
                                  
                                  $
                                  14,737
                                  
                                  
                                  
                                  $
                                  15,432
 
 Amount
      of Gain or (Loss) Recognized in OCI on Derivatives (Effective
      Portion)Derivatives
      in Statement 133 Cash Flow Hedging
      Relationships
                                  
                                  March
      31,2009
                                  
                                  
                                  December
      31,2008Interest
      rate contracts
                                  
                                  $
                                  13,020
                                  
                                  
                                  $
                                  13,727




Amount
      of Gain or (Loss) Recognized in
                              Income
      on DerivativesFor
      the Three Months Ended March 31,Derivatives
      Not Designated as Hedging Instruments under Statement 133
                            
                            Location
      of Gain or (Loss)  Recognized in Income on
      Derivatives
                            
                            2009
                            
                            
                            2008Interest
      rate contracts
                            
                            Interest
      expense
                            
                            $
                            12
                            
                            
                            $
                            92




A
deferred starting interest rate contract, which starts December 29, 2014 and
continues through December 29, 2019 for the notional amount of $20.0 million of
debt, is callable at the bank’s option at anytime during the contract.
Accordingly, changes to the value of the swap contract do not qualify for hedge
accounting treatment and are included as a component of interest expense in the
Consolidated Statement of Income.  For the three months ended March
31, 2009 approximately $0.2 million was recognized as a reduction to
interest expense.
 
 In
connection with the loan modifications completed in March 2009, the Company
prepaid principal installments on all its credit facilities.  The
prepayment resulted in the notional amount of certain swap contracts to be
greater than the debt balance being hedged.  Approximately $0.2
million was recognized as additional interest expense for the ineffective
portion of derivatives caused by the prepayment of principal installments.
 No amounts were recognized in income on the ineffective portion of
derivatives during the three months ended March 31,
2009.  Approximately $0.7 million was recognized in income on amounts
of derivatives excluded from effectiveness testing during the three months
ended March 31, 2008
  Table of Contents
 17
 The
Company does not obtain collateral or other security to support financial
instruments subject to credit risk. The Company monitors the credit risk of our
counterparties and enters into agreements only with established banking
institutions. The financial stability of those institutions is subject to
current and future global and national economic conditions, and governmental
support.
  Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 157, "Fair Value
Measurements" (SFAS No. 157), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements.  The fair value hierarchy for disclosure of fair value
measurements under SFAS No. 157 is as follows:


Level 1
      – Quoted prices in active markets for identical assets or
      liabilitiesLevel 2
      – Quoted prices for similar assets and liabilities in active markets or
      inputs that are observableLevel 3
      – Inputs that are unobservable (for example cash flow modeling inputs
      based on assumptions)




The
following table summarizes assets and liabilities measured at fair value on
recurring basis at March 31, 2009, as required by SFAS No. 157:


(in
      thousands)Level
      1
                  
                  
                  Level
      2
                  
                  
                  Level
      3LiabilitiesInterest
      rate contracts
                  
                  $
                  -
                  
                  
                  $
                  13,020
                  
                  
                  $
                  -
 Our
interest rate swap contracts are traded in the over-the-counter market. The fair
value is based on the quoted market price for a similar liability or determined
using inputs that use as their basis readily observable market data that are
actively quoted and can be validated through external sources.
  Note
10 — Equity Transactions
  Class
A and Class B Common Shares
  The
Company has two classes of common shares that are issued and outstanding Class A
common shares which are listed on the NASDAQ Global Select Market under the
symbol "TBSI", and Class B common shares. The Class A common shares and Class B
common shares have identical rights to dividends, surplus and assets on
liquidation; however, the holders of Class A common shares are entitled to one
vote for each Class A common share on all matters submitted to a vote of holders
of common shares, while holders of Class B common shares are entitled to
one-half of a vote for each Class B common share.
  The
holders of Class A common shares can convert their Class A common shares into
Class B common shares, and the holders of Class B common shares can convert
their Class B common shares into Class A common shares at any time. Further, the
Class B common shares will automatically convert into Class A common shares upon
transfer to any person other than another holder of Class B common shares, in
each case as long as the conversion will not cause the Company to become a
controlled foreign corporation, as defined in the Internal Revenue Code of 1986,
as amended ("Code"), or the Class A common shares cease to be regularly traded
on an established securities market for purposes of Section 883 of the
Code.
  In
conjunction with the secondary public offering completed on May 28, 2008
shareholders of Class B shares elected to convert an aggregate of 1,014,000
Class B common shares to Class A common shares. On March 31, 2009 there were
17,519,496 Class A common shares issued, of which 17,500,871 are
outstanding, and 12,390,461 Class B common shares issued and
outstanding.
  Warrants
  At March
31, 2009, there were outstanding exercisable warrants to purchase 106,156 Class
A common shares and 205,747 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 $0.01 per share.
 
 Table of Contents
 18
 Treasury
Stock
 
 The
Company's Equity Incentive Plan permits stock grant recipients to elect a net
settlement.  Under the terms of a net settlement, the Company retains
a specified number of shares to cover the recipient's estimated statutory
minimum tax liability.  The retained shares are held in the Company's
treasury ("Treasury Stock").  During the first quarter of 2009,
employees vested in a total of 28,000 Class A common shares granted in
2008.  Certain employees elected to have the Company withhold and
remit their respective payroll tax obligations.  Accordingly, the
Company retained and added to Treasury Stock 8,625 Class A common shares, valued
at $77,798, to cover the recipient's estimated payroll tax
liability.  On March 31, 2009, there were 18,625 Treasury Stock shares
held by the Company having a cost of $466,798.
 
 Note 11 — Earnings Per
Share
 
 The
following table sets forth the computation of basic and diluted net income per
share for the three months ended March 31, 2009 and
2008:




Three
      Months Ended March 31,2009
                                              
                                              
                                              2008(in
      thousands, except number of shares and earnings per share
      amounts)Numerators:Net
      (loss) income
                                              
                                              $
                                              (21,288
                                              )
                                              
                                              $
                                              45,378Allocation
      of undistributed income to nonvested restriced common
    shares
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (239
                                              )(Loss)
      earnings available to common shareholders — Basic and
    Diluted
                                              
                                              $
                                              (21,288
                                              )
                                              
                                              $
                                              45,139Denominators:Weighted
      average common shares outstanding — Basic and Diluted
                                              
                                              
                                              29,817,405
                                              
                                              
                                              
                                              28,044,310Net
      (loss) income per common share:Basic
      and Diluted
                                              
                                              $
                                              (0.71
                                              )
                                              
                                              $
                                              1.61Anti-dilutive
      warrants not included above
                                              
                                              
                                              311,903
  In
June 2008, the FASB issued Staff Position (FSP) Emerging Issues Task Force
03-6-1, "Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities" (EITF 03-6-1).   This
FSP provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends are participating securities and should be
included in the two-class method of computing earnings per share as described in
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share"  The two-class method of computing earnings per share is an
earnings allocation formula that determines earnings per share for common stock
and any participating securities according to dividends declared (whether paid
or unpaid) and participation rights in undistributed earnings. Our nonvested
stock, consisting of time-vested restricted shares are considered participating
securities since the share-based awards contain a non-forfeitable right to
dividends irrespective of whether the awards ultimately vest. EITF 03-6-1 is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those years. Upon adoption, we are required to retrospectively
adjust earnings per share data to conform to the provisions in this
FSP.  We adopted the provisions of EITF 03-6-1 effective
January 1, 2009 and computed earnings per common share using the two-class
method for all periods presented.  The application of EITF 03-6-1
reduced first quarter 2008 basic and diluted earnings per common share by
$0.01.
  At
March 31, 2009 and 2008, there were outstanding exercisable warrants to purchase
98,311 Class A and 190,542 Class B common shares, held by parties not affiliated
with existing shareholders. The warrants are issuable for nominal consideration
upon exercise.  Consequently, the warrants have been treated as
outstanding for purposes of computing
basic earnings per share for the three months ended March 31,
2008.  However, for the three months ended March 31, 2009, the
warrants were not treated as outstanding for purposes of computing basic and
diluted earnings per share because they would be antidilutive.
 
 Table of Contents
 19
  Note
12 — Commitments and Contingencies
 
 Commitments
  Charters-in
of Vessels
  The
Company charters-in two vessels (Laguna Belle andSeminole Princess) under
long-term noncancelable operating leases (bareboat charters) that were part of a
sale-leaseback transaction. Both bareboat charters expire on January 30,
2014.  Each bareboat charter requires charter hire payments of $10,500
per day for the first two years of the charter, $10,000 per day during the third
year of the charter and $7,350 per day during the fourth through seventh years
of the charter.  The charter agreements allow for the purchase of the
respective vessel at the end of the fifth, sixth or seventh year of the charter
period at a vessel price of $11.1 million, $9.15 million, or $6.75 million,
respectively and for the purchase options to be exercised at any other date
during the option period at a pro-rata price.  The leases under the
sale-leaseback transactions were classified as operating
leases.  Deposits of $2.75 million, to be held by the lessor for each
charter during the charter period, were required at the inception of the
lease.  The deposits are to be returned, without interest, at the
expiration of the charter period, unless applied earlier toward the amounts due
upon exercise of the purchase option.  Deferred leasing costs of $1.2
million, incurred in connection with the origination of the charters, are being
amortized over the terms of the leases.  As mentioned above, the
bareboat charters contain predetermined fixed decreases of the charter hire
payments due under the charters.  The Company recognizes the related rental
expense on a straight-line basis over the term of the charters and records the
difference between the amounts charged to operations and amounts paid as
deferred rent expense.  At March 31, 2009 and December 31, 2008,
deferred rent expense was $2.9 million and $2.6 million,
respectively.
 
 Other
Leases
  The
Company leases two properties, used by TBS’s service company subsidiaries
Roymar and TBS Shipping Services for the administration of their
operations.  The main office space is rented from our chairman and chief
executive officer by our wholly-owned subsidiary TBS Shipping.  The
lease, which expired December 31, 2008, was renegotiated on January 5, 2009
to extend the lease term to December 31, 2009.  The five one-year
renewal options were extended one year to December 31, 2014.  The lease
provides for monthly rent of $20,000 per month, plus operating expenses
including real estate taxes.
  Roymar
renewed its lease under the first of two one-year renewal options though
November 30, 2010 at a monthly rent of approximately $27,000.  The
lease requires Roymar to pay additional rent for real estate tax
escalations.
  As of
March 31, 2009, future minimum commitments under operating leases with initial
or remaining lease terms exceeding one-year are as follows (in
thousands):


OfficeAt
      March 31, 2009
                                                      
                                                      Vessel
      Hire
                                                      
                                                      Premises
                                                      
                                                      Total2009  (April
      1, 2009 through December 31, 2009)
                                                      
                                                      $
                                                      5,500
                                                      
                                                      $
                                                      424
                                                      
                                                      
                                                      5,9242010
                                                      
                                                      
                                                      5,529
                                                      
                                                      
                                                      298
                                                      
                                                      
                                                      5,8272011
                                                      
                                                      
                                                      5,366
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      5,3662012
                                                      
                                                      
                                                      5,380
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      5,3802013
                                                      
                                                      
                                                      5,366
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      5,366Thereafter
                                                      
                                                      
                                                      441
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      441$
                                                      27,582
                                                      
                                                      $
                                                      722
                                                      
                                                      $
                                                      28,304




Purchase
Obligations – New Vessel Buildings
  At March
31, 2009, the Company had purchase obligations totaling $103.7 million in
connection with its new vessel building program, including obligations under the
contract for the supervision and inspection of vessels under
construction.  The obligations will become payable as the shipyard
meets several milestones into the fourth quarter of 2010.  As of March
31, 2009, $102.8 million of the purchase obligation is scheduled to be paid as
follows: $64.6 million during the remainder of 2009 and $38.2 million in
2010.  The timing of actual payments will vary based upon when the
milestones are met.
 
 Table of Contents
 20
 Contingencies
  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 — 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 United
States.  The amount of voyage revenue generated in countries other
than the United States was $55.9 million and $96.7 million for the
three months ended March 31, 2009 and 2008, respectively.
  Revenue
was generated in the following principal foreign geographic areas (in
thousands):




Three
      Months Ended March 31,Country
                                
                                2009
                                
                                
                                2008United
      Arab Emirates
                                
                                $
                                12,579
                                
                                
                                $
                                12,373Japan
                                
                                
                                10,975
                                
                                
                                
                                18,203Brazil
                                
                                
                                8,313
                                
                                
                                
                                29,150Peru
                                
                                
                                6,159
                                
                                
                                
                                11,419Chile
                                
                                
                                4,829
                                
                                
                                
                                9,330China
                                
                                
                                4,084
                                
                                
                                
                                2,750Korea
                                
                                
                                3,333
                                
                                
                                
                                3,419Venezuela
                                
                                
                                -
                                
                                
                                
                                1,407Others
                                
                                
                                5,650
                                
                                
                                
                                8,604Total
                                
                                $
                                55,922
                                
                                
                                $
                                96,655


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.  The difference between
total voyage revenue and total voyage 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 10% or more of charter hire receivables at March 31,
2009 and no customers accounted for 10% or more of charter hire receivables at
December 31, 2008. No customers accounted for 10% or more of voyage and time
charter revenue for three months ended March 31, 2009
and  2008.
  Note
14 — Subsequent Events
 
 On April
2, 2009, the Company prepaid Commerzbank Bank $2.0 million for the debt payments
for the principal installments for the third and fourth quarters of
2009.
 
  Table of Contents
 21
  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 reflect current expectations of the Company's management. 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 generally be identified by the use of forward-looking
statements because they use words as the "anticipates," "believes," "estimates,"
"expects," "future," "intends," "plans," "targets," "projects," "seeks" 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, implied or projected in or by these
forward-looking statements due to a number of uncertainties and risks, including
the risks disclosed in our Form 10-K filed with the Securities and Exchange
Commission on March 30, 2009, and other unforeseen risks. The uncertainties,
risks and other factors, among other unforeseen risks, include, but are not
limited to:
 
 ·
              changes
      in demand for our services, which are increasingly difficult to
      predict due to the current economic downturn and the widespread reduction
      of business activity generally;
 ·
              a
      decline in rates in the shipping market, will continue for
      a prolonged period;
 ·
              the
      effect of a decline in vessel
valuations;
 ·
              our
      ability to maintain financial ratios and satisfy financial covenants in
      our credit facilities;
 ·
              changes
      in rules and regulations applicable to the shipping industry, including,
      without limitation, legislation adopted by international organizations
      such as the International Maritime Organization and the European Union or
      by individual countries;
 ·
              actions
      taken by regulatory authorities;
 ·
              changes
      in trading patterns significantly impacting overall vessel tonnage
      requirements;
 ·
              changes
      in the typical seasonal variations in charter
  rates;
 ·
              increases
      in costs, including changes in production of or demand for oil and
      petroleum products, crew wages, insurance, provisions, repairs and
      maintenance, generally or in particular
regions;
 ·
              the
      risk that financial counterparties will
default;
 ·
              changes
      in general domestic and international political
  conditions;
 ·
              changes
      in the condition of our vessels or applicable maintenance or
      regulatory standards, which may affect, among other things, our
      anticipated drydocking or maintenance and repair
  costs;
 ·
              increases
      in the cost of our drydocking program or delays in our anticipated
      drydocking schedule;
 ·
              China
      Communications Construction Company Ltd./ Nantong Yahua Shipbuilding Co.,
      Ltd.’s ability to complete and deliver the vessels on the anticipated
      schedule and the ability of the parties to satisfy the conditions in the
      shipbuilding agreements; and
 ·
              other
      factors listed from time to time in our filings with the Securities and
      Exchange Commission, including, without limitation, the risks disclosed in
      our Form 10-K filed with the Securities and Exchange Commission on March
      30, 2009 and subsequent reports on Form 10-Q and Form
      8-K.
 
 You
should not rely on any forward-looking statements.  We undertake no
obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise, except to the extent
required under applicable law.
 
 General
  The
following is a discussion of our financial condition at March 31, 2009 and
December 31, 2008 and our results of operations comparing the three months ended
March 31, 2009 with the three months ended March 31, 2008. You should read this
section in conjunction with the consolidated financial statements including the
related notes to those financial statements included elsewhere in this Quarterly
Report.
  Table of Contents
 22
 Overview
  We
are an ocean transportation services company that offers worldwide shipping
solutions to a diverse client base of industrial shippers.  We offer
liner, parcel and bulk services and vessel chartering supported by a fleet of
multipurpose tweendeckers and handysize and handymax bulk carriers. Our
liner, parcel and bulk services carry steel products, salt, sugar, grain,
fertilizers, chemicals, metal concentrates, aggregates and general
cargo.  In addition to providing frequent, regularly scheduled voyages
within our shipping network, we offer  a unique Five-Star Service
consisting of ocean transportation, logistics, port services, operations and
strategic planning. This distinguishes us from traditional dry cargo shipping
companies.
 
 Over the
past 16 years, we have developed our business model around key trade routes
between Latin America and Japan, South Korea and China, as well as ports in
North America, Africa, the Caribbean, and the Middle East. In addition to
providing frequent, regularly scheduled voyages within our shipping network, we
offer additional services such as cargo scheduling, loading and discharge that
offer a fully integrated shipping solution to our customers.
 
 We have
a strong position in various trade lanes in the Far East, South America,
North America, the Caribbean, the Middle East and Africa.  We
offer our services globally in more than 20 countries to over 300 customers
through a network of affiliated service companies.  We have expanded
and upgraded our fleet which now numbers 47 vessels including 45 ships that we
own and two that we charter-in with an option to purchase.  Historically,
we have expanded our fleet by acquiring second hand vessels.  While we
remain committed to expanding our fleet, the current economic conditions and the
current decline in demand for shipping services have caused us to reevaluate
acquiring secondhand vessels.  The global financial crisis has
resulted in a reduction in the demand for shipping services and a significant
downturn in spot freight and time charter rates.  A reduction in the
availability of vessel acquisition funding has caused potential buyers to delay,
postpone or abandon their vessel acquisition plans.  Pending any
dramatic change in global economic conditions we have decided to suspend
any further acquisitions of secondhand vessels. Our current business
strategy includes growing through the acquisition of multi-purpose
tweendeckers, under our new building contract, and chartering-in vessels as
needed.  On March 29, 2007, we entered into a contract for six "Roymar
Class" 34,000 deadweight ton ("dwt") multipurpose vessels with retractable
tweendecks, designed to our specifications for which we have arranged
funding.  Two of the vessels are scheduled for delivery in 2009 and
the remaining four in 2010.  The two newbuilds that are expected to be
delivered in the second and fourth quarter of 2009 have been named Rockaway Belleand Dakota Princess.
 
 Our
financial results are largely driven by the following factors:
 
 ·
              macroeconomic
      conditions in the geographic regions where we
  operate;
 ·
              general
      economic conditions in the industries in which our customers
      operate;
 ·
              changes
      in our freight and sub-time charter rates - rates we charge for vessels we
      charter out - and, in periods when our voyage and vessel expenses
      increase, our ability to raise our rates to pass such cost increases
      through to our customers;
 ·
              the
      extent to which we are able to efficiently utilize our controlled fleet
      and optimize its capacity; and
 ·
              the
      extent to which we can control our fixed and variable costs, including
      those for port charges, stevedore and other cargo-related expenses, fuel,
      and commission expenses.
 
 Our loan agreements with our
various credit facilities contain both financial and non-financial
covenants.  During March 2009, based on third-party vessel valuations, we
did not meet collateral coverage requirements.  The credit facilities were
modified to waive the collateral coverage and all financial covenants through
the fourth quarter 2009.  See - "Note8- Financing" for detailed
information.
  Management is taking measures
to manage our business during the global financial crisis to position us to
take advantage of the eventual recovery.  These measures include:
eliminating bonus payments to our executives and employees,
freezing salariesat 2008 levels,
instituting a cost cutting program, prepayments ofdebt,thenegotiationofloancovenant waivers obtained in
March 2009,
reducing capital expenditures and scaling back the accelerated steel renewal and
reinforcement program.
 
 Drydocking
  During
the past twelve months, our fleet has grown to 47 vessels from 42 vessels. These
vessels must be drydocked twice during a five-year cycle. Thus, our controlled
fleet of 47 vessels at March 31, 2009, would result in 94 drydockings over five
years or an average of 19 vessels per year.
  Table of Contents
 23
 We
maintain and upgrade our vessels to a higher standard.  We accelerated
the timing of steel renewals and replacements for vessels drydocked in 2007 and
2008.  We expected that these renewals and reinforcements would have
been required in the next five to ten years, and we believe the accelerated
steel renewal and reinforcements will reduce the cost of future
drydockings.  Going forward our drydocking program will only address
deficiencies identified and recommendations made by classification
surveyors.
  During
the first quarter of 2009, one vessel that entered into drydock during the
fourth quarter of 2008 continued its drydocking for 16 days into the first
quarter and eight vessels entered drydock for 138 days.  Our preliminary
quarterly drydock schedule of vessels anticipated to be drydocked during 2009,
including estimated number of drydock days and metric tons of steel renewal, is
as follows:




Number
      of vessels in drydock from previous quarter
                                                                                  
                                                                                  Number
      of vessels entering drydock during quarter
                                                                                  
                                                                                  Number
      of drydock days during quarter
                                                                                  
                                                                                  Approximate
      metric tons (MT) of steel installedSecond
      Quarter 2009
                                                                                  
                                                                                  5
                                                                                  
                                                                                  2
                                                                                  
                                                                                  
                                                                                  123
                                                                                  
                                                                                  days
                                                                                  
                                                                                  
                                                                                  235
                                                                                  
                                                                                  MTThird
      Quarter 2009
                                                                                  
                                                                                  1
                                                                                  
                                                                                  6
                                                                                  
                                                                                  
                                                                                  158
                                                                                  
                                                                                  days
                                                                                  
                                                                                  
                                                                                  540
                                                                                  
                                                                                  MTFourth
      Quarter 2009
                                                                                  
                                                                                  2
                                                                                  
                                                                                  5
                                                                                  
                                                                                  
                                                                                  179
                                                                                  
                                                                                  days
                                                                                  
                                                                                  
                                                                                  482
                                                                                  
                                                                                  MTTotal
      for 2009
                                                                                  
                                                                                  
                                                                                  
                                                                                  13
                                                                                  
                                                                                  
                                                                                  460
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,257
  We
estimate that vessel drydockings that require less than 100 metric tons of steel
renewal will take from 25 to 35 days and that vessel drydockings that require
over 100 metric tons of steel renewal will take from 35 to 75 days.  
We capitalize vessel improvements, including steel renewal and reinforcement, in
connection with the first drydocking after we acquire vessels.
  New
Ship Building
 
 We are
expanding our fleet of multipurpose retractable tweendeckers through our
newbuilding program.  In 2007, we contracted a Chinese shipyard to
build six newly designed vessels. These 34,000 dwt vessels are a larger
class of tweendeckers and their addition to our fleet will be a significant
milestone in the implementation of our business plan to modernize and expand our
fleet. The ships were designed by a TBS team, drawn from all phases of our
operations, to optimize our efficient cargo transportation in our trade lanes.
One vessel, the Rockaway
Belle, formerly Hull No NYHS200720, was launched in November 2008 and we
expect to take delivery in the second quarter of 2009. The milestones met
(as defined in the agreements) and the expected delivery dates as of March 31,
2009, are noted below:





Argyle
                Maritime
      Corp.
              
              Caton
                Maritime
      Corp.
              
              Dorchester
                Maritime
      Corp.
              
              Longwoods
                Maritime
      Corp.
              
              McHenry
                Maritime
      Corp.
              
              Sunswyck
                Maritime
      Corp.Milestone
              
              Hull
      No NYHS200720
                Rockaway
      Belle
              
              Hull
      No NYHS200721
                Dakota
      Princess
              
              Hull
      No NYHS200722
                To
      beNamed
              
              Hull
      No NYHS200723
                To
      beNamed
              
              Hull
      No NYHS200724
                To
      beNamed
              
              Hull
      No NYHS200725
                To
      beNamedContract
      Signing
              
              Met
              
              Met
              
              Met
              
              Met
              
              Met
              
              MetSteel
      Cutting
              
              Met
              
              Met
              
              Met
              
              Met
              
              Met
              
              MetKeel
      Laying
              
              Met
              
              Met
              
              MetLaunching
              
              MetAnticipated
      Delivery
              
              2nd
      Qtr 2009
              
              4th
      Qtr 2009
              
              1st
      Qtr 2010
              
              2nd
      Qtr 2010
              
              3rd
      Qtr 2010
              
              4th
      Qtr 2010




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.  For voyages in progress at March 31, 2009 we
recognized voyage expense as incurred and recognized voyage revenues ratably
over the length of the voyage.  When a loss is forecast for a voyage, the
full amount of the anticipated loss is recognized in the period in which that
determination is made.  Revenue from time charters in progress is
calculated using the daily charter hire rate, net of daily expenses multiplied
by the number of voyage days on-hire through period end.
  Table of Contents
 24
 Voyage
revenue consists of freight charges paid to our subsidiaries for the
transport of customers' cargo.   Freight rates are set by the
market and depend on the relationship between the demand for ocean freight
transportation and the availability of appropriate vessels.  The key
factors driving voyage revenue are the number of vessels in the fleet, freight
voyage days, revenue tons carried and the freight rates.
  Time charter
revenue consists of a negotiated daily hire rate for the duration of a
voyage.  The key factors driving time charter revenue are the number of
days vessels are chartered out and the daily charter hire rates.
 
 Voyage
expenses consist of costs attributable to specific voyages.  The
number of voyage days is a significant determinant of voyage expense, which
primarily consists of fuel costs, commissions, port call, stevedoring and
lashing materials.  The costs are paid by our
subsidiaries.
  Vessel
expensesare vessel operating
expenses that consist of crewing, stores, lube oil, repairs and maintenance
including registration taxes and fees, insurance and communication
expenses for vessels we control, charter hire fees we pay to owners for use
of their vessels.  The costs are paid by our
subsidiaries.
 
 Depreciation and
amortizationis computed for vessels
and vessel improvements on the remaining useful life of each vessel, which is
estimated as the period from the date we put the vessel into service to the date
30 years from the time that the vessel was initially delivered by the shipyard.
Drydock costs are amortized on a straight-line basis over the period through the
date of the next drydocking which is typically 30 months.  Other fixed
assets, consisting principally of computer hardware, software and office
equipment are depreciated on a straight-line basis using useful lives of from
three to seven years.  Grabs are depreciated on a straight-line basis
using useful lives of ten years.  Vessel leasehold improvements, which
are included with vessel improvements and other equipment, are amortized on a
straight-line basis over the shorter of the useful life of the improvement or
the term of the lease.
  Commissionson freight and
port agency fees are paid to related companies, Beacon and TBS
Commercial Group, companies which are owned by our principal
shareholders.  Management fees and commissions paid to Beacon and TBS
Commercial Group are fixed under agreements, and any new management agreements
or amendments to the current management agreements with Beacon and TBS
Commercial Group are subject to approval by the Compensation Committee of our
Board of Directors.













Table of Contents
 25


Results
of Operations





Comparison
of the three months ended March 31, 2009 to the three months ended March 31,
2008


Three
      Months Ended
                                                              
                                                              
                                                              Three
      Months EndedMarch
      31, 2009
                                                              
                                                              
                                                              March
      31, 2008
                                                              
                                                              
                                                              Increase
      (Decrease)In
      Thousands
                                                              
                                                              
                                                              As
      a % of Total Revenue
                                                              
                                                              
                                                              In
      Thousands
                                                              
                                                              
                                                              As
      a % of Total Revenue
                                                              
                                                              
                                                              In
      Thousands
                                                              
                                                              
                                                              PercentageVoyage
      revenue
                                                              
                                                              $
                                                              64,513
                                                              
                                                              
                                                              90.6
                                                              
                                                              
                                                              $
                                                              98,160
                                                              
                                                              
                                                              74.6
                                                              
                                                              
                                                              
                                                              (33,647
                                                              )
                                                              
                                                              (34.3
                                                              )Time
      charter revenue
                                                              
                                                              
                                                              6,171
                                                              
                                                              
                                                              8.7
                                                              
                                                              
                                                              
                                                              32,726
                                                              
                                                              
                                                              24.9
                                                              
                                                              
                                                              
                                                              (26,555
                                                              )
                                                              
                                                              (81.1
                                                              )Logistics
      revenue
                                                              
                                                              
                                                              266
                                                              
                                                              
                                                              0.4
                                                              
                                                              
                                                              
                                                              532
                                                              
                                                              
                                                              0.4
                                                              
                                                              
                                                              
                                                              (266
                                                              )
                                                              
                                                              (50.0
                                                              )Other
      revenue
                                                              
                                                              
                                                              208
                                                              
                                                              
                                                              0.3
                                                              
                                                              
                                                              
                                                              158
                                                              
                                                              
                                                              0.1
                                                              
                                                              
                                                              
                                                              50
                                                              
                                                              
                                                              31.6Total
      revenue
                                                              
                                                              
                                                              71,158
                                                              
                                                              
                                                              100.0
                                                              
                                                              
                                                              
                                                              131,576
                                                              
                                                              
                                                              100.0
                                                              
                                                              
                                                              
                                                              (60,418
                                                              )
                                                              
                                                              (45.9
                                                              )Voyage
      expense
                                                              
                                                              
                                                              28,999
                                                              
                                                              
                                                              40.8
                                                              
                                                              
                                                              
                                                              31,918
                                                              
                                                              
                                                              24.2
                                                              
                                                              
                                                              
                                                              (2,919
                                                              )
                                                              
                                                              (9.1
                                                              )Logistics
                                                              
                                                              
                                                              249
                                                              
                                                              
                                                              0.4
                                                              
                                                              
                                                              
                                                              500
                                                              
                                                              
                                                              0.4
                                                              
                                                              
                                                              
                                                              (251
                                                              )
                                                              
                                                              (50.2
                                                              )Vessel
      expense
                                                              
                                                              
                                                              27,979
                                                              
                                                              
                                                              39.3
                                                              
                                                              
                                                              
                                                              23,434
                                                              
                                                              
                                                              17.8
                                                              
                                                              
                                                              
                                                              4,545
                                                              
                                                              
                                                              19.4Depreciation
      and amortization
                                                              
                                                              
                                                              22,719
                                                              
                                                              
                                                              31.9
                                                              
                                                              
                                                              
                                                              13,493
                                                              
                                                              
                                                              10.3
                                                              
                                                              
                                                              
                                                              9,226
                                                              
                                                              
                                                              68.4General
      and administrative
                                                              
                                                              
                                                              8,686
                                                              
                                                              
                                                              12.2
                                                              
                                                              
                                                              
                                                              11,767
                                                              
                                                              
                                                              8.9
                                                              
                                                              
                                                              
                                                              (3,081
                                                              )
                                                              
                                                              (26.2
                                                              )Total
      operating expenses
                                                              
                                                              
                                                              88,632
                                                              
                                                              
                                                              124.6
                                                              
                                                              
                                                              
                                                              81,112
                                                              
                                                              
                                                              61.6
                                                              
                                                              
                                                              
                                                              7,520
                                                              
                                                              
                                                              9.3(Loss)
      income from operations
                                                              
                                                              
                                                              (17,474
                                                              )
                                                              
                                                              (24.6
                                                              )
                                                              
                                                              
                                                              50,464
                                                              
                                                              
                                                              38.4
                                                              
                                                              
                                                              
                                                              (67,938
                                                              )
                                                              
                                                              (134.6
                                                              )Other
      (expenses) and incomeInterest
      expense
                                                              
                                                              
                                                              (3,511
                                                              )
                                                              
                                                              (4.9
                                                              )
                                                              
                                                              
                                                              (3,437
                                                              )
                                                              
                                                              (2.6
                                                              )
                                                              
                                                              
                                                              (74
                                                              )
                                                              
                                                              2.2Loss
      on extinguishment of debt
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (2,318
                                                              )
                                                              
                                                              (1.8
                                                              )
                                                              
                                                              
                                                              2,318
                                                              
                                                              
                                                              (100.0
                                                              )Other
      income (expense)
                                                              
                                                              
                                                              (303
                                                              )
                                                              
                                                              (0.4
                                                              )
                                                              
                                                              
                                                              669
                                                              
                                                              
                                                              0.5
                                                              
                                                              
                                                              
                                                              (972
                                                              )
                                                              
                                                              (145.3
                                                              )Net  (loss)
      income
                                                              
                                                              $
                                                              (21,288
                                                              )
                                                              
                                                              (29.9
                                                              )
                                                              
                                                              $
                                                              45,378
                                                              
                                                              
                                                              34.5
                                                              
                                                              
                                                              $
                                                              (66,666
                                                              )
                                                              
                                                              (146.9
                                                              )
  Voyage
revenue





The table
below shows key metrics related to voyage revenue:




Three
      Months Ended March 31,2009
                                                    
                                                    
                                                    2008
                                                    
                                                    
                                                    Increase
      (Decrease)Voyage
      Revenue (in thousands)
                                                    
                                                    $
                                                    64,513
                                                    
                                                    
                                                    $
                                                    98,160
                                                    
                                                    
                                                    $
                                                    (33,647
                                                    )
                                                    (34.3
                                                    )%Number
      of vessels (1)
                                                    
                                                    
                                                    35
                                                    
                                                    
                                                    
                                                    26
                                                    
                                                    
                                                    
                                                    9
                                                    
                                                    34.6
                                                    %Freight
      voyage days (2)
                                                    
                                                    
                                                    3,116
                                                    
                                                    
                                                    
                                                    2,375
                                                    
                                                    
                                                    
                                                    741
                                                    
                                                    31.2
                                                    %Days
      on hire (3)
                                                    
                                                    
                                                    3,198
                                                    
                                                    
                                                    
                                                    2,476
                                                    
                                                    
                                                    
                                                    722
                                                    
                                                    29.2
                                                    %Revenue
      tons carried (thousands) (4)For
      all cargoes
                                                    
                                                    
                                                    2,148
                                                    
                                                    
                                                    
                                                    2,044
                                                    
                                                    
                                                    
                                                    104
                                                    
                                                    5.1
                                                    %Excluding
      aggregates
                                                    
                                                    
                                                    1,153
                                                    
                                                    
                                                    
                                                    994
                                                    
                                                    
                                                    
                                                    159
                                                    
                                                    16.0
                                                    %Aggregates
                                                    
                                                    
                                                    995
                                                    
                                                    
                                                    
                                                    1,050
                                                    
                                                    
                                                    
                                                    (55
                                                    )
                                                    (5.2
                                                    )%Freight
      RatesFor
      all cargoes
                                                    
                                                    $
                                                    30.04
                                                    
                                                    
                                                    $
                                                    48.02
                                                    
                                                    
                                                    $
                                                    (17.98
                                                    )
                                                    (37.4
                                                    )%Excluding
      aggregates
                                                    
                                                    $
                                                    44.78
                                                    
                                                    
                                                    $
                                                    86.32
                                                    
                                                    
                                                    $
                                                    (41.54
                                                    )
                                                    (48.1
                                                    )%Daily
      time charter equivalent rates (5)
                                                    
                                                    $
                                                    11,685
                                                    
                                                    
                                                    $
                                                    28,513
                                                    
                                                    
                                                    $
                                                    (16,828
                                                    )
                                                    (59.0
                                                    )%


(1)
            Weighted
      average number of vessels in the fleet, not including vessels chartered
      out.(2)
            Number
      of days that our vessels were earning revenue, not including vessels
      chartered out.(3)
            Number
      of days that our vessels were available for hire, not including vessels
      chartered out.(4)
            Revenue
      tons is a measurement on which shipments are freighted.  Cargoes
      are rated as weight (based on metric tons) or measure (based on cubic
      meters); whichever produces the higher revenue will be considered the
      revenue ton.   Table of Contents
 26
  (5)
            Daily
      Time Charter Equivalent or "TCE" rates are defined as voyage revenue less
      voyage expenses during the period divided by the number of available
      freight voyage days during the period. Voyage expenses include: fuel, port
      call, commissions, stevedore and other cargo related and miscellaneous
      voyage expenses.  To conform to the 2009 presentation daily time
      charter equivalent rates for 2008 were revised to exclude logistic
      expenses which were classified as voyage expense in 2008.  No
      deduction is made for vessel or general and administrative expenses. TCE
      includes the full amount of any probable losses on voyages at the time
      such losses can be estimated. TCE is an industry standard for measuring
      and analyzing fluctuations between financial periods and as a method
      of equating TCE revenue generated from a voyage charter to time
      charter revenue.




The
decrease in voyage revenue for the three months ended March 31, 2009, as
compared to the same period in 2008, was primarily due to an approximately 48%
decrease in average freight rates for non-aggregate cargoes which was slightly
offset by increased average freight rates for aggregates and an increase in
non-aggregate revenue tons carried, primarily agricultural cargo.
 
 Average
freight rates for all cargoes decreased $17.98 per ton, or 37.4%, to $30.04 per
ton for the three months ended March 31, 2009, as compared to $48.02 per ton for
the same period in 2008. Excluding aggregates average freight rates would have
been $44.78 per ton as compared to $86.32 per ton for the same period in 2008.
The average freight rates decreased despite the decrease in high-volume,
low-freighted aggregates bulk cargo that we handled in 2009 as compared to 2008.
While average freight rates on aggregates bulk cargo is lower than average
freight rates on other types of cargoes, voyage costs are also lower resulting
in comparable daily time charter equivalent rates. For the three months ended
March 31, 2009 and 2008 we had contracts of affreightment, expiring late 2010,
under which we carried approximately 1,070,000 and 1,500,000 revenue tons and
generated $18.5 million and $40.1 million of voyage revenue,
respectively.
 
 Revenue
tons carried increased 103,959 tons or 5.1% to 2,147,911 tons for the three
months ended March 31, 2009 from 2,043,952 tons for the same period in 2008.
Non-aggregate revenue tons carried, primarily agricultural cargo, increased
approximately 158,685 tons.  Aggregate revenue tons carried decreased
by 54,726 tons for the three months ended March 31, 2009 as compared to the same
period in 2008.
 
 The
following table shows revenues attributed to our principal cargoes:


Three
      Months EndedMarch
      31, 2009
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  March
      31, 2008
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  Increase
      (Decrease)Description
                                                                  
                                                                  In
      Thousands
                                                                  
                                                                  As
      a % of Total Voyage Revenue
                                                                  
                                                                  
                                                                  In
      Thousands
                                                                  
                                                                  As
      a % of Total Voyage Revenue
                                                                  
                                                                  
                                                                  In
      Thousands
                                                                  
                                                                  
                                                                  PercentageAggregates
                                                                  
                                                                  $
                                                                  12,902
                                                                  
                                                                  
                                                                  20.0
                                                                  
                                                                  
                                                                  $
                                                                  12,373
                                                                  
                                                                  12.6
                                                                  
                                                                  
                                                                  $
                                                                  529
                                                                  
                                                                  
                                                                  4.3Steel
      products
                                                                  
                                                                  
                                                                  11,858
                                                                  
                                                                  
                                                                  18.4
                                                                  
                                                                  
                                                                  
                                                                  27,935
                                                                  
                                                                  28.5
                                                                  
                                                                  
                                                                  
                                                                  (16,077
                                                                  )
                                                                  
                                                                  (57.6
                                                                  )Agricultural
      products
                                                                  
                                                                  
                                                                  11,810
                                                                  
                                                                  
                                                                  18.3
                                                                  
                                                                  
                                                                  
                                                                  13,932
                                                                  
                                                                  14.2
                                                                  
                                                                  
                                                                  
                                                                  (2,122
                                                                  )
                                                                  
                                                                  (15.2
                                                                  )Metal
      concentrates
                                                                  
                                                                  
                                                                  10,145
                                                                  
                                                                  
                                                                  15.7
                                                                  
                                                                  
                                                                  
                                                                  20,374
                                                                  
                                                                  20.8
                                                                  
                                                                  
                                                                  
                                                                  (10,229
                                                                  )
                                                                  
                                                                  (50.2
                                                                  )Project
      cargo
                                                                  
                                                                  
                                                                  4,297
                                                                  
                                                                  
                                                                  6.7
                                                                  
                                                                  
                                                                  
                                                                  5,031
                                                                  
                                                                  5.1
                                                                  
                                                                  
                                                                  
                                                                  (734
                                                                  )
                                                                  
                                                                  (14.6
                                                                  )General
      cargo
                                                                  
                                                                  
                                                                  4,232
                                                                  
                                                                  
                                                                  6.6
                                                                  
                                                                  
                                                                  
                                                                  1,798
                                                                  
                                                                  1.8
                                                                  
                                                                  
                                                                  
                                                                  2,434
                                                                  
                                                                  
                                                                  135.4Rolling
      stock
                                                                  
                                                                  
                                                                  3,402
                                                                  
                                                                  
                                                                  5.2
                                                                  
                                                                  
                                                                  
                                                                  3,581
                                                                  
                                                                  3.6
                                                                  
                                                                  
                                                                  
                                                                  (179
                                                                  )
                                                                  
                                                                  (5.0
                                                                  )Other
      bulk cargo
                                                                  
                                                                  
                                                                  1,971
                                                                  
                                                                  
                                                                  3.0
                                                                  
                                                                  
                                                                  
                                                                  9,463
                                                                  
                                                                  9.6
                                                                  
                                                                  
                                                                  
                                                                  (7,492
                                                                  )
                                                                  
                                                                  (79.2
                                                                  )Fertilizers
                                                                  
                                                                  
                                                                  1,716
                                                                  
                                                                  
                                                                  2.7
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  1,716
                                                                  
                                                                  
                                                                  -Automotive
      products
                                                                  
                                                                  
                                                                  1,459
                                                                  
                                                                  
                                                                  2.3
                                                                  
                                                                  
                                                                  
                                                                  2,321
                                                                  
                                                                  2.4
                                                                  
                                                                  
                                                                  
                                                                  (862
                                                                  )
                                                                  
                                                                  (37.1
                                                                  )Other
                                                                  
                                                                  
                                                                  721
                                                                  
                                                                  
                                                                  1.1
                                                                  
                                                                  
                                                                  
                                                                  1,352
                                                                  
                                                                  1.4
                                                                  
                                                                  
                                                                  
                                                                  (631
                                                                  )
                                                                  
                                                                  (46.7
                                                                  )Total
      voyage revenue
                                                                  
                                                                  $
                                                                  64,513
                                                                  
                                                                  
                                                                  100.0
                                                                  
                                                                  
                                                                  $
                                                                  98,160
                                                                  
                                                                  100.0
                                                                  
                                                                  
                                                                  $
                                                                  (33,647
                                                                  )
                                                                  
                                                                  (34.3
                                                                  )






Table of Contents
 27


Time
charter revenue





The key
metrics related to time charter revenue are as follows:




Three
      Months Ended March 31,2009
                    
                    
                    2008
                    
                    
                    Increase
      (Decrease)Time
      Charter Revenue (in thousands)
                    
                    $
                    6,171
                    
                    
                    $
                    32,726
                    
                    
                    $
                    (26,555
                    )
                    
                    
                    -81.1
                    %Number
      of vessels (1)
                    
                    
                    10
                    
                    
                    
                    11
                    
                    
                    
                    (1
                    )
                    
                    
                    -9.1
                    %Time
      Charter days (2)
                    
                    
                    887
                    
                    
                    
                    1,030
                    
                    
                    
                    (143
                    )
                    
                    
                    -13.9
                    %Daily
      charter hire rates (3)
                    
                    $
                    6,958
                    
                    
                    $
                    31,773
                    
                    
                    $
                    (24,815
                    )
                    
                    
                    -78.1
                    %Daily
      time charter equivalent rates (4)
                    
                    $
                    5,947
                    
                    
                    $
                    30,339
                    
                    
                    $
                    (24,392
                    )
                    
                    
                    -80.4
                    %





(1)
            Weighted
      average number of vessels chartered out.(2)
            Number
      of days the vessels earned charter hire.(3)
            Weighted
      average charter hire rates.(4)
            Daily
      Time Charter Equivalent or "TCE" rates for vessels that are time chartered
      out are defined as time charter revenue during the period reduced
      principally by commissions divided by the number of available time charter
      days during the period.  Commission for vessels that are time
      chartered out for the three months ended March 31, 2009 and March 31, 2008
      were $0.3 million and $1.5 million, respectively. For the three months
      ended March 31, 2009, time charter voyages include fuel cost of $0.6
      million related to fuel price differentials caused by volatility in the
      fuel market and the cost for ballasting vessels to time charter delivery
      ports.  No deduction is made for vessel or general and administrative
      expenses.  TCE is an industry standard for measuring and analyzing
      fluctuations between financial periods and as a method of equating
      TCE revenue generated from a voyage charter to time charter revenue. No
      voyage expenses are deducted because they are not
    applicable.




The
decrease in time charter revenue was primarily attributable to a decrease in
average charter hire rates, and a decrease in time charter-out days. Charter
hire rates are set, to a significant degree, by the market and depend on the
relationship between the demand for ocean freight transportation and the
availability of appropriate vessels. The decrease in the average charter
hire rate per day is primarily due to the worldwide economic crisis which has
dramatically affected shipping spot market rates. The decrease in
time-charter-out days is the result of increased use of our controlled vessels
in our established voyage business and shipping market conditions.
 
 Logistics
revenue and expenses
 
 Logistics
revenues represent revenues from cargo and transportation management services
provided in connection with our Five Star Service.  We initiated
logistics support services in the fourth quarter of 2007.  To conform
to the 2009 presentation, we revised our 2008 Consolidated Statements of
Income for logistics revenue and expense.  Logistics revenue of
$532,000 which was previously classified as other revenue, is now reported as
logistics revenue.  Logistics expense of $500,000 which was previously
classified as voyage expense is now reported as logistics
expense.  This revision did not impact net income.
 
 Logistics
revenue and expenses decreased approximately 50% for the three months ended
March 31, 2009 as compared to the same period in 2008, principally due to
the impact of the economic downturn.
 
 Voyage
expense
 
 Voyage
expenses are costs attributable to specific voyages.  The number of
voyage days is a significant determinant of voyage expense, which consists of
fuel costs, commissions, port call, stevedoring and other cargo related costs,
and miscellaneous voyage expense.
 
 Table of Contents
 28
 The
principal components of voyage expense were as follows:




Three
      Months Ended
                                                                                        
                                                                                        Three
      Months EndedMarch
      31, 2009
                                                                                        
                                                                                        March
      31, 2008
                                                                                        
                                                                                        Increase
      (Decrease)In
      Thousands
                                                                                        
                                                                                        As
      a % of Voyage Expense
                                                                                        
                                                                                        As
      a % of Voyage & Time Charter Revenue
                                                                                        
                                                                                        In
      Thousands
                                                                                        
                                                                                        As
      a % of Voyage Expense
                                                                                        
                                                                                        As
      a % of Voyage & Time Charter Revenue
                                                                                        
                                                                                        In
      Thousands
                                                                                        
                                                                                        As
      a % of 2008 Expense
                                                                                        
                                                                                        As
      a % of Voyage & Time Charter RevenueFuel
      expense
                                                                                        $
                                                                                        14,124
                                                                                        
                                                                                        48.7
                                                                                        
                                                                                        20.0
                                                                                        
                                                                                        $
                                                                                        14,803
                                                                                        
                                                                                        46.4
                                                                                        
                                                                                        11.3
                                                                                        
                                                                                        $
                                                                                        (679
                                                                                        )
                                                                                        (4.6
                                                                                        )
                                                                                        8.7Commission
      expense
                                                                                        
                                                                                        3,299
                                                                                        
                                                                                        11.4
                                                                                        
                                                                                        4.7
                                                                                        
                                                                                        
                                                                                        6,996
                                                                                        
                                                                                        21.9
                                                                                        
                                                                                        5.3
                                                                                        
                                                                                        
                                                                                        (3,697
                                                                                        )
                                                                                        (52.8
                                                                                        )
                                                                                        (0.6
                                                                                        )Port
      call expense
                                                                                        
                                                                                        5,807
                                                                                        
                                                                                        20.0
                                                                                        
                                                                                        8.2
                                                                                        
                                                                                        
                                                                                        5,313
                                                                                        
                                                                                        16.6
                                                                                        
                                                                                        4.1
                                                                                        
                                                                                        
                                                                                        494
                                                                                        
                                                                                        9.3
                                                                                        
                                                                                        4.1Stevedore
      and othercargo-related
      expense
                                                                                        
                                                                                        3,071
                                                                                        
                                                                                        10.6
                                                                                        
                                                                                        4.3
                                                                                        
                                                                                        
                                                                                        3,623
                                                                                        
                                                                                        11.4
                                                                                        
                                                                                        2.8
                                                                                        
                                                                                        
                                                                                        (552
                                                                                        )
                                                                                        (15.2
                                                                                        )
                                                                                        1.5Miscellaneous
      voyageexpense
                                                                                        
                                                                                        2,698
                                                                                        
                                                                                        9.3
                                                                                        
                                                                                        3.8
                                                                                        
                                                                                        
                                                                                        1,183
                                                                                        
                                                                                        3.7
                                                                                        
                                                                                        0.9
                                                                                        
                                                                                        
                                                                                        1,515
                                                                                        
                                                                                        128.1
                                                                                        
                                                                                        2.9Voyage
      expense
                                                                                        $
                                                                                        28,999
                                                                                        
                                                                                        100.0
                                                                                        
                                                                                        41.0
                                                                                        
                                                                                        $
                                                                                        31,918
                                                                                        
                                                                                        100.0
                                                                                        
                                                                                        24.4
                                                                                        
                                                                                        $
                                                                                        (2,919
                                                                                        )
                                                                                        (9.1
                                                                                        )
                                                                                        16.6


Voyage
expense decreased 9.1% for the three months ended March 31, 2009 as compared to
the same period in 2008, principally due to a decrease in fuel and
commission expense.  Voyage expense decreased $2.9 million primarily
due to a decrease in commission expense, resulting from a decrease in voyage
revenue  and to a lesser extent a decrease in fuel expense which
resulted from lower average fuel costs offset by an increase in consumption,
offset by an increase in miscellaneous voyage expense.
  The 16.6%
increase in voyage expense as a percentage of voyage and time charter revenue to
41.0% for the three months ended March 31, 2009 as compared to 24.4% for the
same period in 2008 was primarily due to the decrease in freight rates, which
decreased primarily due to the worldwide economic crisis.
  Commission
expense is based on the amount of revenue.  The decrease in commission
expense for the three months ended March 31, 2009 as compared to the same period
in 2008 was primarily due to the decrease in revenue and to a smaller extent a
decrease in the rate of commissions for the TBS Middle East Ltd. service to
3.75% for the three months ended March 31, 2009 from 5.00% during the same
period in 2008.
  The 8.7%
decrease in fuel expense was due to a decrease in the average price per metric
ton ("MT") offset by an increase in consumption.  For the three months
ended March 31, 2009, the average price per MT decreased to $376 per MT as
compared to $554 per MT for the same period in 2008.  Consumption
increased for the three months ended March 31, 2009 to 37,522 MT from 26,741 MT
for the same period in 2008.  Average fuel cost per freight
voyage day was $4,533 during the three months ended March 31, 2009 and $6,233
during the same period in 2008. The increase in consumption is principally
due to a 22% increase in steaming days to 1,558 for the three months ended March
31, 2009 from 1,275 for the same period in 2008.
  The
15.2% decrease in stevedore and other cargo-related expense for the three months
ended March 31, 2009 as compared to the same period in 2008 was primarily due to
a change in the mix of revenue booked under different shipping terms. During the
three months ended March 31, 2009, revenue tons moved in the TBS Pacific Liner
Ltd. Service decreased 38% or 17,565 RT to 28,799 RT from 46,364 RT during the
same period in 2008. Most cargo moved in the TBS Pacific Liner, Ltd. service is
booked under "full liner" terms and a combination of "free-in and free-out"
terms. For analysis purposes we group cargoes into three categories: (1) cargo
booked under "free-in free-out" terms which are shipments that the customer pays
all or part of the costs of loading and unloading, (2) cargo booked under "full
liner" terms, which are shipments where we bear the costs of loading and
unloading and (3) a combination of free-in free-out and full liner
terms.
 
 Port call
expense will vary from period to period depending on the number of port calls,
port days and cost structure of the ports called upon.  The 9.3%
increase in port call expense is primarily due to an increase in the number of
port calls, which increased to 270 port calls for the three months ended March
31, 2009 from 248 port calls during the same period in 2008. The increase is
also due to the increase in the number of port days to 1,946 for the three
months ended March 31, 2009 from 1,168 during the same period in 2008. Average
costs per port call slightly increased during the three months ended March 31,
2009 $21,500 as compared to $21,400 during the same period in 2008.
 
 Table of Contents
 29
 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, crew costs, insurance, lube oil, maintenance, and registrations and
fees for vessels we own or control. The following table sets forth the basic
components of vessel expense:


Three
      Months Ended
                              
                              Three
      Months EndedMarch
      31, 2009
                              
                              March
      31, 2008
                              
                              Increase
      (Decrease)In
      Thousands
                              
                              As
      a % of Vessel Expense
                              
                              In
      Thousands
                              
                              As
      a % of Vessel Expense
                              
                              In
      Thousands
                              
                              
                              PercentageOwned
      vessel expense
                              
                              $
                              24,952
                              
                              
                              89.2
                              
                              $
                              16,812
                              
                              
                              71.7
                              
                              $
                              8,140
                              
                              
                              
                              48.4Chartered-in
      vessel expense
                              
                              
                              965
                              
                              
                              3.4
                              
                              
                              5,128
                              
                              
                              21.9
                              
                              
                              (4,163
                              )
                              
                              
                              (81.2
                              )Controlled
      vessel expense
                              
                              
                              1,616
                              
                              
                              5.8
                              
                              
                              1,494
                              
                              
                              6.4
                              
                              
                              122
                              
                              
                              
                              8.2Space
      charter expense
                              
                              
                              446
                              
                              
                              1.6
                              
                              
                              -
                              
                              
                              -
                              
                              
                              446
                              
                              
                              
                              -Vessel
      expense
                              
                              $
                              27,979
                              
                              
                              100.0
                              
                              $
                              23,434
                              
                              
                              100.0
                              
                              $
                              4,545
                              
                              
                              
                              19.4




The 19.4%
increase in vessel expense for the three months ended March 31, 2009 as compared
to the same period in 2008 was primarily due to an increase in day rates and to
a lesser extent an increase in the number of vessel days for owned/controlled
vessels.
  The
increase in owned vessel expense for the three months ended March 31, 2009, as
compared to the same period in 2008 was due to an increase in the average
operating expense day rate, which increased $1,096 per day.  For the
three months ended March 31, 2009, the average operating expense day rate
was $5,899 as compared to $4,803 per day for the same period in
2008.  Average operating expense day rates increased principally due
to increases in the crew and crew related costs, insurance, and lubes
costs. The increase in owned vessel expense was also due to an increase in
the average number of controlled vessels, which increased to an average of 47
vessels during the three months ended March 31, 2009, as compared to an average
of 38 vessels for the same period in 2008.  Increases in our
controlled fleet translated to an increase in vessel days, which are the total
days we operate our controlled vessels.  During the first quarter of
2009, vessel days increased 730 days to 4,230 days from 3,500 days for the
comparable period in 2008.
  Chartered-in
vessel expense consists of charter hire-in costs for vessels under charter
agreements that do not have a purchase option.  The decrease in
chartered-in vessel expense was due to our chartering-in vessels for 107 less
vessel days for the three months ended March 31, 2009, as compared to the same
period in 2008.  We charter-in vessels to meet specific customer
needs, which will vary slightly from quarter to quarter.  For the
three months ended March 31, 2009, we chartered-in vessels for 132 days as
compared to 239 days for the same period in 2008. The average charter-in rate
per day decreased $14,146 per day to $7,312 per day for the three months ended
March 31, 2009 from $21,458 per day for the same period in 2008.
  Controlled
vessel expense consists of charter hire-in costs for vessels under charter
agreements that contain a purchase option. During the three months ended March
31, 2009, we incurred charter-in hire costs of $1.6 million compared to $1.5
million for the same period in 2008.  This is charter in hire cost
under the bareboat charters for theLaguna Belle andSeminole Princess both of
which were part of a sale/ leaseback transaction that we entered into the end of
January 2007.
 
 Table of Contents
 30
 Depreciation
and amortization
  The 68.1%
increase in depreciation and amortization expense to $22.7 million in 2009 from
$13.5 million in 2008 was due principally to additional depreciation and
amortization on vessel, vessel improvements and drydockings made during 2009.
 The growth of our owned/controlled fleet, which increased to an average of
47 vessels for the three months ended March 31, 2009 as compared to an average
of 38 vessels for the three months ended March 31, 2008, added to the increase
in depreciation and amortization.
  General
and administrative expense
 
 General
and administrative expense decreased $3.1 million for the three months ended
March 31, 2009 compared to the same period for 2008.  This is
primarily due to a $3.7 million decrease in salary and related expenses, which
decreased because no bonus accruals were made for the three months ended
March 31, 2009 as compared to a bonus accrual of $3.9 million included for the
three months ended March 31, 2008. Management made the decision to eliminate our
2008-bonus in December 2008 in response to worldwide economic conditions at the
time and their impact on the shipping industry. Our bonus program, under which
employees may receive an annual cash bonus payment based on our annual operating
performance, is discretionary.
 
 Income
from operations
 
 The decrease in income from operations
was mainly attributable to a decrease in revenue resulting from decreased
freight rates off-set by an increase in revenue tons carried. Freight and
charter hire rates decreased due to weak market conditions in the ocean
transport industry beginning in the fourth quarter of 2008. Operating expenses
increased in 2009 as previously described for vessel expense and
depreciation.  The decrease in revenue and increase in operating
expenses caused our operating margin to decrease to a negative 24.6% for the
three months ended March 31, 2009 from 38.4% for the same period in
2008.
 
 Interest
expense
 
 Interest
expense increased $0.1 million for the three months ended March 31, 2009 as
compared to the same period in 2008 principally due to higher debt levels and
write off of unamortized finance cost in connection with the reduction of our
revolving credit facility, offset by a reduction in interest
rates.  Our average effective interest rate decreased to approximately
3.9% for 2009 compared to approximately 5.0% for 2008.
 
 Loss
on extinguishment of debt
  The $2.3
million loss on extinguishment of debt in 2008 was due to the write-off of
unamortized deferred financing costs in connection with the March 2008
refinancing of our original Bank of America Credit Facility.
  
 Table of Contents
 31
 
 Balance
Sheet
  Charter
Hire Receivables
  Our gross
charter hire receivables balance at March 31, 2009 and December 31, 2008 was
$32.2 million ($31.7 million net of allowance for doubtful accounts) and $46.3
million ($45.8 million net of allowance for doubtful accounts), respectively.
The decrease in receivables was principally due to the timing of payments
received on voyages loading near the end of the period and lower revenue
volume.
  In
accordance with our reserve policy, we review the outstanding receivables by
customer and voyage at the close of each quarter and identify those receivables
which are deemed to be at risk for collection and reserve the appropriate
amount.  At March 31, 2009, our reserve totaled $0.5 million, which was the
same as the reserve at December 31, 2008.
 
 Other
Commitments
  Our
contractual obligations as of March 31, 2009 are shown in the following table
(in thousands):


Total
                        
                        Less
      than 1 year
                        
                        1-3
      years
                        
                        3-5
      years
                        
                        More
      than 5 yearsDebt
      Obligations (1)
                        
                        $
                        329,490
                        
                        $
                        18,795
                        
                        $
                        216,751
                        
                        $
                        40,027
                        
                        $
                        53,917Estimated
      variable interest payments (2 )
                        
                        
                        52,712
                        
                        
                        20,009
                        
                        
                        22,842
                        
                        
                        7,698
                        
                        
                        2,163Operating
      Lease obligations (3)
                        
                        
                        28,279
                        
                        
                        7,482
                        
                        
                        10,948
                        
                        
                        9,849
                        
                        
                        -Other
      Purchase obligations (4) (5)
                        
                        
                        103,700
                        
                        
                        65,200
                        
                        
                        38,500Total
      contractual cash obligations
                        
                        $
                        514,181
                        
                        $
                        111,486
                        
                        $
                        289,041
                        
                        $
                        57,574
                        
                        $
                        56,080




(1)
            As
      of March 31, 2009, we had $329.5 million of indebtedness outstanding under
      loans to our  subsidiaries that we guarantee, $28.7 million
      under the $40.0 million credit facility with Credit Suisse, $35.9 million
      under the $75.0 million credit facility with DVB Group Merchant Bank
      (Asia) Ltd., $19.3 million under the $35.0 million credit facility with
      AIG Commercial Equipment Finance, $76.0 million under the $142.5 term loan
      with Bank of America,  $75.0 million under the $85.0 million
      revolving credit facility with Bank of America, $6.5 million under the
      $12.5 million credit facility with Commerzbank AG, $8.1 million under the
      $13.0 million credit facility with Berenberg Bank and $80.0 million under
      the $150.0 million credit facility with The Royal Bank of Scotland for the
      new vessel building program. The above schedule does not reflect
      future advances of $70.0 million under the $150.0 million credit facility
      with The Royal Bank of Scotland for the new vessel building
      program.   The schedule above reflects in the “Less than 1
      year” column $77.7 million of prepaid principal installments made in
      connection with loan modifications that were completed in March
      2009.





(2)
            Amounts
      for all periods represent our estimated future interest payments on our
      debt facilities based upon amounts outstanding at March 31, 2009 and
      an annual interest rate of 5%, which approximates the average interest
      rate on all outstanding debt at March 31,
2009.





(3)
            Operating
      lease obligations includes obligations under two seven-year bareboat
      charters for the Seminole
      Princess and the Laguna
      Belle and office leases.





(4)
            Approximately
      $70.0 million of the purchase obligation for the new vessels will be
      funded under the $150.0 million credit facility with The Royal Bank of
      Scotland for the newbuilding program. We had outstanding purchase
      obligations at March 31, 2009 to build and purchase six new vessels as
      follows (in thousands):







Table of Contents
 32


Owning
      Subsidiary
                      Hull
      Number
                      
                      Total
                      
                      
                      Less
      than 1 year
                      
                      
                      1-3
      years
                      
                      3-5
      yearsArgyle
      Maritime Corp.
                      NYHS200720
      - Rockaway Belle
                      
                      $
                      7,800
                      
                      
                      $
                      7,800
                      
                      
                      $
                      -Caton
      Maritime Corp.
                      NYHS200721
      - Dakota Princess
                      
                      
                      14,800
                      
                      
                      
                      14,800
                      
                      
                      
                      -Dorchester
      Maritime Corp.
                      NYHS200722
                      
                      
                      14,800
                      
                      
                      
                      7,000
                      
                      
                      
                      7,800Longwoods
      Maritime Corp.
                      NYHS200723
                      
                      
                      21,800
                      
                      
                      
                      14,000
                      
                      
                      
                      7,800McHenry
      Maritime Corp.
                      NYHS200724
                      
                      
                      21,800
                      
                      
                      
                      14,000
                      
                      
                      
                      7,800Sunswyck
      Maritime Corp.
                      NYHS200725
                      
                      
                      21,800
                      
                      
                      
                      7,000
                      
                      
                      
                      14,800Total
                      
                      $
                      102,800
                      
                      
                      $
                      64,600
                      
                      
                      $
                      38,200


(5)
            In
      connection with the newbuilding program, we entered into a contract for
      the supervision and inspection of vessels under
      construction.  As of  March 31, 2009, commitments
      under the contract were $0.9 million, with $0.6 million due within one
      year and $0.3 million due between one and three
  years.


Liquidity
and Capital Resources
  Our
principal sources of funds are operating cash flows, and long-term bank
borrowings.  Our principal uses of funds are expenditures to operate
our fleet of vessels, capital expenditures to grow and maintain the quality of
our fleet and keep us in compliance with international shipping standards and
regulations, and principal and interest repayments on outstanding debt.  We
believe we have sufficient liquidity to meet our needs for the fiscal year ended
December 31, 2009 based on our cash balance at March 31, 2009 of $51.9 million,
estimated operating cash flows, and the measures we are taking to manage the
business during the global financial crisis.  The cash balance of
$51.9 million, excludes $20.0 million of restricted cash on deposit with The
Royal Bank of Scotland to be used to pay our portion of 2009 installments due
under the Shipbuilding Contracts, which is not counted toward the $40.0 million
end of month cash balance requirement.  The $20 million of restricted
cash will decrease as payments are made to the yard.
  However,
our ability to fund future operating expenses and capital expenditures and our
ability to make scheduled payments of interest and to satisfy any other present
or future debt obligations will depend on future operating performance,
prevailing economic conditions, financial and other factors beyond our control,
including those disclosed under "Risk Factors" reported in our Annual Report on
Form 10-K filed with the SEC on March 30, 2009.
  The dry
bulk shipping industry is volatile and unpredictable.  We have experienced
added volatility in freight rates directly correlating to the current worldwide
financial crisis.  The worldwide financial crisis has reduced the
availability of liquidity and credit to borrowers, which further restricted
shipping rates.  Corresponding with the decline in freight rates there has
been a reduced demand for steel products, agricultural and other
commodities.  Many lenders and institutional investors have reduced and, in
some cases, ceased to provide funding to borrowers. This market turmoil and
tightening of credit have led to a widespread reduction of business
activity, which has adversely affected demand for our
services.
  To
mitigate the impact of the economic decline, we have implemented the
following;
 
 ·
              eliminated
      bonuses,
 ·
              froze 2008
      salary levels,
 ·
              instituted
      a cost cutting program,
 ·
              prepaid
      debt installments that would have been due in
  2009,
 ·
              obtained
      waivers to collateral coverage and other financial covenants through
      January 1, 2010,
 ·
              provided
      additional vessels as collateral on certain
  loans,
 ·
              scaled
      back our accelerated steel renewal and reinforcement program during
      drydocking,
 ·
              reduced
      capital expenditures and
 ·
              suspended
      the purchase of second-hand bulk
carriers.
 
 Under our
accelerated steel renewal and reinforcement program we renewed and replaced
steel that we expected would be required over the next five to ten years. We
believe that the acceleration of steel renewals and replacements during 2008 and
prior years will help reduce drydocking expenditures in 2009 and future
years.
 
 Table of Contents
 33
 Resumption
of the acquisition of vessels will be subject to improvement in global economic
conditions, management’s expectations, and the availability of funding on
favorable terms. Our business is capital intensive and our future success
will still depend on our ability to maintain a high-quality fleet through the
ongoing maintenance of our currently owned ships and, in the long term, the
acquisition of additional ships. Our current initiatives, we believe, will not
impact our long term goals.
 
 The
economic downturn and its effect on the market value of vessels gave an
indication of possible collateral coverage (loan to value) ratio and financial
covenant issues in 2009. In the fourth quarter of 2008 we decided to prepay
certain loans and we initiated discussions with our lenders to obtain waivers to
the collateral and other financial covenants.
 
 Our
various debt agreements contain both financial and non-financial covenants,
and include customary restrictions on the Company’s ability to incur
indebtedness or grant liens, pay dividends under certain circumstances, enter
into transactions with affiliates, merge, consolidate, or dispose of assets, and
change the nature of its business. The financial covenants require that we
maintain certain fixed charge and leverage ratios, as well as maintain tangible
net worth within defined limits. We are also required to maintain minimum cash
and cash equivalent balances and collateral coverage. In addition, certain
credit agreements restrict the payment of dividends, and the amount of leverage,
investment and capital expenditures without consent of the lender.
 Further, mandatory prepayment or delivery of additional security is
required in the event that the fair market value of the vessels falls below
limits specified in the loan agreement.
 
 In March
2009, based on third-party vessel valuations, we did not meet our collateral
coverage requirements. We obtained waivers from all of our lenders to the
collateral coverage ratio and financial covenants through January 1,
2010.   As a result of the loan modification two additional
covenants were introduced that require us to have an earnings before
interest, depreciation and amortization to interest expense ratio of
not less than 1.10 to 1.00, 1.35 to 1.00 and 1.75 to 1.00 at the end of the
second, third and fourth quarters of 2009, respectively, and a minimum end of
month cash balance of not less than $40.0 million.  These additional
covenants are applicable through the waiver period which ends January 1,
2010.  So long as these two additional covenants are met,
the financial covenants described in the table below are
waived.
 
 Financial
      CovenantsMinimum Consolidated Tangible
      Net Worth- $235 million plus 75% of net income per quarter
      for all quarters after September 30, 2007 plus 100% of increases to
      shareholders equity.Maximum Consolidated Leverage
      Ratio- Not more than 3.00 to 1.00Minimum Consolidated Fixed
      Charge Coverage Ratio– Not less than 1.50 to
  1.00Minimum Cash
      Liquidity - $15 million [Qualified cash as defined in the
      agreement plus unused portion under the revolving credit
      facility].
  The interest rate
margins on the Bank of America, The Royal Bank of Scotland, and AIG Commercial
Equipment Finance, Inc credit facilities increased
1.75%.  The interest rate margins on the Credit Suisse, DVB Group
Merchant Bank and the Commerzbank AG credit facilities increased 1.70%,
1.50% and 1.50%, respectively.  The interest rate margin on the Joh.
Berenberg, Gossler & Co. KG Credit Facility increased 1.30%.
Additionally, we incurred financing costs of $2.7 million. The
repayment term of each of the loans made under The Royal Bank of
Scotland Credit Facility were modified from 40 quarterly installments after the
drawdown of the respective delivery advance to 20 quarterly
installments.  The quarterly installments of $0.4 million due on each of
the loans remained the same; however, the final payment due when the last
quarterly payment is made increased from $8.3 million to $16.6 million.  In
connection with the Bank of America loan modification, the BA Revolving
Credit Facility was reduced from $125.0 million to $85.0 million, and the
interest rate margin was increased to 4.0%.  We drew down $75 million
as of March 31, 2009, consequently, we have $10 million available on the BA
Revolving Credit Facility, which expires on March 26, 2012. Additional
borrowings will be governed by the future value of the vessels. In connection
with the March 2009 amendment and restatement of the Bank of America Credit
Facility approximately $0.4 million in deferred financing costs associated with
the decrease in the BA Revolving Credit Facility were charged to income from
operations as interest expense.
 
 Table of Contents
 34
 Effective January 2,
2010 the original covenants described in the table above will again be
effective.  Based on current internal projections, which assume no
improvement in our business, we anticipate that we would not meet the covenant
requirements in 2010, in which case we would need to obtain additional waivers,
and modify the terms of the existing credit facility or refinance our
debt.  Failure to obtain waivers, if necessary, or to comply with any
of the covenants under the credit facility would result in a default, which
would enable the lenders to accelerate the timing of payments and exercise their
lien on essentially all of our assets. We have discussed this situation with
our lenders and they have agreed to hold discussions in the fourth quarter of
2009 to either extend the existing waivers or modify the covenants based on our
2009 actual and projected results and updated 2010 forecast.Assuming the Company is able to obtain
additional waivers or modify the terms of the existing credit facilities, the
Company believes it has sufficient liquidity to meet its needs over the next
twelve months. In the event we were not able to secure modifications of the
existing credit facilities, we would be required to raise additional equity
capital, obtain other sources of financing or dispose of assets in order to
satisfy our obligations to our existing lenders.  We cannot assure you that
we would be able to raise sufficient additional capital, to sell assets at
sufficient prices or to obtain further waivers if so required, and the failure
to accomplish such goals in those circumstances would have a material adverse
effect on our business, operations, financial condition and liquidity and would
raise substantial doubt about our ability to continue as a going concern at that
time.
  We are
exposed to financial market risk resulting from the possible loss of deposits
held by financial institutions. Accordingly, we monitor the depository
institutions that hold our cash and cash equivalents. Our emphasis is on safety
of principal.  We try to minimize our credit risk exposure by
diversifying our cash and cash equivalents among financial
institutions.  In order to hedge our interest rate risk, we entered
into interest rate swap contracts that hedged approximately 69.8% of our
outstanding debt at March 31, 2009.  We had interest rate swap
contracts to pay an average fixed rate of 3.78% before loan margin on
approximately $229.9 million of debt.
 
 Below is
a summary of investing and financing activities for the quarter ended March 31,
2009 and 2008:
 
 Financing
Activities For Three Months Ended March 31, 2009
 
 ·
              We
      made debt repayments totaling $7.5 million in scheduled debt principal
      payments.
 
 ·
              We
      made principal payments in the amount of $51.1 million consisting of $3.0
      million to Credit Suisse, $19.6 million to DVB, $19.0 million to Bank of
      America, $7.9 million to AIG, and $1.6 million to Berenberg
      Bank.
 
 ·
              We
      borrowed an additional $5.0 million during the quarter under our $150.0
      million credit facility with The Royal Bank of Scotland to fund the
      construction payments due on the building of six new multipurpose vessels
      with retractable tweendecks.  At March 31, 2009 we had $70.0
      million remaining available under the credit facility, and we had total
      borrowings under the facility of $80.0
million.
 
 ·
              We
      paid $2.7 million of deferred financing costs associated with obtaining
      loan covenant waivers.


Table of Contents
 35
 
 Investing
Activities For Three Months Ended March 31, 2009
  Using
capital from operations and borrowings, we made the following acquisitions and
capital improvements:
  Three
      Months Ended March 31,2009
                                                
                                                
                                                2008(in
      millions)Vessels
      purchased
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                148.4Vessels
      improvements and other equipment
                                                
                                                
                                                11.2
                                                
                                                
                                                
                                                4.7Construction
      in progress
                                                
                                                
                                                1.9
                                                
                                                
                                                
                                                22.4Other
      fixed asset additions
                                                
                                                
                                                0.6
                                                
                                                
                                                
                                                2.313.7
                                                
                                                
                                                
                                                177.8Less:
      Vessel deposits paid in prior year
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (14.8
                                                )Total
      Vessel acquisitions / capital improvement
                                                
                                                $
                                                13.7
                                                
                                                
                                                $
                                                163.0


·
              In
      connection with our construction program to build six newly designed
      multipurpose vessels with retractable tweendecks, we made payments to the
      ship building yard and incurred capitalized costs totaling $1.9 million.
       These ships were designed by a TBS team drawn from all phases of our
      operation specifically to optimize our efficient cargo transportation in
      our trade lanes, support the requirements of our loyal customer base and
      enhance the growth of our business.  Two of the vessels are
      schedule for delivery in 2009, and four vessels are scheduled for delivery
      in 2010. The project is being funded from our $150.0 million credit
      facility with The Royal Bank of Scotland and operating cash
      flow.
 
 ·
              In
      connection with the March amendment to The Royal Bank of Scotland Credit
      Facility, we are required to keep on deposit $20.0 million with The Royal
      Bank of Scotland, which represents the portion of payments due to the
      shipyard during 2009 that are not funded by The Royal Bank of Scotland new
      building credit facility.
 
 ·
              We
      spent $11.2 million for vessel improvements and vessel equipment. Vessel
      improvements and other equipment include steel renewal and replacement,
      major overhauls, new equipment, and takeover costs, including the cost of
      first drydocking after acquisition.
 
 Financing
Activities For Three Months Ended March 31, 2008
 
 Our
principal sources of funds are operating cash flows and long-term bank
borrowings. Our principal uses of funds are capital expenditures to grow and
maintain the quality of our fleet and keep us in compliance with international
shipping standards and regulations, working capital requirements and principal
repayments on outstanding loan facilities and capital lease
obligations.
  During
2008, we increased our working capital with the following funding
arrangements:
 
 ·
              In
      March, we amended and restated our existing Bank of America
      Credit Facility.  In connection with the amendment, we increased
      the term loan facility to $142.5 million and the revolving credit facility
      to $125.0 million.  We borrowed $142.5 million under the term loan
      credit facility to pay outstanding principal and interest on the existing
      credit facility, closing costs and fees. The remaining amount of $18.9
      million was used for general corporate purposes.  At March 31,
      2008, we had no borrowings outstanding under the revolving credit
      facility.
 
 ·
              We
      borrowed an additional $10.0 million during the quarter under our $150.0
      million credit facility with The Royal Bank of Scotland to fund the
      construction payments due on the building of six new multipurpose vessels
      with retractable tweendecks.
 
 ·
              In
      February, we borrowed $20.0 million available under the Credit Suisse
      Credit Facility to replenish working capital used to purchase the
      vesselOneida
      Princess.  We fixed the index rate on the notional amount of
      $20.0 million of this debt at the average rate of 3.59% to
      2013.
 
 ·
              We
      borrowed $35.0 million from AIG Commercial Equipment Finance, Inc. to
      replenish operating funds used to purchase theMohave Maiden,
      theZuni
      Princess and theHopi
      Princess.
 
  Table of Contents
 36
 ·
              In
      January, we borrowed $75.0 million, under a syndicated credited
      facility by DVB Group Merchant Bank (Asia) Ltd.   The funds
      were used to replenish funds used to exercise a purchase option for seven
      tweendeck vessels chartered-in under a sale-leaseback arrangement, to
      fund additional vessel acquisitions and for general corporate
      purposes.  In addition to replacing the high interest cost
      capital lease obligation with lower borrowing costs debt, we fixed the
      index rate at 2.92% for the entire term of the credit
      facility.
  Investing
Activities For Three Months Ended March 31, 2008
  Using
capital from operations and borrowings, we made the following acquisitions and
capital improvements:
 
 ·
              We
      acquired six vessels that were delivered during the first quarter of 2008
      for a total purchase price of $148.4 million, including $14.8 million paid
      in 2007.  In connection with these vessels and others that we
      recently acquired, we incurred takeover costs of $1.2
      million.  We used cash from borrowings and operations to fund
      the acquisitions.
 
 ·
              In
      connection with our construction program to build six newly designed
      multipurpose vessels with retractable tweendecks we made payments to the
      ship building yard and incurred capitalized costs totaling $22.4 million.
      Two of the vessels are schedule for delivery in 2009, and four vessels are
      scheduled for delivery in 2010. The project is being funded from our
      $150.0 million credit facility with The Royal Bank of Scotland and
      operating cash flow.
 
 ·
              We
      spent $7.1 million for vessel improvements and vessel equipment. Vessel
      improvements and other equipment include steel renewal and replacement,
      major overhauls, new equipment, and takeover costs, including the cost of
      first drydocking after acquisition.
  ·
              We
      made a deposit of $3.0 million for theCanarsie Princess
      (formerly theAthinoula) which was delivered in the second quarter of
      2008.
 
 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. 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.
 
 Summary
of Critical Accounting Policies
  The
discussion and analysis of our results of operations financial condition, and
liquidity are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States, or GAAP. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities at the date of our financial statements. We base our estimates
on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may materially differ from
these estimates under different assumptions or conditions.
 
 Table of Contents
 37
 Critical accounting policies are
those that reflect significant judgments or uncertainties and could result in
materially different results under different assumptions and conditions. We have
described below what we believe are our most critical accounting
policies that involve a high degree of judgment and the methods of their
application. We believe that there have been no material changes in our critical
accounting policies from those disclosed in our Form 10-K filed with the
Securities and Exchange Commission on March 30, 2009.
  New
Accounting Pronouncements
  In April
2009, the Financial Accounting Standards Board (FASB) issued Staff Position
("FSP") InterimDisclosures about Fair Value of
Financial Instruments ("No. SFAS 107-1 and APB 28-1"). The FSP amends
FASB Statement ("SFAS") No.107, Disclosures about the Fair Value of
Financial Instruments, and APB
No.28, Interim Financial
Reporting to include disclosures about the fair value of its financial
instruments whenever summarized financial information for interim reporting
periods is issued. The FSP is effective for interim periods ending after June
15, 2009.  The Company is currently evaluating the impact that FSP
SFAS 107-1 and APB28-1 will have on its consolidated financial
statements.
  In June
2008, the FASB issued FSP Emerging Issues Task Force (EITF) , Determining Whether Instruments
Granted in Share-Based Payment Transactions areParticipating Securities("EITF 03-6-01"),which
provides that unvested share-based payment awards that contain non-forfeitable
rights to dividends are participating securities and shall be included in the
computation of earnings per share pursuant to the two-class method described in
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share.  The
adoption of FSP EITF 03-6-1 did not have a material impact on our consolidated
financial statements as discussed in financial statement Note 11Earnings Per
Share.
 
 In March
2008, the FASB issued SFAS No. 161,Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No.
133Accounting for Derivative
Instruments and Hedging Activities ("SFAS 161").  SFAS 161
changes the disclosure requirements for derivative instruments and hedging
activities requiring enhanced disclosures about: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for under FASB Statement No. 133 and its related interpretations; and
how derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows.  SFAS 161 intends to
enhance the current disclosure framework in FASB Statement No. 133 by requiring:
objectives for using derivative instruments and related hedged items be
disclosed in terms of underlying risk that an entity is trying to manage;
tabular presentation of the fair values, gains and losses of derivative
instruments; disclosure of credit-risk-related contingent features; and cross
referencing within financial statement footnotes.  SFAS 161 is
effective for fiscal years and interim periods beginning after November 15, 2008
with early application encouraged.  We have adopted SFAS 161 and
included the required disclosures.
 
 In
December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB (Accounting Research
Bulletin) No. 51  ("SFAS 160").  SFAS 160 establishes
accounting and reporting standards for entities (excluding not-for-profit
organizations) with outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary.  The objective of
SFAS 160 is to improve the relevance, comparability and transparency of
financial information that a reporting entity provides in its consolidated
financial statements.  The standards require:  ownership
interests in subsidiaries held by parties other than the parent be clearly
identified and presented within equity but separate from the parent's equity in
the consolidated statement of financial position; net income attributable to the
parent and the noncontrolling interest be identified and presented on the face
of the consolidated statement of income; changes in a parent's ownership
interest while the parent retains its controlling financial interest in its
subsidiary be consistently accounted for as equity transactions; any retained
noncontrolling equity investment in a former deconsolidated subsidiary be
initially measured at fair value and that any gain or loss on the
deconsolidation of a subsidiary be measured using fair value of the
noncontrolling equity investment rather than the carrying amount of that
retained investment; and entities provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and noncontrolling
owners.  SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008.  The
adoption of SFAS 160 did not have a material impact on our consolidated
financial statements.
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007),Business
Combinations ("SFAS 141(R)").  SFAS 141(R) establishes
principles and requirements for how an acquiring entity measures and recognizes
in its financial statements: the identifiable assets acquired; the liabilities
assumed; any noncontrolling interest in the acquiree; and the goodwill acquired
or a gain from a bargain purchase.  SFAS 141(R) sets forth disclosure
criteria to enable a better understanding of the nature and effects of a
business combination. SFAS 141(R) applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  The
adoption of SFAS 141(R) did not have a material impact on our consolidated
financial statements.
 
 Table of Contents
 38
 In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements
("SFAS 157"), which is effective for fiscal years beginning after November 15,
2007 and for interim periods within those years.  SFAS 157 defines
fair value, establishes a framework for measuring fair value and expands the
related disclosure requirements.  SFAS 157 applies under other
accounting pronouncements that require or permit fair value
measurements.  SFAS 157 indicates, among other things, that a fair
value measurement assumes that the transaction to sell an asset or transfer a
liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or
liability. SFAS 157 defines fair value based upon an exit price
model.
 
 Relative
to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1 and 157-2. FSP
157-1 amends SFAS 157 to exclude SFAS No. 13,Accounting for
Leases  ("SFAS 13") and its related interpretive accounting
pronouncements that address leasing transactions, while FSP 157-2 delays the
effective date of the application of SFAS 157 to fiscal years beginning after
November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that
are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.  The adoption of FSP 157-1 and 157-2 did not have
a material impact on our consolidated financial statements.
 
 We
adopted SFAS 157 as of January 1, 2008, with the exception of the application of
the statement to non-recurring nonfinancial assets and nonfinancial
liabilities.  Non-recurring nonfinancial assets and nonfinancial
liabilities for which we have not applied the provisions of SFAS 157 include
those measured at fair value in goodwill impairment testing, and indefinite
lived intangible assets measured at fair value for impairment
testing.
 
  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
relating to our floating rate debt. To manage borrowing costs the Company uses
derivative instruments, specifically interest rate swaps, to effectively convert
floating rate debt to fixed rate debt.   All derivative contracts
are for non-trading purpose and are entered into with major reputable financial
institutions thereby minimizing counterparty risk.
  At March
31, 2009 we had $329.5 million of floating debt outstanding.  In order
to hedge the interest rate risk we entered into interest rate swap contracts
that hedged approximately 69.8% of our outstanding debt at March 31, 2009. At
March 31, 2009, we had interest rate swap contracts to pay an average fixed rate
of 3.78% before loan margin and receive a floating rate of interest on the
notional amount of $229.9 million. The fair value of interest rate swap
agreements at March 31, 2009 was a liability of
$14.7million.  Interest loan margins over LIBOR at March 31, 2009,
after changes made under the loan modifications, were 4.00%, 4.00%, 3.50%,
2.75%, 4.00%, 3.50%, 3.00% and 1.70% (effective May 1, 2009 the 1.70% margin
increases to 3.0%) on $76.0 million, $75.0 million, $80.0 million, $28.7
million, $35.9 million, $19.2 million, $6.5million, and $8.1 million of
debt.
  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 increased our net loss
and decreased cash flows for the three months ending March 31, 2009 by
approximately $0.3 million based upon our net debt level at March 31, 2009,
which was $99.6 million after deducting $229.9 million of debt hedged with
interest rate swaps.
 
 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 7.4% 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
March 31, 2009, approximately 8.9% of our outstanding accounts payable were
denominated in currencies other than U.S. dollars.
 
 Table of Contents
 39
 Item
4. Controls and
Procedures
  Under the
supervision and with the participation of our management, including our Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer, we
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of March 31, 2009, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, as of the end of the period covered by this report (the
"Evaluation Date").  Based on this evaluation, our Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer concluded as of
the Evaluation Date that our disclosure controls and procedures were effective
such that the information relating to the Company, including our consolidated
subsidiaries, required to be disclosed in our SEC reports (i) is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms, and (ii) is accumulated and communicated to the Company's
management, including our Chief Executive Officer, Chief Financial Officer and
Chief Accounting Officer, as appropriate to allow timely decisions regarding
required disclosure.
 
 Changes
in Internal Control Over Financial Reporting
 
 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.
   Table of Contents
 40
  PART
II
 
 Item
1. Legal
Proceedings
 
 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. During the three months ended March 31,
2009, there have been no material changes to legal proceedings from those
considered in our Annual Report on Form 10-K for the year ended December 31,
2008.
 
 
 Item 1A. Risk Factors
 
 The risk
factors included in our Form 10-K are hereby incorporated in Part II,
Item 1A of this Form 10-Q. We believe that there have not been any material
changes to the risk factors as previously disclosed in our Annual Report on Form
10-K filed with the SEC on March 30, 2009.  The risk factors and other
information included in our Form 10-K as well as the information in Management's
Discussion and Analysis's of Financial Condition and Results of Operations and
throughtout this Form 10-Q should be carefully considered prior to making an
investment decision with respect to the Company’s stock.
  Item
2. UnregisteredSales of Equity Securities and Use
of Proceeds
 
 None.
  Item 3. Defaults Upon Senior Securities
 
 None.
  Item 4. Submission of Matters to a Vote of Security
Holders
 
 None.
  Item
5. Other
Information
  
  Table of Contents
 41
  Item 6.  Exhibits
  Incorporated
      by ReferenceExhibit     Description
                  Filed
      Herewith
                  Form
                  File
      No.
                  Exhibit
                  Filing
      Date3.1
                  Amended
      and Restated Memorandum of Association of TBS International
      Limited
                  
                  10-Q
                  000-51368
                  3.1
                  8/07/20083.2
                  Amended
      and Restated Bye-Laws of TBS International Limited
                  
                  10-Q
                  000-51368
                  3.2
                  8/07/200810.01
                  Lease
      agreement, dated January 1, 2009, between Joseph E. Royce, Landlord and
      TBS Shipping Services Inc., tenant for premises located at 612 East Grassy
      Sprain Road, Yonkers, New York 10710
                  
                  10-K
                  000-51368
                  10.1
                  3/30/200910.02
                  Amendment
      Number 1 and Waiver to Credit Agreement dated March 27, 2009, by and among
      Albemarle Maritime Corp., Arden Maritime Corp., Avon Maritime Corp.,
      Birnham Maritime Corp., Bristol Maritime Corp., Chester Shipping Corp.,
      Cumberland Navigation Corp., Darby Navigation Corp., Dover Maritime Corp.,
      Elrod Shipping Corp., Exeter Shipping Corp., Frankfort Maritime Corp.,
      Glenwood Maritime Corp., Hansen Shipping Corp., Hartley Navigation Corp.,
      Henley Maritime Corp., Hudson Maritime Corp., Jessup Maritime Corp.,
      Montrose Maritime Corp., Oldcastle Shipping Corp., Quentin Navigation
      Corp., Rector Shipping Corp., Remsen Navigation Corp., Sheffield Maritime
      Corp., Sherman Maritime Corp., Sterling Shipping Corp., Stratford Shipping
      Corp., Vedado Maritime Corp., Vernon Maritime Corp. and Windsor Maritime
      Corp., TBS International Limited, TBS Shipping Services Inc. Bank of
      America, N.A., Citibank, N.A., DVB Group Merchant Bank (Asia) Ltd., TD
      Bank, N.A., Keybank, N.A., Capital One Leverage Finance Corp., Guaranty
      Bank, Merrill Lynch Commercial Finance Corp., Webster Bank National
      Association, Comerica Bank and Tristate Capital Bank
                  
                  8-K
                  000-51368
                  10.1
                  4/02/200910.03
                  First
      Amendatory Agreement dated March 23, 2009, by and among Bedford Maritime
      Corp., Brighton Maritime Corp., Hari Maritime Corp., Prospect Navigation
      Corp., Hancock Navigation Corp., Columbus Maritime Corp. and Whitehall
      Marine Transport Corp., TBS International Limited, DVB Group Merchant Bank
      (Asia) Ltd., The Governor and Company of the Bank of Ireland, DVB Bank SE,
      Natixis
                  
                  8-K
                  000-51368
                  10.2
                  4/02/200910.04
                  First
      Amendment to Loan Agreement dated March 27, 2009, by and among Amoros
      Maritime Corp., Lancaster Maritime Corp. and Chatham Maritime Corp., TBS
      International Limited, Sherwood Shipping Corp., and AIG Commercial
      Equipment Finance, Inc.
                  
                  8-K
                  000-51368
                  10.3
                  4/02/200910.05
                  Supplemental
      Letter to Loan Agreement dated March 24, 2009, by and among Claremont
      Shipping Corp., Yorkshire Shipping Corp., TBS International Ltd. and
      Credit Suisse
                  
                  8-K
                  000-51368
                  10.4
                  4/02/200910.06
                  Supplemental
      Letter to the Loan Agreement dated March 10, 2009, by and among Grainger
      Maritime Corp., TBS International Limited and Joh. Berenberg, Gossler
      & Co. KG
                  
                  8-K
                  000-51368
                  10.5
                  4/02/200910.07
                  Supplemental
      Letter to the Loan Agreement dated March 2, 2009, by and among Dyker
      Maritime Corp., TBS International Limited and Commerzbank AG
                  
                  8-K
                  000-51368
                  10.6
                  4/02/200910.08
                  Supplemental
      Agreement relating to the Term Loan Facility dated March 27, 2009, each
      among Argyle Maritime Corp., Caton Maritime Corp., Dorchester Maritime
      Corp., Longwoods Maritime Corp., McHenry Maritime Corp., Sunswyck Maritime
      Corp., TBS International Limited and The Royal Bank of Scotland plc.,
      Citibank N.A., Landesbank Hessen-Thuringen Girozentrale, Norddeutsche
      Landesbank Girozentrale, Alliance & Leicester Commercial Finance plc,
      and Bank of America, N.A.
                  
                  8-K
                  000-51368
                  10.7
                  4/02/200910.09
                  Supplemental
      Agreement relating to the Guarantee Facility Agreement dated March 27,
      2009, each among Argyle Maritime Corp., Caton Maritime Corp., Dorchester
      Maritime Corp., Longwoods Maritime Corp., McHenry Maritime Corp., Sunswyck
      Maritime Corp., TBS International Limited and The Royal Bank of Scotland
      plc
                  
                  8-K
                  000-51368
                  10.8
                  4/02/200910.10
                  First
      Amendatory Agreement dated March 26, 2009, amending and supplementing the
      Bareboat Charter by and among Adirondack Shipping LLC, TBS International
      Limited and Fairfax Shipping Corp. dated as of January 24,
      2007.
                  
                  8-K
                  000-51368
                  10.9
                  4/02/200910.11
                  First
      Amendatory Agreement dated March 26, 2009, amending and supplementing the
      Bareboat Charter by and among Rushmore Shipping LLC, TBS International
      Limited and Beckman Shipping Corp. dated as of January 24,
      2007
                  
                  8-K
                  000-51368
                  10.10
                  4/02/200931.1
                  Certification
      of the Chief Executive Officer pursuant to Rule 13a-15(a) and 15d-15(a) of
      the Securities and Exchange Act, as amended.
                  X
                  
                  000-51368
                  31.231.2
                  Certification
      of the Chief Financial and Accounting Officer pursuant to Rule 13a-15(a)
      and 15d-15(a) of the Securities and Exchange Act, as amended.
                  X
                  
                  000-51368
                  31.231.3
                  Certification
      of the Chief Accounting Officer pursuant to Rule 13a-15(a) and 15d-15(a)
      of the Securities and Exchange Act, as amended.
                  X
                  
                  000-51368
                  31.232
                  Certification
      of Chief Executive Officer, Chief Financial Officer and Chief Accounting
      Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002.(a)
                  X
                  
                  000-51368
                  32
 
 (a)
                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
 42


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 8th day of May
2009.





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